ANNUAL REPORT 2000/2001 PART V

CONSOLIDATED FINANCIAL STATEMENTS
PART I

   2 Financial highlights 2000

   4 To our shareholders



PART II

  6   An overview of Credit Suisse Group
  6 ...
CONSOLIDATED FINANCIAL STATEMENTS




                                                                                    ...
Page

25    Non-consolidated participations                                                           82
26    Analysis of...
CONSOLIDATED FINANCIAL STATEMENTS




                     Comments to financial statements




                     Credi...
In July 2000, Winterthur Life & Pension completed its acquisition of Colonial
UK, the British subsidiary of the Australian...
CONSOLIDATED FINANCIAL STATEMENTS


                                                                                      ...
Previously                Change to
                                                                                      ...
CONSOLIDATED FINANCIAL STATEMENTS

                                                                                       ...
31 Dec. 2000      31 Dec. 1999        Change        Change
Off-balance sheet business                                     ...
CONSOLIDATED FINANCIAL STATEMENTS
                                                                                        ...
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




1 Summary of significant accounting policies

Basis for accounting
The ...
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




                     lead to a counterparty risk. Positive and negative...
Financial investments from the banking business
This position includes securities, private equity investments, real estate...
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




                     Non-marketable securities are valued at cost. Othe...
position arises from acquisitions after 1 January 1997. Prior to 1 January 1997,
goodwill was charged to equity. Goodwill ...
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




                     Taxes
                     Income tax expense is c...
Pension plans
The Group sponsors various retirement benefit plans for its employees worldwide.
These plans include both de...
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




                     Provision for death and other benefits
           ...
Prior to year-end 2000, lending fees were reported as commission income or
expense, respectively. The impact on the 1999 c...
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




                                   Previously reported                 ...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial state...
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.credit-suisse Annual Report Part 5 Consolidated financial statements Comments to the financial statements Financial statements Notes to the financial statements Report of the Group's auditors

