.credit-suisse Annual Report Part 3 Review of business units Credit Suisse Financial Services Credit Suisse Private Banking Credit Suisse Asset Management Credit Suisse First Boston
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  • 1. ANNUAL REPORT 2000/2001 PART III REVIEW OF BUSINESS UNITS
  • 2. PART I 2 Financial highlights 2000 4 To our shareholders PART II 6 An overview of Credit Suisse Group 6 Organisation 8 Financial review 11 Strategic review PART III 13 Review of business units 16 Credit Suisse Financial Services 23 Credit Suisse Private Banking 25 Credit Suisse Asset Management 27 Credit Suisse First Boston PART IV 30 Credit Suisse Group Risk Management PART V 50 Consolidated financial statements PART VI 107 Parent company financial statements 118 Five-year summary of selected financial data 120 Management 126 Main offices 127 Information for investors
  • 3. REVIEW OF BUSINESS UNITS Business unit accounting principles General information Changes to the accounting policies Business unit results for the years of Winterthur Insurance and ending 31 December 1999 and Winterthur Life & Pensions 31 December 2000 are presented for Within the framework of the Swiss the Credit Suisse Private Banking, Accounting and Reporting Credit Suisse First Boston and Credit Recommendations, Credit Suisse Suisse Asset Management business Group changed its accounting policies units, and for the units forming the in the year 2000 in order to increase Credit Suisse Financial Services busi- transparency with regard to its insur- ness area, i.e. Winterthur Insurance, ance business and to align with a more Winterthur Life & Pensions, Credit internationally-recognised standard. Suisse and Personal Financial The Group’s financial statements as of Services Europe. 31 December 1999 have also been The consolidated results comprise restated to conform with the current the results of the business units and of year’s presentation. In the tables of the Corporate Center. Corporate this publication, 1999 results will be Center costs/revenues attributable to shown in “previously reported” as well operating business have been allocat- as in “new basis” columns. In text sec- ed to the respective business units. tions, comparisons to the 1999 results The Corporate Center column also are based on the previously reported includes expenses relating to projects figures. sponsored by the Group, restructuring The main differences in the costs, the difference between provi- accounting policies that have had a sions for expected credit risk recorded significant impact on the results of our by each business unit and actual credit operations are explained in detail in loss experience, as well as other items Note 2 of the Notes to the consolidat- set out below. Unless stated in this ed financial statements. section, Group accounting and valua- tion principles apply. Income statement Significant changes during the Inter-business unit revenue financial year 2000 sharing and cost allocation Responsibility for each of Credit Suisse Group’s products is allocated to Business combinations The following changes are reported one of the business units. In cases with regard to the respective business where one business unit contributes to units (see details in Note 3 of the the performance of another, revenue Notes to the consolidated financial sharing agreements are in place to re- statements): ward such efforts. These agreements are negotiated periodically by the Winterthur relevant business units on a product- • Nicos Life by-product basis. Allocated revenues • National Insurance and Guarantee are added to, or deducted from, the Corporation Plc (NIG) revenue line item of the respective • Colonial UK business units. Certain administrative, processing Credit Suisse Asset Management and information technology services • Donaldson, Lufkin & Jenrette, Inc. may be based in one business unit but shared by other units. The business Credit Suisse First Boston unit supplying the service receives • Donaldson, Lufkin & Jenrette, Inc. compensation from the recipient busi- ness unit on the basis of service level agreements and transfer payments. Service level agreements are negotiat- www.credit-suisse.com 13
  • 4. REVIEW OF BUSINESS UNITS ed periodically by the relevant business for these losses and defaults are based units with regard to each individual on actual experience and are recorded product or service. The costs of by the relevant business unit. shared services are reported as Other operating expenses for both the busi- Taxes ness unit receiving the service and the Taxes are calculated individually for unit providing it. each business unit, on the basis of the The aim of the revenue sharing average tax rates across its various and cost allocation agreements is to geographic markets, rather than for reflect the pricing structure of an un- the legal entity as a whole. The differ- related third party transaction, although ence between these average tax rates this is not achieved in all cases, partic- and the actual consolidated tax ularly with respect to bank premises. expense results in an adjustment to taxes at the Corporate Center. Real estate Real estate in Switzerland, which Balance sheet consists primarily of bank premises, is managed centrally. Real estate costs General reflect market rent plus an additional Balance sheet information relating to charge if actual costs exceed market the banking business units reflects the rent. These costs are included in the proportion of bank premises occupied Other operating expenses line of in Switzerland and abroad. each business unit. Capital allocation The available capital is allocated to the Valuation adjustment, provisions and business units on the basis of the losses Provisions for credit risk at business unit average regulatory capital required level are generally based on expected during the period. credit losses, which are determined ac- cording to a statistical model derived Key performance indicators from historical average losses. The Per capita ratios have not been calcu- management believes that the statistical lated as some Group-wide services are model provides a long-term view of provided centrally by one of the busi- credit loss experience. In any year, sta- ness units and the staffing required to tistically-determined provisions may be supply these services is not reflected in higher or lower than the actual credit the recipient business unit’s headcount. experience relating to the credit