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credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
credit-suisse Annual Report Part 1
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credit-suisse Annual Report Part 1

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  • 1. ANNUAL REPORT 1997/1998
  • 2. CHF SHARE PERFORMANCE Swiss Market Index Credit Suisse Group 300 250 200 150 100 50 0 1993 1994 1995 1996 1997 3/1998 MARKET CAPITALISATION as at 31 December 60 50 40 30 20 10 0 90 91 92 93 94 95 96 97 CHF bn Financial Calendar 1998 Annual General Meeting Friday 29 May 1998 Financial statements for 1st half 1998 Wednesday 9 September 1998 Media conference for 1998 results Tuesday 16 March 1999 1999 Annual General Meeting Friday 28 May 1999
  • 3. FINANCIAL HIGHLIGHTS 1997 1997 1996 Change REVENUE COMPOSITION Consolidated income statement in CHF m in CHF m +/– % 1997 Revenue 21,024 16,667 26 Net operating profit after minority interests 3,395 2,145 58 22% 23% Net profit/loss 397 –2,082 – Cash flow 6,026 4,164 45 ROE (net operating profit after minority interests) in % in % 25% 30% Credit Suisse Group 14.2 9.8 Banking business 16.2 9.6 Balance sheet business Commission Insurance business 10.2 11.0 Trading Insurance 31 Dec. 1997 31 Dec. 1996 Change Consolidated balance sheet in CHF m in CHF m +/– % Total assets 689,568 624,396 10 Total shareholders’ equity 25,651 22,861 12 – of which minority interests 2,005 1,844 9 BIS ratios in % in % +/- % BIS tier 1 ratio Credit Suisse 6.6 n.a. Credit Suisse First Boston 8.5 n.a. Credit Suisse Group 10.9 10.4 BIS total capital ratio Credit Suisse Group 16.8 15.1 Change Human resources at year-end 1997 1996 +/– % Total staff 62,242 60,540 3 – of which in Switzerland banking business 21,442 23,553 –9 insurance business 7,108 6,547 9 – of which outside Switzerland banking business 13,235 11,268 18 insurance business 20,457 19,172 7 1996 figures adjusted for the Winterthur merger Change Share data 1997 1996 +/–% Number of shares issued at year-end 266,128,097 194,307,590 37 Shares ranking for dividend at year-end 265,750,460 194,186,189 37 Average 262,952,238 190,011,086 38 Market capitalisation (CHF m) at year-end 60,060 26,701 125 Earnings per share, operating result (CHF) 12.9 8.4 64 Earnings per share, reported result (CHF) 1.5 – 8.2 – Share price (CHF) at year-end 226 137.5 64 for inclusion in Swiss tax returns 224 135 66 year high 238 139.25 71 year low 133.75 105.75 26 Dividend (CHF) 5* 4 25 * proposal of the Board of Directors to the AGM on 29 May 1998 12 1
  • 4. TO OUR SHAREHOLDERS RAINER E. GUT, CHAIRMAN OF THE BOARD OF DIRECTORS, AND LUKAS MÜHLEMANN, CHIEF EXECUTIVE OFFICER Dear shareholder In 1997 Credit Suisse Group posted strong operating results. All business areas con- tributed to this performance. The Group showed a 58% increase in net operating profit to CHF 3.4 bn. With a 26% rise in revenue compared with 1996 to CHF 21 bn and a 36% increase in gross operating profit to CHF 7.3 bn, Credit Suisse Group once again proved its strong earnings power. In 1997 Credit Suisse Group took exceptional items totalling CHF 1.4 bn. These were taken for the merger with Winterthur, the integration of BZW, the ongoing restruc- turing of banking operations in Switzerland and for IT restructuring in preparation for the introduction of the euro and the year 2000. In addition, the Group decided to make a contribution of CHF 1.6 bn to the reserves for general banking risks. With this action, Credit Suisse Group is even better positioned to take a possible provision in respect of Swiss lending without impacting future financial results. After taking into account these exceptional and precautionary charges, Credit Suisse Group posted consolidated net profit after tax and minority interests of CHF 397 m. In view of the very favourable operating results, the Board of Directors proposes increasing the dividend by 25% from CHF 4 to CHF 5 per share. The refocusing of Credit Suisse Group initiated in summer 1996 is largely com- pleted. The four banking units, each geared to specific customer segments and markets, have been operational since the start of 1997. The advantages of the new organisa- tional structure – precise focus on client needs, transparent accounting along business unit lines, exploitation of cost synergies and additional earnings potential – have already borne fruit. In line with the strategy to concentrate on core business, Credit Suisse Group also divested its non-banking holdings. Consequently, the sale of Electrowatt Ltd. was brought to a close and the two IT firms Fides Informatik and Citymax were sold. 2
  • 5. An important event in 1997 was the merger between Credit Suisse Group and Winterthur to create one of the largest global providers of integrated banking and insurance ser- vices. The programmes aimed at tapping the extensive synergy potential offered by pooling banking and insurance activities are progressing to plan: for example, products combining banking and insurance expertise have been launched. In addition, after posi- tive experience in pilot offices, 80 Credit Suisse branches and Winterthur agencies are to be co-located over the next few months. A major milestone was reached in April 1998 with the merger of CS Life, Winterthur-Columna and Winterthur Life to form a new division “Individual and Group Life” at Winterthur. The products of this division will be distributed through the sales networks, including electronic channels, of Winterthur and the banking business units of Credit Suisse Group. In November 1997 Credit Suisse First Boston acquired BZW’s European equity and investment banking businesses from the British bank Barclays, enabling the firm to considerably strengthen its position in the UK home market. 1997 saw the launch of a wide range of innovative products. In mid-April Credit Suisse launched Direct Net, becoming the first Swiss bank to offer Internet banking: 25,000 customers are already using this distribution channel for their banking business. Meanwhile, Credit Suisse First Boston underwrote the first asset-backed securities to be listed in Switzerland with a value of CHF 1 bn. Furthermore, for the third year in a row our investment funds were awarded the title “Best Management Group” in their category by Standard & Poor’s Micropal. Credit Suisse Group has had a very good start to 1998. Although the Asian crisis will continue to have an impact on certain financial markets, the Group is looking for- ward to a positive business environment in 1998 and continued progress in reaching its performance targets. 1997 was a demanding year for our staff. We would like to express our gratitude for their hard work and commitment. We would also like to thank our shareholders and customers for the trust they have placed in us. Rainer E. Gut Lukas Mühlemann Chairman of the Board of Directors Chief Executive Officer April 1998 3
  • 6. THE STRUCTURE OF CREDIT SUISSE GROUP Credit Suisse Group is a global financial services company, providing a comprehensive range of banking and insurance products. Active on every continent and in all major financial centres, Credit Suisse Group comprises five business units, each geared to the requirements of specific customer groups and markets: corporate and individual customers Credit Suisse: in Switzerland services for private investors in Switzerland Credit Suisse Private Banking: and internationally global investment banking Credit Suisse First Boston: services for institutional investors worldwide Credit Suisse Asset Management: worldwide insurance business Winterthur: WINTERTHUR CREDIT SUISSE CREDIT SUISSE FIRST BOSTON 244 locations in Switzerland 50 locations in Switzerland 3 locations in Switzerland 7 locations in Switzerland 694 locations in Switzerland 50 locations internationally 56 locations internationally 12 locations internationally present in over 30 countries Subsidiaries Subsidiaries Subsidiaries Subsidiaries Subsidiaries incl. Bank Leu* Neue Aargauer Bank Credit Suisse BEA Associates Winterthur Life (98.6%)* Financial Products Affida Bank* Credit Suisse Trust Winterthur-Columna (80%) Credit Suisse Leasing and Banking Bank Heusser* Winterthur International Credit Suisse Immobilien Credit Suisse Fides* DBV-Winterthur Holding Leasing Clariden Bank* Winterthur Holding Italia Bank Hofmann* Hispanowin S.A. (Spain) Bank für Handel & Winterthur-Europe Effekten Assurances Credit Suisse Trust* Winterthur (UK) Holdings Winterthur U.S. Holdings HIH Winterthur (Australia) * direct holding of Credit Suisse Group 4
  • 7. THE FIVE BUSINESS UNITS OF CREDIT SUISSE GROUP CREDIT SUISSE Credit Suisse serves corporate and major locations. Thanks to an innovative individual customers in Switzerland range of products and services, especially through a multichannel strategy and an in direct and internet banking, it ranks efficient branch network covering all among the market leaders in its segment. CREDIT SUISSE PRIVATE BANKING Credit Suisse Private Banking is one of offers a comprehensive investment the largest private banking operations in advisory service and individual financial the world. It has a strong market presence solutions geared to the specific needs in Switzerland and around the globe and of private banking clients. CREDIT SUISSE FIRST BOSTON Credit Suisse First Boston is a leading financial products for users and suppliers global investment banking firm, providing of capital around the world. financial advisory, capital raising and CREDIT SUISSE ASSET MANAGEMENT Credit Suisse Asset Management is a providing first-class international manage- leading global asset manager focusing ment through domestic operations. on institutional and mutual fund investors, WINTERTHUR Winterthur Group is one of the leading offers private and corporate customers insurance companies in Europe and tailor-made insurance and pension one of the largest internationally active solutions at the local and international insurance companies in the world. It level. 5
