credit sussi Annual Report Part 1 Share performance Market capitalisation Financial calendar

ANNUAL REPORT 1998/1999

350

300

250

200

150

100

1996 1997 1998 3/1999

Credit Suisse GroupSwiss Market Index

CHFSHARE PERFORMANCE

CHF bn

91 92 93 94 95 96 97

60

50

40

30

20

10

0

90

MARKET CAPITALISATION as at 31 December

98

Financial Calendar

1999 Annual General Meeting Friday 28 May 1999

First-half results for 1999 Wednesday 8 September 1999

Media conference for 1999 results Tuesday 14 March 2000

2000 Annual General Meeting Friday 26 May 2000

01_CSGB_E_Business Units 1.5.1999 13:07 Uhr Seite 1

Consolidated income statement

Revenue

Gross operating profit

Net profit

Cash flow

ROE

Credit Suisse Group

Banking business

Insurance business

Consolidated balance sheet

Total assets (CHF m)

Total shareholders’ equity (CHF m)

– of which minority interests (CHF m)

Total assets under management (CHF bn)

– of which advisory (CHF bn)

– of which discretionary (CHF bn)

BIS ratios

BIS tier 1 ratio

Credit Suisse

Credit Suisse First Boston

Credit Suisse Group

BIS total capital ratio Credit Suisse Group

Human resources at year-end

Total staff

– of which in Switzerland banking business

insurance business

– of which outside Switzerland banking business

insurance business

Share data

Number of shares issued at year-end

Shares ranking for dividend at year-end

Average

Market capitalisation (CHF m) at year-end

Earnings 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 AGM on 28 May 1999

FINANCIAL HIGHLIGHTS 1998

Change+/-%

3

– 6

–

1

–

–

2

Change+/-%

–5

10

16

8

5

12

Change+/-%

7

–1

10

6

Change+/-%

0

– 3

1

21

–10

Change+/-%

1

1

2

– 4

–

– 5

– 4

61

12

0

1997in CHF m

21,010

7,100

397

6,026

in %

1.7

0.5

10.1

31 Dec. 1997

689,568

25,651

2,005

863

496

367

in %

6.6

8.5

10.9

16.8

1997

62,242

21,442

7,108

13,235

20,457

1997

266,128,097

265,750,460

262,952,238

60,060

1.5

226

224

238

133.75

5

1998in CHF m

21,700

6,641

3,068

6,066

in %

11.7

10.0

10.3

31 Dec. 1998

652,437

28,162

2,325

934

523

411

in %

7.1

8.4

12.0

17.8

1998

62,296

20,795

7,146

15,980

18,375

1998

269,086,369

269,086,369

267,542,466

57,854

11.5

215

214

382

149.5

5*

11%

25%

39%

25%

REVENUE COMPOSITION 1998

Balance sheet businessCommission and service feesTrading

Insurance

1


RAINER E. GUT, CHAIRMAN OF THE BOARDOF DIRECTORS (RIGHT), AND LUKAS MÜHLEMANN, CHIEF EXECUTIVEOFFICER

Dear shareholder

The international financial markets were distinguished by two main trends in 1998. Onthe one hand the year saw considerable market volatility: massive price rises, especiallyon the European and North American stock markets, in the first half were followed by asharp global financial crisis triggered by the collapse of the Russian market in August.At the same time, the ongoing consolidation process in the financial services industrygathered pace, with a move towards ever larger financial services companies as well ascombined banking and insurance providers.

Against this eventful background, Credit Suisse Group achieved a satisfactoryresult. The foundation of the Group on four banking businesses and a strong insurancebusiness, Winterthur, has proved its worth. Our Group not only has the required strengthto expand its market position against ever larger competitors, but also the necessarybreadth to successfully hold its ground in difficult markets.

Four of our five business units – Credit Suisse, Credit Suisse Private Banking,Credit Suisse Asset Management and Winterthur – posted very good results in 1998.Credit Suisse First Boston’s performance was impacted by the collapse of the Russianmarket, although in most other areas the business unit achieved good results.

Net operating income of Credit Suisse Group increased slightly to CHF 21.7 bn.Net profit rose substantially to CHF 3.1 bn. Consolidated ROE amounted to 11.7%,while earnings per share were CHF 11.50. The Board of Directors of Credit SuisseGroup proposes to the Annual General Meeting an unchanged dividend of CHF 5.

With respect to the results of the individual business units: in 1998 Credit Suissesuccessfully completed the restructuring process launched almost three years ago andalso achieved an impressive improvement in results. Revenue increased by 18% orCHF 479 m, with net profit at CHF 205 m. Credit Suisse Private Banking achievedanother substantial improvement in its results in 1998, with revenue increasing by 18%to CHF 4.3 bn and net profit by 27% to CHF 1.7 bn. Assets under management roseby CHF 27 bn to CHF 403 bn. Credit Suisse Asset Management also performed well,with revenue up 21% at CHF 852 m and net profit up 58% to CHF 223 m. Total assetsunder management increased by 13% to CHF 297 bn.

TO OUR SHAREHOLDERS

2

Rainer E. Gut Lukas Mühlemann

Chairman of the Board of Directors Chief Executive Officer

Premium volume in non-life business at Winterthur increased by 6% to CHF 13.8 bnand in life business by 23% to CHF 14.8 bn. Net profit was up by more than 31% at CHF 884 m. For Credit Suisse First Boston 1998 was a year of sharp contrasts.After the excellent performance in the first half, pre-tax profit fell to an unsatisfactoryCHF 116 m, owing primarily to the virtual total collapse of the Russian market. Theunprecedented severity of Russia’s collapse resulted in net provisions and depreciationat Credit Suisse First Boston of a total of CHF 1.86 bn. Despite achieving satisfactoryresults and strengthening its position in most other markets, Credit Suisse First Bostonposted a loss after tax of CHF 221 m.

The projects which were initiated in 1997 as part of the merger of Credit SuisseGroup and Winterthur with a view to generating cost savings and enhancing revenueswere successfully concluded in 1998. By the end of the year 2000, synergies of CHF 280 m per year will be captured; a further CHF 60-70 m are expected over the next few years. Strategies are currently being implemented for Europe with the aim ofstrengthening collaboration between Winterthur, Credit Suisse Private Banking andCredit Suisse Asset Management. In Switzerland the Group will continue to pursue themutual sale of banking and insurance products through the banking and insurance dis-tribution channels, which will collaborate closely to serve their clients.

