GLOBAL INVESTMENT BANK

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GLOBAL INVESTMENT BANK

  1. 1. 1997 A N NU A L REVIEW GLOBAL INVESTMENT BANK
  2. 2. 1 Chief Executive’s Letter 4 Fact Sheet 6 Deals of the Year 8 Corporate and Investment Banking 16 Fixed Income 20 Equity 24 Credit Suisse Financial Products 28 Private Equity 30 Support Services 34 Credit Suisse Group 36 Board of Directors 37 Executive Board 38 Managing Directors 40 Financial Statements 47 Office Locations Credit Suisse Group (“CSG”) is one of the leading global Credit Suisse First Boston (“CSFB”) is a leading global financial services companies, providing a comprehensive investment banking firm, providing comprehensive range of banking and insurance products. It is active on financial advisory, capital raising, sales and trading, and six continents and in the world’s major financial centers. financial products for users and suppliers of capital Credit Suisse Group comprises five business units — four around the world. It operates in over 50 offices across banking units and one insurance provider — each geared to more than 30 countries and six continents and has over the requirements of specific customer groups and markets: 12,000 employees. Credit Suisse First Boston is one of the world’s Credit Suisse largest securities firms in terms of financial resources, Corporate and individual customers in Switzerland with approximately $7.1 billion in revenues in 1997 and Credit Suisse Private Banking $7.3 billion in equity and $310 billion in assets as of Services for private investors in Switzerland December 31, 1997. and internationally Credit Suisse First Boston is organized around the following five major operating divisions: Credit Suisse First Boston Worldwide investment banking Corporate and Investment Banking Credit Suisse Asset Management Fixed Income Services for institutional investors worldwide Equity Winterthur Credit Suisse Financial Products Worldwide insurance business Private Equity
  3. 3. CHIEF EXECUTIVE’S LETTER 1 1997 was an extraordinary year for Credit Suisse First CSFB faces this environment with considerable Boston. The year began with the Firm’s major restructuring strengths. Among the leading group of global investment (from three constituent parts) and ended with the impor- banks, CSFB possesses a unique international culture and tant BZW acquisition in Europe and Asia. Despite the spread of operations and management, particularly intense effort required to absorb these changes, CSFB transatlantic, where our business is broadly balanced. produced $1.2 billion of net income, before extraordinary CSFB also continues to foster powerful entrepreneurial and exceptional items, and the fastest organic growth rate drive and creativity. These distinguishing characteristics of major firms in the investment banking industry, with rev- were illustrated well during 1997. enues exceeding $7 billion for the first time. The 30% organic revenue growth rate recorded by CSFB’s strategy is to build exceptional shareholder CSFB was broadly based, but showcased particularly the value by exploiting attractive global growth trends in the strengths of key businesses all new to the Firm within the industry while strengthening our position as one of the last eight years. These included our world-leading deriva- world’s leading investment banks. 1997 was a year that tives business, Credit Suisse Financial Products, which demonstrated well the fruits of this strategy and the has grown revenues 26% compounded since the first full impact of the industry trends that shape it. year of operation. Other businesses, less than five years Intense concentration in the financial services indus- old, grew spectacularly during 1997 including our Fixed try, long predicted, is now advancing fast. The process is Income businesses in the emerging markets and in real producing what many observers have anticipated – a small estate-related activity, in particular, the Principal group of global institutions emerging preeminent. Transactions Group. Within the Equity division very strong Alongside this structural development is continued evi- growth was also recorded in Eastern Europe, where CSFB dence of the powerful global growth trends underpinning has been a pioneer. Supporting these particular growth the industry, dampened in part by market cyclicality and areas were strong results from more traditional business- intense competition. es. CSFB’s Investment Banking revenues increased 26% from 1996 levels, while customer revenues in Equity out- side the emerging markets rose 41%. The groups particularly strengthened by CSFB’s restructuring also showed tremendous progress with foreign exchange and money markets achieving growth rates exceeding 69%.
  4. 4. We estimate that two of CSFB’s principal divisions our strategy perfectly was CSFB’s acquisition of BZW’s (Fixed Income and CSFP) rank 1 or 2 in the world by European and selected Asian equity, equity capital mar- revenues while two others (Corporate and Investment kets and mergers and acquisitions advisory businesses. Banking and Equity) rank among the top 5. With respect This has given CSFB the unique leverage of a third home to profitability, CSFB’s 18% return on equity in 1997 market (the U.K.) to complement our global activities. compares well with those banks that combine corporate We are also making substantial investments in the organic and investment banking. Particularly pleasing was the growth of our Equity, Investment Banking, Fixed Income, 30% ROE achieved, excluding the corporate loan book. and Private Equity businesses. Additionally, a crucial This represents an industry leading level of profitability and requirement of the industry trends toward growth, global- underlines the importance of our strategic shift of capital ization and more sophisticated risk management is away from lending and into other activities. Cost and investment in our infrastructure and control environment. productivity measures such as pretax profit margins, 26%, Such investment needs are exacerbated by inefficiencies and compensation/revenues, 49%, remained in line with identified by the Firm’s restructuring and by integrating other industry leaders. BZW, and major external challenges such as Year 2000 Although we had a very successful 1997, CSFB is and EMU. CSFB is aggressively responding to these very conscious of the need to strengthen its competitive needs and has taken prudent advantage of 1997’s prof- position as the industry changes. In executing our strategy itability to make some exceptional provisions to cover the of capitalizing on growth trends and strengthening the integration of BZW and some of these one-off Information Firm, CSFB is engaged in several major, multi-year invest- Technology costs. ment programs. While increasing our cost base near-term, This Annual Review seeks to describe in more detail these programs are essential to capturing excellent long- CSFB’s global and product strengths and the strategies term value for our shareholders. We continue to make driving our business forward. Most importantly, this Review investments to position us well to serve our clients’ reflects the lifeblood of our business – our client relation- increasingly global needs. One such investment which fits ships. Whether it be in mature or emerging markets, or with investors or users of capital and advice, our service to clients comes first. Our capital strength and expertise as principal increasingly link with our client businesses to ensure we can provide differentiated service.
