FINANCIAL REPORT




 50 Comments to the financial statements
 52 Consolidated income statement
 54 Consolidated balance s...
COMMENTS TO THE FINANCIAL STATEMENTS




                   Credit Suisse Group’s Annual Report contains two sets of finan...
Of the CHF 446 m restructuring provisions available for the Focus project, BZW and
Winterthur at the start of the year, CH...
CONSOLIDATED INCOME STATEMENT




                                                                             Notes      ...
Notes         1999       1998     Change   Change
                                                    (p. 68 ff)   in CHF ...
CONSOLIDATED BALANCE SHEET




                                                                Notes    31 Dec. 1999   31 ...
CONSOLIDATED STATEMENT OF SOURCE AND APPLICATION OF FUNDS


                                                              ...
CONSOLIDATED OFF-BALANCE SHEET BUSINESS




                                                             31 Dec. 1999     ...
31 Dec. 1999    31 Dec. 1999                                    31 Dec. 1998        31 Dec. 1998
                         ...
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




                   GENERAL PRINCIPLES
                   The Group fina...
CHANGES TO THE SCOPE OF CONSOLIDATION
The scope of consolidation has undergone the following material changes:


Banking b...
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




                   FOREIGN CURRENCY TRANSLATION
                   In t...
GENERAL ACCOUNTING AND VALUATION PRINCIPLES


                            All completed business is recorded in the financ...
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




                                    Real estate is valued at cost (incl...
VALUATION AND ACCOUNTING POLICIES IN RELATION
TO BANK-SPECIFIC POSITIONS


                                   The trading ...
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




                                                              Reserves ...
Disclosed          Under new
Balance sheet heading
                                                   amount             p...
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




                                  Derivatives and other financial instr...
CHANGES TO ACCOUNTING PRINCIPLES
In the reporting period, various companies in which Winterthur Group has a majority
inter...
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



                                                                        ...
1999                            1998                             Change
2   INCOME AND EXPENSES FROM                      ...
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




                                                                       ...
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
.credit-suisse Annual Report Part 2 Financial report 1999 / 2000
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.credit-suisse Annual Report Part 2 Financial report 1999 / 2000

