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  • 1. 1997 A N NU A L REVIEW GLOBAL INVESTMENT BANK
  • 2. 1 Chief Executive’s Letter 4 Fact Sheet 6 Deals of the Year 8 Corporate and Investment Banking 16 Fixed Income 20 Equity 24 Credit Suisse Financial Products 28 Private Equity 30 Support Services 34 Credit Suisse Group 36 Board of Directors 37 Executive Board 38 Managing Directors 40 Financial Statements 47 Office Locations Credit Suisse Group (“CSG”) is one of the leading global Credit Suisse First Boston (“CSFB”) is a leading global financial services companies, providing a comprehensive investment banking firm, providing comprehensive range of banking and insurance products. It is active on financial advisory, capital raising, sales and trading, and six continents and in the world’s major financial centers. financial products for users and suppliers of capital Credit Suisse Group comprises five business units — four around the world. It operates in over 50 offices across banking units and one insurance provider — each geared to more than 30 countries and six continents and has over the requirements of specific customer groups and markets: 12,000 employees. Credit Suisse First Boston is one of the world’s Credit Suisse largest securities firms in terms of financial resources, Corporate and individual customers in Switzerland with approximately $7.1 billion in revenues in 1997 and Credit Suisse Private Banking $7.3 billion in equity and $310 billion in assets as of Services for private investors in Switzerland December 31, 1997. and internationally Credit Suisse First Boston is organized around the following five major operating divisions: Credit Suisse First Boston Worldwide investment banking Corporate and Investment Banking Credit Suisse Asset Management Fixed Income Services for institutional investors worldwide Equity Winterthur Credit Suisse Financial Products Worldwide insurance business Private Equity
  • 3. CHIEF EXECUTIVE’S LETTER 1 1997 was an extraordinary year for Credit Suisse First CSFB faces this environment with considerable Boston. The year began with the Firm’s major restructuring strengths. Among the leading group of global investment (from three constituent parts) and ended with the impor- banks, CSFB possesses a unique international culture and tant BZW acquisition in Europe and Asia. Despite the spread of operations and management, particularly intense effort required to absorb these changes, CSFB transatlantic, where our business is broadly balanced. produced $1.2 billion of net income, before extraordinary CSFB also continues to foster powerful entrepreneurial and exceptional items, and the fastest organic growth rate drive and creativity. These distinguishing characteristics of major firms in the investment banking industry, with rev- were illustrated well during 1997. enues exceeding $7 billion for the first time. The 30% organic revenue growth rate recorded by CSFB’s strategy is to build exceptional shareholder CSFB was broadly based, but showcased particularly the value by exploiting attractive global growth trends in the strengths of key businesses all new to the Firm within the industry while strengthening our position as one of the last eight years. These included our world-leading deriva- world’s leading investment banks. 1997 was a year that tives business, Credit Suisse Financial Products, which demonstrated well the fruits of this strategy and the has grown revenues 26% compounded since the first full impact of the industry trends that shape it. year of operation. Other businesses, less than five years Intense concentration in the financial services indus- old, grew spectacularly during 1997 including our Fixed try, long predicted, is now advancing fast. The process is Income businesses in the emerging markets and in real producing what many observers have anticipated – a small estate-related activity, in particular, the Principal group of global institutions emerging preeminent. Transactions Group. Within the Equity division very strong Alongside this structural development is continued evi- growth was also recorded in Eastern Europe, where CSFB dence of the powerful global growth trends underpinning has been a pioneer. Supporting these particular growth the industry, dampened in part by market cyclicality and areas were strong results from more traditional business- intense competition. es. CSFB’s Investment Banking revenues increased 26% from 1996 levels, while customer revenues in Equity out- side the emerging markets rose 41%. The groups particularly strengthened by CSFB’s restructuring also showed tremendous progress with foreign exchange and money markets achieving growth rates exceeding 69%.
  • 4. We estimate that two of CSFB’s principal divisions our strategy perfectly was CSFB’s acquisition of BZW’s (Fixed Income and CSFP) rank 1 or 2 in the world by European and selected Asian equity, equity capital mar- revenues while two others (Corporate and Investment kets and mergers and acquisitions advisory businesses. Banking and Equity) rank among the top 5. With respect This has given CSFB the unique leverage of a third home to profitability, CSFB’s 18% return on equity in 1997 market (the U.K.) to complement our global activities. compares well with those banks that combine corporate We are also making substantial investments in the organic and investment banking. Particularly pleasing was the growth of our Equity, Investment Banking, Fixed Income, 30% ROE achieved, excluding the corporate loan book. and Private Equity businesses. Additionally, a crucial This represents an industry leading level of profitability and requirement of the industry trends toward growth, global- underlines the importance of our strategic shift of capital ization and more sophisticated risk management is away from lending and into other activities. Cost and investment in our infrastructure and control environment. productivity measures such as pretax profit margins, 26%, Such investment needs are exacerbated by inefficiencies and compensation/revenues, 49%, remained in line with identified by the Firm’s restructuring and by integrating other industry leaders. BZW, and major external challenges such as Year 2000 Although we had a very successful 1997, CSFB is and EMU. CSFB is aggressively responding to these very conscious of the need to strengthen its competitive needs and has taken prudent advantage of 1997’s prof- position as the industry changes. In executing our strategy itability to make some exceptional provisions to cover the of capitalizing on growth trends and strengthening the integration of BZW and some of these one-off Information Firm, CSFB is engaged in several major, multi-year invest- Technology costs. ment programs. While increasing our cost base near-term, This Annual Review seeks to describe in more detail these programs are essential to capturing excellent long- CSFB’s global and product strengths and the strategies term value for our shareholders. We continue to make driving our business forward. Most importantly, this Review investments to position us well to serve our clients’ reflects the lifeblood of our business – our client relation- increasingly global needs. One such investment which fits ships. Whether it be in mature or emerging markets, or with investors or users of capital and advice, our service to clients comes first. Our capital strength and expertise as principal increasingly link with our client businesses to ensure we can provide differentiated service.
  • 5. 3 Neither our 1997 performance nor our future ambi- Chief Executive of Credit Suisse Private Banking. tions would be imaginable without the enormous energy, Their commitment to excellence and their contributions to creativity, and dedication of our people. Size is important the delicate task of integrating our structures and cultures in the global financial services industry, and we obviously have left a lasting mark. have size; intelligence is even more important, and I While 1998 has begun well, we are conscious that believe our record of client service and notable transac- not every year will enjoy the market conditions that assist- tions demonstrate our resources of thoughtfulness and ed our growth in 1997. Nevertheless, we look to the imagination. I congratulate our staff worldwide for their future with confidence and in the knowledge that CSFB’s achievement. strengths continue to build and can be expected to offer Two people deserve special mention. Beginning our clients the consistency and excellence they expect in with the announced restructuring in mid-1996, Hans- the future. Ulrich Doerig played a crucial role in bringing together the new CSFB into one global organization. During 1997, he served with distinction as Chairman of CSFB before moving on to become Vice Chairman and Chief Risk Officer of Credit Suisse Group. Oswald Grubel served as head of trading until his appointment in March 1998 as Allen D. Wheat Chairman of the Executive Board and Chief Executive Officer
  • 6. THE GREATER THE RESOURCES, THE GREATER THE POSSIBILITIES Financial Resources Asian Region Vice Chairman, Among Alan Smith near CSFB’s office in Hong Kong with May Koon, director, the Best head Asian Equity Sales. in the PRO FORMA DOLLARS IN MILLIONS (UNAUDITED) 1997 1996 % CHANGE Industry For the year Revenues $ 7,128 $ 5,493 30% Operating expenses $ 4,762 $ 3,675 30% Gross operating profit $ 2,366 $ 1,818 30% Pretax income (1) $ 1,828 $ 1,417 29% Net income (1) $ 1,207 n/a n/a At year end Total shareholders’ equity (2) $ 7,274 $ 6,551 11% Total assets $ 310,353 $ 304,346 2% Selected ratios Return on average equity (1) 18% n/a n/a Pretax profit margin (1) 26% 26% — Expense/revenues 67% 67% — Staff expense/total revenues 49% 49% — Tier 1 BIS-based capital ratio (3) 8.5% n/a n/a Total BIS-based capital ratio (3) 14.9% n/a n/a Employees 11,863 10,881 9% (1) Excludes extraordinary/exceptional items, and minority interest. (2) Shareholders’ equity at January 1, 1997, includes the pro forma effect of CHF 500 preferred stock issuance which occurred on March 31, 1997. (3) These ratios apply to the Bank.
  • 7. 5 NUMBER OF FIRM DEALS OF THE YEAR A Leader in Innovation Credit Suisse First Boston 10 Goldman Sachs 10 1997 Deal of the Year Awards Institutional Investor Merrill Lynch 10 Morgan Stanley Dean Witter Discover 9 J.P. Morgan 8 #1 Number one in global privatizations.(1) Top Tier #1 Number one coordinator of global offerings. (5) Capital Raising #1 Number one European IPO house.(5) Credentials #1 Number one in capital markets project finance dollar volume.(3) #1 Number one in Swiss capital markets every year since 1991. (3) #2 Number two in private placements.(2) #1 Number one in quantity of Latin American debt issued from 1990-1997.(1) Daniela Iten and Daniel Gut, Swiss fixed income capital markets. #2 Number two in Deutsche Mark market share.(1) #1 Number one in Central and Eastern European equity research.(4) Sources: (1) (2) Securities Data Company. Investment Dealers’ Digest. #1 (3) CSFB. (4) Euromoney. Pioneered in European high yield dollar volume.(3) (5) Bondware.
  • 8. DEALS OF THE YEAR Credit Suisse First Boston has been judged a leader in client service by a wide range of financial press covering our businesses. Based on current returns, below is a list of the Deals of the Year and other awards won by the Firm for financing and advisory work worldwide. The Firm won 61 awards this year, up from 40 in 1996. TRANSACTION AWA R D P U B L I C AT I O N A.K. Steel Project Finance Deal of the Year Corporate Finance Boeing/McDonnell Douglas M&A Deal of the Year Institutional Investor BVG Rail Deal of the Year Asset Finance International CalEnergy Project Finance Deal of the Year Institutional Investor Ciba Specialty Chemicals Best Non-Privatization Equity Issue of the Year International Equity Review Ciba Specialty Chemicals/Novartis Demerger of the Year Corporate Finance Ciba’s Exec Stock Options Best Derivatives Deal of the Year Global Finance Continental Airlines North America Airline Financing Deal of the Year AirFinance Journal Credit Suisse Group/Winterthur International Deal of the Year Institutional Investor ENI European Equity Issue of the Year International Financing Review First Union/CoreStates Financial Breakthrough Deal Mega-Mergers Investment Dealers’ Digest Impress Metal Packaging Buyouts Deal of the Year Corporate Finance Ispat International Equity Deal of the Year Corporate Finance J. C. Penney Corporate Finance Deal of the Year Institutional Investor Jorf Lasfar Power Deal of the Year Project Finance La Oroya Metallurgical Honorable Mention: Privatization LatinFinance MATÁV East Europe IPO Emerging Markets Investor International Deal of the Year Institutional Investor Best Eastern European Equity Issue of the Year International Equity Review EEMEA Equity Issue of the Year International Financing Review East European Deal of the Year World Equity Osprey Maritime Ship Financing Deal of the Year IFR Transport Finance People’s Republic of China Best Asian Bond Issue Euroweek Asia Best Sovereign/Public Sector Asian Bond Issue Euroweek Asia Best Eurobond Finance Asia Petrozuata Finance Project Finance Deal of the Year Corporate Finance Latin Project Bond Emerging Markets Investor Project Finance Deal of the Year Institutional Investor
  • 9. 7 TRANSACTION AWA R D P U B L I C AT I O N Petrozuata Finance (continued) Americas Project Finance Loan of the Year International Financing Review Project Finance Deal of the Year LatinFinance Deal of the Year Project Finance Pharmacia Biotech/Amersham M&A Deal of the Year Corporate Finance PT Pindo Deli Pulp & Paper Mills Best Offering for a Corporate Issuer Finance Asia High Yield Bond Deal of the Year Asiamoney Best Asian Bond Issue Euroweek Asia Best Asian High Yield Bond Euroweek Asia Best Corporate Asian Bond Issue Euroweek Asia International Deal of the Year Institutional Investor Asian Bond of the Year International Financing Review Pycsa Panama Deal of the Year Project Finance Raytheon/Hughes Aircraft Most Noteworthy Mergers Global Finance M&A Deal of the Year Institutional Investor Republic of Italy Swiss Francs Euroweek Swiss Franc Bond of the Year International Financing Review Southern Peru Copper Honorable Mention: Structured Trade Finance LatinFinance Deal of the Year Project Finance SR Earthquake Fund International Deal of the Year Institutional Investor Team Rental/Budget Rent a Car M&A Deal of the Year Corporate Finance Telstra Best IPO of the Year Finance Asia Best Australian Equity IPO of the Year International Equity Review Yapi Kredi Bank Asi Best Turkish Equity Issue of the Year International Equity Review YPF/Andina M&A Deal of the Year Institutional Investor ENTITY AWA R D P U B L I C AT I O N Credit Suisse Financial Products Credit Derivatives House of the Year International Financing Review Best Foreign Dealer of the Year Swaps Monitor Derivatives House of the Year World Equity Credit Suisse First Boston Best Lead Manager of Asian Bonds Euroweek Asia Best Bank in Corporate Finance Global Finance Global Winner in Project Finance Global Finance Project Finance House of the Year International Financing Review Swiss Franc Bond House of the Year International Financing Review Bond House of the Year Americas Project Finance Int’l Yearbook
  • 10. 60+ Full Service Product Offerings Focused Industry Expertise Acquisition Finance Automotive Asset Finance Capital Goods Corporate Lending and Syndicated Finance Chemicals Corporate Sales and Divestitures Consumer Products Debt, Equity and Convertible Underwriting Depository Institutions Equity Derivatives Energy Deals of the Year Generic and Structured Trade Finance Health Care Joint Ve n t u r e s Insurance in 1997 (1) Leasing Lodging & Gaming Leveraged Buyouts Media Leveraged Finance Metals & Mining Mergers and Acquisitions P a p e r, Packaging Preferred Stock & Forest Products Private Placements Power Privatizations Real Estate Project Finance Retail Restructurings Te c h n o l o g y Share Repurchase Programs Te l e c o m m u n i c a t i o n s Takeover Defense Tr a n s p o r t a t i o n (Dollars in Millions) 1997 1996 % CHANGE Revenue $ 1,479 $1,368 8% Employees 2,034 2,102 (3%) Average BIS Capital $ 2,841 n/a n/a C O R P O R ATE AND INVESTMENT BANKING The Corporate and Investment Banking Division had a Charles G. Ward III stellar year in 1997. We executed a record number of Managing Director Corporate and landmark transactions for valued clients. We also Investment Banking increased our geographic and industry coverage and enhanced our product line — all key elements in our strat- egy. As a result, CSFB continues to be one of only a handful of truly global investment banks. The globalization of the entire financial services industry is proceeding rapidly, and for a very simple reason: investment banks need to be global because our clients are global. Our sig- nificant presence in the U.S., Europe, Asia, and in emerging markets everywhere puts us at the leading edge of the globalization trend in each of our major product areas. In 1997 CSFB announced the acquisition of the European and selected Asian equity, equity capital mar- kets and mergers and acquisitions advisory businesses of (1) See listing on pages 6 and 7.