risks covered by this model, depending on Assets under management the economic environment, interest Assets under management include rates and other factors. On a consoli- client-related on and off-balance sheet dated basis, the Valuation adjust- assets (cash and time deposits, safe ments, provisions and losses line in custody and metal accounts, and the income statement reflects actual fiduciary deposits) which are held for credit provisions for the year. The busi- investment purposes. In the case of ness units record an expense item for insurance business, assets under man- statistically-determined expected credit agement include all investment assets losses. To reflect the difference underlying insurance contracts. Not between the expected credit provisions included are corporate liquidity funds, recorded by the business units and the wholesale custody, and banking and actual credit provisions for the year, a brokerage assets except for the assets valuation adjustment is recorded at the of corporate clients of Credit Suisse in Corporate Center. Switzerland. Where two business units Non-credit related losses and coun- share responsibility for the manage- terparty default other than that which ment of funds (such as investment relates to lending business are not cov- funds), the assets under management ered by the statistical model. Provisions are reported by both business units. 14
  • 5. Report of the Group’s auditors on the business unit financial statements of Credit Suisse Group, Zurich We have performed the procedures set out below in relation to the Overview of business unit results and the Business unit income statements and balance sheets, (“the business unit financial statements”) of Credit Suisse Group and its subsidiary undertakings as at and for the year ended 31 December 2000 for which the Directors of Credit Suisse Group are solely responsible. The business unit financial statements referred to above are set out on pages 8–29 of the annual report. We have performed procedures with regard to the business unit financial state- ments as follows: – ascertained through discussion with Credit Suisse Group management the methodology for preparation of the business unit financial statements and its proper application; – considered the consistent application of the accounting principles adopted in the preparation of the business unit financial statements as set out on pages 13 and 14 of the annual report; and – agreed the material reconciling items between the business unit financial statements and the consolidated results of Credit Suisse Group presented in the audited consolidated financial statements for the year ended 31 December 2000 to supporting documents. We found no exceptions or other significant matters as a result of the procedures undertaken. KPMG Klynveld Peat Marwick Goerdeler SA Brendan R. Nelson Peter Hanimann Chartered Accountant Certified Accountant Auditors in Charge Zurich, 7 March 2001 www.credit-suisse.com 15
  • 6. REVIEW OF BUSINESS UNITS Credit Suisse Financial Services For the business year 2000, results are Credit Suisse Financial Services, the reported according to the previous struc- new business area created in mid- ture of Credit Suisse, Winterthur and 2000, posted net profit growth of 15% Personal Financial Services Europe. to CHF 1.7 billion. Its assets under management grew to CHF 303.0 billion (+8.9%), of which net new assets were Winterthur strengthens position in Thomas Wellauer CHF 8.1 billion. Excluding the Personal Europe and Asia Winterthur (comprising Winterthur Chief Executive Officer Financial Services Europe initiative, Insurance and Winterthur Life & which is still in investment mode, the Pensions in the new structure) business area’s net profit was CHF increased its net profit by 22% to CHF 2.0 billion. 1.3 billion. This good performance was Since 1 July 2000, the business area attributable to strong earnings growth Credit Suisse Financial Services includes in both areas of business. Reflecting Winterthur Insurance, Winterthur Life & portfolio strategy changes and market Pensions, Credit Suisse Banking, Credit conditions, Winterthur’s investment Suisse Personal Finance and Credit return stood at 7.1%, which was Suisse e-Business, as well as the infra- modestly higher than in 1999. Assets structure unit Technology and Services. under management grew by 12.6% to Overview of business area Credit Suisse Financial Services Personal Financial Credit Suisse 2000 Winterthur Winterthur Credit Services Financial in CHF m Insurance Life & Pensions Suisse Europe Services 3,459 1) 2,075 1) Operating income 3,925 61 9,520 2,160 1) 1,208 1) Operating expenses 2,450 317 6,135 1,299 1) 867 1) Gross operating profit 1,475 (256) 3,385 Depreciation and write-offs on non-current assets 2) 159 101 84 12 356 Valuation adjustments, provisions and losses 3) 0 0 562 1 563 Profit before extraordinary items, taxes 3) 1,140 766 829 (269) 2,466 Extraordinary expenses/(income), net 0 0 (20) 0 (20) Taxes 305 101 203 (62) 547 Net operating profit before minority interests 2) 835 665 646 (207) 1,939 Amortisation of acquired intangible assets, net of tax, and goodwill 16 15 12 5 48 Net profit before minority interests 819 650 634 (212) 1,891 Minority interests (90) (56) (1) 0 (147) Net profit 729 594 633 (212) 1,744 Net operating profit 1) 745 609 645 (207) 1,792 5,580 4) 10,093 4) Average allocated equity capital 4,401 112 26.3% 4) 18.7% 4) Return on average equity capital 14.4% n/a Return on average equity capital (operating) 2) 26.9% 4) 19.2% 4) 14.7% n/a Equity capital allocation as of 1.1.2001 9,149 4,697 27 13,873 Assets under management (in CHF bn) 32.5 116.1 147.8 6.6 303.0 – of which net new assets – 0.7 4.8 2.6 8.1 – of which discretionary 32.5 116.1 2.5 2.5 153.6 1) Defined as premiums earned (net), less claims incurred and expenses for processing claims, as well as actuarial provisions, less commissions (net), plus investment income from insurance business; expenses from the handling of both claims and investments are allocated to revenue; personnel expenses non-life: CHF 400 m, life: CHF 125 m, other operating expenses non-life: CHF 214 m, life: CHF 141 m. 2) Excl. amortisation of acquired intangible assets, net of tax, and goodwill. – – (151) – (151) 3) Net of allocation to (-)/release of (+) reserve for general banking risks. 4) For Winterthur Group, average invested capital is used for calculation of return on invested capital (ROIC). 16