  1. 1. ANNUAL REPORT 2000/2001 PART V CONSOLIDATED FINANCIAL STATEMENTS
  2. 2. PART I 2 Financial highlights 2000 4 To our shareholders PART II 6 An overview of Credit Suisse Group 6 Organisation 8 Financial review 11 Strategic review PART III 13 Review of business units 16 Credit Suisse Financial Services 23 Credit Suisse Private Banking 25 Credit Suisse Asset Management 27 Credit Suisse First Boston PART IV 30 Credit Suisse Group Risk Management PART V 50 Consolidated financial statements PART VI 107 Parent company financial statements 118 Five-year summary of selected financial data 120 Management 126 Main offices 127 Information for investors
  3. 3. CONSOLIDATED FINANCIAL STATEMENTS Page Comments to the financial statements 52 Financial statements 54 Consolidated income statement 54 Consolidated balance sheet 55 Consolidated statement of source and application of funds 56 Consolidated off-balance sheet business 57 Notes to the consolidated financial statements 59 1 Summary of significant accounting policies 59 2 Changes to accounting policies 66 3 Business combinations 70 4 Subsequent events 70 Income statement 5 Split of income statement into the banking and insurance business 71 6 Income statement by origin 72 7 Analysis of extraordinary income 72 8 Analysis of extraordinary expenses 72 9 Income statement of the banking business 73 10 Analysis of net interest income 74 11 Analysis of net trading income 74 12 Analysis of valuation adjustments, provisions and losses from the banking business 74 13 Income statement of the insurance business 75 14 Analysis of insurance premiums by region 76 15 Analysis of net investment income from the insurance business 77 Balance sheet: Assets 16 Money market papers 78 17 Due from customers from lease financing 78 18 Loans (due from customers, mortgages) by economic sector 78 19 Analysis of loan collateral 79 20 Securities and precious metals trading portfolios 79 21 Own shares included in securities trading portfolios 80 22 Financial investments from the banking business 80 23 Investments from the insurance business 81 24 Own shares included in financial investments from the banking 82 and insurance business 50
  4. 4. Page 25 Non-consolidated participations 82 26 Analysis of capital assets 82 27 Additional information on fixed assets 82 28 Analysis of other assets 82 29 Analysis of assets by country and country groups 83 30 Assets pledged or assigned and assets subject to ownership reservation 83 Balance sheet: Liabilities and shareholders’ equity 31 Liabilities for own pension funds 83 32 List of bonds issued 84 33 Analysis of other liabilities 92 34 Valuation adjustments and provisions/reserve for general banking risks 92 35 Technical provisions for the insurance business 93 36 Statement of shareholders’ equity 94 Other information 37 Loans to members of the bank’s governing bodies 94 38 Maturity structure of current assets, financial investments and borrowed funds 95 39 Securities lending and borrowing and repurchase agreements 95 40 Balance sheet by origin 96 41 Balance sheet by currencies 97 42 List of principal participations 98 43 Foreign currency translation rates 103 44 Employee equity participation plans 104 Report of the Group’s auditors 106 www.credit-suisse.com 51
  5. 5. CONSOLIDATED FINANCIAL STATEMENTS Comments to financial statements Credit Suisse Group’s Annual Report contains the consolidated financial state- ments of Credit Suisse Group for the financial year ended 31 December 2000 and the annual financial statements of Credit Suisse Group parent company for the financial year ended 31 March 2001. Both financial statements have been examined by independent auditors. Their reports are presented on pages 106 and 115. The consolidated financial statements include Credit Suisse First Boston, Credit Suisse, Winterthur, the private banks, Neue Aargauer Bank, and the financial subsidiaries of Credit Suisse Group in Guernsey. The Group’s financial statements are prepared in accordance with the accounting rules of the Implementing Ordinance of the Swiss Federal Law on Banks and Savings Banks, the Federal Banking Commission guidelines and the provisions of the Swiss Accounting and Reporting Recommendations with respect to insurance companies. Significant information about insurance opera- tions is shown separately in the balance sheet and income statement. The financial year 2000 Within the framework of the Swiss Accounting and Reporting Recommendations, Credit Suisse Group has changed its accounting policies in the year 2000 in order to increase the transparency for its insurance business and to align with a more internationally-recognised standard. The Group’s financial statements as of 31 December 1999 have also been restated to conform with the current year’s presentation. In the tables of this publication, 1999 results will be shown in “previously reported” as well as in “new basis” columns. In August 2000 Credit Suisse Group announced the acquisition of Donaldson, Lufkin & Jenrette, Inc. (DLJ). DLJ was merged into and became a wholly-owned subsidiary of Credit Suisse First Boston (USA), Inc., an indirect wholly-owned subsidiary of Credit Suisse Group. The results of DLJ operations commencing 3 November 2000 have been included in the consolidated financial statements. In April 2000, Winterthur Life & Pensions completed its acquisition of Nicos Life. The acquisition is reflected in the consolidated financial statements as of 1 April 2000. Subsequent to the acquisition, Nicos Life changed its name to CS Life Japan. In April 2000, Winterthur Insurance completed its acquisition of National Insurance and Guarantee Corporation Plc (NIG), London. The results of opera- tions of NIG are reflected in the consolidated financial statements commencing 1 April 2000. 52
  6. 6. In July 2000, Winterthur Life & Pension completed its acquisition of Colonial UK, the British subsidiary of the Australian Colonial Group. The results of opera- tions of Colonial UK commencing 1 July 2000 are included in the consolidated financial statements. For the acquisition of Donaldson, Lufkin & Jenrette, a restructuring provision of CHF 1,499 m before tax (CHF 1,074 m after tax) was included in 2000, of which CHF 645 m were used in the same year. The resulting end balance is CHF 854 m. Provisions for technology and restructuring costs for the Focus project and BZW declined by CHF 130 m, from CHF 169 m at the beginning of the year to CHF 39 m at the end. Subsequent events Credit Suisse Private Banking announced the acquisition of the UK investment manager JO Hambro Investment Management Limited. JO Hambro will be consolidated in the accounts when regulatory approval is obtained. In December 2000, Winterthur Life & Pension announced the acquisition of the largest Czech pension fund, VOPF (Vojensky Otevreny Penzijni Fond). In February 2001, Winterthur Insurance announced the sale of its large multinational corporates insurance business Winterthur International to the Bermuda-based financial services group XL Capital Ltd. The transaction is expected to close in the first half of 2001. www.credit-suisse.com 53