  5. 5. 3 Neither our 1997 performance nor our future ambi- Chief Executive of Credit Suisse Private Banking. tions would be imaginable without the enormous energy, Their commitment to excellence and their contributions to creativity, and dedication of our people. Size is important the delicate task of integrating our structures and cultures in the global financial services industry, and we obviously have left a lasting mark. have size; intelligence is even more important, and I While 1998 has begun well, we are conscious that believe our record of client service and notable transac- not every year will enjoy the market conditions that assist- tions demonstrate our resources of thoughtfulness and ed our growth in 1997. Nevertheless, we look to the imagination. I congratulate our staff worldwide for their future with confidence and in the knowledge that CSFB’s achievement. strengths continue to build and can be expected to offer Two people deserve special mention. Beginning our clients the consistency and excellence they expect in with the announced restructuring in mid-1996, Hans- the future. Ulrich Doerig played a crucial role in bringing together the new CSFB into one global organization. During 1997, he served with distinction as Chairman of CSFB before moving on to become Vice Chairman and Chief Risk Officer of Credit Suisse Group. Oswald Grubel served as head of trading until his appointment in March 1998 as Allen D. Wheat Chairman of the Executive Board and Chief Executive Officer
  6. 6. THE GREATER THE RESOURCES, THE GREATER THE POSSIBILITIES Financial Resources Asian Region Vice Chairman, Among Alan Smith near CSFB’s office in Hong Kong with May Koon, director, the Best head Asian Equity Sales. in the PRO FORMA DOLLARS IN MILLIONS (UNAUDITED) 1997 1996 % CHANGE Industry For the year Revenues $ 7,128 $ 5,493 30% Operating expenses $ 4,762 $ 3,675 30% Gross operating profit $ 2,366 $ 1,818 30% Pretax income (1) $ 1,828 $ 1,417 29% Net income (1) $ 1,207 n/a n/a At year end Total shareholders’ equity (2) $ 7,274 $ 6,551 11% Total assets $ 310,353 $ 304,346 2% Selected ratios Return on average equity (1) 18% n/a n/a Pretax profit margin (1) 26% 26% — Expense/revenues 67% 67% — Staff expense/total revenues 49% 49% — Tier 1 BIS-based capital ratio (3) 8.5% n/a n/a Total BIS-based capital ratio (3) 14.9% n/a n/a Employees 11,863 10,881 9% (1) Excludes extraordinary/exceptional items, and minority interest. (2) Shareholders’ equity at January 1, 1997, includes the pro forma effect of CHF 500 preferred stock issuance which occurred on March 31, 1997. (3) These ratios apply to the Bank.
  7. 7. 5 NUMBER OF FIRM DEALS OF THE YEAR A Leader in Innovation Credit Suisse First Boston 10 Goldman Sachs 10 1997 Deal of the Year Awards Institutional Investor Merrill Lynch 10 Morgan Stanley Dean Witter Discover 9 J.P. Morgan 8 #1 Number one in global privatizations.(1) Top Tier #1 Number one coordinator of global offerings. (5) Capital Raising #1 Number one European IPO house.(5) Credentials #1 Number one in capital markets project finance dollar volume.(3) #1 Number one in Swiss capital markets every year since 1991. (3) #2 Number two in private placements.(2) #1 Number one in quantity of Latin American debt issued from 1990-1997.(1) Daniela Iten and Daniel Gut, Swiss fixed income capital markets. #2 Number two in Deutsche Mark market share.(1) #1 Number one in Central and Eastern European equity research.(4) Sources: (1) (2) Securities Data Company. Investment Dealers’ Digest. #1 (3) CSFB. (4) Euromoney. Pioneered in European high yield dollar volume.(3) (5) Bondware.
  8. 8. DEALS OF THE YEAR Credit Suisse First Boston has been judged a leader in client service by a wide range of financial press covering our businesses. Based on current returns, below is a list of the Deals of the Year and other awards won by the Firm for financing and advisory work worldwide. The Firm won 61 awards this year, up from 40 in 1996. TRANSACTION AWA R D P U B L I C AT I O N A.K. Steel Project Finance Deal of the Year Corporate Finance Boeing/McDonnell Douglas M&A Deal of the Year Institutional Investor BVG Rail Deal of the Year Asset Finance International CalEnergy Project Finance Deal of the Year Institutional Investor Ciba Specialty Chemicals Best Non-Privatization Equity Issue of the Year International Equity Review Ciba Specialty Chemicals/Novartis Demerger of the Year Corporate Finance Ciba’s Exec Stock Options Best Derivatives Deal of the Year Global Finance Continental Airlines North America Airline Financing Deal of the Year AirFinance Journal Credit Suisse Group/Winterthur International Deal of the Year Institutional Investor ENI European Equity Issue of the Year International Financing Review First Union/CoreStates Financial Breakthrough Deal Mega-Mergers Investment Dealers’ Digest Impress Metal Packaging Buyouts Deal of the Year Corporate Finance Ispat International Equity Deal of the Year Corporate Finance J. C. Penney Corporate Finance Deal of the Year Institutional Investor Jorf Lasfar Power Deal of the Year Project Finance La Oroya Metallurgical Honorable Mention: Privatization LatinFinance MATÁV East Europe IPO Emerging Markets Investor International Deal of the Year Institutional Investor Best Eastern European Equity Issue of the Year International Equity Review EEMEA Equity Issue of the Year International Financing Review East European Deal of the Year World Equity Osprey Maritime Ship Financing Deal of the Year IFR Transport Finance People’s Republic of China Best Asian Bond Issue Euroweek Asia Best Sovereign/Public Sector Asian Bond Issue Euroweek Asia Best Eurobond Finance Asia Petrozuata Finance Project Finance Deal of the Year Corporate Finance Latin Project Bond Emerging Markets Investor Project Finance Deal of the Year Institutional Investor
  9. 9. 7 TRANSACTION AWA R D P U B L I C AT I O N Petrozuata Finance (continued) Americas Project Finance Loan of the Year International Financing Review Project Finance Deal of the Year LatinFinance Deal of the Year Project Finance Pharmacia Biotech/Amersham M&A Deal of the Year Corporate Finance PT Pindo Deli Pulp & Paper Mills Best Offering for a Corporate Issuer Finance Asia High Yield Bond Deal of the Year Asiamoney Best Asian Bond Issue Euroweek Asia Best Asian High Yield Bond Euroweek Asia Best Corporate Asian Bond Issue Euroweek Asia International Deal of the Year Institutional Investor Asian Bond of the Year International Financing Review Pycsa Panama Deal of the Year Project Finance Raytheon/Hughes Aircraft Most Noteworthy Mergers Global Finance M&A Deal of the Year Institutional Investor Republic of Italy Swiss Francs Euroweek Swiss Franc Bond of the Year International Financing Review Southern Peru Copper Honorable Mention: Structured Trade Finance LatinFinance Deal of the Year Project Finance SR Earthquake Fund International Deal of the Year Institutional Investor Team Rental/Budget Rent a Car M&A Deal of the Year Corporate Finance Telstra Best IPO of the Year Finance Asia Best Australian Equity IPO of the Year International Equity Review Yapi Kredi Bank Asi Best Turkish Equity Issue of the Year International Equity Review YPF/Andina M&A Deal of the Year Institutional Investor ENTITY AWA R D P U B L I C AT I O N Credit Suisse Financial Products Credit Derivatives House of the Year International Financing Review Best Foreign Dealer of the Year Swaps Monitor Derivatives House of the Year World Equity Credit Suisse First Boston Best Lead Manager of Asian Bonds Euroweek Asia Best Bank in Corporate Finance Global Finance Global Winner in Project Finance Global Finance Project Finance House of the Year International Financing Review Swiss Franc Bond House of the Year International Financing Review Bond House of the Year Americas Project Finance Int’l Yearbook
  10. 10. 60+ Full Service Product Offerings Focused Industry Expertise Acquisition Finance Automotive Asset Finance Capital Goods Corporate Lending and Syndicated Finance Chemicals Corporate Sales and Divestitures Consumer Products Debt, Equity and Convertible Underwriting Depository Institutions Equity Derivatives Energy Deals of the Year Generic and Structured Trade Finance Health Care Joint Ve n t u r e s Insurance in 1997 (1) Leasing Lodging & Gaming Leveraged Buyouts Media Leveraged Finance Metals & Mining Mergers and Acquisitions P a p e r, Packaging Preferred Stock & Forest Products Private Placements Power Privatizations Real Estate Project Finance Retail Restructurings Te c h n o l o g y Share Repurchase Programs Te l e c o m m u n i c a t i o n s Takeover Defense Tr a n s p o r t a t i o n (Dollars in Millions) 1997 1996 % CHANGE Revenue $ 1,479 $1,368 8% Employees 2,034 2,102 (3%) Average BIS Capital $ 2,841 n/a n/a C O R P O R ATE AND INVESTMENT BANKING The Corporate and Investment Banking Division had a Charles G. Ward III stellar year in 1997. We executed a record number of Managing Director Corporate and landmark transactions for valued clients. We also Investment Banking increased our geographic and industry coverage and enhanced our product line — all key elements in our strat- egy. As a result, CSFB continues to be one of only a handful of truly global investment banks. The globalization of the entire financial services industry is proceeding rapidly, and for a very simple reason: investment banks need to be global because our clients are global. Our sig- nificant presence in the U.S., Europe, Asia, and in emerging markets everywhere puts us at the leading edge of the globalization trend in each of our major product areas. In 1997 CSFB announced the acquisition of the European and selected Asian equity, equity capital mar- kets and mergers and acquisitions advisory businesses of (1) See listing on pages 6 and 7.