An important project for the Group is the preparation for the new millennium. Bythe end of June 1999, all IT systems are to be year-2000 compliant; at the end ofFebruary 1999, 93% of all business-critical systems had already been remediated.

All business units have had a very good start to the current business year. Giventhe situation on the international financial markets, the Group anticipates a generallyvolatile and challenging operating environment in which it plans to achieve further sub-stantial progress in reaching its performance targets.

We would like to thank our staff for their hard work, professionalism and commit-ment in what was once again a demanding year. We also thank our customers andshareholders for the trust they have placed in us and for their valuable support.

3


THE STRUCTURE OF CREDIT SUISSE GROUP

Credit Suisse Group is a global financial services company, providing a

comprehensive range of banking and insurance products. Active on every

continent and in all major financial centres, Credit Suisse Group comprises

five business units, each geared to the requirements of specific customer

groups and markets:

Credit Suisse: corporate and individual customers

in Switzerland

Credit Suisse Private Banking: services for private investors in Switzerland

and abroad

Credit Suisse First Boston: global investment banking

Credit Suisse Asset Management: services for institutional and mutual fund

investors worldwide

Winterthur: insurance for private and corporate

customers worldwide

3 locations in Switzerland

58 locations internationally

Subsidiaries

Credit SuisseFinancial Products



Subsidiaries

Credit Suisse Trust and Banking


Subsidiaries

Neue Aargauer Bank(98.6%)*

Credit Suisse ImmobilienLeasing



Subsidiaries

Bank Leu*

Credit Suisse Fides*

Clariden Bank*

Bank Hofmann*Bank für Handel & Effekten

Credit Suisse Trust*

about 700 locations in

Switzerland

present in over 30 countries

Subsidiaries

Winterthur Life

Winterthur International

DBV-Winterthur Holding

Winterthur Holding Italia

Hispanowin S.A.Winterthur-Europe Assurances

Winterthur (UK) Holdings

Winterthur U.S. Holdings

CREDIT SUISSE FIRST BOSTONCREDIT SUISSE WINTERTHUR

* direct holding of Credit Suisse Group

4


THE FIVE BUSINESS UNITS OF CREDIT SUISSE GROUP

CREDIT SUISSE

CREDIT SUISSE ASSET MANAGEMENT

CREDIT SUISSE PRIVATE BANKING

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

Credit Suisse First Boston is a leadingglobal investment banking firm, providingfinancial advisory, capital raising and

financial products for users and suppliersof capital around 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 thelocal and international level.

5


CREDIT SUISSE GROUP BUSINESS REVIEW AND CONSOLIDATED RESULTS

Credit Suisse Group’s net operating income rose by 3% compared with 1997 to

CHF 21.7 bn. Net interest income, which rose by 13%, contributed CHF 5.2 bn to this

amount, with commission and service fee activities contributing CHF 8.3 bn (up 26%),

trading CHF 2.4 bn (down 55%) and insurance operations CHF 5.4 bn (up 12%).

Total operating expenses increased by 8% to CHF 15.1 bn, with personnel

expenses increasing by 7% to CHF 10.6 bn owing largely to business expansion and

acquisitions by Credit Suisse First Boston. By contrast, bonus payments were slightly

lower than in the previous year, despite higher performance-based incentive payments

at all business units except Credit Suisse First Boston. Overall, Credit Suisse Group

showed a gross operating profit of CHF 6.6 bn, 6% lower than in the previous year.

Depreciation, valuation adjustments and losses increased from CHF 3.2 bn to CHF 3.8 bn,

including credit provisions of CHF 2.6 bn.

Extraordinary income of CHF 1.6 bn includes CHF 101 m from the sale of

Winterthur’s participation in HIH (Australia) and CHF 442 m from the sale of Winterthur’s

active reinsurance business to PartnerRe. It also includes a release from the reserves

for general banking risks of CHF 933 m. Of this sum, CHF 381 m were applied for the

settlement of the Holocaust class actions in respect of World War II, and CHF 552 m

to create provisions for credit risks. At CHF 573 m, 1998 extraordinary expenses were

substantially lower than 1997 extraordinary charges. After deducting tax of CHF 575 m

and minority interests of CHF 147 m, Credit Suisse Group posted a net profit of CHF

3.1 bn. Consolidated return on equity amounted to 11.7%. Total assets under manage-

ment rose by CHF 71 bn to CHF 934 bn. Earnings per share were CHF 11.50 and

year-end book value rose 8% to CHF 96 per share. At the Annual General Meeting on

28 May 1999 the Board of Directors proposes an unchanged dividend of CHF 5 per

Credit Suisse Group registered share.

In 1998 Credit Suisse Group posted a net profit of CHF 3.1 bn. Four

of the Group’s five business units – Credit Suisse, Credit Suisse

Private Banking, Credit Suisse Asset Management and Winterthur –

recorded very good results. Credit Suisse improved its result by almost

CHF 500 m, returning to a net profit of CHF 205 m. Credit Suisse

First Boston announced a disappointing result, owing primarily to the

collapse of the Russian market. In view of the turbulence on the

international financial markets, the Group’s result is satisfactory.

6


Four out of five business units announce very good results In 1998 Credit Suisse

achieved a net profit of CHF 205 m. Revenue rose by 18% compared with 1997, an

increase of CHF 479 m to CHF 3.2 bn. Personnel and other operating expenses

remained stable as planned, despite substantially higher incentive payments in line with

improved performance. The cost/income ratio improved significantly once again, decreas-

ing from 85% to 71%. The risk structure of the credit portfolio also developed favourably.

As well as producing an improved financial result, Credit Suisse also brought its

restructuring process to a close.

Despite financial market turbulence, Credit Suisse Private Banking repeated

the first half’s very good results in the second half of the year. Revenues rose by 18%

and net profit increased by 27% to CHF 1,671 m. Assets under management increased

by CHF 27 bn to CHF 403 bn (adjusted for divestments and intra-Group transfer of

clients). CHF 17 bn of the increase is attributable to a net inflow of new assets. The

cost/income ratio declined from 50.6% to 46.8%, despite substantially higher incentive

payments reflecting improved performance.

For Credit Suisse First Boston 1998 was a year of marked contrasts. Pre-tax

profit declined to USD 82 m (CHF 116 m) after record results in the first half of the

year. This disappointing result was due primarily to the collapse of the Russian market.