  7. 7. CONSOLIDATED FINANCIAL STATEMENTS Previously Change to New basis reported Change to previously 2000 1999 1999 new basis reported Income statement Notes in CHF m in CHF m in CHF m in % in % 19,380 1) 2) 30,181 19,380 56 56 Interest and discount income 10 5,865 4,127 4,127 42 42 Interest and dividend income from trading portfolios 10 471 2) 706 471 50 50 Interest and dividend income from financial investments 10 (18,726) 1) (31,439) (18,640) 69 68 Interest expenses 10 5,313 5,338 5,252 0 1 Net interest income 5, 6 717 594 594 21 21 Commission income from lending activities 16,039 10,504 10,523 53 52 Commissions from securities and investment transactions 669 393 393 70 70 Commissions from other services (829) (635) (640) 31 30 Commission expenses 16,596 10,856 10,870 53 53 Net commission and service fee income 5, 6 8,791 6,578 6,578 34 34 Net trading income 5, 6, 11 28,690 26,146 26,203 10 9 Premiums earned, net (28,900) (26,893) (27,120) 7 7 Claims incurred and actuarial provisions (2,113) (1,743) (2,157) 21 (2) Commission expenses, net 8,489 6,656 8,134 28 4 Investment income from the insurance business 6,166 4,166 5,060 48 22 Net income from the insurance business 5, 6, 13, 14 1,023 505 505 103 103 Income from the sale of financial investments 217 90 124 141 75 Income from investment activities 199 78 95 155 109 – of which from participations valued according to the equity method 18 12 29 50 (38) – of which from other non-consolidated participations 140 24 33 483 324 Real estate income 1,243 574 703 117 77 Sundry ordinary income (2,258) (1,487) (1,255) 52 80 Sundry ordinary expenses 365 (294) 110 (224) 232 Other ordinary income/(expenses), net 5, 6 37,231 26,644 27,870 40 34 Operating income 18,503 13,554 13,509 37 37 Personnel expenses 5, 6 6,645 5,227 5,229 27 27 Other operating expenses 5, 6 25,148 18,781 18,738 34 34 Operating expenses 12,083 7,863 9,132 54 32 Gross operating profit 1,510 981 937 54 61 Depreciation and write-offs of non-current assets 5 246 110 108 124 128 Amortisation of goodwill 5 Valuation adjustments, provisions and losses 1,265 1,540 1,540 (18) (18) from the banking business 5, 12 3,021 2,631 2,585 15 17 Depreciation, valuation adjustments, losses 9,062 5,232 6,547 73 38 Profit before extraordinary items, taxes and minority interests 105 93 93 13 13 Extraordinary income 5, 7 (1,796) (152) (152) – – Extraordinary expenses 5, 8 (1,349) (855) (1,149) 58 17 Taxes 5 6,022 4,318 5,339 39 13 Net profit before minority interests (237) (68) (118) 249 101 Minority interests 5 5,785 4,250 5,221 36 11 Net profit 1) Interest income and expenses have each been restated by CHF 2,242 m to be consistent with the current year’s presentation. 2) CHF 185 m have been reclassified from interest and dividend income from financial investments to interest and discount income to be consistent with the current year. 54
  8. 8. Previously Change to New basis reported Change to previously 31 Dec. 2000 31 Dec. 1999 31 Dec. 1999 new basis reported Balance sheet Notes in CHF m in CHF m in CHF m in % in % Assets 2,928 3,141 3,141 (7) (7) Cash and other liquid assets 38 30,127 28,994 28,994 4 4 Money market papers 16, 38 243,692 164,883 164,901 48 48 Due from banks 38 9,871 7,152 6,457 38 53 Receivables from the insurance business 38 145,257 104,931 104,931 38 38 Due from customers 18, 19, 38 92,432 77,763 86,553 19 7 Mortgages 18, 19, 38 198,917 126,746 126,746 57 57 Securities and precious metals trading portfolios 20, 21, 38 25,574 18,828 18,828 36 36 Financial investments from the banking business 22, 24, 38 132,632 117,771 117,222 13 13 Investments from the insurance business 23, 24 1,829 1,789 1,823 2 0 Non-consolidated participations 25, 26 9,913 9,011 6,828 10 45 Tangible fixed assets 26, 27 23,299 4,737 2,990 392 679 Intangible assets 26 16,294 11,814 9,023 38 81 Accrued income and prepaid expenses 54,668 51,462 44,309 6 23 Other assets 28 987,433 729,022 722,746 35 37 Total assets 29, 40, 41 4,876 1,792 1,792 172 172 Total subordinated assets 771 928 928 (17) (17) Total receivables due from non-consolidated participations Liabilities and shareholders’ equity 23,176 22,120 22,120 5 5 Money market papers issued 38 359,441 198,843 198,324 81 81 Due to banks 38 8,807 6,355 6,268 39 41 Payables from the insurance business 38 39,233 44,007 44,007 (11) (11) Due to customers in savings and investment deposits 38 213,549 182,082 182,249 17 17 Due to customers, other 38 3,225 3,884 3,885 (17) (17) Medium-term notes (cash bonds) 38 65,524 46,669 47,905 40 37 Bonds and mortgage-backed bonds 32, 38 28,021 14,952 14,916 87 88 Accrued expenses and deferred income 57,653 51,227 52,577 13 10 Other liabilities 33 13,107 14,219 8,566 (8) 53 Valuation adjustments and provisions 34 132,175 113,981 107,561 16 23 Technical provisions for the insurance business 35 943,911 698,339 688,378 35 37 Total liabilities 2,319 2,131 2,131 9 9 Reserve for general banking risks 34, 36 6,009 5,444 5,444 10 10 Share capital 36 19,882 11,700 11,696 70 70 Capital reserve 36 4,789 5,515 6,977 (13) (31) Revaluation reserves for the insurance business 36 600 600 600 0 0 Reserve for own shares 36 1,567 (111) 552 – 184 Retained earnings 36 2,571 1,154 1,747 123 47 Minority interests 36 5,785 4,250 5,221 36 11 Net profit 36 43,522 30,683 34,368 42 27 Total shareholders’ equity 987,433 729,022 722,746 35 37 Total liabilities and shareholders’ equity 40, 41 21,801 17,898 18,194 22 20 Total subordinated liabilities 779 749 749 4 4 Total liabilities due to non-consolidated participations www.credit-suisse.com 55
  9. 9. CONSOLIDATED FINANCIAL STATEMENTS New basis 2000 1999 Net Net Statement of source and Source Application in/(out) flow Source Application in/(out) flow application of funds Notes in CHF m in CHF m in CHF m in CHF m in CHF m in CHF m From operations, 1,669 9,026 equity transactions and investments 20,577 10,981 Operating activities 6,022 4,318 Net profit before minority interests 2,736 1,423 Provisions for credit and other risks 144 78 Losses 12 1,349 855 Provisions for taxes 1,756 1,091 Depreciation and write-offs 26 10 32 Extraordinary income 7 190 101 Extraordinary expenses 8 Participations valued according 199 78 to the equity method 4,480 673 Accrued income and prepaid expenses 13,069 2,552 Accrued expenses and deferred income 6,634 (274) Equity transactions 565 62 Share capital 7,478 225 Capital surplus and retained earnings 1,986 1,430 Dividends paid 36 703 1,318 Foreign exchange impact 36 1,280 449 Minority interests (21,060) (5,315) Investments in long-term assets 145 463 Investments in companies 186 267 Real estate 21,391 4,585 Other tangible fixed and intangible assets (4,482) 3,634 Financial investments, provisions, other assets and liabilities 6,746 1,361 Investments from the banking business 14,861 7,575 Investments from the insurance business 3,941 591 Valuation adjustments and provisions Technical provisions for the insurance business 1) 18,194 11,213 3,554 7,072 Other assets 6,426 5,124 Other liabilities 70,289 16,018 From other balance sheet items (138,706) (34,418) Assets 1,133 2,401 Money market papers 78,756 24,647 Due from banks 2,719 1,042 Receivables from the insurance business 40,402 2,323 Due from customers 15,696 6,089 Mortgages 208,995 50,436 Liabilities 1,056 7,385 Money market papers issued 160,598 44,494 Due to banks 2,452 2,109 Payables from the insurance business 4,774 2,611 Due to customers in savings and investment deposits 31,467 3,521 Due to customers, other 18,196 244 Bonds and medium-term notes 71,958 25,044 Change in liquid assets 72,171 24,231 Securities and precious metals trading portfolios 20 213 813 Cash and other liquid assets 1) In line with insurance practice, the change in the technical provisions is shown as a total amount under changes in provisions affecting the cash flow. 56