  11. 11. 9 BZW from Barclays. These businesses have established market-leading positions in a number of key areas. The acquisition adds 250 bankers and capital markets profes- sionals to our European and Asian Investment Banking operations and bolsters our M&A and Equity positions in these areas. It also adds a third home market, the U.K., to our original home markets of the U.S. and Switzerland. Mergers & Acquisitions CSFB completed $172 billion worth of transactions, rank- ing us among the handful of leading advisors in the world. Our M&A team executed more than 55 transactions in excess of $1 billion. These transactions bore our trade- marks of creativity, strategic perspective, flawless execution, and strong financing support. CSFB’s global presence is a particularly strategic advantage for clients as cross-border M&A activity increases. CSFB has a strong M&A franchise in markets around the world, as our M&A highlights list demon- strates. We were particularly proud of our defense of Thyssen AG against a hostile offer launched by Fried Largest Krupp AG Hoesch-Krupp, which later resulted in a friendly merger announcement valued at $10.5 billion. Institutional Takeover Battle in French CSFB advised French insurance company Assurances Générales de France (AGF) History on two transactions that illustrate the dramatic opening of the European M&A market. First, we advised AGF when it acted as white knight for French holding company Worms & Cie, which had rejected a rare unsolicited offer from another French company. In the midst of negotiations to acquire Worms for $6 billion, AGF itself received a $9.3 billion hostile offer from Italian insurer Assicurazioni Generali SpA. CSFB’s efforts as defense advisor on the largest takeover battle in French history helped AGF to reach an agree- ment to be acquired by Germany’s Allianz AG and forced the withdrawal of Generali’s offer. The Allianz/AGF deal, valued at $10.4 billion, creates Europe’s largest insurer.
  12. 12. Mergers and Acquisitions Highlights CREDIT SUISSE FIRST BOSTON CLIENT DESCRIPTION OF TRANSACTION A P P R O X I M ATE DOLLAR VA L U E CoreStates Financial Corp Sale of Company to First Union Corporation* $ 16,600,000,000 Thyssen AG Acquisition offer from Fried Krupp AG Hoesch-Krupp 10,500,000,000 (offer withdrawn) Assurances Générales de France SA Sale of Company to Allianz AG* 10,400,000,000 Raytheon Company Acquisition of Hughes Aircraft Company from 9,500,000,000 Hughes Electronics Corporation and General Motors Corporation U.S. Bancorp Sale of Company to First Bank System, Inc. 9,086,000,000 Ashland Inc. Joint venture with USX-Marathon Group of their oil refining, 7,000,000,000 marketing and transportation operations Assurances Générales de France SA Acquisition, with SOMEAL SA, of Worms et Cie. 6,100,000,000 Tyco International Ltd. Acquisition of ADT Limited 5,600,000,000 W. R. Grace & Co. Merger of its Cryovac subsidiary with 5,000,000,000 Sealed Air Corporation* Nordbanken AB Merger with Merita Oy* 4,300,000,000 DQE, Inc. Sale of Company to Allegheny Power System, Inc.* 4,200,000,000 Occidental Petroleum Corporation Divestiture of MidCon Corp. subsidiary to KN Energy, Inc. 4,000,000,000 CVS Corporation Acquisition of Revco D.S., Inc. 3,970,000,000 The State Government of Victoria, Divestiture of Loy Yang Power to a consortium 3,800,000,000 Australia led by CMS Energy Corp. U.S. Department of Energy Divestiture of Elk Hills Naval Petroleum Reserve to 3,650,000,000 Occidental Petroleum Corporation First Union Corporation Acquisition of Signet Banking Corporation 3,300,000,000 Falcon Drilling Company, Inc. Merger with Reading & Bates Corporation to form 3,100,000,000 R&B Falcon Corporation Deposit Guaranty Corp. Sale of Company to First American Corporation* 2,700,000,000 American Radio Systems Corp. Sale of its radio broadcasting operations to 2,600,000,000 CBS Corporation* Abitibi-Price Inc. Merger with Stone-Consolidated Corporation 2,300,000,000 Wachovia Corporation Acquisition of Central Fidelity Banks, Inc. 2,300,000,000 The State Government of Victoria, Divestiture of PowerNet Victoria to GPU International, Inc. 2,000,000,000 Australia Team Rental Group, Inc. Acquisition of Budget Rent a Car Corporation 2,000,000,000 to form Budget Group, Inc. Swiss Reinsurance Company Acquisition of Société Anonyme Française de Réassurances 1,780,000,000 (SAFR) and subsequent sale to Partner Reinsurance Company Living Centers of America, Inc. Recapitalization with Apollo Management, L.P., and 1,668,000,000 subsequent merger with GranCare, Inc. Coca-Cola Enterprises Inc. Fairness opinion with respect to the acquisition of Coca-Cola 1,660,000,000 Beverages Ltd. of Canada and The Coca-Cola Bottling Co. of New York The Walt Disney Company Divestiture of four daily newspapers to Knight-Ridder, Inc. 1,650,000,000 CalEnergy Company, Inc. Repurchase of Peter Kiewit Sons’, Inc., 26% interest in 1,600,000,000 the company and certain project interests Province of Buenos Aires Privatization of ESEBA 1,368,000,000 NationsBank Corporation Acquisition of Montgomery Securities 1,200,000,000 Prime Service, Inc. Sale of Company to Atlas Copco AB 1,170,000,000 Viacom Inc. Divestiture of Viacom Radio Group to Evergreen Media Corporation 1,075,000,000 Greenfield Industries Inc. Sale of Company to Kennametal Inc. 1,000,000,000 Texaco Inc. Joint venture with Shell Oil Company and Saudi Aramco of their Not Disclosed East Coast and Gulf Coast refining and marketing operations* Texaco Inc. Joint venture with Shell Oil Company of their midwestern and Not Disclosed western refining and marketing operations *Pending at 3/15/98.