  1. 1. FINANCIAL REPORT 50 Comments to the financial statements 52 Consolidated income statement 54 Consolidated balance sheet 55 Consolidated statement of source and application of funds 56 Consolidated off-balance sheet business 58 Notes to the consolidated financial statements 101 Report of the Group’s auditors 102 Income statement (parent company) 103 Balance sheet before allocation of retained earnings (parent company) 104 Notes to the financial statements (parent company) 108 Proposed allocation of retained earnings 109 Report of the statutory auditors 49
  2. 2. COMMENTS TO THE FINANCIAL STATEMENTS Credit Suisse Group’s Annual Report contains two sets of financial statements: the consolidated annual financial statements of Credit Suisse Group at 31 December 1999 and the annual financial statements of Credit Suisse Group, parent company, for the financial year ended 31 March 2000. Both sets of statements have been examined by independent auditors. Their reports are presented on pages 101 and 109. The consolidated financial statements include Credit Suisse First Boston, Credit Suisse, Neue Aargauer Bank, the Private Banks, the financial subsidiaries of Credit Suisse Group in Guernsey and Winterthur Insurance. For the banking and financial businesses, the consolidated financial statements were prepared pursuant to the accounting rules for banks; for the insurance business, the accounting rules for insurance companies were applied. ‘Winterthur’ Swiss Insurance Company (Winterthur) is included in the consolidated financial statements using the ‘pooling of interests’ method. Significant information about insurance operations is shown separately in the balance sheet and income statement. The 1999 financial year Following organisational changes at Credit Suisse First Boston, in April 1999 Credit Suisse Group repurchased Swiss Re’s 20% minority position in Credit Suisse Financial Products. Credit Suisse Group’s acquisition of Warburg Pincus Asset Management (CHF 36 bn in assets under management) and of a 19.9% stake in the private equity activities of Warburg, Pincus & Co became effective in July 1999. In December, the BGP Banca di Gestione Patrimoniale SA, Lugano was founded with share capital of CHF 50 m. The new private bank is a 100% direct subsidiary of Credit Suisse Group. Business activities started in February 2000. In December, Winterthur bought an additional 23% stake in DBV Winterthur Holding AG, Wiesbaden, from Commerzbank. This stake is composed of a 15% share held indirectly by Commerzbank through the intermediate WinCom holding and a direct shareholding of 8%. Winterthur’s participation in DBV Winterthur Holding AG thus increased to 69%. In the consolidated accounts, the change in equity capital held is effective from 1 July 1999. 50
  3. 3. Of the CHF 446 m restructuring provisions available for the Focus project, BZW and Winterthur at the start of the year, CHF 327 m was used in 1999. The resulting end balance is CHF 119 m. Provisions for technology costs declined by CHF 181 m from CHF 247 m at the beginning of the year to CHF 66 m at the end. In 1999 CHF 96 m was booked against the reserve specifically earmarked for costs associated with the Y2K date change. This figure was CHF 163 m in 1998. Subsequent events In the United Kingdom, Winterthur announced the acquisition of the National Insurance and Guarantee Corp. Plc. (NIG), London in December. Together with its subsidiaries, NIG’s gross written premiums for 1999 will amount to some CHF 1.1 bn. NIG will be consolidated in the accounts as soon as regulatory approval is obtained, probably in the first quarter of 2000. In January, Winterthur Group anounced the acquisition of the Japanese life insurance company, Nicos Life. In the current business year (ending March 2000), Nicos Life is expected to achieve gross premiums of some CHF 447 m. 51
  4. 4. CONSOLIDATED INCOME STATEMENT Notes 1999 1998 Change Change (p. 68 ff) in CHF m in CHF m in CHF m in % RESULT FROM INTEREST BUSINESS Interest and discount income 16,953 19,280 –2,327 –12 Interest and dividend income from trading portfolios 4,127 5,562 –1,435 –26 Interest and dividend income from financial investments from banking business 656 425 231 54 Interest expenses from banking business 16,484 20,115 – 3,631 –18 5,252 5,152 100 2 NET INTEREST INCOME 1, 2, 6 RESULT FROM COMMISSION AND SERVICE FEE BUSINESS Commission income from lending business 594 392 202 52 Commission from securities and investment transactions 10,523 8,030 2,493 31 Commission from other services 393 330 63 19 Commission expenses 640 425 215 51 10,870 8,327 2,543 31 NET COMMISSION AND SERVICE FEE INCOME 1, 2 6,578 2,378 4,200 177 NET TRADING INCOME 1, 2, 7 NET INCOME FROM INSURANCE BUSINESS Premiums earned, net 26,203 26,477 –274 –1 Claims incurred and actuarial provisions 27,120 27,395 –275 –1 Commission expenses, net 2,157 2,075 82 4 Investment income from insurance business 8,134 8,350 –216 –3 5,060 5,357 –297 –6 NET INCOME FROM INSURANCE BUSINESS 1, 2, 9, 10 OTHER ORDINARY INCOME Income from the sale of financial investments 505 1,224 –719 – 59 Income from investment activities 124 129 –5 –4 – of which from participations valued according to the equity method 95 105 –10 –10 – of which from other non-consolidated participations 29 24 5 21 Real estate income 33 28 5 18 Sundry ordinary income 703 336 367 109 Sundry ordinary expenses 1,255 1,231 24 2 110 486 – 376 –77 OTHER ORDINARY INCOME 1, 2 27,870 21,700 6,170 28 NET OPERATING INCOME 52
  5. 5. Notes 1999 1998 Change Change (p. 68 ff) in CHF m in CHF m in CHF m in % 27,870 21,700 6,170 28 NET OPERATING INCOME (continued) Personnel expenses 13,509 10,586 2,923 28 1, 2 Other operating expenses 5,229 4,473 756 17 1, 2 18,738 15,059 3,679 24 TOTAL OPERATING EXPENSES 6,641 9,132 2,491 38 GROSS OPERATING PROFIT Depreciation and write-offs on non-current assets 657 1,045 388 59 1 Valuation adjustments, provisions and losses from banking business 3,175 1,540 –1,635 – 51 1, 8 3,832 2,585 –1,247 – 33 DEPRECIATION, VALUATION ADJUSTMENTS, LOSSES GROUP PROFIT BEFORE EXTRAORDINARY 2,809 6,547 3,738 133 ITEMS AND TAXES Extraordinary income 1,554 93 –1,461 – 94 1, 3 Extraordinary expenses 573 152 – 421 –73 1, 4 Taxes 575 1,149 574 100 1, 2 3,215 5,339 2,124 66 GROUP PROFIT Minority interests 147 118 –29 –20 1 3,068 5,221 2,153 70 NET PROFIT (AFTER MINORITY INTERESTS) 53