  • 8. CREDIT SUISSE GROUP BUSINESS REVIEW AND CONSOLIDATED RESULTS Credit Suisse Group – including Winterthur, which is shown in the consolidated results for the first time – announced a 58% increase in net operating profit after tax and minority interests to CHF 3.4 bn in 1997. All business units achieved significant improvements in their performance. The Board of Directors proposes increasing the dividend by 25% from CHF 4 to CHF 5 per share. After exceptional items of CHF 1.4 bn (after tax) for covering, among other things, the merger with Winterthur and the integration of BZW, and a CHF 1.6 bn increase in the reserves for general banking risks, Credit Suisse Group showed a consolidated net profit of CHF 397 m. This compares with a technical loss of CHF 2.1 bn in 1996. With a 26% rise in revenue compared with 19961 to Strong operating performance CHF 21 bn (CHF 16.8 bn from banking operations) and a 36% increase in gross oper- ating profit to CHF 7.3 bn, Credit Suisse Group once again proved its strong earnings power. The Group recorded a very good net operating profit after tax and minority inter- ests of CHF 3.4 bn, 58% up on the previous year2. The cost/income ratio3 in banking operations was improved from 70.8% to 67.8%. On an operating basis, the consoli- dated ROE increased from 9.8% to 14.2%. This corresponds to a ROE of 16.2% for banking operations and 10.2% for insurance operations. Assets under management increased to CHF 863 bn. In view of the progress made in achieving its performance goals and the good start to the current financial year, the Board of Directors proposes to the Annual General Meeting to be held on 29 May 1998 that the dividend be increased by 25% to CHF 5 per Credit Suisse Group registered share. Operating earnings per share amounted to CHF 12.91. Capital optimisation and balance sheet of the Group Capital optimisation was singled out as a major objective as part of the refocusing of Credit Suisse Group. The efficient use of capital in meeting customer needs, while at the same time creating shareholder value, is a primary responsibility of each business unit, overseen by the Corporate Centre. 1997 showed modest balance sheet growth in banking operations when compared with the strong growth in revenue. At Credit Suisse the expansion in the commercial loan book was relatively flat, due primarily to subdued economic conditions in Switzer- land. At Credit Suisse First Boston overall balance sheet growth was 10%, owing partly to the Swiss franc/dollar exchange rate. The increase in assets was in the securities portfolio. At Credit Suisse First Boston significant efforts were undertaken to reposition the balance sheet to achieve better risk-adjusted returns. An example of this effort was 1 basis for comparison with previous year (in general terms) at Group level: Credit Suisse Group incl. Winterthur 2 basis for comparison with previous year of net operating profit at Group level: operating profit after tax and minority interests (CHF 2.1 bn) 3 including depreciation 6
  • 9. the securitisation of USD 5 bn of commercial loans; capital was freed up from the commercial loan book and reallocated to securities operations. At year-end 1997, Credit Suisse Group’s BIS tier 1 capital is sufficiently strong, at 10.9%, to satisfy the banking or insurance needs of the largest clients. The BIS total capital ratio stands at 16.8%. The business unit accounts include the disclosure of allocated capital at 1 January 1998. Capital is allocated on the basis of minimum Swiss regulatory capital require- ments, including a cushion to provide operating flexibility, while taking into account an additional amount required to maintain an acceptable credit rating as assigned by major rating agencies. In the case of private banking and asset management, the allocation also includes an amount to cover operation risk. The capital allocation is reviewed quarterly by the Credit Suisse Group Risk Coordination Committee. All business units improve their operating results The Credit Suisse business unit increased its revenue by 5% to CHF 2.7 bn and reduced its personnel expenses by 10% to CHF 1.5 bn, resulting in gross operating profit more than doubling against the previous year4 to CHF 501 m. The cost/income ratio improved from 103% to 85%. Provisions for the performing loan portfolio were in line with expectations. In addition, after a complete review of the problem loan portfolio, Credit Suisse took a further charge of more than CHF 1.1 bn against previously identified problem loans against the back- ground of a further deterioration of the Swiss economy in 1997. A release of the reserves for general banking risks equal to this charge is included under extraordinary income of Credit Suisse Group. The pre-tax loss5 was reduced by CHF 773 m to CHF 296 m. The net operating loss after tax and minority interests came to CHF 278 m. For 1998 we expect a further significant improvement in Credit Suisse’s results, leading to a break-even result. Credit Suisse Private Banking increased its revenue by 18% to CHF 3.6 bn in 1997, while assets under management increased by 18% to CHF 384 bn. The cost/income ratio declined from 54% to 51%. Pre-tax profit rose from CHF 1.3 bn to CHF 1.7 bn. Net operating profit after tax and minority interests amounted to CHF 1.3 bn. Credit Suisse First Boston posted very good results in 1997, with performance in the second half equalling that of the first half despite the turbulence in the Asian securities markets. Revenue rose 30% in dollar terms to USD 7.1 bn (CHF 10.3 bn). The cost/income ratio declined from 69.5% to 68.9%. Total operating expenses amounted to USD 4.8 bn (CHF 6.9 bn), up 30% in dollar terms. This can be explained largely by strong business growth and the 31% increase in personnel expenses to USD 3.5 bn (CHF 5 bn), a reflection of higher performance-related bonuses. Pre-tax profit increased 29% from USD 1.4 bn to USD 1.8 bn (CHF 1.7 bn to CHF 2.6 bn). Net operating profit after tax and minority interests amounted to USD 1.1 bn (CHF 1.6 bn). 4 basis for comparison with previous year at business unit level: pro forma figures (Winterthur: actual figures) 5 net of release of reserves for general banking risks 7
  • 10. In respect of the Asian credit exposure of Credit Suisse First Boston, additional precau- tionary provisions of USD 150 m (CHF 216 m) were taken at year-end 1997. These are included in the operating results. Against a background of buoyant financial markets Credit Suisse Asset Management showed healthy investment performance and strengthened financial results. Revenue increased by 22% to CHF 788 m. The cost/income ratio decreased from 69.2% to 66.5%. Total assets under management grew by 21% to CHF 263 bn. Pre-tax profit increased from CHF 166 m to CHF 264 m. Net operating profit after tax and minority interests stood at CHF 214 m. Winterthur (now also including CS Life), which was incorporated in Credit Suisse Group’s consolidated results for the first time in 1997, put in a very good performance. This was achieved on the back of favourable conditions in the international insurance and financial markets. Despite a substantial strengthening of the technical provisions, which rose from 177% to 182% in relation to net earned non-life premiums, Winterthur increased its net operating profit after tax and minority interests by 31% to CHF 674 m. Shareholders’ equity, excluding minority interests, rose by CHF 2.8 bn to CHF 8 bn. Credit Exceptional items and increase in the reserves for general banking risks Suisse Group took exceptional items totalling CHF 1.4 bn after tax in 1997. These exceptional items comprise CHF 300 m for the merger with Winterthur, CHF 237 m for the integration of BZW and CHF 401 m for IT restructuring primarily in preparation for the introduction of the euro and for the year 2000. Credit Suisse Group set aside a further CHF 430 m for the ongoing restructuring of banking operations, primarily in Switzerland. These provisions will benefit future earnings. In addition, Credit Suisse Group has decided to make a contribution of CHF 1.6 bn to the reserves for general banking risks in the consolidated accounts. With this action, Credit Suisse Group is even better positioned to weather the possible deterioration in its operating environment without impacting future financial results. After taking into account these exceptional and precautionary charges, Credit Suisse Group posted consolidated net profit after tax and minority interests of CHF 397 m. This compares with a technical loss of CHF 2.1 bn in 1996. The refocusing of Credit Refocusing of Credit Suisse Group well advanced Suisse Group initiated in summer 1996 is moving forward rapidly. As part of this re- organisation, Credit Suisse Group announced a reduction of 5,000 jobs by the end of 1998, of which a total of 3,898 – 2,120 in Switzerland and 1,778 abroad – were realised in 1997. The restructuring was carried out without redundancies in Switzerland. At the same time, close to 4,000 new jobs were created, particularly outside Switzer- land but also in growing areas of the Swiss business (e.g. direct banking, pension business, private banking). 8
  • 11. The merger between Credit Merger with Winterthur: important objectives achieved Suisse Group and Winterthur is moving ahead systematically. The first measures as part of this project have already been implemented, for example product launches, combining banking and insurance expertise. In addition, after positive experience in pilot offices, at least 80 Credit Suisse branches and Winterthur agencies will be brought together in shared premises over the coming months, offering substantial potential for increased revenue while also bringing cost savings. Another important objective was achieved following the approval of a new strategy for the further expansion of individual and group life operations: effective 1 April 1998, CS Life (the life insurance company of Credit Suisse Group), Winterthur-Columna (the joint subsidiary of Winterthur and Credit Suisse operating in group life business) and Winterthur Life are to be combined to form a joint product centre and integrated into Winterthur as an additional division “Individual and Group Life”. The newly formed divi- sion combines assets of CHF 51.6 bn, premiums and contributions of CHF 9.3 bn, and 300,000 individual and 50,000 corporate and group customers. The business unit financial statements reflect Business unit financial statements the organisational structure during 1997 and show the results of all business units as OVERVIEW OF BUSINESS UNIT RESULTS Credit Credit Credit Adjustments Suisse Suisse Suisse including Credit 1997 Credit Private First Asset Winterthur Winterthur Corporate Suisse in CHF m Suisse Banking Boston Management Non-life Life Centre Group 3,046 2 1,186 2 2,730 3,610 10,264 788 –600 21,024 REVENUE Personnel expenses 1,544 970 5,036 293 1,407 483 168 9,901 Other operating expenses 685 800 1,822 214 735 303 –712 3,847 2,229 1,770 6,858 507 2,142 786 –544 13,748 TOTAL OPERATING EXPENSES 501 1,840 3,406 281 904 400 –56 7,276 GROSS OPERATING PROFIT Depreciation and write-offs on non-current assets 90 55 213 17 0 1 214 590 1 Valuation adjustments, provisions and losses 707 113 562 0 0 0 56 1,438 PROFIT BEFORE EXTRAORDINARY ITEMS –296 1,672 2,631 264 904 399 –326 5,248 AND TAXES Extraordinary income1 17 36 51 9 0 24 137 3 Extraordinary expenses 46 46 114 23 42 –25 246 Taxes –48 341 872 36 497 –158 1,540 –277 1,321 1,696 214 764 –119 3,599 NET OPERATING PROFIT (before minority interests) – of which minority interests 1 7 123 0 90 –17 204 –278 1,314 1,573 214 674 –102 3,395 NET OPERATING PROFIT (after minority interests) Allocated equity capital at 1 Jan. 1998 4,150 1,900 9,900 130 7,924 Return on average allocated capital –7% n.a. 18% n.a. 10% 1 net of release of reserves for general banking risks 1,108 56 22 1,186 2 defined as premiums earned (net), less claims incurred and actuarial provisions, less commissions (net), plus investment income from insurance business 3 unattributable interest expense 9
  • 12. though they were independent legal entities. Financial data on the Corporate Centre includes the costs of its own functions, income and expenses for real estate (including bank premises) in Switzerland as well as all consolidation adjustments. Wherever pos- sible, costs of the Corporate Centre have been allocated to the operating business units. At year-end 1996, business unit financial data was prepared in order to give an estimate of the general level of business unit profitability. As previously disclosed, the indicative figures for 1996 were only best estimates for the year as records were not kept along business unit lines in 1996. Subsequent to the presentation of the data, a variety of decisions have been made with respect to the operations for 1997 regarding the allocation of clients to business units, the discontinuation of certain business prac- tices conducted in 1996 and a reallocation of capital among the business units. There- fore, we have adjusted the business unit 1996 financial results to provide for a better comparison of activities between 1997 and 1996. Business unit financial results include operating financial information only. They are commented upon in the relevant sections. 10