  13. 13. Investor magazine named our representation of Raytheon in global equity coordination and, complementing our lead- in its $9.5 billion acquisition of Hughes Aircraft an M&A ing position in U.S. IPOs, we became the number one Deal of the Year. European house of 1997. We pride ourselves on providing We represented Boeing in its $16.3 billion acquisi- outstanding execution for clients. For example, our global tion of McDonnell Douglas, the largest transaction ever in marketing strategy for the $535 million Petrobras 11 the aerospace industry, and one of the largest domestic Preferred Shares offering was so successful that the acquisitions in U.S. history. offering size was increased by nearly 40%. This story was We also represented CoreStates Financial Corp. in repeated many times for the more than 60 offerings we its $16.6 billion acquisition by First Union Corp., which lead-managed in 1997. will create the fifth largest bank in the U.S., and repre- We are also the leading firm for IPOs in which our sents the largest M&A transaction ever in the U.S. clients spin off 100% of their ownership in subsidiary banking industry. Also in the banking industry, CSFB rep- companies. We believe we’ve earned this position through resented Nordbanken AB in its $4.3 billion merger with our ingenuity in creating structures that best serve our Merita Oy, the first cross-border bank merger in Europe, clients. As an example, CSFB’s management of the spin- creating the largest Nordic bank. off of Ciba Specialty Chemicals Holding Inc. from its parent Novartis was accomplished through a structure that Equity Underwriting never before has been undertaken. CSFB continues to be a global force in equity underwrit- CSFB has also built an unparalleled record in ings, benefiting from our extensive local presence in privatizations harnessing our strategic advisory capabilities countries around the world. CSFB is the outright leader with our global distribution strength to deliver superior results. (see box pages 14-15). Largest CSFB lead-managed the largest IPO of 1997 and the largest privatization in Australian history. Based on CSFB’s strong presence in the Australian market and our outstanding performance divesting the State of Victoria’s energy operations, CSFB was mandated by IPO The Commonwealth to act as joint global coordinator of a $10 billion IPO for Telstra, the Australian state-owned telecommunications company. The highly successful offering of 1997 represented an important component of Australia’s continuing privatization strategy. In order to finance a large share repurchase, CalEnergy approached CSFB to advise on financing options. The situation was complicated by the Asian market Strong crisis, since CalEnergy has significant holdings in the region. CSFB was able to fully finance the share acquisition and the purchase of various project interests through a $723 million global common stock offering, a $400 million revolving Underwriting credit facility, and a $350 million senior notes offering totaling $3.1 billion — accomplishing an increase in the client’s stock price of 20% during the refi- Support nancing/marketing period. In awarding the transaction one of its Project Finance Deal of the Year citations, Institutional Investor noted that it was “the largest, most successful offering to date by an independent power producer.” Despite Volatile Markets
  14. 14. Project Finance We believe we have the premier project finance franchise in the world. CSFB has been active in Project Finance for 25 years and has been in the vanguard of developing the capital markets to finance projects. We are among a few in offering a complete range of products to project finance clients including advisory, equity and debt capital markets and lending alternatives — an important benefit brought by the consolidation of the former Credit Suisse with the former CS First Boston. Debt Underwriting and Corporate Lending CSFB has been a global leader in debt for over a decade. CSFB’s debt capabilities offer an array of financing oppor- tunities for clients ranging from investment grade to Largest non-investment grade public offerings, private placements Latin American Petrozuata is the first strategic association in Venezuela Project formed to develop the country’s vast extra heavy oil reserves. It is a joint venture between Conoco Inc. and Maraven S.A., a wholly-owned subsidiary of the state- Financing owned oil company of Venezuela. CSFB lead-managed a $1 billion bond financing and also acted as lead arranger and administrative agent of a $450 million bank facility for the project. The transaction was named Project Finance Deal of the Year by six periodicals including Institutional Investor, Corporate Finance and Project Finance. Adebayo Ogunlesi (middle) and Charles Chigas (standing) of project finance with Francisco Bustillos, Corporate Finance Manager, Petróleos de Venezuela S.A. (left) and Theodore Helms, International Finance Manager, PDV America, Inc. (right). First Sterling Denominated High Yield Offering CSFB has played a leading role in the development, commencing in 1997, of a non-dollar high-yield market. CSFB lead-managed the first ever sterling denominated high yield offering for Castle Transmission International, a company formed by the television and radio transmission tower businesses of the British Broadcasting Corporation. Having already provided bank financing for the closing of the buyout, CSFB underwrote £125 million of 9% senior notes which were ultimately sold to a broad cross-section of European institutional investors in a syndication that was several times oversubscribed.
  15. 15. of debt, asset-backed and lease financings, corporate We lead-managed the first ever Sterling High Yield lending and acquisition finance. During the period 1990— Eurobond — £125 million for Castle Transmission 1997, CSFB ranked second in U.S. Corporate issues, and International. We have also been active in the Asian mar- third in Euro and global U.S. $ issues. Reflecting our truly ket and underwrote the $750 million offering for PT Pindo global presence, we are currently second in Emerging Deli. In the U.S., CSFB has a diverse High Yield client 13 Market issues. base that reflects our extensive industry expertise. Several Lending is a major differentiating advantage of offerings were noteworthy including our $300 million CSFB. As a result of the consolidation of the former underwriting for Fairchild Semiconductor and our $450 Credit Suisse with the former CS First Boston, we are million offering for Winstar Communications. now able to commit the Firm’s capital towards large, lever- During 1997 we established a Global Lease Finance aged financings in a short amount of time. During the last Group to advise clients on all aspects of big- decade, CSFB ranked second in “event deals” — bonds ticket tax leveraged lease transactions, as well as for the over $750 million that are issued in conjunction with an arrangement of lease debt, debt and equity defeasance, acquisition or other major corporate event. When J. C. and other lease-related products such as synthetic leases. Penney launched an offer for Eckerd Corporation, CSFB We completed more than 20 lease finance transactions extended $3 billion of acquisition financing overnight. in 1997. CSFB subsequently lead-managed the $2.5 billion bond offering, which represented the largest investment grade Our Mission is Client Service offering of 1997. CSFB’s goal is to offer a broad array of integrated finan- CSFB lead-managed 46 High Yield offerings total- cial solutions so that clients can attain their strategic ing $7.4 billion in 1997. CSFB has been in the forefront objectives. To this end, we have assembled many of the of developing the market for high yield issuers in Europe. world’s preeminent product experts in M&A, Equity, and Premier Coordinator of Complex Global Transactions When Team Rental Group acquired Budget Rent a Car, we advised on the acquisition, handled the global common stock offering, and arranged seven separate but related pieces of debt financing. CSFB provided $2 billion in new capital, a $225 million bridge loan commitment, and managed a $186 million common stock offering. The Firm acted as sole placement agent for $125 million in convertible subordinated notes, $165 million in guaranteed senior notes, and $500 million in asset-backed notes. CSFB was also sole agent for $900 million in asset-backed commercial paper, a $900 million secured revolving liquidity facility, and a $300 million senior secured revolving credit facility. Finally, CSFB provided $200 million in letters of credit. This integrated support made possible Team Rental Group’s successful bid against significantly larger potential buyers and earned Corporate Finance magazine’s M&A Deal of the Year award.
