credit swisseAnnual Report Part 2 Financial report 1998 / 1999

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credit swisseAnnual Report Part 2 Financial report 1998 / 1999

  1. 1. FINANCIAL REPORT 50 Comments to the financial statements 52 Consolidated income statement 54 Consolidated balance sheet 55 Consolidated statement of source and application of funds 56 Consolidated off-balance sheet business 58 Notes to the consolidated financial statements 101 Report of the Group’s auditors 102 Income statement (parent company) 103 Balance sheet before allocation of retained earnings (parent company) 104 Notes to the financial statements (parent company) 108 Proposed allocation of retained earnings 109 Report of the statutory auditors 49
  2. 2. COMMENTS TO THE FINANCIAL STATEMENTS Credit Suisse Group’s Annual Report contains two sets of financial statements: the conso- lidated annual financial statements of Credit Suisse Group at 31 December 1998 and the annual financial statements of Credit Suisse Group, parent company, for the financial year ended 31 March 1999. Both sets of statements have been examined by independent auditors. Their reports are presented on pages 101 and 109. The consolidated financial statements include Credit Suisse First Boston, Credit Suisse, Neue Aargauer Bank, the Private Banks, the financial subsidiaries of Credit Suisse Group in Guernsey, and Winterthur Insurance. For the banking and financial businesses, the consolidated financial statements were prepared pursuant to the accounting rules for banks; for the insurance business, the accounting rules for insurance companies were applied. “Winterthur” Swiss Insurance Company (Winterthur) is included in the consolidated financial statements using the pooling of interests method. Significant information about insurance operations is shown separately in the balance sheet and income statement; figures for previous periods have been adjusted as prescribed by the pooling of interests method. The 1998 financial year As of 1 January 1998, the business activities of Bank Leu Ltd were focused on private banking. Individual and corporate customer relationships were transferred to the responsibility of Credit Suisse. On 1 June 1998 (legally into force with retroactive effect on 1 January 1998) Affida Bank, Zurich, was integrated into Bank Leu Ltd, Zurich, and Bank Heusser, Basle, into Clariden Bank, Zurich. Affida Bank was fully amalgamated with Bank Leu’s organisation, whilst the former Bank Heusser retained its structures and operates under the name “Clariden Heusser, Basel”. On 31 July 1998, the acquisition of the Garantia Group (São Paulo and Nassau) announced in June 1998 was completed at a price of USD 675 m. In addition, Credit Suisse First Boston acquired two leading brokerage firms in Australia and New Zealand, First Pacific Group, Sydney, and First NZ Capital, Wellington. All these acquisitions are included in the consolidated financial statements of Credit Suisse First Boston as of the acquisition date. Winterthur sold the majority of its participation in HIH (Australia) in the first half of 1998; CHF 101 m profit was recorded in extraordinary income. In the second half of 1998 the sale of Winterthur’s active reinsurance business to PartnerRe was closed; extraordinary income of CHF 442 m was recorded from this transaction. In connection with the class action settlement for World War II, in August 1998 Credit Suisse Group and UBS AG reached a comprehensive settlement with the plaintiffs, and the settlement contracts were signed in February 1999. Credit Suisse Group expects its portion of the settlement payment to amount to CHF 381 m after tax. This amount is included under extraordinary expenses in the Credit Suisse Group’s financial statements and, as announced when the 1998 half-year results were released, it has been offset by booking the appropriate sum from reserves for general banking risks to extraordinary income. In addition, in order to create provisions for credit risks, another CHF 552 m of reserves for general banking risks have been released through extraordinary income. 50
  3. 3. Total provisions of CHF 1,349 m were set aside in 1996 and 1997 for Credit Suisse Group’s expected restructuring costs. Costs of CHF 298 m in 1996, CHF 450 m in 1997 and CHF 456 m in 1998 have been charged to these provisions. At the end of 1998, the balance of the restructuring provision thus stood at CHF 145 m. In 1997, Credit Suisse First Boston created provisions of CHF 332 m (CHF 237 m after tax) against extraordinary expenses to cover expected restructuring costs associated with the acquisition of the Euro- pean investment banking business of BZW. The integration of the business areas acquired was completed during 1998, with CHF 204 m of the provision used for the purpose. At Bank Leu, a provision of CHF 115 m (CHF 82 m after tax) was created against extraordin- ary expenses in 1997 in order to implement the bank’s new organisational structure, which became effective on 1 January 1998. CHF 12 m of this provision was used for this pur- pose in 1997, CHF 75 m in 1998. A provision of CHF 375 m (CHF 300 m after tax) was made for integration and restructuring costs incurred by the insurance business; a balance of CHF 165 m remained as at 31 December 1998. Overall, the charges to these restructur- ing provisions in 1998 amounted to CHF 965 m, leaving a total balance of CHF 446 m in restructuring provisions. An extraordinary provision of CHF 523 m (CHF 453 m for banking areas, CHF 70 m for insurance) was created in 1997 to cover technology costs, primarily those associated with the IT changes required to prepare for the year 2000 and the launch of the euro. Over the course of 1998, CHF 276 m (CHF 241 m for banking and CHF 35 m for insurance) of this provision was spent accordingly. At the end of 1998, the total balance of this provision came to CHF 247 m. Pursuant to Swiss Stock Exchange legislation, the minority interests in Credit Suisse First Boston, Credit Suisse and Winterthur were acquired in 1998; Credit Suisse Group now holds 100% of the voting and ownership rights in the two banks and the insurance company. As at 31 March 1998, CS Life was transferred from Credit Suisse Group to Winterthur and subsequently retroactively merged with the latter’s existing life insurance company, Winterthur Life, as at 1 January 1998. On 1 January 1999, the method of tax assessment in the Canton of Zurich was changed to the current-year method. The figure for Swiss taxes in the 1998 income state- ment thus includes a one-off relief from tax due to the Canton of Zurich amounting to CHF 118 m. Subsequent events On 15 February 1999, Credit Suisse Group announced the acquisition of Warburg Pincus Asset Management Inc., and a stake of 19.9% in Warburg, Pincus & Co.’s private equity business. Subject to regulatory approval, this transaction is scheduled to close in June 1999. Following organisational changes at Credit Suisse First Boston which combine the Fixed Income division and Credit Suisse Financial Products into a new division, in April 1999 Credit Suisse Group repurchased Swiss Re’s 20% minority position in Credit Suisse Financial Products. 51
