Credit Suisse said on Thursday an arbitrator had decided in its favour in a row between its Winterthur insurance unit and XL Insurance Limited, ending the threat of a 1 billion Swiss franc ($760 million) payout.
The verdict by an independent actuary from consultancy Watson Wyatt opens the way for Europe's eighth-largest bank to get on with selling off Winterthur and ends months of uncertainty which has weighed on its share price.
"According to the report, the Independent Actuary's draft conclusion of reserve liability is closer to the estimate submitted by Winterthur," the bank said in a statement.
Credit Suisse would have had to put aside an extra 1 billion francs - or some $900 million at the time of the dispute - if the outcome of the row about costs arising from the sale of a Winterthur unit to XL in 2001 had gone in favour of XL.
Financial markets sent Credit Suisse's shares up to their highest level in almost four years, welcoming the news that they said showed the management was well under way with its efforts to restructure the bank to reach higher profits.
"Management credibility has clearly lacked at Credit Suisse in the last few years, even though they have been gradually rebuilding in the year to date. This certainly adds to management credibility," said Kinner Lakhani at ABN Amro.
The bank has embarked on a massive restructuring plan aimed at bringing it a full-year net profit of 8 billion francs by 2007, integrating its investment bank into its main operations to cut costs and sell more products and shedding Winterthur.
It wants to float Winterthur - once the centrepiece of former Chairman Lukas Muehlemann's ambitious strategy to create a financial services giant - but analysts do not rule out it could sell the operation.
By 1156 GMT Credit Suisse's shares were up 2.4 percent at 65.20 francs, having touched their highest level since January 2002 at 65.40 francs.
XL also said in a statement that the actuary's estimate was closest to that of Winterthur and that it expected to record a loss relating to the dispute of approximately $830 million in the fourth quarter of the year if the draft ruling was finalised by December 5, as scheduled.
A settlement would mean CS still having to pay $541 million to XL, but it is already fully reserved for that sum and the payment will have only a marginal impact on earnings.
Under the terms of the arbitration process, both Winterthur and XL Insurance Limited had given their estimates of the amount Winterthur should pay XL for retained liabilities after the sale of its international operations to XL in 2001.
The actuary would then make his own estimate and the estimate - either from Winterthur or from XL - that was closest to that independent assessment would be used as the actual number to settle the issue. The difference between the two estimates was roughly $900 million.
A final report was expected by December 5, CS said, and could still be adjusted for "manifest errors". But no new data could be introduced in the period until then and judgements would not be revisited, Credit Suisse said.
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