  16. 16. Debt. In order to be more available and more in tune with bankers who can engineer financial structures that enable clients’ needs, we have placed these investment banking our clients to take advantage of the best market opportu- specialists on six continents and in the major financial nities available throughout the world. Our Team Rental centers throughout the world. Few firms offer the range of Group deal is a prime example of how well CSFB pulls investment banking and lending products that CSFB offers together resources in a multitude of product areas and with the same global reach. Few offer the capital base diverse markets to serve the interests of our clients. We that we have. plan to continue to aggressively augment our base of CSFB’s ability to manage highly complex, multi- highly skilled experts so that we can continue to deliver a product, global transactions is our greatest strength. We high level of service to clients around the globe. place a great emphasis on developing highly skilled Privatization and Advisory to Governments In the past 12 months CSFB has built on its unparalleled record in privatization equity offerings. Completing the transactions required significant resource commitment, local expertise, capital strength and global distribution capability. It’s what you would expect from the world’s first truly global investment banking firm. “Privatization can be a policy tool of immense power,” said appear to have given away a national resource; price it too David Mulford, Chairman International for CSFB, “and pre- high, and the performance after sale may be sluggish and cisely for that reason a government which wishes to create a major financial and political disappointment. It is employ it must choose an advisor or global coordinator an intricate process with dozens of delicate decisions. with the greatest care. At Credit Suisse First Boston, we “Second, the asset must be restructured for privati- have built a reputation in the field because we understand zation—to operate not as a government agency but as a two absolutely fundamental facts. profitable private corporation. We’ve had wide experience “First, to be judged a success, any privatization must repositioning assets for a successful IPO or for sale to a make sense in both financial and political terms. The strategic investor. appropriate pricing of the asset has enormous political “When it comes to a very large privatization, govern- implications: price it too low, and the government will ments naturally want to entrust the responsibility to
  17. 17. 15 SELECTED 1 9 9 7 US DOLLARS P R I VAT I Z ATIONS* IN MILLIONS Telstra Corporation Ltd. Australia $ 9,997 Largest IPO of 1997. Privatized 33% of the company’s stock. ENI S.p.A. Italy $ 7,795 Third stock offering in 18 months, totaling $18 billion and decreasing the government’s ownership to 51%. Nordbanken Holding AB Sweden $ 1,046 Largest equity offering in banking sector in Scandinavia ever. MATÁV Rt. Hungary $ 1,013 Sold 26% of the company in an IPO that was the largest ever offering from the region. First in the region to be NYSE listed. Petroleo Brasileiro S.A. Brazil $ 535 The first bookbuilding transaction the Brazilian government has ever undertaken; the second largest Brazilian issue ever. Telecom Italia Italy $ 14,000 The largest European privatization to date comprising $10.933 billion of equity, making this the largest European secondary equity offering ever. An additional $3 billion was a sale to strategic investors, totaling $14 billion. * CSFB was joint global coordinator for each except for Telecom Italia, which was completed in 1997 by a group from BZW prior to its joining CSFB, and Petrobras, for which CSFB was sole global coordinator. seasoned professionals who have done the largest and in eighteen months and in the process transformed the most challenging deals in the world. We handled the IPO Italian equities market. Regulatory officials there had to of Telstra, the Australian telecommunications giant, at modernize the entire system of retail sales to facilitate $9.997 billion, the largest of the year, as well as the purchases by individual investors. In late 1997, we com- largest privatization and public offering in Australian history. pleted strategic advisory for the Hungarian government “Governments also want experience in privatizations and the subsequent initial public offering for telecommuni- with far-reaching economic implications. We did all three cations company MATÁV. MATÁV became the first Central stock offerings of ENI, the Italian state-owned oil compa- European company to be listed on the NYSE and 92% of ny; the most recent offering in 1997 won International the institutional investor base was international.” Financing Review’s award for European Equity Issue of the Year. The Italian government raised almost $18 billion
  18. 18. 28 markets Government and Corporate Fixed Income Securities Global Foreign Exchange Emerging Markets New Issues Underwriting Asset Backed Securities Leveraged Finance Mortgage Securities Trading Presence Real Estate Finance Across Developed Money Markets Countries and Bank Notes Emerging Markets Precious Metals Fixed Income Research (Dollars in Millions) 1997 1996 % CHANGE Revenue $ 3,379 $ 2,356 43% Employees 1,760 1,535 15% Average BIS Capital $ 2,441 n/a n/a FIXED INCOME 1997 was a landmark year for the Fixed Income division. Marc Hotimsky Our revenue of $3,379 million, a 43% increase from Managing Director Fixed Income 1996, positions us as one of the most profitable fixed income divisions in the world. Our success in 1997 stems from several basic strengths: our diversified business, which makes possible a substantial appetite for risk; our balance sheet strength; our premier skills in structuring; and our global coverage and organization by business lines. The biggest growth in earnings came from two rela- tively new business groups, Emerging Markets Group and Principal Transactions Group. In addition, our reconfigured Foreign Exchange business had an excellent year and is considered among the top handful of Foreign Exchange businesses in the world.