  4. 4. CONSOLIDATED INCOME STATEMENT Notes 1998 1997 Change Change (p. 68 ff) in CHF m in CHF m in CHF m in % RESULT FROM INTEREST BUSINESS Interest and discount income 19,280 18,761 519 3 Interest and dividend income from trading portfolios 5,562 5,734 –172 –3 Interest and dividend income from financial investments from banking activities 425 436 –11 –3 Interest expenses from banking activities 20,115 20,352 – 237 –1 NET INTEREST INCOME 1, 2, 6 5,152 4,579 573 13 RESULT FROM COMMISSION AND SERVICE FEE BUSINESS Commission income from lending activities 392 387 5 1 Commissions from securities and investment transactions 8,030 6,389 1,641 26 Commissions from other services 330 307 23 7 Commission expenses 425 491 – 66 –13 NET COMMISSION AND SERVICE FEE INCOME 1, 2 8,327 6,592 1,735 26 NET TRADING INCOME 1, 2, 7 2,378 5,282 – 2,904 – 55 NET INCOME FROM INSURANCE BUSINESS Premiums earned, net 26,477 25,258 1,219 5 Claims incurred and actuarial provisions 27,395 25,557 1,838 7 Commission expenses, net 2,075 2,277 – 202 –9 Investment income from insurance business 8,350 7,351 999 14 NET INCOME FROM INSURANCE BUSINESS 1, 2, 9, 10 5,357 4,775 582 12 OTHER ORDINARY INCOME Income from the sale of financial investments 1,224 112 1,112 – Income from investment activities 129 81 48 59 – of which from participations valued according to the equity method 105 30 75 250 – of which from other non-consolidated participations 24 51 – 27 – 53 Real estate income 28 45 –17 – 38 Sundry ordinary income 336 407 – 71 –17 Sundry ordinary expenses 1,231 863 368 43 OTHER ORDINARY INCOME 1, 2 486 – 218 704 – NET OPERATING INCOME 21,700 21,010 690 3 52
  5. 5. Notes 1998 1997 Change Change (p. 68 ff) in CHF m in CHF m in CHF m in % NET OPERATING INCOME CONTINUED 21,700 21,010 690 3 Personnel expenses 10,586 9,931 655 7 Other operating expenses 4,473 3,979 494 12 TOTAL OPERATING EXPENSES 1, 2 15,059 13,910 1,149 8 GROSS OPERATING PROFIT 6,641 7,100 – 459 –6 Depreciation and write-offs on non-current assets 1 657 590 67 11 Valuation adjustments, provisions and losses from banking business 1, 8 3,175 2,624 551 21 DEPRECIATION, VALUATION ADJUSTMENTS, LOSSES 3,832 3,214 618 19 GROUP PROFIT BEFORE EXTRAORDINARY ITEMS AND TAXES 2,809 3,886 –1,077 – 28 Extraordinary income 1, 3 1,554 1,323 231 17 Extraordinary expenses 1, 4 573 3,534 – 2,961 – 84 Taxes 1, 2 575 1,074 – 499 – 46 GROUP PROFIT 3,215 601 2,614 435 Minority interests 1 147 204 –57 –28 NET PROFIT (AFTER MINORITY INTERESTS) 3,068 397 2,671 – 53
  6. 6. CONSOLIDATED BALANCE SHEET Notes 31 Dec. 1998 31 Dec. 1997 Change Change (p. 68 ff) in CHF m in CHF m in CHF m in % ASSETS Cash and other liquid assets 33 2,313 3,404 –1,091 – 32 Money market claims 12, 33 26,594 24,013 2,581 11 Due from banks 33 140,152 145,778 – 5,626 –4 Claims from the insurance business 33 7,482 6,424 1,058 16 Due from customers 13, 14, 33 103,183 144,491 – 41,308 – 29 Mortgages 14, 33 80,558 78,904 1,654 2 Securities and precious metals trading portfolios 15, 16, 33 102,515 103,826 –1,311 –1 Financial investments from the banking business 17, 19, 33 17,467 16,017 1,450 9 Investments from the insurance business 18, 19 102,316 93,387 8,929 10 Non-consolidated participations 20, 21 1,331 1,192 139 12 Tangible fixed assets 21 6,362 6,271 91 1 Intangible assets 21 802 181 621 343 Accrued income and prepaid expenses 9,628 9,419 209 2 Other assets 23 51,734 56,261 – 4,527 –8 TOTAL ASSETS 24, 35, 36 652,437 689,568 – 37,131 –5 Total subordinated claims 3,048 2,566 482 19 Total due from non-consolidated participations 227 43 184 428 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities in respect of money market paper 33 14,735 12,520 2,215 18 Due to banks 33 154,048 180,236 – 26,188 –15 Commitments from the insurance business 33 8,412 6,045 2,367 39 Due to customers in savings and investment accounts 33 46,618 48,533 –1,915 –4 Due to customers, other 33 178,561 195,571 –17,010 –9 Medium-term notes (cash bonds) 33 5,844 7,216 –1,372 –19 Bonds and mortgage-backed bonds 27, 33 44,953 45,594 – 641 –1 Accrued expenses and deferred income 11,778 11,677 101 1 Other liabilities 28 57,004 58,168 –1,164 –2 Valuation adjustments and provisions 29 5,670 7,129 –1,459 – 20 Technical provisions for the insurance business 30 96,652 91,228 5,424 6 Reserves for general banking risks 29, 31 2,048 2,890 – 842 – 29 Share capital 31 5,382 5,322 60 1 Capital reserve 31 10,993 9,366 1,627 17 Revaluation reserves from the insurance business 31 5,942 5,337 605 11 Retained earnings 31 –1,596 334 –1,930 – Minority interests in shareholders’ equity 31 2,178 1,801 377 21 Group profit 31 3,215 601 2,614 435 – of which minority interests 31 147 204 – 57 – 28 Total shareholders’ equity 31 28,162 25,651 2,511 10 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 35, 36 652,437 689,568 – 37,131 –5 Total subordinated liabilities 16,524 16,636 –112 –1 Total liabilities due to non-consolidated participations 718 567 151 27 54
  7. 7. CONSOLIDATED STATEMENT OF SOURCE AND APPLICATION OF FUNDS 1998 Net 1997 Source Application in/outflow Source Application Net in/outflow in CHF m in CHF m in CHF m in CHF m in CHF m in CHF m FROM OPERATIONS, EQUITY TRANSACTIONS AND INVESTMENTS 1,186 – 24 OPERATING ACTIVITIES 5,917 8,317 Net profit for the year 3,215 601 Provisions for credit and other risks 2,584 2,617 Losses 101 133 Provisions for taxes 575 1,250 Depreciation and write-offs 681 617 Creation of extraordinary valuation adjustments and provisions 462 3,330 Extraordinary income 1,488 1,213 Valuation of companies valued according to the equity method 105 30 Accrued income and prepaid expenses 209 1,916 Accrued expenses and deferred income 101 2,928 EQUITY TRANSACTIONS 226 1,746 Share capital 60 1,436 Capital surplus and retained earnings 1,922 Dividends paid 1,457 1,358 1,114 Foreign exchange differences 363 38 Minority interests 64 104 INVESTMENTS IN LONG-TERM ASSETS – 874 93 Investments in companies 514 813 Real estate 42 280 Other tangible and intangible fixed assets 1,430 1,000 FINANCIAL INVESTMENTS, PROVISIONS, – 4,083 –10,180 OTHER ASSETS AND LIABILITIES Investments from the banking business 1,450 4,436 Investments from the insurance business 8,929 12,274 Valuation adjustments and provisions 3,108 1,198 Technical provisions 1 5,424 7,378 Other assets 5,144 14,642 Other liabilities 1,164 14,992 FROM OTHER BALANCE SHEET ITEMS – 3,588 18,942 ASSETS 38,956 –15,833 Money market claims 2,581 3,936 Due from banks 5,626 23,133 Claims from the insurance business 1,058 407 Due from customers 40,234 13,870 Mortgages 3,265 2,227 LIABILITIES – 42,544 34,775 Liabilities in respect of money market paper 2,215 1,284 Due to banks 26,188 14,336 Commitments from the insurance business 2,367 1,033 Due to customers in savings and investment accounts 1,915 1,237 Due to customers, other 17,010 29,008 Bonds and medium-term notes 2,013 16,549 CHANGE IN LIQUID ASSETS – 2,402 18,918 Securities and precious metals trading portfolios 1,311 18,446 Cash and accounts with central banks 1,091 472 1 In line with insurance practice, the change in the technical provisions is shown as a total amount under changes in provisions affecting the cash flow. 55
