credit-suisse Annual Report Part 1

CHF
SHARE PERFORMANCE
Swiss Market Index
Credit Suisse Group
300

250

200

150

100

50

0
1993 1994 1995 1996 1997 3/1998

MARKET CAPITALISATION
as at 31 December
60

50

40

30

20

10

0

90 91 92 93 94 95 96 97

CHF bn

Financial Calendar

1998 Annual General Meeting Friday 29 May 1998

Financial statements for 1st half 1998 Wednesday 9 September 1998

Media conference for 1998 results Tuesday 16 March 1999

1999 Annual General Meeting Friday 28 May 1999

FINANCIAL HIGHLIGHTS 1997

1997 1996 Change
REVENUE COMPOSITION
Consolidated income statement in CHF m in CHF m +/– % 1997

Revenue 21,024 16,667 26
Net operating profit after minority interests 3,395 2,145 58 22%
23%

Net profit/loss 397 –2,082 –
Cash flow 6,026 4,164 45

ROE (net operating profit after minority interests) in % in %
25%
30%
Credit Suisse Group 14.2 9.8
Banking business 16.2 9.6 Balance sheet business
Commission
Insurance business 10.2 11.0
Trading
Insurance

31 Dec. 1997 31 Dec. 1996 Change
Consolidated balance sheet in CHF m in CHF m +/– %

Total assets 689,568 624,396 10
Total shareholders’ equity 25,651 22,861 12
– of which minority interests 2,005 1,844 9

BIS ratios in % in % +/- %

BIS tier 1 ratio
Credit Suisse 6.6 n.a.
Credit Suisse First Boston 8.5 n.a.
Credit Suisse Group 10.9 10.4
BIS total capital ratio Credit Suisse Group 16.8 15.1

Change
Human resources at year-end 1997 1996 +/– %

Total staff 62,242 60,540 3
– of which in Switzerland banking business 21,442 23,553 –9
insurance business 7,108 6,547 9
– of which outside Switzerland banking business 13,235 11,268 18
insurance business 20,457 19,172 7
1996 figures adjusted for the Winterthur merger

Change
Share data 1997 1996 +/–%

Number of shares issued at year-end 266,128,097 194,307,590 37
Shares ranking for dividend at year-end 265,750,460 194,186,189 37
Average 262,952,238 190,011,086 38

Market capitalisation (CHF m) at year-end 60,060 26,701 125
Earnings per share, operating result (CHF) 12.9 8.4 64
Earnings per share, reported result (CHF) 1.5 – 8.2 –

Share price (CHF)
at year-end 226 137.5 64
for inclusion in Swiss tax returns 224 135 66
year high 238 139.25 71
year low 133.75 105.75 26
Dividend (CHF) 5* 4 25
* proposal of the Board of Directors to the AGM on 29 May 1998 12

1

TO OUR SHAREHOLDERS

RAINER E. GUT, CHAIRMAN OF THE BOARD
OF DIRECTORS, AND
LUKAS MÜHLEMANN, CHIEF EXECUTIVE
OFFICER

Dear shareholder

In 1997 Credit Suisse Group posted strong operating results. All business areas con-
tributed to this performance. The Group showed a 58% increase in net operating profit
to CHF 3.4 bn. With a 26% rise in revenue compared with 1996 to CHF 21 bn and a
36% increase in gross operating profit to CHF 7.3 bn, Credit Suisse Group once again
proved its strong earnings power.
In 1997 Credit Suisse Group took exceptional items totalling CHF 1.4 bn. These
were taken for the merger with Winterthur, the integration of BZW, the ongoing restruc-
turing of banking operations in Switzerland and for IT restructuring in preparation for the
introduction of the euro and the year 2000. In addition, the Group decided to make a
contribution of CHF 1.6 bn to the reserves for general banking risks. With this action,
Credit Suisse Group is even better positioned to take a possible provision in respect of
Swiss lending without impacting future financial results. After taking into account these
exceptional and precautionary charges, Credit Suisse Group posted consolidated net
profit after tax and minority interests of CHF 397 m.
In view of the very favourable operating results, the Board of Directors proposes
increasing the dividend by 25% from CHF 4 to CHF 5 per share.
The refocusing of Credit Suisse Group initiated in summer 1996 is largely com-
pleted. The four banking units, each geared to specific customer segments and markets,
have been operational since the start of 1997. The advantages of the new organisa-
tional structure – precise focus on client needs, transparent accounting along business
unit lines, exploitation of cost synergies and additional earnings potential – have already
borne fruit. In line with the strategy to concentrate on core business, Credit Suisse
Group also divested its non-banking holdings. Consequently, the sale of Electrowatt
Ltd. was brought to a close and the two IT firms Fides Informatik and Citymax were
sold.

2

An important event in 1997 was the merger between Credit Suisse Group and Winterthur
to create one of the largest global providers of integrated banking and insurance ser-
vices. The programmes aimed at tapping the extensive synergy potential offered by
pooling banking and insurance activities are progressing to plan: for example, products
combining banking and insurance expertise have been launched. In addition, after posi-
tive experience in pilot offices, 80 Credit Suisse branches and Winterthur agencies are
to be co-located over the next few months. A major milestone was reached in April
1998 with the merger of CS Life, Winterthur-Columna and Winterthur Life to form a
new division “Individual and Group Life” at Winterthur. The products of this division will
be distributed through the sales networks, including electronic channels, of Winterthur
and the banking business units of Credit Suisse Group.
In November 1997 Credit Suisse First Boston acquired BZW’s European equity
and investment banking businesses from the British bank Barclays, enabling the firm to
considerably strengthen its position in the UK home market.
1997 saw the launch of a wide range of innovative products. In mid-April Credit
Suisse launched Direct Net, becoming the first Swiss bank to offer Internet banking:
25,000 customers are already using this distribution channel for their banking business.
Meanwhile, Credit Suisse First Boston underwrote the first asset-backed securities to
be listed in Switzerland with a value of CHF 1 bn. Furthermore, for the third year in a
row our investment funds were awarded the title “Best Management Group” in their
category by Standard & Poor’s Micropal.
Credit Suisse Group has had a very good start to 1998. Although the Asian crisis
will continue to have an impact on certain financial markets, the Group is looking for-
ward to a positive business environment in 1998 and continued progress in reaching its
performance targets.
1997 was a demanding year for our staff. We would like to express our gratitude
for their hard work and commitment.
We would also like to thank our shareholders and customers for the trust they
have placed in us.

