credit-suisse annual report part 1 share performance market capitalisation as at 31 december
TRANSCRIPT
ANNUAL REPORT 1999/2000
www.credit-suisse.com
Share performance
1996 1997 1998 1999 2000
Credit Suisse Group
Swiss Market Index
100
300
250
200
150
400350
Market capitalisation as at 31 December
91 92 93 94 95 96 97
60
50
40
30
20
10
0
90 98
70
80
99
CHFbn
Share data
Number of shares issued at 31 December
Shares ranking for dividend at 31 December
Average
Shares ranking for dividend at 31 March 2000/1999
Market capitalisation at year-end (CHF m)
Earnings per share (CHF)
Earnings per share fully diluted (CHF)
Book value per share (CHF)
Share price (CHF)
at year-end
for inclusion in Swiss tax returns
year high
year low
Dividend (CHF)
* proposal of the Board of Directors to the AGM
Change+/-%
1
1
1
1
49
68
68
25
47
41
–17
42
40
1999
272,206,488
272,206,488
271,310,760
273,842,638
86,153
19.24
19.11
119.84
316.5
302
316.5
212
7*
1998
269,086,369
269,086,369
267,542,466
272,101,488
57,854
11.47
11.40
96.02
215
214
382
149.5
5
FINANCIAL HIGHLIGHTS 1999
Consolidated income statement
Revenue
Gross operating profit
Net profit
Cashflow
ROE
Credit Suisse Group
Banking business
Insurance business
Consolidated balance sheet
Total assets
Total shareholders’ equity
– of which minority interests
Total risk-weighted assets (BIS)
BIS tier 1 capital
– of which non-cumulative preferred stock
BIS total capital
Assets under management
Total assets under management
– of which advisory
– of which discretionary
BIS ratios
BIS tier 1 ratio
Credit Suisse
Credit Suisse First Boston
Credit Suisse Group
BIS total capital ratio Credit Suisse Group
Staff numbers at year-end
Total staff
– of which in Switzerland banking business
insurance business
– of which outside Switzerland banking business
insurance business
Change+/–%
28
38
70
32
Change+/–%
56
121
7
Change+/–%
11
22
–25
6
17
–
13
Change+/–%
26
15
39
Change+/–%
– 4
18
10
7
Change+/–%
4
1
– 4
10
5
1998in CHF m
21,700
6,641
3,068
6,066
in %
11.7
10.0
10.3
31 Dec. 1998in CHF m
652,437
28,162
2,325
202,078
24,198
0
36,000
31 Dec. 1998in CHF bn
938
523
415
in %
7.1
8.4
12.0
17.8
1998
61,580
20,625
6,827
15,753
18,375
1999in CHF m
227,870
9,132
5,221
7,983
in %
18.2
22.1
11.0
31 Dec. 1999in CHF m
722,746
34,368
1,747
213,298
28,261
200
40,843
31 Dec. 1999in CHF bn
1,180
604
576
in %
6.8
9.9
13.2
19.1
1999
663,963
20,885
6,569
17,249
19,260
Financial calendar
2000 Annual General Meeting Friday, 26 May 2000
Dividend payment Friday, 2 June 2000
Publication of 2000 interim results Thursday, 31 August 2000
Publication of 2000 annual results Tuesday, 13 March 2001
2001 Annual General Meeting Friday, 1 June 2001
24%
19%
39%
18%
REVENUE COMPOSITION 1999
Balance sheet businessCommission and service feesTrading
Insurance
1
HEAD OFFICE OF CREDIT SUISSE GROUP IN ZURICH
Renovation has restored the head office of Credit Suisse Group in Zurich to its
former glory. This impressive building, which incorporates both Renaissance and Baroque
elements, was designed by Jakob Friedrich Wanner and built between 1873 and 1876.
2
TO OUR SHAREHOLDERS
RAINER E. GUT, CHAIRMAN OF THEBOARD OF DIRECTORS (RIGHT), AND LUKAS MÜHLEMANN, CHIEF EXECUTIVEOFFICER
Dear Shareholders
We can look back on 1999 as a very good year. Credit Suisse Group increased its net
profit by 70% to CHF 5.2 bn and posted a 26% growth in assets under management
to CHF 1,180 bn, CHF 62 bn of which were net inflows of new assets. All business
units contributed to the Group’s overall performance with record results.
Net operating income rose to CHF 27.9 bn, an increase of 28% on the previous
year. Especially gratifying was the 31% increase in commission and service fee income
to CHF 10.9 bn, which includes income from all areas of asset management. Operat-
ing expenses increased by 24% to CHF 18.7 bn. This included a 28% rise in person-
nel expenses to CHF 13.5 bn, largely as a result of higher staff incentive payments.
The increase in other operating expenses was attributable primarily to growth and
e-commerce initiatives. The cost/income ratio was improved from just over 72% to
71% and consolidated return on equity (ROE) rose from 11.7% to 18.2%.
The results of the individual business units were as follows: Credit Suisse more
than doubled its net profit to CHF 451 m. Its return on equity improved from 4.8%
to 10.3%.
3
4
Credit Suisse Private Banking posted a net profit of CHF 1.9 bn, an improvement of
14%, and assets under management increased by CHF 74 bn – or 18% – to
CHF 477 bn. Credit Suisse First Boston regained its earnings strength and, by con-
sistently building its lower-risk client business, achieved a net profit of CHF 1.9 bn and
a return on equity of 19%. Credit Suisse Asset Management reported a 5% increase
in net profit to CHF 235 m, while cash earnings, which have become an accepted profit
measure for the asset management business, rose by 19% to CHF 279 m. Winterthur
posted a 22% rise in net profit to CHF 1.1 bn, with both life and non-life insurance
contributing to this good result.
1999 saw the launch of innovative products and services on the Internet by all
business units. We are making intensive efforts in the area of e-commerce, which we
regard as a driver of fundamental change both in the ‘business-to-business’ and ‘busi-
ness-to-consumer’ areas of the financial services sector. Timely recognition by Credit
Suisse Group of the importance of e-commerce will enable it to capitalise on the result-
ant opportunities in all of its activities.
Since the restructuring which began in 1996, Credit Suisse Group has achieved a
sound basis for sustained and profitable growth. Between 1996 – before the new
organisation came into effect – and 1999, Group revenues increased by 19% p.a.
Assets under management grew by 22% p.a. Excluding the mergers with Winterthur,
Warburg Pincus Asset Management and other acquisitions, growth in assets under
management was 17% p.a. Based on the 1996 Group operating results, net earnings
per share (EPS) have grown by 32% p.a. to CHF 19 for 1999, and return on equity
(ROE) has increased from 10% to 18%. Book value per share has increased by
14% p.a. since 1996.
In the same period, the Credit Suisse business unit achieved revenue growth of
10% p.a., during a highly successful restructuring phase. Credit Suisse Private Banking
recorded revenue growth of 15% p.a. and growth in assets under management of
14% p.a., reflecting changes to the traditional business model as well as the launch of
innovative products and services. Revenue growth of 29% p.a. at Credit Suisse First
Boston reflects success in the execution of its strategy to focus on customer businesses
and to close the gap with its three large global competitors. In the last three years,
Credit Suisse Asset Management has posted revenue growth of 22% p.a., with 26%
growth in assets under management, while building a consolidated global business.
Winterthur has achieved net profit growth of 29% p.a. and growth in assets under
management of 14% p.a., reflecting its concentration on its core businesses, restruc-
turing efforts and market success.
The creation of the new ‘Financial Services’ management division on 1 April 2000
is aimed at further accelerating the Group’s growth and advancing the ‘Personal Finan-
cial Services Europe’ project – already successfully running in our pilot market, Italy –
with a view to expanding our asset management business in Europe under even better
conditions. The new structure will also pave the way for the closer integration of banking,
insurance and e-commerce with a view to developing new customer service models as
well as innovative products and services.
We wish to thank our customers and you, our shareholders, for the trust you have
placed in our company. We also extend our warmest thanks to our employees for their
valuable contribution to the success of Credit Suisse Group.
Rainer E. Gut Lukas Mühlemann
Chairman of the Board of Directors Chief Executive Officer
5
Credit Suisse Group is one of the world’s leading international financial
services companies. The Group goes back to 1856. It employs around 64,000
staff and is listed on the SWX Swiss Exchange, Frankfurt and Tokyo stock
exchanges. The Group comprises the Financial Services management
division, incorporating Credit Suisse (corporate and individual customers in
Switzerland), Winterthur (worldwide insurance business) and Personal
Financial Services Europe (affluent private clients in Europe); the Group also
includes Credit Suisse Private Banking (private investors) and Credit Suisse
Asset Management (institutional investors), which are responsible for asset
management, and Credit Suisse First Boston, the global investment bank. In
parallel to its conventional distribution channels, Credit Suisse Group also
offers a wide range of e-commerce services across all its business areas.
THE STRUCTURE OF CREDIT SUISSE GROUP
Credit Suisse First Boston legal entity
Global investmentbanking
4 locations in
Switzerland
51 locations
internationally
Subsidiaries
Credit SuisseFirst Boston International
Credit SuisseFirst Boston Corp.
Credit SuisseFirst Boston (Europe) Ltd.
Services for institu-tional and mutual fundinvestors worldwide
7 locations in
Switzerland
16 locations
internationally
Subsidiaries
Credit Suisse Asset Management, LLC
Credit Suisse Trust & Banking
Credit Suisse Asset Management (Australia)
Credit Suisse Asset Management Ltd.
Asset ManagementInvestment Banking
Credit Suisse legal entity Winterthur legal entity
Personal FinancialServices Europe
Financial services foraffluent customers inEurope
5 locations in Italy,
with another 15 to
follow in the course of
the year 2000
Worldwide insurancebusiness
About 630 locations in
Switzerland, present in
over 30 countries
Subsidiaries
Winterthur Life
Winterthur International
DBV-Winterthur Group
Winterthur Holding Italia
Hispanowin S.A.
Winterthur (UK) Holdings
Winterthur U.S. Holdings
Services for privateinvestors in Switzer-land and abroad
51 locations in
Switzerland
36 locations
internationally
Subsidiaries
Bank Leu*
Clariden Bank*
Bank Hofmann*
Credit Suisse Trust*
Credit Suisse Fides*
Banca di GestionePatrimoniale*
Corporate and indi-vidual customers inSwitzerland
239 locations in
Switzerland
Subsidiaries
Neue AargauerBank* (98.6%)
Financial ServicesPrivate Banking
6
* direct holding of Credit Suisse Group
THE SIX BUSINESS UNITS OF CREDIT SUISSE GROUP
Credit Suisse serves corporate and individual customers in Switzerland through a multichannel strategy and an efficientbranch network covering all major locations.
Thanks to an innovative range of productsand services, especially in direct and Internet banking, it ranks among the market leaders in its segment.
Credit Suisse Private Banking is one ofthe world’s largest private banks and hasa strong presence in both the Swiss andinternational markets. It specialises in
providing personal investment counsellingand professional asset management for asophisticated international clientele.
Credit Suisse First Boston is a leadingglobal investment banking firm, providingfinancial advisory and capital raising
services, sales and trading, and financialproducts for users and suppliers of capitalaround the world.
Credit Suisse Asset Management is a leading global asset manager focusing oninstitutional and mutual fund investors,
providing first-class international management through domestic operations.
WINTERTHUR
Winterthur Group is one of the leadinginsurance companies in Europe and one ofthe largest internationally active insurancecompanies in the world. It offers private
and corporate customers tailor-made insurance and pension solutions at a localand international level.
CREDIT SUISSE PRIVATE BANKING
CREDIT SUISSE FIRST BOSTON
The Personal Financial Services Europeinitiative targets affluent private clients inselected European markets, offering awide range of Credit Suisse Group and
third-party products, personalised adviceand Internet content, and seamless ser-vice through a combination of traditionaland electronic channels.
PERSONAL FINANCIAL SERVICES EUROPE
CREDIT SUISSE ASSET MANAGEMENT
CREDIT SUISSE
7
CREDIT SUISSE GROUP BUSINESS REVIEW AND CONSOLIDATED RESULTS
Credit Suisse Group posted a net profit of CHF 5.2 bn, 70% higher than
in the previous year, and an increase in revenue of 28%. All business
units achieved record results and strong growth. The Group’s ROE
increased to 18.2%. Assets under management grew by CHF 242 bn or
26% to CHF 1,180 bn. As of 1 April 2000, the Group established the new
‘Financial Services’ management division, with the aim of advancing the
integration of banking, insurance and e-commerce and supporting
dynamic business development.
Credit Suisse Group’s net operating income rose to CHF 27.9 bn, an increase of 28%
on the previous year. Commission and service fee income, which includes income from
asset management products and services, rose by 31% to CHF 10.9 bn. After last
year’s setback, income from trading rose by 177% to CHF 6.6 bn. Interest income
rose by 2% to CHF 5.3 bn. Insurance business contributed CHF 5.1 bn
(1998: CHF 5.4 bn) to the Group’s net operating income.
Operating expenses rose by 24% to CHF 18.7 bn. Personnel expenses climbed
28% to CHF 13.5 bn, mainly as a result of the 68% increase in performance-related
staff incentive payments to CHF 5.2 bn. Other operating expenses rose by 17% to
CHF 5.2 bn, primarily as a result of investment in growth and e-commerce initiatives.
The cost/income ratio improved from just over 72% to 71%.