  • 11. 9 BZW from Barclays. These businesses have established market-leading positions in a number of key areas. The acquisition adds 250 bankers and capital markets profes- sionals to our European and Asian Investment Banking operations and bolsters our M&A and Equity positions in these areas. It also adds a third home market, the U.K., to our original home markets of the U.S. and Switzerland. Mergers & Acquisitions CSFB completed $172 billion worth of transactions, rank- ing us among the handful of leading advisors in the world. Our M&A team executed more than 55 transactions in excess of $1 billion. These transactions bore our trade- marks of creativity, strategic perspective, flawless execution, and strong financing support. CSFB’s global presence is a particularly strategic advantage for clients as cross-border M&A activity increases. CSFB has a strong M&A franchise in markets around the world, as our M&A highlights list demon- strates. We were particularly proud of our defense of Thyssen AG against a hostile offer launched by Fried Largest Krupp AG Hoesch-Krupp, which later resulted in a friendly merger announcement valued at $10.5 billion. Institutional Takeover Battle in French CSFB advised French insurance company Assurances Générales de France (AGF) History on two transactions that illustrate the dramatic opening of the European M&A market. First, we advised AGF when it acted as white knight for French holding company Worms & Cie, which had rejected a rare unsolicited offer from another French company. In the midst of negotiations to acquire Worms for $6 billion, AGF itself received a $9.3 billion hostile offer from Italian insurer Assicurazioni Generali SpA. CSFB’s efforts as defense advisor on the largest takeover battle in French history helped AGF to reach an agree- ment to be acquired by Germany’s Allianz AG and forced the withdrawal of Generali’s offer. The Allianz/AGF deal, valued at $10.4 billion, creates Europe’s largest insurer.
  • 12. Mergers and Acquisitions Highlights CREDIT SUISSE FIRST BOSTON CLIENT DESCRIPTION OF TRANSACTION A P P R O X I M ATE DOLLAR VA L U E CoreStates Financial Corp Sale of Company to First Union Corporation* $ 16,600,000,000 Thyssen AG Acquisition offer from Fried Krupp AG Hoesch-Krupp 10,500,000,000 (offer withdrawn) Assurances Générales de France SA Sale of Company to Allianz AG* 10,400,000,000 Raytheon Company Acquisition of Hughes Aircraft Company from 9,500,000,000 Hughes Electronics Corporation and General Motors Corporation U.S. Bancorp Sale of Company to First Bank System, Inc. 9,086,000,000 Ashland Inc. Joint venture with USX-Marathon Group of their oil refining, 7,000,000,000 marketing and transportation operations Assurances Générales de France SA Acquisition, with SOMEAL SA, of Worms et Cie. 6,100,000,000 Tyco International Ltd. Acquisition of ADT Limited 5,600,000,000 W. R. Grace & Co. Merger of its Cryovac subsidiary with 5,000,000,000 Sealed Air Corporation* Nordbanken AB Merger with Merita Oy* 4,300,000,000 DQE, Inc. Sale of Company to Allegheny Power System, Inc.* 4,200,000,000 Occidental Petroleum Corporation Divestiture of MidCon Corp. subsidiary to KN Energy, Inc. 4,000,000,000 CVS Corporation Acquisition of Revco D.S., Inc. 3,970,000,000 The State Government of Victoria, Divestiture of Loy Yang Power to a consortium 3,800,000,000 Australia led by CMS Energy Corp. U.S. Department of Energy Divestiture of Elk Hills Naval Petroleum Reserve to 3,650,000,000 Occidental Petroleum Corporation First Union Corporation Acquisition of Signet Banking Corporation 3,300,000,000 Falcon Drilling Company, Inc. Merger with Reading & Bates Corporation to form 3,100,000,000 R&B Falcon Corporation Deposit Guaranty Corp. Sale of Company to First American Corporation* 2,700,000,000 American Radio Systems Corp. Sale of its radio broadcasting operations to 2,600,000,000 CBS Corporation* Abitibi-Price Inc. Merger with Stone-Consolidated Corporation 2,300,000,000 Wachovia Corporation Acquisition of Central Fidelity Banks, Inc. 2,300,000,000 The State Government of Victoria, Divestiture of PowerNet Victoria to GPU International, Inc. 2,000,000,000 Australia Team Rental Group, Inc. Acquisition of Budget Rent a Car Corporation 2,000,000,000 to form Budget Group, Inc. Swiss Reinsurance Company Acquisition of Société Anonyme Française de Réassurances 1,780,000,000 (SAFR) and subsequent sale to Partner Reinsurance Company Living Centers of America, Inc. Recapitalization with Apollo Management, L.P., and 1,668,000,000 subsequent merger with GranCare, Inc. Coca-Cola Enterprises Inc. Fairness opinion with respect to the acquisition of Coca-Cola 1,660,000,000 Beverages Ltd. of Canada and The Coca-Cola Bottling Co. of New York The Walt Disney Company Divestiture of four daily newspapers to Knight-Ridder, Inc. 1,650,000,000 CalEnergy Company, Inc. Repurchase of Peter Kiewit Sons’, Inc., 26% interest in 1,600,000,000 the company and certain project interests Province of Buenos Aires Privatization of ESEBA 1,368,000,000 NationsBank Corporation Acquisition of Montgomery Securities 1,200,000,000 Prime Service, Inc. Sale of Company to Atlas Copco AB 1,170,000,000 Viacom Inc. Divestiture of Viacom Radio Group to Evergreen Media Corporation 1,075,000,000 Greenfield Industries Inc. Sale of Company to Kennametal Inc. 1,000,000,000 Texaco Inc. Joint venture with Shell Oil Company and Saudi Aramco of their Not Disclosed East Coast and Gulf Coast refining and marketing operations* Texaco Inc. Joint venture with Shell Oil Company of their midwestern and Not Disclosed western refining and marketing operations *Pending at 3/15/98.
  • 13. Investor magazine named our representation of Raytheon in global equity coordination and, complementing our lead- in its $9.5 billion acquisition of Hughes Aircraft an M&A ing position in U.S. IPOs, we became the number one Deal of the Year. European house of 1997. We pride ourselves on providing We represented Boeing in its $16.3 billion acquisi- outstanding execution for clients. For example, our global tion of McDonnell Douglas, the largest transaction ever in marketing strategy for the $535 million Petrobras 11 the aerospace industry, and one of the largest domestic Preferred Shares offering was so successful that the acquisitions in U.S. history. offering size was increased by nearly 40%. This story was We also represented CoreStates Financial Corp. in repeated many times for the more than 60 offerings we its $16.6 billion acquisition by First Union Corp., which lead-managed in 1997. will create the fifth largest bank in the U.S., and repre- We are also the leading firm for IPOs in which our sents the largest M&A transaction ever in the U.S. clients spin off 100% of their ownership in subsidiary banking industry. Also in the banking industry, CSFB rep- companies. We believe we’ve earned this position through resented Nordbanken AB in its $4.3 billion merger with our ingenuity in creating structures that best serve our Merita Oy, the first cross-border bank merger in Europe, clients. As an example, CSFB’s management of the spin- creating the largest Nordic bank. off of Ciba Specialty Chemicals Holding Inc. from its parent Novartis was accomplished through a structure that Equity Underwriting never before has been undertaken. CSFB continues to be a global force in equity underwrit- CSFB has also built an unparalleled record in ings, benefiting from our extensive local presence in privatizations harnessing our strategic advisory capabilities countries around the world. CSFB is the outright leader with our global distribution strength to deliver superior results. (see box pages 14-15). Largest CSFB lead-managed the largest IPO of 1997 and the largest privatization in Australian history. Based on CSFB’s strong presence in the Australian market and our outstanding performance divesting the State of Victoria’s energy operations, CSFB was mandated by IPO The Commonwealth to act as joint global coordinator of a $10 billion IPO for Telstra, the Australian state-owned telecommunications company. The highly successful offering of 1997 represented an important component of Australia’s continuing privatization strategy. In order to finance a large share repurchase, CalEnergy approached CSFB to advise on financing options. The situation was complicated by the Asian market Strong crisis, since CalEnergy has significant holdings in the region. CSFB was able to fully finance the share acquisition and the purchase of various project interests through a $723 million global common stock offering, a $400 million revolving Underwriting credit facility, and a $350 million senior notes offering totaling $3.1 billion — accomplishing an increase in the client’s stock price of 20% during the refi- Support nancing/marketing period. In awarding the transaction one of its Project Finance Deal of the Year citations, Institutional Investor noted that it was “the largest, most successful offering to date by an independent power producer.” Despite Volatile Markets
  • 14. Project Finance We believe we have the premier project finance franchise in the world. CSFB has been active in Project Finance for 25 years and has been in the vanguard of developing the capital markets to finance projects. We are among a few in offering a complete range of products to project finance clients including advisory, equity and debt capital markets and lending alternatives — an important benefit brought by the consolidation of the former Credit Suisse with the former CS First Boston. Debt Underwriting and Corporate Lending CSFB has been a global leader in debt for over a decade. CSFB’s debt capabilities offer an array of financing oppor- tunities for clients ranging from investment grade to Largest non-investment grade public offerings, private placements Latin American Petrozuata is the first strategic association in Venezuela Project formed to develop the country’s vast extra heavy oil reserves. It is a joint venture between Conoco Inc. and Maraven S.A., a wholly-owned subsidiary of the state- Financing owned oil company of Venezuela. CSFB lead-managed a $1 billion bond financing and also acted as lead arranger and administrative agent of a $450 million bank facility for the project. The transaction was named Project Finance Deal of the Year by six periodicals including Institutional Investor, Corporate Finance and Project Finance. Adebayo Ogunlesi (middle) and Charles Chigas (standing) of project finance with Francisco Bustillos, Corporate Finance Manager, Petróleos de Venezuela S.A. (left) and Theodore Helms, International Finance Manager, PDV America, Inc. (right). First Sterling Denominated High Yield Offering CSFB has played a leading role in the development, commencing in 1997, of a non-dollar high-yield market. CSFB lead-managed the first ever sterling denominated high yield offering for Castle Transmission International, a company formed by the television and radio transmission tower businesses of the British Broadcasting Corporation. Having already provided bank financing for the closing of the buyout, CSFB underwrote £125 million of 9% senior notes which were ultimately sold to a broad cross-section of European institutional investors in a syndication that was several times oversubscribed.
  • 15. of debt, asset-backed and lease financings, corporate We lead-managed the first ever Sterling High Yield lending and acquisition finance. During the period 1990— Eurobond — £125 million for Castle Transmission 1997, CSFB ranked second in U.S. Corporate issues, and International. We have also been active in the Asian mar- third in Euro and global U.S. $ issues. Reflecting our truly ket and underwrote the $750 million offering for PT Pindo global presence, we are currently second in Emerging Deli. In the U.S., CSFB has a diverse High Yield client 13 Market issues. base that reflects our extensive industry expertise. Several Lending is a major differentiating advantage of offerings were noteworthy including our $300 million CSFB. As a result of the consolidation of the former underwriting for Fairchild Semiconductor and our $450 Credit Suisse with the former CS First Boston, we are million offering for Winstar Communications. now able to commit the Firm’s capital towards large, lever- During 1997 we established a Global Lease Finance aged financings in a short amount of time. During the last Group to advise clients on all aspects of big- decade, CSFB ranked second in “event deals” — bonds ticket tax leveraged lease transactions, as well as for the over $750 million that are issued in conjunction with an arrangement of lease debt, debt and equity defeasance, acquisition or other major corporate event. When J. C. and other lease-related products such as synthetic leases. Penney launched an offer for Eckerd Corporation, CSFB We completed more than 20 lease finance transactions extended $3 billion of acquisition financing overnight. in 1997. CSFB subsequently lead-managed the $2.5 billion bond offering, which represented the largest investment grade Our Mission is Client Service offering of 1997. CSFB’s goal is to offer a broad array of integrated finan- CSFB lead-managed 46 High Yield offerings total- cial solutions so that clients can attain their strategic ing $7.4 billion in 1997. CSFB has been in the forefront objectives. To this end, we have assembled many of the of developing the market for high yield issuers in Europe. world’s preeminent product experts in M&A, Equity, and Premier Coordinator of Complex Global Transactions When Team Rental Group acquired Budget Rent a Car, we advised on the acquisition, handled the global common stock offering, and arranged seven separate but related pieces of debt financing. CSFB provided $2 billion in new capital, a $225 million bridge loan commitment, and managed a $186 million common stock offering. The Firm acted as sole placement agent for $125 million in convertible subordinated notes, $165 million in guaranteed senior notes, and $500 million in asset-backed notes. CSFB was also sole agent for $900 million in asset-backed commercial paper, a $900 million secured revolving liquidity facility, and a $300 million senior secured revolving credit facility. Finally, CSFB provided $200 million in letters of credit. This integrated support made possible Team Rental Group’s successful bid against significantly larger potential buyers and earned Corporate Finance magazine’s M&A Deal of the Year award.