Rainer E. Gut Lukas Mühlemann
Chairman of the Board of Directors Chief Executive Officer

April 1998

3

THE STRUCTURE OF CREDIT SUISSE GROUP

Credit Suisse Group is a global financial services company, providing a
comprehensive range of banking and insurance products. Active on every
continent and in all major financial centres, Credit Suisse Group comprises
five business units, each geared to the requirements of specific customer
groups and markets:

corporate and individual customers
Credit Suisse:
in Switzerland
services for private investors in Switzerland
Credit Suisse Private Banking:
and internationally
global investment banking
Credit Suisse First Boston:
services for institutional investors worldwide
Credit Suisse Asset Management:
worldwide insurance business
Winterthur:

WINTERTHUR
CREDIT SUISSE CREDIT SUISSE FIRST BOSTON

244 locations in Switzerland 50 locations in Switzerland 3 locations in Switzerland 7 locations in Switzerland 694 locations in Switzerland
50 locations internationally 56 locations internationally 12 locations internationally present in over 30 countries

Subsidiaries
Subsidiaries Subsidiaries Subsidiaries Subsidiaries incl.

Bank Leu*
Neue Aargauer Bank Credit Suisse BEA Associates Winterthur Life
(98.6%)* Financial Products
Affida Bank* Credit Suisse Trust Winterthur-Columna
(80%)
Credit Suisse Leasing and Banking
Bank Heusser* Winterthur International
Credit Suisse Immobilien Credit Suisse Fides* DBV-Winterthur Holding
Leasing
Clariden Bank* Winterthur Holding Italia
Bank Hofmann* Hispanowin S.A. (Spain)
Bank für Handel & Winterthur-Europe
Effekten Assurances
Credit Suisse Trust* Winterthur (UK) Holdings
Winterthur U.S. Holdings
HIH Winterthur (Australia)

* direct holding of Credit Suisse Group

4

THE FIVE BUSINESS UNITS OF CREDIT SUISSE GROUP

CREDIT SUISSE

Credit Suisse serves corporate and major locations. Thanks to an innovative
individual customers in Switzerland range of products and services, especially
through a multichannel strategy and an in direct and internet banking, it ranks
efficient branch network covering all among the market leaders in its segment.

CREDIT SUISSE PRIVATE BANKING
Credit Suisse Private Banking is one of offers a comprehensive investment
the largest private banking operations in advisory service and individual financial
the world. It has a strong market presence solutions geared to the specific needs
in Switzerland and around the globe and of private banking clients.

CREDIT SUISSE FIRST BOSTON
Credit Suisse First Boston is a leading financial products for users and suppliers
global investment banking firm, providing of capital around the world.
financial advisory, capital raising and

CREDIT SUISSE ASSET MANAGEMENT

Credit Suisse Asset Management is a providing first-class international manage-
leading global asset manager focusing ment through domestic operations.
on institutional and mutual fund investors,

WINTERTHUR

Winterthur Group is one of the leading offers private and corporate customers
insurance companies in Europe and tailor-made insurance and pension
one of the largest internationally active solutions at the local and international
insurance companies in the world. It level.

5

CREDIT SUISSE GROUP BUSINESS REVIEW AND CONSOLIDATED RESULTS

Credit Suisse Group – including Winterthur, which is shown in the
consolidated results for the first time – announced a 58% increase
in net operating profit after tax and minority interests to CHF 3.4 bn
in 1997. All business units achieved significant improvements in their
performance. The Board of Directors proposes increasing the dividend
by 25% from CHF 4 to CHF 5 per share. After exceptional items of
CHF 1.4 bn (after tax) for covering, among other things, the merger with
Winterthur and the integration of BZW, and a CHF 1.6 bn increase in the
reserves for general banking risks, Credit Suisse Group showed a
consolidated net profit of CHF 397 m. This compares with a technical
loss of CHF 2.1 bn in 1996.

With a 26% rise in revenue compared with 19961 to
Strong operating performance
CHF 21 bn (CHF 16.8 bn from banking operations) and a 36% increase in gross oper-
ating profit to CHF 7.3 bn, Credit Suisse Group once again proved its strong earnings
power. The Group recorded a very good net operating profit after tax and minority inter-
ests of CHF 3.4 bn, 58% up on the previous year2. The cost/income ratio3 in banking
operations was improved from 70.8% to 67.8%. On an operating basis, the consoli-
dated ROE increased from 9.8% to 14.2%. This corresponds to a ROE of 16.2% for
banking operations and 10.2% for insurance operations. Assets under management
increased to CHF 863 bn.
In view of the progress made in achieving its performance goals and the good
start to the current financial year, the Board of Directors proposes to the Annual
General Meeting to be held on 29 May 1998 that the dividend be increased by 25%
to CHF 5 per Credit Suisse Group registered share. Operating earnings per share
amounted to CHF 12.91.

Capital optimisation and balance sheet of the Group Capital optimisation was
singled out as a major objective as part of the refocusing of Credit Suisse Group. The
efficient use of capital in meeting customer needs, while at the same time creating
shareholder value, is a primary responsibility of each business unit, overseen by the
Corporate Centre.
1997 showed modest balance sheet growth in banking operations when compared
with the strong growth in revenue. At Credit Suisse the expansion in the commercial
loan book was relatively flat, due primarily to subdued economic conditions in Switzer-
land. At Credit Suisse First Boston overall balance sheet growth was 10%, owing partly
to the Swiss franc/dollar exchange rate. The increase in assets was in the securities
portfolio. At Credit Suisse First Boston significant efforts were undertaken to reposition
the balance sheet to achieve better risk-adjusted returns. An example of this effort was

1 basis for comparison with previous year (in general terms) at Group level: Credit Suisse Group incl. Winterthur
2 basis for comparison with previous year of net operating profit at Group level: operating profit after tax and minority
interests (CHF 2.1 bn)
3 including depreciation

6

the securitisation of USD 5 bn of commercial loans; capital was freed up from the
commercial loan book and reallocated to securities operations. At year-end 1997,
Credit Suisse Group’s BIS tier 1 capital is sufficiently strong, at 10.9%, to satisfy the
banking or insurance needs of the largest clients. The BIS total capital ratio stands at
16.8%.
The business unit accounts include the disclosure of allocated capital at 1 January
1998. Capital is allocated on the basis of minimum Swiss regulatory capital require-
ments, including a cushion to provide operating flexibility, while taking into account an
additional amount required to maintain an acceptable credit rating as assigned by major
rating agencies. In the case of private banking and asset management, the allocation
also includes an amount to cover operation risk. The capital allocation is reviewed
quarterly by the Credit Suisse Group Risk Coordination Committee.