  19. 19. 17 Our Emerging Markets Group has experienced the Russian Federation seven-year DM 2 billion Eurobond remarkable growth in the last several years. As recently as issue, the $500 million, three-year issue for the City of 1992, our only emerging market presence was in Russia. Moscow and the RUR 700 billion one- and one half-year Today, we participate in 28 geographic markets worldwide, issues for the Republic of Tartarstan. with a physical presence in 15 centers, in particular, We have also seen significant contributions from the Moscow, Warsaw, Sao Paulo, Seoul, Shanghai and Cairo. ˜ Principal Transactions Group, which provides creative That presence is especially effective, I am convinced, solutions for complex real estate transactions. PTG com- because of our heavy reliance upon local professionals pleted more than $12 billion in U.S. real estate financings thoroughly familiar with the markets and business culture in 18 months, ranking PTG as the leading U.S. real they cover. We believe it to be one of the most successful estate investment banking group. In 1997, PTG success- businesses of its kind in operation today, and we expect fully securitized over $4 billion of commercial mortgage its expansion to continue. securities. PTG targets untapped niches where there is a Among award-winning accomplishments in Emerging significant shortage of capital for deals due to past prob- Markets last year, I would cite the Group’s financing trans- lems, deals that require analytic complexity, deals that are actions for Pindo Deli Finance in Indonesia ($750 million difficult to understand or deals that are out of favor. This multi-tranche, awarded Asian Bond of the Year by IFR), highly profitable group is expanding its global presence. “Sale of The words come from Institutional Investor’s description of the $2.5 billion bond financing CSFB arranged for J. C. Penney, to refinance its acquisition of the Eckerd drugstore the chain (on which the Firm also advised). In spite of adverse market concerns prompted by a Federal Reserve Board rate increase, the offering was oversubscribed by 1.5 times Season” after a five day roadshow. Other big issuers immediately found the confidence to go to market. As J. C. Penney’s treasurer noted, “The deal helped change the tone in the market from night to day.” Largest Asian High Yield Offering PT Pindo Deli Pulp and Paper Mills is one of the largest vertically integrated pulp and paper manufacturers in Indonesia. To pay down existing bank debt and extend the company’s debt maturity profile, Pindo Deli asked CSFB to organize a $400 million issue of senior notes. After an extensive roadshow on three continents, overwhelming demand enabled the company to increase the deal size to $750 million. Roughly 100 separate institutional investor portfolios participated in the offering, significantly expand- ing the company’s investor base. Trading floor, Hong Kong, as viewed through an aquarium.
  20. 20. First International Financing for Local Authority Three individual parts of CSFB—the London fixed income unit, the banking unit at CSFB (London), and Credit Suisse Financial Products—combined to create a $1 billion financing for the Region of Sicily. It was the largest capital markets financing ever undertaken for a local authority outside North America, and the market’s largest unrated transaction of 1997. Subsequent to this transaction, the rates achievable by Italian regions in general improved significantly from their historic levels. CSFB has maintained a presence in Russia for five years, one that now numbers Landmark over 300 people, and is one of the largest foreign bank primary dealers of government bonds. The Firm completed a $1.2 billion offering for the Russian Federation in the DM market, the largest in this market by a transition economy. CSFB also lead-managed Russian a RUR 700 billion bond issue for the Republic of Tartarstan. This was the first Rouble public bond issue listed and traded on MICEX by a Russian Republic. Bond Offerings In 1997 PTG purchased a $625 million Swedish property expansion in emerging currency, and the provision of portfolio, just over $1 billion in U.K. properties, and has a seamless link between FX and all products of the Firm funded more than $500 million in mortgage bond financ- including Equities and Investment Banking. ings in Latin America. PTG has established a vehicle for Our Debt Capital Markets Group and corporate purchasing distressed real estate portfolios in Japan and secondary trading business saw its share of the $1,778 is co-sponsoring a company for real estate investments in billion in worldwide bond issuance. In particular, we contin- the former Soviet Union and East and Central Europe with ued our efforts to develop and structure creative bond the Zell Group. financings for which we have become well known. This is 1997 was a year of great structural change for exemplified by our offering for J. C. Penney, which was CSFB and nowhere in Fixed Income was this more appar- cited by Institutional Investor as one of 1997’s five “Most ent than Foreign Exchange. In 1997 we retooled the FX Noteworthy” Deals of the Year. operations of the former Credit Suisse and the former Separately, our historical leadership in structured CS First Boston into a single business. Our first task was financings was highlighted by the Triangle Funding Limited to reduce the number of trading operations previously run deal, a $5 billion collateralized loan obligation for CSFB’s by the group and focus on five key international centers. loan portfolio. We have continued to expand our high yield At the same time, we globalized management and linked underwriting presence by providing a leadership role in the trading centers to capture information and take advan- developing the local currency European high yield market, tage of economies of scale in spot trading and market as well as increasing our new issue underwriting volumes making. This strategy was aligned with a strong research globally by 84% over 1996. and risk management focus that aims at offering clients In the Swiss capital markets, once again by a very value in a variety of markets. In the future, growth wide margin, CSFB was the leading institution. This is the in Foreign Exchange will be led by product innovation, seventh straight year we have held this position.
  21. 21. 19 Two eventful transactions were for the Republic of Italy which allows customers to transact in cash U.S. govern- for SFr 1,000 million (voted SFr deal of the year by IIFR) SFr. 1,000 million (voted SFr deal of the year by FR) ment securities with multiple dealers. and the Citibank Credit Card Master Trust, the first fixed During 1997, we brought all fixed income research rate Swiss Franc credit card deal, of SFr 1,064 million. into a single unit under one global head. Our research Our global government bond business has a pres- already enjoys a strong reputation, and this change ence in most of the leading government debt markets improves further the service we provide to our customers worldwide. We have sustained our select position as one and to our own trading desks. The economists (who serve of the few firms that provide investors with twenty-four the entire Firm) were brought under the same manage- hour trading in the liquid and global market for govern- ment structure, enhancing our ability to link global macro ment bonds and related products. The group is organized themes with profitable trade recommendations. Among and managed on a global basis, with a fully dedicated many achievements in 1997, our researchers laid the sales force that combines research, execution capabilities, groundwork for the structural changes (towards credit and and ideas to serve investors worldwide. duration plays) now being implemented in both our sales CSFB has for some time been a leader in electronic and trading operations ahead of EMU. trading, which represents the future in marketing com- The future is always full of uncertainties and new moditized products to customers. We have continued to challenges. The reshaping of the European financial mar- expand our current family of electronic products, which ket, the expansion of activities in emerging countries, and include GovTradeSM and CPTradeSM, and to encompass the explosion of high yield issuances worldwide are clear International RepoTrade , currently doing $3 billion of SM challenges in 1998 and beyond for all global players. transactions per day. We have also introduced a family of I believe the broad base of our business, its global scope Prime products to execute and clear multi-product trans- and capital support give us the strength and the edge to actions, and we are the founding partner of TradeWebSM , maintain and even expand our leadership and position in the Fixed Income markets for many years to come. Major Commercial Mortgage-Backed Securities Transaction The Principal Transactions Group successfully launched and priced $1.4 billion in commercial mortgage pass-through certificates—the second largest single commercial mortgage-backed securities transaction ever. PTG originated all of the approximately 165 commercial mortgage-backed whole loans in the transaction. The senior bonds were rated AAA by all three major rating agencies. During the initial offering, CSFB sold the transaction at new issue pricing, and set new market levels for the single-B and unrated tranches of this transaction.
