credit-suisse Annual Report Part 1 Share performance Market capitalisation as at 31 December

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


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


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


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


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


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


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


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.


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


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


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


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





– of which amortisation of goodwill

Valuation adjustments, provisions and losses*

PROFIT BEFORE EXTRAORDINARY ITEMSAND TAXES



Taxes

NET PROFIT



* 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


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.


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


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


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


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






Valuation adjustments, provisions and losses*

PROFIT BEFORE EXTRAORDINARY ITEMSAND TAXES



Taxes

NET PROFIT



* 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


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


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


99,651

31,902

7,667

22,731

BALANCE SHEET INFORMATION


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


Allocated equity capitalCHF m (1 January 2000/1999)



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


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


Allocated equity capital CHF m (1 January 2000/1999)

BIS tier 1 ratio*




Pre-tax margin



* 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%


24


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






Valuation adjustments, provisions and losses**

PROFIT BEFORE EXTRAORDINARY ITEMS AND TAXES



Taxes

NET PROFIT/LOSS


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


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.


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


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


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


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


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


Allocated equity capital CHF m (1 January 2000/1999)


After-tax profit/average assets under management


Pre-tax margin



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%


28


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



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



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


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


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


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


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


132,000

107,560

164

11,194

31 Dec. 1999

25,829

31

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


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


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


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


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


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


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


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)


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


‘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


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.


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.


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


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).


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


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


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


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.


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


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


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

Economy & Finance

credit-suisse Annual Report Part 1 Share performance Market capitalisation as at 31 December