All business units improve their operating results The Credit Suisse business
unit increased its revenue by 5% to CHF 2.7 bn and reduced its personnel expenses
by 10% to CHF 1.5 bn, resulting in gross operating profit more than doubling against
the previous year4 to CHF 501 m. The cost/income ratio improved from 103% to 85%.
Provisions for the performing loan portfolio were in line with expectations. In addition,
after a complete review of the problem loan portfolio, Credit Suisse took a further charge
of more than CHF 1.1 bn against previously identified problem loans against the back-
ground of a further deterioration of the Swiss economy in 1997. A release of the
reserves for general banking risks equal to this charge is included under extraordinary
income of Credit Suisse Group. The pre-tax loss5 was reduced by CHF 773 m to
CHF 296 m. The net operating loss after tax and minority interests came to CHF 278 m.
For 1998 we expect a further significant improvement in Credit Suisse’s results, leading
to a break-even result.
Credit Suisse Private Banking increased its revenue by 18% to CHF 3.6 bn in
1997, while assets under management increased by 18% to CHF 384 bn. The
cost/income ratio declined from 54% to 51%. Pre-tax profit rose from CHF 1.3 bn
to CHF 1.7 bn. Net operating profit after tax and minority interests amounted to
CHF 1.3 bn.
Credit Suisse First Boston posted very good results in 1997, with performance
in the second half equalling that of the first half despite the turbulence in the Asian
securities markets. Revenue rose 30% in dollar terms to USD 7.1 bn (CHF 10.3 bn).
The cost/income ratio declined from 69.5% to 68.9%. Total operating expenses
amounted to USD 4.8 bn (CHF 6.9 bn), up 30% in dollar terms. This can be explained
largely by strong business growth and the 31% increase in personnel expenses to
USD 3.5 bn (CHF 5 bn), a reflection of higher performance-related bonuses. Pre-tax
profit increased 29% from USD 1.4 bn to USD 1.8 bn (CHF 1.7 bn to CHF 2.6 bn).
Net operating profit after tax and minority interests amounted to USD 1.1 bn
(CHF 1.6 bn).

4 basis for comparison with previous year at business unit level: pro forma figures (Winterthur: actual figures)
5 net of release of reserves for general banking risks

7

In respect of the Asian credit exposure of Credit Suisse First Boston, additional precau-
tionary provisions of USD 150 m (CHF 216 m) were taken at year-end 1997. These
are included in the operating results.
Against a background of buoyant financial markets Credit Suisse Asset
Management showed healthy investment performance and strengthened financial
results. Revenue increased by 22% to CHF 788 m. The cost/income ratio decreased
from 69.2% to 66.5%. Total assets under management grew by 21% to CHF 263 bn.
Pre-tax profit increased from CHF 166 m to CHF 264 m. Net operating profit after
tax and minority interests stood at CHF 214 m.
Winterthur (now also including CS Life), which was incorporated in Credit Suisse
Group’s consolidated results for the first time in 1997, put in a very good performance.
This was achieved on the back of favourable conditions in the international insurance
and financial markets. Despite a substantial strengthening of the technical provisions,
which rose from 177% to 182% in relation to net earned non-life premiums,
Winterthur increased its net operating profit after tax and minority interests by 31% to
CHF 674 m. Shareholders’ equity, excluding minority interests, rose by CHF 2.8 bn to
CHF 8 bn.

Credit
Exceptional items and increase in the reserves for general banking risks
Suisse Group took exceptional items totalling CHF 1.4 bn after tax in 1997. These
exceptional items comprise CHF 300 m for the merger with Winterthur, CHF 237 m for
the integration of BZW and CHF 401 m for IT restructuring primarily in preparation for
the introduction of the euro and for the year 2000. Credit Suisse Group set aside a
further CHF 430 m for the ongoing restructuring of banking operations, primarily in
Switzerland. These provisions will benefit future earnings.
In addition, Credit Suisse Group has decided to make a contribution of CHF 1.6 bn
to the reserves for general banking risks in the consolidated accounts. With this action,
Credit Suisse Group is even better positioned to weather the possible deterioration in its
operating environment without impacting future financial results.
After taking into account these exceptional and precautionary charges, Credit
Suisse Group posted consolidated net profit after tax and minority interests of
CHF 397 m. This compares with a technical loss of CHF 2.1 bn in 1996.

The refocusing of Credit
Refocusing of Credit Suisse Group well advanced
Suisse Group initiated in summer 1996 is moving forward rapidly. As part of this re-
organisation, Credit Suisse Group announced a reduction of 5,000 jobs by the end
of 1998, of which a total of 3,898 – 2,120 in Switzerland and 1,778 abroad – were
realised in 1997. The restructuring was carried out without redundancies in Switzerland.
At the same time, close to 4,000 new jobs were created, particularly outside Switzer-
land but also in growing areas of the Swiss business (e.g. direct banking, pension
business, private banking).

8

The merger between Credit
Merger with Winterthur: important objectives achieved
Suisse Group and Winterthur is moving ahead systematically. The first measures as part
of this project have already been implemented, for example product launches, combining
banking and insurance expertise. In addition, after positive experience in pilot offices, at
least 80 Credit Suisse branches and Winterthur agencies will be brought together in
shared premises over the coming months, offering substantial potential for increased
revenue while also bringing cost savings.
Another important objective was achieved following the approval of a new strategy
for the further expansion of individual and group life operations: effective 1 April 1998,
CS Life (the life insurance company of Credit Suisse Group), Winterthur-Columna (the
joint subsidiary of Winterthur and Credit Suisse operating in group life business) and
Winterthur Life are to be combined to form a joint product centre and integrated into
Winterthur as an additional division “Individual and Group Life”. The newly formed divi-
sion combines assets of CHF 51.6 bn, premiums and contributions of CHF 9.3 bn,
and 300,000 individual and 50,000 corporate and group customers.

The business unit financial statements reflect
Business unit financial statements
the organisational structure during 1997 and show the results of all business units as

OVERVIEW OF BUSINESS UNIT RESULTS
Credit Credit Credit Adjustments
Suisse Suisse Suisse including Credit
1997 Credit Private First Asset Winterthur Winterthur Corporate Suisse
in CHF m Suisse Banking Boston Management Non-life Life Centre Group

3,046 2 1,186 2
2,730 3,610 10,264 788 –600 21,024
REVENUE

Personnel expenses 1,544 970 5,036 293 1,407 483 168 9,901
Other operating expenses 685 800 1,822 214 735 303 –712 3,847
2,229 1,770 6,858 507 2,142 786 –544 13,748
TOTAL OPERATING EXPENSES

501 1,840 3,406 281 904 400 –56 7,276
GROSS OPERATING PROFIT

Depreciation and write-offs on non-current assets 90 55 213 17 0 1 214 590
1
Valuation adjustments, provisions and losses 707 113 562 0 0 0 56 1,438
PROFIT BEFORE EXTRAORDINARY ITEMS
–296 1,672 2,631 264 904 399 –326 5,248
AND TAXES
Extraordinary income1 17 36 51 9 0 24 137
3
Extraordinary expenses 46 46 114 23 42 –25 246
Taxes –48 341 872 36 497 –158 1,540
–277 1,321 1,696 214 764 –119 3,599
NET OPERATING PROFIT (before minority interests)