  22. 22. Research #1 Sales Tr a d i n g Underwriting Equity Finance/Prime Brokerage C o n v e r t i b l e s / Wa r r a n t s Derivatives Proprietary Tr a d i n g Coordinator of European Private Corporate Equity Globally IPO Distributed House(2) Equity Issues in 1997(1) (Dollars in Millions) 1997 1996 % CHANGE Revenue $ 1,212 $ 834 45% Employees 1,089 804 35% Average BIS Capital $ 462 n/a n/a EQUITY Credit Suisse First Boston continued to demonstrate in a Brady W. Dougan highly profitable 1997 that it belongs among the elite Managing Director Equity equity firms to merit the title global super-bulge bracket. The global footprint of our division—now more than 1,000 people strong worldwide—is extensive. We are alone in having three major home markets—the U.S., the U.K., and Switzerland. We have more than 200 traders spanning the developed markets, the emerging markets, and cash and derivative products. They trade 5,000 stocks globally, providing liquidity for customers, but also developing and executing proprietary ideas for CSFB’s own account. We have a sales force in excess of 300 people talk- ing to 2,000 institutional clients globally about research, secondary ideas and primary issues. The breadth of our distribution available to our global account base, com- (1) Securities Data Company. posed of institutional and individual investors, is extensive. (2) Bondware.
  23. 23. 21 CSFB underscored its commitment to equity research in the last two years, increasing the size of its analytical staff and its companies under coverage globally from 1,500 to 4,000. We have significantly expanded our coverage in areas such as health care,technology, busi- healthcare, technology, busi- ness and educational services, real estate and lodging, natural resources, and Canadian research, while remaining extremely active in the industrial sector. Our EVA™ per- spective has provided a dynamic framework for equity research and in the process has become the industry synonym for the most effective methodology. For the third consecutive year our focus list of 32 companies outper- formed the total return of the S&P 500; our three-year edge over the S&P was 162% to 125%. We have organized three functions—trading, sales, Major Acquisition and research—across business lines around the world for optimum effectiveness and mutual reinforcement. More- Enhances over, in all these areas we have maintained the continuity of key personnel that is the hallmark of a global leader. Equity & Advisory Capabilities In 1997 CSFB announced the acquisition of the European and selected Asian equity, equity capital markets and mergers and acquisitions advisory businesses of BZW from Barclays. These businesses have established market-leading positions in a number of key areas. BZW M&A/Advisory has advised on $58.5 billion worth of transactions since 1992. The Equity Capital Markets unit has acted as bookrunner or global coordinator to $19.2 billion of equity transactions globally during the same period. These primary divisions are supported by a secondary division widely acknowledged as one of the market leaders in equity sales, trading, and research, with a presence in all principal financial centers worldwide, as well as a highly skilled derivatives group producing tailored products for clients globally. With this acquisition, CSFB now ranks second in U.K. equity trading and fifth in European equity research, up from twentieth.
  24. 24. First 100% IPO of Rental Car Company Dollar Thrifty Automotive Group’s search for a large fleet financing led to a complex equity/debt transaction that totaled $2.8 billion. In addition CSFB sold Chrysler’s ownership in Dollar Thrifty, executing an initial public offering of $484 million in common stock and completing an unusually complicated and innovative structure including medium-term notes, commercial paper, and liquidity and revolving credit facilities in only three months. Europe’s Ciba Specialty Chemicals Holding Inc. was distributed to shareholders of its parent, Novartis. The underlying structure of this $5.5 billion transaction—incorporating the simultaneous par value rights issue, global offering, rights recycling, and hard under- Largest writing—had never before been undertaken. The deal created the world’s leading specialty chemicals company and earned a Corporate Finance magazine award as Spin-Off Demerger of the Year. CSFB lead-managed the $535 million global offering of preferred shares for Petrobras, the huge Brazilian integrated oil and gas company. A strong marketing effort Global increased the original offering size from 1.35 billion to 2.0 billion shares and broadened Petrobras’s base of international shareholders, in particular, dedicated oil and gas investors and large U.S. investors. Marketing Increases These combined strengths have made us the fourth Transaction leading global IPO firm, and the outright global coordinator leader with more than $39 billion in transactions lead- Size managed in 1997 as well as the number one European IPO House. No institution has executed more secondary IPOs in the last four years than CSFB, as our clients employ the equity markets (rather than the M&A markets) Expert to sell their positions in companies. We are also a leader in the convertible and synthetic new issue markets. Execution of We have become the preeminent lead manager in privatizations, as demonstrated most recently by the Marketed Offering On behalf of Zell Chilmark Partners, CSFB concluded a marketed offering of Raises 15.6 million shares of common stock of the CVS Corporation, one of the leading chain drugstores in the U.S. The offering, which was confined to a three-day period, was more than four times oversubscribed. The stock price rose from $51.58 to $54.00 Stock Price during the period, and resulted in proceeds of $855.5 million for CVS.
  25. 25. enormous transactions for Telstra and the 1997 phase sive national network of active retail customers, comple- of ENI, both described on page 15. CSFB managed the menting our leading private client services group that $723 million common stock offering for the CalEnergy covers over 2,000 sophisticated individual investors and refinancing, described on page 11, and the $484 million small institutions. IPO for Dollar Thrifty Automotive Group—the first 100% Our relationship with Credit Suisse Financial 23 initial public offering of a rental car company. We also Products has been especially fruitful in the area of equity managed the CVS share offering of $855 million and the derivatives. This business combines CSFP’s balance sheet MATÁV privatization IPO at $1,013 million for the govern- and OTC structuring capability with CSFB’s command of ment of Hungary. equity derivatives and distribution expertise. The global Our strength and market coverage was broadened integration of all these capabilities is unmatched by any of by our acquisition of the European and selected Asian our competitors. equity, equity capital markets and mergers and acquisi- The global super-bulge bracket of equity firms is tions advisory businesses of BZW from Barclays rapidly taking shape. It will be small and enormously (discussed on page 21), and through the opening of a full powerful, with worldwide coverage, research that sets the service Canadian equity operation in mid-1997. Similarly, standard for excellence and leadership in every product our joint equity distribution alliance with Charles Schwab category. CSFB already has a solid claim on membership. affords our client equity issuers with access to an exten- It is not a claim we intend to relinquish. First Central European Company Listed on NYSE Credit Suisse First Boston acted as joint global coordinator in the largest equity offering from Central Europe by raising $1,013 million in the privatization IPO of MATÁV, Hungary’s main telecommunications services provider. The transaction was completed within the original price range and in full size, despite a 22% decline in the Hungarian stock market in the four days ahead of pricing and a 13% decline on the day of pricing. IFR magazine awarded the MATÁV deal an Equity Issue of the Year for East Europe/Middle East/Africa.
  26. 26. Interest Rate Products #1 #1 Swaps and options in over 30 currencies Equity Products Index, basket and single stock swaps and options Foreign Exchange Products Longer term swaps and other FX risk management products Equity Credit Commodity Products Derivatives (1) Derivatives (2) Longer term swaps and options on precious metals, oil and other energy Asset Trading and Credit Derivatives Including assets and derivatives from emerging and developed markets (Dollars in Millions) 1997 1996 % CHANGE Revenue $ 1,167 $ 950 23% Employees (front office) 281 241 17% Average BIS Capital $ 885 n/a n/a CREDIT SUISSE FINANCIAL PRODUCTS 1997 proved to be another record year for Credit Suisse Christopher Goekjian Managing Director Financial Products. Net trading revenue for the year was Chief Executive Off i c e r U.S. $1,167 million, a 23% increase over 1996, resulting Credit Suisse from increased client and proprietary activities. Global Financial Products market conditions were benign until the fourth quarter when the Asian crisis broke. CSFP continued to be at the forefront of the derivatives industry, and used its leader- ship in credit derivatives to develop and then make publicly available an analytical framework for measuring and man- aging credit risk, CREDITRISK+. During 1997 interest rate derivatives continued to be the largest contributor to trading revenues. This area continued to grow due to higher turnover and proprietary (1) World Equity voted CSFP “Derivatives House of the Year” trading profits in the vanilla products. European swap in January 1998. markets were very active, ahead of EMU, and an increas- (2) IFR voted CSFP “Credit Derivatives House of the Year” ing number of CSFP’s clients intensified their interest risk in December 1997.