  • 16. Debt. In order to be more available and more in tune with bankers who can engineer financial structures that enable clients’ needs, we have placed these investment banking our clients to take advantage of the best market opportu- specialists on six continents and in the major financial nities available throughout the world. Our Team Rental centers throughout the world. Few firms offer the range of Group deal is a prime example of how well CSFB pulls investment banking and lending products that CSFB offers together resources in a multitude of product areas and with the same global reach. Few offer the capital base diverse markets to serve the interests of our clients. We that we have. plan to continue to aggressively augment our base of CSFB’s ability to manage highly complex, multi- highly skilled experts so that we can continue to deliver a product, global transactions is our greatest strength. We high level of service to clients around the globe. place a great emphasis on developing highly skilled Privatization and Advisory to Governments In the past 12 months CSFB has built on its unparalleled record in privatization equity offerings. Completing the transactions required significant resource commitment, local expertise, capital strength and global distribution capability. It’s what you would expect from the world’s first truly global investment banking firm. “Privatization can be a policy tool of immense power,” said appear to have given away a national resource; price it too David Mulford, Chairman International for CSFB, “and pre- high, and the performance after sale may be sluggish and cisely for that reason a government which wishes to create a major financial and political disappointment. It is employ it must choose an advisor or global coordinator an intricate process with dozens of delicate decisions. with the greatest care. At Credit Suisse First Boston, we “Second, the asset must be restructured for privati- have built a reputation in the field because we understand zation—to operate not as a government agency but as a two absolutely fundamental facts. profitable private corporation. We’ve had wide experience “First, to be judged a success, any privatization must repositioning assets for a successful IPO or for sale to a make sense in both financial and political terms. The strategic investor. appropriate pricing of the asset has enormous political “When it comes to a very large privatization, govern- implications: price it too low, and the government will ments naturally want to entrust the responsibility to
  • 17. 15 SELECTED 1 9 9 7 US DOLLARS P R I VAT I Z ATIONS* IN MILLIONS Telstra Corporation Ltd. Australia $ 9,997 Largest IPO of 1997. Privatized 33% of the company’s stock. ENI S.p.A. Italy $ 7,795 Third stock offering in 18 months, totaling $18 billion and decreasing the government’s ownership to 51%. Nordbanken Holding AB Sweden $ 1,046 Largest equity offering in banking sector in Scandinavia ever. MATÁV Rt. Hungary $ 1,013 Sold 26% of the company in an IPO that was the largest ever offering from the region. First in the region to be NYSE listed. Petroleo Brasileiro S.A. Brazil $ 535 The first bookbuilding transaction the Brazilian government has ever undertaken; the second largest Brazilian issue ever. Telecom Italia Italy $ 14,000 The largest European privatization to date comprising $10.933 billion of equity, making this the largest European secondary equity offering ever. An additional $3 billion was a sale to strategic investors, totaling $14 billion. * CSFB was joint global coordinator for each except for Telecom Italia, which was completed in 1997 by a group from BZW prior to its joining CSFB, and Petrobras, for which CSFB was sole global coordinator. seasoned professionals who have done the largest and in eighteen months and in the process transformed the most challenging deals in the world. We handled the IPO Italian equities market. Regulatory officials there had to of Telstra, the Australian telecommunications giant, at modernize the entire system of retail sales to facilitate $9.997 billion, the largest of the year, as well as the purchases by individual investors. In late 1997, we com- largest privatization and public offering in Australian history. pleted strategic advisory for the Hungarian government “Governments also want experience in privatizations and the subsequent initial public offering for telecommuni- with far-reaching economic implications. We did all three cations company MATÁV. MATÁV became the first Central stock offerings of ENI, the Italian state-owned oil compa- European company to be listed on the NYSE and 92% of ny; the most recent offering in 1997 won International the institutional investor base was international.” Financing Review’s award for European Equity Issue of the Year. The Italian government raised almost $18 billion
  • 18. 28 markets Government and Corporate Fixed Income Securities Global Foreign Exchange Emerging Markets New Issues Underwriting Asset Backed Securities Leveraged Finance Mortgage Securities Trading Presence Real Estate Finance Across Developed Money Markets Countries and Bank Notes Emerging Markets Precious Metals Fixed Income Research (Dollars in Millions) 1997 1996 % CHANGE Revenue $ 3,379 $ 2,356 43% Employees 1,760 1,535 15% Average BIS Capital $ 2,441 n/a n/a FIXED INCOME 1997 was a landmark year for the Fixed Income division. Marc Hotimsky Our revenue of $3,379 million, a 43% increase from Managing Director Fixed Income 1996, positions us as one of the most profitable fixed income divisions in the world. Our success in 1997 stems from several basic strengths: our diversified business, which makes possible a substantial appetite for risk; our balance sheet strength; our premier skills in structuring; and our global coverage and organization by business lines. The biggest growth in earnings came from two rela- tively new business groups, Emerging Markets Group and Principal Transactions Group. In addition, our reconfigured Foreign Exchange business had an excellent year and is considered among the top handful of Foreign Exchange businesses in the world.
  • 19. 17 Our Emerging Markets Group has experienced the Russian Federation seven-year DM 2 billion Eurobond remarkable growth in the last several years. As recently as issue, the $500 million, three-year issue for the City of 1992, our only emerging market presence was in Russia. Moscow and the RUR 700 billion one- and one half-year Today, we participate in 28 geographic markets worldwide, issues for the Republic of Tartarstan. with a physical presence in 15 centers, in particular, We have also seen significant contributions from the Moscow, Warsaw, Sao Paulo, Seoul, Shanghai and Cairo. ˜ Principal Transactions Group, which provides creative That presence is especially effective, I am convinced, solutions for complex real estate transactions. PTG com- because of our heavy reliance upon local professionals pleted more than $12 billion in U.S. real estate financings thoroughly familiar with the markets and business culture in 18 months, ranking PTG as the leading U.S. real they cover. We believe it to be one of the most successful estate investment banking group. In 1997, PTG success- businesses of its kind in operation today, and we expect fully securitized over $4 billion of commercial mortgage its expansion to continue. securities. PTG targets untapped niches where there is a Among award-winning accomplishments in Emerging significant shortage of capital for deals due to past prob- Markets last year, I would cite the Group’s financing trans- lems, deals that require analytic complexity, deals that are actions for Pindo Deli Finance in Indonesia ($750 million difficult to understand or deals that are out of favor. This multi-tranche, awarded Asian Bond of the Year by IFR), highly profitable group is expanding its global presence. “Sale of The words come from Institutional Investor’s description of the $2.5 billion bond financing CSFB arranged for J. C. Penney, to refinance its acquisition of the Eckerd drugstore the chain (on which the Firm also advised). In spite of adverse market concerns prompted by a Federal Reserve Board rate increase, the offering was oversubscribed by 1.5 times Season” after a five day roadshow. Other big issuers immediately found the confidence to go to market. As J. C. Penney’s treasurer noted, “The deal helped change the tone in the market from night to day.” Largest Asian High Yield Offering PT Pindo Deli Pulp and Paper Mills is one of the largest vertically integrated pulp and paper manufacturers in Indonesia. To pay down existing bank debt and extend the company’s debt maturity profile, Pindo Deli asked CSFB to organize a $400 million issue of senior notes. After an extensive roadshow on three continents, overwhelming demand enabled the company to increase the deal size to $750 million. Roughly 100 separate institutional investor portfolios participated in the offering, significantly expand- ing the company’s investor base. Trading floor, Hong Kong, as viewed through an aquarium.
  • 20. First International Financing for Local Authority Three individual parts of CSFB—the London fixed income unit, the banking unit at CSFB (London), and Credit Suisse Financial Products—combined to create a $1 billion financing for the Region of Sicily. It was the largest capital markets financing ever undertaken for a local authority outside North America, and the market’s largest unrated transaction of 1997. Subsequent to this transaction, the rates achievable by Italian regions in general improved significantly from their historic levels. CSFB has maintained a presence in Russia for five years, one that now numbers Landmark over 300 people, and is one of the largest foreign bank primary dealers of government bonds. The Firm completed a $1.2 billion offering for the Russian Federation in the DM market, the largest in this market by a transition economy. CSFB also lead-managed Russian a RUR 700 billion bond issue for the Republic of Tartarstan. This was the first Rouble public bond issue listed and traded on MICEX by a Russian Republic. Bond Offerings In 1997 PTG purchased a $625 million Swedish property expansion in emerging currency, and the provision of portfolio, just over $1 billion in U.K. properties, and has a seamless link between FX and all products of the Firm funded more than $500 million in mortgage bond financ- including Equities and Investment Banking. ings in Latin America. PTG has established a vehicle for Our Debt Capital Markets Group and corporate purchasing distressed real estate portfolios in Japan and secondary trading business saw its share of the $1,778 is co-sponsoring a company for real estate investments in billion in worldwide bond issuance. In particular, we contin- the former Soviet Union and East and Central Europe with ued our efforts to develop and structure creative bond the Zell Group. financings for which we have become well known. This is 1997 was a year of great structural change for exemplified by our offering for J. C. Penney, which was CSFB and nowhere in Fixed Income was this more appar- cited by Institutional Investor as one of 1997’s five “Most ent than Foreign Exchange. In 1997 we retooled the FX Noteworthy” Deals of the Year. operations of the former Credit Suisse and the former Separately, our historical leadership in structured CS First Boston into a single business. Our first task was financings was highlighted by the Triangle Funding Limited to reduce the number of trading operations previously run deal, a $5 billion collateralized loan obligation for CSFB’s by the group and focus on five key international centers. loan portfolio. We have continued to expand our high yield At the same time, we globalized management and linked underwriting presence by providing a leadership role in the trading centers to capture information and take advan- developing the local currency European high yield market, tage of economies of scale in spot trading and market as well as increasing our new issue underwriting volumes making. This strategy was aligned with a strong research globally by 84% over 1996. and risk management focus that aims at offering clients In the Swiss capital markets, once again by a very value in a variety of markets. In the future, growth wide margin, CSFB was the leading institution. This is the in Foreign Exchange will be led by product innovation, seventh straight year we have held this position.
  • 21. 19 Two eventful transactions were for the Republic of Italy which allows customers to transact in cash U.S. govern- for SFr 1,000 million (voted SFr deal of the year by IIFR) SFr. 1,000 million (voted SFr deal of the year by FR) ment securities with multiple dealers. and the Citibank Credit Card Master Trust, the first fixed During 1997, we brought all fixed income research rate Swiss Franc credit card deal, of SFr 1,064 million. into a single unit under one global head. Our research Our global government bond business has a pres- already enjoys a strong reputation, and this change ence in most of the leading government debt markets improves further the service we provide to our customers worldwide. We have sustained our select position as one and to our own trading desks. The economists (who serve of the few firms that provide investors with twenty-four the entire Firm) were brought under the same manage- hour trading in the liquid and global market for govern- ment structure, enhancing our ability to link global macro ment bonds and related products. The group is organized themes with profitable trade recommendations. Among and managed on a global basis, with a fully dedicated many achievements in 1997, our researchers laid the sales force that combines research, execution capabilities, groundwork for the structural changes (towards credit and and ideas to serve investors worldwide. duration plays) now being implemented in both our sales CSFB has for some time been a leader in electronic and trading operations ahead of EMU. trading, which represents the future in marketing com- The future is always full of uncertainties and new moditized products to customers. We have continued to challenges. The reshaping of the European financial mar- expand our current family of electronic products, which ket, the expansion of activities in emerging countries, and include GovTradeSM and CPTradeSM, and to encompass the explosion of high yield issuances worldwide are clear International RepoTrade , currently doing $3 billion of SM challenges in 1998 and beyond for all global players. transactions per day. We have also introduced a family of I believe the broad base of our business, its global scope Prime products to execute and clear multi-product trans- and capital support give us the strength and the edge to actions, and we are the founding partner of TradeWebSM , maintain and even expand our leadership and position in the Fixed Income markets for many years to come. Major Commercial Mortgage-Backed Securities Transaction The Principal Transactions Group successfully launched and priced $1.4 billion in commercial mortgage pass-through certificates—the second largest single commercial mortgage-backed securities transaction ever. PTG originated all of the approximately 165 commercial mortgage-backed whole loans in the transaction. The senior bonds were rated AAA by all three major rating agencies. During the initial offering, CSFB sold the transaction at new issue pricing, and set new market levels for the single-B and unrated tranches of this transaction.
  • 22. Research #1 Sales Tr a d i n g Underwriting Equity Finance/Prime Brokerage C o n v e r t i b l e s / Wa r r a n t s Derivatives Proprietary Tr a d i n g Coordinator of European Private Corporate Equity Globally IPO Distributed House(2) Equity Issues in 1997(1) (Dollars in Millions) 1997 1996 % CHANGE Revenue $ 1,212 $ 834 45% Employees 1,089 804 35% Average BIS Capital $ 462 n/a n/a EQUITY Credit Suisse First Boston continued to demonstrate in a Brady W. Dougan highly profitable 1997 that it belongs among the elite Managing Director Equity equity firms to merit the title global super-bulge bracket. The global footprint of our division—now more than 1,000 people strong worldwide—is extensive. We are alone in having three major home markets—the U.S., the U.K., and Switzerland. We have more than 200 traders spanning the developed markets, the emerging markets, and cash and derivative products. They trade 5,000 stocks globally, providing liquidity for customers, but also developing and executing proprietary ideas for CSFB’s own account. We have a sales force in excess of 300 people talk- ing to 2,000 institutional clients globally about research, secondary ideas and primary issues. The breadth of our distribution available to our global account base, com- (1) Securities Data Company. posed of institutional and individual investors, is extensive. (2) Bondware.
  • 23. 21 CSFB underscored its commitment to equity research in the last two years, increasing the size of its analytical staff and its companies under coverage globally from 1,500 to 4,000. We have significantly expanded our coverage in areas such as health care,technology, busi- healthcare, technology, busi- ness and educational services, real estate and lodging, natural resources, and Canadian research, while remaining extremely active in the industrial sector. Our EVA™ per- spective has provided a dynamic framework for equity research and in the process has become the industry synonym for the most effective methodology. For the third consecutive year our focus list of 32 companies outper- formed the total return of the S&P 500; our three-year edge over the S&P was 162% to 125%. We have organized three functions—trading, sales, Major Acquisition and research—across business lines around the world for optimum effectiveness and mutual reinforcement. More- Enhances over, in all these areas we have maintained the continuity of key personnel that is the hallmark of a global leader. Equity & Advisory Capabilities In 1997 CSFB announced the acquisition of the European and selected Asian equity, equity capital markets and mergers and acquisitions advisory businesses of BZW from Barclays. These businesses have established market-leading positions in a number of key areas. BZW M&A/Advisory has advised on $58.5 billion worth of transactions since 1992. The Equity Capital Markets unit has acted as bookrunner or global coordinator to $19.2 billion of equity transactions globally during the same period. These primary divisions are supported by a secondary division widely acknowledged as one of the market leaders in equity sales, trading, and research, with a presence in all principal financial centers worldwide, as well as a highly skilled derivatives group producing tailored products for clients globally. With this acquisition, CSFB now ranks second in U.K. equity trading and fifth in European equity research, up from twentieth.
  • 24. First 100% IPO of Rental Car Company Dollar Thrifty Automotive Group’s search for a large fleet financing led to a complex equity/debt transaction that totaled $2.8 billion. In addition CSFB sold Chrysler’s ownership in Dollar Thrifty, executing an initial public offering of $484 million in common stock and completing an unusually complicated and innovative structure including medium-term notes, commercial paper, and liquidity and revolving credit facilities in only three months. Europe’s Ciba Specialty Chemicals Holding Inc. was distributed to shareholders of its parent, Novartis. The underlying structure of this $5.5 billion transaction—incorporating the simultaneous par value rights issue, global offering, rights recycling, and hard under- Largest writing—had never before been undertaken. The deal created the world’s leading specialty chemicals company and earned a Corporate Finance magazine award as Spin-Off Demerger of the Year. CSFB lead-managed the $535 million global offering of preferred shares for Petrobras, the huge Brazilian integrated oil and gas company. A strong marketing effort Global increased the original offering size from 1.35 billion to 2.0 billion shares and broadened Petrobras’s base of international shareholders, in particular, dedicated oil and gas investors and large U.S. investors. Marketing Increases These combined strengths have made us the fourth Transaction leading global IPO firm, and the outright global coordinator leader with more than $39 billion in transactions lead- Size managed in 1997 as well as the number one European IPO House. No institution has executed more secondary IPOs in the last four years than CSFB, as our clients employ the equity markets (rather than the M&A markets) Expert to sell their positions in companies. We are also a leader in the convertible and synthetic new issue markets. Execution of We have become the preeminent lead manager in privatizations, as demonstrated most recently by the Marketed Offering On behalf of Zell Chilmark Partners, CSFB concluded a marketed offering of Raises 15.6 million shares of common stock of the CVS Corporation, one of the leading chain drugstores in the U.S. The offering, which was confined to a three-day period, was more than four times oversubscribed. The stock price rose from $51.58 to $54.00 Stock Price during the period, and resulted in proceeds of $855.5 million for CVS.