  6. 6. CONSOLIDATED BALANCE SHEET Notes 31 Dec. 1999 31 Dec. 1998 Change Change (p. 68 ff) in CHF m in CHF m in CHF m in % ASSETS Cash and other liquid assets 3,141 2,313 828 36 33 Money market claims 28,994 26,594 2,400 9 12, 33 Due from banks 164,901 140,152 24,749 18 33 Claims from insurance business 6,457 7,482 –1,025 –14 33 Due from customers 104,931 103,183 1,748 2 13, 14, 33 Mortgages 86,553 80,558 5,995 7 14, 33 Securities and precious metals trading portfolios 126,746 102,515 24,231 24 15, 16, 33 Financial investments from banking business 18,828 17,467 1,361 8 17, 19, 33 Investments from insurance business 117,222 102,316 14,906 15 18, 19 Non-consolidated participations 1,823 1,331 492 37 20, 21 Tangible fixed assets 6,828 6,362 466 7 21 Intangible assets 2,990 802 2,188 273 21 Accrued income and prepaid expenses 9,023 9,628 – 605 –6 Other assets 44,309 51,734 –7,425 –14 23 722,746 652,437 70,309 11 TOTAL ASSETS 24, 35, 36 Total subordinated claims 1,792 3,048 –1,256 – 41 Total due from non-consolidated participations 928 227 701 309 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities in respect of money market paper 22,120 14,735 7,385 50 33 Due to banks 198,324 154,048 44,276 29 33 Commitments from insurance business 6,268 8,412 –2,144 –25 33 Due to customers, in savings and investment accounts 44,007 46,618 –2,611 –6 33 Due to customers, other 182,249 178,561 3,688 2 33 Medium-term notes (cash bonds) 3,885 5,844 –1,959 – 34 33 Bonds and mortgage-backed bonds 47,905 44,953 2,952 7 27, 33 Accrued expenses and deferred income 11,778 3,138 14,916 27 Other liabilities 57,004 – 4,427 52,577 –8 28 Valuation adjustments and provisions 5,670 2,896 51 8,566 29 Technical provisions for insurance business 96,652 10,909 11 107,561 30 Reserves for general banking risks 2,048 83 4 2,131 29, 31 Share capital 5,382 62 1 5,444 31 Capital reserve 10,993 703 6 11,696 31 Revaluation reserves from insurance business 5,942 1,035 17 6,977 31 Retained earnings –1,596 2,748 172 1,152 31 Minority interests in shareholders’ equity 2,178 – 549 –25 1,629 31 Group profit 3,215 2,124 66 5,339 31 – of which minority interests 147 –29 –20 118 31 Total shareholders’ equity 28,162 6,206 22 34,368 31 652,437 70,309 11 722,746 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 35, 36 Total subordinated liabilities 16,524 1,670 10 18,194 Total liabilities due to non-consolidated participations 718 31 4 749 54
  7. 7. CONSOLIDATED STATEMENT OF SOURCE AND APPLICATION OF FUNDS 1999 1998 Net Net in/outflow Source Application Source Application in/outflow in CHF m in CHF m in CHF m in CHF m in CHF m in CHF m FROM OPERATIONS, 8,399 EQUITY TRANSACTIONS AND INVESTMENTS 1,186 12,749 OPERATING ACTIVITIES 5,917 Net profit for the year 3,215 5,339 Provisions for credit and other risks 1,421 2,584 Losses 78 101 Provisions for taxes 1,149 575 Depreciation and write-offs 1,045 681 Extraordinary income 1,488 32 Extraordinary expenses 101 462 Valuation of participations valued according to the equity method 105 95 Accrued income and prepaid expenses 209 605 Accrued expenses and deferred income 3,138 101 787 EQUITY TRANSACTIONS 226 Share capital 62 60 Capital surplus and retained earnings 1,486 1,922 Dividends paid 1,457 1,430 Foreign exchange differences 363 1,313 Minority interests 644 64 – 4,085 INVESTMENTS IN LONG-TERM ASSETS – 874 Investments in companies 386 514 Real estate 152 42 Other tangible and intangible fixed assets 1,430 3,547 FINANCIAL INVESTMENTS, PROVISIONS, –1,052 OTHER ASSETS AND LIABILITIES – 4,083 Investments from banking business 1,450 1,361 Investments from insurance business 8,929 14,906 Valuation adjustments and provisions 3,108 1,020 Technical insurance provisions 1 10,909 5,424 Other assets 7,713 5,144 Other liabilities 1,164 4,427 16,660 FROM OTHER BALANCE SHEET ITEMS – 3,588 – 34,927 ASSETS 38,956 Money market claims 2,581 2,401 24,953 2 Due from banks 5,626 Claims from insurance business 1,058 1,025 2,320 2 Due from customers 40,234 Mortgages 3,265 6,278 51,587 LIABILITIES – 42,544 Liabilities in respect of money market paper 7,385 2,215 44,276 2 Due to banks 26,188 Commitments from insurance business 2,144 2,367 2,611 2 Due to customers 1,915 Due to customers, other 17,010 3,688 Bonds and medium-term notes 2,013 993 25,059 CHANGE IN LIQUID ASSETS –2,402 Securities and precious metals trading portfolios 24,231 1,311 Cash and accounts with central banks 828 1,091 1 In line with insurance practice, the change in the technical provisions is shown as a total amount under changes in provisions affecting cashflow. 2 The changes are affected to some extent by the changes to accounting principles described on pages 64/65. 55
  8. 8. CONSOLIDATED OFF-BALANCE SHEET BUSINESS 31 Dec. 1999 31 Dec. 1998 Change Change in CHF m in CHF m in CHF m in % CONTINGENT LIABILITIES Credit guarantees in form of avals, guarantees and indemnity liabilities 6,755 8,870 –2,115 –24 Bid bonds, delivery and performance bonds, letters of indemnity, other performance-related guarantees 5,262 4,471 791 18 Irrevocable commitments in respect of documentary credits 3,224 2,225 999 45 Other contingent liabilities 3,870 3,710 160 4 19,111 19,276 –165 –1 TOTAL CONTINGENT LIABILITIES 120,560 84,775 35,785 42 IRREVOCABLE COMMITMENTS 50 59 –9 –15 LIABILITIES FOR CALLS ON SHARES AND OTHER EQUITY 226 262 – 36 –14 CONFIRMED CREDITS Mortgage Other Without collateral collateral collateral Total ANALYSIS OF COLLATERAL AS AT 31 DECEMBER 1999 in CHF m in CHF m in CHF m in CHF m CONTINGENT LIABILITIES Credit guarantees in form of avals, guarantees and indemnity liabilities 44 6,313 398 6,755 Bid bonds, delivery and performance bonds, letters of indemnity, other performance-related guarantees 171 2,306 2,785 5,262 Irrevocable commitments in respect of documentary credits 0 216 3,008 3,224 Other contingent liabilities 137 1,043 2,690 3,870 352 9,878 8,881 19,111 TOTAL CONTINGENT LIABILITIES At 31 December 1998 339 9,759 9,178 19,276 2,630 56,553 61,377 120,560 IRREVOCABLE COMMITMENTS At 31 December 1998 2,889 40,946 40,940 84,775 0 0 50 50 LIABILITIES FOR CALLS ON SHARES AND OTHER EQUITY At 31 December 1998 0 0 59 59 0 1 225 226 CONFIRMED CREDITS At 31 December 1998 0 0 262 262 31 Dec. 1999 31 Dec. 1998 Change Change in CHF m in CHF m in CHF m in % 37,371 FIDUCIARY TRANSACTIONS 35,216 2,155 6 56