Credit Suisse First Boston had, in line with its business strategy, built a leading market

position in Russia, the world’s 12th largest economy in 1997 and a country granted full

G7 membership status as of May 1998.

The crisis which erupted in August 1998 was characterised by a massive devalua-

tion, a moratorium on all local currency public debt with unconscionable discrimination

against foreign creditors, a breakdown of the banking system and a political leadership

vacuum. Such a combination of factors is unprecedented in the world financial markets.

Consequently, value declines of some 95% in Russian government bonds (GKOs)

and 85% in equities, as well as heavy provisioning against counterparty default on loans

and forward foreign exchange contracts, resulted in provisions and net write-offs of

USD 1.3 bn (CHF 1.86 bn). As a result, in 1998 Credit Suisse First Boston reported a

net loss of USD 154 m (CHF 221 m) after tax.

In other emerging markets as well as in most other business areas Credit Suisse

First Boston posted good results. The revenue split between Americas (44%), Europe

(47%) and Asia Pacific (9%) highlights Credit Suisse First Boston’s global balance.

Credit Suisse First Boston’s financial results contrast sharply with gains in market

share and major advances in terms of strategic positioning. As a result of substantial

investments to achieve organic growth, the seamless and successful integration of the

businesses acquired from BZW and of Garantia, a reduced risk profile and improved

risk management, Credit Suisse First Boston is well positioned to confirm its place

among the leading global investment banks. It is expected to again make a substantial

contribution to the Group’s results in 1999.

7

8


Credit Suisse Asset Management can look back on a successful business year in

1998. Restated for a change in the revenue sharing agreement with the other business

units, revenue grew by 21% to CHF 852 m and net profit rose by 58% to CHF 223 m.

Discretionary assets under management increased by 20% to CHF 212 bn; total

assets under management increased by 13.4% to 297 bn. The growth of equity funds

under management and the growth in retail distribution led to improved pre-tax margins

consistent with the strategic business plan. The acquisition of Warburg Pincus Asset

Management announced in February 1999 will considerably strengthen Credit Suisse

Asset Management’s position in the US market.

In 1998 Winterthur recorded strong growth in its life business, where premium

volume increased 23% to CHF 14.8 bn. Non-life business increased by 6% to

CHF 13.8 bn, adjusted for the divestment of the Australian HIH and the reinsurance

business. Net profit increased by 31% from CHF 674 m to CHF 884 m. Equity after

minority interests grew by 18% to CHF 9.4 bn. In Switzerland, Winterthur further

consolidated its position as market leader. Outside Switzerland, Winterthur is focusing

on further expanding its position in the European Union, eastern Europe and Asia.

Bancassurance strategy: focus on Europe The projects which were initiated in

1997 as part of the merger of Credit Suisse Group and Winterthur with a view to gen-

erating cost savings and enhancing revenues were successfully concluded in mid-1998.

As a result, synergies of CHF 280 m per annum were identified and will be fully captured

by 2000; a further CHF 60–70 m are expected over the next few years.

Strategies are currently being implemented for Europe with the aim of strengthening

collaboration between Winterthur, Credit Suisse Private Banking and Credit Suisse

Asset Management. Over the course of the next few months all retail-oriented European

activities outside Switzerland of Credit Suisse Private Banking and Credit Suisse Asset

Management will be combined in a new “Personal Financial Services Europe” unit

reporting to Thomas Wellauer, Chief Executive Officer of Winterthur. It will work closely

with existing European insurance operations. The new unit will be fully operational in

Italy in April 1999 with other countries to follow.

In Switzerland the Group will continue to pursue the mutual sale of banking and

insurance products through the banking and insurance distribution channels, which will

collaborate closely to serve their clients.


Repurchase of Swiss Re’s 20% stake in Credit Suisse Financial Products

Consistent with the organisational changes at Credit Suisse First Boston combining the

Fixed Income division and Credit Suisse Financial Products into a new entity, Credit

Suisse Group repurchased Swiss Re’s 20% minority position in Credit Suisse Financial

Products. The organisational change allows for the reduction of overlapping risk categories,

offers potential synergies in the support area and optimises the deployment of capital at

Credit Suisse First Boston.

As a result of the transaction, Swiss Re increased its holding in Credit Suisse

Group and holds just below 5% of Credit Suisse Group shares. Credit Suisse Group’s

holding in Swiss Re amounts to approximately 9%.

Business unit financial statements The business unit financial statements reflect

the organisational structure during 1998 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 explanation refer to the relevant sections.

Changes compared to previous year 1997 accounting figures have not been restated

for the transfer of Bank Leu’s retail operations from the Credit Suisse Private Banking

business unit to Credit Suisse effective 1 January 1998 as the impact on the business

units’ results is immaterial.

Trade finance business was transferred from Credit Suisse First Boston to

Credit Suisse effective 1 July 1998. The 1997 figures were not restated.

Credit Suisse Asset Management’s 1997 income statement and key performance

indicators have been adjusted to reflect the revised mutual funds commissions revenue

sharing agreements between Credit Suisse Asset Management and the other business

units. The 1997 accounting figures of other business units affected by this change have

not been adjusted.

9


OVERVIEW OF BUSINESS UNIT RESULTS

1998

in 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 income1)

Extraordinary expenses

Taxes

NET PROFIT BEFORE MINORITY INTERESTS

– of which minority interests

NET PROFIT (after minority interests)

Average allocated equity capital

Return on average equity capital

Equity capital allocation as of 1 January 19991) net of release of reserves for general banking risks2) 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 due to the handling of both claims and investments are allocated to revenue: personnel expenses non-life: CHF 334 m, life: CHF 176 m, other operating expenses non-life: CHF 206 m, life: CHF 115 m

3) mainly interest expenses not allocated to one of the two insurance divisions4) excludes after-tax profit of CHF 479 m from the sale of HIH (Australia) and the reinsurance business5) details from gain in 4) above (gross: CHF 543 m, tax: CHF 64 m, net of tax: CHF 479 m)

CreditSuisseGroup

21,700

10,586

4,473

15,059

6,641

657

3,175

2,809

1 554 5)

573

575 5)

3,215

147

3,068

Adjustmentsincluding

CorporateCentre

–713

382

– 821

– 439

–274

207

766

–1,247

1,443

377

– 461

280

– 26

306

CreditSuisseAsset

Management

852

329

257

586

266

12

0

254

0

1

30

223

0

223

180

n/a

170

WinterthurLife

1,364 2)

560

374

934

430

0

0

430

WinterthurNon-life

3,113 2)

1,321

802

2,123

990

90

0

900

CreditSuisse

3,209

1,412

842

2,254

955

30

666

259

36

51

43

201

– 4

205

4,230

4.8%

4,450

11

CreditSuisse

FirstBoston

9,600

5,332

2,307

7,639

1,961

279

1,566

116

15

81

221

–171

50

–221

10,176

–1.7%

9,340

306

CreditSuissePrivate

Banking

4,275

1,250

712

1,962

2,313

39

177

2,097

60

35

435

1,687

16

1,671

2,596

n/a

2,200

25

0

28 3)

307

995

111

884 4)

8,641

10.3%

9,358

BUSINESS UNIT ACCOUNTING PRINCIPLES

Unless stated below, Group accounting and valuation principles apply.