Gross operating profit went up by 38% to CHF 9.1 bn. Depreciation, valuation
adjustments and losses decreased by 33% to CHF 2.6 bn. The overall tax bill doubled
to CHF 1.1 bn, reflecting higher income. After deducting minority interests of CHF 118 m,
Credit Suisse Group posted a net profit of CHF 5.2 bn, 70% higher than in 1998,
with no extraordinary events having a material impact on the result.
Total assets under management grew by CHF 242 bn, or 26%, to CHF 1,180 bn,
of which CHF 62 bn, or 7%, were net new assets. At year-end, total equity amounted
to CHF 34.4 bn, up 22%. Consolidated return on equity (ROE) improved from 11.7%
to 18.2%. Book value per share rose by 25% to CHF 119.84, while net profit per
share (EPS) came to CHF 19.24 (up 68%). At the Annual General Meeting on
26 May 2000 the Board of Directors will propose an increase in dividend from CHF 5
to CHF 7 per registered share.
As at 31 December 1999, Credit Suisse Group had 63,963 employees
(1998: 61,580), of which 27,454 were in Switzerland (1998: 27,452).
Strong growth in all business units Credit Suisse more than doubled its net profit
to CHF 451 m. Its return on equity rose from 4.8% to 10.3%. Total revenue increased
by 8%, while operating expenses rose by 1%. The cost/income ratio improved further
from 71% to 67%. Assets under management rose by CHF 21 bn, or 18%, to
51%
12%
17%
16%
REVENUE CONTRIBUTION BY BUSINESS UNIT
CSCSPBCSFB
CSAMWinterthur
4%
15,185
11,404
8,371
25,829
STAFF NUMBERS BY BUSINESS UNIT
CSCSPBCSFB
CSAMWinterthur
2,000
8
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 9
CHF 141 bn, of which CHF 14 bn, or 12%, was accounted for by net new assets. In
e-commerce, Credit Suisse continues to take a leading position in Switzerland: the
number of online banking customers more than doubled to over 212,000 by the end of
the first quarter of 2000. Youtrade, which became the first direct brokerage service in
Switzerland when it was launched in April 1999, had around 16,000 customers by end-
March 2000. Around 47% of all securities transactions at Credit Suisse are executed
online.
Credit Suisse Private Banking posted a net profit of CHF 1.9 bn in 1999, a 14%
increase on the previous year. Total revenue rose by 10%, while operating expenses
increased by 11%, mainly owing to higher personnel expenses (up 13%) and investment
in new technologies. The cost/income ratio remained at 47%. Assets under manage-
ment expanded by CHF 74 bn or 18% to CHF 477 bn, of which CHF 20 bn
(1998: CHF 17 bn) were net new assets. Lugano-based Banca di Gestione Patri-
moniale, founded in the second half of 1999, opened its doors for business in mid-
February 2000. Zurich-based Bank für Handel und Effekten will, during the second
quarter of 2000, be integrated into Bank Hofmann, a Zurich-based independent private
bank under the umbrella of Credit Suisse Private Banking. With this step, Bank Hof-
mann will expand its asset base, while adding credit expertise to its range of services.
With new products in e-commerce (e.g. Fund Lab; Derivatives, IPOs and Bond Issues;
Insurance Lab), the business unit continued to be an innovator in the electronic delivery
of private banking products and services.
Credit Suisse First Boston regained its earnings strength, posting a net profit of
USD 1.3 bn (CHF 1.9 bn). The firm has consistently applied its strategy of growing
client business involving less capital and risk, and simultaneously achieved good
increases in market share in equities and improved its ranking in fixed income, as well
as in mergers and acquisitions. Total revenue rose by 45% on a USD basis, or by 51%
on a CHF basis, with strong contributions from equities business (up 94%/102%),
fixed income and derivatives business (up 63%/70%) and investment banking (up
22%/27%). Operating expenses went up by 35% (USD) or by 40% (CHF), reflecting
higher bonus accruals in line with revenue growth, investment in growth and e-commerce
initiatives, as well as the significant shift in the business mix.
34%
8%
35%
19%
PROFIT CONTRIBUTION BY BUSINESS UNIT
CSCSPBCSFB
CSAMWinterthur
4%
9
10
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 10
Credit Suisse Asset Management posted a net profit of CHF 235 m (up 5%). Cash
earnings, which have become an accepted profit measure for the asset management
business, increased by 19% to CHF 279 m. Revenue increased by 35%, while operating
expenses rose by 44%, mainly reflecting investments in information technology
and European retail infrastructure, as well as the acquisition of Warburg Pincus Asset
Management. Discretionary assets under management grew by CHF 112 bn, or
53%, to CHF 324 bn, of which CHF 18.5 bn (9%) was attributable to net new assets,
CHF 57.5 bn (27%) to market gains and CHF 36 bn (17%) to the acquisition of
Warburg Pincus. Total assets under management amounted to CHF 425 bn (up 43%).
Winterthur achieved a net profit of CHF 1.1 bn, up 22%, with both non-life and life
business contributing to the overall result. Gross premiums in non-life grew by 3%.
Following 1998’s tax-driven surge in Switzerland, life insurance premiums fell by 1%;
the compounded annual growth between 1997 and 1999 was 10%. Total premiums
grew by 1%, and assets under management grew by 16% to CHF 132 bn. The strength
of Winterthur’s insurance operations permitted a significant reduction in realised capital
gains (investment return was 6.3%). As a result of this investment strategy, which
is in line with the current market environment, total reported equity went up by 20%.
Through a series of acquisitions, Winterthur increased its customer base to more than
13 m clients in 14 European countries. With regard to e-commerce, it is offering trans-
action capabilities for household contents, motor, travel and life insurance in six
European countries under the brand name ‘webinsurance’, with more to follow.
Personal Financial Services Europe In Italy – the pilot market for ‘Personal
Financial Services Europe’ – Credit Suisse (Italy) is already successfully operating with
250 Personal Bankers and its own Call Center. Assets under management have more
than doubled since 1998 to CHF 4 bn (EUR 2.5 bn). The fifth Investment Center was
opened in Milan at the end of March and another fifteen are to follow over the course
of the year. Since April 2000, clients have also had direct access to comprehensive
financial and product information and various advisory tools over the Internet. In parallel
with these developments, preparations are currently underway for a pan-European
e-commerce platform. During the second half of the year, Credit Suisse Group will start
to offer online financial services, including brokerage, on the major European and over-
seas stock exchanges via a Group company domiciled in Luxembourg.
E-commerce Credit Suisse Group is fully focused on e-commerce, which it regards
as a driver of fundamental change in both the ‘business-to-business’ and ‘business-to-
consumer’ areas. The Group is offering a variety of e-commerce services as an alternative
to existing channels, as seen with Direct Net at Credit Suisse, webinsurance at Winterthur
and PrimeTrade at Credit Suisse First Boston. It has also used e-commerce as a means
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 11
to offer new products and attract new customer groups, such as with youtrade,
yourhome, Fund Lab and many others. Lastly, the Group is undertaking efforts which
fundamentally transform existing business concepts through start-ups such as the
‘Personal Financial Services Europe’ project and other initiatives.
Credit Suisse Group’s strategy is to capitalise on its strong brand, on its product
and service capabilities and on the interplay between traditional and new distribution
paradigms. Its goal is to have full e-commerce capabilities in all its primary businesses
by the end of this year and to be in a position to move forward as one of the most
successful established e-commerce market participants in financial services.
Outlook In the first months of the current year, all business units have posted excel-
lent results and are maintaining their strong growth momentum. Credit Suisse Group
expects the operating environment to remain volatile and challenging, but it is confident
of achieving further improvements in performance.
New ‘Financial Services’ management division
As of 1 April 2000 Credit Suisse Group adapted the organisational structure
which was introduced at the beginning of 1997 in line with the altered market
environment, in order to accelerate the Group’s growth further. Credit Suisse
(corporate and individual customers in Switzerland), Winterthur (worldwide insur-
ance business) and ‘Personal Financial Services Europe’ (affluent private clients
in Europe) will be combined to form the new ‘Financial Services’ management
division led by Thomas Wellauer, but will continue to appear in the market as
independent business units. Thomas Wellauer will remain Chief Executive Officer
of Winterthur.
The creation of the ‘Financial Services’ management division will pave the
way for the closer integration of banking, insurance and e-commerce with a view
to developing new customer service models as well as innovative products and
services. The focusing of strengths will facilitate the rapid and large-scale expansion
of e-commerce activities, the development of new business models in Switzerland
and the exploitation of additional business opportunities, especially in Europe.
11
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 12
OVERVIEW OF BUSINESS UNIT RESULTS
CASH & TIME DEPOSITS
SECURITIES ACCOUNTS
Fixed income, equity and balanced safekeeping accounts
– of which fixed income
– of which equities
– of which balanced
Investment funds
– of which Credit Suisse Asset Management investment funds
Other
TOTAL SECURITIES ACCOUNTS
FIDUCIARY TIME DEPOSITS
TOTAL
– of which advisory
– of which discretionary
Private Equity
TOTAL INCL. PRIVATE EQUITY
CreditSuisseGroup
112
825
361
387
77
105
78
64
994
68
1 174
604
570
6
1,180
WinterthurGroup
4
102
66
36
–
5
–
22
128
–
132
–
132
CreditSuisseAsset
Management
6
386
146
163
77
–
–
31
417
1
425
100
324
Credit SuissePrivate
Banking
38
304
140
164
–
68
50
4
376
63
477
365
112
CreditSuisse
65
34
9
25
–
32
28
7
73
3
141
139
2
1999in CHF m
REVENUE
Personnel expenses
Other operating expenses
TOTAL OPERATING EXPENSES
GROSS OPERATING PROFIT
Depreciation and write-offs on non-current assets
Valuation adjustments, provisions and losses1)
PROFIT BEFORE EXTRAORDINARY ITEMS/TAXES
Extraordinary income
Extraordinary expenses
Taxes
NET PROFIT BEFORE MINORITY INTERESTS
– of which minority interests
NET PROFIT (after minority interests)
Average allocated equity capital
Return on average equity capital
Equity capital allocation as of 1 January 20001) net of allocation (–)/release (+) of reserves for
general banking risks 2) defined as premiums earned (net), less claims incurred and expenses for processing claims as well as actuarial provisions, less commissions (net), plus investment
income from insurance business; expenses from the handling of both claims and investments are allocated to revenue; personnel expenses non-life: CHF 365 m, life:CHF 253 m, other operating expenses non-life: CHF 275 m, life: CHF 212 m.
CreditSuisseGroup
27,870
13,509
5,229
18,738
9,132
1,045
1,540
6,547
93
152
1,149
5,339
118
5,221
Adjustmentsincluding
CorporateCentre
–584
476
–701
–225
–359
349
89
–797
2
111
–574
–332
5
–337
WinterthurLife
1,564
509
422
931
633
75
0
558
WinterthurNon-life
3,016
1,239
783
2,022
994
41
0
953
CreditSuisseAsset
Management
1,149
467
377
844
305
44
0
261
0
2
24
235
0
235
540
n/a
1,054
CreditSuisse
FirstBoston
14,532
7,999
2,714
10,713
3,819
439
786
2,594
0
0
713
1,881
1
1,880
9,925
19.0%
10,494
0
CreditSuissePrivate
Banking
4,715
1,418
768
2,186
2,529
46
55
2,428
40
22
516
1,930
19
1,911
2,771
n/a
2,875
–31
CreditSuisse
3,478
1,401
866
2,267
1,211
51
610
550
51
17
130
454
3
451
4,411
10.3%
4,611
– 68
2)
2)
2)
2)
2)
2)
0
0
340
1,171
90
1,081
11,618
10.1%
12,607
1)
OVERVIEW OF ASSETS UNDER MANAGEMENT31 Dec. 1999in CHF bn
12
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 13
BUSINESS UNIT ACCOUNTING PRINCIPLES
Unless stated below, Group accounting and valuation principles apply.
BUSINESS UNIT FINANCIAL STATEMENTS
The Credit Suisse Group financial statements reflect the organisational structure during
1999 and show the results of all business units as if they were legal entities operating
independently.
Financial information for the Corporate Centre includes income and expenses for
the Corporate Centre as well as all consolidation adjustments. Corporate Centre costs
attributable to operating business have been allocated to the respective business units.
The business unit financial results include operating financial information only. For
further details please refer to the relevant sections.
MATERIAL CHANGES DURING 1999
The following changes are reported for the individual business units (for details see
page 59):
Credit Suisse Private Banking BGP Banca di Gestione Patrimoniale SA,
Lugano
Credit Suisse Asset Management Warburg Pincus Asset Management,
New York
Winterthur Group DBV Winterthur Holding
National Insurance and Guarantee Corp. Plc
(NIG), London
Credit Suisse First Boston Credit Suisse First Boston International
INCOME STATEMENT
General
To reconcile business unit accounts with legal entity accounts, certain adjustments have
been made in the Corporate Centre (included in the ‘Adjustments including Corporate
Centre’ column).
Items such as restructuring costs are reflected in the Corporate Centre only.
Expenses relating to projects sponsored by Credit Suisse Group that are not charged out
to the business units are included in the ‘Adjustments including Corporate Centre’ column.
Inter-business unit revenue splits
Responsibility for each of our products is allocated to one of the business units. When
one business unit contributes to the performance of another, revenue allocations have
been established to compensate for such efforts. Revenue allocations are shown in the
relevant income statement line.