  9. 9. 31 Dec. 1999 31 Dec. 1999 31 Dec. 1998 31 Dec. 1998 31 Dec. 1999 Positive gross Negative gross 31 Dec. 1998 Positive gross Negative gross Nominal replacement replacement Nominal replacement replacement value 4 value value 4 value value value in CHF bn in CHF bn in CHF bn in CHF bn in CHF bn in CHF bn DERIVATIVE INSTRUMENTS INTEREST RATE PRODUCTS Forward rate agreements 305.2 0.3 0.3 152.7 0.1 0.1 Swaps 3,354.3 52.7 50.1 2,383.1 65.3 60.3 Options bought and sold (OTC) 1,186.1 8.6 9.1 914.1 8.5 8.8 Forwards 45.3 0.6 0.5 54.0 0.2 0.3 Futures 542.4 – – 539.2 – – Options bought and sold (traded) 348.8 – – 633.8 – – 5,782.1 62.2 60.0 4,676.9 74.1 69.5 TOTAL INTEREST RATE PRODUCTS FOREIGN EXCHANGE PRODUCTS Forwards 1 525.7 10.5 9.7 782.2 14.7 16.9 Swaps 2 261.8 10.8 14.6 247.4 9.3 11.6 Options bought and sold (OTC) 280.6 3.9 3.7 342.3 5.5 6.1 Futures 0.5 – – 1.5 – – Options bought and sold (traded) 0.1 – – 0.3 – – 1,068.7 25.2 28.0 1,373.7 29.5 34.6 TOTAL FOREIGN EXCHANGE PRODUCTS PRECIOUS METALS PRODUCTS Forwards 1 17.5 1.5 1.2 18.8 0.9 1.1 Options bought and sold (OTC) 11.2 0.6 0.7 15.4 0.5 0.9 Futures 0.1 – – 0.2 – – Options bought and sold (traded) 0.0 – – 0.4 – – 28.8 2.1 1.9 34.8 1.4 2.0 TOTAL PRECIOUS METALS PRODUCTS EQUITY/INDEX-RELATED PRODUCTS Forwards 27.0 2.5 2.8 8.2 0.7 0.6 Options bought and sold (OTC) 295.3 20.2 21.3 191.4 13.8 14.7 Futures 35.7 – – 38.6 – – Options bought and sold (traded) 81.9 – – 63.2 – – 439.9 22.7 24.1 301.4 14.5 15.3 TOTAL EQUITY/INDEX-RELATED PRODUCTS OTHER PRODUCTS Forwards 8.7 0.5 0.4 0.1 0.0 0.0 Options bought and sold (OTC) 8.7 0.3 0.3 4.0 0.3 0.1 Futures 7.8 – – 8.5 – – Options bought and sold (traded) 0.1 – – 0.1 – – 25.3 0.8 0.7 12.7 0.3 0.1 TOTAL OTHER PRODUCTS 7,344.8 113.0 114.7 6,399.5 119.8 121.5 TOTAL, GROSS TOTAL REPLACEMENT VALUES 3, 5 5 43.1 3, 5 49.2 5 37.3 ACCORDING TO THE BALANCE SHEET 40.4 1 including outstanding spot transactions 2 cross-currency interest rate swaps 3 positive replacement value after deduction of CHF 1.4 bn (1998: CHF 4.4 bn) of assets pledged as security 4 No replacement values are shown for traded derivatives (futures and traded options) subject to daily margining requirements. Total positive and negative replacement values on traded derivatives amount to CHF 1.1 bn and CHF 1.0 bn respectively. 5 of which from insurance business: positive replacement values CHF 0.3 bn (1998 CHF 1.3 bn), negative replacement values CHF 0.4 bn (1998 CHF 0.6 bn) 57
  10. 10. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS GENERAL PRINCIPLES The Group financial statements have been drawn up based on the accounting rules of the Implementing Ordinance to the Swiss Federal Law on Banks and Savings Banks of 14 December 1994 (status as at 28 October 1999), supplemented by the pooling- of-interests method and the provisions of the Swiss accounting and reporting recom- mendations with respect to insurance companies (FER 14). As required by the pooling- of-interests method, the consolidated financial statements of Credit Suisse Group show the combined results of Credit Suisse Group and Winterthur as if the merger had been effective for all previous periods shown. In addition, the consolidation and valuation policies reflect the accounting principles set out in the Swiss stock exchange listing regulations; they also largely conform to the provisions of the 4th and 7th EU directives and the EU directive governing the financial statements of banks. The financial year for the Group ends on 31 December. Group companies with a different closing date prepare interim financial statements as of 31 December for consolidation purposes. Until the end of 1996, goodwill (the difference between the purchase price and the amount of equity capital acquired) was set off against equity capital. For subsidiaries acquired after 1 January 1997, goodwill is stated in the balance sheet under ‘Intangible assets’ and amortised over its estimated useful life (not exceeding 20 years). SCOPE AND METHOD OF CONSOLIDATION All banking, insurance and financial institutions in which Credit Suisse Group has a direct or an indirect interest of more than 50% as of the balance sheet date are fully consolidated in the financial statements. For the ‘Winterthur’ Swiss Insurance Company subgroup, capital is consolidated according to the pooling-of-interests method. For the other Group companies capital is consolidated according to the purchase method with effect from 1 January 1990 (or later, if acquired thereafter). Intercompany transactions and unrealised gains therefrom are eliminated. Minority interests in shareholders’ equity and net profit are indicated separately, but are viewed as forming an integral part of the corporate base. Other companies in which the Group has a stake of 20% or more are accounted for using the equity method. Long-term holdings which are designated for resale are booked as ‘Financial investments’. Subsidiaries and long-term holdings out- side the core business, and less significant holdings are not consolidated. 58