  8. 8. CONSOLIDATED OFF-BALANCE SHEET BUSINESS 31 Dec. 1998 31 Dec. 1997 Change Change in CHF m in CHF m in CHF m in % CONTINGENT LIABILITIES Credit guarantees in form of avals, guarantees and indemnity liabilities 8,870 9,852 – 982 –10 Bid bonds, delivery and performance bonds, letters of indemnity, other performance-related guarantees 4,471 4,965 – 494 –10 Irrevocable commitments in respect of documentary credits 2,225 3,112 – 887 – 29 Other contingent liabilities 3,710 3,943 – 233 –6 TOTAL CONTINGENT LIABILITIES 19,276 21,872 – 2,596 –12 IRREVOCABLE COMMITMENTS 84,775 64,490 20,285 31 LIABILITIES FOR CALLS ON SHARES AND OTHER EQUITY 59 63 –4 –6 CONFIRMED CREDITS 262 473 –211 – 45 Mortgage Other Without collateral collateral collateral Total ANALYSIS OF COLLATERAL AS AT 31 DECEMBER 1998 in CHF m in CHF m in CHF m in CHF m CONTINGENT LIABILITIES Credit guarantees in form of avals, guarantees and indemnity liabilities 58 6,814 1,998 8,870 Bid bonds, delivery and performance bonds, letters of indemnity, other performance-related guarantees 171 2,148 2,152 4,471 Irrevocable commitments in respect of documentary credits 1 150 2,074 2,225 Other contingent liabilities 109 647 2,954 3,710 TOTAL CONTINGENT LIABILITIES 339 9,759 9,178 19,276 At 31 December 1997 306 6,811 14,755 21,872 IRREVOCABLE COMMITMENTS 2,889 40,946 40,940 84,775 At 31 December 1997 383 25,151 38,956 64,490 LIABILITIES FOR CALLS ON SHARES AND OTHER EQUITY 0 0 59 59 At 31 December 1997 0 0 63 63 CONFIRMED CREDITS 0 0 262 262 At 31 December 1997 0 10 463 473 31 Dec. 1998 31 Dec. 1997 Change Change in CHF m in CHF m in CHF m in % FIDUCIARY TRANSACTIONS 35,216 32,581 2,635 8 56
  9. 9. 31 Dec. 1998 31 Dec. 1998 31 Dec. 1997 31 Dec. 1997 31 Dec. 1998 Positive gross Negative gross 31 Dec. 1997 Positive gross Negative gross Notional replacement replacement Notional replacement replacement amount value 4 value 4 amount value value in CHF bn in CHF bn in CHF bn in CHF bn in CHF bn in CHF bn DERIVATIVE INSTRUMENTS INTEREST RATE PRODUCTS Forward rate agreements 152.7 0.1 0.1 193.7 0.3 0.1 Swaps 2,383.1 65.3 60.3 1,551.2 39.6 38.2 Options bought and sold (OTC) 914.1 8.5 8.8 598.3 5.1 5.0 Forwards 54.0 0.2 0.3 0.1 0.0 0.0 Futures 539.2 – – 420.8 – – Options bought and sold (traded) 633.8 – – 219.0 – – TOTAL INTEREST RATE PRODUCTS 4,676.9 74.1 69.5 2,983.1 45.0 43.3 FOREIGN EXCHANGE PRODUCTS Forwards 1 782.2 14.7 16.9 667.6 19.2 17.7 Swaps 2 247.4 9.3 11.6 216.8 9.2 10.3 Options bought and sold (OTC) 342.3 5.5 6.1 534.2 5.3 5.7 Futures 1.5 – – 0.4 – – Options bought and sold (traded) 0.3 – – 0.1 – – TOTAL FOREIGN EXCHANGE PRODUCTS 1,373.7 29.5 34.6 1,419.1 33.7 33.7 PRECIOUS METALS PRODUCTS Forwards 1 18.8 0.9 1.1 26.3 1.6 2.0 Options bought and sold (OTC) 15.4 0.5 0.9 8.6 0.5 0.7 Futures 0.2 – – 1.8 – – Options bought and sold (traded) 0.4 – – 0.0 – – TOTAL PRECIOUS METALS PRODUCTS 34.8 1.4 2.0 36.7 2.1 2.7 EQUITY/INDEX-RELATED PRODUCTS Forwards 8.2 0.7 0.6 2.0 0.1 0.0 Options bought and sold (OTC) 191.4 13.8 14.7 204.4 10.4 10.4 Futures 38.6 – – 21.0 – – Options bought and sold (traded) 63.2 – – 63.4 – – TOTAL EQUITY/INDEX-RELATED PRODUCTS 301.4 14.5 15.3 290.8 10.5 10.4 OTHER PRODUCTS Forwards 0.1 0.0 0.0 0.0 0.0 0.0 Options bought and sold (OTC) 4.0 0.3 0.1 3.1 0.1 0.0 Futures 8.5 – – 9.5 – – Options bought and sold (traded) 0.1 – – 0.6 – – TOTAL OTHER PRODUCTS 12.7 0.3 0.1 13.2 0.1 0.0 TOTAL, GROSS 6,399.5 119.8 121.5 4,742.9 91.4 90.1 TOTAL REPLACEMENT VALUES ACCORDING TO THE BALANCE SHEET 43.1 3, 5 49.2 5 50.2 3, 5 50.9 5 1 including outstanding spot transactions 2 cross-currency interest rate swaps 3 positive replacement value after deduction of CHF 4.4 bn (1997: CHF 3.1 bn) of assets pledged as security 4 No replacement values are shown for traded derivatives (futures and traded options) subject to daily margining requirements. Total positive and negative replacement values on traded derivatives amount to CHF 1.4 bn and CHF 2.1 bn respectively. 5 of which from the insurance business: positive replacement values CHF 1.3 bn (1997 CHF 0.4 bn), negative replacement values CHF 0.6 bn (1997 CHF 0.2 bn) 57
  10. 10. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS GENERAL PRINCIPLES The Group financial statements have been drawn up based on the accounting rules of the Implementing Ordinance to the Swiss Federal Law on Banks and Savings Banks of 1 February 1995 and the Federal Banking Commission guidelines of 14 December 1994 (with the amendments of 14 November 1996 and 22 October 1997), supple- mented by the pooling of interests method and the provisions of the Swiss accounting and reporting recommendations with respect to insurance companies (FER 14). As required by the pooling of interests method, the consolidated financial statements of Credit Suisse Group show the combined results of Credit Suisse Group and Winterthur as if the merger had been effective for all previous periods shown. In addition, the consolidation and valuation policies reflect the accounting principles set out in the Swiss stock exchange listing regulations; they also largely conform to the provisions of the 4th and 7th EU directives and the EU directive governing the financial statements of banks. The financial year for the Group ends on 31 December. Group companies with a different closing date prepare interim financial statements as at 31 December for consolidation purposes. For subsidiaries acquired after 1 January 1997, goodwill (the amount paid in excess of the equity acquired when purchasing an interest in a company) is stated in the balance sheet under “Intangible assets” and amortised over its estimated useful life (not exceeding 20 years). SCOPE AND METHOD OF CONSOLIDATION The assets and liabilities, off-balance sheet transactions and income and expenses of all the banking, insurance and financial institutions in which Credit Suisse Group has a direct or an indirect interest of more than 50% as of the balance sheet date are fully consolidated in the financial statements. For the “Winterthur” Swiss Insurance Company subgroup, the capital is consolidated according to the pooling of interests method. For the other Group companies the capital is consolidated according to the purchase method as of 1 January 1990 (or later, if acquired thereafter). Intercompany transactions and unrealised gains therefrom are eliminated. Minority interests in share- holders’ equity and net profit are indicated separately, but are viewed as forming an integral part of the corporate base. Other companies in which the Group has a stake of 20% or more are accounted for using the equity method. Long-term holdings which are designated for resale are booked as “Financial investments”. Subsidiaries and long-term holdings outside the core business, and less significant holdings are not consolidated. 58