13
14
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 14
Inter-business unit cost allocations
Certain administrative and IT tasks (‘services’) may be concentrated in one business
unit, which acts as a provider for the other business units. Such services are compen-
sated for on the basis of service level agreements and transfer payments (which include
personnel and other operating expenses). These are reflected in the ‘Other operating
expenses’ line of the income statement.
Real estate used by the bank
All real estate in Switzerland, mainly bank premises, is managed centrally. The costs
reflect market rent, plus an additional charge if actual costs exceed market rent. These
costs are included in ‘Other operating expenses’.
Provisions for credit risk
Actual credit provisions exceeding the anticipated credit provision derived from statistically
expected losses are booked against the ‘Reserves for general banking risks’ held at
Group level and netted in the business unit ‘Valuation adjustments, provisions and losses’
income statement line. If the actual credit provisions are below the anticipated credit
losses, the remaining amount is allocated to the ‘Reserves for general banking risks’.
Taxes
Taxes are calculated for individual business units based on average tax rates across
their geographical range. The difference between these and actual tax expenses has
been adjusted in the ‘Adjustments including Corporate Centre’ column.
BALANCE SHEET
General
The balance sheets of the banking business units include the appropriate proportion of
bank premises occupied in Switzerland and abroad.
Equity allocation
Available equity is allocated to the business units on the basis of average regulatory
capital required during the period.
KEY PERFORMANCE INDICATORS
Ratios per head have not been calculated because some Group-wide services are pro-
vided centrally by one or other of the business units, meaning that staffing required for
services received is not reflected in the recipient business unit’s headcount.
ASSETS UNDER MANAGEMENT
Assets under management include client-related on and off-balance-sheet assets.
Where two business units share responsibility for managing funds (such as investment
funds), the assets under management are included in both business units.
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 15
REPORT OF THE GROUP’S AUDITORS ON THE BUSINESS UNIT FINANCIAL STATEMENTS OF CREDIT SUISSE GROUP, ZURICH
We have performed certain procedures enumerated below in relation to the 1999 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 pre-
pared for illustrative purposes only, are set out on pages 12–34 of the annual report.
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 procedures
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 R. Nelson Peter Hanimann
Chartered Accountant Certified Accountant
Auditors in Charge
Zurich, 9 March 2000
15
CORPORATE AND INDIVIDUAL CUSTOMERS IN SWITZERLAND
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 16
1999 was a very successful year for Credit Suisse. Net profit more than
doubled to CHF 451 m compared to the previous year. The bank’s return
on equity rose from 4.8% to 10.3%. Total revenue increased by 8.4%, while
operating expenses increased modestly – up 0.6%. The cost/income
ratio improved from 71.2% to 66.6%.
During 1999, Credit Suisse continued to improve its profitability through strong revenue
growth. Lendings increased by 7.1% or CHF 6.0 bn, with mortgage growth accounting
for 5.2%, or CHF 4.4 bn. This growth was achieved without compromising lending
policy or the strict application of risk-adjusted pricing. Assets under management rose
by more than 17.5% or CHF 21 bn to CHF 141 bn, of which 11.7% or CHF 14 bn
was net new business. Credit Suisse also further grew its market share in the invest-
ment fund business. Assets under management held in investment funds grew by 34%
to CHF 32.2 bn.
In individual customer business, the trend towards greater savings through
investment in securities continued. In pensions business, the volume of security invest-
ments rose by over 70% to CHF 1.6 bn. Further progress was made in expanding
bancassurance activities. The travel insurance package launched with Winterthur at the
beginning of June was well received, selling 14,000 units. In credit card business,
a 35% increase in cards issued and the purchase of about 340,000 cards from
Europay’s Eurocard portfolio enabled Credit Suisse to double its market share to 24%.
Average allocated equity capital CHF m
Allocated equity capitalCHF m (1 January 2000/1999)
Cost/income ratio – excl. amortisation of goodwill
Return on average equity capital
Number of employees at 31 Dec.
Pre-tax margin
Personnel expenses/total expenses
Personnel expenses/total income
Number of branches at 31 Dec.
Net interest margin
Loan growth at 31 Dec.
Deposit/loan ratio at 31 Dec.
Assets under managementCHF bn at 31 Dec.
1998
4,230
4,450
71.2%71.1%
4.8%
11,568
7.6%
62.6%
44.0%
241
2.21%
10.4%
71.8%
120
1999
4,411
4,611
66.6%66.3%
10.3%
11,404
16.8%
61.8%
40.3%
239
2.35%
7.8%
71.4%
141
RATIOS/KEY PERFORMANCE INDICATORS
16
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 17
In corporate customer business, lendings in the low and medium risk classes grew
4.9%. Above-average growth was recorded in lendings to small and medium-sized
enterprises (SME), with venture capital financing and consultancy services for struc-
tured financing contributing to this success. Trade financing volumes were up 30%,
with Credit Suisse’s wider range of services and high level of commitment in this area
both having a positive impact. Market share in foreign exchange trading was further
expanded, reflecting the range of comprehensive, tailor-made hedging solutions on
offer.
Direct banking saw the number of online customers more than double to over
212,000 by the end of the first quarter of 2000. Youtrade, the first discount brokerage
service via telephone and the Internet in Switzerland, launched in April 1999, proved a
great success, with around 16,000 customers by the end of March 2000. 47% of all
securities transactions at Credit Suisse are now executed online via Direct Net and
youtrade.
Yourhome is another innovative package of Internet-based services from Credit
Suisse. It is aimed at people looking to buy a home and offers a full range of relevant
products and services both from Credit Suisse and from external partners. E-commerce
services will be expanded continuously. Lafferty Internet Ratings recently named Credit
Suisse the best Internet bank in Europe for the second year running.
INCOME STATEMENT
Net interest income
Net commission and service fee income
Net trading income
Other ordinary income
REVENUE
Personnel expenses
Other operating expenses
TOTAL OPERATING EXPENSES
GROSS OPERATING PROFIT
Depreciation and write-offs on non-current assets
– of which amortisation of goodwill
Valuation adjustments, provisions and losses*
PROFIT BEFORE EXTRAORDINARY ITEMSAND TAXES
Extraordinary income
Extraordinary expenses
Taxes
NET PROFIT
– of which minority interests
NET PROFIT (after minority interests)
* net of allocation (–)/release (+) of reserves for general banking risks
1998in CHF m
2,096
845
220
48
3,209
1,412
842
2,254
955
30
4
666
259
36
51
43
201
– 4
205
11
Changein %
6
12
5
56
8
–1
3
1
27
70
225
– 8
112
42
– 67
202
126
–
120
1999in CHF m
2,227
946
230
75
3,478
1,401
866
2,267
1,211
51
13
610
550
51
17
130
454
3
451
– 68
17
18
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 18
1999 results Total revenue increased 8.4% to CHF 3,478 m. An increase in lending
volumes and an improved overall interest margin owing to lower interest arrears from non-
performing loans resulted in a 6% increase in interest income. Commission and service
fee income rose by 12%, with securities (including investment fund commissions) and
service fee business contributing in equal parts to this growth. Trading income gener-
ated from revenues from customers’ foreign exchange, foreign banknotes and precious
metals business rose 5%, despite the introduction of the euro. Operating expenses
increased modestly (0.6%), resulting in gross operating profit of CHF 1,211 m, up 27%.
As a result, the cost/income ratio improved a further 4.6 percentage points to 66.6%.
At CHF 99.9 bn, total assets were up 7% over 31 December 1998. Lending
volumes increased by 7.1% to CHF 90.8 bn over the same period, while customer
deposits grew by 6.4% to CHF 64.9 bn.
Valuation adjustments, provisions and losses amounted to CHF 610 m. This fig-
ure includes statistically determined credit risk costs of CHF 600 m and CHF 10 m
in other provisions. Actual valuation adjustments on credit exposure decreased by 20%
compared with 1998 and were CHF 68 m below the statistically anticipated value.
Overall, the risk profile of the credit portfolio improved substantially.
Net profit for the year was CHF 451 m, which represents an ROE of 10.3%,
more than double the result for the previous year.
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 19
BALANCE SHEET
Cash and other liquid assets
Money market claims
Due from banks
Due from otherbusiness units
Due from customers
Mortgages
Securities and precious metals tradingportfolio
Financial investments
Participations
Tangible fixed assets
Accrued income and prepaid expenses
Other assets
TOTAL ASSETS
Due to banks
Due to other business units
Due to customers, in savings andinvestment accounts
Due to customers, other
Medium-term notes
Bonds and mortgage-backed bonds
Accrued expenses and deferred income
Other liabilities
Valuation adjustments and provisions
Capital
– of which minority interests
TOTAL LIABILITIES
* On the basis of the changes to the accounting principles, the accounting for securities lending and borrowing transactions waschanged in 1999. Using the revised accounting rules, the 1998 balance sheet total would have been reduced by CHF 166 m.
31 Dec.1998 * in CHF m
869
563
633
1,187
26,245
58,596
54
1,873
49
2,278
194
894
93,435
1,888
13,101
37,429
23,517
5,841
5,399
548
903
169
4,640
10
93,435
Changein %
58
–13
3
– 9
6
8
– 61
– 9
–37
–2
51
31
7
3
27
–3
21
–34
3
– 8
66
–20
4
30
7
31 Dec. 1999in CHF m
1,374
489
654
1,080
27,816
63,024
21
1,711
31
2,237
292
1,174
99,903
1,938
16,689
36,330
28,530
3,883
5,563
504
1,501
135
4,830
13
99,903
19
SERVICES FOR PRIVATE INVESTORS IN SWITZERLAND AND ABROAD
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 20
In 1999 Credit Suisse Private Banking improved on its excellent perfor-
mance in 1998. Net profit before minority interests increased by 14% to
CHF 1,911 m and assets under management grew by 18% to CHF 477 bn.
The growth was the result of innovative product offerings, very strong
investment performance and the acquisition of new portfolios. Credit
Suisse Private Banking was thus able to further strengthen its position
as one of the world’s leading private banks. At the same time, it consoli-
dated its position as one of the most dynamic providers of Internet
banking services.
In 1999, Credit Suisse Private Banking produced strong growth and very good results
in an increasingly competitive environment, and invested heavily in its business activities.
In three areas, the bank faced particularly large challenges: new client groups with
different requirements, increasing performance pressure, and price pressure caused by
the deployment of new technologies. In all three areas, Credit Suisse Private Banking
tackled the challenges head on and came up with innovative solutions.
INCOME STATEMENT
Net interest income
Net commission and service fee income
Net trading income
Other ordinary income
REVENUE
Personnel expenses
Other operating expenses
TOTAL OPERATING EXPENSES
GROSS OPERATING PROFIT
Depreciation and write-offs on non-current assets
– of which amortisation of goodwill
Valuation adjustments, provisions and losses*
PROFIT BEFORE EXTRAORDINARY ITEMSAND TAXES
Extraordinary income
Extraordinary expenses
Taxes
NET PROFIT
– of which minority interests
NET PROFIT (after minority interests)
* net of allocation (–)/release (+) of reserves for general banking risks
1998in CHF m
852
2,713
551
159
4,275
1,250
712
1,962
2,313
39
5
177
2,097
60
35
435
1,687
16
1,671
25
Change in %
5
15
7
–31
10
13
8
11
9
18
40
– 69
16
–33
–37
19
14
19
14
1999in CHF m
898
3,115
592
110
4,715
1,418
768
2,186
2,529
46
7
55
2,428
40
22
516
1,930
19
1,911
–31
20
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 21
In traditional private banking, where the relationship manager plays the central role,
the trend away from product-focused portfolio management and towards comprehen-
sive financial advice intensified. Credit Suisse Private Banking responded by expanding
the breadth and depth of individual investment consulting services, offering its clients
added value through comprehensive solutions to complex problems.
One of Credit Suisse Private Banking’s main goals last year was to substantially
increase the quality of its products and services. It managed to do this by implement-
ing the following measures: specialisation in the products and services area, greater
use of new technologies for the benefit of clients, and selling its own and other compa-
nies’ products with the aim of offering its clients the best products on the market.
The clearest demonstration of these fundamental changes in strategy and posi-
tioning came with the wide range of online services that Credit Suisse Private Banking
launched at www.cspb.com in 1999. These services have helped to make the market
much more transparent for users:
– Fund Lab, launched in March 1999, made it possible for the first time to compare
and purchase mutual funds from a wide selection of European, American and
Asian providers. By the end of the year, more than 700 investment funds from
28 providers were available through Fund Lab. All products – the bank’s own and
those of other companies – are, with a few exceptions, offered at uniform issuing
rates.
– In April, youtrade was launched in conjunction with Credit Suisse. This service
offers investors the opportunity to trade in securities directly, quickly, securely and
on favourable terms via the Internet and by telephone.
– Since June, Investors’ Circle has allowed clients to access relevant market and
research information specifically designed for private clients.
– During October, three additional Internet services were launched: Investment Pro-
posal Online, an interactive advisory program, generates an investment proposal
based on the investor’s personal risk profile; a second database gives an overview
of the latest IPOs, derivatives and bond issues from leading issuing houses, whilst
an information service from Reuters provides market quotes and news.
– Launched in December, Insurance Lab enables clients to compare life insurance
products from different companies and select interactively the insurance product
best suited to their individual needs.