  10. 10. 31 Dec. 2000 31 Dec. 1999 Change Change Off-balance sheet business in CHF m in CHF m in CHF m in % Contingent liabilities Credit guarantees in form of avals, guarantees 7,013 6,755 258 4 and indemnity liabilities Bid bonds, delivery and performance bonds, 4,824 5,262 (438) (8) letters of indemnity, other performance-related guarantees 3,142 3,224 (82) (3) Irrevocable commitments in respect of documentary credits 5,026 3,870 1,156 30 Other contingent liabilities 20,005 19,111 894 5 Total contingent liabilities 126,998 120,560 6,438 5 Irrevocable commitments 305 50 255 510 Liabilities for calls on shares and other equity instruments 150 226 (76) (34) Confirmed credits 41,974 37,371 4,603 12 Fiduciary transactions Mortgage Other Without collateral collateral collateral Total Analysis of collateral as of 31 December 2000 in CHF m in CHF m in CHF m in CHF m Contingent liabilities Credit guarantees in form of avals, guarantees 36 4,607 2,370 7,013 and indemnity liabilities Bid bonds, delivery and performance bonds, 136 1,926 2,762 4,824 letters of indemnity, other performance-related guarantees 0 1,330 1,812 3,142 Irrevocable commitments in respect of documentary credits 107 1,260 3,659 5,026 Other contingent liabilities 279 9,123 10,603 20,005 Total contingent liabilities 352 9,878 8,881 19,111 As of 31 December 1999 7,095 76,169 43,734 126,998 Irrevocable commitments 2,630 56,553 61,377 120,560 As of 31 December 1999 0 0 305 305 Liabilities for calls on shares and other equity instruments 0 0 50 50 As of 31 December 1999 0 14 136 150 Confirmed credits 0 1 225 226 As of 31 December 1999 www.credit-suisse.com 57
  11. 11. CONSOLIDATED FINANCIAL STATEMENTS New basis New basis 31 Dec. 2000 31 Dec. 2000 New basis 31 Dec. 1999 31 Dec. 1999 Positive gross Negative gross 31 Dec. 1999 Positive gross 31 Dec. 2000 Negative gross replacement replacement Nominal replacement Nominal replacement Off-balance sheet business value 4) value 4) value value value value Derivative instruments in CHF bn in CHF bn in CHF bn in CHF bn in CHF bn in CHF bn Interest rate products 0.1 0.1 305.3 0.3 Forward rate agreements 109.0 0.3 55.0 54.4 3,353.7 52.7 Swaps 3,674.8 50.0 10.2 10.7 1,185.5 8.6 Options bought and sold (OTC) 886.9 9.1 1.1 1.1 45.3 0.5 Forwards 268.8 0.5 – – 542.5 – Futures 466.9 – – – 349.2 – Options bought and sold (traded) 386.9 – 66.4 66.3 5,781.5 62.1 Total interest rate products 5,793.3 59.9 Foreign exchange products Forwards 1) 11.5 12.2 521.0 10.5 558.0 9.4 Swaps 2) 15.1 16.1 267.1 10.9 305.9 14.9 3.8 3.8 280.6 3.9 Options bought and sold (OTC) 273.4 3.7 – – 0.5 – Futures 1.7 – – – 0.1 – Options bought and sold (traded) 0.4 – 30.4 32.1 1,069.3 25.3 Total foreign exchange products 1,139.4 28.0 Precious metals products Forwards 1) 0.8 0.7 17.5 1.5 18.5 1.2 0.7 1.3 11.2 0.6 Options bought and sold (OTC) 16.1 0.7 – – 0.1 – Futures 0.1 – – – 0.0 – Options bought and sold (traded) 0.1 – 1.5 2.0 28.8 2.1 Total precious metals products 34.8 1.9 Equity/index-related products 1.9 2.6 27.0 2.5 Forwards 22.6 2.9 13.3 15.5 294.3 20.1 Options bought and sold (OTC) 265.8 21.2 – – 35.7 – Futures 44.6 – – – 81.8 – Options bought and sold (traded) 140.9 – 15.2 18.1 438.8 22.6 Total equity/index-related products 473.9 24.1 Other products 2.1 2.7 8.7 0.5 Forwards 69.8 0.4 0.6 0.6 8.7 0.3 Options bought and sold (OTC) 6.4 0.3 – – 7.8 – Futures 2.4 – – – 0.1 – Options bought and sold (traded) 1.8 – 2.7 3.3 25.3 0.8 Total other products 80.4 0.7 116.2 121.8 7,343.7 112.9 Total derivative instruments 7,521.8 114.6 Total replacement values 43.0 3) 5) 48.8 5) 37.2 3) 5) 40.3 5) according to the balance sheet 1) Including outstanding spot transactions. 2) Cross-currency interest rate swaps. 3) Positive replacement value after deduction of CHF 0.1 bn (1999: CHF 1.4 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 2.1 bn (1999: CHF 1.4 bn) and CHF 1.5 bn (1999: CHF 1.1 bn), respectively. 5) Of which from the insurance business: positive replacement values CHF 0.1 bn (1999: CHF 0.2 bn), negative replacement values CHF 0.2 bn (1999: CHF 0.3 bn). 58
  12. 12. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Summary of significant accounting policies Basis for accounting The Credit Suisse Group’s consolidated financial statements are prepared in accordance with the accounting rules of the Implementing Ordinance of the Swiss Federal Law on Banks and Savings Banks, the Federal Banking Commission guidelines and the provisions of the Swiss Accounting and Reporting Recommendations with respect to insurance companies. The consolidation and valuation policies of the Group reflect the accounting principles set out in the Swiss stock exchange listing regulations. The financial year for the Group ends on 31 December. In preparing the consolidated financial statements, manage- ment is required to make best estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Consolidation The consolidated financial statements include the accounts of Credit Suisse Group and its subsidiaries. The Group consolidates subsidiaries in which it holds, directly or indirectly, more than 50% of the voting rights of an entity or where it has the ability to exercise control over an entity. The effects of intra-group trans- actions are eliminated in preparing the consolidated financial statements. Minority interests in shareholders’ equity and net profit are disclosed separately. The Group accounts for participations in which it owns 20% to 50% of the voting rights and/or has the ability to exercise significant influence using the equity method of accounting. The Group’s profit or loss share is included in Other ordinary income. Certain majority owned participations which operate out- side of the Group’s core business are accounted for according to the equity method. Foreign currency translation For the purpose 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 prevailing throughout the year (see Note 43). Translation adjustments arising on consolida- tion are recorded directly in shareholders’ equity. In the annual accounts of the individual Group companies, assets, liabilities and off-balance sheet items denominated in foreign currencies are translated into the relevant reporting currency using the year-end exchange rate. Income and expense items denominated in foreign currencies are translated into the reporting currency using the exchange rate as of the transaction date. Resulting exchange differences are included in the consolidated income statement, except for differ- ences relating to debt and equity securities held for investment by the insurance entities which are recorded in shareholders’ equity. Offsetting In the insurance business, assets and liabilities are offset when the Group has a legal right to offset amounts with the same counterparty and transactions are expected to be settled on a net basis. In the banking units, assets and liabilities are offset when the following conditions are cumulatively met. Receivables and payables arise from transactions of similar nature, with the same counterparty, with the same or earlier maturity and in the same currency and which cannot www.credit-suisse.com 59