– of which minority interests 1 7 123 0 90 –17 204
–278 1,314 1,573 214 674 –102 3,395
NET OPERATING PROFIT (after minority interests)

Allocated equity capital at 1 Jan. 1998 4,150 1,900 9,900 130 7,924
Return on average allocated capital –7% n.a. 18% n.a. 10%
1
net of release of reserves for general banking risks 1,108 56 22 1,186
2
defined as premiums earned (net), less claims incurred and actuarial provisions, less commissions (net), plus investment income from insurance business
3
unattributable interest expense

9

though they were independent legal entities. Financial data on the Corporate Centre
includes the costs of its own functions, income and expenses for real estate (including
bank premises) in Switzerland as well as all consolidation adjustments. Wherever pos-
sible, costs of the Corporate Centre have been allocated to the operating business units.
At year-end 1996, business unit financial data was prepared in order to give an
estimate of the general level of business unit profitability. As previously disclosed, the
indicative figures for 1996 were only best estimates for the year as records were not
kept along business unit lines in 1996. Subsequent to the presentation of the data, a
variety of decisions have been made with respect to the operations for 1997 regarding
the allocation of clients to business units, the discontinuation of certain business prac-
tices conducted in 1996 and a reallocation of capital among the business units. There-
fore, we have adjusted the business unit 1996 financial results to provide for a better
comparison of activities between 1997 and 1996.
Business unit financial results include operating financial information only. They
are commented upon in the relevant sections.

10

BUSINESS UNIT ACCOUNTING PRINCIPLES

The same accounting policies as used by the Group in its financial accounts were
adopted, unless explicitly stated otherwise.

INCOME STATEMENT

To reconcile business unit accounts with legal entity accounts certain adjust-
General
ments were made in the Corporate Centre (included in the column “Adjustments includ-
ing Corporate Centre”).
Extraordinary expenses exclude exceptional items and the increase of the re-
serves for general banking risks, including their tax effects. Extraordinary income and
valuation adjustments, provisions and losses are shown net of release of reserves for
general banking risks.
For Credit Suisse Asset Management, the income statement was adjusted to take
into account the different closing dates/accounting periods of consolidated companies.
The difference is included in the column “Adjustments including Corporate Centre”.

For Credit Suisse First Boston, the business unit income statement differs
Revenue
from the Group’s legal accounts because brokerage, execution and clearing expenses
are included within operating expenses (as is common with US competitors), rather
than netted against revenues.

Responsibility for each of our products is allocated
Inter-business unit revenue splits
to one of the business units. When business units contribute to the success of another,
revenue allocations have been established to compensate such efforts. Revenue alloca-
tions are shown in the relevant income statement line.

Certain administration and IT tasks (“services”)
Inter-business unit cost allocations
are concentrated in one business unit, which acts as a provider for the other business
units. Such services are compensated on the basis of service level agreements, and
transfer payments (which include personnel and other operating expenses) are reflected
in the income statement line “Other operating expenses”.

All real estate in Switzerland, including bank premises,
Real estate used by the bank
is managed centrally. The costs, which are charged by applying market rent information
and an additonal charge if actual cost should exceed “market rent”, are included in
“Other operating expenses”.

11

Business unit credit provisions that exceed the actuarial
Provisions for credit risk
credit provision were reversed against the reserves for general banking risks on a
Group level and netted in the business unit income statement line “Valuation adjust-
ments, provision and losses”.

Taxes Taxes are calculated for individual business units based on average tax rates
reflecting their geographical diversity. The difference between these and actual tax
expenses have been adjusted in the Corporate Centre’s account. For Credit Suisse,
tax credits on net loss and exceptional items are recognised.

BALANCE SHEET

The business unit balance sheets include the appropriate proportion of real
General
estate occupied in Switzerland that is managed centrally.

RATIOS/KEY PERFORMANCE INDICATORS

Ratios per head have not been calculated as some Group-wide activities are provided
centrally by one of the business units and required staffing for services received is not
reflected in the recipient business unit’s headcount.

12

REPORT OF THE GROUP’S AUDITORS ON THE BUSINESS UNIT FINANCIAL STATEMENTS

We have performed certain procedures enumerated below in relation to the 1997 busi-
ness unit financial statements of Credit Suisse Group and its subsidiary undertakings
(“the business unit financial statements”) for which the Directors of Credit Suisse Group
are solely responsible. The business unit financial statements, which have been
prepared for illustrative purposes only, are set out on pages 9 to 29 of the annual
accounts.

We have performed limited review procedures with regard to the business unit financial
statements as follows:
– Reviewed the methodology for preparation of the business unit financial statements
as described therein and their proper application;
– Given the methodology for preparation, reviewed the consistent application of the
accounting policies; and
– Reviewed the reconciliation between the business unit financial statements and the
consolidated Group results presented in the audited financial statements for the
year.

Nothing has come to our attention as a result of the foregoing limited review proce-
dures that would lead us to believe that the business unit financial statements have not
been properly compiled on the basis of the preparation set out therein or are materially
misstated.

KPMG Klynveld Peat Marwick Goerdeler SA

Brendan Nelson Bruce A. Mathers
Chartered Accountant Chartered Accountant
Auditors in Charge

Zurich, 16 March 1998

13

CORPORATE AND INDIVIDUAL CUSTOMERS IN SWITZERLAND

Credit Suisse posted total revenue of CHF 2.7 bn for the 1997 business
year, up 5% compared with 1996. The business unit consolidated its
strong market position and extended its lead in the Swiss direct banking
market. Staff costs were reduced as planned. As a result of the difficult
economic environment, credit provisions remained high due to additional
provisions for pre-existing non-performing loans. The net loss for the
year before extraordinary items and tax was reduced by CHF 773 m to
CHF 296 m.

The restructuring of Credit Suisse initiated in summer 1996 was largely accomplished
by the end of 1997. The streamlining of the branch network is also essentially complete,
with – as planned – 244 offices at the end of 1997, complemented by more than 550
Cash Service ATMs. With effect from 1 January 1998, the corporate and individual
customer business of Bank Leu, comprising around 100,000 customer relationships,
was transferred to Credit Suisse. The majority of initiatives designed to optimise credit
and risk management and adapt the IT infrastructure to the needs of the individual
business areas are under way.
In parallel with the restructuring process, a number of projects have been
launched with a view to focusing more closely on the needs of the customer. These
include the ongoing development of product strategies, closer collaboration with
Winterthur Group and the expansion of the range of services available as part of the
multichannel strategy. As a result, customers are able to carry out their banking
business in the manner they find most convenient: through the branch network, via
ATM, or by means of telephone or the Internet.