  11. 11. CHANGES TO THE SCOPE OF CONSOLIDATION The scope of consolidation has undergone the following material changes: Group division Winterthur Insurance HIH Winterthur, Sydney The majority participation in HIH Winterthur of 51.2% was sold mid-1998. The approximately 7% stake still held by the Winterthur Group is included in investments from the insurance business. HIH Winterthur was deconsolidated retroactively as at 1 January 1998. Winterthur Reinsurance Corporation of America, New York Winterthur Life U.S. Holdings, Inc., Wilmington Winterthur Life Re Insurance Company, Dallas The investments in the three above mentioned companies were sold as at 1 October 1998. Thus, the income statements of these companies are only included up to 30 September 1998. Group division Credit Suisse First Boston Banco di Investimentos Garantia S.A., São Paulo Garantia Banking Limited, Nassau For a price of USD 675 m, Credit Suisse First Boston took over 100% of the share capital of both companies as at 31 July 1998. The companies operate under the name of Banco de Investimentos Credit Suisse First Boston Garantia S.A. and Credit Suisse First Boston Garantia Banking Limited respectively. BZW business areas in the Asian region In early 1998 selected BZW business areas in Asian investment banking were acquired. The names of the individual companies are listed in note 37. FOREIGN CURRENCY TRANSLATIONS In the annual accounts of the individual Group companies, income and expense items denominated in foreign currencies are translated into the relevant local reporting curren- cies on the basis of the exchange rate as of the transaction date. Assets, liabilities and off-balance sheet items are translated as of the year-end rate. Hedged assets and liabilities are carried at their forward hedging rates. For the purposes of consolidation, the balance sheets of foreign Group companies are translated into Swiss francs at the year-end exchange rate, and their income statements are translated using the average exchange rate for the financial year. Translation differences are credited or debited to shareholders’ equity and are shown separately in the statement of shareholders’ equity. The key foreign exchange rates are listed in the notes to the consolidated financial statements on page 100. 59
  12. 12. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DEVIATIONS FROM THE RELEVANT EU DIRECTIVES The Swiss accounting rules for banks conform in essence to EU directives and guidelines. The areas in which Group accounting policies deviate from the accounting principles set out in the directives of the European Union (4th and 7th EU directives and the EU direc- tive governing the financial statements of banks) can be summarised as follows: – The classification criteria used in the balance sheet and the income statement differ from those set out in the EU directive governing the financial statements of banks. – The proportions of overall income and expenditure for operations outside Switzerland are not detailed by geographical location but are provided as combined totals. – No specific information is given concerning compensation or liabilities towards Members of the Board of Directors or Members of the Executive Board of Credit Suisse Group. – Securities and precious metals treated as trading positions are carried at their fair value. Historical differences between cost and fair value are not disclosed in the notes to the financial statements. – Subsidiaries and long-term holdings which are not in the banking, finance or insurance sectors are not consolidated. – There is no formal management report on the business year. The following are significant deviations from the EU directives governing the financial statements of insurance companies: – The classification and presentation used in the financial statements have been adjusted from those set out in the EU directives governing the financial statements of insurance companies. Winterthur Group publishes an annual report which focuses on the presentation of the result of the insurance business. – Unrealised gains on life business investments are taken to revaluation reserves as part of shareholders’ equity and not to funds for future distribution to shareholders and policyholders. GENERAL ACCOUNTING AND VALUATION PRINCIPLES Recording of business All completed business is recorded in the financial statements as follows: foreign exchange, money market and precious metal transactions are recorded on value (settlement) date. Prior to the value date, foreign exchange and precious metal transactions are recorded as off-balance sheet business. Securities transactions are recorded on a trade date basis. Reclassification of prior year figures Certain amounts in the consolidated financial statements for 1997 have been reclassified to conform to the 1998 presentation. Material reclassification: In the insurance business, stamp duty is no longer included in “Tax expenses” but in “Operating expenses” (1997: CHF 132 m) and in “Investment income” (1997: CHF 44 m). 60