  13. 13. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS lead to a counterparty risk. Positive and negative replacement values are offset with the same counterparty in so far as bilateral agreements exist that are recog- nised and enforceable by law. Trade date/settlement date accounting Foreign exchange, money market and precious metals transactions are recorded on settlement (value) date. Prior to the value date, foreign exchange and precious metals transactions are recorded as off-balance sheet business and reported with their replacement values. Proprietary securities transactions and customer securi- ties transactions are generally recorded on a trade date basis. Cash, due from banks and money market papers Cash and due from banks are accounted for at nominal value. Money market instruments held for trading are carried at fair value. Money market instruments not held for trading or for sale are recorded net of unamortised premiums/ discounts. The necessary provisions for recognisable risks and potential losses are normally deducted from the appropriate asset items in the balance sheet. Due from customers and mortgages (loans) Loans are initially recorded at nominal value. Loans held-to-maturity are recorded net of unamortised premiums/discounts. Loans held for sale are recorded at lower of cost or market value. Interest income is accrued as earned. Loans are carried at nominal value net of any provisions for impairment. The Group provides for credit losses based on regular and detailed analysis on each loan in the portfolio considering collateral and counterparty risk. If uncertainty exists as to the repayment of either principal or interest, a provision is either pro- vided or adjusted accordingly. Charge-off of a loan occurs when the Group is certain that there is no possibility to recover the principal. The Group considers a loan impaired when it believes it will be unable to col- lect all principal and/or interest in accordance with the contractual terms of the loan agreement. A loan is classified as non-performing when the contractual pay- ments of principal and/or interest are in arrears for 90 days or more. Interest collected on non-performing loans is accounted for using the cash basis, cost re- covery method or a combination of both, as appropriate. Generally, an impaired loan may be restored to performing status when all delinquent principal and interest are brought current in accordance with the terms of the loan agreement and certain performance criteria are met. Securities and precious metals trading portfolios Debt and equity securities and precious metals held in the trading portfolio are carried at fair value. Fair value is determined using quoted market prices, where a price-efficient and liquid market exists. In the absence of such a market, the fair value is estab- lished on the basis of a valuation model. Unrealised and realised gains and losses on these positions are recognised in Net trading income. Interest and dividend income from the trading portfolio is recorded in Net interest income. Where fair values cannot be determined, the positions are reported at lower of cost or mar- ket value or estimated net realisable value. 60
  14. 14. Financial investments from the banking business This position includes securities, private equity investments, real estate held for sale as well as debt securities held until maturity. Companies acquired and held for subsequent disposal are also included in Financial investments. Debt and equity securities and real estate held for sale are valued at lower of cost or market. Unrealised losses are recorded in the income statement when the market value is lower than the cost. When the market value increases, un- realised gains are recorded only to the extent losses were previously recognised. Losses due to impairment in creditworthiness are recorded in Valuation adjust- ments, provision and losses. Debt securities held-to-maturity are carried at amortised cost (accrual method). Premiums and discounts are accrued or deferred over the term of the instrument until final maturity. 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 sold. Other than temporary impairment is recorded in Valuation adjustments, provisions and losses. Derivative instruments – banking business Positive and negative replacement values of all derivative instruments are report- ed in Other assets and Other liabilities, respectively. Trading derivative instruments are carried at fair value as positive and negative replacement values. The replacement values are presented net by counterparty for transactions in those products where the Group has a legal right to set off; otherwise the replacement values are presented gross by contract. Realised and unrealised gains and losses are included in Net trading income. The majority of the Group’s derivative positions are trading related. The Group uses derivatives to manage interest rate, foreign currency, equity market, and credit risks. Gains and losses on hedging derivative instruments are recognised in income on the same basis as the underlying exposure. Strategic positions are valued at lower of cost or market. Derivative instruments used for interest rate risk management are valued according to the accrual method. The interest component is accrued or deferred over the term of the instrument according to the annuity method. Realised profits or losses which are interest- related and which arise from the early disposal or redemption of the instrument are also accrued or deferred over the remaining term of the instrument. Gains and losses related to qualifying hedges of firm commitments and prob- able anticipated transactions are deferred and recognised in income or as adjust- ments to carrying amounts when the hedged transactions occur. Investments from the insurance business Debt and equity securities held for investment are carried at fair value. Unrealised gains and losses including foreign exchange gains and losses are recorded as a separate component of shareholders’ equity, net of deferred taxes. Realised gains and losses on securities are determined using the specific identification method. Realised gains and losses, the amortisation of premiums and discounts relating to debt securities and write-offs due to other than temporary impairment are included in Investment income from the insurance business. Certain debt and equity securities are held as trading and carried at fair value. Gains and losses from the valuation of the trading portfolio and realised gains and losses on these positions are included in Investment income from the insur- ance business. Debt securities held-to-maturity are carried at amortised cost. www.credit-suisse.com 61