  27. 27. 25 management activities. In Japan, the continuing low Yen interest rate environment enabled CSFP to execute many innovative yield enhancement structures. The generally low level of G7 interest rates has led to increased investor interest in less developed swap markets such as the South African Rand where CSFP has developed a domi- nant presence in the market. In the first half of the year, the equity business built on the successes of 1996 and showed very strong results, which was somewhat offset by a more difficult second half. There is clearly a growing equity culture in Europe which has led to a strong demand for equity-linked retail products, such as capital protected notes. CSFP continued to be one of the major providers of these prod- ucts during 1997. Recurring fears of a potential equity market correction led to healthy client hedging business, especially in Europe and the U.S. In Japan several of our clients hedged their core equity holdings. 1997 again saw a number of very successful Corporate Finance-type “CSFP has been at equity derivative deals that were executed in close cooper- ation with the Equity Capital Markets group, such as the the forefront of the Leveraged Executive Asset Plan (“LEAP”) for Ciba Specialty Chemicals which accompanied the company’s booming synthetic initial public offering. Additionally, CSFP significantly convertible business… it goes from strength to strength.”* In early 1997 many European investors sought access to the exceptional returns available in the global equity markets without exposing themselves to the downside risks of equity investing. To meet this objective, together with Credit Suisse First Boston, we structured and executed several “synthetic” convertible bonds that provide the upside of equity with the principal protection of a bond. The synthetic convertibles were issued by European and U.S. corporates, including Nestlé, ABB and Texaco. These issuers immedi- ately hedged out the equity component of the bonds via an OTC equity component; the * I F R’s World Equ ity corporates obtained funding at rates substantially below market cost, while investors J a n u a r y, 1998 gained access to high-quality equity investments that match their desired exposure profile.
  28. 28. C R E D I T R I S K+ In October 1997, we released our internal credit risk management framework, CREDITRISK +, to the public, after extensive internal testing and use. We wanted to pro- mote discussion about the assessment and management of credit default risk within a portfolio of different credits. At the same time, we sought to encourage regulators to consider a more flexible, model-based approach to the calculation of regulatory capital for credit default risk. CREDITRISK+ received a warm reception from regulators, manage- ment consultants, accountancy firms, and major academics and generated interest from all sectors of the financial world, with up to 3,000 hits a week on our website. With growing investor interest in what had previously been thought to be an unmanageable risk, we fully expect to be at the forefront of the debate on the regulatory treatment of credit derivatives during 1998. increased its activity of providing clients with derivative producers and, consequently, significantly increased its structures that facilitate share repurchases, divestitures client activity during 1997. and acquisitions. Credit derivative trading and risk management was a In foreign exchange derivatives, 1997 marked the major focus in 1997. The start of the year saw the inte- continuation of trends established at the end of 1996, as gration of the Fixed Income Division’s Asset Trading the U.S.$appreciated roughly 11.5% versus core USD appreciated roughly 11.5% versus core business with CSFP’s credit derivatives business. In trad- European currencies and 13% versus the Japanese Yen. ing, CSFP now turns over in excess of U.S.$2 billion U.S. $2 billion These moves were matched by the resurgence of implied notional a month in credit derivatives, making it one of the volatilities in the U.S.$currency pairs. The opposite was USD currency pairs. The opposite was two dominant firms in this segment of the derivatives mar- true for European crosses where, in anticipation of the ket. Expertise gained in this market helped the Group to single European currency to be implemented in 1999, arrange the largest CBO/CLO of 1997 — CSFB’s EMS currency volatilities fell to all-time lows. CSFP’s U.S. $5 billion Triangle transaction. In risk management, U.S.$5 billion Triangle transaction. In risk management, close working relationship with the Global Foreign CSFP has developed an analytical model to help manage Exchange Group enabled it to provide its clients with a full its credit exposure. The model’s use has subsequently array of FX products. In this environment, CSFP focused been extended on a Group-wide basis and was released on creating interesting investment opportunities and to the public as CREDITRISK+ in October. The principles attractive long-dated hedging strategies. behind CREDITRISK+ have been endorsed by Moody’s CSFP’s commodities business continued to improve, Investor Services, Standard and Poors, IBCA, JBRI and and as gold continued its long-term decline, many produc- three of the major accounting firms. CREDITRISK + repre- ers looked to hedge their production. CSFP developed sents a significant contribution to the ongoing debate on a number of long-dated hedging products to aid gold the subject.
  29. 29. 27 In April 1997 CSFP opened a Tokyo branch, Financing Review acclaimed CSFP Credit Derivatives making it the first bank specializing in risk management House of the Year, and the company also was awarded products to open a branch in Japan. The branch will allow Derivatives House of the Year by World Equity and CSFP to provide better service to the Group’s clients in Best Foreign Dealer by Swaps Monitor. The successes of the Japanese market. This was followed in July by the 1997 against a background of sometimes difficult market opening of the Hong Kong representative office. conditions show the strength in depth of CSFP’s trading, Overall, 1997 represented another record year for marketing and support functions, all of which are put at CSFP and the company’s position in the industry was the disposal of CSFB’s global client base. recognized by a number of awards. International Specialists in Risk Management Credit Suisse Financial Products Relationship between Daily Revenue and VAR Estimate
  30. 30. A Global Network Generating Superior Returns of Professionals Experienced investors Creates the Significant commitments of capital Transaction Institutional priority Opportunities for Compelling incentive systems Private Equity Integrated origination eff o r t Independent execution and commitment process 1997 1996 % CHANGE Employees 43 16 169% P R I VATE EQUITY David A. DeNunzio 1997 was a year of significant accomplishment for Private Managing Director Equity. We redefined our business on a global basis and Chief Executive Off i c e r added significantly to our staff. At the same time, we Private Equity harvested several investments at attractive rates of return, while investing over $130 million in new situations. We now have three investment pools to address global private equity opportunities sourced by CSFB, Credit Suisse, and Credit Suisse Group. Representing approximately $1.5 billion in assets under management, they are focused on the U.S. and Canada, Russia and the Ukraine, and the rest of the world (“International”). These funds, when fully subscribed, will aggregate a significant commitment of CSG capital with that of outside investors to make direct investments in growth opportunities, corporate partnerships, recapitalizations, buyouts, and other types of private equity investments.

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