  • 13. BUSINESS UNIT ACCOUNTING PRINCIPLES The same accounting policies as used by the Group in its financial accounts were adopted, unless explicitly stated otherwise. INCOME STATEMENT To reconcile business unit accounts with legal entity accounts certain adjust- General ments were made in the Corporate Centre (included in the column “Adjustments includ- ing Corporate Centre”). Extraordinary expenses exclude exceptional items and the increase of the re- serves for general banking risks, including their tax effects. Extraordinary income and valuation adjustments, provisions and losses are shown net of release of reserves for general banking risks. For Credit Suisse Asset Management, the income statement was adjusted to take into account the different closing dates/accounting periods of consolidated companies. The difference is included in the column “Adjustments including Corporate Centre”. For Credit Suisse First Boston, the business unit income statement differs Revenue from the Group’s legal accounts because brokerage, execution and clearing expenses are included within operating expenses (as is common with US competitors), rather than netted against revenues. Responsibility for each of our products is allocated Inter-business unit revenue splits to one of the business units. When business units contribute to the success of another, revenue allocations have been established to compensate such efforts. Revenue alloca- tions are shown in the relevant income statement line. Certain administration and IT tasks (“services”) Inter-business unit cost allocations are concentrated in one business unit, which acts as a provider for the other business units. Such services are compensated on the basis of service level agreements, and transfer payments (which include personnel and other operating expenses) are reflected in the income statement line “Other operating expenses”. All real estate in Switzerland, including bank premises, Real estate used by the bank is managed centrally. The costs, which are charged by applying market rent information and an additonal charge if actual cost should exceed “market rent”, are included in “Other operating expenses”. 11
  • 14. Business unit credit provisions that exceed the actuarial Provisions for credit risk credit provision were reversed against the reserves for general banking risks on a Group level and netted in the business unit income statement line “Valuation adjust- ments, provision and losses”. Taxes Taxes are calculated for individual business units based on average tax rates reflecting their geographical diversity. The difference between these and actual tax expenses have been adjusted in the Corporate Centre’s account. For Credit Suisse, tax credits on net loss and exceptional items are recognised. BALANCE SHEET The business unit balance sheets include the appropriate proportion of real General estate occupied in Switzerland that is managed centrally. RATIOS/KEY PERFORMANCE INDICATORS Ratios per head have not been calculated as some Group-wide activities are provided centrally by one of the business units and required staffing for services received is not reflected in the recipient business unit’s headcount. 12
  • 15. REPORT OF THE GROUP’S AUDITORS ON THE BUSINESS UNIT FINANCIAL STATEMENTS We have performed certain procedures enumerated below in relation to the 1997 busi- ness unit financial statements of Credit Suisse Group and its subsidiary undertakings (“the business unit financial statements”) for which the Directors of Credit Suisse Group are solely responsible. The business unit financial statements, which have been prepared for illustrative purposes only, are set out on pages 9 to 29 of the annual accounts. We have performed limited review procedures with regard to the business unit financial statements as follows: – Reviewed the methodology for preparation of the business unit financial statements as described therein and their proper application; – Given the methodology for preparation, reviewed the consistent application of the accounting policies; and – Reviewed the reconciliation between the business unit financial statements and the consolidated Group results presented in the audited financial statements for the year. Nothing has come to our attention as a result of the foregoing limited review proce- dures that would lead us to believe that the business unit financial statements have not been properly compiled on the basis of the preparation set out therein or are materially misstated. KPMG Klynveld Peat Marwick Goerdeler SA Brendan Nelson Bruce A. Mathers Chartered Accountant Chartered Accountant Auditors in Charge Zurich, 16 March 1998 13
  • 16. CORPORATE AND INDIVIDUAL CUSTOMERS IN SWITZERLAND Credit Suisse posted total revenue of CHF 2.7 bn for the 1997 business year, up 5% compared with 1996. The business unit consolidated its strong market position and extended its lead in the Swiss direct banking market. Staff costs were reduced as planned. As a result of the difficult economic environment, credit provisions remained high due to additional provisions for pre-existing non-performing loans. The net loss for the year before extraordinary items and tax was reduced by CHF 773 m to CHF 296 m. The restructuring of Credit Suisse initiated in summer 1996 was largely accomplished by the end of 1997. The streamlining of the branch network is also essentially complete, with – as planned – 244 offices at the end of 1997, complemented by more than 550 Cash Service ATMs. With effect from 1 January 1998, the corporate and individual customer business of Bank Leu, comprising around 100,000 customer relationships, was transferred to Credit Suisse. The majority of initiatives designed to optimise credit and risk management and adapt the IT infrastructure to the needs of the individual business areas are under way. In parallel with the restructuring process, a number of projects have been launched with a view to focusing more closely on the needs of the customer. These include the ongoing development of product strategies, closer collaboration with Winterthur Group and the expansion of the range of services available as part of the multichannel strategy. As a result, customers are able to carry out their banking business in the manner they find most convenient: through the branch network, via ATM, or by means of telephone or the Internet. RATIOS/KEY PERFORMANCE INDICATORS Allocated equity capital CHF m (1 Jan. 1998) 4,150 Cost/income ratio 85% Return on average allocated capital –7% Number of employees (31 Dec. 1997) 12,540 Pre-tax margin –12% Personnel expenses/total operating expenses 69.3% Personnel expenses/revenue 56.6% Number of branches 244 Net interest margin 1.95% Loan growth –0.18% Deposit/loan ratio 94% Assets under management CHF bn 111 14
  • 17. Customer use of direct banking channels – telephone and Internet – again increased substantially in 1997, with the telephone banking team alone dealing with some 420,000 enquiries. With the launch of DIRECT NET, Credit Suisse became the first Swiss bank to offer a comprehensive range of Internet banking services. Since May 1997, around 1.5 m transactions have been carried out through this product and the trend is sharply upward. Another new product that was very well received by customers was BONVIVA, which was launched in May: around 80,000 customers signed up for this package of services. In 1997 Credit Suisse also brought out a special service for small and medium-sized businesses (SMBs) called START-UP, which provides support in the establishment and restructuring of companies, including, in particular, manage- ment coaching. In addition, through the creation of the SMB Service specialist unit, a professional advisory service is now available for both companies and clubs and associations. These moves were taken as SMBs are of particular importance for Credit Suisse, reflected in the fact that 94% of loans in the corporate client segment were made to these businesses. INCOME STATEMENT Pro forma 1997 1996 Change in CHF m in CHF m in % Net interest income 1,875 1,870 0 Net commission and service fee income 609 522 17 Net trading income 188 120 57 Other ordinary income 58 77 –25 2,730 2,589 5 REVENUE Personnel expenses 1,544 1,718 –10 Other operating expenses 685 662 3 2,229 2,380 –6 TOTAL OPERATING EXPENSES 501 209 140 GROSS OPERATING PROFIT Depreciation and write-offs on non-current assets 90 286 –69 Valuation adjustments, provisions and losses* 707 992 –29 296 1,069 –72 LOSS BEFORE EXTRAORDINARY ITEMS AND TAXES Extraordinary income* 17 Extraordinary expenses 46 Taxes –48 277 NET OPERATING LOSS (before minority interests) – of which minority interests 1 278 NET OPERATING LOSS (after minority interests) * net of CHF 1,108 m release of reserves for general banking risks 15
  • 18. At CHF 96.4 bn, Credit Suisse’s total assets remain virtually unchanged 1997 results compared with 1996. The reduction in funds due from customers and in mortgage lendings to CHF 22.9 bn and CHF 54.6 bn respectively is almost exclusively the result of valuation adjustments. Customer deposits increased by CHF 2.1 bn to CHF 60.3 bn. The contraction in medium-term notes was more than compensated for by the shift into securities and investment funds. Both staff costs and other operating expenses developed as planned. The cost/income ratio improved from 103% to 85%. As a result, gross operating profit more than doubled, rising by CHF 292 m to CHF 501 m. By drawing on the reserves set aside for repossessed property in 1996, Credit Suisse was able to significantly reduce depreciation and write-offs on non-current assets. Valuation adjustments, provisions and losses posted in 1997 include CHF 673 m in respect of the statistically calculated risk cost of the credit portfolio (annual credit provision) and CHF 34 m in respect of other losses. Additional write-downs for existing non-performing loans totalling CHF 1.1 bn are netted against the release of reserves for general banking risks for business unit presentation purposes. For 1998 an annual credit provision of CHF 650 m has been budgeted consistent with the credit risk mana- gement framework introduced in 1997. The annual loss before extraordinary items and tax was reduced by CHF 773 m to CHF 296 m. The loss for the first half of the year was CHF 177 m, while the loss for the second half of the year was reduced by CHF 58 m to CHF 119 m. A break-even result is anticipated for 1998. 16
  • 19. BALANCE SHEET Pro forma 31 Dec. 1997 1 Jan. 1997 Change in CHF m in CHF m in % Cash and other liquid assets 993 1,363 –27 Money market claims 7,116 4,087 74 Due from banks 309 3,247 –90 Due from other business units 3,139 12 – Due from customers 22,855 24,323 –6 Mortgages 54,631 55,889 –2 Securities and precious metals trading portfolio 100 119 –16 Financial investments 2,364 2,613 –10 Participations 51 76 –33 Tangible fixed assets 2,377 2,322 2 Accrued income and prepaid expenses 476 167 185 Other assets 1,986 2,079 –4 96,397 96,297 0 TOTAL ASSETS Money market liabilities 0 33 –100 Due to banks 586 1,190 –51 Due to other business units 16,971 14,482 17 Due to customers in savings and investment accounts 37,149 36,367 2 Due to customers, other 23,117 21,797 6 Medium-term notes 6,708 8,045 –17 Bonds and mortgage-backed bonds 5,595 5,891 –5 Accrued expenses and deferred income 820 652 26 Other liabilities 1,046 2,704 –61 Valuation adjustments and provisions 354 496 –29 Equity capital 4,051 4,640 –13 – of which minority interests 10 8 25 96,397 96,297 0 TOTAL LIABILITIES 17