  • 7. Winterthur Insurance income statement and Previously Change to New basis reported previously key performance indicators (non-life business) 2000 1999 1999 reported in CHF m in CHF m in CHF m in % Gross premiums 16,508 13,901 13,993 13,993 18 Net premiums 14,632 12,604 12,678 12,678 15 Premiums earned, net 13,519 12,057 12,102 12,102 12 Claims incurred, net (10,432) (9,145) (9,144) (9,144) 14 Dividends to policyholders incurred, net (376) (387) (312) (312) 21 Operating expenses, net (including commissions paid) (3,969) (3,639) (3,591) (3,591) 11 Underwriting result, net (1,258) (1,114) (945) (945) 33 Net investment income 2,385 1,691 1,942 1,942 23 Interest on deposits and bank accounts 96 90 70 37 70 Other interest paid (136) (78) (75) (75) 81 Other income and expenses (including exchange rate differences) 1) 53 26 (35) (39) – Profit before extraordinary items, taxes 1,140 615 957 953 19 Technical provisions as of 31.12. 26,653 25,422 23,041 30,7923,041 16 Combined ratio (excl. dividends to policyholder) 106.5% 106.0% 105.2% 1 105.2% Claims ratio 77.2% 75.8% 75.6% 2 75.6% Expense ratio 29.4% 30.2% 29.7% 29.7%) (1 Insurance reserve ratio 197.2% 210.8% 190.4% 4 190.4% Assets under management as of 31.12. in CHF bn 32.5 31.4 31.6 3 Number of employees as of 31.12. 21,796 20,662 20,662 5 1) Excl. amortisation of goodwill. CHF 148.6 billion. The return on in- In non-life business Winterthur vested capital rose to 26.3%. achieved an 18% increase in gross pre- In February 2001 Winterthur an- miums to CHF 16.5 billion, as a result nounced the sale of its large multi- of higher premiums in the US, UK and national corporates insurance business, several countries in continental Europe. Winterthur International, for a total The UK market contributed additional consideration of USD 600 million. As a growth, with Winterthur now ranking result of this transaction, Winterthur will sixth in terms of premium volume be able to concentrate fully on life and thanks to additional partnerships en- non-life business with private clients tered into by Churchill and the acquisi- and small and medium-sized compa- tion of NIG. Excluding acquisitions, pre- nies in Switzerland, Europe and other mium growth stood at 10%. The selected markets. Subject to the expense ratio in non-life business was approval of the relevant authorities, the reduced further from 29.7% to 29.4%. transaction should be completed in the However, the combined ratio rose first half of 2001. slightly from 105.2% to 106.5% Webinsurance, the award-win- resulting from a number of natural ning homeowners and property, motor, catastrophes in the UK, Switzerland and travel and life insurance offering from US Midwest; a backlog of claims from Winterthur, was extended to include the winter storms in Europe at end- the Italian and Belgian markets. This December 1999; and unfavourable loss online insurance package is now experiences in the motor insurance available to clients in eight European business in Spain and Portugal. In countries and the US. health insurance, Winterthur posted www.credit-suisse.com 17
  • 8. REVIEW OF BUSINESS UNITS Winterthur Life & Pensions income statement and Previously Change to New basis reported previously key performance indicators (life business) 2000 1999 1999 reported in CHF m in CHF m in CHF m in % Gross premiums 15,452 14,182 14,264 8 Net premiums 15,172 14,089 14,170 7 Premiums earned, net 15,171 14,090 14,101 8 Claims incurred, net (9,734) (8,033) (7,726) 26 Change in actuarial provision, net (6,377) (7,944) (8,092) (21) Allocation to participation, net (1,982) (1,384) (1,846) 7 Operating expenses, net (including commissions paid) (1,680) (1,257) (1,535) 9 Net investment income 6,051 5,048 5,865 3 Interest on deposits and bank accounts 88 135 124 (29) Interest on bonuses credited to policyholders (116) (117) (130) (11) Other interest paid (239) (220) (217) 10 Other income and expenses (including exchange rate differences) 1) (416) (722) 17 – Profit before extraordinary items, taxes 766 (404) 561 37 Technical provisions as of 31.12. 105,522 88,559 84,519 25 Expense ratio 11.1% 8.9% 10.9% 2 Net return on technical provisions 68 bp (33) bp 65 bp 5 Claims incurred and change in actuarial provisions in relation to premiums earned 106.2% 113.4% 112.2% (5) Assets under management as of 31.12. in CHF bn 116.1 102.0 100.4 16 Number of employees as of 31.12. 6,562 5,167 5,167 27 1) Excl. amortisation of goodwill. strong growth in southern Europe. In simplifies processing and distribution. Germany – a key health insurance mar- This platform was introduced in ket – the growth in premiums was Germany in mid-year, and other hampered by health reform. Overall, launches in key European markets are non-life business generated profit planned for 2001. Despite large-scale before extraordinary items and taxes of investments in strategic projects, profit CHF 1.1 billion, up 19%. in life business, before extraordinary Life business saw an 8% rise in its items and taxes, increased by 37% to gross premium volume, with the weak CHF 766 million. euro impacting negatively on premium growth in Swiss francs. Fund-linked Credit Suisse significantly improves products posted very strong growth of return on equity 90%, with their share of the total Credit Suisse (Credit Suisse Banking in volume advancing to 20%. With the the new structure) achieved net profit acquisition of Japanese insurer Nicos of CHF 633 million, up 40% on the Life (renamed Credit Suisse Life) and previous year. Return on equity rose Colonial Life UK in Britain, as well as from 10.3% to 14.4%. Despite high- with its alliance with Chinese life insurer level investment in strategic projects, Tai Kang Life, Winterthur further ex- technology and e-business, the panded its portfolio in attractive life cost/income ratio improved from insurance and pension markets. In 66.6% to 64.9%. Assets under man- 2000, Winterthur became the first life agement grew by CHF 7.0 billion insurer to develop a pan-European, (+5.0%) to stand at CHF 147.8 billion Internet-based business system that at end-2000; CHF 4.8 billion thereof, 18