21
22
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 22
Fund Lab demonstrates the importance of the new Internet services to the bank’s
overall success. In 1999 it contributed substantially to the massive and sustained
increase in sales of proprietary and third-party funds. Every week Credit Suisse Private
Banking receives requests from external fund companies wanting to have their funds
included in Fund Lab. The database registers more than 50,000 hits per day. The inno-
vative qualities of Fund Lab won Credit Suisse Private Banking the ‘Global Fund Leader
of the Year 1999’ award from a leading UK investment fund publication.
The creation of a new bank and two acquisitions added to Credit Suisse Private
Banking’s progress in 1999. In the second half of the year, a new private bank, Banca
di Gestione Patrimoniale, was founded in Lugano. As an independent private bank, it
fills a strategic gap in the Italian-speaking market. The new bank opened for business
in the middle of February 2000. Outside Switzerland, Credit Suisse Private Banking
made two acquisitions in Spain during 1999. In March it bought Gestión Integral and in
July it acquired the private banking business of ABN AMRO. These purchases
strengthened Credit Suisse Private Banking’s position as one of the leading foreign
financial institutions in the strategically important Spanish market.
New representative offices in Beirut, Athens and Istanbul were opened during
1999 and Credit Suisse Trust Limited was established in the Bahamas. Bank für Han-
del und Effekten will, during the second quarter of 2000, be integrated into Bank Hof-
mann, an independent private bank under the umbrella of Credit Suisse Private Bank-
ing. Bank Hofmann will thus expand its asset base while adding credit expertise to its
range of services. At the end of 1999 Credit Suisse Private Banking had a total of
51 Swiss branches and a further 36 offices outside Switzerland.
Total assets
Due from customers– of which secured by mortgages– of which secured by other collateral
* On the basis of the changes to the accounting principles, the accounting forsecurities lending and borrowing transactions was changed in 1999. Using therevised accounting rules, the 1998 balance sheet total would have been reducedby CHF 6,515 m.
31 Dec.1998*in CHF m
83,913
22,544
6,505
14,042
31 Dec. 1999in CHF m
99,651
31,902
7,667
22,731
BALANCE SHEET INFORMATION
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 23
1999 results In a turbulent market characterised by inflationary fears, low bond yields
and resurgent equity markets, Credit Suisse Private Banking was able to repeat its
strong first-half performance in the second half of the year. Assets under management
grew by CHF 74 bn, or 18%, compared with 1998, of which CHF 20 bn, or 5%, was
net new business. At year-end, assets under management totalled CHF 477 bn. Total
revenue rose by 10.3%, with most of the growth attributable to a 14.8% improvement
in commission and service fee income. Trading income and interest income were also
up, by 7.4% and 5.4% respectively. Operating expenses increased by 11.4%, the two
main drivers being greater investment in new technologies and performance-related
remuneration (+13.4%). Staff numbers decreased slightly – from 8,399 to 8,371. The
cost/income ratio was virtually unchanged on last year’s level at 47%. There was a
significant reduction in valuation adjustments, provisions and losses (down 69% at
CHF 55 m), reflecting improved risk management and much lower provisions. Net
profit increased by 14.3% to CHF 1,911 m. The ratio of net profit to average assets
under management rose from 42 bp to 44 bp.
1999 1998
Average allocated equity capital CHF m
Allocated equity capitalCHF m (1 January 2000/1999)
Cost/income ratio – excl. amortisation of goodwill
Number of employees at 31 Dec.
Pre-tax margin
Fee income/total income
Fee income/operating expenses
Assets under management CHF bn at 31 Dec.
Growth in assetsunder management at 31 Dec.
– of which volume– of which performance
After-tax profit/Ø assets under management
2,771
2,875
47.3%47.2%
8,371
51.9%
66.1%
142.5%
477
18.4%5.0%
13.4%
44 bp
2,596
2,200
46.8%46.7%
8,399
49.6%
63.5%
138.3%
403
5.9%4.5%1.4%
42 bp
KEY PERFORMANCE INDICATORS
23
GLOBAL INVESTMENT BANKING
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 24
Credit Suisse First Boston is positioned at the forefront of its industry in harnessing
change for clients and in its own activities – key attributes for success in the ‘new
economy’. Credit Suisse First Boston’s strategy since 1997 has been to strengthen its
global special bracket position through targeted growth of client business and consolida-
tion of the more capital-intensive Fixed Income & Derivatives businesses in which the
firm remains a market leader. This emphasis was accentuated following the losses in
1998. In 1999, further progress was made in moderating value at risk and balance sheet
utilisation. The new ‘Strategic Risk Management’ function made a strong contribution,
especially to improving the quality of risk assessment and focusing on risk concentrations.
Credit Suisse First Boston has come through a demanding period with excellent earn-
ings recovery, underpinned by market share advances and further investment in the
future. Stable staff numbers, strategic direction and investment have supported this
achievement.
CSFB has been distributing fixed income securities electronically since 1993.
During 1999 significant effort was expended on ‘e-nabling’ numerous aspects of our
interaction with securities clients. Through our affiliation with TradeWeb (which was
founded by CSFB), and our proprietary PrimeTrade offering, clients can purchase US
government bonds, commercial paper, repurchase agreements, deposits, new issue
debt offerings, FX and futures electronically. Indications of interest for equity IPOs can
be submitted via the web at ‘IPOs@CSFB’ while clients may execute orders through
CSFB’s alliances with e*offering and TD Waterhouse.
1999 was a year of strong achievement and robust financial results atCredit Suisse First Boston. Revenues rose to record levels, up 45% to USD 9.8 bn (CHF 14.5 bn), while net profit was USD 1.3 bn (CHF 1.9 bn),producing a 19% return on equity. Credit Suisse First Boston gainedmarket share worldwide in almost all its client business areas for the third successive year. It aims to cement its position as one of the world’s leading global investment banks through additional investmentin expanding client business, modernising infrastructure and strengthen-ing e-commerce activities.
1999 1998
Average allocated equity capital CHF m
Allocated equity capital CHF m (1 January 2000/1999)
BIS tier 1 ratio*
Cost/income ratio – excl. amortisation of goodwill
Return on average equity capital
Number of employees at 31 Dec.
Pre-tax margin
Personnel expenses/total expenses
Personnel expenses/total income
* applies to the Credit Suisse First Boston bank
10,176
9,340
8.4%
82.5%82.4%
–2%
14,126
0.5%
69.8%
55.5%
9,925
10,494
9.9%
76.7%76.3%
19.0%
15,185
17.9%
74.7%
55.0%
RATIOS/KEY PERFORMANCE INDICATORS
24
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 25
Significant enhancements will be implemented this coming year in the web-based distri-
bution of equity and fixed income research (‘Research_View’). CSFB has created a
dedicated investment pool to invest in new business models that might impact our institu-
tional businesses, with six investments having been made to date, including Redibook
(US), Tradepoint (UK) and Brokertec (US & UK).
1999 results Overall, conditions on the financial markets were good, although they
deteriorated in the second half for most fixed income segments. Strong revenue growth
(45% on a USD basis) reflects market share gains in most areas, as well as a recovery
in Fixed Income & Derivatives versus 1998. The firm’s quality of earnings improved,
with revenue diversification in favour of Equities and Investment Banking and the client
segments of Fixed Income & Derivatives businesses. Precautionary credit and related
reserves increased in view of a cautious medium-term outlook. The firm’s business mix
moved to greater client orientation, reflecting a less capital-intensive, more people-
intensive strategy. Consequently, average allocated equity for 1999 declined 6% com-
pared to 1998 in USD terms, whilst a strong 9.9%* BIS tier 1 ratio (legal entity) was
maintained. The pre-tax margin reflects this mix change, with employee numbers up
* applies to the Credit Suisse First Boston bank
INCOME STATEMENT
Fixed Income & Derivatives
Equity
Investment Banking
Private Equity
Other
REVENUE
Personnel expenses
Other operating expenses
TOTAL OPERATING EXPENSES
GROSS OPERATING PROFIT
Depreciation and write-offs on non-current assets
– of which amortisation of goodwill
Valuation adjustments, provisions and losses**
PROFIT BEFORE EXTRAORDINARY ITEMS AND TAXES
Extraordinary income
Extraordinary expenses
Taxes
NET PROFIT/LOSS
– of which minority interests
NET PROFIT/LOSS (after minority interests)
** net of allocation(-)/release(+) of reserves for general banking risks
The business unit income statement differs from the Group’s legal accounts in presenting brokerage, execution and clearing expenses as part of operating expenses in common with US competitors, rather than netted against revenues.
Changein %
63
94
22
–75
– 99
45
44
13
35
87
51
425
–52
–
–100
–100
209
n/a
n/a
n/a
1998in USD m
2,586
1,655
1,791
521
160
6,713
3,728
1,613
5,341
1,372
195
8
1,095
82
11
57
155
–119
35
–154
214
1999in USD m
4,221
3,212
2,189
129
2
9,753
5,368
1,822
7,190
2,563
295
42
527
1,741
0
0
479
1,262
0
1,262
0
Changein %
70
102
27
–74
– 99
51
50
18
40
95
57
464
–50
–
–100
–100
223
n/a
n/a
n/a
1998in CHF m
3,699
2,366
2,561
745
229
9,600
5,332
2,307
7,639
1,961
279
11
1,566
116
15
81
221
–171
50
–221
306
1999in CHF m
6,290
4,786
3,262
191
3
14,532
7,999
2,714
10,713
3,819
439
62
786
2,594
0
0
713
1,881
1
1,880
0
25
26
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 26
7.5% over the last twelve months. Operating expenses (excluding compensation) rose
13%, owing to the headcount increase, Y2K costs and other infrastructure expenditure.
Total compensation expenses rose as a result of revenue increases, business mix and
competitor remuneration.
In geographic terms, Credit Suisse First Boston’s unique balance was again
reflected by revenues split 42% North America, 35% Europe and 23% the rest of the
world. The individual divisions performed as follows (percentages reflect dollar figures):
Equity Revenues increased 94%, with ROE significantly exceeding 30% despite
continued investment in people for further growth. For the first time Equities’ net profit
exceeded that of FID. The ‘cash’ businesses boosted revenues by over 100% from the
previous year’s level, while derivatives and other equity businesses also saw strong
gains. Growth came from all geographic regions. Excellent gains in primary and sec-
ondary market shares and in research rankings around the world underpin this success.
The positive impact of Credit Suisse First Boston’s leading position in technology indus-
try activities particularly benefited Equities (and Investment Banking).
Fixed Income & Derivatives (FID) Despite market conditions that deteriorated
during the year, FID recovered well from 1998’s difficulties with revenues up 63%.
Management successfully tackled the challenges of integrating Credit Suisse Financial
Products (following the repurchase of the 20% minority stake from Swiss Re in April
1999) and restructuring the division to accommodate tighter risk disciplines and capital
profitability. Despite more challenging market conditions in the second half, reduced
profit potential following risk reduction and real estate losses, a 16% ROE was
achieved. The merged activities in Credit Products enjoyed excellent growth and
Emerging Markets’ results were strong. An outstanding performance in Latin America
offset the Russian gap and complemented good results from other regions.
A recovery in Distressed Securities’ performance compensated for declines in For-
eign Exchange and Money Markets. Real Estate products registered losses, reflecting a
reduction in risk concentration and increased precautionary provisioning levels. Credit
Suisse First Boston’s debt capital markets underwriting position strengthened further to
number four in the global rankings.
Investment Banking (IBD) Revenues increased 22% despite further reductions in
net interest income owing to a smaller loan book. Capital employed in lending has
been reduced by 66% since 1997 and has now reached the target range of below
USD 1 bn. Underlying growth is excellent, with M&A and capital markets’ gross revenues
up 42% on 1998. Credit Suisse First Boston has expanded its client coverage capacity
in IBD substantially during the last 24 months. While this heavy investment implies an
initial drag on profits, the resultant market share gains, complementing those of Equities,
enhance Credit Suisse First Boston’s prospects for growth and diversified earnings.
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 27
Private Equity The investment of Credit Suisse First Boston’s globally managed pri-
vate equity funds, totalling USD 3.6 bn, is now accelerating. The current level of
revenues reflects limited harvesting of previous investments. The organisation was
strengthened further, mainly in Europe.
BALANCE SHEET
Cash
Money market paper
Due from banks
– of which securities lending and reverse repurchase agreements
Due from other business units
Due from customers
– of which securities lending and reverse repurchase agreements
Mortgages
Securities and precious metals trading portfolio
Financial investments
Participations
Tangible fixed assets
Goodwill
Accrued income and prepaid expenses
Other assets
– of which replacement value of derivatives
TOTAL ASSETS
TOTAL ASSETS in USD m
Money market liabilities
Due to banks
– of which securities borrowing and repurchase agreements
Due to other business units
Due to customers, in savings and investment deposits
Due to customers, other
– of which securities borrowing and repurchase agreements
Bonds and mortgage-backed bonds
Accrued expenses and deferred income
Other liabilities
– of which replacement value of derivatives
Valuation adjustments and provisions
Capital
TOTAL LIABILITIES
TOTAL LIABILITIES in USD m
* On the basis of the changes to the accounting principles, the accounting for securities lending and borrowing transactionswas changed in 1999. Using the revised accounting rules, the 1998 balance sheet total would have been reduced by CHF 9.8 bn.