  • 25. enormous transactions for Telstra and the 1997 phase sive national network of active retail customers, comple- of ENI, both described on page 15. CSFB managed the menting our leading private client services group that $723 million common stock offering for the CalEnergy covers over 2,000 sophisticated individual investors and refinancing, described on page 11, and the $484 million small institutions. IPO for Dollar Thrifty Automotive Group—the first 100% Our relationship with Credit Suisse Financial 23 initial public offering of a rental car company. We also Products has been especially fruitful in the area of equity managed the CVS share offering of $855 million and the derivatives. This business combines CSFP’s balance sheet MATÁV privatization IPO at $1,013 million for the govern- and OTC structuring capability with CSFB’s command of ment of Hungary. equity derivatives and distribution expertise. The global Our strength and market coverage was broadened integration of all these capabilities is unmatched by any of by our acquisition of the European and selected Asian our competitors. equity, equity capital markets and mergers and acquisi- The global super-bulge bracket of equity firms is tions advisory businesses of BZW from Barclays rapidly taking shape. It will be small and enormously (discussed on page 21), and through the opening of a full powerful, with worldwide coverage, research that sets the service Canadian equity operation in mid-1997. Similarly, standard for excellence and leadership in every product our joint equity distribution alliance with Charles Schwab category. CSFB already has a solid claim on membership. affords our client equity issuers with access to an exten- It is not a claim we intend to relinquish. First Central European Company Listed on NYSE Credit Suisse First Boston acted as joint global coordinator in the largest equity offering from Central Europe by raising $1,013 million in the privatization IPO of MATÁV, Hungary’s main telecommunications services provider. The transaction was completed within the original price range and in full size, despite a 22% decline in the Hungarian stock market in the four days ahead of pricing and a 13% decline on the day of pricing. IFR magazine awarded the MATÁV deal an Equity Issue of the Year for East Europe/Middle East/Africa.
  • 26. Interest Rate Products #1 #1 Swaps and options in over 30 currencies Equity Products Index, basket and single stock swaps and options Foreign Exchange Products Longer term swaps and other FX risk management products Equity Credit Commodity Products Derivatives (1) Derivatives (2) Longer term swaps and options on precious metals, oil and other energy Asset Trading and Credit Derivatives Including assets and derivatives from emerging and developed markets (Dollars in Millions) 1997 1996 % CHANGE Revenue $ 1,167 $ 950 23% Employees (front office) 281 241 17% Average BIS Capital $ 885 n/a n/a CREDIT SUISSE FINANCIAL PRODUCTS 1997 proved to be another record year for Credit Suisse Christopher Goekjian Managing Director Financial Products. Net trading revenue for the year was Chief Executive Off i c e r U.S. $1,167 million, a 23% increase over 1996, resulting Credit Suisse from increased client and proprietary activities. Global Financial Products market conditions were benign until the fourth quarter when the Asian crisis broke. CSFP continued to be at the forefront of the derivatives industry, and used its leader- ship in credit derivatives to develop and then make publicly available an analytical framework for measuring and man- aging credit risk, CREDITRISK+. During 1997 interest rate derivatives continued to be the largest contributor to trading revenues. This area continued to grow due to higher turnover and proprietary (1) World Equity voted CSFP “Derivatives House of the Year” trading profits in the vanilla products. European swap in January 1998. markets were very active, ahead of EMU, and an increas- (2) IFR voted CSFP “Credit Derivatives House of the Year” ing number of CSFP’s clients intensified their interest risk in December 1997.
  • 27. 25 management activities. In Japan, the continuing low Yen interest rate environment enabled CSFP to execute many innovative yield enhancement structures. The generally low level of G7 interest rates has led to increased investor interest in less developed swap markets such as the South African Rand where CSFP has developed a domi- nant presence in the market. In the first half of the year, the equity business built on the successes of 1996 and showed very strong results, which was somewhat offset by a more difficult second half. There is clearly a growing equity culture in Europe which has led to a strong demand for equity-linked retail products, such as capital protected notes. CSFP continued to be one of the major providers of these prod- ucts during 1997. Recurring fears of a potential equity market correction led to healthy client hedging business, especially in Europe and the U.S. In Japan several of our clients hedged their core equity holdings. 1997 again saw a number of very successful Corporate Finance-type “CSFP has been at equity derivative deals that were executed in close cooper- ation with the Equity Capital Markets group, such as the the forefront of the Leveraged Executive Asset Plan (“LEAP”) for Ciba Specialty Chemicals which accompanied the company’s booming synthetic initial public offering. Additionally, CSFP significantly convertible business… it goes from strength to strength.”* In early 1997 many European investors sought access to the exceptional returns available in the global equity markets without exposing themselves to the downside risks of equity investing. To meet this objective, together with Credit Suisse First Boston, we structured and executed several “synthetic” convertible bonds that provide the upside of equity with the principal protection of a bond. The synthetic convertibles were issued by European and U.S. corporates, including Nestlé, ABB and Texaco. These issuers immedi- ately hedged out the equity component of the bonds via an OTC equity component; the * I F R’s World Equ ity corporates obtained funding at rates substantially below market cost, while investors J a n u a r y, 1998 gained access to high-quality equity investments that match their desired exposure profile.
  • 28. C R E D I T R I S K+ In October 1997, we released our internal credit risk management framework, CREDITRISK +, to the public, after extensive internal testing and use. We wanted to pro- mote discussion about the assessment and management of credit default risk within a portfolio of different credits. At the same time, we sought to encourage regulators to consider a more flexible, model-based approach to the calculation of regulatory capital for credit default risk. CREDITRISK+ received a warm reception from regulators, manage- ment consultants, accountancy firms, and major academics and generated interest from all sectors of the financial world, with up to 3,000 hits a week on our website. With growing investor interest in what had previously been thought to be an unmanageable risk, we fully expect to be at the forefront of the debate on the regulatory treatment of credit derivatives during 1998. increased its activity of providing clients with derivative producers and, consequently, significantly increased its structures that facilitate share repurchases, divestitures client activity during 1997. and acquisitions. Credit derivative trading and risk management was a In foreign exchange derivatives, 1997 marked the major focus in 1997. The start of the year saw the inte- continuation of trends established at the end of 1996, as gration of the Fixed Income Division’s Asset Trading the U.S.$appreciated roughly 11.5% versus core USD appreciated roughly 11.5% versus core business with CSFP’s credit derivatives business. In trad- European currencies and 13% versus the Japanese Yen. ing, CSFP now turns over in excess of U.S.$2 billion U.S. $2 billion These moves were matched by the resurgence of implied notional a month in credit derivatives, making it one of the volatilities in the U.S.$currency pairs. The opposite was USD currency pairs. The opposite was two dominant firms in this segment of the derivatives mar- true for European crosses where, in anticipation of the ket. Expertise gained in this market helped the Group to single European currency to be implemented in 1999, arrange the largest CBO/CLO of 1997 — CSFB’s EMS currency volatilities fell to all-time lows. CSFP’s U.S. $5 billion Triangle transaction. In risk management, U.S.$5 billion Triangle transaction. In risk management, close working relationship with the Global Foreign CSFP has developed an analytical model to help manage Exchange Group enabled it to provide its clients with a full its credit exposure. The model’s use has subsequently array of FX products. In this environment, CSFP focused been extended on a Group-wide basis and was released on creating interesting investment opportunities and to the public as CREDITRISK+ in October. The principles attractive long-dated hedging strategies. behind CREDITRISK+ have been endorsed by Moody’s CSFP’s commodities business continued to improve, Investor Services, Standard and Poors, IBCA, JBRI and and as gold continued its long-term decline, many produc- three of the major accounting firms. CREDITRISK + repre- ers looked to hedge their production. CSFP developed sents a significant contribution to the ongoing debate on a number of long-dated hedging products to aid gold the subject.
  • 29. 27 In April 1997 CSFP opened a Tokyo branch, Financing Review acclaimed CSFP Credit Derivatives making it the first bank specializing in risk management House of the Year, and the company also was awarded products to open a branch in Japan. The branch will allow Derivatives House of the Year by World Equity and CSFP to provide better service to the Group’s clients in Best Foreign Dealer by Swaps Monitor. The successes of the Japanese market. This was followed in July by the 1997 against a background of sometimes difficult market opening of the Hong Kong representative office. conditions show the strength in depth of CSFP’s trading, Overall, 1997 represented another record year for marketing and support functions, all of which are put at CSFP and the company’s position in the industry was the disposal of CSFB’s global client base. recognized by a number of awards. International Specialists in Risk Management Credit Suisse Financial Products Relationship between Daily Revenue and VAR Estimate
  • 30. A Global Network Generating Superior Returns of Professionals Experienced investors Creates the Significant commitments of capital Transaction Institutional priority Opportunities for Compelling incentive systems Private Equity Integrated origination eff o r t Independent execution and commitment process 1997 1996 % CHANGE Employees 43 16 169% P R I VATE EQUITY David A. DeNunzio 1997 was a year of significant accomplishment for Private Managing Director Equity. We redefined our business on a global basis and Chief Executive Off i c e r added significantly to our staff. At the same time, we Private Equity harvested several investments at attractive rates of return, while investing over $130 million in new situations. We now have three investment pools to address global private equity opportunities sourced by CSFB, Credit Suisse, and Credit Suisse Group. Representing approximately $1.5 billion in assets under management, they are focused on the U.S. and Canada, Russia and the Ukraine, and the rest of the world (“International”). These funds, when fully subscribed, will aggregate a significant commitment of CSG capital with that of outside investors to make direct investments in growth opportunities, corporate partnerships, recapitalizations, buyouts, and other types of private equity investments.
  • 31. 29 Our professionals, based in the regional centers of One significant investment came with Cable Plus, London, New York, Moscow, and Hong Kong, respond a leading provider of integrated private cable, local and to the flow of opportunities seen by the global network of long distance telecommunications services and Internet corporate and investment bankers, private bankers and access to residential apartment communities in the United equity research analysts, among other CSG personnel. States. Cable Plus’s primary shareholder is Eagle River, 1997 saw increased activity, both among multinational LLC, the investment vehicle of Craig O. McCaw. The corporations focusing more intently on core businesses investment enabled the company to aggressively pursue and among owner-managers who may lack a financial capital expenditures and acquisition opportunities, and to partner—especially one with industry expertise. partner with a strong financial player. CSFB’s Media and As a separate core division of the Firm, we benefit Telecommunications Group had a long relationship with from the deal flow of CSFB, but we are afforded indepen- Cable Plus and introduced Private Equity when the com- dent governance and investment decision making by pany needed expansion capital. Private Equity made a Credit Suisse Group. Our Division is chaired by Jack minority investment in 1997 by purchasing newly issued Hennessy, who is also a member of the CSG board and preferred stock, assuming a seat on the Board of was formerly CEO of CS First Boston. Directors as part of the transaction. Private Equity Invests in Leading Spanish Company Early in 1997 Credit Suisse First Boston International Equity Partners, L.P. purchased 97.6% of Frida Alimentaria, S.A., Spain’s leading manufacturer and dis- tributor of frozen dough, which supplies premium pastry and bread to patisseries and bakers throughout the coun- try. The investment was accompanied by approximately $27 million of bank credit provided by Credit Suisse First Boston. Frida was especially attractive because of its sophisticated management team, strong marketing and financial practices, and well-articulated strategy. Management purchased the remaining 2.4% of the company and, under an incentive plan put in place with the investment, may increase ownership in the company if Frida performs well—which it continued to do throughout 1997. Alec D’Janoeff and Heidi Rauber of Private Equity review business plans with Alfonso Durán Pich, Managing Director of Frida.