  • 20. SERVICES FOR PRIVATE INVESTORS IN SWITZERLAND AND INTERNATIONALLY 1997 was a successful initial year for Credit Suisse Private Banking. Profit before extraordinary items and tax rose by 24% to CHF 1,672 m. The new organisational structure has proved successful. Assets under management increased by 18% to CHF 384 bn. In 1997 Credit Suisse Private Banking reorganised its structure in line with the re- focusing of Credit Suisse Group. The restructuring of the sales network has been com- pleted. Credit Suisse Private Banking is now represented in 50 locations in Switzerland and 50 outside Switzerland. Both asset management and investment advisory products and services have been optimised, as have the regional marketing strategies. In offshore business, new financial advisory products for the Trust Services business area have been developed. Lending operations have been reorganised. In addition to mortgage-backed loans, lending covered by marketable collateral was especially important. Credit Suisse Private Banking also reinforced its international activities in 1997. In early September the business unit acquired a 70% stake in the Parisian private bank Banque Hottinguer, substantially strengthening its position in the French market. RATIOS/KEY PERFORMANCE INDICATORS Allocated equity capital CHF m (1 Jan. 1998) 1,900 Cost/income ratio 50.6% Number of employees (31 Dec. 1997) 8,464 Pre-tax margin 46% Personnel expenses/total operating expenses 54.8% Personnel expenses/revenue 26.9% Fee income/revenue 64.5% Fee income/total operating expenses 131.5% Assets under management CHF bn 384 18
  • 21. Credit Suisse Private Banking put in a very good performance, posting 1997 results profit growth of 24% before extraordinary items and tax and an 18% increase in assets under management. This increase in assets was due to market performance (14%) and net new business (4%). Operating expenses increased at a lower rate than revenue, rising by 10% to CHF 1,770 m. Expenses rose more sharply during the second half of the year com- pared with the first half as a result of accelerated front-office expansion and investment in IT projects to support product development. Nevertheless, the cost/income ratio im- proved from 54% to 51%. Increased risks in business in Asia (CHF 42 m) and the reorganisation of Bank Leu’s lending portfolio resulted in higher credit provisions. These provisions were offset by the release of reserves for general banking risks. BALANCE SHEET INFORMATION 31 Dec. 1997 in CHF m Total assets 81,349 Due from customers 25,406 – of which secured by mortgages 9,815 – of which secured by other collateral 12,187 INCOME STATEMENT Pro forma 1997 1996 Change in CHF m in CHF m in % Net interest income 792 759 4 Net commission and service fee income 2,328 1,937 20 Net trading income 389 303 28 Other ordinary income 101 72 40 3,610 3,071 18 REVENUE Personnel expenses 970 807 20 Other operating expenses 800 802 0 1,770 1,609 10 TOTAL OPERATING EXPENSES 1,840 1,462 26 GROSS OPERATING PROFIT Depreciation and write-offs on non-current assets 55 55 0 Valuation adjustments, provisions and losses* 113 58 95 1,672 1,349 24 PROFIT BEFORE EXTRAORDINARY ITEMS AND TAXES Extraordinary income* 36 Extraordinary expenses 46 Taxes 341 1,321 NET OPERATING PROFIT (before minority interests) – of which minority interests 7 1,314 NET OPERATING PROFIT (after minority interests) * net of CHF 56 m release of reserves for general banking risks 19
  • 22. GLOBAL INVESTMENT BANKING In 1997 Credit Suisse First Boston increased its revenue by 30% to USD 7.1 bn, posting net operating profit before exceptional items and minority interests of USD 1.2 bn. Through targeted investment programmes and acquisitions, the firm significantly strengthened its position as one of the world’s leading investment banks. The year began with the firm’s major reorganisation as part of Credit Suisse Group’s restructuring. This has been successfully completed. In November, Credit Suisse First Boston announced agreement to purchase the UK and Continental European equities, equity capital markets, and corporate finance advisory businesses of BZW. The acquisition significantly expands the firm’s position in Europe while adding the UK as an important third home market. This was followed, in early 1998, by the acquisition of certain of BZW’s equity and investment banking businesses in Asia and the agreement to acquire 100% of First Pacific, one of Australia’s leading equity firms. These moves accelerate and complement the firm’s expansion plans in the Asia/Pacific region. As important as these structural changes was the adoption of major organic investment programmes to strengthen the firm and position it to tap future growth opportunities and control them profitably. Credit Suisse First Boston’s customer busi- nesses in investment banking, sales and research are being particularly expanded, while in the support departments major programmes are also under way to address industry issues such as the year 2000 and the euro, while rejuvenating the infrastructure and the control environment to raise productivity and cope with the pace of change. Strate- gically, the cumulative effect of these moves is to further strengthen Credit Suisse First Boston’s position among the industry leaders. RATIOS/KEY PERFORMANCE INDICATORS Allocated equity capital CHF m (1 Jan. 1998) 9,900 BIS tier 1 ratio* 8.5% Cost/income ratio 68.9% Return on average allocated capital 18% Number of employees (31 Dec. 1997) 11,863 Pre-tax margin 25% Personnel expenses/total operating expenses 73.4% Personnel expenses/revenue 49.1% * applies to the Credit Suisse First Boston legal entity 20
  • 23. Credit Suisse First Boston recorded revenue of USD 7.1 bn 1997 results (CHF 10.3 bn), an organic growth rate of 30% in USD, or 53% in CHF, which is greater than any other leading global investment bank. A strong focus on profitability produced very good net operating profit of USD 1.2 bn (CHF 1.7 bn), before minority interests and exceptional items, and ROE increased to 18%. Key cost ratios, partic- ularly relating to pre-tax profit margins and personnel expenses/revenue, remained in line with other leading investment banks. The BIS tier I ratio was maintained at 8.5%. Credit Suisse First Boston’s balance sheet (in dollar terms) was virtually unchanged against the pro forma figures at 1 January 1997. This was due to conservative balance sheet management, aimed at keeping the relationship of equity to assets (net and gross of reverse repos) relatively constant on an equity base growing slowly (in dollar terms), held back by a depreciating Swiss franc (over 70% of the equity is held in Swiss francs) and extraordinary charges. The goal for the year was to make more profit from the same asset base. This was achieved by starting to shift from loans to securities holdings (up over USD 10 bn), shifting from low-margin corporate loans to higher-margin trading-oriented loans (real- estate-related and high-yield) and increasing asset turnover. The USD 10 bn decline in securities lending/reverse repos was a temporary move, unreflective of underlying activity. INCOME STATEMENT Pro forma Pro forma 1997 1997 1996 Change 1996 Change in CHF m in USD m in CHF m in % in USD m in % Fixed Income 4,866 3,379 2,874 70 2,356 43 Equity 1,745 1,212 1,017 71 834 45 Credit Suisse Financial Products 1,680 1,167 1,160 45 950 23 Corporate and Investment Banking 2,130 1,479 1,669 27 1,368 8 Private Equity and other –157 –109 –18 – –15 – 10,264 7,128 6,702 53 5,493 30 REVENUE Personnel expenses 5,036 3,497 3,265 54 2,676 31 Other operating expenses 1,822 1,265 1,218 50 999 27 6,858 4,762 4,483 53 3,675 30 TOTAL OPERATING EXPENSES 3,406 2,366 2,219 53 1,818 30 GROSS OPERATING PROFIT Depreciation and write-offs on non-current assets 213 148 175 22 143 3 Valuation adjustments, provisions and losses* 562 390 314 79 258 51 PROFIT BEFORE 2,631 1,828 1,730 52 1,417 29 EXTRAORDINARY ITEMS AND TAXES Extraordinary income* 51 35 Extraordinary expenses 114 79 Taxes 872 606 1,696 1,178 NET OPERATING PROFIT (before minority interests) – of which minority interests 123 85 1,573 1,093 NET OPERATING PROFIT (after minority interests) * net of CHF 22 m release of reserves for general banking risks 21
  • 24. The USD 10 bn rise in funding from bonds and mortgage bonds reflected the USD 5 bn Triangle loan securitisation, which in accounting terms stayed on balance sheet, and a number of innovative Upper Tier II debt issues during 1997, which strengthened Credit Suisse First Boston’s total capital ratio significantly. Revenue percentages in the comments on the divisional results below refer to the underlying dollar-based growth. Investment banking revenues Corporate and Investment Banking Division (CIBD) increased by 8%. These increases were driven by improved results across the board. The increases in investment banking revenues were offset, in part, by declines in revenues from corporate lending activities. These declines reflected CSFB’s strategy, initiated in 1997, to reallocate capital resources from corporate lending to other busi- nesses. The strong focus on client relationships was demonstrated through successful delivery of many landmark transactions, as recognised by numerous Deal-of-the-Year and other awards from financial publications around the world. The ROE was poor primarily due to lower returns from the lending business. In addition USD 150 m (CHF 216 m) was provided at year-end for Asian-related credit exposure. Revenues for the Fixed Income Division increased 43% in 1997, with Fixed Income ROE exceeding 30% due to significantly improved results across most major product lines. Particularly good performance was posted in the real estate activities of the Principal Transactions Group (PTG) and the Emerging Markets Group (EMG). Fixed income revenues also increased from improved results in high-yield corporate securities, global foreign exchange and money markets, offset, in part, by declines in trading governments and Swiss fixed-income securities. Revenues for the Equity Division increased 45% in 1997, with ROE exceeding Equity 30% primarily as a result of significantly improved results in customer-driven businesses complemented by strong trading results. Revenues were particularly strong in the eastern European business, in Swiss activities and in the US-listed and OTC busi- nesses. Results also improved substantially in the convertibles and risk arbitrage activi- ties. Gross equity-related revenues, including those reported in CIBD and Credit Suisse Financial Products, amounted to USD 1.55 bn (CHF 2 bn). Revenues increased 23% in 1997, with Credit Suisse Financial Products (CSFP) ROE exceeding 30%. This was primarily due to improved results in the swaps and options, commodities, asset trading and credit derivatives businesses, offset, in part, by declines in OTC equity derivatives and foreign exchange derivatives; however, both of these businesses produced positive revenues in 1997. 1997 was a build year for this Division, still showing a slight loss, Private Equity successfully hiring key people and closing a large international fund. 22