  13. 13. Repo business Repurchase and reverse repurchase transactions are shown in the balance sheet as advances secured by securities or as deposits against which the bank’s securities are pledged. Depending on the type of counterparty, they are shown as claims on (“Due from”) or liabilities to (“Due to”) banks or customers. They are carried in the balance sheet at the amounts at which the securities were initially acquired or sold as specified by the respective agreements, plus interest accrued to the balance sheet date. Transactions involving non-monetary assets Claims and liabilities from lending and borrowing transactions of non-monetary assets such as money market paper, precious metals or commodities and those arising from securities lending and borrowing are marked to market and, depending on the counterparty, are shown as claims on or liabilities towards banks or customers. Securities positions arising as a result of securities lending and borrowing are included in the securities and precious metals trading portfolios. Cash, bank balances, money market paper and loans Receivables and liabilities are generally accounted for at nominal value. Money market instruments held for trading are carried at their fair value. The necessary provisions for recognisable risks and potential losses are normally deducted from the appropriate asset items in the balance sheet. Endangered interest and commission income due from customers and banks are not booked as “Income from interest business”. Instead, they are only included in the income statement following payment. Provisions for exposures subject to country risk, default risks and other bank risks are booked to “Valuation adjustments and provisions”. This position contains no undisclosed reserves. Leasing All leased items (capital goods, vehicles and real estate) are valued using the annuity method and are stated as a separate item under lendings. The depreciation charges contained in the rental income are set off directly against the book values of the corresponding leased assets, so that only the interest portion of the rental income is shown in the income statement. Real estate Real estate is valued at the cost (including capital improvements) less depreciation over its useful life (40–67 years). No depreciation is charged on land except where valuation adjustments have been made to allow for a reduction in the market value. 61
  14. 14. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other tangible fixed assets Other tangible fixed assets such as computers, machinery, furnishings, vehicles and other equipment, as well as alterations and impro- vements to rented premises, are depreciated using the straight line method over their estimated useful life (in general 3–5 years). Intangible assets The goodwill included in this balance sheet position arises from the majority holdings acquired from 1 January 1997 in connection with the capital consolidation. This goodwill is amortised over its estimated useful life (maximum 20 years). Pension fund As a rule, employees are affiliated to legally autonomous staff pension funds which are independent of the Group. The requisite contributions are made to the pension funds and posted under “Personnel expenses”. Taxes Tax expense is calculated on the basis of the annual results reported in the individual financial statements of the Group companies. Deferred tax assets and liabili- ties are established for the expected future tax implications of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities calculated at the expected tax rate on the basis of adjustments in the valuation of assets and liabilities for Group purposes are charged to tax expense and recorded as other assets or provisions. No provision is made for non-recoverable withholding taxes on undistributed profits of Group companies nor is a deferred tax asset recognised arising from tax losses brought forward. Claims and liabilities of related companies Claims and liabilities in respect of related companies towards Group companies which are accounted for using the equity method are reported in the notes to the consolidated financial statements. 62
  15. 15. VALUATION AND ACCOUNTING POLICIES IN RELATION TO BANK-SPECIFIC POSITIONS Securities trading portfolio The trading portfolio consists of balances held in connection with the trading of readily realisable securities, securities acquired as a result of underwriting activities and holdings of precious metals. Securitised and non- securitised options are shown under “Other assets”. Trading balances in bonds, shares and similar securities and precious metal accounts and holdings are carried at fair value (amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s- length transaction) as of the balance sheet date. Profits and losses from the valuation of the trading portfolio and realised gains and losses on these positions are shown under “Income from trading”. Interest and dividend income from the trading portfolio is credited to “Result from interest business”. Financial investments from the banking business This balance sheet item comprises securities and precious metal positions purchased as a long-term invest- ment. It also includes real estate and holdings assumed from the lending business and designated for resale. Fixed-interest debt securities which are being held until final maturity are valued according to the accrual method. In this case, premiums and discounts are accrued or deferred over the term of the instrument until final maturity in the relevant balance sheet position. Realised profits or losses which are interest related and which arise from the early disposal or redemption of the instrument are accrued or deferred over the remain- ing term of the instrument, i.e. to the original final maturity, and credited to or debited from “Result from interest business” as appropriate. Investment holdings of equities and debt securities which are designated for resale and which do not constitute trading balances are valued according to lower of cost or market. The notes to the consolidated financial statements include details of both the cost price and the market value of these holdings. Capital gains resulting from the sale of financial investments at above the purchase price are shown under “Income from the sale of financial investments”. Unrealised losses on equity positions as a result of a decrease in their market value, and unrealised profits up to the original result of changes in creditworthiness, are accounted for in the same way as credit business. Real estate assumed from the lending business and designated for resale is valued according to lower of cost or market. 63