  • 32. Employees Support the Firm’s Growth and Global Reach 1997 1996 % CHANGE Employees 6,656 6,183 8% SUPPORT SERVICES The support departments at CSFB face unique chal- Stephen A. M. Hester Managing Director lenges. The success of our response will, more than ever Chief Financial Off i c e r before, affect the Firm’s future. Our challenges are driven by the intensity and complexity of changing business needs—to support and control growth, raise productivity, and modernize and integrate our infrastructure. Today we are facing a formidable set of problems, nearly all related to the pace of change in our industry. They include the emergence of the EMU, the widely publicized adjustments associated with the year 2000, even broader adaptations to changing technology, the development of an appropriate and secure corporate data warehouse, the establishment of global compliance stan- dards, and the improved management of our assets in a productive and innovative fashion. In addition, the acquisi-
  • 33. 31 tion of the BZW businesses means that our operations arm in London must adapt to handle the integration of the substantial volume of BZW equity business. On page 33 are thoughts by some of my colleagues on managing this change. On page 45 the importance of the work of our market and credit risk management departments is set out in more detail. CSFB has generated record business volumes for several consecutive years. But more than volume, the Firm has added value through greater sophistication, com- plexity and geographic reach. This has resulted in far greater demands placed upon our Information Technology and operations areas (processing more transactions), and upon the various reporting and monitoring functions which examine risk, finance, tax, compliance, and other regulatory issues. Credit Corporate Services Finance Human Resources Risk Management Information Legal and Market Risk Internal Audit Technology Compliance Management New Business and Regional Treasury, Tax Operations Strategic Planning Oversight and Insurance
  • 34. Moreover, the consolidation of the former Credit award-winning transactions that fill this Review would be Suisse and the former CS First Boston in 1997 meant unthinkable. that our structural complexity sharply increased in terms of When building a support system to meet these product, geography, and regulatory environment. In other needs, it is not enough to establish a single, massively words, our global scope is an enhanced business advan- effective monolith. A global investment bank has a wide tage carrying enhanced support responsibilities. Complex variety of needs by business and location. Support must global structuring issues require additional attention from be tailored to meet the requirements of different units and our tax and legal professionals. Finance and risk functions different cultures; it must be stable enough to stand up to now measure and monitor activity and help allocate mounting demands and flexible enough to adapt to a resources in an even larger arena. Treasury’s funding swiftly changing environment. All of this requires an responsibilities are that much more complicated. ongoing program of evaluating the effectiveness of our To say that our institution is heavily dependent upon service delivery and the examination of alternatives that advanced—and constantly advancing—technology is will improve that delivery—such as outsourcing in the something of an understatement. We must be able to processing area. communicate with one another, as well as with our clients There are numerous requirements for keeping the and our suppliers, and to process, store, retrieve, and support capability at peak efficiency. None is more impor- convert information, everywhere in the world, any time of tant than the people who make the systems work. Our day or night, through any local hardware and software management team is stretched but rising to the challenge. system, smoothly and instantly, while at the same time In the support areas, as much as the rest of the Firm, preserving the secrecy of confidential information and CSFB presents uniquely absorbing and rewarding profes- ensuring data protection. Like all the other support func- sional challenges. tions, this is a capability without which the numerous
  • 35. 33 The Management of Change: “The support departments face unique challenges. The success of our response to Some these will more than ever before affect the Firm’s future. Our challenges are driven by the intensity and complexity of changing business needs—to support and control growth, Perspectives raise productivity and modernize and integrate our infrastructure.” Stephen A. M. Hester, Chief Financial Officer “If you don’t like change, then you don’t work in technology. Layer onto that the complexities and demands of a global investment bank, a business growing by acquisition, the constantly evolving mix of applications, the challenges of the ‘Year 2000’ problem, the preparation for EMU compliance...and you have the world’s best technology job. In 1997 alone we completed the global rollout of voice mail, improved our global e-mail systems, implemented Windows NT in our front office, and handled more transaction volume, from more locations, than ever before.” Frank J. Fanzilli, Jr., Chief Information Officer “From a legal and compliance standpoint, being a truly global investment bank that is also an acknowledged leader in the emerging markets, gives us the opportunity to shape global standards for many documentation and compliance practices. These are standards that tend to spread ‘best practices’ around the world. The benefits to investors are better documentation and disclosure. The benefit to issuers is greater access to investors around the world.” Stephen R. Greene, General Counsel “The Firm more than doubled its size in 1997 through merger and acquisition. This presented significant challenges to Human Resources to create a global data base, integrate multiple compensation and titling systems, and harmonize benefits so that our employees throughout the world are assured of the Firm’s commitment to them and their careers at CSFB.” David C. O’Leary, Head of Human Resources “From a facilities standpoint, in the last 18 months we have relocated over 4,000 people into a completely renovated building in New York City. 1998 will be more of the same, with major moves underway in Tokyo, Moscow, and London. The number of people we have already moved in London in 1998 is more than the size of our entire work force just a few years ago.” Luther L. Terry, Jr., Head of Corporate Services
  • 36. CREDIT SUISSE GROUP Credit Suisse Group is the parent organization of Credit CSFB is a leading global investment banking firm, Suisse First Boston. Its widespread activities are linked providing comprehensive advisory, capital raising, sales by the strategy of capturing global leadership in the two and trading, and financial products for users and suppliers dominant trends emerging in the world’s financial services of capital around the world. market—asset gathering and securitization or disinterme- The worldwide activities of Credit Suisse Asset diation. Management are focused on the needs and requirements CSG operates a decentralized management structure of institutional investors. based on five business units, each geared to the require- The Winterthur Group is one of the leading insurance ments of specific customer groups and markets: companies in Europe and one of the largest international Credit Suisse is a leading bank in Swiss domestic insurance groups operating worldwide. It offers private and business, serving corporate and individual clients through corporate customers tailor-made insurance and pension a multichannel strategy and an efficient branch network solutions at the local and international levels. covering all major locations. The Credit Suisse Group is an institution unique Credit Suisse Private Banking is one of the world’s in today’s global financial markets. Its five core businesses leading private banking operations. It has a strong market give a combination of strength and depth. While head- presence in Switzerland and around the globe and offers quartered in Zurich, CSG’s international presence provides comprehensive investment advisory service and solutions thorough market coverage, from major centers to emerg- tailored to the needs of private clients. ing markets. “Credit Suisse Group has a unique position in the international financial services market as one of the few truly global providers of integrated banking and insur- ance services. Our market-driven structure promotes maximum customer focus, entrepreneurial initiative and accountability, and the creation of high shareholder value.” Lukas Mühlemann Chief Executive Officer of Credit Suisse Group
  • 37. 35 “Taking financial risks and managing these risks proactively in a balanced framework is our core task and responsibility. Credit Suisse Group is uniquely structured to deal with risk issues, as each of the five business units focuses and specializes in different markets, products, and locations and therefore in various risk classes. We are increasingly embedding risk management, performance measurement, and dynamic capital allocation in a comprehensive integrated framework with common denominators.” Hans-Ulrich Doerig Vice Chairman and Chief Risk Officer Credit Suisse Group Corporate and Services for Worldwide Services Worldwide individual private investors investment for institutional insurance business customers in in Switzerland banking investors Switzerland and internationally worldwide
  • 38. BOARD OF DIRECTORS (1) Rainer E. Gut (2)(3) Klaus Jacobi (4) Chairman of the Board Former Secretary of State of Switzerland Chairman of the Board of Credit Suisse Group Andreas W. Keller Robert L. Genillard (2)(3)(4) Chairman of the Board and Chief Executive Officer Vice Chairman of the Board of Edward Keller Ltd. and Vice Chairman of the Supervisory Board of Edward Keller Holding Ltd. TBG Holdings, n.v. Andreas N. Koopmann (4) Franz Albers Chief Executive Officer of Bobst SA Partner, Albers & Co. Heini Lippuner (2) Thomas W. Bechtler (2) Member of the Board of Novartis AG Chairman of the Board of Zellweger Luwa Ltd. Lukas Mühlemann (2)(3) Ulrich Bremi (2)(3)(4) Chief Executive Officer of Credit Suisse Group Chairman of the Board of Swiss Reinsurance Company Peter Spälti (2) Marc-Henri Chaudet (2) Chairman of the Board of the Winterthur Insurance Attorney-at-Law Aziz D. Syriani (5) Mario A. Corti President and Chief Executive Officer Executive Vice President of Nestlé S.A. of the Olayan Group Michael Hilti (4) Ernst Tanner Chairman of the Board of Hilti Corporation Chairman and Chief Executive Officer of Lindt & Sprüngli (1) Refers to the Board of Directors for the legal entity, Credit Suisse First Boston, a Swiss bank containing the activities of the global investment bank and the asset management business units. (2) Member of the Chairman’s Committee. (3) Member of the Compensation Committee. (4) Member of the Audit Committee. (5) Until May 29, 1998.
  • 39. EXECUTIVE BOARD 37 Allen D. Wheat Brady W. Dougan Christopher Goekjian Stephen A. M. Hester Marc Hotimsky Chairman of the Executive Managing Director Managing Director Managing Director Managing Director Board and Equity Chief Executive Officer Chief Financial Officer Fixed Income Chief Executive Officer of Credit Suisse Financial Products David C. Mulford Stephen E. Stonefield Franz von Meyenburg Charles G. Ward III Managing Director Managing Director Managing Director Managing Director Vice Chairman of Chairman of Pacific Region Deputy Chairman, Corporate and Credit Suisse of Credit Suisse First Boston Europe Investment Banking First Boston, Inc. Chairman International
  • 40. MANAGING DIRECTORS Osmar Abib Jr. Charles W. Chigas Trevor Chiddicks Craig H. P. Friezo Michael Foster Robert A.Jourdain Francois Jeffe Nayla Abousleiman Charles Christen Markus W. Chigas Anthony Fry Peter A. Fowler Hartmuth Jung Ian S. Jenkins John K. Adams Jr. Andrew Christie Markus Christen Keizo Fujitake Jonathan R. D. Fox Daniel J.Keating Giles B. Johnson William V. Adamski John C. Chrystal Andrew Christie MichaelFukui Hideki P. Friezo Grant C. I. Keller Andreas Johnson Andrew Adcock James F. Clark John C. Chrystal AnthonyD. Gallagher Joseph Fry J. SarmientoJohnston Leslie K. Mark A. Adley Michael W. Clark James F. Clark Keizo L. Garcia John Fujitake Tony Kelly Francois Jourdain Jon M. Africk Benjamin H. Cohen Michael W. Clark Richard Gillingwater Hideki Fukui Patrick T. Kennedy Hartmuth Jung Zubaid Ahmad Robert A. Cohen Benjamin H. Cohen Paul M. Gimson Joseph D. Gallagher Mark W. Kennelley Giles B. Keating Johannes Albeck George W. Coleman Robert A. Cohen John L.T. Glerum Jr. James Garcia AndreasA. Keller (1) Richard I. Kersley Kristin M. Allen George D. Coleman Patrick W. Coleman Joel Glodowski Richard Gillingwater Susan Kilsby Sarmiento Thomas Amstutz Joseph A. Coneeny Patrick D. Coleman Paul J. Goldman Irvin M. Gimson Charles Kirwan-Taylor Tony Kelly David L. Anderson John E. Conlin Joseph A. Coneeny Andrew Gordon James T. Glerum Jr. Patrick Klein Fritz T. T. Kennedy Russell L. Appel David M. Connors John E. Conlin Nicholas Gordon-Smith Joel Glodowski Alexander M. Knaster Mark W. Kennelley Rome G. Arnold David M.A. Connors Thomas Connors Irvin J.J. Governali Frank Goldman Richard Koch Steven A. Kersley (5) Richard W. Atterbury Brian M. Cook Thomas A. Connors Laurence S. Grafstein Andrew Gordon Kenneth J. Kornblau Susan Kilsby Liza Bailey Adrian R. T. Cooper Brian M. Cook Nicholas Granetz Marc D. Gordon-Smith J. Steven Kraus Charles Kirwan-Taylor Alessandro Baldin John F. Cozzi Adrian R. T. Cooper Stephen R. Greene Frank J. Governali Fritz T. E. Kreitman James Klein Thomas K. Barber John Craddock Julie F. Cozzi Michael D. Greenspan Laurence S. Grafstein Alexander Kricheff Robert S. M. Knaster Rebecca B. Barfield- David C. Crisanti Julie Craddock Marc D.S. Greenwald Steven Granetz Paul Kuo Steven Koch Johnson David C.Cruz Ernesto Crisanti StephenPeter Greuter Charles R. Greene Raymond S. Kuramoto Kenneth J. Kornblau Janos Bartha W. Robert Dahl Ernesto Cruz Jonathan P. Grussing Michael D. Greenspan J. StevenKurzer Adam S. Kraus David C. Basile Richard B. D’Albert W. Robert Dahl Sanjeev Gupta Steven S. Greenwald Mark B. Landis James E. Kreitman William R. Battey Jr. Stewart W. Dauman Richard B. D’Albert Ralph E. Guyot Charles Peter Greuter Robert R. Lang Bruno S. Kricheff W. David Bauer Stewart Candia Eric De W. Dauman Balz Haeusermann Jonathan P. Grussing Paul Kuo C. Langlade- Francois Allan J. Baum Jonathan Courcy Ling Adam de R. Davie (1) (5) Sanjeev G. Hajialexandrou (1) Michael Gupta Demoyen Raymond S. Kuramoto Omar Bayoumi Gilles de Dumast Eric De Candia Geoffrey P. Hall Ralph E. Guyot Karim Lari Adam S. Kurzer Joseph Becker Adam De Jong Ling de Courcy Gordon T. Hall Balz Haeusermann Mark B.Larmour Sharon Landis Jeremy J. Bennett Simon de Zoete Gilles De Dumast Michael G.A. Hamdan Lawrence Hajialexandrou (5) Bruno R. M. Lazarus Stephen Lang Walter Berchtold James D. Deasy Adam de Jong David Han Geoffrey P. Hall James H. Leigh-Pemberton Francois C. Langlade- Benjamin R. Bloomstone Simon J. DeCongelio Frank de Zoete Matthew C. Harris Gordon T. Hall Robert J. Levitt Demoyen Timothy D. Bock JamesA. DeNunzio David D. Deasy John S. Harrison Lawrence A. Hamdan Karim Lewis Barry Lari Harold W. Bogle Frank J.J. Devine Donald DeCongelio David Han Harvey Neil A. S. D. Scott Lindsay Sharon Larmour Julia Bond Katherine E. Dietze David A. DeNunzio Matthew E. Hassen Thomas C. Harris Bruce W. Ling Stephen M. Lazarus Richard H. Bott Jack J. DiMaio Jr. Donald J. Devine John S.P. Healy James Harrison Samuel G. Liss James H. Leigh-Pemberton Jonathan D. Bram Alec D’Janoeff Katherine E. Dietze Colin H. Hely-Hutchinson Neil A. S. Harvey C. Robert Lister Robert J. Levitt (1) Kevin Brau Charles B. Edelstein Jack J. DiMaio Jr. Thomas C. Hassen Wallace E. Henderson Gerald M. Lodge Barry Lewis Nicholas Brigstocke William J. Egan Alec D’Janoeff Stefan Hilber James P. Healy Stephen T. Long D. Scott Lindsay John Brydson J. Anthony Ehinger Charles B. Edelstein Colin H. Hintze Michael Hely-Hutchinson Ann F. Lopez Bruce W. Ling Paul D. Buckley Amir A. Eilon William J. Egan Wallace C. Hixon Jr. F. Perkins Henderson Christian Lubicz Samuel G. Liss Ernst A. Buetler Paul N. Elliott J. Anthony Ehinger James B. Hoesley Stefan Hilber C. RobertMacdonald Robin R. Lister(5) Philippe M. Buhannic Rusty Elvidge Amir A. Eilon Michael Hofer Paul R. Hintze Alfredo Magri Gerald M. Lodge Jeffrey H. Bunzel Thomas K. Emmons Paul N. Elliott Mark A. Holmes F. Perkins Hixon Jr. Francois J. Maisonrouge Stephen T. Long John G. Burke D. Wilson Ervin Rusty Elvidge Alan E. Howard James B. Hoesley Ann F. LopezMaletta II G. David M. Martin P. Caffrey Thomas A. L. Everard Marcus K. Emmons Alan H. Howard Paul R. Hofer Guillaume A. Malle Christian Lubicz Carlo M. Calabria D. WilsonF. Facon Bertrand Ervin Gina Hubbell Richard C. Holbrooke (1) Robin S. Marlatt John R. Macdonald Jorge A. Calderon Frank J. Fanzilli Jr. Marcus A. L. Everard Harry E. Huerzeler Mark A. Holmes Mark S. Maron Alfredo Magri Paul Calello BertrandA. Feder Michael F. Facon Alan E.M. Illy Marco Howard Ian Marsh Francois J. Maisonrouge Elaine C. Campbell Frank L. Finerman Mark J. Fanzilli Jr. Brian C. Imrie Alan H. Howard Jeremy Marshall G. David M. Maletta II Lloyd E. Campbell MichaelFinney Robert A. Feder Andrew K. Ipkendanz Gina Hubbell Guillaume A.G. Martin Christopher Malle Joseph D. Carrabino Jr. H. Andrew Fisher Mark L. Finerman Alfred G. Jackson Harry E. Huerzeler John S. E. Martin Michael Marlatt Christopher Carter Jeremy P. Fletcher Robert Finney MarcoA. Jamal Moez M. Illy David J. Matlin Mark S. Maron Christopher R. Carter Simon J. Ford H. Andrew Fisher Robert A. Jeffe Brian C. Imrie Peter R. Matt Ian Marsh Enrique Castillo Jean-Marc Forneri Jeremy P. Fletcher Ian S. Jenkins Andrew K. Ipkendanz Michael J. Mauboussin Jeremy Marshall Christopher Chambers SimonH. Foster Craig J. Ford Daniel J. Johnson Alfred G. Jackson David A. Mayes Christopher G. Martin Jean-Christian Cheysson Peter A. Fowler Jean-Marc Forneri Grant C. Johnson Moez A. Jamal John M. McAvoy Michael E. Martin Trevor Chiddicks Jonathan R. D. Fox J. Leslie K. Johnston Claire McCarthy