INCOME STATEMENT

General To reconcile business unit accounts with legal entity accounts certain adjust-

ments were made in the Corporate Centre (included in the column “Adjustments including

Corporate Centre”).

Extraordinary items such as the settlement of the US class action lawsuits related

to World War II or restructuring costs are reflected in the Corporate Centre only. Extra-

ordinary income and valuation adjustments, provisions and losses are shown net of

release of reserves for general banking risks.

10


Inter-business unit revenue splits Responsibility for all products is allocated to one

business unit. When business units contribute to the success of another, revenue alloca-

tions have been established to compensate such efforts. Revenue allocations are shown

in the relevant income statement line.

Inter-business unit cost allocations Certain administration and IT tasks (“services”)

are concentrated in one business unit, which acts as a provider for the other business

units. Such services are compensated on the basis of service level agreements and

transfer payments (which include personnel and other operating expenses). These are

reflected in the income statement line “Other operating expenses”.

Real estate used by the bank All real estate in Switzerland, mainly bank premises, is

managed centrally. The costs reflect market rent and an additional charge if actual cost

exceeds market rent. They are included in “Other operating expenses”.

Provisions for credit risk Actual credit provisions exceeding the anticipated credit

provisions have been reversed against the reserves for general banking risks held on

Group level and netted in the business unit income statement line “Valuation adjust-

ments, provisions and losses”.

Taxes Taxes are calculated for individual business units based on average tax rates

reflecting their geographical diversity. The difference between these and actual tax

expenses has been adjusted in the Corporate Centre.

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 The available equity is allocated to the business units based on

average regulatory capital required during the period.

KEY PERFORMANCE INDICATORS

Ratios per head have not been calculated as some Group-wide services are provided

centrally by one of the business units and required staffing for services received is not

reflected in the recipient business unit’s headcount.

11

12


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.


We have performed certain procedures enumerated below in relation to the 1998

business unit financial statements of Credit Suisse Group and its subsidiary under-

takings (“the business unit financial statements”) for which the Directors of Credit Suisse

Group are solely responsible. The business unit financial statements, which have been

prepared for illustrative purposes only, are set out on pages 14 –29 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 mis-

stated.

KPMG Klynveld Peat Marwick Goerdeler SA

Brendan R. Nelson Peter Hanimann

Chartered Accountant Certified Accountant

Auditors in Charge

Zurich, 15 March 1999

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

13


CORPORATE AND INDIVIDUAL CUSTOMERS IN SWITZERLAND

Credit Suisse completed its final restructuring projects in 1998. Fifteen service and

production centres were concentrated into four service centres in Zurich, Berne, Geneva

and Mendrisio. The integration of both Bank Leu’s corporate and individual customer

business and Credit Suisse First Boston’s Swiss trade finance business was implemented

smoothly. The business unit progressed further down the path to profitable expansion.

The Mix mortgage, launched mid-year, was very well received. Over 2,000 transactions,

with a volume of just under CHF 1 bn, were effected. The joint venture with American

Express is a central element in the business unit’s growth strategy. Credit Suisse is the

only Swiss bank to offer all three major credit cards – American Express, Visa and Eurocard.

Credit Suisse is continuing to implement the bancassurance strategy in the

individual customer segment. Winterthur and Credit Suisse operations have been

combined under one roof in 80 locations. The increased sale of investment and insurance

products continued in 1998.

Credit Suisse performed very well in 1998. At CHF 3.2 bn, revenue was

up CHF 479 m or 18% on the previous year. Staff costs and other operating

expenses were maintained at a stable level as planned. The cost/income

ratio was further improved, falling from 85% to 71%. With net profit of

CHF 205 m, the business unit posted positive results for the first time

since the restructuring of 1996.

KEY PERFORMANCE INDICATORS1998 1997

Average allocated equity capital CHF m 4,230 4,175

Allocated equity capital CHF m at 1 January 1999/98 4,450 4,150

Cost/income ratio 71.2% 84.9%

Return on average equity capital 4.8% – 6.6%

Number of employees at 31 December 11,729 12,540

Pre-tax margin 7.6% –11.9%

Staff expenses/total operating expenses 62.6% 69.3%

Staff expenses/total income 44% 56.6%

Number of branches at 31 December 241 244

Net interest margin 2.21% 1.95%

Loan growth 10.4% – 0.18%

Deposit/loan ratio 71.8% 77.8%

Assets under management CHF bn at 31 December 120 111

14


In particular, sales of single premium annuity policies via the Credit Suisse banking

channel performed very well. Fund holdings increased by 25%, significantly ahead of

market development. The volume of funds held in the Credit Suisse safekeeping

accounts for vested pension benefits Mixta BVG and Mixta BVG Defensiv has more

than doubled since the end of 1997.

Corporate banking earnings improved for both on and off-balance sheet busi-

ness. New customer acquisitions contributed significantly to this performance. The new

risk-adjusted pricing structure introduced last year was applied extensively. In this con-

text, the credit evaluation procedure was made transparent for clients. The introduction

of the euro was accompanied by an active customer information campaign and the

launch of an attractive product range.

Direct banking channels (telephone and internet) continued to perform very well.

In October 1998 the independent Lafferty Information and Research Group named

Credit Suisse the best internet bank in Europe. Over 90,000 customers have signed

online contracts with Credit Suisse thus far. In 1998, 1.74 m logins resulted in 6.52 m

transactions. Credit Suisse now receives around 15% of all its securities orders via the

internet.