Allocated equity capital CHF m (1 Jan. 1998) 4,150
Cost/income ratio 85%
Return on average allocated capital –7%
Number of employees (31 Dec. 1997) 12,540
Pre-tax margin –12%
Personnel expenses/total operating expenses 69.3%
Personnel expenses/revenue 56.6%
Number of branches 244
Net interest margin 1.95%
Loan growth –0.18%
Deposit/loan ratio 94%
Assets under management CHF bn 111

14

Customer use of direct banking channels – telephone and Internet – again increased
substantially in 1997, with the telephone banking team alone dealing with some
420,000 enquiries. With the launch of DIRECT NET, Credit Suisse became the first
Swiss bank to offer a comprehensive range of Internet banking services. Since May
1997, around 1.5 m transactions have been carried out through this product and the
trend is sharply upward. Another new product that was very well received by customers
was BONVIVA, which was launched in May: around 80,000 customers signed up for
this package of services. In 1997 Credit Suisse also brought out a special service for
small and medium-sized businesses (SMBs) called START-UP, which provides support
in the establishment and restructuring of companies, including, in particular, manage-
ment coaching. In addition, through the creation of the SMB Service specialist unit, a
professional advisory service is now available for both companies and clubs and
associations. These moves were taken as SMBs are of particular importance for Credit
Suisse, reflected in the fact that 94% of loans in the corporate client segment were
made to these businesses.

INCOME STATEMENT
Pro forma
1997 1996 Change
in CHF m in CHF m in %

Net interest income 1,875 1,870 0
Net commission and service fee income 609 522 17
Net trading income 188 120 57
Other ordinary income 58 77 –25

2,730 2,589 5
REVENUE

Personnel expenses 1,544 1,718 –10
Other operating expenses 685 662 3

2,229 2,380 –6

501 209 140

Depreciation and write-offs on non-current assets 90 286 –69
Valuation adjustments, provisions and losses* 707 992 –29

296 1,069 –72
LOSS BEFORE EXTRAORDINARY ITEMS AND TAXES

Extraordinary income* 17
Extraordinary expenses 46
Taxes –48

277
NET OPERATING LOSS (before minority interests)

– of which minority interests 1

278
NET OPERATING LOSS (after minority interests)

* net of CHF 1,108 m release of reserves for general banking risks

15

At CHF 96.4 bn, Credit Suisse’s total assets remain virtually unchanged
1997 results
compared with 1996. The reduction in funds due from customers and in mortgage
lendings to CHF 22.9 bn and CHF 54.6 bn respectively is almost exclusively the result
of valuation adjustments.
Customer deposits increased by CHF 2.1 bn to CHF 60.3 bn. The contraction in
medium-term notes was more than compensated for by the shift into securities and
investment funds.
Both staff costs and other operating expenses developed as planned. The
cost/income ratio improved from 103% to 85%. As a result, gross operating profit
more than doubled, rising by CHF 292 m to CHF 501 m.
By drawing on the reserves set aside for repossessed property in 1996, Credit
Suisse was able to significantly reduce depreciation and write-offs on non-current
assets. Valuation adjustments, provisions and losses posted in 1997 include CHF 673 m
in respect of the statistically calculated risk cost of the credit portfolio (annual credit
provision) and CHF 34 m in respect of other losses. Additional write-downs for existing
non-performing loans totalling CHF 1.1 bn are netted against the release of reserves
for general banking risks for business unit presentation purposes. For 1998 an annual
credit provision of CHF 650 m has been budgeted consistent with the credit risk mana-
gement framework introduced in 1997.
The annual loss before extraordinary items and tax was reduced by CHF 773 m
to CHF 296 m. The loss for the first half of the year was CHF 177 m, while the loss
for the second half of the year was reduced by CHF 58 m to CHF 119 m. A break-even
result is anticipated for 1998.

16

BALANCE SHEET
Pro forma
31 Dec. 1997 1 Jan. 1997 Change

Cash and other liquid assets 993 1,363 –27
Money market claims 7,116 4,087 74
Due from banks 309 3,247 –90
Due from other business units 3,139 12 –
Due from customers 22,855 24,323 –6
Mortgages 54,631 55,889 –2
Securities and precious metals trading portfolio 100 119 –16
Financial investments 2,364 2,613 –10
Participations 51 76 –33
Tangible fixed assets 2,377 2,322 2
Accrued income and prepaid expenses 476 167 185
Other assets 1,986 2,079 –4

96,397 96,297 0
TOTAL ASSETS

Money market liabilities 0 33 –100
Due to banks 586 1,190 –51
Due to other business units 16,971 14,482 17
Due to customers in savings and investment accounts 37,149 36,367 2
Due to customers, other 23,117 21,797 6
Medium-term notes 6,708 8,045 –17
Bonds and mortgage-backed bonds 5,595 5,891 –5
Accrued expenses and deferred income 820 652 26
Other liabilities 1,046 2,704 –61
Valuation adjustments and provisions 354 496 –29
Equity capital 4,051 4,640 –13
– of which minority interests 10 8 25

96,397 96,297 0
TOTAL LIABILITIES

17

SERVICES FOR PRIVATE INVESTORS IN SWITZERLAND AND INTERNATIONALLY

1997 was a successful initial year for Credit Suisse Private Banking.
Profit before extraordinary items and tax rose by 24% to CHF 1,672 m.
The new organisational structure has proved successful. Assets under
management increased by 18% to CHF 384 bn.

In 1997 Credit Suisse Private Banking reorganised its structure in line with the re-
focusing of Credit Suisse Group. The restructuring of the sales network has been com-
pleted. Credit Suisse Private Banking is now represented in 50 locations in Switzerland
and 50 outside Switzerland.
Both asset management and investment advisory products and services have
been optimised, as have the regional marketing strategies.
In offshore business, new financial advisory products for the Trust Services
business area have been developed. Lending operations have been reorganised.
In addition to mortgage-backed loans, lending covered by marketable collateral was
especially important. Credit Suisse Private Banking also reinforced its international
activities in 1997. In early September the business unit acquired a 70% stake in the
Parisian private bank Banque Hottinguer, substantially strengthening its position in the
French market.


Cost/income ratio 50.6%
Pre-tax margin 46%
Fee income/revenue 64.5%
Fee income/total operating expenses 131.5%
Assets under management CHF bn 384

18

Credit Suisse Private Banking put in a very good performance, posting
1997 results
profit growth of 24% before extraordinary items and tax and an 18% increase in assets
under management. This increase in assets was due to market performance (14%) and
net new business (4%).
Operating expenses increased at a lower rate than revenue, rising by 10% to
CHF 1,770 m. Expenses rose more sharply during the second half of the year com-
pared with the first half as a result of accelerated front-office expansion and investment
in IT projects to support product development. Nevertheless, the cost/income ratio im-
proved from 54% to 51%. Increased risks in business in Asia (CHF 42 m) and the
reorganisation of Bank Leu’s lending portfolio resulted in higher credit provisions. These
provisions were offset by the release of reserves for general banking risks.