  • 25. BALANCE SHEET Pro forma 31 Dec. 1997 1 Jan. 1997 Change in CHF m in CHF m in % Cash and other liquid assets 2,021 1,533 32 Money market claims 16,119 14,690 10 Due from banks 138,351 128,567 8 – of which securities lending and reverse repurchase agreements 103,288 81,508 27 Due from other business units 5,933 0 Due from customers 103,993 125,310 –17 – of which securities lending and reverse repurchase agreements 62,030 85,745 –28 Mortgages 7,157 5,569 29 Securities and precious metals trading portfolio 102,385 81,527 26 Financial investments 9,343 6,066 54 Participations 262 283 –7 Tangible fixed assets 1,837 1,460 26 Accrued income and prepaid expenses 5,817 4,389 33 Other assets 53,690 38,428 40 – of which replacement value of derivatives 50,934 446,908 407,822 10 TOTAL ASSETS Liabilities in respect of money market paper 17,719 11,169 59 Due to banks 183,043 215,403 –15 – of which securities borrowing and repurchase agreements 84,817 89,637 –5 Due to other business units 39,677 14,533 173 Due to customers, in savings and investment deposits 463 400 16 Due to customers, other 97,374 95,458 2 – of which securities borrowing and repurchase agreements 56,797 51,525 10 Bonds and mortgage-backed bonds 33,551 17,156 96 Accrued expenses and deferred income 8,025 6,724 19 Other liabilities 53,875 36,139 49 – of which replacement value of derivatives 50,635 Valuation adjustments and provisions 2,706 2,062 31 Equity capital 10,475 8,778 19 – of which minority interests 1,201 880 36 446,908 407,822 10 TOTAL LIABILITIES 23
  • 26. SERVICES FOR INSTITUTIONAL INVESTORS WORLDWIDE During 1997 substantial progress was made towards creating an integrated business. It was a year of strong investment performance, strong asset growth and strengthened financial results. Assets under management rose by 21% to CHF 263 bn. Credit Suisse Asset Management’s business in Switzerland maintained its leading position in 1997 and enjoyed strong growth in discretionary and advisory assets. The London-based operation continued its strong performance in Global Fixed Income and European Equities. The rapidly growing UK unit trust group exceeded GBP 1 bn (CHF 2.4 bn). The unit’s US business received several large prestigious fixed-income and high-yield mandates and was awarded the highest ranking in the Frank Russell Universe for fixed income. Japan, one of the most important growth markets for the business unit, has experienced another year of strong expansion (44%), ending the year at over JPY 1,400 bn (CHF 15.5 bn). In Australia, assets under management grew 57% to AUD 4.8 bn (CHF 4.5 bn). Credit Suisse Asset Management’s mutual funds business was awarded “Best Management Group” in its category by Standard & Poor’s Micropal for the third year in a row. RATIOS/KEY PERFORMANCE INDICATORS Allocated equity capital CHF m (1 Jan. 1998) 130 Cost/income ratio 66.5% After-tax profit/average AUM 8.9 bp Number of employees (31 Dec. 1997) 1,393 Pre-tax margin 32% Personnel expenses/total operating expenses 57.8% Personnel expenses/revenue 37.2% Total assets under management CHF bn 263 Total discretionary funds CHF bn 186 – of which total mutual funds distributed CHF bn 60 Total advisory assets CHF bn 77 Growth in assets under management 21.1% Growth in discretionary assets under management 17.5% – of which is volume 6% – of which is performance 11.5% 24
  • 27. Discretionary assets under management grew 18% in 1997, 12% due to 1997 results market appreciation and foreign exchange movements and 6% stemming from net new business. Net profit before extraordinary items and taxes increased 59% in 1997, resulting from a 22% increase in revenue against an increase of 17% in total operating expenses. The growth in personnel expenses was offset by significant reductions in other oper- ating expenses and in the cost for services from other business units of Credit Suisse Group. The adjusted pre-tax gross margin improved from 26% in 1996 to 32%, while after-tax profit to average assets under management improved from 7.8 basis points to 8.9 basis points. INCOME STATEMENT Pro forma 1997 1996 Change in CHF m in CHF m in % Management and advisory fees 481 375 28 Net mutual fund fees 265 247 7 Other revenues 42 24 75 788 646 22 REVENUE Personnel expenses 293 223 31 Other operating expenses 214 211 1 507 434 17 TOTAL OPERATING EXPENSES 281 212 33 GROSS OPERATING PROFIT Depreciation and write-offs on non-current assets 17 13 31 Valuation adjustments, provisions and losses 0 33 PROFIT BEFORE EXTRAORDINARY 264 166 59 ITEMS AND TAXES Extraordinary income 9 Extraordinary expenses 23 Taxes 36 214 NET OPERATING PROFIT (before minority interests) – of which minority interests 0 214 NET OPERATING PROFIT (after minority interests) 25
  • 28. INSURANCE FOR PRIVATE AND CORPORATE CUSTOMERS WORLDWIDE Winterthur Group recorded very good results in 1997, a year which also saw some fundamental decisions for the future. The insurance areas of Credit Suisse Group were included in Winterthur’s consolidated results for the first time. Despite an increase in provisions, net operating profit after minority interests rose by 31% to CHF 674 m. After taking into account exceptional items totalling CHF 356 m, Winterthur posted an annual profit of CHF 318 m. Shareholders’ equity excluding minority interests grew by 53% to CHF 8 bn. The exploitation of potential in the field of bancassurance ranks among the major challenges and opportunities both for 1998 and in the years ahead. At the start of 1998 Structure strengthened and management rejuvenated Winterthur Group revised its organisational structure and realigned its Executive Board. A Corporate Centre was formed with responsibility for Group activities. The operational divisions were regrouped in line with the strategic priorities. In addition, effective 1 April 1998 a product centre for individual and group life business was created, the result of the implementation of Credit Suisse Group’s bancassurance strategy. The new division unites the relevant business activities of Winterthur Life, Winterthur-Columna and CS Life. Its products will be distributed via Winterthur’s sales network and those of the banking units of Credit Suisse Group. The new division will rank among the leading providers of individual and group life insurance solutions in Switzerland. The expansion of its operations into the international markets is planned. The merger between Credit Suisse Group Merger moving ahead systematically and Winterthur in line with the bancassurance strategy is proceeding systematically and successfully. The first measures have already been implemented, for example product launches, combining banking and insurance expertise. In addition, after positive experi- ence in pilot offices, at least 80 Credit Suisse branches and Winterthur agencies will be brought together in shared premises over the next few months, offering substantial potential for increased revenue while also bringing cost savings. Aided by favourable conditions in the Very good year for operational business international insurance and financial markets, the majority of Winterthur operating units succeeded in improving their results and competitive position. In Switzerland, the merger of non-life and life distribution strengthened the market position considerably and boosted cross-selling. Moreover, Winterthur’s leading position in the Swiss market was reinforced thanks to the establishment of Winterthur-Columna, the joint life and pension company of Winterthur and Credit Suisse, and collaboration with the Swiss post office. 26
  • 29. At DBV-Winterthur in Germany, the participation portfolio was streamlined and business geared more closely to market and customer needs. Co-operation with Commerzbank is continuing to move forward successfully. In Italy and Spain the restructuring measures, which were rapidly implemented, bore fruit, while, in Belgium, the purchase of Josi in 1996 saw the start of a business refocusing. In eastern Europe, Winterthur is active in the Czech Republic, Hungary and, since 1997, also in Poland. The main features of 1997 in the South-East Asia/Pacific region were the successful business performance in Hong Kong and the launch of operations in China. Winterthur Interna- tional elaborated a more aggressive strategy, strengthening its structures and extending its range of products and services to multinationals. All figures cover the accounts of both Winterthur and CS Life. Net 1997 results operating profit after minority interests rose by 31% to CHF 674 m. After taking into account exceptional items totalling CHF 356 m after tax for one-time costs in connec- tion with the merger with Credit Suisse Group (CHF 300 m) and for IT restructuring in preparation for the year 2000 and for the introduction of the euro (CHF 56 m), Winterthur recorded an annual profit of CHF 318 m. Gross premiums advanced by approximately 3% to CHF 28 bn. Recording 6% growth, life operations showed substantially greater expansion than non-life business (up 0.2%). Investments, which account for roughly 90% of total assets, increased by 13% to CHF 102 bn. The structure of the investment portfolio also changed, with the stock allocation rising from 17% to some 23%. The real estate and mortgage portfolios decreased slightly in proportion. The sharp rise in shareholders’ equity (excluding minority interests) by 53% to CHF 8 bn reflects the excellent performance of the investment portfolio, the profit for the year and the conversion of a convertible bond issue. The technical provisions rose by 9% to CHF 91 bn. KEY FIGURES 1997 1996 Change in CHF m in CHF m in % Gross premiums 27,608 26,874 3 Net investment income 7,395 5,890 26 Net operating profit (after minority interests) 674 515 31 Annual profit 318 515 –38 Investments 102,119 90,401 13 Technical provisions 91,228 83,850 9 Debentures outstanding 922 1,451 –36 Shareholders’ equity (excl. minority interests) 7,924 5,172 53 Change 1997 1996 in % Number of employees (31 Dec.) 27,565 25,719 7 27
  • 30. As a result of the merger of Annual comparisons by line of business limited Neuchatel with the Winterthur companies in the 1997 financial year, annual comparisons of accounts by line of business are limited. The key performance benchmark, the combined 1997 results in non-life business ratio (the sum total of claims ratio, expense ratio and dividends to policyholders in- curred) again fell slightly from 107.7% to 107.5%. However, in this respect it should be noted that major allocations were made to the technical provisions, which can be seen from the improvement in the insurance reserve ratio (ratio of technical provisions to net earned premiums) from 177% to 182%. Net investment income increased by 33% on the previous year. Overall, the profit in non-life business (before extraordinary items, taxes and minority interests) amounted to CHF 904 m. BALANCE SHEET 31 Dec. 1997 31 Dec. 1996 Change in CHF m in CHF m in % Investments 102,119 90,401 13 – non-life 28,122 25,687 9 – life 73,997 64,714 14 Policy loans 902 710 27 Deposits with reinsured companies 337 486 –31 Cash at banks and in hand 770 707 9 Receivables from insurance companies 833 681 22 Receivables from agents and policyholders 2,775 2,456 13 Sundry debtors 1,514 1,690 –10 Accrued income and prepaid expenses 2,314 2,166 7 Office and EDP equipment 345 329 5 Other assets 1,178 1,076 9 113,087 100,702 12 TOTAL ASSETS Technical provisions 91,228 83,850 9 – non-life 24,205 23,079 5 – life 67,023 60,771 10 Deposits received from reinsurance ceded 750 691 9 Convertible bond and warrant issues 922 1,451 –36 Payables to insurance companies 707 975 –27 Payables to agents and policyholders 2,280 1,658 38 Sundry creditors 2,319 1,787 30 Accrued expenses and deferred income 1,771 948 87 Other liabilities 3,623 2,907 25 Shareholders’ equity 9,487 6,435 47 Minority interests 1,563 1,263 24 Shareholders’ equity after minority interests 7,924 5,172 53 113,087 100,702 12 TOTAL LIABILITIES 28