  16. 16. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Reserves for general banking risks Reserves for general banking risks are precau- tionary reserves charged to “Extraordinary expenses” to hedge against latent risks in the bank’s operating activities. Releases are credited to extraordinary income. Derivatives Forward rate agreements, futures, swaps, options, forward contracts and other over-the-counter off-balance sheet instruments held for trading purposes are carried at their fair value and the resulting profits and losses are included in “Net trading income” in the income statement. The resulting replacement values are included in “Other assets” or “Other liabilities” as appropriate and are presented net by counterparty for transactions in those products where the bank has a legal right of set off; otherwise the replacement values are presented gross by contract. Hedging transactions are valued using the same procedures as for the underlying transactions they hedge. Strategic positions are valued at lower of cost or market. Derivative financial instruments which are deployed in the context of interest rate risk management are valued according to the accrual method. The interest component is accrued or deferred over the term of the instrument according to the annuity method. Realised profits or losses which are interest related and which arise from the early disposal or redemption of the instrument are also accrued or deferred over the remaining term of the instru- ment, i.e. to the original final maturity. CHANGES TO ACCOUNTING PRINCIPLES Endangered interest Starting in 1998, the set up and release of provisions for endangered interest is recorded under “Interest income”. Prior to 1998, provisions set up for endangered interest overdue for less than 90 days and the reclassification of provisions for endangered interest, which were no longer necessary from an economic point of view, were recorded under “Valuation adjustments, provisions and losses”. The prior year’s financial statements have not been restated. Impact on the 1998 financial statement: Net interest income: CHF – 99 m Valuation adjustments, provisions and losses: CHF – 99 m FINANCIAL INVESTMENTS Assets held in the trading book Assets held in the trading book are carried at their fair values as at the 1998 balance sheet date. Prior to 1998, the trading portfolio was valued at market value. Assets that were not traded on a recognised stock exchange or on a representative market were carried at the lower of cost or market value. The prior year financial statements have not been restated. Impact on the 1997 consolidated balance sheet and income statement would be: Valuation adjustments and provisions: CHF – 69 m Net trading income: CHF 69 m 64
  17. 17. YEAR 2000 The challenge faced by financial institutions worldwide as the year 2000 approaches is substantial. It extends to almost every aspect of daily operations and interaction with the markets. Credit Suisse Group began work on the year 2000 issue in 1996, utilising a priority-driven methodology, encompassing inventory and assessment, remediation or replacement, testing, third-party risk analysis and contingency planning. Business-critical systems in the banking area are being addressed first, and, having identified over 1,500 systems that require remediation, 84% were completed and put back into production by 31 December 1998. Remediation of non-compliant date formats has been achieved either by expanding the date format to incorporate four-digit years, or by “windowing” for century determination. To mitigate third-party risks, during 1998 over 7,000 customers and business partners were contacted in relation to their own year 2000 projects. In addition, the Group’s banks have participated in 30 industry tests during 1998 and are committed to taking part in 59 industry tests planned during 1999. However, with systems of such size and complexity, with multiple interfaces to and high reliance upon external systems, no guarantee can be given that there will be no adverse effects from the year 2000 issue. As a consequence, the banks have started a contingency planning process which includes the formation of management teams to quickly respond to unexpected events. The Board of Directors and the Executive Board of Credit Suisse Group are provided with regular status reports and have given the highest priority to the year 2000 project. EVENTS SINCE THE BALANCE SHEET DATE On 15 February 1999 Credit Suisse Group announced that Credit Suisse Asset Management will acquire Warburg Pincus Asset Management, Inc., a leading US asset manager with 260 employees and USD 22 bn in assets under management, as well as a 19.9% pas- sive minority equity stake in Warburg, Pincus & Co.’s private equity business. The price of the asset management transaction was fixed at USD 650 m, including an initial USD 450 m and an additional USD 200 m earn-out over three years. Subject to regulatory approval, the agreement is expected to close by mid-1999. Following the organisational changes at Credit Suisse First Boston which combine the Fixed Income division and Credit Suisse Financial Products in a new division, in April 1999 Credit Suisse Group repurchased Swiss Re’s 20% minority position in Credit Suisse Financial Products. 65
  18. 18. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS VALUATION AND ACCOUNTING POLICIES IN RELATION TO INSURANCE-SPECIFIC POSITIONS INVESTMENTS IN RESPECT OF INSURANCE BUSINESS Real estate Real estate is valued at the market price. The market value of a property is calculated at its capitalised rental income at the interest rate applied in the country or market in question. Undeveloped plots of land and buildings under construction are carried at cost. Bonds and loans Bonds and loans are valued according to the amortised cost method. The difference between the purchase price and the redemption value is distributed over the remaining life so that a constant yield is achieved. The corresponding valuation adjustment is shown under the position “Net investment income from insurance busi- ness”. Default risk is accounted for through the use of write-offs. Intercompany trans- actions and unrealised gains have been eliminated, with the exception of assets booked as investments from insurance business. Shares Listed shares are marked to market at year-end. Unlisted shares are valued at cost. If the yield or intrinsic value is endangered, a valuation adjustment is made. Derivatives Derivatives and other financial instruments are generally used to hedge the exposure to changes in the fair value of recognised assets, liabilities and firm commitments. Any gains and losses are therefore recognised in the income statement together with the offsetting loss or gain on the hedged item. Investments for the benefit of life insurance policyholders who bear the investment risk Investments for the benefit of life insurance policyholders who bear the investment risk are carried at their market value. Statement of higher and lower values arising from the uniform valuation of investments in the Group accounts and revaluation reserves Higher or lower values arising from the uniform valuation of investments in the Group accounts in com- parison with the figures contained in the statutory accounts are recorded as follows: Valuation differences resulting from the revaluation of fixed-interest securities and mortgages, unlisted shares and non-consolidated long-term holdings are included in the income statement (under “Net investment income from insurance business”). In the case of listed shares and real estate, compensated write-offs in respect of the difference between the balance sheet value in the statutory accounts and the cost value are stated in the income statement (“Net investment income from insurance business”). Valuation differences between cost and market values are allocated to shareholders’ equity (“Revaluation reserves from the insurance business”) directly, without affecting the income statement, after deferred tax calculated on the basis of a full provision on unrealised gains for which there is no contractual obligation to pay to policyholders upon realisation. 66