BALANCE SHEET INFORMATION
31 Dec. 1997
in CHF m

Total assets 81,349
Due from customers 25,406
– of which secured by mortgages 9,815
– of which secured by other collateral 12,187

INCOME STATEMENT Pro forma
1997 1996 Change

Net interest income 792 759 4
Net commission and service fee income 2,328 1,937 20
Net trading income 389 303 28
Other ordinary income 101 72 40

3,610 3,071 18
REVENUE

Personnel expenses 970 807 20

1,770 1,609 10

1,840 1,462 26

Depreciation and write-offs on non-current assets 55 55 0
Valuation adjustments, provisions and losses* 113 58 95

1,672 1,349 24
PROFIT BEFORE EXTRAORDINARY ITEMS AND TAXES

Extraordinary income* 36
Taxes 341

1,321


1,314

* net of CHF 56 m release of reserves for general banking risks

19

GLOBAL INVESTMENT BANKING

In 1997 Credit Suisse First Boston increased its revenue by 30% to
USD 7.1 bn, posting net operating profit before exceptional items and
minority interests of USD 1.2 bn. Through targeted investment
programmes and acquisitions, the firm significantly strengthened its
position as one of the world’s leading investment banks.

The year began with the firm’s major reorganisation as part of Credit Suisse Group’s
restructuring. This has been successfully completed.
In November, Credit Suisse First Boston announced agreement to purchase the
UK and Continental European equities, equity capital markets, and corporate finance
advisory businesses of BZW. The acquisition significantly expands the firm’s position in
Europe while adding the UK as an important third home market. This was followed,
in early 1998, by the acquisition of certain of BZW’s equity and investment banking
businesses in Asia and the agreement to acquire 100% of First Pacific, one of Australia’s
leading equity firms. These moves accelerate and complement the firm’s expansion plans
in the Asia/Pacific region.
As important as these structural changes was the adoption of major organic
investment programmes to strengthen the firm and position it to tap future growth
opportunities and control them profitably. Credit Suisse First Boston’s customer busi-
nesses in investment banking, sales and research are being particularly expanded, while
in the support departments major programmes are also under way to address industry
issues such as the year 2000 and the euro, while rejuvenating the infrastructure and
the control environment to raise productivity and cope with the pace of change. Strate-
gically, the cumulative effect of these moves is to further strengthen Credit Suisse First
Boston’s position among the industry leaders.


BIS tier 1 ratio* 8.5%
Return on average allocated capital 18%
Pre-tax margin 25%
* applies to the Credit Suisse First Boston legal entity

20

Credit Suisse First Boston recorded revenue of USD 7.1 bn
1997 results
(CHF 10.3 bn), an organic growth rate of 30% in USD, or 53% in CHF, which is
greater than any other leading global investment bank. A strong focus on profitability
produced very good net operating profit of USD 1.2 bn (CHF 1.7 bn), before minority
interests and exceptional items, and ROE increased to 18%. Key cost ratios, partic-
ularly relating to pre-tax profit margins and personnel expenses/revenue, remained in
line with other leading investment banks. The BIS tier I ratio was maintained at 8.5%.
Credit Suisse First Boston’s balance sheet (in dollar terms) was virtually unchanged
against the pro forma figures at 1 January 1997. This was due to conservative balance
sheet management, aimed at keeping the relationship of equity to assets (net and
gross of reverse repos) relatively constant on an equity base growing slowly (in dollar
terms), held back by a depreciating Swiss franc (over 70% of the equity is held in Swiss
francs) and extraordinary charges.
The goal for the year was to make more profit from the same asset base. This
was achieved by starting to shift from loans to securities holdings (up over USD 10 bn),
shifting from low-margin corporate loans to higher-margin trading-oriented loans (real-
estate-related and high-yield) and increasing asset turnover. The USD 10 bn decline in
securities lending/reverse repos was a temporary move, unreflective of underlying activity.

INCOME STATEMENT
Pro forma Pro forma
1997 1997
1996 Change 1996 Change
in CHF m in USD m
in CHF m in % in USD m in %

Fixed Income 4,866 3,379
2,874 70 2,356 43
Equity 1,745 1,212
1,017 71 834 45
Credit Suisse Financial Products 1,680 1,167
1,160 45 950 23
Corporate and Investment Banking 2,130 1,479
1,669 27 1,368 8
Private Equity and other –157 –109
–18 – –15 –

10,264 7,128
6,702 53 5,493 30
REVENUE

Personnel expenses 5,036 3,497
3,265 54 2,676 31
Other operating expenses 1,822 1,265
1,218 50 999 27

6,858 4,762
4,483 53 3,675 30

3,406 2,366
2,219 53 1,818 30

Depreciation and write-offs on
non-current assets 213 148
175 22 143 3
Valuation adjustments, provisions
and losses* 562 390
314 79 258 51

PROFIT BEFORE
2,631 1,828
1,730 52 1,417 29
EXTRAORDINARY ITEMS AND TAXES

Extraordinary income* 51 35
Extraordinary expenses 114 79
Taxes 872 606

1,696 1,178

– of which minority interests 123 85

1,573 1,093
* net of CHF 22 m release of reserves for general banking risks

21

The USD 10 bn rise in funding from bonds and mortgage bonds reflected the
USD 5 bn Triangle loan securitisation, which in accounting terms stayed on balance
sheet, and a number of innovative Upper Tier II debt issues during 1997, which
strengthened Credit Suisse First Boston’s total capital ratio significantly.

Revenue percentages in the comments on the divisional results below refer to the
underlying dollar-based growth.

Investment banking revenues
Corporate and Investment Banking Division (CIBD)
increased by 8%. These increases were driven by improved results across the board.
The increases in investment banking revenues were offset, in part, by declines in
revenues from corporate lending activities. These declines reflected CSFB’s strategy,
initiated in 1997, to reallocate capital resources from corporate lending to other busi-
nesses. The strong focus on client relationships was demonstrated through successful
delivery of many landmark transactions, as recognised by numerous Deal-of-the-Year
and other awards from financial publications around the world. The ROE was poor
primarily due to lower returns from the lending business. In addition USD 150 m
(CHF 216 m) was provided at year-end for Asian-related credit exposure.

Revenues for the Fixed Income Division increased 43% in 1997, with
Fixed Income
ROE exceeding 30% due to significantly improved results across most major product
lines. Particularly good performance was posted in the real estate activities of the
Principal Transactions Group (PTG) and the Emerging Markets Group (EMG). Fixed
income revenues also increased from improved results in high-yield corporate securities,
global foreign exchange and money markets, offset, in part, by declines in trading
governments and Swiss fixed-income securities.