  • 41. William G. McDonald Gunnar T. Palm Sadeq Sayeed Theresia Tolxdorff Michael J. McGhee Richard P. Palmieri Anne C. Schaumburg Takatoshi Toyoda John E. McGinty Vincent N. Parkin Paul G. Scheufele Paul Tregidgo Joseph T. McLaughlin Mark R. Patterson Michael Schmertzler Alexandre Treveza Patricia J. McLaughlin David J. Pierce-Jones Peter H. Schmuki Hans-Joerg Turtschi Jeremy Mead Harry C. Pinson Maurits Schouten Robert D. Tyrwhitt-Drake Simon Meadows Richard Meddings William S. Pitofsky Steven M. Plag (1) Scott W. Seaton Philip W. Seefried Jr. Shigeru Ueda Scott J. Ulm 39 Ethan B. Meister Jonathan Plutzik Mark Seligman J. Tijo Van Marle Donald Meltzer Michele Porro Martin Senn Philip S. Vasan Eric Meyer Malcolm K. Price William C. Sharpstone Matty Vengerik James W. Meyer David J. Matlin Trevor C. Price Malcolm K. Price Charles G. A. Shelley Lawrence Stonehill David P. Walker Managing Director Trygve Mikkelsen Peter R. Matt Simon E. Prior-Palmer Trevor C. Price Anthony Sheriff Alan R. Stranger-Jones Thaddeus J. Walkowicz —Senior Advisors Rodney M. Miller Michael J. Mauboussin SimonA. Puffenberger Craig E. Prior-Palmer Hyun Joe Shin Marc Tabah John J. Walsh David A. Moessner Juergen Mayes Zhi Zhong Qiu Craig A. Puffenberger Jean-GuyT. Smailes Geoffrey Talbot Anthony J.M. Walton Alastair L. Brooke Stephan C. Month John M. McAvoy Kathryn M. Quigley Zhi Zhong Qiu Yoshinori Smeby Joergen Tanaka Todd E. Warnock John R. Campbell Thomas John Moore Claire McCarthy Andrew Reicher Kathryn M. Quigley Michael Tarrant Smith Frederick M. R. Philip N. Weingord John D. David-Jones (5) Kevin J. Morley William G. McDonald Thomas Reid Andrew Reicher MasahitoSmith Scott T. Tatsumi Jaime de S. Weinstein Norman Marichalar Neil Moskowitz Michael J. McGhee Philip Remnant Thomas Reid Stephen M. Sparkes Andrew R. Taussig Benjamin C. Weston Saenz de Tejada Richard H. Moulder John E. McGinty (1) Thomas G. Rice Philip Remnant David Spaughton Gregory J. Terry (4) David P. Wheeler Richard B. duBusc Joseph S. Murley Robert T. McLaughlin Thomas A. Rich Gordon G. Rice Richard G. Spiro Luther L. Terry Jr. CarlosA. WhiteFrederico Marc Alberto Jr. Gordon S. Murray Patricia J. McLaughlin John A. Richards Gordon A. Rich Hansruedi Stadler Peter Thomas Alex Widmer Charles B. Gates Stefano Natella Jeremy Mead John Riley Nick A. Richards Robert L.Steglitz Jr. Marc H. Thornton Michael Williamson Hans-Joachim Heun Martin J. Newson Simon Meadows Nick Riley Roberts William M. Earnswell T.Sternfield Thomas F. Tiu Joseph F. J. Wilmot Jonathan Huber Alasdair A. J. Norton Richard Meddings Felix E. A. Robyns William M. Roberts Robert B. Stevens Theresia Tolxdorff Lewis H. Wirshba Philip M. Huyck Robert C. O’Brien Ethan B. Meister Carolynn H. Rockafellow Felix E. A. Robyns Andrew D. Stone Takatoshi Toyoda Nicholas R. Woolnough Thomas W. Keaveney Donald Ochi Tetsuo Meltzer Hartley Rogers Carolynn H. Rockafellow Charles G. Stonehill Paul Tregidgo John A. Wright Hans Albert Keller Eric Meyer Ogunlesi Adebayo O. John J. Romanelli Hartley Rogers Anthony Stranger-Jones Alexandre Treveza William J. H. Wright Nicholas Kimmel Timothy P. O’Hara James W. Meyer Jonathan K. Rouner John J. Romanelli Marc Tabah Hans-Joerg Turtschi Claus M. Labes John G. Wylie Masahiro Ohshiro Trygve Mikkelsen Jonathan Rush Kevin R. K. Rouner Jean-Guy Talbot Robert D. Tyrwhitt-Drake Kenkichi Yagi Arturo C. F. Mathieu David C. O’Leary Ken Miller(2) Paolo A. Rushing Kevin R. Rush Yoshinori Tanaka Shigeru Ueda Shinji Yamada David C. McCutcheon Thomas F. O’Mara Rodney M. Miller David Russell Paolo A. Rushing Michael Tarrant Scott J. Ulm Atsuyoshi Yoshida Jack D. McSpadden Jr. Susumu Omori Juergen Moessner Olivier Sachs David Russell Masahito Tatsumi J. Tijo Van Marle AndreaG. Zachary Jr. Louis A. Morante Yoshinori Onaka Stephan C. Month Jeffrey J. Salzman Olivier Sachs Philip S. R. Taussig Andrew Vasan John Zafiriou Douglas L. Paul Carlos Onis Thomas John Moore Edward J. Santoro Jeffrey J. Salzman Matty Vengerik Jr. Luther L. Terry Gail S. Zauder Diana W. Reid KevinF. O’Shea Eoin J. Morley Guglielmo Sartori Edward J. Santoro Peter Thomas David P. Walker Karen E. Zimmerman Christian E. Rohrbach J. Craig Oxman Neil Moskowitz Di Borgoricco Guglielmo Sartori Thaddeus Thornton Jr. Robert L. J. Walkowicz Martin Romm Richard Pajot Luc P. H. Moulder (5) Noriaki Sasaki Di Borgoricco Earnswell T. Tiu John J. Walsh Lynda Rouse Robert S. Murley Noriaki Sasaki Alastair J.M. Walton Maximilian Sorg Gordon Murray Sadeq Sayeed Todd E. Warnock Neal M. Soss Stefano Natella Anne C. Schaumburg Philip N. Weingord Alfred Syz Martin J. Newson Paul G. Scheufele Norman S. Weinstein Charles W. Thomas Alasdair A. J. Norton Michael Schmertzler Benjamin C. Weston Stephen M. Unfried Vice Chairmen Robert C. O’Brien Peter H. Schmuki Managing Director—Senior Advisors Videt David P. Wheeler Pote P. Tetsuo Ochi Maurits Schouten Marc A. White Jr. George B. Weiksner Adebayo O. Ogunlesi Scott W. Seaton Alex Widmer Balz M. Wieland Jonathan R. Davie (1) Alan H. Smith Anthony L. Brooke Jack D. McSpadden Jr. Timothy P. O’Hara Philip W. Seefried Jr. Michael Williamson William M. Wigder Managing Director Managing Director John R. Campbell Andrea A. Morante Masahiro Ohshiro Mark Seligman Jonathan J. Wilmot (1) Vice Chairman Vice Chairman John D. David-Jones Douglas L. Paul David C. O’Leary Martin Senn Lewis H. Wirshba Credit Suisse First Boston of the Pacific Region of Jaime de Marichalar Diana W. Reid Thomas F. O’Mara William C. Sharpstone Nicholas R. Woolnough Credit Suisse First Boston Saenz de Tejada Christian E. Rohrbach Susumu Omori Lawrence A. Shelley John A. Wright Richard C. Holbrooke Richard B. duBusc Martin Romm of (1) Vice Chairman Yoshinori Onaka Alan R. Sheriff Nicholas H. Wright Managing Director Gregory J. Terry Carlos Alberto Frederico Lynda Rouse First Boston Credit Suisse Carlos Onis Hyun Joe Shin John M. Wylie Vice Chairman Managing Director Charles B. Gates Maximilian Sorgof (2) Vice Chairman Eoin F. O’Shea Geoffrey T. Smailes Kenkichi Yagi Credit Suisse First Boston Vice Chairman Hans-Joachim Heun Neal M. Soss First Boston Credit Suisse J. Craig Oxman Joergen Smeby Shinji Yamada Corporation Corporation of the Pacific Region of Joseph F. Huber Alfred Syz Luc P. Pajot Alan H. Smith (3) Atsuyoshi Yoshida Credit Suisse First Boston Philip M. Huyck Stephen M. Unfried (3) Vice Chairman of Gunnar T. Palm Frederick M. R. Smith Louis G. Zachary Jr. the Pacific Region of Ken Miller Thomas W. Keaveney Pote P. Videt Richard P. Palmieri Scott T. Smith John Zafiriou Credit Suisse First Boston Managing Director Hans Albert Keller George B. Weiksner Vincent N. Parkin Stephen M. Sparkes Gail S. Zauder Vice Chairman William J. Kimmel Balz M.Chairman of (4) Vice Wieland Mark R. Patterson David Spaughton Karen E. Zimmerman the Asia/Pacific Region of Credit Suisse First Boston Claus G. Labes William M. Wigder David J. Pierce-Jones Richard G. Spiro Credit Suisse First Boston Corporation Arturo C. F. Mathieu Harry C. Pinson Hansruedi Stadler David C. McCutcheon (5) Subject to the completion William S. Pitofsky Marc H. Steglitz of the purchase of certain Steven M. Plag (5) Thomas F. Sternfield BZW businesses from Jonathan Plutzik Robert B. Stevens Barclays expected on or Michele Porro Andrew D. Stone about April 30, 1998. (1) Subject to the completion of the purchase of certain BZW businesses from Barclays expected on or about April 30, 1998.
  • 42. FINANCIAL STAT E M E N T S Income Statements of the Business Unit (1) Year Ended December 31, 1997 and Pro Forma Year Ended December 31, 1996 PRO FORMA PERCENT DOLLARS IN MILLIONS (UNAUDITED) 1997 1996 CHANGE Revenues Fixed Income $ 3,379 $ 2,356 43% Equity 1,212 834 45% CSFP 1,167 950 23% CIBD 1,479 1,368 8% Other (109) (15) n/a Total 7,128 5,493 30% Expenses Personnel expense 3,497 2,676 31% Execution, clearing, and brokerage 259 186 39% Other operating 1,006 813 24% Total 4,762 3,675 30% Gross profit 2,366 1,818 30% Depreciation 148 143 3% Write-downs, provisions, and losses 390 258 51% Pretax income before extraordinary/exceptional items and minority interest 1,828 1,417 29% Income taxes 621 n/a Net income before extraordinary/exceptional items and minority interest $ 1,207 n/a Extraordinary/exceptional items, net (296) n/a Minority interest (85) n/a Net income after minority interest $ 826 n/a (1) The income statements are for the Credit Suisse First Boston global investment banking business unit. They are based on Swiss accounting rules for banks as modified for revenue presentation and the treatment of execution, clearing, and brokerage costs as an expense rather than as contra-revenue. Extraordinary/exceptional items, net include the BZW restructuring charge of $165 million and a $102 million technology charge for year 2000 and EMU work.
  • 43. 41 Balance Sheets of the Business Unit (1) PRO FORMA DECEMBER 3 1 , JANUARY 1, PERCENT DOLLARS IN MILLIONS (UNAUDITED) 1997 1 9 9 7 (2) CHANGE Assets Cash $ 1,403 $ 1,144 23% Money market papers 11,194 10,963 2% Due from banks 96,077 95,946 0% of which securities lending and reverse repurchase agreements 71,728 60,827 18% Due from other business units 4,120 0 n/a Due from customers 72,217 93,515 (23%) of which securities lending and reverse repurchase agreements 43,076 63,989 (33%) Mortgages 4,970 4,156 20% Securities and precious metals trading portfolios 71,101 60,841 17% Financial investments 6,488 4,527 43% Non-consolidated participations 182 211 (14%) Fixed assets 1,276 1,090 17% Accrued income and prepaid expenses 4,040 3,275 23% Other assets 37,285 28,678 30% Total Assets $ 310,353 $ 304,346 2% Liabilities and Shareholders’ Equity Liabilities in respect of money market paper $ 12,305 $ 8,335 48% Due to banks 127,113 160,749 (21%) of which securities borrowing and repurchase agreements 58,901 66,893 (12%) Due to other business units 27,553 10,846 154% Due to customers, in savings and investment deposits 322 299 8% Due to customers, other 67,621 71,237 (5%) of which securities borrowing and repurchase agreements 39,442 38,451 3% Bonds and mortgage-backed bonds 23,299 12,803 82% Accrued expenses and deferred income 5,573 5,018 11% Other liabilities 37,413 26,969 39% Valuation adjustments 1,880 1,539 22% Total liabilities 303,079 297,795 2% Total shareholders’ equity 7,274 6,551 11% Total Liabilities and Shareholders’ Equity $ 310,353 $ 304,346 2% (1) The above balance sheets are based on Swiss accounting rules for banks. They include allocations from the real estate units within Credit Suisse Group. (2) Shareholders’ equity at January 1, 1997, includes the pro forma effect of CHF500 million preferred stock issuance which occurred on March 31, 1997.
  • 44. Management’s Discussion and Analysis of Financial Condition and Results of Operations INTRODUCTION RESULTS OF OPERATIONS Credit Suisse First Boston (“CSFB”) is a global investment CSFB’s revenues for the year ended 1997 were $7.1 bil- banking enterprise with principal activities in trading secu- lion, 30% higher than pro forma 1996 revenues. rities, derivative products and other financial assets as well Revenues in 1997 increased over pro forma 1996 in each as capital markets, advisory services and corporate lend- of CSFB’s operating divisions. The sources of these divi- ing. CSFB is the investment banking business unit of sional revenues are primarily realized and unrealized net Credit Suisse Group (“CSG”) (formerly CS Holding). trading gains, net interest income resulting from trading It commenced operations in its current form on January 1, and lending activities, and fee-based earnings from capital 1997 following the restructuring of CSG. CSFB’s compo- markets activities, commissions on customer transactions nent parts were not managed or reported as a single and advisory services. Divisional revenues are based on entity prior to 1997 and the restructuring involved complex Swiss accounting rules for banks as modified for revenue customer business, and balance sheet reallocations of presentation, the classification of execution, clearing and CSG’s entities. brokerage costs as an expense as opposed to a contra Credit Suisse First Boston (the “Bank”), a Swiss revenue, and CSFB’s internal management reporting bank and a subsidiary of CSG, is the new name of the process in which revenues, including capital markets rev- Swiss bank formerly known as Credit Suisse. The enues and interest costs, are allocated to divisional Bank contains the activities of the CSFB and Asset results. Capital markets revenues are shared among Management business units of CSG. Shown herein is CIBD, Fixed Income and Equity. Divisional revenues for financial data for the CSFB business unit which consti- the year ended December 31, 1997, and pro forma year tutes almost 99% of the assets of the Bank as of ended December 31, 1996, are as follows: December 31, 1997. More detailed information on the PRO FORMA PERCENT Bank and related unqualified audit opinion is contained in ($ MILLIONS) 1997 1996 INCREASE the Annual Reports of CSG and the Bank, respectively. There continue to be significant flows of business Fixed Income $ 3,379 $ 2,356 43% and service among the entities of CSG. Equity 1,212 834 45% Because of the complexities of the changes CSFP 1,167 950 23% described above, only limited pro forma income statement CIBD 1,479 1,368 8% data was published for individual business units for 1996 Other (109) (15) n/a and no prior historical data was compiled. However, full $ 7,128 $ 5,493 30% consolidated financial statements of CSG have been pub- lished. Additionally, CSFB’s opening pro forma balance The geographic distribution of revenues and employees for sheet as at January 1, 1997, is presented herein without the year ended December 31, 1997, is as follows: a prior period comparison. CSFB’s activities are subject to various risks includ- ing volatile trading markets and fluctuations in the volume of market activity. CSFB’s results may also be impacted by competitive factors. Consequently, CSFB’s earnings may be subject to wide fluctuations. While the reporting currency of the Bank is the Swiss Franc, CSFB primarily manages its businesses based on a U.S. dollar functional currency as presented herein and as prescribed by its earnings and asset mix. CSFB’s strategic plans contemplate further invest- ments in its businesses through organic growth and selective acquisition.