  11. 11. CHANGES TO THE SCOPE OF CONSOLIDATION The scope of consolidation has undergone the following material changes: Banking business Credit Suisse Financial Products In April 1999 Credit Suisse Group repurchased Swiss Re’s 20% minority position in Credit Suisse Financial Products. The transaction is reflected in the consolidated accounts with effect from 1 January 1999. In March 2000, the company was renamed Credit Suisse First Boston International. Warburg Pincus Asset Management In July, the Credit Suisse Asset Management business unit (part of the Credit Suisse First Boston legal entity) acquired 100% of Warburg Pincus Asset Management, New York. BGP Banca di Gestione Patrimoniale SA In December, the BGP Banca di Gestione Patrimoniale SA, Lugano was founded with share capital of CHF 50 m. The new private bank, which is a 100% direct sub- sidiary of Credit Suisse Group, started its operations in February 2000. Insurance business DBV-Winterthur In December, Winterthur bought an additional 23% stake in DBV Winterthur Holding AG, Wiesbaden, from Commerzbank. This stake is composed of a 15% share held by Commerzbank indirectly through the intermediate WinCom holding and a direct share- holding that currently stands at 8%. Winterthur’s participation in DBV Winterthur Holding AG thus increased to 69%. In Winterthur’s consolidated accounts, the change in equity capital held is effective from 1 July 1999. 59
  12. 12. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOREIGN CURRENCY TRANSLATION In the annual accounts of the individual Group companies, income and expense items denominated in foreign currencies are translated into the relevant local reporting currencies on the basis of the exchange rate as of the transaction date. Assets, liabilities and off-balance-sheet items are translated using the year-end rate. Hedged assets and liabilities are carried at their forward hedging rates. For the purposes of consolidation, the balance sheets of foreign Group companies are translated into Swiss francs using the year-end exchange rate, and their income statements are translated using the average exchange rate for the financial year. Translation differences are cred- ited or debited to shareholders’ equity and are shown separately in the statement of shareholders’ equity. The key foreign exchange rates are listed on page 100. DEVIATIONS FROM THE RELEVANT EU DIRECTIVES The Swiss accounting rules for banks conform in essence to EU directives and guide- lines. The areas in which Group accounting policies deviate from the accounting prin- ciples set out in the directives of the European Union (4th and 7th EU directives and the EU directive governing the financial statements of banks) can be summarised as follows: – the classification criteria used in the balance sheet and the income statement differ from those set out in the EU directive governing the financial statements of banks; – the proportions of overall income and expenditure for operations outside Switzerland are not detailed by geographical location but are provided as combined totals; – no specific information is given concerning emoluments paid to and liabilities in respect of Members of the Board of Directors or Members of the Executive Board of Credit Suisse Group; – securities and precious metals treated as trading positions are carried at their fair value. Historical differences between cost and fair value are not disclosed in the notes to the financial statements; – there is no formal management report on the business year. The following are significant deviations from the EU directives governing the financial statements of insurance companies: – the classification and presentation used in the financial statements have been adjust- ed from those set out in the EU directives governing the financial statements of insurance companies. Winterthur Group publishes an annual report which focuses on the presentation of the results of the insurance business; – unrealised gains on life business investments are taken to revaluation reserves as part of shareholders’ equity and not to funds for future distribution to shareholders and policyholders. 60
  13. 13. GENERAL ACCOUNTING AND VALUATION PRINCIPLES All completed business is recorded in the financial state- Recording of business ments as follows: foreign exchange, money market and precious metals transactions are recorded on value (settlement) date. Prior to the value date, foreign exchange and precious metals transactions are recorded as off-balance-sheet business. Securities transactions are recorded on a trade date basis. Reverse repurchase and repurchase transactions are shown in the Repo business balance sheet as advances secured by securities or as deposits against which the bank’s securities are pledged. Depending on the type of counterparty, they are shown as claims on (‘Due from’) or liabilities to (‘Due to’) banks or customers. They are carried in the balance sheet at the amounts at which the securities were initially acquired or sold as specified by the respective agreements, plus interest accrued to the balance sheet date. Securities borrowed and lent with Transactions involving non-monetary assets cash collateral and daily margining are included in the balance sheet corresponding to the accounting treatment for repurchase and reverse repurchase agreements. Securities borrowed and lent with non-monetary collateral and daily margining are recorded as a combination of repurchase and reverse repurchase agreements. Securities borrowed and lent against a fee are recorded in the balance sheet as inventory movement only when the transferor relinquishes control over the securities. All other claims and liabilities from transactions involving non-monetary assets (e.g. precious metals and commodities) are marked to market and shown as claims on (‘Due from’) or liabilities to (‘Due to’) banks or customers. Receivables and liabilities Cash, bank balances, money market paper and loans are generally accounted for at nominal value. Money market instruments held for trading are carried at their fair value. The necessary provisions for recognisable risks and potential losses are normally deducted from the appropriate asset items in the balance sheet. Endangered interest and commission income due from customers and banks are not booked as ‘Income from interest business’. Instead, they are only included in the income statement following payment. Provisions for exposures subject to country risk, default risk and other bank risks are booked to ‘Valuation adjustments and provisions’. This position contains no undisclosed reserves. Leasing All leased items (capital goods, vehicles and real estate) are valued using the annuity method and are stated as a separate item under lendings. The depreciation charges contained in the rental income are set off directly against the book values of the corresponding leased assets, so that only the interest portion of the rental income is shown in the income statement. 61