Revenues for the Equity Division increased 45% in 1997, with ROE exceeding
Equity
30% primarily as a result of significantly improved results in customer-driven businesses
complemented by strong trading results. Revenues were particularly strong in the
eastern European business, in Swiss activities and in the US-listed and OTC busi-
nesses. Results also improved substantially in the convertibles and risk arbitrage activi-
ties. Gross equity-related revenues, including those reported in CIBD and Credit Suisse
Financial Products, amounted to USD 1.55 bn (CHF 2 bn).

Revenues increased 23% in 1997, with
Credit Suisse Financial Products (CSFP)
ROE exceeding 30%. This was primarily due to improved results in the swaps and
options, commodities, asset trading and credit derivatives businesses, offset, in part, by
declines in OTC equity derivatives and foreign exchange derivatives; however, both
of these businesses produced positive revenues in 1997.

1997 was a build year for this Division, still showing a slight loss,
Private Equity
successfully hiring key people and closing a large international fund.

22

BALANCE SHEET
Pro forma
31 Dec. 1997 1 Jan. 1997 Change

Cash and other liquid assets 2,021 1,533 32
Money market claims 16,119 14,690 10
Due from banks 138,351 128,567 8
– of which securities lending and
reverse repurchase agreements 103,288 81,508 27
Due from other business units 5,933 0
Due from customers 103,993 125,310 –17
– of which securities lending and
reverse repurchase agreements 62,030 85,745 –28
Mortgages 7,157 5,569 29
Securities and precious metals trading portfolio 102,385 81,527 26
Financial investments 9,343 6,066 54
Participations 262 283 –7
Tangible fixed assets 1,837 1,460 26
Accrued income and prepaid expenses 5,817 4,389 33
Other assets 53,690 38,428 40
– of which replacement value of derivatives 50,934

446,908 407,822 10
TOTAL ASSETS

Liabilities in respect of money market paper 17,719 11,169 59
Due to banks 183,043 215,403 –15
– of which securities borrowing and
repurchase agreements 84,817 89,637 –5
Due to other business units 39,677 14,533 173
Due to customers, in savings
and investment deposits 463 400 16
Due to customers, other 97,374 95,458 2
– of which securities borrowing and
repurchase agreements 56,797 51,525 10
Bonds and mortgage-backed bonds 33,551 17,156 96
Accrued expenses and deferred income 8,025 6,724 19
Other liabilities 53,875 36,139 49
– of which replacement value of derivatives 50,635
Valuation adjustments and provisions 2,706 2,062 31
Equity capital 10,475 8,778 19
– of which minority interests 1,201 880 36

446,908 407,822 10
TOTAL LIABILITIES

23

SERVICES FOR INSTITUTIONAL INVESTORS WORLDWIDE

During 1997 substantial progress was made towards creating an
integrated business. It was a year of strong investment performance,
strong asset growth and strengthened financial results. Assets under
management rose by 21% to CHF 263 bn.

Credit Suisse Asset Management’s business in Switzerland maintained its leading
position in 1997 and enjoyed strong growth in discretionary and advisory assets. The
London-based operation continued its strong performance in Global Fixed Income and
European Equities. The rapidly growing UK unit trust group exceeded GBP 1 bn
(CHF 2.4 bn). The unit’s US business received several large prestigious fixed-income
and high-yield mandates and was awarded the highest ranking in the Frank Russell
Universe for fixed income. Japan, one of the most important growth markets
for the business unit, has experienced another year of strong expansion (44%), ending
the year at over JPY 1,400 bn (CHF 15.5 bn). In Australia, assets under management
grew 57% to AUD 4.8 bn (CHF 4.5 bn). Credit Suisse Asset Management’s mutual
funds business was awarded “Best Management Group” in its category by Standard &
Poor’s Micropal for the third year in a row.


Allocated equity capital CHF m (1 Jan. 1998) 130
After-tax profit/average AUM 8.9 bp
Pre-tax margin 32%
Total assets under management CHF bn 263
Total discretionary funds CHF bn 186
– of which total mutual funds distributed CHF bn 60
Total advisory assets CHF bn 77
Growth in assets under management 21.1%
Growth in discretionary assets under management 17.5%
– of which is volume 6%
– of which is performance 11.5%

24

Discretionary assets under management grew 18% in 1997, 12% due to
1997 results
market appreciation and foreign exchange movements and 6% stemming from net
new business. Net profit before extraordinary items and taxes increased 59% in 1997,
resulting from a 22% increase in revenue against an increase of 17% in total operating
expenses.
The growth in personnel expenses was offset by significant reductions in other oper-
ating expenses and in the cost for services from other business units of Credit Suisse
Group. The adjusted pre-tax gross margin improved from 26% in 1996 to 32%, while
after-tax profit to average assets under management improved from 7.8 basis points to
8.9 basis points.

INCOME STATEMENT Pro forma
1997 1996 Change

Management and advisory fees 481 375 28
Net mutual fund fees 265 247 7
Other revenues 42 24 75

788 646 22
REVENUE

Personnel expenses 293 223 31

507 434 17

281 212 33

Depreciation and write-offs on non-current assets 17 13 31
Valuation adjustments, provisions and losses 0 33

PROFIT BEFORE EXTRAORDINARY
264 166 59
ITEMS AND TAXES

Extraordinary income 9
Taxes 36

214


214

25

INSURANCE FOR PRIVATE AND CORPORATE CUSTOMERS WORLDWIDE

Winterthur Group recorded very good results in 1997, a year which also
saw some fundamental decisions for the future. The insurance areas of
Credit Suisse Group were included in Winterthur’s consolidated results
for the first time. Despite an increase in provisions, net operating profit
after minority interests rose by 31% to CHF 674 m. After taking into
account exceptional items totalling CHF 356 m, Winterthur posted an
annual profit of CHF 318 m. Shareholders’ equity excluding minority
interests grew by 53% to CHF 8 bn. The exploitation of potential in the
field of bancassurance ranks among the major challenges and
opportunities both for 1998 and in the years ahead.

At the start of 1998
Structure strengthened and management rejuvenated
Winterthur Group revised its organisational structure and realigned its Executive Board.
A Corporate Centre was formed with responsibility for Group activities. The operational
divisions were regrouped in line with the strategic priorities.
In addition, effective 1 April 1998 a product centre for individual and group life
business was created, the result of the implementation of Credit Suisse Group’s
bancassurance strategy. The new division unites the relevant business activities of
Winterthur Life, Winterthur-Columna and CS Life. Its products will be distributed via
Winterthur’s sales network and those of the banking units of Credit Suisse Group. The
new division will rank among the leading providers of individual and group life insurance
solutions in Switzerland. The expansion of its operations into the international markets is
planned.