  • 9. Winterthur balance sheet Previously Change to New basis reported previously 31 Dec. 2000 31 Dec. 1999 31 Dec. 1999 reported in CHF m in CHF m in CHF m in % Assets Investments 134,837 120,135 126,446 7 – Non-life 29,667 28,356 30,790 (4) – Life 92,281 84,409 88,954 4 – Life business, where the investment risk is borne by the policyholders 12,889 7,370 6,702 92 Policy loans 840 709 708 19 Deposits on reinsurance assumed 226 107 101 124 Due from banks/cash and other liquid assets 1,280 845 864 48 Receivables from insurance companies 1,504 1,001 965 56 Receivables from agents and policyholders 5,193 3,804 3,121 66 Sundry debtors 2,109 1,530 1,560 35 Accrued income and prepaid expenses 2,117 2,089 2,203 (4) Tangible fixed assets 2,408 2,232 375 542 Other assets 12,412 12,773 915 - Total assets 162,926 145,225 137,258 19 Liabilities Technical provisions 132,175 113,981 107,560 23 – Non-life 26,653 25,422 23,041 16 – Life 92,105 81,248 77,796 18 – Life business, where the investment risk is borne by the policyholders 13,417 7,311 6,723 100 Deposits on reinsurance ceded 653 583 583 12 Convertible bonds and warrants issued 1,418 164 164 765 Due to banks 2,195 2,019 2,019 9 Payables to insurance companies 900 824 824 9 Payables to agents and policyholders 3,317 2,819 2,833 17 Sundry creditors 3,934 2,130 2,027 94 Accrued expenses and deferred income 1,403 1,577 2,025 (31) Other liabilities 7,782 12,178 6,617 18 Minority interests 1,064 817 1,412 (25) Shareholders’ equity after minority interest 8,085 8,133 11,194 (28) Total liabilities 162,926 145,225 137,258 19 or 3.4%, was attributable to net new and reached a volume of CHF 1 billion assets. The risk profile of the credit by year-end. Private mortgage busi- portfolio improved noticeably: actual ness (+6%) and leasing (+20%) both valuation adjustments were CHF 151 recorded strong growth, while the million below the statistically-anticipated number of Credit Suisse credit card value of CHF 565 million. holders climbed to 775,000 – an in- In private client business, the con- crease of 136,000. tinuing popularity of investment savings Credit Suisse reorganised its ser- was reflected by significant growth in vicing of corporate clients, regrouping investment fund holdings (+14%) and client advisors at 34 regional locations. increased sales in the investment fund These new, larger teams improve client business (+18%). The Flex investment service, while also facilitating the inter- account, a new savings product nal exchange of knowledge and infor- launched by Credit Suisse in spring mation. The new system establishes 2000, attracted considerable interest sector teams, which offer clients added www.credit-suisse.com 19
  • 10. REVIEW OF BUSINESS UNITS Credit Suisse income statement 2000 1999 Change Change in CHF m in CHF m in % in % Net interest income 2,378 2,227 7 7 Net commission and service fee income 1,159 946 23 23 Net trading income 342 230 49 49 Other ordinary income 46 75 (39) (39 Operating income 3,925 3,478 13 13 Personnel expenses 1,535 1,401 10 10 Other operating expenses 915 866 6 6 Operating expenses 2,450 2,267 8 8 Gross operating profit 1,475 1,211 22 22 Depreciation and write-offs on non-current assets 1) 84 38 121 121 Valuation adjustments, provisions and losses 2) 562 610 (8) (8 Profit before extraordinary items, taxes 1) 829 563 47 47 Extraordinary expenses/(income), net (20) (34) (41) (41 Taxes 203 130 56 56 Net operating profit before minority interests 1) 646 467 38 38 Amortisation of goodwill 12 13 (8) (8 Net profit before minority interests 634 454 40 40 Minority interests (1) (3) (67) (67 Net profit 633 451 40 40 Net operating profit 1) 645 464 39 39 1) Excl. amortisation of goodwill. 2) Net of allocation (–)/release(+) of reserve for general banking risks. (151) (68) ) benefits through their expertise in January 2000 saw the launch of specific areas. In addition, Berne now yourhome, an Internet portal providing boasts a central Business Center – a comprehensive information on homes contact unit with extended opening and home ownership. Attracting hours available free of charge to around 17,000 visitors per month, this clients. new offering has met with a positive Credit Suisse grew its position in response from customers. the direct banking market even further, with the number of Direct Net Personal Financial Services Europe customers soaring to 262,000, a 53% targets new markets increase on the previous year. 42% of The Personal Financial Services all orders for securities transactions Europe initiative (Credit Suisse are now placed electronically via Direct Personal Finance and parts of Credit Net and youtrade, while the number of Suisse e-Business) targets affluent payment orders executed via the clients in selected European markets Internet currently stands at 700,000 via a multi-channel strategy. The per month – an increase of 100%. clients, who are typically seeking to 20
  • 11. Credit Suisse balance sheet 31 Dec. 2000 31 Dec. 1999 Change in CHF m in CHF m in % Assets Cash and other liquid assets 1,142 1,374 (17 ) Money market papers 656 489 34 Due from banks 1,002 654 53 Due from other business units 1,358 1,080 26 Due from customers 29,042 27,816 4 Mortgages 64,616 63,024 3 Securities and precious metals trading portfolios 58 21 176 Financial investments 1,312 1,711 (23 ) Participations 38 31 23 Tangible fixed assets 2,088 2,191 (5 ) Intangible assets 145 46 215 Accrued income and prepaid expenses 450 292 54 Other assets 1,156 1,174 (2 ) Total assets 103,063 99,903 3 Liabilities Due to banks 9,751 1,938 403 Due to other business units 12,345 16,689 (26 ) Due to customers, in savings and investment accounts 33,511 36,330 (8 ) Due to customers, other 31,391 28,530 10 Medium-term notes (cash bonds) 3,286 3,883 (15 ) Bonds and mortgage-backed bonds 5,436 5,563 (2 ) Accrued expenses and deferred income 718 504 42 Other liabilities 1,300 1,501 (13 ) Valuation adjustments and provisions 200 135 48 Capital 5,125 4,830 6 – of which minority interests 13 13 0 Total liabilities 103,063 99,903 3 invest between EUR 50,000 and of Credit Suisse Personal Finance in 1 million, have access to a compre- Germany and Spain, scheduled for hensive palette of products and servic- 2001. es to meet all their financial needs. The e-business area of Personal Ranging from investment products and Financial Services posted revenues of life insurance to loans and tax optimi- CHF 38 million versus expenses of sation, the offering also encompasses CHF 256 million, reflecting the heavy products from third-party providers. investment in an asset gathering strat- Credit Suisse (Italy) continued egy targeting affluent clients in to grow its presence in Italy, with net Europe. The Swiss online broker new assets increasing 84.5% year-on- youtrade grew its customer base by year to ITL 2,700 billion (CHF 2.2 164% to over 25,000. Assets under billion). Overall, assets under manage- management stood at CHF 950 mil- ment increased by 40% to stand at lion at year-end. ITL 7,100 billion (CHF 5.6 billion). Personal Financial Services Europe The second half of the year saw pre- posted a loss for the year of CHF 212 parations get underway for the launch million. www.credit-suisse.com 21