  14. 14. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Real estate is valued at cost (including capital improvements) less depre- Real estate ciation over its useful life (40 – 67 years). No depreciation is charged on land except where valuation adjustments have been made to allow for a reduction in the market value. Other tangible fixed assets such as computers, Other tangible fixed assets machinery, furnishings, vehicles and other equipment, as well as alterations and improvements to rented premises, are depreciated using the straight line method over their estimated useful life (in general 3 – 5 years). The goodwill included in this balance sheet position arises from Intangible assets the capital consolidation of the majority holdings acquired from 1 January 1997. This goodwill is amortised over its estimated useful life (maximum 20 years). From 1 January 1999, third-party costs relating to the purchase and installation of software are capitalised and depreciated over the estimated useful life of the software, normally not exceeding 3 years. As a rule, employees are affiliated to legally autonomous staff pension Pension fund funds which are independent of the Group. The requisite contributions are made to the pension funds and posted under ‘Personnel expenses’. Taxes Tax expenses are calculated on the basis of the annual results posted in the individual financial statements of the Group companies. Deferred tax assets and liabilities are established for the expected future tax implications of temporary differ- ences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities calculated at the expected tax rate on the basis of adjustments in the valuation of assets and liabilities for Group purposes are charged to tax expenses and recorded as other assets or provisions. No provision is made for non- recoverable withholding taxes on undistributed profits of Group companies. Deferred tax assets arising from tax losses brought forward are similarly not recognised. Claims and liabilities in respect of Claims and liabilities of related companies related companies which are accounted for using the equity method and valued at cost are reported in the notes to the consolidated financial statements. 62
  15. 15. VALUATION AND ACCOUNTING POLICIES IN RELATION TO BANK-SPECIFIC POSITIONS The trading portfolio consists of holdings of readily Securities trading portfolio realisable securities, securities acquired as a result of underwriting activities and holdings of precious metals. Securitised and non-securitised options are shown under ‘Other assets’. Trading balances in bonds, shares and similar securities and precious metals accounts and holdings are carried at fair value (amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s- length transaction). Profits and losses from the valuation of the trading portfolio and realised gains and losses on these positions are shown under ‘Income from trading’. Interest and dividend income from the trading portfolio is credited to ‘Result from interest business’. This balance sheet item comprises Financial investments from banking business securities and precious metals positions purchased as a long-term investment. It also includes real estate and holdings assumed from the lending business and desig- nated for resale. Private equity positions (long-term equity financing of companies usually not listed on a stock exchange) are valued at the lower of cost or market value. Fixed-interest debt securities which are being held until final maturity are valued according to the accrual method. In this case, premiums and discounts are accrued or deferred over the term of the instrument until final maturity in the relevant balance sheet position. Realised profits or losses which are interest related and which arise from the early disposal or redemption of the instrument are accrued or deferred over the remaining term of the instrument, i.e. to the original final maturity, and credited or debited to ‘Result from interest business’ as appropriate. Investment holdings of equities and debt securities which are designated for resale and which do not constitute trading balances are valued at the lower of cost or market value. The notes to the consolidated financial statements include details of both the cost price and the market value of these holdings. Capital gains resulting from the disposal of financial investments at above the purchase price are shown under ‘Income from the disposal of financial investments’. Unrealised losses on equity positions as a result of a decrease in their market value, and unrealised profits which do not exceed the original result of changes in credit- worthiness are accounted for in the same way as credit business. Real estate assumed from lending business and designated for resale is valued according to the lower of cost or market value. 63