Changein %
–1
21
22
72
31
–12
–17
2
22
–37
135
29
111
–15
–13
–15
10
–5
51
20
–10
– 42
–39
–2
38
3
18
–10
–18
44
27
10
–5
31 Dec. 1998 *in CHF m
1,175
18,860
138,726
78,303
1,894
61,522
28,634
7,178
100,963
10,072
436
1,947
535
6,845
49,555
46,347
399,708
290,696
19,923
185,335
74,915
16,350
180
71,157
22,714
33,464
8,844
53,007
49,481
1,638
9,810
399,708
290,696
31 Dec. 1999in CHF m
1,161
22,893
169,030
134,406
2,478
54,132
23,783
7,352
122,837
6,354
1,023
2,515
1,128
5,823
43,055
39,413
439,781
275,224
30,118
222,802
67,150
9,536
110
69,550
31,357
34,478
10,410
47,956
40,644
2,366
12,455
439,781
275,224
27
SERVICES FOR INSTITUTIONAL AND MUTUAL FUND INVESTORS WORLDWIDE
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 28
Performance in 1999 was strong with discretionary assets under manage-
ment increasing 53% over 1999 and revenue increasing 35%. Total assets
under management, including advisory, amounted to CHF 425 bn at
31 December 1999. Among the strategic achievements was the acquisition
of Warburg Pincus Asset Management in July 1999, which significantly
enhanced Credit Suisse Asset Management’s US franchise.
1999 growth in assets under management demonstrated Credit Suisse Asset Manage-
ment’s continued success in achieving internal growth as well as growth through acqui-
sitions. Discretionary assets under management totalled CHF 324 bn, up CHF 112 bn
or 52.8% over 1998; CHF 18.5 bn (8.7%) was due to net new business, CHF 57.5 bn
(27.1%) came from market appreciation and CHF 36 bn (17.0%) was due to the
acquisition of WPAM. Mutual funds grew by 63.5% to CHF 121 bn globally. Particularly
strong were the performances in the Luxembourg (+31%) and Swiss (+54%) mutual
fund families and Swiss institutional business. In Australia, growth in assets under man-
agement was also strong (+66%), buoyed by strong investment performance and a
very successful entry into the retail market.
1999 1998
Average allocated equity capital CHF m
Allocated equity capital CHF m (1 January 2000/1999)
Cost/income ratio – excl. amortisation of goodwill
After-tax profit/average assets under management
Number of employees at 31 Dec.
Pre-tax margin
Personnel expenses/total expenses
Personnel expenses/total income
Total assets under management CHF bn at 31 Dec.
Total discretionary funds CHF bn at 31 Dec.
Total mutual funds distributed CHF bn at 31 Dec.
Total advisory assets CHF bn at 31 Dec.
Growth in discretionaryassets under management– of which volume– of which performance – of which acquisition
180
170
70.2%70.1%
7.9 bp
1,577
29.7%
56.1%
38.6%
297
212
74
85
20.0%14.0%6.0%
n/a
540
1,054
77.3%75.4%
6.6 bp
2,000
22.5%
55.3%
40.6%
425
324
121
100
52.8%8.7%
27.1%17.0%
RATIOS/KEY PERFORMANCE INDICATORS
28
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 29
Acquisition of Warburg Pincus Asset Management On 6 July, CSAM closed the
acquisition of Warburg Pincus Asset Management for an initial purchase price of
USD 450 m. This acquisition significantly enhances CSAM’s US franchise, increasing
total assets under management in the United States by USD 23 bn at the date of
acquisition. The addition of Warburg Pincus significantly bolsters CSAM’s
presence in the US retail market through Warburg Pincus Mutual Funds and also gives
CSAM access to the US high net worth market. Warburg Pincus adds to CSAM’s
growing strength in equity products and as of 31 December 1999, equity and balanced
products represented 57% of CSAM’s total discretionary assets under management
globally.
1999 results Revenue increased by 35% to CHF 1,149 m. The growth in revenue
was exceeded by growth in assets under management, as the 1999 financial results
reflect only six months of results of the WPAM business. Operating expenses were
CHF 844 m versus CHF 586 m, up 44%, reflecting significant investments in informa-
tion technology and European retail infrastructure, as well as the half-year effect of the
WPAM business, including CHF 21 m of one-off acquisition-related expenses. Gross
operating profit was CHF 305 m, an increase of 15% over 1998. The increase in the
depreciation of non-current assets primarily reflects the amortisation of goodwill asso-
ciated with the acquisition. Cash earnings, which include the add-back of non-cash
charges, increased by 19% to CHF 279 m.
INCOME STATEMENT
Management and advisory feesNet mutual fund feesOther revenues
REVENUE
Personnel expensesOther operating expenses
TOTAL OPERATING EXPENSES
GROSS OPERATING PROFIT
Depreciation and write-offs on non-current assets– of which amortisation of goodwillValuation adjustments, provisions and losses
PROFIT BEFORE EXTRAORDINARY ITEMS AND TAXES
Extraordinary incomeExtraordinary expensesTaxes
NET PROFIT
– of which minority interests
NET PROFIT (after minority interests)
Cash earnings
Changein %
276022
35
4247
44
15
267–0
3
0100–20
5
0
5
19
1998in CHF m
59520651
852
329257
586
266
1210
254
01
30
223
0
223
235
1999in CHF m
75733062
1,149
467377
844
305
44220
261
02
24
235
0
235
279
29
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 30
Winterthur Group achieved a strong result in 1999 as net operating income
increased 22% to CHF 1.1 bn. Within this result the increasing strength of
Winterthur’s insurance operations permitted a 137 basis point reduction in
realised capital gains, resulting in a remarkable 6.3% reported return on
invested assets. Winterthur registered premium growth in nearly all mar-
kets, and total premiums grew by 1% to CHF 28.3 bn. The continued expan-
sion of bancassurance activities within Credit Suisse Group supported both
the efficiency and top-line growth improvements. Total assets under man-
agement grew 16% to CHF 132 bn, while Winterthur’s total reported equity
rose 20% to CHF 11.2 bn.
INSURANCE FOR PRIVATE AND CORPORATE CUSTOMERS WORLDWIDE
30
Winterthur’s non-life and life business both contributed strongly to the overall result.
Severe weather-related losses in Switzerland and neighbouring European countries par-
tially masked the scope of the performance improvement in non-life business. The
actual impact of these catastrophe losses was nevertheless contained through Win-
terthur’s global risk management programmes.
Through restructuring of local operations and improvements in process manage-
ment, Winterthur continued to improve its efficiency as total costs, including new invest-
ments, were held constant. Having reformulated its business strategy in 1998 with a
clear focus on the European markets, Winterthur announced a series of targeted acqui-
sitions in 1999 in the UK and Eastern Europe, building its retail customer base to
more than 13 million clients in 14 European countries. In addition, Winterthur’s control-
ling investment in DBV-Winterthur was consolidated through the acquisition of
Commerzbank’s 23% stake in DBV Winterthur Holding AG, to reach 69%. DBV-
Winterthur’s partnership with Commerzbank ended in the middle of February 2000, with
no great impact anticipated on future performance.
In 1999 Winterthur expanded its e-business initiatives, registering the
‘webinsurance.com’ domain in all key European countries. Winterthur currently has
business-to-consumer transaction capabilities in six countries for household contents,
motor, travel and life insurance. In addition, Winterthur has secured preferred provider
status on a number of relevant portals and sites, including one of Europe’s emerging
e-commerce auto businesses. Business-to-business transactions, typically supporting
intermediaries but also allowing corporate customers to tailor cover via the Internet, are
active in four countries. Winterthur will continue to invest in and promote the wide array
of agent, broker, bank and direct channels it has built up in the European markets, while
reinforcing its leadership position in the pan-European Internet distribution of insurance
products.
Life business In Italy, Spain, France and Portugal Winterthur achieved double-digit
growth rates in life premiums, with DBV-Winterthur also showing strong growth in Ger-
many. In Switzerland, life premiums fell from their tax-driven surge in 1998 and, with
historically low interest rates in the first half of 1999 and the prevalent price level in the
market, Winterthur chose not to underwrite policies which impair shareholder value. The
Swiss life business nonetheless registered an average 10% annual growth between
1997 and 1999. Winterthur was able to further strengthen its market position in
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 31
pension business in Central and Eastern Europe. With major pension market shares in
Hungary (15%) and the Czech Republic (9%), it now ranks among the top five pension
funds in these two countries. Winterthur also had a good start in the Polish pension
market, achieving a top-ten position in its first year.
In Asia Winterthur focused its retail activities on the asset accumulation and life
insurance business. In Hong Kong, Winterthur’s largest Asian market, life premiums
more than doubled. Winterthur also entered the Japanese life insurance market by
acquiring Nicos Life, an insurance company offering sophisticated asset accumulation
products to private clients through professional sales consultants. Though not included
in 1999 results, Nicos Life is expected to produce gross premiums of over CHF 400 m
in 2000.
Non-life business In its non-life business, Winterthur successfully managed an
extraordinary set of natural catastrophes in Switzerland and neighbouring countries, as
well as continued slow growth and intense price competition in many European mar-
kets. Major restructuring programmes in local units around the world reduced absolute
expenses by CHF 180 m (5% of total non-life expenses), positioning Winterthur’s non-
life business to continue adding value in difficult market conditions.
In the UK, Churchill expanded its market position and multi-distribution capacity by
acquiring the personal insurance broker Devitt and the National Insurance and Guar-
antee Corp. Plc, adding a million clients and CHF 1 bn in premiums. Churchill reported
a very strong 1999 performance and continues to set the standard for customer service
and profitability. Strong growth was also recorded in non-life business in Italy, France,
Portugal and the Netherlands. Non-life growth in Spain was contained as aggressive
FINANCIAL HIGHLIGHTS
Gross premiums
Net investment income
Operating profit before taxes/minority interests
Taxes
Net operating profit
– of which minority interests
NET OPERATING PROFIT (after minority interests)
Total assets under management
Technical provisions
Debentures outstanding
Shareholders’ equity(excl. minority interests)
Staff numbers
* adjusted for the sale of reinsurance business
Changein %
1
–3
16
11
18
–19
22
Changein %
16
11
– 65
20
Changein %
2
1998 *in CHF m
27,930
8,019
1,302
307
995
111
884
31 Dec. 1998in CHF m
114,200
96,652
465
9,358
31 Dec. 1998
25,202
1999in CHF m
28,257
7,807
1,511
340
1,171
90
1,081
31 Dec. 1999in CHF m
132,000
107,560
164
11,194
31 Dec. 1999
25,829
31
32
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 32
pricing and underwriting measures were implemented to counter a continuing market
deterioration. The German operations continued to shape their market with launches of
tailored customer-segment products. Soft pricing conditions in Swiss non-life lines left
premium volume roughly unchanged, and the division began a major reorganisation to
further lower its expense base.
The North American operations reported a 5% increase in premiums. They
achieved consistent improvements in their operating ratios and continued to profit from
strict adherence to their regional company business strategy. The 1999 passage of the
Financial Services Modernization Act increased flexibility for Winterthur and Credit Suisse
Group in conducting their business in the US.
BALANCE SHEET
Investments
– non-life
– life
– unit-linked
Policy loans
Deposits with reinsured companies
Cash at bank and in hand
Receivables from insurance companies
Receivables from agents and policyholders
Sundry debtors
Accrued income and prepaid expenses
Office and IT equipment
Other assets
Total other assets
TOTAL ASSETS
Technical provisions
– non-life
– life
– unit-linked
Due to banks
Deposits received from reinsurance ceded
Convertible bonds and warrant issues
Payable to insurance companies
Payables to agents and policyholders
Sundry creditors
Accrued expenses and deferred income
Other liabilities
Minority interests
Shareholders’ equity after minority interests
TOTAL LIABILITIES
Changein %
13
13
12
46
–19
– 86
65
–18
11
–19
– 4
54
35
– 4
12
11
7
10
44
659
– 53
– 65
– 35
–18
–16
35
61
– 28
20
12
31 Dec. 1998in CHF m
111,505
27,327
79,587
4,591
878
697
524
1,181
2,811
1,915
2,287
243
680
11,216
122,721
96,652
21,463
70,535
4,654
266
1,253
465
1,271
3,468
2,420
1,497
4,104
1,967
9,358
122,721
31 Dec. 1999in CHF m
126,446
30,790
88,954
6,702
708
101
864
965
3,121
1,560
2,203
375
915
10,812
137,258
107,560
23,041
77,796
6,723
2,019
583
164
824
2,833
2,027
2,025
6,617
1,412
11,194
137,258
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 33
The market for large corporate risks continued to be difficult, although firmer prices
were found in some markets. Serving large corporate clients, Winterthur International
continued its investments in building global risk management and service capabilities.
As anticipated, the changeover to the new millennium led to only a small number of
minor claims across Winterthur Group.
1999 results Winterthur Group’s pre-tax /minorities operating profit increased by 16%
to CHF 1,511 m despite a 3% decrease in investment income, as the Group reduced
its dependency on realised capital gains. The actual tax rate fell slightly, from 23% to
22%. Net operating profits rose by 22% to CHF 1,081 m.
Assets under management rose by 16% to CHF 132 bn. As Winterthur’s in-
vested equity capital (paid-in capital plus retained earnings, adjusted for dividends and
goodwill) increased a modest 6% to CHF 6.5 bn, the return on invested equity rose
to 18.0%, from 16.6% in 1998. Winterthur’s total reported equity increased by
CHF 1.8 bn, or 20%, owing to a significant increase in unrealised gains, and now
stands at CHF 11.2 bn.