  • 12. REVIEW OF BUSINESS UNITS Credit Suisse ratios/key performance indicators 2000 1999 Average allocated equity capital CHF m 4,401 4,411 Allocated equity capital in CHF m (1.1.2001/2000) 4,697 4,611 BIS tier 1 ratio as of 31.12. 1) 7.1% 6.8% Cost/income ratio 64.9% 66.6% Cost/income ratio 2) 64.6% 66.3% Return on average equity capital (reported) 14.4% 10.3% Return on average equity capital (operating) 2) 14.7% 10.6% Number of employees as of 31.12. 11,701 11,404 Pre-tax margin (reported) 21.3% 16.8% Pre-tax margin (operating) 2) 21.6% 17.2% Personnel expenses/operating expenses 62.7% 61.8% Personal expenses/operating income 39.1% 40.3% Number of branches as of 31.12. 235 239 Net interest margin 2.39% 2.35% Loan growth 3.7% 7.8% Deposit/loan ratio as of 31.12. 69.3% 71.4% Assets under management in CHF bn as of 31.12. 147.8 140.8 1) Legal entity Credit Suisse. 2) Excl. amortisation of goodwill. Personal Financial Services Europe key performance indicators Credit Suisse (Italy) youtrade Total 31 Dec. 2000 31 Dec. 1999 31 Dec. 2000 31 Dec. 1999 31 Dec. 2000 31 Dec. 1999 Assets under management (in CHF bn) 5.6 4.0 1.0 0.5 6.6 4.5 Number of clients 18,587 12,395 25,228 9,603 43,815 21,998 Number of personal bankers 331 230 22
  • 13. Credit Suisse Private Banking Market activity in 2000 was charac- 2000, total assets under management terised by high volume and volatility. amounted to CHF 488.2 billion. Total Developments were highly influenced revenues rose by 33% to CHF 6.3 bil- by the technology boom at the begin- lion and net profit increased by 38% to ning of the year and its subsequent over CHF 2.6 billion. This rise was correction, and by the general mainly attributable to interest income strengthening of the US dollar on the (+39%), commissions (+31%) and, to Oswald J. Grübel back of a strong US economy. In the a smaller extent, trading income Chief Executive Officer equity markets, 2000 was far from (+27%). Operating expenses in- rosy. Most international stock markets creased by 20%. The cost/income Credit Suisse Private Banking achieved ended the year below where they ratio improved from 47.3% to 42.6%. record results once again in 2000, started, as many sectors failed to live posting net profit of more than CHF up to market expectations. 2.6 billion (+38%). With innovative Innovative products and services Even against this backdrop, Credit Credit Suisse Private Banking products and premier service quality Suisse Private Banking succeeded in launched four affiliated alternative as its hallmarks, Credit Suisse Private reporting strong results for 2000. Net investment companies with a total vol- Banking has grown its international new asset growth doubled in compari- ume of CHF 4.0 billion in the course presence and further strengthened its son to the previous year to stand at of the year: Absolute Europe, Absolute position as one of the world’s leading CHF 21.0 billion, contributing 4.4% of Technology, Absolute U.S. and private banks. assets under management. At end- Absolute Private Equity. All of the Credit Suisse Private Banking income statement Change 1) Change 1999 1) 2000 in % in CHF m in CHF m in % 39 Net interest income 1,247 898 39 31 Net commission and service fee income 1) 4,171 3,187 31 27 Net trading income 752 592 27 113 Other ordinary income 1) 81 38 113 33 Operating income 6,251 4,715 33 22 Personnel expenses 1,734 1,418 22 15 Other operating expenses 883 768 15 20 Operating expenses 2,617 2,186 20 44 Gross operating profit 3,634 2,529 44 5 Depreciation and write-offs on non-current assets 2) 41 39 5 191 Valuation adjustments, provisions and losses 3) 160 55 191 41 Profit before extraordinary items, taxes 2) 3,433 2,435 41 (94) $ Extraordinary expenses/(income), net (1) (18) Taxes 766 516 48 Net operating profit before minority interests 2) 2,668 1,937 38 Amortisation of goodwill 7 7 0 Net profit before minority interests 2,661 1,930 38 Minority interests (29) (19) 53 Net profit 2,632 1,911 38 Net operating profit 2) 2,639 1,918 38 1) Reclassification of trust income from other ordinary income to net commission and service fee income beginning from 1.1.2000. 2) Excl. amortisation of goodwill. (40) (31) 3) Net of allocation (-)/release (+) of reserve for general banking risks. www.credit-suisse.com 23
  • 14. REVIEW OF BUSINESS UNITS companies pursue diversified invest- Check-Up Online is a straightforward ment strategies with a view to achiev- solution to assist clients in their finan- ing an attractive investment perform- cial planning. Fund Lab, the Internet ance irrespective of market climate. platform for comparing and selecting Dream Team is a comprehensive investment funds, was expanded to range of asset management and insur- cover around 830 funds from 32 in- ance services engineered by Credit vestment companies as of end-2000. Suisse Private Banking in response to What’s more, clients can now track the special financial needs of top and select 2,500 different equities sporting athletes. Credit Suisse Private using a range of criteria via Stock Banking also began offering advisory Tracker. A major step forward was the services and support for entrepreneurs introduction of Tradelink, which allows looking for growth capital or consider- clients to not only compare proprietary ing selling their business. and third-party investment products via Credit Suisse Private Banking has www.cspb.com, but also to buy and invested considerably in its client sell them directly via Fund Lab or services. One example is the new Stock Tracker. client management system FrontNet, which lightens the administrative load on advisors and allows them to devote more time to their clients. Continued Credit Suisse Private Banking balance sheet information investment is planned for 2001 to further enhance the quality of client service. 31 Dec. 1999 31 Dec. 2000 in CHF m in CHF m 99,651 101,153 Total assets Stronger international foothold Credit Suisse Private Banking contin- 31,902 33,717 Due from customers ued to grow its international presence, 7,667 9,206 – of which secured by mortgages 22,731 with the spotlight on Europe and Asia. 22,621 – of which secured by other collateral It underpinned its London-based opera- tions through the acquisition of JO Ratios/key performance indicators Hambro Investment Management 1999 2000 Limited (JOHIM), and transformed its 2,771 3,117 Average allocated equity capital in CHF m existing representative office in Vienna 2,875 3,031 Allocated equity capital in CHF m (1.1. 