  16. 16. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Reserves for general banking risks are Reserves for general banking risks precautionary reserves charged to ‘Extraordinary expenses’ to hedge against latent risks in the bank’s operating activities. Releases are credited to extraordinary income. Forward rate agreements, futures, swaps, options, forward contracts and Derivatives other over-the-counter off-balance-sheet instruments held for trading purposes are carried at their fair value and the resulting profits and losses are included in ‘Net trading income’ in the income statement. The resulting replacement values are included in ‘Other assets’ or ‘Other liabilities’ as appropriate and are presented net by counterparty for transactions in those products where the bank has a legal right to set off; otherwise the replacement values are presented gross by contract. Hedging transactions are valued using the same procedures as for the underlying transactions they hedge. Strategic positions are valued according to the lower of cost or market value. Derivative financial instruments which are deployed in the context of interest rate risk management are valued according to the accrual method. The interest component is accrued or deferred over the term of the instrument according to the annuity method. Realised profits or losses which are interest related and which arise from the early dis- posal or redemption of the instrument are also accrued or deferred over the remaining term of the instrument, i.e. to the original final maturity. CHANGES TO ACCOUNTING PRINCIPLES From 1 January 1999, third-party costs relating to the acquisition Intangible assets and installation of software which meets the entity’s business needs alone are capi- talised and depreciated over the estimated useful life, normally not exceeding 3 years. Based on the changes in Transactions involving non-monetary assets (SLB) accounting rules, securities lending and borrowing transactions are recorded as described on page 61. Prior to 1999, the securities borrowed and lent in connection with such transactions were recorded as inventory movements and corresponding receivables and payables. Using the revised accounting rules, the 1998 figures for the balance sheet items would have been as follows: 64
  17. 17. Disclosed Under new Balance sheet heading amount policy (in CHF m) Due from banks 140,152 134,378 Due from customers 103,183 103,164 Securities and precious metals trading portfolio 102,515 98,386 Due to banks 154,048 158,439 Due to customers 178,561 164,247 VALUATION AND ACCOUNTING POLICIES IN RELATION TO INSURANCE-SPECIFIC POSITIONS INVESTMENTS IN RESPECT OF INSURANCE BUSINESS Real estate is valued at market price. The market price of a property is Real estate calculated at its capitalised rental income using the interest rate applied in the country or market in question. Undeveloped plots of land and buildings under construction are carried at cost. Bonds and loans are valued according to the amortised cost Bonds and loans method. The difference between the purchase price and the redemption value is dis- tributed over the remaining life so that a constant yield is achieved. The corresponding valuation adjustment is shown under the ‘Net investment income from insurance busi- ness’ position. Default risk is accounted for through the use of write-offs. Inter- company transactions and unrealised gains have been eliminated, with the exception of assets booked as investments from insurance business. Listed shares are marked to market at year-end. Unlisted shares are valued Shares at cost. If the yield or intrinsic value is endangered, a valuation adjustment is made. 65
  18. 18. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Derivatives and other financial instruments are generally used to hedge Derivatives exposure to changes in the fair value of recognised assets, liabilities and firm commitments. Any gains and losses are therefore recognised in the income statement together with the offsetting loss or gain on the hedged item. Investments for the benefit of life insurance policyholders who bear the Investments for the benefit of life insurance policyholders who investment risk bear the investment risk are carried at their market value. Statement of higher and lower values arising from the uniform valuation of Higher or lower investments in the Group accounts and revaluation reserves values arising from the uniform valuation of investments in the Group accounts in com- parison with the figures contained in the statutory accounts are recorded as follows: valuation differences resulting from the revaluation of fixed-interest securities and mort- gages, unlisted shares and non-consolidated long-term holdings are included in the income statement (under ‘Net investment income from insurance business’). In the case of listed shares and real estate, compensated write-offs in respect of the difference between the balance sheet value in the statutory accounts and the cost value are stated in the income statement (‘Net investment income from insurance business’). Valuation differences between cost and market values are allocated to shareholders’ equity (‘Revaluation reserves from the insurance business’) directly, without affecting the income statement, after deferred tax calculated on the basis of a full provision on unrealised gains for which there is no contractual obligation to pay to policyholders upon realisation. The amount of the technical provisions is based on the expected Technical provisions liabilities due to insured persons and claimants. As a rule, calculations are made individually, i.e. depending on the insurance contract or claim. Statistical or mathematical calculation methods are applied if these lead to approximately the same results and if they conform to the methods approved by the supervisory authorities of the respective countries. The equalisation reserves legally prescribed and locally created in some countries are not included in the Group accounts. As a rule, provisions for claims out- standing are not discounted. Technical provisions for life business are calculated with regard to local regulations. The surplus due to policyholders is accounted for on the basis of the resolutions passed by the individual companies as to the distribution of profit. 66