  • 45. 43 Fixed Income CIBD Revenues for the Fixed Income division increased in 1997 Although CIBD revenues as a whole increased only 8% when compared to pro forma 1996, with ROE exceeding in 1997 as compared to pro forma 1996, investment 30% in 1997, primarily due to significantly improved banking-generated revenues increased by 26%. These results across most of the substantive product lines of the increases were driven by improved results in equity and division. Particularly good performance occurred in the fixed income capital markets activities as well as merger Principal Transactions Group (PTG) and the Emerging and acquisition advisory. Markets Group (EMG). Fixed Income revenues also The increases in investment banking revenues were increased from improved results from trading high yield offset, in part, by declines in revenues from corporate corporate securities, global foreign exchange, and money lending activities. These declines occurred principally as a markets, offset, in part, by declines in trading govern- result of CSFB’s strategy, implemented in 1997, to reallo- ments and Swiss fixed income securities. cate capital resources from corporate lending to other PTG purchases and originates whole loans and pro- businesses. During the fourth quarter of 1997, CSFB vides a full range of real estate-related advisory services. completed a $5 billion securitization as part of this strategy. In 1997 revenues increased primarily from asset securiti- CIBD revenues, inclusive of total debt and equity zations, increased net interest on a larger average loan capital markets revenues reflected in Fixed Income and portfolio, and sales of real estate properties. Equity, exceeded $1,850 million for the year ended EMG underwrites and trades in fixed income securi- December 31, 1997. ties and foreign exchange of a number of emerging Other markets countries. In 1997 revenues increased primarily from interest earned on a larger average trading portfolio Losses in the Other division are primarily the result of and improved trading results. These results were tem- investments and transactions managed at the corporate pered, in the fourth quarter of 1997, as a result of the level, offset, in part, by revenues earned by the Private Asian economic crisis; however, notwithstanding these Equity division. 1997 was a building year for the Private events, revenues remained positive for the fourth quarter. Equity division, successfully hiring key people and closing a large international fund. Equity Expenses Revenues for the Equity division increased in 1997 when compared to pro forma 1996, with ROE exceeding 30% CSFB’s aggregate expenses increased in 1997 as com- in 1997, primarily as a result of significantly improved pared to pro forma 1996, largely due to enhanced results in customer-driven businesses, which include trad- profitability and growth. Staff costs increased primarily due ing, commissions, and capital markets activities. These to increases in incentive performance compensation and revenues were particularly strong in the Eastern European related payroll taxes, increases in the number of employ- business, in Switzerland, and in the U.S. businesses. ees and contractors, and salary increases. These costs Results also improved in the trading of convertibles and remain in line with industry norms at 49% of revenues. risk arbitrage activities. Execution, clearing, and brokerage increased in Equity revenues, inclusive of derivative-related 1997 as compared to 1996, as a result of increased trad- revenues included in CSFP and equity capital markets ing activity. included in CIBD, exceeded $1,450 million for the year Other operating expenses primarily include costs for ended December 31, 1997. technology and communication, occupancy, professional services, and business development. The distribution of CSFP other operating expenses for the year ended December Revenues for CSFP increased in 1997 when compared to 31, 1997, is as follows: pro forma 1996, with ROE exceeding 30% in 1997, pri- marily as a result of improved results in the swaps and options, commodities and asset trading, and credit deriva- tives businesses, offset, in part, by declines in OTC equity derivatives and foreign exchange derivatives; however, both of these businesses produced positive revenues in 1997.
  • 46. Other operating expenses increased in 1997 when CSFB completed the acquisition of the U.K. and compared to pro forma 1996, primarily as a result of Continental European mergers and acquisitions, advisory, increased professional services, communications and busi- and equity capital markets businesses on December 31, ness development costs associated with higher levels of 1997. CSFB also completed the acquisition of the business in 1997. In addition, costs increased in 1997 Continental European equity sales, trading and research due to investment fund placement fees incurred in 1997 business, in stages, on January 30 and February 27, associated with CSFB’s Private Equity activities, occupan- 1998. In addition, CSFB assumed management of the cy costs associated with CSFB’s new facilities in New U.K. equity sales, trading and research business under a York, and increased fees charged by CSG with respect to management services agreement with Barclays. This certain infrastructure costs that relate to CSG and its sub- arrangement, which covers front office personnel, will sidiaries. operate until formal completion of the sales of those busi- nesses to CSFB, which is scheduled to occur during the Write-Downs, Provisions, and Losses first half of 1998. This formal completion is contingent Write-downs, provisions, and losses increased in 1997, as upon the fulfillment of certain conditions during this period. compared to 1996, primarily as a result of credit provi- In addition, CSFB has signed an agreement with sions. Credit provisions increased primarily due to the Barclays to acquire certain of BZW’s equity, equity capital adverse effect on loans outstanding in Asia resulting from markets and mergers, and acquisitions advisory business- the economic crisis that occurred in that region in the es in Asia. Under the terms of the transaction, CSFB fourth quarter of 1997. CSFB’s credit provisions related acquired or will acquire certain Investment Banking, Equity to Asia totaled approximately $450 million at December Capital Markets and Equity personnel in Hong Kong; 31, 1997, which includes a precautionary provision of BZW’s 70% interest in an Equity joint venture in $150 million charged to earnings at end-1997. Singapore; BZW’s Equity business in Taiwan; stock Approximately 90% of the overall provisions were estab- exchange seats in Singapore, Hong Kong and Shanghai; lished for lending activities with the balance established and additional personnel from Malaysia and Indonesia. for counterparty risk of trading activities. Other than the This acquisition is conditional upon CSFB obtaining all special Asia provision, CSFB’s loan provisions, charged requisite regulatory consents and approvals. against 1997 earnings, totaled $102 million, representing As a result of the timing described above, the bulk the expected loss amount (ACP) calculated by the credit- of the acquisition was not completed in 1997, therefore it plus-risk-management approach. Also contained in has not been consolidated in CSFB’s financial statements write-downs, provisions, and losses are various litigation as of December 31, 1997. However, as management fully provisions, including those related to the NASDAQ settle- expects that the acquisition of the remaining businesses ment, which generally affected most firms in the securities will formally be completed in 1998, a net of tax provision industry that participate in the OTC equity market making of $165 million has been reflected in the financial state- business in the U.S. ments for BZW acquisition costs. Income Taxes First Pacific Acquisition CSFB’s effective income tax rate, excluding extraordi- In early 1998 CSFB agreed to acquire 75% of the com- nary/exceptional items, was approximately 34% for the mon stock of First Pacific, which is an investment banking year ended December 31, 1997. This rate represents a firm with a leadership position in the equity markets in blended rate of the various tax jurisdictions in which CSFB Australia. The acquisition is subject to certain conditions, operates. including the receipt of regulatory approvals. Extraordinary/Exceptional Items IT Provision Extraordinary/exceptional items in 1997 primarily included The IT charge, net of tax, of $102 million primarily repre- costs related to the acquisition of BZW ($165 million, net sents a technology-related provision for anticipated year of tax) and an IT provision for year 2000 compliance and 2000 compliance and EMU conversion costs. These costs EMU conversion costs ($102 million, net of tax). include estimates for employee compensation, consul- Extraordinary items also reflect additional costs associated tants, hardware, and software. with the 1996 restructuring, offset, in part, by gains on the sale of certain investments. BZW Acquisitions LIQUIDITY AND CAPITAL RESOURCES On November 12, 1997 CSFB entered into an agreement Assets and Leverage to purchase the U.K. and Continental European equities, equity capital markets, and mergers and acquisitions, CSFB maintains a liquid balance sheet with a majority of advisory businesses of BZW for GBP 100 million. These the Firm’s assets consisting of marketable securities businesses employed approximately 1,000 people (exclud- inventories and other trading positions and collateralized ing temporary staff) as of December 31, 1997. Most of financing agreements. Collateralized financing agreements the acquisition is being effected by means of asset pur- consist of resale agreements and securities lending chases, although entities are being purchased in the predominantly secured by government and corporate Netherlands, Spain, and the U.K.
  • 47. obligations. Levels of trading inventory and collateralized port of the Bank’s existing businesses, as well as any new financing agreements are dependent on market condi- business initiatives and the resultant capital and funding tions, volume of activity, and customer needs. Accordingly, requirements. CSFB’s total assets and financial leverage can fluctuate In selecting the most appropriate funding sources at significantly. any point in time, such factors as market conditions, inter- CSFB, as part of its corporate and investment bank- est rate levels, liquidity needs, and maturity profile ing activities, also maintains a loan portfolio. In addition, objectives are considered. Further, in order to manage 45 as part of CSFB’s fixed income activities, trading invento- interest rate, currency, and other risks associated with the ries include emerging markets positions, whole loans, and above borrowings, the Bank has entered into various high yield securities. CSG and its subsidiaries also make derivative transactions. merchant banking investments through CSFB’s Private The Bank’s access to external financing is depen- Equity division. dent on the short- and long-term credit ratings of the In U.S. dollar terms, total assets did not change Bank and certain of its subsidiaries. The cost and avail- significantly at December 31, 1997, as compared to ability of external funding is generally a function of the pro forma January 1, 1997. CSFB’s ability to support ratings. As of the date hereof, the Bank’s debt ratings increases in total assets is a function of its ability to obtain were as follows: short-term secured and unsecured funding and access LONG-TERM long-term capital markets. SENIOR JUNIOR SHORT-TERM SENIOR SUBORDINATED SUBORDINATED Funding and Capital Strategy The Bank has a broad-based worldwide funding franchise. Moody’s P-1 Aa3 A1 A2 Global funding is managed by a centralized financing unit, S&P A-1+ AA AA- A+ which oversees local funding operations, including those Fitch IBCA Ltd. F-1+ AA AA- A+ of CSFB. This global funding function provides coordina- BankWatch* TBW-1 AAA AA+ AA tion and control of pricing and funding strategies, while *As of February 10, 1998, BankWatch placed the Bank’s long-term the local market presence provides for investor diversity debt ratings under review for possible downgrade. and access to unique market opportunities. The Bank aims to continually broaden its funding base by geography, On March 30, 1998, the Bank paid a dividend of investor, issuing entity, and instrument type. 850 million Swiss Francs to its shareholders. The Bank’s funding sources include interest-bearing The Bank and its subsidiaries are subject to various and non interest-bearing deposits, commercial paper, cer- capital requirements imposed by various regulatory bodies tificates of deposit, federal funds purchased, long-term around the world, including the Swiss Banking debt, capital securities, and shareholders’ equity. The Commission. At December 31, 1997, the Bank was in Bank places particular emphasis on a large base of well- compliance with these requirements. At December 31, diversified and stable fiduciary deposits for its day-to-day 1997, the Bank had a BIS Tier 1 and total capital ratio of funding needs. Another important source of day-to-day 8.5% and 14.9%, respectively. Beginning January 1, funding is repurchase agreements, primarily involving U.S. 1998, the Bank will comply with the new BIS and EBK government and agency securities. methodologies for computing capital ratios, which are To provide alternative funding sources, the Bank, based, in part, on value at risk computations for trading through its subsidiaries, has renewed a committed revolv- positions. ing credit facility with various banks that, if drawn upon, would bear interest at short-term rates. The facility is Risk Management for general corporate purposes. This facility provides for The general risk management policy of CSG serves as the borrowings up to $1.575 billion during 1998. As of the basis for the Bank’s risk management programs. The pri- date hereof, there are no amounts outstanding under the mary responsibility for risk management lies with the facility. Bank’s (as well as CSFB’s) senior business line man- The Bank and its subsidiaries issue long-term debt agers. They are held accountable for all risks associated through various U.S. and Euro Medium-Term Note with their businesses, including counterparty risk, market Programs as well as syndicated and privately placed offer- risk, liquidity risk, legal risk, and operating risk, and are ings around the world. To satisfy Swiss and local responsible for supplementing the Firm’s independent regulatory capital needs of its regulated subsidiaries, the controls by maintaining adequate internal control systems. Bank raises subordinated long-term borrowings. In 1997, The risk management programs are designed to ensure to provide sufficient regulatory capital resources required that there are sufficient independent controls to monitor to implement its strategic objectives, the Bank issued all risks properly. approximately $1.7 billion of perpetual junior subordinated The Board of Directors is responsible for determin- debt. At December 31, 1997, the Bank had long-term ing the general risk policy and risk management strategy debt (including the current portion) of $24.3 billion, with of the Bank. The Chairman’s Committee of the Board of $8.8 billion representing subordinated debt. The Bank Directors approves the overall market risk ceiling, reviews expects to continue to access the capital markets in sup- the Bank’s risk exposure on a quarterly basis, and approves country limits and other risk ceilings.