  • 31. Gross premiums rose by 6% to CHF 12.1 bn. The 1997 results in life business expense ratio remained virtually unchanged at 10.4% (1996: 10.5%). Claims incurred and the change in the actuarial provision rose more sharply than premiums, although this could be more than compensated for by the outstanding financial results. Net investment income rose by 23%. The profit in life business (before extraordinary items, taxes and minority interests) amounted to CHF 399 m. INCOME STATEMENT NON-LIFE OPERATIONS 1997 1996 Change in CHF m in CHF m in % Gross premiums 15,478 15,449 0 Net premiums 13,694 13,414 2 Premiums earned, net 13,297 13,071 2 Claims incurred, net –10,154 –9,787 4 Dividends to policyholders incurred, net –295 –389 –24 Operating expenses, net (including commissions paid) –3,955 –3,998 –1 –1,107 –1,103 0 UNDERWRITING RESULT, NET Net investment income 2,144 1,614 33 Interest on deposits and bank accounts 128 129 –1 Other interest paid –71 –64 11 Other income and expenses (including exchange rate differences) –190 42 –551 904 618 46 PROFIT (before extraordinary items, tax, minority interests) Investments 28,122 25,687 9 Technical provisions 24,205 23,079 5 INCOME STATEMENT LIFE OPERATIONS 1997 1996 Change in CHF m in CHF m in % Gross premiums 12,130 11,425 6 Net premiums 12,072 11,279 7 Premiums earned, net 11,961 11,236 6 Claims incurred, net –6,151 –5,558 11 Change in actuarial provision, net –7,305 –6,582 11 Allocation to participation, net –1,628 –1,532 6 Operating expenses, net (including commissions paid) –1,251 –1,187 5 Net investment income 5,029 4,079 23 Interest on deposits and bank accounts 118 109 8 Interest on bonuses credited to policyholders –124 –159 –22 Other interest paid –189 –151 25 Other income and expenses (including exchange rate differences) –61 120 –151 399 375 6 PROFIT (before extraordinary items, tax, minority interests) Investments 73,997 64,714 14 Technical provisions 67,023 60,771 10 29
  • 32. CREDIT SUISSE GROUP RISK MANAGEMENT Credit Suisse Group throughout its various business units pursues a balanced and effective risk management policy framework with clear goals of capital preservation and capital optimisation. The Group’s risk management approach is aimed at meeting the challenges of a rapidly changing market environment and at maximising the potential for the most efficient allocation and management of economic capital throughout the entire Group to the benefit of shareholders and other stakeholders. Taking financial risks and proactively managing Overview of risk management these risks is the Group’s prime business. Credit Suisse Group perceives risk management as an ongoing process. It starts with the definition of business policies and strategies and proceeds with the identification, assessment, management and control of all risks associated with the Group’s activities. The cycle closes with the reaffirmation and validation of objectives and strategies. The primary objectives of Credit Suisse Group’s proactive approach to risk man- Economic capital agement are to preserve the Group’s capital base and to optimise the allocation of Economic capital at Credit Suisse Group Risk Management is de- regulatory and economic capital to the individual business units. Credit Suisse Group fined as an equity reserve or seeks to manage risks on a prudent basis. Strategic plans have been adopted to cushion for unexpected losses. It ensures that Credit Suisse enhance risk management capabilities to a “best practice” level throughout the Group Group – even under extreme with the goal of staying at the forefront of the industry. conditions – remains solvent and stays in business. It is important The Board of Directors is responsible for the determination of the general risk to recognise that economic policy and the strategic risk management organisation. Certain risk management and capital is distinct from regulatory capital, which focuses on market control responsibilities have been delegated to the Group Chief Risk Officer and the and credit risk. Conceptually, Group Risk Coordination Committee (GRCC). The GRCC defines overall Group risk economic capital is comprehen- sive and covers all significant policies and approves general instructions and standards concerning risk management risks. at the business unit level. It also reviews Credit Suisse Group’s capital management process. Group Risk Management works closely with both the GRCC and the individual business units to ensure an effective and coherent implementation of the Group’s risk management strategy. 30
  • 33. As the main operating units, the business units of Credit Suisse Group are responsible for the implementation of the Group’s risk management strategy. Each business unit has a risk management structure in place – including the appropriate tools, systems, procedures and controls – that is ideally suited to managing the risks taken in that particular business unit. The key to successful risk management at the business unit level has been the design of a complementary “top-down strategic” and “bottom-up tactical” risk management approach with formal policies and procedures addressing all areas of significant risk. This in turn has fostered a risk management culture – which is an important part of Credit Suisse Group’s overall corporate culture – and the setting up of a corresponding organisational and operational structure. The structure is robust and flexible enough to cope with changes in the business environment and allows for the global integration of the various risks that can affect the Group’s portfolio. The Group also leverages the vast experience and know-how of Credit Suisse Financial Products, a subsidiary of Credit Suisse First Boston, which is an acknowledged market leader in risk management, particularly of complex transactions. In the normal course of its banking and insurance activities, Credit Suisse Group engages in transactions that give rise to various types of risks, including market risk and credit risk, operational risk and insurance risk. These risks vary as to relevance between the various business units. Group Risk Management attempts to harmonise the risk management approach of the different risk types. Market risk is the risk of loss arising from changes in the values of Market risk 1997 AVERAGE MARKET RISKS OF CSFB 1 financial instruments resulting from the movement of market rates, prices and volatili- 1% 2% ties. The majority of Credit Suisse Group’s market risk is concentrated in the Credit 18% Suisse First Boston business unit, the Group’s globally active trader and provider of corporate and investment banking services. Credit Suisse First Boston devotes con- siderable resources to ensure that market risk is comprehensively captured and under- stood, accurately modelled and effectively managed. Credit Suisse First Boston’s in- 20% 59% dependent Market Risk Management (MRM) department consolidates exposures arising Total interest rates from all trading portfolios and geographical centres and evaluates the firm’s aggregate Total foreign exchange Total equity Value at Risk (VaR) on a daily basis. In addition, MRM undertakes regular scenario Total commodities Total cross risk analysis of all major portfolios. 1 excluding correlation effects between the risk factors 31
  • 34. These measurement techniques can be summarised as follows: Variance-covariance – The Value at Risk method (VaR method) estimates the potential loss arising from the versus historical simulation portfolio for a predetermined probability and holding period, using market movements Variance-covariance determined from historical data. methods are based on calculating volatilities of – The Scenario Analysis method estimates the potential loss after stressing market the variables under con- parameters. These market parameter movements are derived from past extreme sideration (e.g. equity indices, FX rates), and events and hypothetical scenarios. correlation matrices for Credit Suisse First Boston has used a VaR methodology to model market risk since changes in these vari- ables. They assume that 1995, Credit Suisse Financial Products since the business was established in 1990. the changes in these Credit Suisse First Boston’s VaR is defined as the 99th percentile greatest loss that variables are normally or lognormally distributed. may be expected on the portfolio over a ten-day holding period. Two years of underlying Historical simulation data are used to derive the market movements used for this calculation. During 1997 uses actual historical changes in these vari- Credit Suisse First Boston began migrating from a variance-covariance methodology to ables over the observation a historical simulation approach for its derivatives trading subsidiary Credit Suisse period, and so avoids assumptions about their Financial Products. distribution. Historical Market risk limits are structured at multiple levels – from trading desks up to the simulation implicitly allows for correlations without business unit level – and can be regarded as risk flags which are used to identify having to rely on a corre- potential risk concentrations. Limits also assist in allocating risk clusters, e.g. to indivi- lation matrix. dual business units or regions and trading desks. RELATIONSHIP BETWEEN DAILY REVENUE AND VaR ESTIMATE FOR CREDIT SUISSE FIRST BOSTON CHF m 250 200 150 100 50 – –50 –100 –150 –200 –250 –300 1st quarter 1997 2nd quarter 1997 3rd quarter 1997 4th quarter 1997 Daily revenue One-day VaR The chart shows the relationship between daily trading revenue and one-day VaR over the course of 1997. This type of comparison between daily revenue and the VaR (“backtesting”) is the method proposed by the Basle Committee on Banking Super- vision for the measurement of the accuracy of the VaR model. 32