  19. 19. CHANGES TO ACCOUNTING PRINCIPLES In the reporting period, various companies in which Winterthur Group has a majority interest (mainly finance and real estate companies) have been fully consolidated for the first time. Only nominal investments outside the insurance sector are still consolidated using the equity method or accounted for at cost. Deferred taxes are calculated based on the current tax rates on unrealised capital gains of the individual companies. EVENTS SINCE THE BALANCE SHEET DATE In January 2000, Winterthur Group acquired the Japanese life insurance company, Nicos Life. In the current business year (ending March 2000), Nicos Life is expected to achieve gross premiums of some CHF 447 m. Nicos Life will continue to operate as a legally independent company under its present name. Winterthur assumed the opera- tional management of the company on 31 March 2000. 67
  20. 20. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Banking business Insurance business Total 1 SPLIT OF INCOME STATEMENT INTO BANKING 1999 1998 1999 1999 1998 1998 AND INSURANCE BUSINESS in CHF m in CHF m in CHF m in CHF m in CHF m in CHF m Net interest income 5,252 5,152 0 5,252 5,152 0 Net commission and service fee income 10,870 8,327 0 10,870 8,327 0 Net trading income 6,578 2,378 0 6,578 2,378 0 Net income from insurance business 1, 2 1, 2 0 0 5,060 5,060 5,357 5,357 Other ordinary income 577 1,386 – 467 110 486 – 900 23,277 17,243 4,593 27,870 21,700 NET OPERATING INCOME 4,457 Salaries and other remuneration 10,331 7,587 1,225 11,556 8,919 1,332 Employee benefits 908 680 293 1,201 1,005 325 Other personnel expenses 515 438 237 752 662 224 1,755 1 1,881 1 Personnel expenses 11,754 8,705 13,509 10,586 Premises and real estate expenses 731 672 202 933 885 213 Expenses for IT, machinery, furnishings, vehicles and other equipment 853 784 249 1,102 921 137 Sundry operating expenses 2,442 1,841 752 3,194 2,667 826 1,203 2 1,176 2 Other operating expenses 4,026 3,297 5,229 4,473 Total operating expenses 15,780 12,002 2,958 18,738 15,059 3,057 7,497 5,241 1,635 9,132 6,641 GROSS OPERATING PROFIT 1,400 Depreciation and write-offs on non-current assets 929 567 116 1,045 657 90 Valuation adjustments, provisions and losses 1,540 3,175 0 1,540 3,175 0 Total depreciation, valuation adjustments, losses 2,469 3,742 116 2,585 3,832 90 GROUP PROFIT BEFORE EXTRAORDINARY 5,028 1,499 1,519 6,547 2,809 ITEMS AND TAXES 1,310 Extraordinary income 93 1,011 0 93 1,554 543 Extraordinary expenses 152 573 0 152 573 0 Taxes 809 204 340 1,149 575 371 4,160 1,733 1,179 5,339 3,215 GROUP PROFIT 1,482 Minority interests 28 36 90 118 147 111 4,132 1,697 1,089 5,221 3,068 NET PROFIT (AFTER MINORITY INTERESTS) 1,371 Expenses owing to the handling of both claims and investments are allocated to the income from insurance business. 1 personnel expenses CHF 618 m (previous year CHF 510 m) 2 other operating expenses CHF 487 m (previous year CHF 321 m) 68
  21. 21. 1999 1998 Change 2 INCOME AND EXPENSES FROM Switzerland Abroad Switzerland Abroad Switzerland Abroad ORDINARY ACTIVITIES BY ORIGIN in CHF m in CHF m in CHF m in CHF m in CHF m in CHF m Net interest income 2,646 2,606 2,808 2,344 –162 262 Net commission and service fee income 4,225 6,645 3,688 4,639 537 2,006 Net trading income 1,371 5,207 1,193 1,185 178 4,022 Income from insurance business 2,216 2,844 2,933 2,424 –717 420 Other ordinary income 264 –154 410 76 –146 –230 10,722 17,148 11,032 10,668 – 310 6,480 NET OPERATING INCOME Personnel expenses 3,785 9,724 3,563 7,023 222 2,701 Other operating expenses 2,025 3,204 1,755 2,718 270 486 5,810 12,928 5,318 9,741 492 3,187 TOTAL OPERATING EXPENSES 4,912 4,220 5,714 927 – 802 3,293 GROSS OPERATING PROFIT BEFORE TAXES % of total 54% 46% 86% 14% Taxes 381 768 274 301 107 467 % of total 33% 67% 48% 52% 4,531 3,452 5,440 626 – 909 2,826 GROSS OPERATING PROFIT AFTER TAXES % of total 57% 43% 90% 10% 1999 1998 Change Change 3 ANALYSIS OF EXTRAORDINARY INCOME in CHF m in CHF m in CHF m in % Release of reserves for general banking risks 21 933 – 912 – 98 Gains from the disposal of participations 11 553 – 542 – 98 Other extraordinary income 61 68 –7 –10 93 TOTAL EXTRAORDINARY INCOME 1,554 –1,461 – 94 1999 1998 Change Change 4 ANALYSIS OF EXTRAORDINARY EXPENSES in CHF m in CHF m in CHF m in % Creation of reserves for general banking risks 101 3 98 – World War II settlement 0 459 – 459 –100 Other extraordinary expenses 51 111 – 60 – 54 152 573 – 421 –73 TOTAL EXTRAORDINARY EXPENSES 69
  22. 22. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1999 1998 Change Change 5 INCOME STATEMENT FOR BANKING BUSINESS Notes in CHF m in CHF m in CHF m in % 5,252 5,152 100 2 NET INTEREST INCOME 6 RESULT FROM COMMISSION AND SERVICE FEE ACTIVITIES 594 202 52 Commission income from lending business 392 10,523 2,493 31 Commission from securities and investment transactions 8,030 393 63 19 Commission from other services 330 640 215 51 Commission expenses 425 10,870 2,543 31 8,327 NET COMMISSION AND SERVICE FEE INCOME 6,578 4,200 177 2,378 NET TRADING INCOME 7 OTHER ORDINARY INCOME 505 –719 – 59 Income from the sale of financial investments 1,224 71 –23 –24 Income from investment activities 94 60 –23 –28 – of which from participations valued according to the equity method 83 11 0 0 – of which from other non-consolidated participations 11 33 5 18 Real estate income 28 403 81 25 Sundry ordinary income 322 435 153 54 Sundry ordinary expenses 282 577 – 809 – 58 1,386 OTHER ORDINARY INCOME 23,277 6,034 17,243 35 NET OPERATING INCOME 11,754 3,049 Personnel expenses 8,705 35 4,026 729 Other operating expenses 3,297 22 15,780 3,778 12,002 31 TOTAL OPERATING EXPENSES 7,497 2,256 5,241 43 GROSS OPERATING PROFIT 929 362 Depreciation and write-offs on non-current assets 567 64 87 5 – of which on real estate 82 6 842 362 – of which on other tangible and intangible fixed assets 480 75 0 –5 – of which on non-consolidated participations 5 –100 1,540 –1,635 Valuation adjustments, provisions and losses 3,175 – 51 8 2,469 –1 273 3,742 – 34 DEPRECIATION, VALUATION ADJUSTMENTS, LOSSES 5,028 3,529 1,499 235 ANNUAL PROFIT BEFORE EXTRAORDINARY ITEMS AND TAXES 93 – 918 Extraordinary income – 91 1,011 152 – 421 Extraordinary expenses –73 573 809 605 Taxes 297 204 4,160 2,427 140 1,733 ANNUAL PROFIT 28 –8 Minority interests –22 36 4,132 2,435 143 1,697 NET PROFIT (AFTER MINORITY INTERESTS) 70

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