  19. 19. Technical provisions The amount of the technical provisions is based on the ex- pected liabilities due to the insured and the claimants. As a rule, calculations are made individually, i.e. depending on the insurance contract or claim. Statistical or mathematical calculation methods are applied if these lead to approximately the same results and if they conform to the methods approved by the supervisory authorities of the respective countries. The equalisation reserves legally prescribed and locally created in some countries are not included in the Group accounts. As a rule, provisions for claims out- standing are not discounted. Technical provisions for life business are calculated with regard to local regulations. The surplus due to policyholders is accounted for on the basis of the resolutions passed by the individual companies as to the distribution of profit. CHANGES TO ACCOUNTING PRINCIPLES Equalisation reserves and discount The amounts taken over from the local accounts in the previous years in order to create equalisation reserves as well as the discounts made in accordance with local regulations are no longer considered. The one-time change-over effect has a positive influence on the income statement amounting to CHF 71.8 m. 67
  20. 20. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Banking business Insurance business Total 1 SPLIT OF INCOME STATEMENT INTO BANKING 1998 1997 1998 1997 1998 1997 AND INSURANCE BUSINESS in CHF m in CHF m in CHF m in CHF m in CHF m in CHF m Net interest income 5,152 4,579 0 0 5,152 4,579 Net commission and service fee income 8,327 6,592 0 0 8,327 6,592 Net trading income 2,378 5,282 0 0 2,378 5,282 Net income from insurance business 0 0 5,357 1,2 4,775 1,2 5,357 4,775 Other ordinary income 1,386 376 –900 – 594 486 – 218 NET OPERATING INCOME 17,243 16,829 4,457 4,181 21,700 21,010 Salaries and other compensation 7,587 6,967 1,332 1,401 8,919 8,368 Employee benefits 680 632 325 310 1,005 942 Other personnel expenses 438 412 224 209 662 621 Personnel expenses 8,705 8,011 1,881 1 1,920 1 10,586 9,931 Premises and real estate expenses 672 531 213 242 885 773 Expenses for IT, machinery, furnishing, vehicles and other equipment 784 689 137 166 921 855 Sundry operating expenses 1,841 1,600 826 751 2,667 2,351 Other operating expenses 3,297 2,820 1,176 2 1,159 2 4,473 3,979 Total operating expenses 12,002 10,831 3,057 3,079 15,059 13,910 GROSS OPERATING PROFIT 5,241 5,998 1,400 1,102 6,641 7,100 Depreciation and write-offs on non-current assets 567 573 90 17 657 590 Valuation adjustments, provisions and losses 3,175 2,624 0 0 3,175 2,624 Total depreciation, valuation adjustments, losses 3,742 3,197 90 17 3,832 3,214 GROUP PROFIT BEFORE EXTRAORDINARY ITEMS AND TAXES 1,499 2,801 1,310 1,085 2,809 3,886 Extraordinary income 1,011 1,323 543 0 1,554 1,323 Extraordinary expenses 573 3,089 0 445 573 3,534 Taxes 204 842 371 232 575 1,074 GROUP PROFIT 1,733 193 1,482 408 3,215 601 Minority interests 36 114 111 90 147 204 NET PROFIT (AFTER MINORITY INTERESTS) 1,697 79 1,371 318 3,068 397 Expenses due to the handling of both claims and investments are allocated to the income from insurance business. 1 personnel expenses CHF 510 m (previous year CHF 573 m) 2 other operating expenses CHF 321 m (previous year CHF 312 m) 68
  21. 21. 1998 1997 Change 2 INCOME AND EXPENSES FROM Switzerland Abroad Switzerland Abroad Switzerland Abroad ORDINARY ACTIVITIES BY ORIGIN in CHF m in CHF m in CHF m in CHF m in CHF m in CHF m Net interest income 2,808 2,344 2,539 2,040 269 304 Net commission and service fee income 3,688 4,639 3,539 3,053 149 1,586 Net trading income 1,193 1,185 853 4,429 340 – 3,244 Income from insurance business 2,933 2,424 1,724 3,051 1,209 – 627 Other ordinary income 410 76 – 64 –154 474 230 NET OPERATING INCOME 11,032 10,668 8,591 12,419 2,441 –1,751 Personnel expenses 3,563 7,023 3,519 6,412 44 611 Other operating expenses 1,755 2,718 1,631 2,348 124 370 TOTAL OPERATING EXPENSES 5,318 9,741 5,150 8,760 168 981 GROSS OPERATING PROFIT BEFORE TAXES 5,714 927 3,441 3,659 2,273 – 2,732 % of total 86% 14% 48% 52% Taxes 274 301 139 935 135 – 634 % of total 48% 52% 13% 87% GROSS OPERATING PROFIT AFTER TAXES 5,440 626 3,302 2,724 2,138 – 2,098 % of total 90% 10% 55% 45% 1998 1997 Change Change 3 ANALYSIS OF EXTRAORDINARY INCOME in CHF m in CHF m in CHF m in % Gains from the disposal of participations 553 27 526 – Other extraordinary income 1,001 1,296 – 295 – 23 – of which release of reserves for general banking risks 933 1,186 – 253 – 21 TOTAL EXTRAORDINARY INCOME 1,554 1,323 231 17 1998 1997 Change Change 4 ANALYSIS OF EXTRAORDINARY EXPENSES in CHF m in CHF m in CHF m in % Creation of reserves for general banking risks 3 1,629 –1,626 –100 World War II settlement 459 0 459 – Other extraordinary expenses 111 204 93 – 46 Realised losses from the disposal of participations 0 42 – 42 –100 Restructuring cost Credit Suisse Group 0 839 – 839 –100 Restructuring cost BZW 0 332 – 332 –100 Information technology, year 2000, euro 0 488 – 488 –100 TOTAL EXTRAORDINARY EXPENSES 573 3,534 – 2,961 – 84 69