2001/2000) into an investment management com- 47.3% 42.6% Cost/income ratio pany. Looking eastwards, Credit Cost/income ratio 1) 47.2% 42.5% Suisse Private Banking obtained a 8,371 8,665 Number of employees as of 31.12. banking licence in Hong Kong. New representative offices also opened 51.9% 54.8% Pre-tax margin (reported) their doors in Jakarta, Cape Town and Pre-tax margin (operating) 1) 52.0% 54.9% Valencia, bringing the number of Fee income/operating income 2) 67.6% 66.7% offices outside Switzerland to over 40. Fee income/operating expenses 2) 145.8% 159.4% A further expansion of private banking 476.7 488.2 Assets under management in CHF bn as of 31.12. operations in Europe, Asia and Latin 18.4% 2.4% Growth in assets under management America is on the agenda for 2001. – of which net new assets 3) 2.9% 4.4% (2.0%) 15.5% – of which market movement and structural effects Setting the pace in Internet banking 44 bp 53 bp Net profit before minority interests/average AuM Credit Suisse Private Banking en- Net operating profit before minority interests/average AuM 1) 45 bp hanced its www.cspb.com site in 2000 54 bp with several new applications. Estate 1) Excl. amortisation of goodwill. Lab is a platform focusing on real es- 2) Incl. reclassified trust income. tate investments, while Financial 3) Excl. interests and dividends. 24
  • 15. Credit Suisse Asset Management Credit Suisse Asset Management CHF 48 billion to overall assets un- increased its total assets under der management as of 31 December management by 14.7% in 2000 to 2000. Revenues increased by 36% finish the year at CHF 487.2 billion. to CHF 1.6 billion, which includes Discretionary assets under manage- two months of DLJ’s Asset ment grew to CHF 360.1 billion as of Management Group results. Revenue 31 December 2000, up CHF growth was strongly supported by the Phillip M. Colebatch 35.9 billion or 11.1% over 1999. Of strategic focus on higher margin Chief Executive Officer this amount, net new assets (exclusive assets in the equity and alternative of assets acquired in the DLJ acqui- investment classes. Net operating Credit Suisse Asset Management ex- sition) was CHF 24.4 billion, an in- profit rose 32% year-on-year to CHF panded its global position through crease of 31.9%. The retail and high- 338 million. strong organic growth and the acqui- net-worth individual segments sition of Donaldson, Lufkin & Jenrette recorded 24% growth over the year to Asset Management Group in the US Regional markets: strong growth CHF 161 billion. The acquisition of In the Americas, Credit Suisse Asset market. The unit made significant Donaldson, Lufkin & Jenrette Asset Management saw a year of market progress in building its domestic posi- Management Group in the US added volatility, including turbulence on the tion in all of its key markets in 2000. NASDAQ. Including the assets acquired with DLJ, assets under management grew from USD 76 bil- lion to USD 94 billion. The combina- tion provides Credit Suisse Asset Management’s US business with further access to the private client Credit Suisse Asset Management income statement business and the investment banking channel, and also enhances the 2000 1999 Change Change in CHF m in CHF m in % unit’s in % alternative investment product 1,006 757 33 33 Management and advisory fees platform. In the early part of 2000, 513 330 55 Net mutual fund fees Congress passed the Financial 43 62 (31) (31) Other revenues Modernization Act, which includ- 36 1,562 1,149 36 ed repealing the “firewall” rules which Operating income 40 had until then prevented Credit 656 467 40 Personnel expenses 28 Suisse Asset Management from 481 377 28 Other operating expenses 35 working with Credit Suisse First 1,137 844 35 Operating expenses 39 Boston. This puts the unit on level 425 305 39) Gross operating profit 32 terms with other major financial 1) 29 22 32 Depreciation and write-offs on non-current assets - groups in the US at a crucial time of 0 0 – Valuation adjustments, provisions and losses industry consolidation. As a more Profit before extraordinary items, taxes 1) 396 283 40 40 sophisticated population is seeking 1 2 (50) (50) Extraordinary expenses/(income), net ever more comprehensive financial Taxes 2) 57 24 138 138 advice, global distribution networks are in 32position to take an increasing a Net operating profit before minority interests 1) 338 257 32 share of the growing asset manage- Amortisation of acquired intangible assets, ment136 market. Credit Suisse Asset net of tax, and goodwill 2) 52 22 136) Management is now well positioned 286 235 22 22 Net profit before minority interests to leverage referral opportunities with 0 0 – - Minority interests Credit Suisse First Boston. 286 235 22 22 Net profit In Switzerland, Credit Suisse Asset Management remained a mar- Net operating profit 1) 338 257 32 ket leader, with strong retail growth and particular success in the institu- 1) Excl. amortisation of acquired intangible assets and goodwill. tional segment. In the pooled pen- 2) Tax impact on amortisation of acquired intangible assets CHF 1 m in 2000. www.credit-suisse.com 25
  • 16. REVIEW OF BUSINESS UNITS sion market, the unit’s Credit Suisse Post Venture Fund and Credit Suisse Investment Foundation (CSA) ended Portfolio Funds. These and other the year as market leader. Key equity products aim to capitalise on the grow- products, such as Swiss and European ing willingness of Japanese investors small & mid cap, Swiss and European to invest in mutual funds. Blue Chips, high-tech and pharmaceu- tical sector funds performed well. Looking ahead: equity products Equity and index products were ex- of interest panded to address market trends. The increasing emphasis on equities in Swiss Prime Site, a real estate invest- sales of retail funds globally is shaping ment company newly-launched and Credit Suisse Asset Management’s listed on the stock exchange, gathered activities in the coming months. CHF 750 million. Prime New Energy, Further integration of DLJ’s Asset another listed investment company with Management Group and the accom- CHF 120 million in assets, was the panying cooperation with Credit Suisse first company launched