  15. 15. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Non-marketable securities are valued at cost. Other than temporary impairment is recorded in Investment income from the insurance business. Real estate held for investment, including capital improvements, is carried at cost less accumulated depreciation over its estimated useful life, generally 40 to 67 years. No depreciation is charged on land. Valuation adjustments are record- ed for any impairment. Depreciation and write-downs are included in Investment income from the insurance business. Investments for the benefit of life insurance policyholders who bear the investment risk are carried at fair value. Loans, mortgages and short-term investments are accounted for at nominal value, net of necessary provisions. The provision for credit losses is determined in substantially the same way as the banking business. The provision for credit loss- es is recorded in Investment income from the insurance business. Derivative instruments are generally used to hedge the exposure to changes in the fair value of investments. Hedging transactions are accounted for using the same methods as for the underlying transactions they hedge. Own shares and own bonds The Group buys and sells own shares, own bonds and derivatives on own shares within its normal trading and market making activities. In addition the Group holds own shares to hedge commitments arising from employee compensation schemes. Own shares are either included in the trading portfolio and carried at fair value or held in financial investments and carried at cost. Changes in fair value and realised gains and losses on own shares and own bonds included in the trading portfolio are reported as Net trading income. Interest earned and divi- dends received are reported as interest income. Derivatives on own shares are carried at fair value and reported as positive and negative replacements values in Other assets and Other liabilities, respectively. Realised and unrealised gains and losses on derivatives on own shares are recognised in Net trading income. Tangible fixed assets Real estate held for own use, including capital improvements, is carried at cost less depreciation over its estimated useful life, generally 40 to 67 years. No depreciation is charged on land. Valuation adjustments are recorded for other than temporary impairment. Other tangible fixed assets such as computers, 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, generally three to five years. Intangible assets The Group capitalises certain costs relating to the acquisition and installation of software. The Group depreciates capitalised software costs on a straight-line basis over the estimated useful life of the software, normally not exceeding three years. Identifiable intangible assets are generally acquired through business combi- nations and other transfers of assets. Purchased intangible assets are initially recorded at fair value and depreciated over their estimated useful life, not to exceed 20 years. The useful life of intangible assets relating to individuals does not exceed five years. Additionally, such assets are regularly evaluated for other than temporary impairment. Goodwill represents the excess of purchase price over the estimated fair value of net assets acquired at the acquisition date and is evaluated periodically for other than temporary impairment. The goodwill included in this balance sheet 62
  16. 16. position arises from acquisitions after 1 January 1997. Prior to 1 January 1997, goodwill was charged to equity. Goodwill is amortised using the straight-line method over its estimated useful life, not to exceed 20 years. Goodwill is evalu- ated periodically for other than temporary impairment. The Present Value of Future Profits (PVFP) is the present value of anticipat- ed profits embedded in the life and health insurance in force at the date each life and health insurance portfolio was purchased. Interest accrues on the unamor- tised PVFP based upon the policy liability rate or contract rate. The PVFP asset is amortised over the years that such profits are anticipated to be received in pro- portion to the estimated gross margins or estimated gross profits for participating traditional life products and non-traditional life products, respectively, and over the premium paying period in proportion to premiums for other traditional life products. Expected future profits used in determining the PVFP are based on actuarial determinations of future premium collection, mortality, morbidity, surrenders, operating expenses and yields on assets supporting policy liabilities as well as other factors. The discount rate used to determine the PVFP is the rate of return required to invest in the business being acquired. Additionally, the PVFP asset is adjusted for the impact on estimated gross margins and profits net of unrealised gains and losses on securities. Each year, the PVFP asset is evaluated for recoverability. If the present value of future net cash flows from the blocks of business acquired is insufficient to recover the PVFP, the difference is charged to expense as an additional write-off of the PVFP. Deferred policy acquisition costs Deferred policy acquisition costs consist primarily of commissions, underwriting expense and policy issuance costs and are included in Accrued income and pre- paid expenses. Acquisition costs, which vary with and are directly related to the acquisition of insurance contracts, are deferred to the extent they are deemed recoverable. Deferred policy acquisition costs on participating traditional life products are amortised over the expected life of the contracts in proportion to the estimated gross margins. Deferred policy acquisition costs on other traditional life products are amortised over the premium paying period of the related policies in proportion to net premiums using assumptions consistent with those used in computing the provision for future policy benefits. Deferred policy acquisition costs on non-tradi- tional life products are amortised over the expected life of the contracts as a con- stant percentage of the estimated gross profit. The effect on the amortisation of deferred policy acquisition costs of revisions to estimated gross margins or profits for all contracts is reflected in the current period income statement. The deferred policy acquisition costs asset related to participating traditional life products and non-traditional life products is adjusted for the impact on estimated gross margins or profits net of unrealised gains and losses on securities. Deferred policy acquisition costs for non-life products are amortised over the periods in which the premiums are earned. Future investment income attributable to related premiums is taken into account in measuring the recoverability of the carrying value of this asset. www.credit-suisse.com 63