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 ITEMS AND TAXES

Extraordinary income*


Taxes

NET PROFIT



* net of release of reserves for general banking risks

1997in CHF m

1,875

609

188

58

2,730

1,544

685

2,229

501

90

707

–296

17

46

–48

–277

1

–278

1,108

Changein %

12

39

17

–17

18

– 9

23

1

91

– 67

– 6

188

112

11

190

173

– 500

174

1998in CHF m

2,096

845

220

48

3,209

1,412

842

2,254

955

30

666

259

36

51

43

201

– 4

205

11

15

16


1998 results The corporate and individual customer operations of Bank Leu were

incorporated into Credit Suisse effective 1 January 1998. The business unit also acquired

the trade finance activities of Credit Suisse First Boston effective 1 July 1998. As a

result of these two transactions, Credit Suisse has CHF 6.1 bn higher lendings, CHF 2 bn

higher customer deposits and CHF 1.2 bn higher safekeeping assets. Neither the balance

sheet nor the income statement was restated.

At CHF 93 bn, total assets were down 3% on the previous year due to the planned

reduction in interbank and money market activities. Lendings to customers increased by

approximately 9.5% to CHF 84.8 bn. Customer deposits increased by 1% to CHF 60.9 bn.

Assets under management rose 8% to CHF 120 bn.

The positive earnings trend witnessed in the first six months of 1998 continued in

the second half. This can be largely attributed to improved interest margins, positive

developments in the recovery of past due interest, sales of single premium annuity poli-

cies prior to the introduction of stamp duty on new life insurance policies, and increased

investment fund sales. Costs developed as planned and gross operating profit rose a

significant 91% to CHF 955 m. The cost/income ratio improved substantially, falling

from 85% to 71%. Valuation adjustments, provisions and losses amounted to CHF 666 m.

This figure comprises CHF 650 m in respect of the statistically calculated credit risk

costs and CHF 16 m in respect of other provisions. Actual valuation adjustments were

CHF 11 m above the statistically projected level. The overall risk structure of the lending

portfolio continued to improve.

With a net profit of CHF 205 m in 1998, Credit Suisse posted positive results for

the first time since the restructuring. Credit Suisse will continue to make steady progress

in reaching its growth and profitability targets.


BALANCE SHEET

Cash and other liquid assets

Money market claims

Due from banks

Due from other business units

Due from customers

Mortgages

Securities and precious metals trading portfolio

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 and investment 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

31 Dec. 1998in 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 %

–12

– 92

105

– 62

15

7

– 46

–21

– 4

– 4

– 59

– 55

–3

222

–23

1

2

–13

– 4

–33

–14

– 52

15

0

–3


993

7,116

309

3,139

22,855

54,631

100

2,364

51

2,377

476

1,986

96,397

586

16,971

37,149

23,117

6,708

5,595

820

1,046

354

4,051

10

96,397

17


A new market-oriented management structure, together with the expansion of compre-

hensive financial advisory services and the creation of the Special Services support unit

to develop tailor-made product solutions, enabled Credit Suisse Private Banking to meet

the differing needs of its clients even more effectively. In a concurrent move, relationship

managers were equipped with state-of-the-art advisory and communication tools. Further-

more, the internet will be increasingly used in future as a distribution channel to make

products and services available to private banking clients.

Credit Suisse Private Banking has repositioned its international operations. Private

banking operations in North America were sold as the units were not of sufficient size

to achieve adequate levels of profitability. In contrast, European operations were actively

expanded. The creation of Credit Suisse (Italy) SpA enabled the business unit to tap

new distribution channels and increase its share of the Italian market. New representa-

tive offices in Athens and Istanbul enhanced the bank’s presence in Greece and Turkey.

Post-restructuring, Credit Suisse Private Banking is now represented in 50 locations in

Switzerland and 35 locations worldwide.

The private banks within Credit Suisse Private Banking were regrouped. In the

second half of the year Affida Bank was integrated into Bank Leu and Bank Heusser into

Clariden Bank.

These various restructuring and expansion moves implemented during 1998 are

an integral part of Credit Suisse Private Banking’s medium-term plan.

1998 was a very successful business year for Credit Suisse Private Banking.

Net profit before minority interests grew 28% to CHF 1,687 m and assets

under management increased by 6% to CHF 403 bn due to a substantial

net inflow of new business. Credit Suisse Private Banking was able to further

consolidate its strong position as one of the world’s leading private banking

operations.

SERVICES FOR PRIVATE INVESTORS IN SWITZERLAND AND ABROAD


Average allocated equity capital CHF m 2,596 n/a

Allocated equity capitalCHF m at 1 January 1999/98 2,200 1,900



Pre-tax margin 49.6% 46.0%

Fee income/total income 63.5% 64.5%

Fee income/total operating expenses 138.3% 131.5%

Assets under managementCHF bn at 31 December 403 381

After-tax profit/average AUM 42 bp 37 bp

18


1998 results Despite widespread market turbulence, the very good performance of

the first six months was repeated in the second half of the year. Credit Suisse Private

Banking posted excellent results for 1998, with net profit before minority interests of

CHF 1,687 m (up 28%). After allowing for the transfer of assets to other Credit Suisse

Group business units and the sale of North American operations, adjusted assets under

management increased by a total of CHF 27 bn to CHF 403 bn. CHF 17 bn was net

new business.

At CHF 4,275 m, total revenue grew at a higher rate (18%) than total operating

expenses (11%). This resulted in a marked improvement in the cost/income ratio from

50.6% to 46.8%. Staff costs rose due to the expansion of investment advisory services

in Switzerland and internationally, the creation of the business unit’s own service centre

and performance-related remuneration. At CHF 712 m, other operating expenses were

11% lower than in 1997. Valuation adjustments, provisions and losses of CHF 177 m

reflect the revaluation of credit positions and increased provisions for operational risks.