in Switzerland First Boston’s distribution channels, in the year 2000 in the alternative en- particularly the online channel ergy sector. Also new in Switzerland is CSFBdirect, will be important in the CSA’s private equity investment fund for Americas. The fast-growing Australian small to medium-sized pension funds. market will continue to be a focus for Credit Suisse Asset Management the unit’s activities, while product Australia was named the Australian development and retail marketing fund manager of the year in 2000. across Europe will also continue to be Over the past two years the unit’s mar- developed in 2001. ket share has doubled. Total inflows Credit Suisse Asset Management ratios/ in the unit’s retail business were just under AUD 2.5 billion in 2000, and key performance indicators assets under management in the insti- 2000 1999 1999 tutional business grew by 52% to AUD 1,147 540 Average allocated equity capital in CHF m 540 15.3 billion over the year. 1,296 1,054 Allocated equity capital in CHF m (1.1. 2001/2000) 1,054 In Europe Credit Suisse Asset 78.0% 77.3% Cost/income ratio Management continues to build its or- Cost/income ratio 1) 74.6% 75.4% ganisation to take advantage of the op- 77.3% 6.3 bp 6.6 bp portunities of European convergence. Net profit/average AuM 75.4% Net operating profit 1)/average AuM 7.5 bp 7.2 bp The unit’s Luxembourg family of mutu- 6.6 bn al funds, which is one of the largest in 2,350 2,000 Number of employees as of 31.12. Europe, enjoyed 13% net new busi- 21.9% 22.5% Pre-tax margin (reported) 2,000 ness growth in 2000. This growth was Pre-tax margin (operating) 1) 25.3% 24.5% 2,000 enhanced by the successful addition of 57.7% 55.3% Personnel expenses/operating expenses an institutional share class and a regis- 2,000 42.0% 40.6% Personnel expenses/operating income tered share form, which broadened the 22.5% 487.2 424.6 Assets under management in CHF bn as of 31.12. base of potential investors. 55.3% 360.1 324.2 Discretionary funds in CHF bn as of 31.12. Product sales and client relation- 40.6% ships in Japan are set to improve 136.9 120.9 Mutual funds distributed in CHF bn as of 31.12. 425 after two difficult years in which growth 127.1 100.4 Advisory assets in CHF bn as of 31.12. 324 rates and net new inflows slowed sig- 14.7% 43.1% Growth in assets under management nificantly from their 1998-1999 levels. 121 11.1% 52.8% Growth in discretionary assets under management Together with a concentrated advertis- 100 7.5% 8.7% – of which net new assets ing campaign to promote the Credit 324 (8.1%) 27.1% – of which market movement Suisse Asset Management name, 11.7% 17.0% – of which acquisition several new funds were launched in Japan in 2000, including the Global 1) Excl. amortisation of acquired intangible assets and goodwill. 26
  • 17. Credit Suisse First Boston crease was supported primarily by the Credit Suisse First Boston’s merger Equity and Investment Banking divi- with Donaldson, Lufkin & Jenrette (DLJ) sions. The business unit also achieved in 2000 was completed in record time, record profitability, posting gross oper- and the two businesses have now ating profit of USD 2.8 billion (CHF been successfully integrated. The 4.7 billion), up 10% (24%), and net business unit also made great operating profit of USD 1.6 billion Allen D. Wheat progress in its equities businesses and (CHF 2.6 billion), up 20% (34%). Net Chief Executive Officer continued to expand its investment profit was USD 1.4 billion (CHF 2.4 banking franchise, strengthening client billion), 12% (25%) higher than in relationships and playing a leading role 1999. Credit Suisse First Boston’s in many significant transactions. global reach is apparent: while North Credit Suisse First Boston achieved America accounts for 51% of rev- record results in 2000. In US dollar enues, Europe supplies 36% and the terms, revenues rose 25% to USD rest of the world, 13%. 12.2 billion, and 40% in Swiss franc The main event of the year was terms to CHF 20.4 billion. This in- the merger with US investment bank Credit Suisse First Boston income statement 1) 2000 1999 Change 2000 1999 Change Change in CHF m in CHF m in % in USD m in USD m in % in % Fixed Income 2) 4,874 6,651 (27) 2,919 4,464 (35) (26) Equity 8,477 4,786 77 5,076 3,212 58 58 Investment Banking 2) 6,148 3,453 78 3,681 2,318 59 59 Financial Services Group 447 n/a – 268 n/a – Other 2) 417 (358) – 250 (241) – n/a 6.756 Operating income 20,363 14,532 40 12,194 9,753 25 26 Personnel expenses 12,011 7,999 50 7,192 5,368 34 32 Other operating expenses 3,634 2,714 34 2,176 1,822 19 19 Operating expenses 15,645 10,713 46 9,368 7,190 30 29 Gross operating profit 4,718 3,819 24 2,826 2,563 10 3) Depreciation and write-offs on non-current assets 644 371 74 386 249 55 Valuation adjustments, provisions and losses 4) 537 786 (32) 322 527 (39) (39) Profit before extraordinary items, taxes 3) 3,537 2,662 33 2,118 1,787 19 n/a 5) Taxes 925 715 29 554 480 15 n/a Net operating profit before minority interests 3) 2,612 1,947 34 1,564 1,307 20 19 Amortisation of acquired intangible assets, 21 net of tax, and goodwill 5) 254 66 285 152 45 238 18 Net profit before minority interests 2,358 1,881 25 1,412 1,262 12 Minority interests (3) (1) 200 (2) 0 – 202 Net profit 2,355 1,880 25 1,410 1,262 12 12 - 3) Net operating profit 2,609 1,946 34 1,562 1,307 20 12 1) The business unit income statement differs from the Group’s legal accounts in presenting brokerage, execution and clearing expenses as part of operating expenses in common with US competitors, rather than netted against revenues. 2) Prior year comparative numbers have been restated to be consistent with the current year. 3) Excl. amortisation of acquired intangible assets and goodwill. 6 0 4 0 4) Net of allocation (-)/release (+) of reserve for general banking risks. 5) Tax impact on amortisation of acquired intangible assets CHF 42 m in 2000, and CHF 2 m in 1999. www.credit-suisse.com 27