  17. 17. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Taxes Income tax expense is calculated on the basis of the annual results of the individ- ual financial statements of the Group companies. Deferred tax assets and liabili- ties are recognised for the expected future tax consequences of temporary dif- ferences between the financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities are calculated based on expected tax rates and are recorded in Other assets and Valuation adjustments and provisions, respectively. Deferred income tax expense represents the net change in the deferred tax asset or liability balance during the year and is charged to tax expense, except to the extent the change relates to transactions recognised directly in shareholders’ equity. This amount together with income taxes payable or receivable in the current year represents the total income tax expense for the year. No deferred tax assets are recognised for net operating loss carry-forwards. Other deferred tax assets are recognised subject to man- agement’s judgment that realisation is more likely than not. No provision is made for non-recoverable withholding taxes on undistributed profits of Group compa- nies. Reserve for general banking risks In accordance with Swiss banking regulations, the reserve for general banking risks is recorded as a separate component of shareholders’ equity. Changes to this equity component must be recorded as an extraordinary item in the income statement or result from reclassification from valuation adjustments and provi- sions no longer required (disclosed as change in definition of scope). Repurchase and reverse repurchase agreements (Repos) The Group enters into purchases of securities under agreements to resell as well as sales of securities under agreements to repurchase substantially identical securities. Such agreements normally do not constitute economic sales and are therefore treated as financing transactions. Securities sold subject to such agree- ments continue to be recognised in the balance sheet. The proceeds from the sale of these securities are treated as liabilities. Securities purchased under agree- ments to resell are recognised as loans collateralised by securities. Receivables and liabilities are valued using the accrual method; those held in the trading book (matched book repo trading) are carried at fair value. Transactions in which eco- nomic control over the securities transferred has been relinquished are reported as either purchases or sales together with a related forward commitment to resell or repurchase. Securities lending and borrowing Securities borrowed and lent with cash collateral and daily margining are reported as repurchase and reverse repurchase transactions. All other securities borrowed and lent that are collateralised by cash are included in the balance sheet at amounts equal to the cash advanced or received. Securities lent or securities provided as collateral for securities borrowed continue to be recognised in the balance sheet at their carrying value if control over the securities transferred is not relinquished. Securities borrowed and securities received as collateral for securities lent are only recognised in the balance sheet if control over the securi- ties transferred is relinquished. Lending fees earned or incurred are recognised as interest income and interest expense, respectively. 64
  18. 18. Pension plans The Group sponsors various retirement benefit plans for its employees worldwide. These plans include both defined benefit and defined contribution plans, as well as other retirement benefits such as post-retirement life insurance and post- employment medical benefits. Pension expense is recorded in Personnel expenses and is based on actuarial valuation methods and projected plan liabili- ties for accrued service. Premium income and related expenses Premiums from traditional life products, both participating and non-participating, are recognised as revenue when due from the policyholder. Profit for contracts with a limited number of premium payments is deferred and recognised over the period that services are provided. Premiums from non-traditional life products are recognised as revenue when due. For contracts with front-end fees, any excess front-end fees are deferred and recognised in proportion to the estimated gross profits. These deferred fees are adjusted for the impact on estimated gross profits net of unrealised gains and losses on securities. Premiums from non-life products are recorded at inception of the contract and are earned primarily on a pro-rata basis over the term of the related policy coverage with the unearned portion deferred in the balance sheet as unearned premiums. Reinsurance Contracts providing for indemnification against loss or liability relating to insurance risk have been accounted for as reinsurance. Reinsurance contracts that do not transfer significant insurance risk are accounted for as deposits. Gains on retroactive reinsurance ceded are deferred and amortised over the estimated remaining settlement period. Technical provisions for the insurance business Provision for future policyholder benefits The provision for future policyholder benefits for participating traditional life prod- ucts is computed using the net level premium method, which represents the present value of future policy benefits less the present value of future net premi- ums. The method uses assumptions for mortality and interest rates guaranteed in the contracts or used in determining dividends. The provision for future policyholder benefits for other traditional life products is computed using the net level premium method. The assumptions are based on the Group’s experience and industry standards including provision for adverse deviations that were in effect as of the issue date of the contract. The provision for future policyholder benefits for non-traditional life products is equal to the account value, which represents premiums received and allocated investment return credited to the policy less deductions for mortality costs and expense charges. When the provision for future policyholder benefits plus the present value of expected future gross premiums for a product are insufficient to provide for expected future benefits and expenses for the line of business, deferred policy acquisition costs are written off to income and thereafter, if required, a premium deficiency reserve is established by a charge to income. A premium deficiency reserve is adjusted for the impact of net unrealised gains and losses. www.credit-suisse.com 65
  19. 19. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Provision for death and other benefits Claim reserves represent amounts due on life and accident and health claims that have accrued as of the balance sheet date, but have not yet been paid. This includes incurred but not reported claims (IBNR) and claims expense liability. The interest rate used to discount future payments is impacted by the net unrealised gains and losses on securities, resulting in an adjustment to claim reserves. Provision for future dividends to policyholders Dividends on participating traditional life products are accrued when earned and calculated in accordance with local statutory or contractual regulations. The provi- sion for policyholder dividends also includes a deferred bonus reserve (DBR), which represents amounts that result from differences between these presented financial statements and the local statutory financial statements and that will reverse and enter into future policyholder dividends calculations. The calculation of the DBR reflects only the contractual or regulatory defined minimum distribu- tion to policyholders. The provision for policyholder dividends is adjusted for the impact of net un- realised gains and losses on securities to the extent that the policyholder will participate in such gains and losses on the basis of contractual or regulatory re- quirements when they are realised. Provision for unpaid claims and claim adjustment expenses Claim and claim adjustment expenses are recorded as incurred. Claim reserves comprise estimates of the unpaid portion of the reported losses and estimates of the amount of losses incurred but not yet reported to the insurer. Management periodically reviews the estimates, which may change in light of new information. Any subsequent adjustments are recorded in the period in which they are deter- mined. Certain claim reserves are discounted for individual claims whose payment pat- tern and ultimate cost are fixed and reliably determinable. 