The merger between Credit Suisse Group
Merger moving ahead systematically
and Winterthur in line with the bancassurance strategy is proceeding systematically and
successfully. The first measures have already been implemented, for example product
launches, combining banking and insurance expertise. In addition, after positive experi-
ence in pilot offices, at least 80 Credit Suisse branches and Winterthur agencies will
be brought together in shared premises over the next few months, offering substantial
potential for increased revenue while also bringing cost savings.

Aided by favourable conditions in the
Very good year for operational business
international insurance and financial markets, the majority of Winterthur operating units
succeeded in improving their results and competitive position. In Switzerland, the
merger of non-life and life distribution strengthened the market position considerably
and boosted cross-selling. Moreover, Winterthur’s leading position in the Swiss market
was reinforced thanks to the establishment of Winterthur-Columna, the joint life and
pension company of Winterthur and Credit Suisse, and collaboration with the Swiss
post office.

26

At DBV-Winterthur in Germany, the participation portfolio was streamlined and business
geared more closely to market and customer needs. Co-operation with Commerzbank
is continuing to move forward successfully. In Italy and Spain the restructuring
measures, which were rapidly implemented, bore fruit, while, in Belgium, the purchase
of Josi in 1996 saw the start of a business refocusing. In eastern Europe, Winterthur is
active in the Czech Republic, Hungary and, since 1997, also in Poland. The main
features of 1997 in the South-East Asia/Pacific region were the successful business
performance in Hong Kong and the launch of operations in China. Winterthur Interna-
tional elaborated a more aggressive strategy, strengthening its structures and extending
its range of products and services to multinationals.

All figures cover the accounts of both Winterthur and CS Life. Net
1997 results
operating profit after minority interests rose by 31% to CHF 674 m. After taking into
account exceptional items totalling CHF 356 m after tax for one-time costs in connec-
tion with the merger with Credit Suisse Group (CHF 300 m) and for IT restructuring in
preparation for the year 2000 and for the introduction of the euro (CHF 56 m),
Winterthur recorded an annual profit of CHF 318 m.
Gross premiums advanced by approximately 3% to CHF 28 bn. Recording 6%
growth, life operations showed substantially greater expansion than non-life business
(up 0.2%). Investments, which account for roughly 90% of total assets, increased by
13% to CHF 102 bn. The structure of the investment portfolio also changed, with the
stock allocation rising from 17% to some 23%. The real estate and mortgage portfolios
decreased slightly in proportion. The sharp rise in shareholders’ equity (excluding minority
interests) by 53% to CHF 8 bn reflects the excellent performance of the investment
portfolio, the profit for the year and the conversion of a convertible bond issue. The
technical provisions rose by 9% to CHF 91 bn.

KEY FIGURES 1997 1996 Change

Gross premiums 27,608 26,874 3
Net investment income 7,395 5,890 26
Net operating profit (after minority interests) 674 515 31
Annual profit 318 515 –38
Investments 102,119 90,401 13
Technical provisions 91,228 83,850 9
Debentures outstanding 922 1,451 –36
Shareholders’ equity (excl. minority interests) 7,924 5,172 53

Change
1997 1996 in %

Number of employees (31 Dec.) 27,565 25,719 7

27

As a result of the merger of
Annual comparisons by line of business limited
Neuchatel with the Winterthur companies in the 1997 financial year, annual comparisons
of accounts by line of business are limited.

The key performance benchmark, the combined
1997 results in non-life business
ratio (the sum total of claims ratio, expense ratio and dividends to policyholders in-
curred) again fell slightly from 107.7% to 107.5%. However, in this respect it should
be noted that major allocations were made to the technical provisions, which can be
seen from the improvement in the insurance reserve ratio (ratio of technical provisions
to net earned premiums) from 177% to 182%. Net investment income increased by
33% on the previous year. Overall, the profit in non-life business (before extraordinary
items, taxes and minority interests) amounted to CHF 904 m.

BALANCE SHEET 31 Dec. 1997 31 Dec. 1996 Change

Investments 102,119 90,401 13
– non-life 28,122 25,687 9
– life 73,997 64,714 14
Policy loans 902 710 27
Deposits with reinsured companies 337 486 –31
Cash at banks and in hand 770 707 9
Receivables from insurance companies 833 681 22
Receivables from agents and policyholders 2,775 2,456 13
Sundry debtors 1,514 1,690 –10
Accrued income and prepaid expenses 2,314 2,166 7
Office and EDP equipment 345 329 5
Other assets 1,178 1,076 9

113,087 100,702 12
TOTAL ASSETS

– non-life 24,205 23,079 5
– life 67,023 60,771 10
Deposits received from reinsurance ceded 750 691 9
Convertible bond and warrant issues 922 1,451 –36
Payables to insurance companies 707 975 –27
Payables to agents and policyholders 2,280 1,658 38
Sundry creditors 2,319 1,787 30
Accrued expenses and deferred income 1,771 948 87
Other liabilities 3,623 2,907 25
Shareholders’ equity 9,487 6,435 47
Minority interests 1,563 1,263 24
Shareholders’ equity after minority interests 7,924 5,172 53

113,087 100,702 12
TOTAL LIABILITIES

28

Gross premiums rose by 6% to CHF 12.1 bn. The
1997 results in life business
expense ratio remained virtually unchanged at 10.4% (1996: 10.5%). Claims incurred
and the change in the actuarial provision rose more sharply than premiums, although
this could be more than compensated for by the outstanding financial results. Net
investment income rose by 23%. The profit in life business (before extraordinary items,
taxes and minority interests) amounted to CHF 399 m.

INCOME STATEMENT NON-LIFE OPERATIONS
1997 1996 Change

Net premiums 13,694 13,414 2
Premiums earned, net 13,297 13,071 2
Claims incurred, net –10,154 –9,787 4
Dividends to policyholders incurred, net –295 –389 –24
Operating expenses, net
(including commissions paid) –3,955 –3,998 –1

–1,107 –1,103 0
UNDERWRITING RESULT, NET

Interest on deposits and bank accounts 128 129 –1
Other interest paid –71 –64 11
Other income and expenses
(including exchange rate differences) –190 42 –551

904 618 46
PROFIT (before extraordinary items, tax, minority interests)

Investments 28,122 25,687 9

INCOME STATEMENT LIFE OPERATIONS
1997 1996 Change

Net premiums 12,072 11,279 7
Premiums earned, net 11,961 11,236 6
Claims incurred, net –6,151 –5,558 11
Change in actuarial provision, net –7,305 –6,582 11
Allocation to participation, net –1,628 –1,532 6
Operating expenses, net (including commissions paid) –1,251 –1,187 5
Interest on deposits and bank accounts 118 109 8
Interest on bonuses credited to policyholders –124 –159 –22
Other interest paid –189 –151 25
Other income and expenses (including exchange rate differences) –61 120 –151

399 375 6
PROFIT (before extraordinary items, tax, minority interests)

Investments 73,997 64,714 14

29

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