  • 35. The VaR measure is intended to be larger than all but a certain fraction – determined by DISTRIBUTION OF CSFB’S DAILY TRADING REVENUE 1997 the confidence level – of trading outcomes. The backtesting analysis shows less than No. of days the model’s expected number of exceptions (none in 1997). This suggests that Credit 45 Suisse First Boston’s VaR model is sound and meets regulatory standards. The average 40 one-day VaR estimate was CHF 201.9 m, and the minimum and maximum levels were 35 30 CHF 139.2 m and CHF 257.7 m respectively. 25 The average daily trading revenue was CHF 25.1 m, and the minimum and 20 maximum levels were CHF –102.6 m and CHF 120.0 m respectively. Credit Suisse 15 First Boston’s frequency distribution of daily trading revenue for 1997 is illustrated on 10 the right. 5 0 The Basle Committee on Banking Supervision published the “Amendment to the –100 –50 0 50 100 CHF m Capital Accord to Incorporate Market Risks” in January 1996. Following a review and Frequency of trading revenue confirmation of compliance with the Swiss equivalent of the BIS guidelines by Credit Suisse First Boston’s Banking Law Auditors, the Federal Banking Commission has allowed Credit Suisse First Boston to commence using its internal VaR models to calculate market risk capital with effect from 1 January 1998. The BIS ratios at 31 December 1997 (see Financial Highlights 1997 on page 1) have been calculated under the old regulatory framework for market risk. The capital ratios for Credit Suisse Group under the new regulatory framework are 10.3% (old: 10.9%) for the BIS tier 1 ratio and 15.8% (old: 16.8%) for the BIS total capital ratio. Scenario analysis is an essential component of Credit Suisse First Boston’s mar- ket risk measurement framework. Using this technique, market risk is measured by dynamically revaluing each portfolio after stressing the market data parameters. The market data is changed according to a predefined set of scenarios. Scenario analysis supplements the VaR approach as it allows risk to be viewed in cases where, for example, market conditions are disrupted. Many of the scenarios are based on extreme macroeconomic events from the past, e.g. the 1987 stock market crash and the 1991 Gulf war. Scenarios also exist that can assess the impact of events that could occur in the near future, e.g. postponement of European Monetary Union. In the disrupted equity market conditions that began in the last quarter of 1997, scenario results for emerging market difficulties were particularly useful. In addition, a scenario which quantified the impact on projected losses of partially re-hedging portfolios as markets fell and a scenario that measured the impact of a stock market bounce back also provided management with useful information for managing the business during the Asian crisis. 33
  • 36. CREDIT EXPOSURE OF THE Credit risk is the risk that a borrower (or counterparty) is unable to meet Credit risk PERFORMING PORTFOLIO BY INTERNAL RATING its financial obligations. In the event of a default, a bank generally incurs a loss equal to as at 31 December 1997 % of the amount owed by the borrower less a recovery amount resulting from foreclosure, performing portfolio liquidation or restructuring of the company. The majority of Credit Suisse Group’s credit 30 risk is concentrated in the Credit Suisse and Credit Suisse First Boston business units. 25 Over the past three years, Credit Suisse Group has been engaged in a review of 20 best practice in the area of credit risk management. This effort has culminated in a new 15 Credit Risk Management Framework for the Group. We believe that this new approach to assessing and managing credit risk is at the cutting edge of current thinking in risk 10 management and will help drive the Group’s profitability over the coming years. Credit 5 Suisse Group has implemented the Credit Risk Management Framework for MIS pur- 0 R1 R2 R3 R4 R5 R6 R7 AAA AA A BBB BB B <B poses in December 1996. The framework is continually being refined. Credit Suisse: funded loans (incl. mortgages) Credit Suisse Group’s Credit Risk Management Framework comprises four core Credit Suisse First Boston: funded loans and related exposures components: (i) an individual credit limit system, (ii) country and regional concentration Internal ratings R1-R7 are approximately equivalent to the respective external ratings limits, (iii) a credit risk provisioning methodology and (iv) a portfolio optimisation and pricing methodology. A system of individual credit limits (i) is the traditional means of managing credit risk. Credit Suisse Group’s limit system also aims at optimising portfolio diversification. CSFB COUNTRY EXPOSURE BY A comprehensive set of country and regional limits (ii) is in place to address concentra- INTERNAL RATING as at 31 December 1997 tion issues in the portfolio. The third aspect of the Credit Risk Management Framework CHF m is an appropriate credit risk provisioning methodology (iii). Annual credit provisions 140,000 (ACP) equal expected credit losses (derived from historical actual losses averaged over 120,000 many years). The annual expected loss of the performing portfolio is a predictable risk, 100,000 which is essentially a cost of doing credit-related business. Actual losses which occur 80,000 in any one year may be higher or lower than this amount, depending on the economic 60,000 environment, interest rates, etc. In addition to the expected loss, an indicative worst 40,000 case loss is also calculated, which is called the incremental credit reserve (ICR). The 20,000 ICR is calculated over a one-year time horizon based on the 99th percentile of the cre- 0 dit default loss distribution and historical recovery rates. The difference between the N1 N2 N3 N4 N5 N6 N7 AAA AA A BBB BB B/ <CC ICR and the ACP reflects the unexpected loss level. As this framework is used for CCC Credit Suisse First Boston: funded and unfunded committed management information purposes only, the ICR is not shown as a separate position and funded uncommitted, loans and related exposures, mark-to-market on the legal financial statement. The fourth aspect of the Credit Risk Management receivables to counterparties. Internal ratings N1-N7 are approximately Framework is the pricing and optimisation of the portfolio and the consideration of risk equivalent to the respective external ratings and reward (iv). Credit Suisse Group’s Credit Risk Management Framework is a vital tool to man- age the Group’s credit risk on an ongoing basis and provide shareholders with a more transparent picture of the economies of credit risk borne by the Group. The framework allows transactions involving credit risk to be more correctly priced by performing the risk/return calculation to ensure that an adequate return is being achieved for the level of risk taken, including the diversification impact on the portfolio. 34
  • 37. The current implementation of the Credit Risk Management Framework covers substan- PERFORMING PORTFOLIO: ACP BUDGET 1997, ACTUAL CREDIT LOSSES 1997 tial parts of the credit exposures of Credit Suisse, Credit Suisse Private Banking and AND ACP BUDGET 1998 Credit Suisse First Boston’s global non-bank on-balance sheet credit exposure. CHF m 1,000 Based on these exposures, the two charts to the right show the relationship between the ACP budget 1997, actual credit losses 1997 and the ACP budget 1998, as 800 well as the change in the ICR between the end of 1996 and the end of 1997. Credit 600 Suisse Financial Products has fully implemented the Group’s Credit Risk Management Framework. 400 CREDITRISK + – a state-of-the-art credit risk measurement and management tool 200 developed by Credit Suisse Financial Products – is a core component of this new 0 framework. CREDITRISK + was made available to the public in 1997. BU BU BU CS CSPB CSFB CSG ACP budget 1997 Actual credit losses 1997 Operational risk is mitigated through effective and comprehensive Operational risk ACP budget 1998 policies, procedures and a system of internal controls. These include risk management information systems, computer systems, communication networks, fraud detection and segregation of duties. Trading units, for example, are kept strictly separate from back- office operations, with each area reporting to a different line of management. Indepen- dent pricing controls are in place and technical and organisational control mechanisms INCREMENTAL CREDIT ensure that transactions carried out by traders are processed promptly, correctly and RESERVE (ICR) AT THE END OF 1996 AND 1997 without omission. CHF m Settlement risk All business units engaging in trading activities monitor settlement 2,000 risk for its credit components. Late receipts of funds are monitored with the aim of 1,500 detecting possible default patterns in the making. To reduce settlement amounts, pay- ment netting is extended to a wider number of counterparties. Netting, where legally 1,000 enforceable, has been named a priority for all business units. Operationally, settlement risk is reduced by Credit Suisse Group’s new structure, resulting in fewer and more 500 specialised entities. In addition, the number of bank group limits of Credit Suisse Group 0 was reduced from more than 2,500 to less than 1,800 by the end of 1997. BU BU BU CS CSPB CSFB CSG ICR 31 Dec. 1996 ICR 31 Dec. 1997 Legal risk Credit Suisse Group’s business units are reducing and minimising legal risk In 1996 the ICR for CS and CSPB by using appropriate documentation – standard master agreements and individual trade was calculated jointly and therefore a separate ICR is not shown for CSPB. The calculation of the ICR was refined confirmations – and by continuous consultation with internal and external counsel to during 1997. analyse legal risk, improve documentation and strengthen transaction structures. 35
  • 38. The balance sheet interest rate risk is monitored Asset and liability management and managed by the individual business units within specifically designated centres of competence; responsibility lies with the respective Asset and Liability Management Committees. The management of interest rate risk is primarily based on mark-to- market methods. Swaps, FRAs and options are used as hedging instruments. With regard to structural balance sheet risk, Credit Suisse and Credit Suisse Private Banking use market risk measurement methodologies. For asset and liability management purposes, VaR is calculated based on the 95% confidence level and a twenty-day holding period. Two years of underlying data are used to derive the market movements used for this calculation. Large portions of the retail portfolios of Credit Suisse and Credit Suisse Private Banking consist of non-maturing accounts (e.g. variable-rate mortgages and savings products). Their factor sensitivities are modelled with replicating portfolios based on the effective repricing behaviour of non-maturing accounts. As part of the ongoing integration process of Winterthur into Winterthur Group Credit Suisse Group, Group Risk Management is ensuring that Winterthur Group’s risk management approach fits into the overall risk management structure of Credit Suisse Group. Winterthur Group’s risk management goals – capital preservation and capital optimisation – are fully compatible with those of Credit Suisse Group. The overall risk management policy framework focuses on identification, assessment, management and control of all the risks associated with Winterthur Group’s activities. Winterthur Group makes use of diversification effects and reinsurance – classic reinsurance as well as alternative risk transfer products – to optimise its risk profile. Product design is also used to manage Winterthur Group’s risk. Limit systems – in addition to comprehensive internal investment policies and restrictions issued by national or local insurance regulators – are used to control market risk and credit risk. Certain financial risks are quantified with simulation models and scenario analysis. This approach allows comparison and aggregation of different risk types – including insurance risk – at the level of Credit Suisse Group. Winterthur Group utilises derivative products for hedging purposes only, mostly in connection with insurance products, investment transactions and bond issues. 36