2 Changes to accounting policies Banking business Repurchase and reverse repurchase agreements (Repos) Prior to year-end 2000, repo transactions where the cash taker has lost economic control over the collateral provided were also recorded as advances secured by securities or as deposits against which the bank’s securities are pledged. The 1999 balance sheet amount would not be materially different had they been pre- pared under the new policy. Securities lending and borrowing (SLBs) Prior to year-end 2000, securities borrowed and lent with collateral and no daily margining were recorded as inventory movements with corresponding receivables and payables arising therefrom. Securities borrowed and lent with non-monetary collateral and daily margining were recorded as a combination of a repurchase and reverse repurchase agreement. The 1999 balance sheet amount would not be materially different had they been prepared under the new policy. SLB fees earned or incurred are recognised as interest income and interest expenses, respectively. 66
  20. 20. Prior to year-end 2000, lending fees were reported as commission income or expense, respectively. The impact on the 1999 consolidated income statement would have been CHF 111 million higher had they been prepared under the new policy. Insurance business Within the framework of the Swiss Accounting and Reporting Recommendations, Credit Suisse Group has changed its accounting policies in the year 2000 in order to increase the transparency for its insurance business and to align with a more internationally-recognised standard. The Group’s financial statements as of 31 December 1999 have also been restated to conform with the current year’s presentation. In the tables of this publication, 1999 results will be shown in “previously reported” as well as in “new basis” columns. A summary of previously reported compared to new basis accounting policies is shown below. The following table shows the effects of the changes to the accounting policies: Previously reported New basis Life – Premiums for contracts were recognised – Premiums for contracts are recognised when as written when due from the policyholder. due from the policyholder with any deferred profit capitalised and recognised over the peri- od that services are provided. – Acquisition costs were recorded and deferred – All acquisition costs that vary with and are in accordance with local regulations. primarily related to the acquisition of business are deferred and amortised to expense based on the product classification of the insurance contracts. – Provision for future policy benefits were based – The provision for future policy benefit liabilities on the expected liabilities due to the insured is calculated based on the benefits attributable and the claimants. Reserves were calculated to the policyholders as set out in the insurance in accordance with supervisory authorities of contracts. the respective countries. – Provision for death and other benefits were – Provision for death and other benefits are calculated based on statutory methodology. calculated using the best estimate of future A reserve for claims incurred but not reported claims expense liability. In addition, a provision was recorded for disability claims only. is established for claims incurred but not reported for all claims. – A provision for future dividends to policyhold- – A provision for future dividends to policyholders ers as submitted to regulators was accrued, on participating traditional life products is with additional funds accrued for future policy- accrued when earned. In addition, a deferred holder dividends as deemed necessary by bonus reserve is established when there is management. a contractual or legally defined minimum distribution to policyholders based on the regulatory requirements. www.credit-suisse.com 67
  21. 21. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Previously reported New basis Life – A PVFP asset was not recognised as a – A PVFP asset is established and represents separate intangible asset but was included in the projected future profits from the in-force goodwill. acquired policies. The PVFP asset is amor- tised to match the profits arising from the acquired in-force business. Non-life – Premiums written, deferred policy acquisition – Premiums written, deferred acquisition costs costs and technical provisions were calculated and technical provisions are treated consis- in accordance with local supervisory regula- tently. tions of the respective countries except that the equalisation reserves legally prescribed – Technical provisions are carried in all locations and locally recorded in some countries were based on best estimate without any equalisa- not included in Group accounts. tion reserves. – All reinsurance contracts were considered – Reinsurance contracts that do not transfer insurance transactions and were accounted significant insurance risk are accounted for as for as insurance. deposits. Investments – Real estate was carried at fair value. Unre- – Real estate held for investment and real estate alised gains were recorded in equity while held for own use are carried at depreciated unrealised losses were recorded in the cost. Depreciation and write-downs due to income statement. Both real estate held for other than temporary impairment are charged investment and own use were included in to the income statement. Real estate held for investments. investment is included in investments from the insurance business, and real estate held for own use is included in tangible fixed assets. – Debt securities were carried at amortised – Debt and equity securities classified as avail- cost. Equity securities were carried at fair able for sale are carried at fair value. value. Unrealised gains were recorded in Unrealised gains and losses are recorded as a equity while unrealised losses were recorded separate component of shareholders’ equity, in the income statement. net of taxes. – Certain securities are classified as trading and are carried at fair value. Gains and losses from changes in valuation are recognised as investment income. – Unrealised foreign exchange gains and losses – Unrealised foreign exchange gains and losses relating to securities denominated in foreign relating to securities denominated in foreign currencies were recognised in income. currencies are recorded as unrealised gains and losses in shareholders’ equity. – Realised gains on securities were calculated – Realised gains and losses are determined using the average method. using the specific identification method. 68

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