  22. 22. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1998 1997 Changes Change 5 INCOME STATEMENT OF BANKING BUSINESS Notes in CHF m in CHF m in CHF m in % NET INTEREST INCOME 6 5,152 4,579 573 13 RESULT FROM COMMISSION AND SERVICE FEE ACTIVITIES Commission income from lending activities 392 387 5 1 Commissions from securities and investment transactions 8,030 6,389 1,641 26 Commissions from other services 330 307 23 7 Commission expenses 425 491 – 66 –13 NET COMMISSION AND SERVICE FEE INCOME 8,327 6,592 1,735 26 NET TRADING INCOME 7 2,378 5,282 – 2,904 – 55 OTHER ORDINARY INCOME Income from the sale of financial investments 1,224 112 1,112 – Income from investment activities 94 57 37 65 – of which from participations valued according to the equity method 83 30 53 177 – of which from other non-consolidated participations 11 27 –16 – 59 Real estate income 28 45 –17 – 38 Sundry ordinary income 322 282 40 14 Sundry ordinary expenses 282 120 162 135 OTHER ORDINARY INCOME 1,386 376 1,010 269 NET OPERATING INCOME 17,243 16,829 414 2 Personnel expenses 8,705 8,011 694 9 Other operating expenses 3,297 2,820 477 17 TOTAL OPERATING EXPENSES 12,002 10,831 1,171 11 GROSS OPERATING PROFIT 5,241 5,998 – 757 –13 Depreciation and write-offs on non-current assets 567 573 –6 –1 – of which on real estate 82 120 – 38 – 32 – of which on other tangible and intangible fixed assets 480 453 27 6 – of which on non-consolidated participations 5 0 5 – Valuation adjustments, provisions and losses 8 3,175 2,624 551 21 DEPRECIATION, VALUATION ADJUSTMENTS, LOSSES 3,742 3,197 545 17 ANNUAL PROFIT BEFORE EXTRAORDINARY ITEMS AND TAXES 1,499 2,801 –1,302 – 46 Extraordinary income 1,011 1,323 – 312 – 24 Extraordinary expenses 573 3,089 – 2,516 – 81 Taxes 204 842 – 638 – 76 ANNUAL PROFIT 1,733 193 1,540 – Minority interests 36 114 – 78 – 68 NET PROFIT (AFTER MINORITY INTERESTS) 1,697 79 1,618 – 70
  23. 23. 1998 1997 Change Change 6 ANALYSIS OF THE RESULT FROM INTEREST BUSINESS in CHF m in CHF m in CHF m in % Interest and discount income Interest income on claims due from customers 11,365 9,634 1,731 18 Interest income on claims due from banks 6,479 7,943 –1,464 –18 Interest income from money market claims 979 775 204 26 Credit commissions treated as interest earnings 380 330 50 15 Interest income from leasing operations 77 79 –2 –3 Total interest and discount income 19,280 18,761 519 3 Interest and dividend income from trading portfolios Interest income 5,093 5,544 – 451 –8 Dividend income 469 190 279 147 Total interest and dividend income from trading portfolios 5,562 5,734 –172 –3 Interest and dividend income from financial investments Interest income 348 376 – 28 –7 Dividend income 77 60 17 28 Total interest and dividend income from financial investments 425 436 –11 –3 Interest expense Interest expenses for liabilities due to customers 14,314 11,900 2,414 20 Interest expenses for liabilities due to banks 5,801 8,452 – 2,651 – 31 Total interest expense 20,115 20,352 – 237 –1 – of which interest expenses for subordinated liabilities 650 757 –107 –14 TOTAL INTEREST INCOME 5,152 4,579 573 13 1998 1997 Change Change 7 ANALYSIS OF TRADING INCOME in CHF m in CHF m in CHF m in % Income from securities and commodities trading 1,289 3,085 –1,796 – 58 Income from foreign exchange and banknote trading 140 1,014 – 874 – 86 Income from precious metals trading 163 210 – 47 – 22 Income from trading in interest rate instruments 786 973 –187 –19 TOTAL TRADING INCOME 2,378 5,282 – 2,904 – 55 8 ANALYSIS OF VALUATION ADJUSTMENTS, 1998 1997 Change Change PROVISIONS AND LOSSES in CHF m in CHF m in CHF m in % For default risks (credit and country risks) 2,586 2,193 393 18 For other business risks 488 298 190 64 Losses 101 133 – 32 – 24 – of which losses from lending activities 52 64 –12 –19 VALUATION ADJUSTMENTS, PROVISIONS AND LOSSES 3,175 2,624 551 21 71
  24. 24. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1998 1997 Change Change 9 INCOME STATEMENT OF INSURANCE BUSINESS Notes in CHF m in CHF m in CHF m in % NON-LIFE BUSINESS Premiums written 10 12,257 13,694 –1,437 –10 Change in provisions for unearned premiums and in actuarial provisions (health) – 454 – 397 – 57 14 PREMIUMS EARNED 11,803 13,297 –1,494 –11 Claims and annuities paid – 8,157 – 8,940 783 –9 Change in provision for claims and annuities outstanding – 763 –1,214 451 – 37 CLAIMS INCURRED – 8,920 –10,154 1,234 –12 Dividends paid – 229 –189 – 40 21 Change in provision for dividend –106 –106 0 0 DIVIDENDS TO POLICYHOLDERS INCURRED – 335 – 295 – 40 14 OPERATING EXPENSES – 3,771 – 4,077 306 –8 UNDERWRITING RESULT NON-LIFE –1,223 –1,229 6 0 Net investment income 11 2,261 2,123 138 7 Interest on deposits and bank accounts (incl. exchange rate differences) 140 128 12 9 Other interest paid – 98 – 71 – 27 38 Other income and expenses –180 –190 10 –5 PROFIT BEFORE TAX AND MINORITY INTERESTS 900 761 139 18 LIFE BUSINESS Premiums written 10 14,674 12,072 2,602 22 Change in provisions for unearned premiums 0 –111 111 –100 PREMIUMS EARNED 14,674 11,961 2,713 23 Claims paid – 6,987 – 6,038 – 949 16 Change in provisions for claims outstanding 28 –113 141 – CLAIMS INCURRED – 6,959 – 6,151 – 808 13 CHANGE IN ACTUARIAL PROVISIONS – 9,263 – 7,305 –1,958 27 Bonus allocation –1,541 –1,420 –121 9 Change in participation fund – 377 –208 –169 81 ALLOCATION TO PARTICIPATION –1,918 –1,628 – 290 18 OPERATING EXPENSES –1,359 –1,261 – 98 8 Net investment income 11 5,758 5,006 752 15 Interest on deposits and bank accounts 207 118 89 75 Interest on bonuses credited to policyholders –117 –124 7 –6 Other interest paid – 302 –189 –113 60 Other income and expenses (incl. exchange rate differences) – 291 – 61 – 230 377 PROFIT BEFORE TAX AND MINORITY INTERESTS 430 366 64 17 72
  25. 25. 1998 1997 Change Change INCOME STATEMENT OF INSURANCE BUSINESS (continued) in CHF m in CHF m in CHF m in % SUMMARY Profit before tax and minority interests (non-life business) 900 761 139 18 Profit before tax and minority interests (life business) 430 366 64 17 PROFIT BEFORE TAX, MINORITY INTERESTS, EXTRAORDINARY EXPENSES AND INTEREST ON BONDS 1,330 1 127 203 18 Interest on convertible bonds and warrant issues – 20 – 42 22 – 52 Extraordinary expenses 0 – 445 445 – Income from disposal of investments/business areas 543 0 543 – Tax – 371 – 232 –139 60 ANNUAL PROFIT BEFORE MINORITY INTERESTS 1,482 408 1,074 263 Minority interests –111 –90 – 21 23 ANNUAL PROFIT AFTER MINORITY INTERESTS 1,371 318 1,053 331 10 ANALYSIS OF DIRECT BUSINESS, 1998 1997 Change Change GEOGRAPHICAL DISTRIBUTION in CHF m in CHF m in CHF m in % Europe Non-life 10,449 10,064 385 4 Life 14,484 11,587 2,897 25 EUROPE, TOTAL 24,933 21,651 3,282 15 North America Non-life 2,350 2,498 –148 –6 Life 5 17 –12 – 71 NORTH AMERICA, TOTAL 2,355 2,515 –160 –6 Asia-Pacific Non-life 225 1,559 –1,334 – 86 Life 85 54 31 57 ASIA-PACIFIC, TOTAL 310 1,613 –1,303 – 81 Other regions Non-life 46 48 –2 –4 Life 0 0 0 0 OTHER REGIONS, TOTAL 46 48 –2 –4 DIRECT BUSINESS, GROSS, TOTAL 27,644 25,827 1,817 7 Reinsurance assumed, gross Non-life 723 1,309 – 586 – 45 Life 254 472 – 218 – 46 REINSURANCE ASSUMED, GROSS, TOTAL 977 1,781 – 804 – 45 TOTAL BUSINESS, GROSS 28,621 27,608 1,013 4 Reinsurance ceded Non-life –1,536 –1,784 248 –14 Life –154 – 58 – 96 166 REINSURANCE CEDED, TOTAL –1,690 –1,842 152 –8 Business, net Non-life 12,257 13,694 –1,437 –10 Life 14,674 12,072 2,602 22 TOTAL BUSINESS, NET 26,931 25,766 1,165 5 Home market Switzerland Non-life 2,912 2,820 92 3 Life 8,954 6,489 2,465 38 HOME MARKET SWITZERLAND, TOTAL 11,866 9,309 2,557 27 73

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