Results from non-life business Gross premiums from non-life business grew by 3%
in 1999. Despite the extraordinary weather-related losses in Switzerland and neighbour-
ing countries (CHF –260 m gross, CHF –170 m net), the overall non-life loss ratio
improved slightly, and the expense ratio improved more than 2 points. The combined
ratio (sum of the claims and expense ratios) improved from 107.5% to 105.2% (includ-
ing dividends paid to policyholders, from 110.4% to 107.8%). Net investment income
was 14% lower at CHF 1.9 bn, but the overall result from non-life business (before
taxes and minority interests) increased 7% to CHF 953 m.
Results from life business Life insurance premiums, following 1998’s tax-driven
surge in Switzerland, fell by 1% year-on-year: the compounded annual growth between
1997 and 1999 was 10%. Total life expenses, measured as a percentage of premiums,
were 10.9%, up from 1998 but the same as 1997 in spite of significant investments in
the emerging markets and a new European life platform. Actual expenses measured
against technical provisions improved from 1.28% in 1998 to 1.20% in 1999. Benefits
and claims incurred rose by 10%, while the change in actuarial provisions was reduced
by 12%. Net investment income increased 2% to CHF 5.9 bn, while net profits (before
taxes and minority interests) grew 34% to CHF 558 m.
33
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 34
NON-LIFE BUSINESS
Gross premiums
Net premiums
Premiums earned, net
Claims incurred, net
Dividends to policyholders incurred, net
Operating expenses, net (including commissions paid)
UNDERWRITING RESULT, NET
Net investment income
Interest on deposits and bank accounts
Other interest paid
Other income and expenses (including exchange rate differences)
PROFIT(before extraordinary items, taxes, minority interests)
Investments as at 31 Dec.
Technical provisions as at 31 Dec.
Combined ratio (excl. dividends to policyholders)
Claims ratio
Expense ratio
Insurance reserve ratio
Changein %
3
6
5
5
–7
–3
–21
–14
–50
–31
– 82
7
13
7
1998 *in CHF m
13,520
11,994
11,538
– 8,712
–335
–3,686
–1,195
2,261
140
–108
–211
887
27,327
21,463
107.5%
75.5%
32.0%
181.9%
1999in CHF m
13,993
12,678
12,102
– 9,144
–312
–3,591
– 945
1,942
70
–75
–39
953
30,790
23,041
105.2%
75.6%
29.7%
190.4%
LIFE BUSINESS
Gross premiums
Net premiums
Premiums earned, net
Claims incurred, net
Change in actuarial provision, net
Allocation to participation, net
Operating expenses, net (including commissions paid)
Net investment income
Interest on deposits and bank accounts
Interest on bonuses credited to policyholders
Other interest paid
Other income and expenses (including exchange rate differences)
PROFIT(before extraordinary items, taxes, minority interests)
Investments as at 31 Dec.
Technical provisions as at 31 Dec.
Expense ratio
Claims incurred and change in technical provision
* adjusted for the sale of reinsurance business
Changein %
–1
–2
–3
15
–12
– 4
7
2
– 40
11
–30
–104
34
14
12
1998 *in CHF m
14,410
14,484
14,485
– 6,691
– 9,204
–1,918
–1,438
5,758
207
–117
–312
–355
415
84,178
75,189
9.9%
109.7%
1999in CHF m
14,264
14,170
14,101
–7,726
– 8,092
–1,846
–1,535
5,865
124
–130
–217
14
558
95,656
84,519
10.9%
112.2%
34
PERSONAL FINANCIAL SERVICES EUROPE
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 35
‘Personal Financial Services Europe’, the strategy announced in March 1999,
was launched successfully. In Italy – the pilot market for PFS – assets under
management have more than doubled since 1998. Additionally the pan-Euro-
pean e-commerce platform is progressing towards a launch in late 2000.
Changing client needs, increased use of electronic communications channels and the
emergence of a pan-European market have given rise to new opportunities for financial
institutions. ‘Personal Financial Services Europe’, the strategy announced in March
1999, represents a new business model to address these opportunities.
With ‘Personal Financial Services Europe’, Credit Suisse Group aims to strengthen
its local presence in selected European markets and to extend its leading position in
e-commerce in Switzerland to the rest of Europe. The initiative targets affluent private
clients with bankable assets of CHF 80,000 (EUR 50,000) upwards, who are offered a
wide range of both Credit Suisse Group and third-party products, a tailored combination
of personalised advice and Internet content, and seamless service.
In Italy – the pilot market – Credit Suisse (Italy) is already operating successfully
with 250 Personal Bankers and its own Call Center. Assets under management have
more than doubled since 1998 to CHF 4 bn (EUR 2.5 bn). The fifth Investment Center
was opened in Milan at the end of March and another fifteen are due to follow over the
course of the year. Since April 2000, clients have also had direct access via the Internet
to comprehensive financial and product information and a range of advisory tools.
Additionally, preparations are currently underway for a pan-European e-commerce
platform to be launched in late 2000. During the second half of the year, Credit Suisse
Group will start to offer processing of online financial transactions, including brokerage,
on the major European and overseas stock exchanges via a Group company domiciled
in Luxembourg. This service will be adapted to suit the specific requirements of each of
the national markets in which the Group intends to establish similar operations as in
Italy by means of a greenfield approach and/or alliances and acquisitions.
With its multinational presence in Europe, its well-known brand and its compre-
hensive range of products for wealth creation and protection, Credit Suisse Group is in
an excellent position from which to implement its ‘Personal Financial Services Europe’
strategy successfully.
ChannelsPersonal BankersInvestment CentersCall CentersE-commerce
Italy Country 2 Country 3
Alliances
Technology
Customeraccess
Content &advice
Pan-European
• Value proposition and branding
• Product offer
• E-commerce channel
• Customer database and reporting
• IT platform
• Back-office operations
Product providers
Third-partyproducts
CSG products
Stockexchanges
35
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 36
Credit Suisse Group is well aware of its obligations to society as a
whole. All of its activities are based on a responsible, respectful and
professional approach. This applies both to its actual business op-
erations and to its dealings with other stakeholders.
CREDIT SUISSE GROUP IN SOCIETY
36
Attractive employer The world of financial services is currently characterised byinnovation and far-reaching change. As an internationally active company, Credit SuisseGroup offers a wide range of interesting professional opportunities. Targeted training anddevelopment programmes are used to ensure that our staff remain in a position to meetthe challenges of the future. In Switzerland alone, 200 university and college graduates,1,200 trainees and 120 high school graduates are being trained within Credit SuisseGroup. In order to meet the increasing need for computer specialists, the Group offersa number of IT training programmes for professionals from other specialist disciplines.
The creation of the new ‘Personal Financial Services Europe’ entails an intensiverecruitment campaign throughout Europe. New jobs in e-commerce are being createdall over the Group all the time.
Credit Suisse Group is particularly concerned about ensuring equal opportunities,a commitment that is borne out by the continually increasing proportion of women inmanagement positions.
Acknowledged achievements on the environmental front What began in 1989with the creation of the post of environmental officer has now grown into a comprehen-sive environmental management system certified under ISO-14001. Re-certification andthe incorporation into the system of locations outside Switzerland are scheduled for theyear 2000. The results of the Group’s efforts in the area of operational ecology aredescribed in the latest Environmental Report. Credit Suisse Group’s 1999 report wascommended as the second best of any large Swiss company. Respected rating agenciesconsider Credit Suisse Group to be among the best in the world in terms of its attitudeand activities on the environmental and social front. Credit Suisse Group is included inthe Dow Jones Sustainability Index as a ‘leading sustainability company’ in the bankingsector; the Canadian/US Innovest organisation has awarded the Group an AAA rating;and the German rating agency œkom found Credit Suisse to have the second best envi-ronmental performance of the 26 banks under scrutiny. These citations by independentbodies make Credit Suisse Group an attractive proposition for investors focusing on sus-tainability. Credit Suisse Group is represented in ten portfolios run by investment fundsand foundations that focus on ecological/ethical issues and sustainability.
Social and charitable commitments Every year Credit Suisse Group devotesaround CHF 15 m to helping various organisations and institutions. The Jubilee Foun-dation focuses on supporting charitable projects in the social domain. By concentratingon choice projects, which are selected from almost a thousand applications receivedeach year or which it initiates itself, the Foundation can provide substantial financialsupport, help to give new momentum or the initial push needed to get new ideas off theground. In collaboration with the ‘Young Swiss Researchers’ project, for instance, theFoundation conducted study weeks for those researching topics in the financial field.Another example is the significant contribution made to the success of the 6th WorldSkiing Championships for the Disabled held at the end of January 2000 in Anzère andCrans-Montana.
01_Business_Units_E_00 30.04.2000 16:08 Uhr Seite 37
In 1999, the CSFB Foundation Trust supported over 600 charitable organisationsaround the world, concentrating mainly on educational initiatives and social programmesfor young people in major cities, especially New York. In addition, many Credit SuisseFirst Boston employees helped the disadvantaged by doing voluntary work with commu-nity organisations, community centres and neighbourhood associations.
Sponsorship The main focus of Credit Suisse’s sports sponsorship is football –including its role as sponsor of the Swiss national team and the Swiss Football Asso-ciation’s youth development programme – and equestrian sports. 1999 saw the end of Credit Suisse’s many years of support for cycle racing. In the cultural arena, CreditSuisse concentrates on music and fashion. The bank appears as a headline sponsor at all of Switzerland’s major fashion events.
Credit Suisse Private Banking supports various significant cultural and sportinginstitutions and events. Highlights of the 1999 cultural sponsorship calendar includedthe ‘Chagall, Kandinsky, Malevich and the Russian Avant Garde’ exhibition at Zurich’sMuseum of Fine Art, and a series of gala concerts featuring soloist Anne-Sophie Mutter. Sporting highlights included the White Turf horse races in St. Moritz, and twogolf tournaments: the PGA European Seniors Tour event in Bad Ragaz and the CanonEuropean Masters in Crans-Montana.
Winterthur is a sponsorship partner of the Pfadi Winterthur handball club, theSwiss Gymnastics Association and – together with Credit Suisse – of the Swiss Foot-ball Association. In the cultural sphere, Winterthur supports the Swiss Youth SymphonyOrchestra. The Arosa Humour Festival, where Winterthur was headline sponsor,marked the launch of comedy as a new key area for sponsorship by the company. The‘Wincare’ hearing protection service, which involves handing out about a million sets ofearplugs at rock concerts and techno parties, proved extremely popular. As part of itssponsorship partnership with the concert promoter Good News, Winterthur also helpedto arrange special seating for disabled people at numerous events. The company’s‘Foundation for the Prevention of Accidents’ continued its successful campaigns toimprove road safety for children and to promote safety in sports.
Credit Suisse Group is contributing its own special project to the Swiss nationalexhibition, ‘Expo.02’. The Internet virtual identity game, ‘cyberhelvetia.ch’, is currentlyin development and will be launched in advance of the actual exhibition.
The Swiss banks and the Second World War Ever since the debate about the con-duct of the Swiss banks during and after the Second World War, Credit Suisse Grouphas been committed to making amends both morally and financially. The review of thebanking issues involved was brought to a close with the publication of the Volcker Com-mittee final report. The report came to the conclusion that the banks carried out theirbusiness activities with great professional diligence. There was no evidence of system-atic discrimination against victims of Nazi persecution, nor of systematic concealment ofassets or withholding of assets from their rightful owners. However, the report did document some extremely regrettable cases of human error and insensitivity. The dor-mant accounts discovered as part of the Volcker Committee’s research are an elementin the comprehensive settlement reached by Credit Suisse Group, UBS, the plaintiffsand the Jewish organisations in the 1998 class action brought in the USA. The factthat this settlement represented a responsible, conclusive and comprehensive solutionwas confirmed – subject to final judicial approval – by the Fairness Hearing convenedby US Federal Judge Edward Korman on 29 November 1999 in New York.
37
02_Risk_Management_E_00 30.04.2000 13:18 Uhr Seite 38
Credit Suisse Group pursues a disciplined, comprehensive and inte-
grated approach to risk management throughout its business units. Sig-
nificant personnel and technological resources are focused on ensuring
that Credit Suisse Group remains a leader in risk management. By
means of a proactive risk management culture and the appropriate quali-
tative and quantitative tools, the Group aims to minimise the potential
for undesired risk exposures and optimise the allocation of capital
throughout the Group to the benefit of shareholders and other stake-
holders.
CREDIT SUISSE GROUP RISK MANAGEMENT
38
Overview of risk management Financial services consist of four basic elements:
information, transactions, capital and risk. Information today is instant, ubiquitous and
increasingly cheap. Simply owning information is not enough – only by packaging and
interpreting information intelligently and providing value-enhancing advice and decision-
making support can a company differentiate itself from the competition. The volume of
transactions has grown dramatically in recent years on a global basis, and new tech-
nologies are expanding rapidly, making it even more important that in-house and out-
sourced processes are cost effective. On today’s open, deregulated capital markets,
basic access to capital is no longer an issue for well-run established companies. The
challenge is to allocate the capital optimally to the different activities within the organi-
sation. The ability to assess and manage risks effectively has always been important in
the world of finance. The increasing pace and complexity of economic development in
recent years has turned this ability into a decisive competitive edge.
The primary objectives of Credit Suisse Group’s risk management strategy are to
preserve the Group’s capital base by controlling its risk exposures, to optimise the allo-
cation of capital and to foster a disciplined risk culture. This is where risk management
adds value.