  • 18. REVIEW OF BUSINESS UNITS Credit Suisse First Boston ratios/key performance indicators 2000 1999 Average allocated equity capital in CHF m 11,968 9,925 Allocated equity capital in CHF m (1.1. 2001/2000) 16,346 10,494 BIS tier 1 ratio as of 31.12. 1) 13.6% 9.9% Cost/income ratio 81.4% 76.7% Cost/income ratio 2) 80.0% 76.3% Return on average equity capital (reported) 19.7% 19.0% Return on average equity capital (operating) 2) 21.8% 19.6% Number of employees as of 31.12. 28,122 15,185 Pre-tax margin (reported) 15.9% 17.9% Pre-tax margin (operating) 2) 17.4% 18.3% Personnel expenses/operating expenses 76.8% 74.7% Personnel expenses/operating income 59.0% 55.0% 1) Ratio applies to the Credit Suisse First Boston legal entity and is based on a total tier 1 capital of CHF 17.6 bn, of which non-cumulative perpetual preferred securities is CHF 1.1 bn. 2) Excl. amortisation of acquired intangible assets and goodwill. Donaldson, Lufkin & Jenrette. The around the world last year. Major transac- business activity costs and competitive equity and fixed income businesses tions included the demutualisation of Met compensation pressures. were integrated less than seven weeks Life, the acquisition of Orange by France after the merger was announced on Télécom, the restructuring of AT&T, the Equity Division leads in revenues and 30 August, and the transaction was Texaco/Chevron merger and Pacific profitability completed on 3 November. Infra- Century CyberWorks’ merger with Cable Revenues increased 58%, with net structure and technology were put in & Wireless Hong Kong Telecom. profits rising more than 85% year-on- place quickly to ensure a seamless year: this is now Credit Suisse First transition of services to clients. Boston’s largest and most profitable di- Investment Banking increases global Credit Suisse First Boston now has vision. The cash businesses (principally market share over USD 10 billion (CHF 16.3 billion) Division revenues increased 59%, led brokerage commissions and market in allocated equity capital, 28,000 em- by M&A and equity capital markets. In making activities) saw revenues ployees worldwide and total assets in the Americas, M&A revenues in- increase 65%, despite difficult market excess of USD 400 billion. On the in- creased by 85% over 1999; Credit conditions in the technology sector dur- stitutional side, the merger augments Suisse First Boston’s ranking improved ing the second and fourth quarters. the unit’s rankings in a number of key to number two, with a pro-forma mar- Derivatives revenues increased 55% areas. In the US, Credit Suisse First ket share of 32%. Globally, it now versus 1999; the index arbitrage, over- Boston is now ranked number one in ranks third in M&A with a pro-forma the-counter (OTC) derivatives and con- equity and high yield research, equity market share of 27%, versus a rank of vertible securities areas were particularly trading and high yield underwriting, and fourth and market share of 15% a year strong. Expenses, not including incen- number two in equity underwriting and ago. Equity capital market results have tive compensation, increased 26%. mergers and acquisitions (M&A). Credit also improved, with a year-on-year in- Suisse First Boston also now has Wall crease in revenues of 58% globally Fixed Income Division sees downtrend Street’s leading Private Equity fran- and more than 75% in the Americas. reversing chise and is ranked number one in eq- Globally, the unit ranks fourth in equity A 35% revenue decrease reflected dif- uity research in Europe. In addition, its underwriting with an 11% pro-forma ficult fixed income markets, charac- financial services businesses (Pershing, market share, compared to fifth place terised by lower volumes, volatility and Private Client Services and CSFBdirect) and a market share of 7% in 1999. the widening of credit spreads. The provide earnings diversification. Expenses, excluding incentive com- change in business mix initiated in1999 Credit Suisse First Boston played a pensation, rose 43% year-on-year, re- has also reduced risk and revenues in leading role in a number of pivotal deals flecting added employees, increased illiquid market areas, resulting in smaller 28
  • 19. Credit Suisse First Boston balance sheet 31 Dec. 2000 31 Dec. 1999 Change in CHF m in CHF m in % Assets Cash 1,323 1,161 14 Money market papers 26,364 22,893 15 Due from banks 245,345 169,030 45 – of which securities lending and reverse repurchase agreements 208,094 134,406 55 Due from other business units 3,110 2,478 26 Due from customers 91,227 54,132 69 – of which securities lending and reverse repurchase agreements 23,087 23,783 (3) Mortgages 19,566 7,352 166 Securities and precious metals trading portfolios 192,301 122,837 57 Financial investments 10,604 6,354 67 Participations 1,163 1,023 14 Tangible fixed assets 3,820 2,515 52 Intangible assets 17,387 1,128 – Accrued income and prepaid expenses 9,126 5,823 57 Other assets 48,422 43,055 12 – of which replacement value of derivatives 43,978 39,413 12 Total assets 669,758 439,781 52 Total assets in USD m 409,738 275,224 49 Liabilities Money market papers issued 30,554 30,118 1 Due to banks 371,033 222,802 67 – of which securities borrowing and repurchase agreements 131,741 67,150 96 Due to other business units 9,825 9,536 3 Due to customers, in savings and investment deposits 49 110 (55) Due to customers, other 102,431 69,550 47 – of which securities borrowing and repurchase agreements 37,863 31,357 21 Bonds and mortgage-backed bonds 45,449 34,478 32 Accrued expenses and deferred income 22,565 10,410 117 Other liabilities 54,958 47,956 15 – of which replacement value of derivatives 49,641 40,644 22 Valuation adjustments and provisions 3,330 2,366 41 Capital 29,564 12,455 137 – of which minority interests 10,261 2,294 347 Total liabilities 669,758 439,781 52 Total liabilities in USD m 409,738 275,224 49 average balance sheet levels. How- markets, the credit products business- were instrumental in the rapid and ever, the division implemented a new es held up to 1999 levels. Interest rate smooth integration of the DLJ busi- strategic plan in late 2000 emphasis- trading in Japan did very well and the nesses. By providing cutting-edge ing growth in customer businesses, emerging markets area also performed technology, high-volume complex which led to better results in the sec- well – although it was below 1999 processing and sophisticated risk ond half of the year. This has acceler- levels, which had benefited from an ex- management and controls, the division ated into 2001, helped by improving ceptional year in Latin America. continues to help clients capture op- markets. Credit Suisse First Boston portunities and advance Credit Suisse maintained its fourth-place global rank- First Boston’s capabilities. Support Division masters ing in debt underwriting and, with the DLJ integration DLJ merger, now ranks number one in The 10,000 employees in Credit high yield. Despite the challenging Suisse First Boston’s Support division www.credit-suisse.com 29