The substantial fall in mortgage holdings resulted

from the transfer of Bank Leu’s retail operations to

Credit Suisse.BALANCE SHEET INFORMATION

31 Dec. 1998 31 Dec. 1997in CHF m in CHF m

Total assets 83,913 81,349

Due from customers 22,544 25,406

– of which secured by mortgages 6,505 9,815

– of which secured by other collateral 14,042 12,187

INCOME STATEMENT

Net interest income

Net commission and service fee income

Net trading income

Other ordinary income

REVENUE

Personnel expenses









Taxes

NET PROFIT



* net of release of reserves for general banking risks

1997in CHF m

792

2,328

389

101

3,610

970

800

1,770

1,840

55

113

1,672

36

46

341

1,321

7

1,314

56

Changein %

8

17

42

57

18

29

–11

11

26

–29

57

25

67

–24

28

28

129

27

1998in CHF m

852

2,713

551

159

4,275

1,250

712

1,962

2,313

39

177

2,097

60

35

435

1,687

16

1,671

25

19


Excluding Russia, Credit Suisse First Boston’s pre-tax profits in 1998 were USD 1,384 m

(CHF 1,979 m). In response to market turbulence, risk mitigation efforts reduced the

balance sheet by 19% or USD 68 bn since June to USD 291 bn (CHF 400 bn). Capital

ratios for the bank Credit Suisse First Boston actually strengthened during the year, with

a BIS ratio of 15.4% overall (tier 1: 8.4%) at year-end, among the strongest of any

international peer.

Russia The global financial crisis, triggered by the unprecedented severity of Russia’s

collapse, had a major negative effect on Credit Suisse First Boston’s 1998 profit. Since

the fall of communism, Credit Suisse First Boston had profitably built leading market

shares in the Russian financial markets. Value declines of some 95% in GKOs, 85% in

equities and heavy provisioning against counterparty default on loans and forward foreign

exchange contracts, resulted in very large losses from Russia overall. Simply put, an impor-

tant market for Credit Suisse First Boston suffered from unprecedented economic collapse.

Further improvements are being implemented with respect to the firm’s risk man-

agement and risk diversification. In addition to specific risk reduction, Credit Suisse First

Boston has combined its Fixed Income and Derivatives businesses. This will simplify risk

aggregation across related areas, produce cost and revenue synergies and more

focused management. In this context Swiss Re’s 20% minority interest in Credit Suisse

Financial Products has been repurchased by Credit Suisse Group. The firm’s independent

risk functions have been strengthened with the creation of a new Strategic Risk Man-

agement Group.

GLOBAL INVESTMENT BANKING

1998 was a year of sharp contrasts for Credit Suisse First Boston. As a

result of the Russian collapse, the firm reported pre-tax profit of just

USD 82 m (CHF 116 m). However, contrasting these disappointing

financial results were important advances in market share and strategic

positioning. The substantial investments made in 1997 and 1998, together

with successful organic development, position Credit Suisse First Boston

well for 1999 and beyond.


Average allocated equity capital CHF m 10,176 9,661

Allocated equity capitalCHF m at 1 January 1999/98 9,340 9,900

BIS tier 1 ratio* 8.4% 8.5%


Return on average equity capital –2% 18%




Staff expenses/total income 55.5% 49.1%

* applies to the bank Credit Suisse First Boston

20


Strategic developments 1998 was also a year of substantial achievement for Credit

Suisse First Boston. The firm took a major step forward in implementing its strategy of

investing to expand its customer businesses and global reach. The acquisition of BZW’s

business in Europe was successfully completed and integrated, giving Credit Suisse

First Boston a significant boost to its leadership in Europe and underlining its unique

transatlantic positioning. An important new “home market” position in the UK was also

gained. The combined businesses are already operating better than originally planned,

with results ahead of schedule and strong gains in market share.

Credit Suisse First Boston’s growing business in Asia was substantially strengthened

by the acquisitions of BZW’s Asian businesses and the 100% control of Credit Suisse

First Boston’s affiliates in Australasia: First Pacific Group and First NZ Capital.

The acquisition of Garantia in Brazil for USD 675 m (CHF 965 m), completed in

August, fills an important strategic gap and results in a unique leadership position in

Latin America. Despite hostile market conditions and a sharp reduction in risk positions,

Credit Suisse First Boston Garantia has operated ahead of plan with good profitability

since the acquisition – both in 1998 and 1999 to date.

Credit Suisse First Boston also expanded organically, adding some 935 people in

1998 (8% of total employment) including over 150 technology bankers and research

analysts. This latter move underpins the firm’s commitment to strengthen its business

and is already providing impressive results.

INCOME STATEMENT

Fixed Income

Equities

Credit Suisse Financial Products

Corporate and Investment Banking

Private Equity and other

REVENUE

Personnel expenses









Taxes

NET LOSS/PROFIT


NET LOSS/PROFIT (AFTER MINORITY INTERESTS)

* net of 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 expensesin common with US competitors, rather than netted against revenues.

Changein %

– 49

18

–11

21

727

– 6

6

25

11

– 42

32

184

– 96

– 69

–28

–74

–110

– 59

–114

1998in CHF m

2,489

2,038

1,538

2,560

975

9,600

5,332

2,307

7,639

1,961

279

1,566

116

15

81

221

–171

50

–221

306

1997in CHF m

4,866

1,745

1,742

2,130

–157

10,326

5,074

1,853

6,927

3,399

213

555

2,631

51

114

872

1,696

123

1,573

22

Changein %

– 49

17

–12

20

721

–7

5

25

10

– 42

31

182

–96

–71

–29

–75

–110

– 59

–114

1998in USD m

1,740

1,425

1,075

1,790

683

6,713

3,728

1,613

5,341

1,372

195

1,095

82

11

57

155

–119

35

–154

214

1997in USD m

3,379

1,212

1,210

1,479

–109

7,171

3,523

1,287

4,810

2,361

148

385

1,828

35

79

606

1,178

85

1,093

15

21

22


We estimate that without the investment components of these acquisitions and strategic

personnel additions, Credit Suisse First Boston would have reported additional pre-tax

profits of at least USD 200 m (CHF 286 m) in 1998 and 3% higher operating margins.

However, we are confident that they will produce attractive benefits over the next three

years both financially and strategically, accelerating the firm’s rebalancing towards cus-

tomer business and closing selected market share gaps where important. One of the

best indications of shared confidence in Credit Suisse First Boston’s business health is

the significantly lower staff turnover, despite the tensions of 1998.

1998 results 1998 was a successful year financially for many of Credit Suisse First

Boston’s businesses. Total revenue, excluding Russia, increased 11% compared with

1997 (percentages refer to the dollar-based figures). On the same basis, the revenue split

was 44% Americas, 47% Europe and 9% Asia Pacific, highlighting the firm’s unique

global balance.

Equities Excluding Russia, revenue increased 52% and ROE was around 15%.