  • 48. Risk Management at CSFB the portfolio over a ten-day holding period using market movements determined from historical data. The scenario The policies and procedures regarding risk and capital analysis method estimates the potential loss arising from allocation within CSFB are established by CSFB’s Capital the portfolio after moving market parameters. These Allocation and Risk Management Committee (“CARMC”). movements are derived from past extreme events and CARMC is chaired by a senior member of Credit Risk hypothetical scenarios. Management and includes the Chief Executive Officer, Market risk is managed and controlled at three the Global Chief Risk Officer, the Chief Financial Officer, levels: (i) senior management is responsible for monitoring the Head of Market Risk Management, the Chief Credit the Bank’s market risk utilizations, exposures, and risk- Officer, and the heads of the various business divisions adjusted performance, (ii) trading management is of CSFB. responsible for actively managing its positions against CARMC approves capital management procedures, approved risk limits, and (iii) MRM is responsible for moni- guidelines, and risk limits, and allocates capital to the indi- toring exposures against approved risk limits, obtaining vidual divisions. This allocation is an important element in appropriate approval for limit excesses, and ensuring that setting upper limits on levels of activity in CSFB’s various trading management reduces exposures to within limits businesses that create counterparty and market risks. following limit excesses when appropriate. CARMC also is involved with and approves business deci- sions that, in its view, involve greater than normal Management of Other Risks business risk. Other business-specific risks are managed primarily CARMC’s policies are implemented by CSFB’s through designated groups and committees within the dif- Credit Risk Management (“CRM”) and Market Risk ferent divisions. For example, the Investment Banking Management (“MRM”) functions. Committee reviews and approves most investment banking Credit Risk Management transactions, with a special focus on risk (such as legal and reputational risks) that are inherent to such transac- CRM is headed by the Chief Credit Officer who reports to tions. A similar risk management program has been the CEO. CRM is responsible for approving all credit risk established for the Private Equity division with the forma- assumed by CSFB. This includes loans and loan related tion of an Investment Committee. Before any new activity credit risk, counterparty credit risk, and country risk. In is undertaken, the New Business Committee reviews the addition, CRM has oversight responsibility for concentrat- proposed business and its structure and infrastructure ed positions in trading inventory. Unusual risks and requirements. This Committee is designed to ensure that specific policies and procedures are reviewed and all risks (such as operational risks) that are inherent to approved by the Credit Policy Committee, which is chaired such a venture are identified and addressed appropriately. by the Chief Credit Officer. This Committee is composed of the senior managers CRM’s responsibilities are carried out by senior offi- responsible for the Finance, Administration and cers within the Credit Risk Management function who are Operations functions of CSFB. aligned with each of CSFB’s major businesses. Each of To supplement its control environment, CSFB has an these CRM Units is organized along regional lines, and in oversight function that is structured regionally and is some cases further stratified along industry or other lines designed to complement CSFB’s functional organization. of specialty, for example leveraged and project finance. The oversight function consists of (i) selected Executive Every credit is rated by CRM staff, and approval Board members who have overall responsibility for over- authorities are granted relative to staff experience, rating sight in their respective regions, (ii) regional oversight of the counterparty, and size and tenor of the transaction. managers who assist the Executive Board members with These authorities are delegated by the Chief Credit this responsibility, and (iii) a country manager in each Officer, who in turn has been granted the full legal lending country who manages local oversight issues. Regional authority of CSFB. CRM also is responsible for assessing Oversight and Country Management serve as an additional the overall credit portfolio and recommending credit provi- line of control and concentrate on regulatory and reputa- sions as appropriate. tional issues, supervising legal entities and supporting Market Risk Management management in its efforts to improve the control environ- ment. This oversight function works with business and The MRM function is led by the Head of Market Risk Finance, Administration and Operations executives in Management, who reports directly to the CFO. The inde- monitoring and enhancing CSFB’s controls. Various con- pendent Market Risk Management department trol committees act as a clearing house for certain control consolidates exposures arising from all trading portfolios issues. and geographical centers on a daily basis. The Bank uses Additional disclosure on the Bank’s risk manage- two methodologies to measure and manage the market ment practices is contained in the Bank’s Annual Report. risks that the Bank may undertake: the “value-at-risk” concept and scenario analysis. The value-at-risk measures the 99th percentile greatest loss that may be expected on
  • 49. OFFICE LOCAT I O N S 47 The Americas Atlanta Los Angeles Nassau Portland Georgia Pacific Center Wells Fargo Tower Scotiabank Building 85 Exchange Street 133 Peachtree Street N.E. 333 South Grand Avenue Rawson Square Suite 201 40th Floor Suite 2200 P.O. Box N-4928 Portland, ME 04101 Atlanta, GA 30303-1841 Los Angeles, CA 90071-1526 Nassau U.S.A. U.S.A. U.S.A. Bahamas Voice 1 207 780 6210 Voice 1 404 656 9500 Voice 1 213 253 2000 Voice 1 242 356 8100 Fax 1 207 780 6735 Fax 1 404 522 3043 Fax 1 242 326 6589 633 West Fifth Street San Francisco Boston 64th Floor New York 201 Spear Street 100 Federal Street Los Angeles, CA 90071 Eleven Madison Avenue 17th and 18th Floors 30th Floor U.S.A. New York, NY 10010-3629 San Francisco, CA 94105 Boston, MA 02110-1802 Voice 1 213 955 8200 U.S.A. U.S.A. U.S.A. Fax 1 213 955 8245 Voice 1 212 325 2000 Voice 1 415 836 7600 Voice 1 617 556 5500 Fax 1 415 836 7751 Mexico CSFP Capital Inc. Buenos Aires Campos Eliseos #345, Piso 9 Voice 1 212 325 2000 Santiago Esmeralda 130 - Piso 22 Edificio Omega Fax 1 212 325 8042 Av. Andres Bello 2777 1035 Buenos Aires Col. Chapultepec Polanco 21st Floor, Office 2101 Argentina 11560 Mexico, D.F. Palo Alto Santiago – Las Condes Voice 54 1 394 3100 Mexico 1510 Page Mill Road Chile Fax 54 1 325 4717 Voice 52 5 202 60 00 Suite 2 Voice 56 2 203 3190 Fax 52 5 202 66 00 Palo Alto, CA 94304-1135 Fax 56 2 203 3196 Chicago U.S.A. AT&T Corporate Center Montreal Voice 1 650 846 6600 Sao Paulo ˜ 227 West Monroe Street 1250 Rene-Levesque Fax 1 650 846 6660 Av. Presidente Juscelino Chicago, IL 60606-5016 Boulevard West Kubitschek, 50 U.S.A. Suite 3935 Philadelphia 6th Floor Voice 1 312 750 3000 Montreal H3B 4W8 11 Penn Center 04543-011 Sao Paulo, SP ˜ Canada 26th Floor Brazil Houston Voice 1 514 933 8774 Philadelphia, PA 19103-2929 Voice 55 11 3048 2900 600 Travis Street Fax 1 514 933 7699 U.S.A. Suite 3030 Voice 1 215 851 1000 Toronto Houston, TX 77002-3003 Fax 1 215 851 0352 Credit Suisse Centre U.S.A. 525 University Avenue Voice 1 713 220 6700 Toronto, Ontario M5G 2K6 Fax 1 713 236 9222 Canada Voice 1 416 351 3500 Fax 1 416 351 3630
  • 50. Africa, Europe and Middle East Amsterdam Guernsey Luxembourg Tashkent Johannes Vermeerstraat 9 Helvetia Court 56 Grand Rue 1 Turab Tula Street 1071 DK Amsterdam South Esplanade B.P. 40 700003 Tashkent The Netherlands P.O. Box 589 L-2010 Luxembourg Republic of Uzbekistan Voice 31 20 575 4444 St Peter Port, Guernsey Luxembourg Voice 7 3712 40 6166 Fax 31 20 575 4455 GY1 6LU Voice 352 46 00 111 Fax 7 3712 40 6177 Voice 44 1481 724 574 Fax 352 47 55 41 (Nederland) NV Fax 44 1481 711 940 Tehran Atrium Madrid No. 309, First Floor Strawinskylaan 3053 Helsinki Paseo De Recoletos Shahid Vahid Dastjerdi Ave. 1077 ZX Amsterdam Etelaranta 14 17-Planta 1 Between Africa And Vali Asr The Netherlands 4th Floor 28004 Madrid IR-19686 Tehran Voice 31 20 5045 145 FIN-00130 Helsinki Spain Iran Fax 31 20 5045 199 Finland Voice 34 1 532 03 03 Voice 98 21 878 7655 Voice 358 9 622 2882 Fax 34 1 532 35 60 Fax 98 21 878 5215 Brussels Fax 358 9 622 1535 S.A. Stephanie Square Milan Vienna Business Centre N.V. Johannesburg Via Bigli 21 Palais Corso Avenue Louise 65 Sandton City Office Tower 20121 Milano Mahlerstrasse 12-5 Box 11 9th Floor Italy 1010 Vienna 1050 Brussels 5th Street, Corner Rivonia Rd Voice 39 2 7702 1 Austria Belgium 2196 Sandown Fax 39 2 7702 2200 Voice 43 1 512 3023 Voice 32 2535 7854 Republic of South Africa Fax 43 1 512 302323 Fax 32 2535 7700 Voice 27 11 884 67 41 Via Turati 9 Fax 27 11 884 71 21 20121 Milano Warsaw Budapest Italy FIM Tower, XIII Floor Nagy Jeno U.12 Kiev Voice 39 2 6374 1 Al Jerozolimskie 81 H-1126 Budapest 34 Chervonoarmiyska Street Fax 39 2 6596 489 02-001 Warsaw Hungary 252004 Kiev Poland Voice 36 1 202 2188 Ukraine Moscow Voice 48 22 695 0050 Fax 36 1 201 9196 Voice 380 44 247 5787 5 Nikitsky Pereulok Fax 48 22 695 0055 Fax 380 44 247 5790 (Formerly Belinski Street) Cairo Moscow 103 009 Zug 32 Haroon Street Limassol Russia Bahnhofstrasse 17 P.O. Box 224 199 Christodoulou Voice 7 501 967 8200 P.O. Box 234 Dokki Hadjipavolou Avenue Fax 7 501 967 8210 CH-6301 Zug Cairo P.O. Box 7530 Switzerland Egypt 3316 Limassol CSFP Voice 41 41 727 97 00 Voice 20 2 349 9760 Cyprus Voice 7 501 967 8787/8727 Fax 41 41 727 97 10 Fax 20 2 361 5136 Voice 357 534 12 44 Fax 7 501 967 8722 Fax 357 581 74 24 Zurich Frankfurt Paris Uetlibergstrasse 231 MesseTurm London 21 boulevard de la Madeleine P.O. Box 900 60308 Frankfurt am Main One Cabot Square F-75038 Paris CH-8070 Zurich Germany London E14 4QJ Cedex 01 Switzerland Voice 49 69 75 38 0 United Kingdom France Voice 41 1 333 55 55 Fax 49 69 75 38 2444 Voice 44 171 888 8888 Voice 33 1 40 76 8888 Fax 41 1 333 55 99 Fax 44 171 888 1600 Fax 33 1 42 56 1082 Geneva CSFP 59 Route De Chancy CSFP Prague Uetlibergstrasse 231 CH-1213 Petit-Lancy Voice 44 171 888 2000 Staromestske Nam. 15 Postfach 700 (FPL2) Switzerland Fax 44 171 888 1600 110 00 Prague 1 8070 Zurich Voice 41 22 394 70 00 Czech Republic Voice 41 1 332 6400 Fax 41 22 792 40 72 Voice 420 2 248 10937 Fax 41 1 332 6404 Fax 420 2 248 10996
  • 51. 49 Asia/Pacific Auckland Kuala Lumpur Osaka CSFP Coopers & Lybrand Tower Menara Keck Seng Yodokodai-2 Building, 6th Floor Voice 61 2 9394 4515 23-29 Albert Street Suite 27-02, 27th Floor 4-2-15 Bakuro-Machi Fax 61 2 9394 4388 Level 20 203 Jalan Bukit Bintang Chuo-Ku Auckland 55100 Kuala Lumpur Osaka 541 Taipei New Zealand Malaysia Japan 14th Floor Voice 64 9 302 5500 Voice 60 3 242 5199 Voice 81 6 243 0789 205 Tun Hwa North Road Fax 64 9 302 5580 Fax 60 3 241 6199 Fax 81 6 243 0079 Taipei Taiwan Bangkok Labuan Seoul Voice 886 2 2713 5559 Abdulrahim Place, 14th Floor Main Office Tower Hanwha Building Fax 886 2 2717 0803 990 Rama IV Road Level 10 (B) 13th Floor Silom, Bangrak Financial Park Labuan 111-5 Sokong-Dong, Tokyo Bangkok 10500 87000 Labuan F.T. Chung-Ku Shiroyama Hills Thailand Malaysia Seoul 100-070 26th Floor Voice 66 2 636 1546 Voice 60 87 425 381 Korea 4-3-1 Toranomon Fax 66 2 636 1553 Fax 60 87 425 384 Voice 82 2 3707 3700 Minato-Ku Fax 82 2 3707 3881 Tokyo 105 Beijing Manila Japan Silver Tower SGV I Building Shanghai Voice 81 3 5404 9000 31st Floor 14th Floor 17th Floor, South Tower Fax 81 3 5404 9800 2 Dong San Huan Bei Road 6760 Ayala Avenue Stock Exchange Building Beijing 100027 1226 Makati City 528 Pudong South Road CSFP People’s Republic of China Philippines Pudong, Shanghai 27th Floor Voice 86 10 6410 6611 Voice 63 2 894 8101 People’s Republic of China Voice 81 3 5403 4000 Fax 86 10 6410 6133 Fax 63 2 891 0543 Voice 86 21 6881 8418 Fax 81 3 5403 4077/4088 Fax 86 21 6881 8417 Hong Kong Melbourne CS Tower Three Exchange Square 101 Collins Street Singapore 1-11-30 Akasaka 22nd Floor, GPO Box 568 27th Floor 80 Raffles Place #49-01 Minato-Ku 8 Connaught Place Central Melbourne, Victoria 3000 UOB Plaza 1 Tokyo 107 Hong Kong Australia Singapore 048624 Japan Voice 852 2101 6000 Voice 61 3 9280 1666 Voice 65 538 6322 Voice 81 3 3589 3636 Fax 852 2101 7990 Fax 61 3 9280 1890 Fax 65 531 2708 Fax 81 3 3224 4040 CSFP Mumbai (Formerly 6 Shenton Way Wellington 13th Floor Bombay) #11-08 DBS Tower 2 Caltex Tower Voice 852 2101 6000 35/39 Free Press House Singapore 068809 282-292 Lambton Quay Fax 852 2101 7792 3rd Floor Voice 65 226 5088 Level 10 215 Free Press Journal Marg Fax 65 420 4868 Wellington Jakarta Nariman Point New Zealand Danamon Aetna Life Building Mumbai 400 021 Sydney Voice 64 4 474 4400 24th Floor India Gateway Level 31 Fax 64 4 474 4051 Jalan Jenderal Voice 91 22 284 6888 1 Macquarie Place Sudirman Kav.45 Fax 91 22 285 1949 Sydney, New South Wales Jakarta 12930 2000 Indonesia Australia Voice 62 21 577 0762 Voice 61 2 9394 4400 Fax 62 21 577 0761 Fax 61 2 9394 4382 The terms “Credit Suisse First Boston,” “CSFB,” “CSFP,” “Firm,” “we,” and “our” in this Annual Review typically refer to the business unit (versus the legal entity, which has the same name but also includes Credit Suisse Asset Management and certain real estate assets and which is referred to herein as the “Bank”). This Annual Review was prepared by the Corporate Communications Department of Credit Suisse First Boston and includes the most current information through April 1, 1998. Additional copies and/or additional information can be obtained on the Internet at www.csfb.com or through Corporate Communications in New York, London, or Hong Kong. Design: RDA Design, NYC © Copyright 1998, Credit Suisse First Boston Photography: Shonna Valeska Issued in the United Kingdom by Credit Suisse First Boston (Europe) Ltd: regulated by SFA. Printed on recycled paper
  • 52. Uetlibergstrasse 231 P.O. Box 900 CH-8070 Zurich Switzerland One Cabot Square London E14 4QJ United Kingdom Eleven Madison Avenue New York, NY 10010-3629 USA

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