Credit Suisse Group differentiates between seven major risk categories (see
chart on page 39). Market, credit, insurance underwriting, commission and fee income
and operational risks are already quantifiable or are increasingly becoming so, while
strategy and reputation/brand risks must be made transparent by means of other meth-
ods. The Group’s structure as a series of distinct business units, introduced in
1996/97, is – among other things – designed to enhance transparency and a system-
atic approach; it allows us to regroup risk types, focus on major risk types and concen-
trate expertise on specific risk classes with the help of tailor-made management tools. It
is our ambition to establish the global benchmark with regard to structures, processes
and methods. This is a continuous, never-ending task.
Risk culture Risk management is a multi-faceted process that extends well beyond
an organisation’s formal risk management structure, standards or processes. The math-
ematical/statistical quantification of risks and consequent setting of appropriate, com-
mon-sense limits represents only part of the integrated approach to risk management.
Integrated risk management must also include the development and maintenance of an
appropriate risk and control culture as part of an overall corporate culture. This
aspect is at least as important as the most sophisticated quantitative risk models.
02_Risk_Management_E_00 30.04.2000 13:18 Uhr Seite 39
The key factor in risk management is discipline. Credit Suisse Group encourages a
disciplined culture by promoting integrity and high ethical standards, clear lines of
responsibility and accountability, segregation of duties, appropriate supervision by senior
management, and strong control systems. The Group’s monitoring systems are based
on a comprehensive set of internal controls, with activities such as approvals, authorisa-
tions, compliance checks, and follow-ups on non-compliance clearly defined at every
level of the business. Internal and external auditors are recognised by the Board as
critically important agents, providing an independent check on the information received
from line management. The chief auditor reports directly to the Board of Directors’
Audit Committee. The issues unearthed by the internal and external auditors must be
addressed comprehensively.
If a financial services group is to achieve sustained success, confidence and trust
built up over many years are vital. An excellent reputation is hard to gain, but easy to
lose. Knowledge, expertise, experience, integrity, intellectual honesty, but also the daily
conduct of each member of management and each employee, are the truly crucial
elements that contribute to an institution’s reputation.
Code of Conduct One of the strengths of Credit Suisse Group is the competence
and diverse skills of the people that work for it around the world. In spite of this global
diversity, however, our corporate culture has to be based on common denominators and
shared values. This was the major reason for introducing an internal group-wide
Code of Conduct at the beginning of 2000. Especially in such fast-changing times,
common values help to give the individual a sense of focus; they create identity and a
sense of belonging. Both the Board of Directors and the Group Executive Board have
Scope and challenge of an integrated firm-wide
risk management
Factors shapingan organisation’srisk disposition
Building on the organisation’s10 ‘S’s’:
• Strategy • Staff• Structure • Skills• System • Style• Speed • Shared values • Safety • Symbol
Ensuring a risk culture with:
• modern methods• proactive risk management• control attitude• continuous training/learning• discipline as to corrective action
Market risk
Credit risk
Insurance underwriting risk
Commission and fee income risk
Operational risk
Reputation/brand risk
Effective risk manangement providescontrol over seven
major business risks
Values, society& politics
Markets & economy
Clie
nts
Com
petit
ion
Innovation & technology
Policies & regulations
Facts
Knowledge
Action and reaction by
managementand staff
Strategy risk
Behaviour Exp
erie
nce
Expectations
The added value of risk management
Perc
eptio
n
39
40
02_Risk_Management_E_00 30.04.2000 13:18 Uhr Seite 40
approved the new Code of Conduct. Spelling out our twelve core values and guiding
principles, the Code of Conduct extends and supplements existing, more specific com-
pliance manuals, directives, guidelines and policies.
Risk management governance Credit Suisse Group’s risk management governance
structure begins with the Board of Directors, which is responsible for determining the
general risk policy, the strategic risk management organisation and the Group’s overall
appetite for risk. The Board of Directors meets at least five times a year. The Chair-
man’s Committee of the Board of Directors is responsible for reviewing the Group’s
major risk exposure on a quarterly basis. The Board of Directors delegates certain risk
management and control responsibilities to the Group Executive Board, the Group Risk
Coordination Committee and the Group Chief Risk Officer (GCRO). The Group Execu-
tive Board’s Risk Management Committee includes all Board members and is chaired
by the GCRO. It reviews the Group’s exposure to different categories of risk, assesses
potential opportunities and risks and initiates corrective actions to mitigate undesired
risk exposures. The Group Risk Coordination Committee, also chaired by the GCRO,
meets four times a year, defines overall Group risk policies and approves general
instructions, processes and standards concerning risk management at the business unit
level. It also reviews Credit Suisse Group’s capital management process. The Group
Chief Risk Officer is responsible for the development, implementation and monitoring of
limits, risk reporting, risk management strategy, standards and procedures. Group Risk
Management supports the GCRO in harmonising approaches to the management of
different risk types across the business units and monitors the implementation of the
Group’s risk management strategy in collaboration with the risk management units at
the individual business units.
Business unit risk management As the main operating units, the business units
of Credit Suisse Group are responsible for implementing the Group’s overall risk man-
agement strategy. Each business unit has a specialised risk management structure in
place – including risk committees, appropriate tools, systems, procedures and controls
– that is specially tailored to cope with the risks taken in its particular line of business.
While most business units are exposed to all risk types, their relative significance
varies. Trading book market risks are concentrated at Credit Suisse First Boston, while
credit risks are most important at Credit Suisse and Credit Suisse First Boston. Insur-
ance underwriting risks are concentrated at Winterthur, while commission income risks
dominate at Credit Suisse Private Banking and Credit Suisse Asset Management. All
business units are exposed to operational, reputational and strategy risks.
Market risk Market risk is the risk of loss arising from changes in the value of finan-
cial instruments. Credit Suisse Group units active in trading use a comprehensive set of
tools to identify, measure and control these risks. These tools include techniques such
as Value at Risk modelling, scenario analysis, and backtesting, as well as risk limit set-
ting and monitoring. The majority of Credit Suisse Group’s market risk is concentrated
in the Credit Suisse First Boston business unit, the Group’s global provider of wholesale
financial services (see chart on page 41).
02_Risk_Management_E_00 30.04.2000 13:18 Uhr Seite 41
Market risk within CSFB Credit Suisse First Boston devotes considerable resources
to ensuring that market risk is comprehensively captured and effectively managed. In
1999, CSFB established a Strategic Risk Management (SRM) function to provide com-
prehensive analysis of the firm’s overall risk profile and to recommend corrective action
where appropriate. SRM and Credit Suisse Group Risk Management (GRM) were
heavily involved in implementing the transition to a lower overall risk profile in 1999.
Credit Suisse First Boston’s independent Risk Measurement and Management
(RMM) department is responsible for the measurement and reporting of all credit risk
and market risk on a daily basis. The core tools used to measure and manage market
risk exposures include the following:
– the Value at Risk method (VaR method) estimates the potential loss arising from a
given portfolio for a predetermined probability and holding period
– scenario analysis estimates the potential loss after stressing market parameters
– in addition, RMM has developed several models to measure gap risk, default risk and
economic risk capital. It is expected that the use of these models will grow in the future.
Value at Risk Credit Suisse First Boston has used a VaR methodology to model mar-
ket risk since 1995. Credit Suisse First Boston’s VaR is defined as the 99th percentile
greatest loss that may be incurred on a given portfolio over a ten-day holding period.
Credit Suisse First Boston currently uses a combination of variance-covariance and his-
torical simulation methodologies. The methodology is subject to continuous review to
ensure that it captures all significant risks and meets or exceeds regulatory and industry
standards. The parameters and procedures currently used meet the qualitative and
quantitative requirements prescribed by the Basle Committee on Banking Supervision
and the Swiss Federal Banking Commission, which has approved Credit Suisse First
Boston’s internal VaR models for use in the calculation of market risk capital as at
30 June 1998.
Market risk limits are structured at multiple levels – from trading desks up to the
business unit level. Limits at lower levels can be regarded as internal risk flags that are
used to identify potential risk concentrations. The level of market risk versus the formal
limits is a regular focus of senior management review. The ‘Average market risk at
CSFB’ chart shows the distribution of average market risks since 1997 and indicates
that interest rate risks have lost importance relative to other risk categories.
The chart on the following page illustrates the relationship between daily trading
profit and loss and one-day VaR over the course of 1999. This type of backtesting is a
method of assessing the performance of the internal VaR model and complies with the
recommendations issued by the Basle Committee on Banking Supervision. Backtesting
is performed at two levels: the overall level (Credit Suisse First Boston) and the individ-
ual business line level. Results of the process at the aggregate level show no excep-
tions during 1999. This confirms that Credit Suisse First Boston’s VaR model is in the
‘Green Zone’, as defined by the Basle Committee on Banking Supervision (see sepa-
rate box). In fact, CSFB has never had a bank-level exception in three years of using
the approved model, which indicates a significant degree of conservatism in its
approach to measuring market risk.
AVERAGE MARKET RISK AT CSFB
Total cross risk
1997 1998 19990 %
20 %
40 %
60 %
80 %
100 %
Total commoditiesTotal equityTotal foreign exchangeTotal interest rates
0.4%
93.2%
6.4%
1999 DISTRIBUTION OF TRADING RISKS
CSFBCSPBCS
Gap and default riskGap and default risk is designedto capture risks that occur on aless frequent basis than thosecaptured within the standard VaRmodel. There are several types ofgap and default risk, includingthe risk of large moves in equityprices or foreign exchange rates,the risk of bond issuers failing topay, as well as the risk of sub-stantial changes in real estateprices. A different modellingprocess is required to capturethese risks and a longer timehorizon is required (generally oneyear), compared with VaR analysis.
41
el
t
o
02_Risk_Management_E_00 30.04.2000 13:18 Uhr Seite 42
Backtesting zonesThe Basle Committee on Bank-ing Supervision has defined threzones that assess the statisticaquality of a VaR model usingbacktesting results. The zonesare:
Zone Number ofexceptions(per 250
observations)Green 0 – 4Yellow 5 – 9Red 10 and more
Models in the Green Zone arestatistically acceptable, those inthe Yellow Zone require furtherinvestigation and analysis, whilsthose in the Red Zone almostcertainly require improvement.CSFB has never had an excep-tion in three years of using theapproved model.
0
5
10
15
20
25
30
35
40
DISTRIBUTION OF CSFB’S DAILY TRADING REVENUE1999 versus 1998 in CHF m
No.f days
0 80 150–120–150
1998
–80 120
1999
42
–4
–4
–3
–3
–2
–2
–1
–1
–
1
1
CHF
During 1999, CSFB undertook a firm-wide initiative to reduce its overall risk profile
whilst maintaining good returns. The 1999 VaR statistics for CSFB are given in the
table below. As the table shows, CSFB’s 1999 average VaR was down 21.5% on the
1998 average (in USD terms, 8.7% in CHF terms). Risk reductions in CHF terms were
smaller because of the significant weakening of the CHF during 1999.
1999 1998 1999 1998
in CHF m in CHF m in USD m in USD m
Year-end (31 Dec.) 241.7 300.4 151.2 218.4Average 280.7 307.6 175.7 223.7Maximum 423.6 382.2 265.1 277.9Minimum 191.0 206.3 119.6 150.0
Note that when comparing the VaR figures calculated by different banks, the methodologies, assumptions and valuationmethods used may differ, so a simple comparison may be misleading. Specifically, differences in VaR figures may not onlyreflect different levels of market risk exposure, but also factors such as differences in the model assumptions and the underlying data.
By contrast, the average daily trading revenue improved to CHF 42.3 m in 1999,
compared to CHF 14.3 m in 1998. Credit Suisse First Boston’s frequency distribution
of daily trading revenue for 1999 and for 1998 is illustrated in the ‘Distribution of
CSFB’s daily trading revenue’ chart. The combination of transition to a lower risk profile
and more stable financial markets in 1999 resulted in a significantly narrower range of
trading profit and loss in 1999 than in 1998.
Scenario analysis Scenario analysis is an essential component of Credit Suisse First
Boston’s market risk measurement framework. This technique assesses the bank’s
sensitivity to various financial market environments by revaluing all of its major portfolios
under various potential market crisis conditions. For example, the bank analyses the
potential impact of a number of extreme macroeconomic events which have occurred in
the past. Scenarios include large moves in yield curves, credit spreads, emerging mar-
ket bond prices, exchange rates, equity indices and stock prices, commodity prices and
changes in volatilities and correlations. Reports are produced for senior management
and traders for a range of scenarios at least on a monthly basis.
50
00
50
00
50
00
50
00
50
0
50
00
50
m
Daily revenue
1st quarter 1999
One-day VaR (99%)
2nd quarter 1999 3rd quarter 1999 4th quarter 1999
RELATIONSHIP BETWEEN DAILY REVENUE AND VaR ESTIMATE FOR CSFB *
* Conversion of USD figures into CHF based on year-end exchange rate
02_Risk_Management_E_00 30.04.2000 13:18 Uhr Seite 43
Asset and liability management The balance sheet interest rate risk is monitored
and managed by the individual business units within specifically designated centres of
competence; responsibility lies with the respective Asset and Liability Management
Committees. The management of interest rate risk is primarily based on mark-to-mar-
ket methods. Swaps, forward rate agreements and options are used as hedging instru-
ments.
Credit risk Credit risk is the risk that a borrower (or counterparty) is unable to meet
its financial obligations. In the event of a default, a bank generally incurs a loss equal to
the amount owed by the borrower, less a recovery amount resulting from foreclosure,
liquidation or restructuring of the company. The majority of Credit Suisse Group’s credit
risk is concentrated in the Credit Suisse and Credit Suisse First Boston business units.