US and European cash businesses and equity derivatives showed particularly strong

advances. Good market share gains were achieved across the board in capital markets,

secondary sales, trading and research. Excluding Russia, gross equities revenues,

including those booked in Corporate and Investment Banking and CSFP, were USD

2,055 m (CHF 2,939 m).

Corporate and Investment Banking Revenue increased 21%. This reflects

market share advances in all products offset by lower net interest income (7% of the

total) as the developed markets loan book continued to shrink and with equity capital

supporting it reduced to USD 700 m (CHF 1 bn). Revenue from M&A and equity capi-

tal markets increased 45% compared with 1997. Profitability, though still modest, is

improving, impacted by the heavy investments in progress.

Fixed Income Excluding Russia, revenues declined 28% with profitability little

better than breakeven due to second half losses in distressed debt/high yield and other

credit-sensitive areas. However, money markets, foreign exchange and government

bond trading increased profits. Emerging markets business was profitable outside eastern

Europe. Debt capital markets global underwriting share increased substantially on volume,

which doubled compared with 1997.

Credit Suisse Financial Products Excluding Russia, revenue declined 4%.

Customer business in derivatives was up on 1997 and despite trading losses (including

Russia and Long Term Capital Management), CSFP maintained an ROE of 14% overall

and over 25% excluding Russia.


Private Equity The firm now manages over USD 2.9 bn (CHF 4 bn) in several funds

globally and is well positioned to grow further. Significant gains from the partial sale of

past strategic and merchant banking investments of Credit Suisse Group and the former

CS First Boston were taken in 1998. Credit Suisse Group has approximately USD 1.2

bn (CHF 1.7 bn) invested at cost in private investments with an equal amount of

unfunded commitments to this asset class.

BALANCE SHEET

Cash

Money market claims

Due from banks

– of which securities lending andreverse repurchase agreements

Due from other business units

Due from customers

– of which securities lending and reverse repurchase agreements

Mortgages

Securities and precious metals trading portfolio

Financial investments

Participations

Tangible fixed assets

Goodwill

Accrued income and prepaid expenses

Other assets

– of which replacement value of derivatives

TOTAL ASSETS

Liabilities in respect of money market paper

Due to banks

– of which securities borrowing and repurchase agreements

Due to other business units

Due to customers, in savings and investment deposits

Due to customers, other

– of which securities borrowing and repurchase agreements

Bonds and mortgage-backed bonds

Accrued expenses and deferred income

Other liabilities

– of which replacement value of derivatives

Valuation adjustments and provisions

Capital


TOTAL LIABILITIES


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

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

1,743

399,708

Changein %

– 42

17

0

– 24

– 68

– 41

– 54

0

–1

8

66

6

–

18

– 8

– 9

–11

12

1

–12

– 59

– 61

–27

– 60

0

10

–2

–2

– 39

– 6

45

–11


2,021

16,119

138,351

103,288

5,933

103,993

62,030

7,157

102,385

9,343

262

1,837

0

5,817

53,690

50,934

446,908

17,719

183,043

84,817

39,677

463

97,374

56,797

33,551

8,025

53,875

50,635

2,706

10,475

1,201

446,908

23


SERVICES FOR INSTITUTIONAL AND MUTUAL FUND INVESTORS WORLDWIDE

Credit Suisse Asset Management enjoyed another strong year of

revenue growth (up 21%) and growth in discretionary assets under

management (up 20%). With the organisation now in place, Credit Suisse

Asset Management is focusing on expanding the business through

organic growth and acquisitions.

During 1998 a number of actions were taken to improve third-party distribution and to

strengthen core domestic businesses and broaden global capabilities. In Europe a

new platform was developed for selling offshore funds, and in Australia a retail effort

was initiated. The retail distribution efforts in Japan have made Credit Suisse Asset

Management a leader in distributing products through the new bank channels which

opened in December of 1998. Acquisition initiatives in 1998 include the purchase of

Groupe Cristal in France and the business of RMB in Australia. In February 1999,

Credit Suisse Asset Management announced the purchase of Warburg Pincus Asset

Management in the USA, thereby considerably strengthening its position in the US market.


Average allocated equity capital CHF m 180 n/a

Allocated equity capital CHF m at 1 January 1999/98 170 130


After-tax profit/average AUM 7.9 bp 5.8 bp




Staff expenses/total income 38.6% 40.5%

Total assets under management CHF bn 297 262

Total discretionary funds CHF bn 212 177

Total mutual funds distributed CHF bn 74 63

Total advisory assets CHF bn 85 85

Growth in assets under management 13.4% 18.6%

Growth in discretionaryassets under management 20% 17.5%

– of which volume 14% 6%

– of which performance 6% 11.5%

24


1998 results Discretionary assets under management grew by 19.7% compared with

1997; 12.4% from net new business, 1.1% from assets through acquisitions and 6.2%

from market movements. Most of the asset growth was achieved in the targeted areas

of equity and balanced products (60% of total net new business). The success in asset

growth and the improved asset mix are reflected in the revenue growth of 21%, which,

together with a controlled expense increase of 17%, has improved further the ratio of

after-tax profit to average assets under management.

The business unit’s results for 1997 have been restated to reflect changes in the

revenue sharing for mutual fund products between the business units.

INCOME STATEMENT

Management and advisory fees

Net mutual fund fees

Other revenues

REVENUE

Personnel expenses





Valuation adjustments, provisions and losses


Extraordinary income


Taxes

NET PROFIT



* adjusted to reflect revised revenue sharing between business units in respect of mutual fund commissions implemented at 1 January 1998

1997*in CHF m

479

185

42

706

286

214

500

206

15

0

191

9

23

36

141

0

141

Changein %

24

11

21

21

15

20

17

29

–20

0

33

–100

– 96

–17

58

0

58

1998in CHF m

595

206

51

852

329

257

586

266

12

0

254

0

1

30

223

0

223

25


INSURANCE FOR PRIVATE AND CORPORATE CUSTOMERS WORLDWIDE

Winterthur Group posted very good results in 1998. It also focused on its

new business strategy: the concentration of efforts on increasing value

over the long-term, sharper focus on core business and core markets

and the exploitation of potential in the field of bancassurance. Winterthur

finished the 1998 business year on a high note. Net operating profit rose

by 31% (1997: 31%) to CHF 884 m. An additional gain of CHF 479 m was

made on the sale of reinsurance operations and the holding in HIH

(Australia). Annual profit of CHF 1,363 m was recorded. Shareholders’

equity grew 18% to CHF 9.4 bn.