  • 39. It is part of Credit Suisse Group’s strategy to be a leader in the management Outlook of market risk, credit risk, operational risk and insurance risk. Significant personnel and technological resources are focused on ensuring that Credit Suisse Group continues to enhance its risk management capabilities and thereby remains at the forefront of the industry. To achieve this goal, Credit Suisse Group has developed an integrated frame- work of best practice risk management, risk policies, methodologies and infrastructure. Credit Suisse Group also intends to link together risk management, performance mea- surement and capital allocation using a risk and economic capital management frame- work, with economic capital usage as a common denominator for all risks. Together with the proactive risk management culture and the appropriate quantitative tools, the economic capital management framework will support the decision-making process of Credit Suisse Group’s Executive Board, thus linking risk management to the Group’s shareholder value strategy. 37
  • 40. THE ROLE OF THE SWISS FINANCIAL SERVICES INDUSTRY IN THE SECOND WORLD WAR The historical investigation into the conduct of the Swiss banks during the Second World War is of the utmost importance to Credit Suisse Group, to the Swiss financial centre and ultimately to Switzerland as a whole. The way we tackle the unresolved issues and problems now will have a decisive impact on our future. Significant progress has already been made: the Swiss banks have published the names of the holders of dormant accounts worldwide, and the first payments have been made from the humanitarian fund set up by the major banks for needy victims of the Holocaust. The big banks involved in the US class actions have expressed their willingness to enter into negotiations for a settlement. Historical investigations Since the spring of 1997, the discussion about the con- duct of the Swiss banks during the Second World War, which originally focused on moral issues, has gradually become less emotive. Over the last few months, the investi- gations and other measures initiated by the banks, the Swiss business community and the authorities have helped to foster an increasingly objective approach. In the long run, these measures will be seen as the best response to questions about Switzerland’s conduct in general and its handling of dormant accounts in particular. Credit Suisse Group is determined to do whatever it can to aid the enquiries by the experts of the Bergier Commission and Volcker Committee. In this spirit the bank has restructured and expanded its archive, checked a huge number of documents and made its files available for examination. Alongside these efforts, which have employed up to 140 people at peak times, Credit Suisse Group’s own experts are working to give the bank an overview of the most important historical facts. With hindsight it has to be conceded that for a long time the Dormant accounts Swiss banks devoted too little attention to the issue of dormant accounts, and that they were often too inflexible and dogmatic, especially considering the highly sensitive back- ground of the Second World War. In mid-1997 Credit Suisse Group established a spe- cial subdivision for the investigation into dormant accounts. After the historical enquiries have been concluded, this department’s main task will be to prevent accounts becom- ing dormant in future and to minimise their number. Credit Suisse Group supports efforts to create legislation which would allow the banks to hand over responsibility for dormant assets to the authorities after a given period. On 23 July 1997 the Swiss Bankers Association took the unprecedented step of publishing worldwide a list of some 1,900 foreign holders of dormant accounts dating from the Second World War era. On 31 October 1997 the names of more than 10,000 Swiss holders and 3,700 foreign holders of dormant accounts and savings books were published. By December 1997 the first of the 6,000 claims submitted to the contact offices had already been settled. 38
  • 41. The banks’ investigation into dormant assets is being supervised by the Volcker Com- mittee. The Swiss banks are determined that the historical investigation continues as planned and that it can be concluded within a reasonable period of time. The class actions against the three Swiss big banks have Class actions in the USA not yet been accepted by the presiding judge. These actions have been accompanied by threats of sanctions in a number of US states and cities. With the mediation of US Undersecretary of State Stuart Eizenstat, talks with the plaintiffs and the World Jewish Congress have begun. At the end of March 1998 the big banks expressed their willing- ness to reach a fair settlement. They are negotiating exclusively on their behalf and only in respect of the issues which concern themselves. The purpose of the humanitarian First payments out of the humanitarian fund fund for needy victims of the Holocaust – with resources at present of CHF 275 m donated by the major Swiss banks, Swiss business and private individuals – is to pro- vide rapid assistance to needy survivors of the Holocaust. Payments are initially being concentrated in eastern Europe. On 18 November 1997 the first payments were made through the World Jewish Restitution Organization to 80 Jewish victims of the Shoa living in Riga, Latvia. In the meantime, further payments have also been made. Important events and measures February 1997 The three major Swiss banks launch the humanitarian fund for needy victims of the Holocaust with a deposit of CHF 100 m. March 1997 The Swiss Federal Council proposes the creation of a Solidarity Fund. May 1997 The Eizenstat report is published. It deals with the USA’s role in the handling of Nazi assets and on the policy of the other Allies and neutrals in the Second World War. Switzerland is examined in particular detail. July 1997 A list of the names of 1,900 foreign holders of dormant accounts is published around the world by the Swiss Bankers Association. October 1997 The Swiss Bankers Association publishes a second list containing the names of more than 10,000 Swiss holders and 3,700 foreign holders of dormant accounts and savings books. November 1997 First payments from the humanitarian fund for needy victims of the Holocaust. December 1997 Representatives of forty countries attend an international conference on Nazi gold in London. March/April 1998 Threats by US states and cities to impose sanctions on the Swiss banks are put on hold. The big Swiss banks express their willingness to enter into talks with class action lawyers and the World Jewish Congress. 39
  • 42. CREDIT SUISSE GROUP AND THE COMMUNITY As an internationally active organisation, Credit Suisse Group operates within a wide range of social and economic frameworks and is well aware of its responsibilities towards the wider community. Switzerland is of particular importance to Credit Suisse Group: with its nationwide presence and 28,550 employees, it is one of the largest employers in the country. Credit Suisse Group aims to be an attractive employer for its An attractive employer 62,242 staff worldwide, offering stimulating employment and career opportunities in banking and insurance. The merger with Winterthur has opened up new horizons for Credit Suisse Group staff in the field of bancassurance. The Group places a great deal of emphasis on training. In 1997 alone it took on around 400 new trainees and 200 graduate trainees in Switzerland. Credit Suisse Group places particular importance on the promotion of equal opportunities in the workplace. Credit Suisse Group has been actively committed Commitment to the environment to environmental protection for over 20 years, incorporating ecological factors into its operations. Particular attention is paid to reducing energy consumption and analysing both credit and liability insurance applications for any potential environmental risks. In 1997 Credit Suisse Group became the first major bank in the world to be awarded an environmental certificate, verifying that all its offices in Switzerland conform to the stan- dards of ISO 14001. In 1997 Credit Suisse Group Financial support – the Anniversary Foundation supported a range of organisations and institutions dedicated to social, charitable, humanitarian and cultural causes, with over 1,000 beneficiaries receiving a total of around CHF 15 m. The Anniversary Foundation promoted numerous community projects in different social and cultural fields. Thanks to the sponsorship activities of Credit Sponsorship and social commitment Suisse, some 28,000 people were able to attend over 200 sporting and cultural events throughout Switzerland in 1997. In addition to its extensive involvement in gymnastics, handball and classical music, Winterthur joined Credit Suisse as a sponsor of the Tour de Suisse and the Swiss national football teams. It also held its traditional “WinConference”, with members of the business community and the world of politics coming together to discuss “Revolution-Resurgence”. Credit Suisse Private Banking focused on selected cultural and sporting events in the fields of golf, equestrianism, the visual arts and clas- sical music, while Credit Suisse First Boston supported more than 500 organisations. Numerous members of staff also gave their time to charitable causes, non-profit organisations and neighbourhood centres. 40
  • 43. CREDIT SUISSE GROUP PROJECTS Credit Suisse Group focused on three major projects in 1997: the implementation of the restructuring of banking operations launched the previous year, preparation for the introduction of the euro, and the adjustments associated with the advent of the new millennium. The strategic refocusing of Credit Suisse Group Refocusing of banking operations into four business units geared to the needs of specific customer segments and mar- kets was rapidly and successfully implemented, with most of the associated measures completed by the end of 1997. In 1998 work will be carried out particularly on projects in the field of processing and information technology. The strategies developed in collaboration with the social partners in respect of job reductions to be implemented in Switzerland by the end of 1998 are working extremely well. At year-end 1997, the planned loss of 2,100 jobs in Switzerland and 1,800 abroad was more or less compensated for by new positions created as a result primarily of new acquisitions and an increase in business volume. Preparation for the introduction of the euro has been fully under way for The euro some time now. This preparatory work is focusing on the adaptation of EDP systems, the euro-compatibility of products and payment options, the restructuring of forex trad- ing and securities processing, the expansion of distribution channels within the EMU member states and the reappraisal of investment and risk policies. The IT adjustment work begun as early as 1996 in advance Ready for the year 2000 of the change-over to the year 2000 is proceeding to plan, with Group-wide evalua- tions, code analyses, corrections and tests carried out in the course of 1997. Numerous programs have already been released for operational use. The Group will be able to complete the necessary work on schedule. Credit Suisse Group took an exceptional charge in its 1997 accounts for IT restructuring in preparation for the introduction of the euro and for the year 2000 of CHF 401 m. 41

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