Credit Suisse Group implemented a new Credit Risk Management Framework for
the banking business units in December 1996. As this framework is used for manage-
ment information purposes only, it is not reflected in the statutory financial statements.
The new Credit Risk Management Framework is being refined continuously and simul-
taneously covers all business areas which are exposed to credit risk.
Credit Suisse Group’s Credit Risk Management Framework comprises four core
components: (i) an individual credit limit system, (ii) country and regional concentration
limits, (iii) a credit risk provisioning methodology and (iv) a pricing methodology.
A system of individual credit limits is the traditional means of managing credit risk
and preventing risk concentrations. A comprehensive set of country and regional limits
is in place to address concentration issues in the portfolio (see country risk). The third
aspect of the Credit Risk Management Framework is an appropriate credit risk provi-
sioning methodology. Annual credit provisions (ACP) equal expected credit losses
derived from actual historical average losses. The chart top right shows the ACP of the
four banking units in 1999 and the respective credit provisions.
Actual losses which occur in any one year may be higher or lower than these pro-
visions, depending on the economic environment and interest rates. In addition to the
expected loss, an indicative worst-case default loss, shown in the chart on the right, is
calculated using CREDITRISK+, the credit risk measurement and management tool
developed by Credit Suisse Financial Products. The 99th percentile worst-case default
loss shown in the chart on the right is based on the 99th percentile of the full credit
default loss distribution. The difference between the 99th percentile worst-case default
loss and the ACP reflects the unexpected loss level. The fourth aspect of the Credit
Risk Management Framework is the pricing and optimisation of the portfolio and the
consideration of risk and reward.
Credit Suisse Group’s Credit Risk Management Framework is a vital tool for man-
aging the Group’s credit risk on an ongoing basis. The framework allows us to price
transactions involving credit risk more correctly by performing a risk/return calculation.
The current implementation of the Credit Risk Management Framework covers
virtually all of the credit exposures of Credit Suisse, Credit Suisse Private Banking and
Credit Suisse Asset Management, as well as the majority of Credit Suisse First
Boston’s credit-related exposures. The remaining portion of Credit Suisse First Boston’s
credit-related exposures is covered by either the VaR methodology, or by applying credit
risk adjustments.
CS
1999 credit provisions
1999 ACP AND CREDIT PROVISIONS
1999 ACP
CSGCSPB CSFB0
100
200
300
400
500
600
700
800
CHF m
CSAM*
* Included in ACP/ICP methodology in April 1999. Both ACP and creditprovisions are well below CHF 1 m for 1999
1996 1997
99 PERCENTILE WORST-CASEDEFAULT LOSS
1998
CS CSG***CSPB* CSFB
* Worst case loss in 1996 jointlycalculated for CS and CSPB andshown under CS.
** Included in April 1999 (worst caseloss for 1999 below CHF 3 m).
*** Based on combined portfolio.
TH
0
250
500
750
1000
1250
1500
1750
2000
2250
CHF m
CSAM**
1999
43
02_Risk_Management_E_00 30.04.2000 13:18 Uhr Seite 44
CSFB EXPOSURE TO SELECTED EMERGING MARKETSas at year-end 1999
Provisions
Asia LatinAmerica
Eastern Europe
CHF m
0
1000
2000
3000
4000
5000
6000
7000
8000
Net exposure
COUNTRY EXPOSURE BY CSFBRATING (EXCLUSIVE OFPROVISIONS)as at year-end 1999
CSFB: funded loans and related exposures (incl. exposures to trading counterparties)
AAA AA A BBB BB B/CCC
<CCN1 N2 N3 N4 N5 N6 N7
Internal ratings N1–N7 are approximately equivalent to the respective external ratings.
0
2020
4040
6060
8080
100100
120120
140140
160160
CHF bnCHF bn
44
Country risk Country risk is the risk of a substantial, systemic loss of value in the
financial assets of a country or group of countries, which may be caused by the inability
or unwillingness of a sovereign to meet contractual obligations and/or the imposition of
controls on capital flows. Given the international character of their activities, all business
units of Credit Suisse Group are exposed to country risk, although the largest portion is
held at Credit Suisse First Boston.
Country ratings and country limits are the two primary instruments used by the
bank to manage its country risk. Country ratings provide a quantitative, model-based
assessment of the risk of sovereign default. They are periodically updated by the inde-
pendent Credit Risk Management department (CRM) in cooperation with Economic
Research. Country limits cap Credit Suisse Group’s exposure to individual countries.
They are supplemented by regional limits, which restrict the maximum exposure to a
specific region in order to limit the impact of contagion. Both country and regional limits
are approved by the Chairman’s Committee. Within Credit Suisse First Boston these
limits are periodically reviewed by the Credit Policy Committee and Capital Allocation
and Risk Management Committee (CPC/CARMC).
The measurement of exposures against country limits is undertaken by the inde-
pendent department, RMM. RMM and CRM provide independent supervision to ensure
that the divisions operate within their limits. CRM also assumes responsibility for actively
adjusting these limits to reflect changing credit fundamentals.
Operational risk Operational risk is the risk of direct and indirect loss arising from
inadequate business processes, procedures or security, as well as the risk of losses
due to human error and external factors affecting business processes. At Credit Suisse
Group, operational risk is divided into five classes (see ‘Operational risk classes’ on
page 45).
Structure All business units of Credit Suisse Group have their own dedicated Opera-
tional Risk Management teams that are sponsored by Senior Management and are in
close contact with Group Risk Management. Knowledge and experience is shared
throughout the Group to ensure a coordinated approach. All business lines take
responsibility for their own operational risks.
Operational risk management information Credit Suisse Group is currently imple-
menting a management information system in all the business units to capture a con-
sistent and comprehensive set of operational risk data. These data are used for report-
ing and help to quantify operational risks.
02_Risk_Management_E_00 30.04.2000 13:18 Uhr Seite 45
The reporting tool will enable line managers to act swiftly on issues before they esca-
late and provide senior management with a better overview of operational risks within
the business units. Another purpose of collecting operational risk data is the Group’s
aim to quantify operational risks – where feasible and relevant – for internal manage-
ment purposes such as economic capital allocation and risk-adjusted performance
measurement.
Management Operational risk is managed through effective and comprehensive staff
training, specific policies and procedures, a system of internal controls and meticulous
due diligence. Such controls include the full segregation of duties, the use of risk
management information and computer systems, communication networks and fraud
detection. Independent pricing controls are in place and technical and organisational
control mechanisms ensure that all transactions are processed promptly and correctly.
Winterthur’s risk management framework Winterthur is a business unit with many
years of experience and success in the insurance business. It has developed outstand-
ing skills in managing all the risks associated with selling insurance policies. Protecting
Winterthur from undue risk accumulations (e.g. natural catastrophe exposure) is a core
risk management activity. The overall responsibility for risk identification, risk measure-
ment and control is assumed by a central risk management unit. Specialist subunits
focus on the various individual risk components using tools such as ‘economic risk
capital’. This is defined as the capital required to protect a business for one year with a
predetermined safety margin; it is a key tool for risk management and performance
measurement.
Winterthur’s risk universe and risk management activities In order to under-
stand the risk universe of an insurance company, the flow of business and the accom-
panying flow of risks are analysed. Premiums earned by selling insurance policies are
invested to cover claims occurring at a future date – sometimes many years later. This
means that the company has to manage and limit insurance risk – e.g. through reinsur-
ance contracts – manage the financial market risks associated with its assets and liabil-
ities (reserves), and manage and control the credit risks associated with its assets and
reinsurance contracts.
Within centrally established boundaries – relating to underwriting guidelines, re-
insurance protection, reinsurance security guidelines (credit risk), asset allocation
strategies and allocated risk capital – Winterthur’s individual business areas are respon-
sible for day-to-day risk management.
Operational risk classes
Human: Risks arising fromhuman-related issues such asrecruitment, skills, training,conduct, fraud and illness.
Organisational: Risks arisingfrom organisational factors suchas change management, dataflow, communication, coordina-tion and allocation of respon-sibilities.
Policy and processes: Risksarising from weaknesses or non-compliance with policies and criti-cal processes such as policies ondocumentation, due diligence,adherence to credit limits, settle-ment and payment processes.
Technology: Risks arising fromtechnological dependencies suchas information technology andtelecommunications infrastruc-ture. E-commerce activities arealso very significant here.
Operating environment andexternal factors: Risks arisingfrom external factors and theGroup’s operating environmentsuch as fraud, litigation, physicalthreats to the institution or itsrepresentatives, business disrup-tion and regulatory changes.
45
02_Risk_Management_E_00 30.04.2000 13:18 Uhr Seite 46
36%
64%
1999ECONOMIC CAPITAL OFINSURANCE RISK
Non-life Life
46
Insurance underwriting risk Winterthur follows stringent guidelines, especially with
regard to assuming insurance risk, the selection of risks and the sums insured.
Winterthur operates two main insurance businesses, non-life and life, and faces several
risk types stemming from its underwriting activity.
Non-life In non-life business, insurance risk relates to claims that might be more fre-
quent or larger than forecast, and/or that might have to be paid earlier than expected
(expected payouts are priced into the premiums paid). Better-diversified insurance port-
folios tend to imply smaller differences between expected and actual claims. Winterthur
therefore holds a well-diversified insurance portfolio, in terms of both geographical and
industry structure.
A well-diversified insurance portfolio with many business lines spread over many
policyholders might, nevertheless, be vulnerable to natural hazards. In such circum-
stances the portfolios, although well diversified, can be exposed to a large accumula-
tion of risk. If adequate reinsurance protection were not in place, substantial losses
could be triggered by a single natural catastrophe. Winterthur thus uses reinsurance to
limit the loss triggered by a single event, e.g. winter storm in Europe, to a worst-case
amount of CHF 50 m.
Life In life insurance the basic underwriting risk characteristics are similar to those in
non-life business. The underwriting risk universe in this type of business is represented
by deviations from expected death and disability rates, expected longevities and ex-
pected surrender rates.
Savings elements are quite often embedded in life insurance products. The asso-
ciated financial risks can be substantial and must be managed accordingly. The asset
management units are responsible for taking care of these risk elements and producing
the kind of cashflows that policyholders are likely to claim.
Underwriting
Premium Insurance risk (gross)
Assets Reinsurance Reserves Retention
Market risk
Credit risk
Insurance risk
The risk structure in the insurance business
02_Risk_Management_E_00 30.04.2000 13:18 Uhr Seite 47
Reinsurance Winterthur runs a well-designed reinsurance structure to protect its
local businesses, its divisions and its capital at large. The architecture of this reinsur-
ance protection is such that, on all levels of the organisation, i.e. local businesses, divi-
sions and Group, a set of internal and external reinsurance contracts absorbs all risks
that exceed a prudent retention level. Reinsurance protection follows a three-layered
organisational structure based on the uniform principle that each organisational entity
runs insurance risk in accordance with its portfolio and its capital base.
Financial market risks and investment strategy Investment portfolios are defined
according to the legal nature of the business concerned and the product structure. The
main asset classes used by Winterthur are money market instruments, bonds, loans,
mortgages, equities and real estate. The quality of assets is generally excellent:
primarily bonds with AA and higher ratings, with A rating being the minimum require-
ment for new investments. Derivatives are not considered as a suitable asset class for
investment, but are used for risk management purposes.
The asset allocation strategy for Winterthur is revised on a yearly basis, taking
regulatory, local and product-related restrictions into consideration.
Winterthur’s asset and liability management The financial market risks of
Winterthur’s assets are not assessed in isolation. Insurance company assets are gener-
ated by the fact that premiums are paid earlier than claims are settled. The resulting
time difference of up to 50 years has to be bridged through asset and liability manage-
ment.
Credit risk at Winterthur Winterthur’s exposure to credit risk stems from holding
debt instruments and from the use of reinsurance. Winterthur has defined high quality
standards for investments. In addition, the Group monitors counterparty-specific accu-
mulations across asset management and reinsurance credit risk exposures.
Outlook It is part of Credit Suisse Group’s strategy to be a leader in risk manage-
ment. Significant personnel and technological resources are focused on ensuring that
Credit Suisse Group continues to enhance its risk management capabilities, and there-
by remains at the forefront of the industry. To achieve this goal, Credit Suisse Group
has developed an integrated framework of best-practice risk management, risk policies,
methodologies and infrastructure. Credit Suisse Group is also in the process of linking
risk management and performance measurement using an economic risk capital frame-
work, with economic risk capital usage as a common denominator for all major risks.
Together with a proactive risk management culture and the appropriate qualitative and
quantitative tools, this economic capital management framework will support decision-
making by senior management at Credit Suisse Group, thus linking risk management to
the Group’s shareholder value strategy.
Economic risk capitalEconomic risk capital at CreditSuisse Group is defined as anequity reserve or cushion for unexpected losses. It ensuresthat Credit Suisse Group – evenunder extreme conditions –remains solvent and stays inbusiness. Unlike regulatory capi-tal, which is confined to marketand credit risk, economic riskcapital is designed to reflect allsignificant quantifiable risks asso-ciated with the business activitiesof Credit Suisse Group.
26%
1%
54%
7%
1999RELATIVE IMPORTANCE OF ASSET CLASSES
BondsEquityReal estate
MortgagesMoney market
11%
47