26

New strategy In 1998 Winterthur reviewed and reformulated its business strategy.

The company’s primary goal is to be a leading retail insurer and bancassurance provider

in Europe, focusing particularly on the Swiss, German, Italian, Spanish and Belgian

markets. In addition, Winterthur intends to further reinforce its good foundation in Europe

by strengthening its position in the other European markets and by implementing cross-

border product initiatives. Second, it aims to become the market leader in selected mar-

kets in eastern Europe and Asia. The largest opportunities for growth are to be found in

asset gathering business. Winterthur’s pension funds in the growth markets of eastern

Europe and its units in Asia mean it is particularly well placed to achieve this goal.

Third, Winterthur wants to be a leading provider of global insurance and group life solu-

tions. Fourth, an attractive return on shareholders’ equity is to be achieved in all other

markets and areas of business, e.g. in North America. Expansion at Winterthur is to be

carefully targeted, encompassing both organic growth and acquisitions and partner-

ships.

Systematic implementation Winterthur Group implemented two key strategic deci-

sions in 1998 – the sale of its 51% holding in the Australian HIH and of its active rein-

surance operations. The resources freed up through the sales will be used to further

strengthen Winterthur’s positions in Europe and for targeted expansion in eastern

Europe and Asia. The creation of the Individual and Group Life product centre is a fur-

ther step in the implementation of the bancassurance strategy within Credit Suisse

Group. This division, the leading bancassurance provider in Switzerland when it was

formed in the first half of 1998, has already seen its share of the Swiss life insurance

market increase considerably. The expansion of individual and group life activities into

Europe is planned. Finally, the partnership between Winterthur International and the

US-based Travelers Property Casualty has opened up new opportunities for global

insurance activities with corporates.


Very good year for operational business Despite a further intensification of com-

petition in the global insurance markets and turbulence on the financial markets, most

of Winterthur’s divisions were able to improve both their results and their competitive

positions. In Switzerland, Winterthur further strengthened its position as the market

leader. The integration of the legal costs insurer ARAG Schweiz into Winterthur-ARAG

is now complete. Life operations experienced a boom.

DBV Winterthur again saw a sharp rise in profits for 1998. The stock exchange

between Commerzbank and the Generali Group resulted in the termination of the ten-

year partnership between Commerzbank and Winterthur (effective at the beginning of

the year 2000) and opens up new bancassurance options for Credit Suisse Group.

Winterthur underpinned its position as one of the leading insurers in Italy. Spanish auto

operations posted a loss for 1998 after many years of good results due to the adverse

development of claims. First successes were registered in the implementation of the

bancassurance strategy in a number of European countries, Spain included. Of particu-

lar note is Winterthur’s strong position in the growth markets of central Europe:

Hungary, Poland and the Czech Republic. In south-east Asia and the Pacific Rim,

Winterthur’s activities focused on life business and joint activities with Credit Suisse

Group banking units.

1998 results Net operating profit after tax and minority interests was 31.2% higher at

CHF 884 m. An additional CHF 479 m (after tax) in extraordinary profit was made on

the sale of reinsurance operations and HIH (Australia). Annual profit (after tax and minoritiy

interests) was CHF 1,363 m. Gross premiums for Winterthur Group rose by 13.9% to

CHF 28.6 bn. These figures have been restated for the sale of HIH (Australia) and

reinsurance operations. Recording 22.7% growth, life business showed substantially

greater expansion than non-life business, which grew 5.8%. Investments, which make up

around 91% of total assets, increased by 11.1% to CHF 111.5 bn. Shareholders’ equity

rose by CHF 1.5 bn (18.1%) from CHF 7.9 bn to CHF 9.4 bn. This increase reflects the

excellent operational results, favourable stock market developments and an appropriate

investment strategy. Technical provisions rose by 9.9% to CHF 96.7 bn.

FINANCIAL HIGHLIGHTS 1998 1997* Changein CHF m in CHF m in %

Gross premiums 28,620 25,123 14

Net investment income 8,019 7,138 12

Net operating profit (after minority interests) 884 674 31

Annual profit 1,363 318 329

1998 1997 Changein CHF m in CHF m in %

Investments 111,505 100,387 11

Technical provisions 96,652 87,938 10

Debentures outstanding 465 807 – 42

Shareholders’ equity (excl. minority interests) 9,358 7,924 18

31 Dec. 1998 31 Dec. 1997

Employees 25,521 25,062 2

* restated for the sale of HIH (Australia) and the reinsurance business

27

28


1998 results for non-life business Despite the adverse development of claims in

the Spanish motor business and the introduction of new accounting practices in Italy

and Spain, resulting in an increase in technical provisions, the key performance bench-

mark in insurance business, the combined ratio (sum total of claims ratio, expense ratio

and dividends to policyholders incurred) improved from 110.1% to 109.2%. The tech-

nical provisions ratio (ratio of technical provisions to premiums) remained virtually

unchanged compared with 1997 at 182%. Net investment income increased by 6.5%

compared with the previous year. Overall, the result in non-life business (before extra-

ordinary items, tax and minority interests) amounted to CHF 900 m.

1998 results for life business Gross premiums rose by 22.7% to CHF 14.8 bn.

The expense ratio fell further to 9.3% compared with 10.5% in 1997. Claims incurred,

which rose 13.4%, grew at a lower rate. The change in the actuarial provision, up by

BALANCE SHEET 31 Dec. 1998 31 Dec. 1997 Change

in CHF m in CHF m in %

Investments 111,505 102,119 9

– non-life 27,327 28,122 – 3

– life 79,587 71,242 12

– life business where the investment risk is borne by policyholders 4,591 2,755 67

Policy loans 878 902 –3

Deposits with reinsured companies 697 337 107

Cash at banks and in hand 258 770 – 66

Receivables from insurance companies 1,181 833 42

Receivables from agents and policyholders 2,811 2,775 1

Sundry debtors 1,915 1,514 26

Accrued income and prepaid expenses 2,287 2,314 –1

Office and EDP equipment 243 345 – 30

Other assets 680 1,178 – 42

TOTAL ASSETS 122,455 113,087 8

Technical provisions 96,652 91,228 6

– non-life 21,463 24,205 –11

– life 70,535 64,177 10

– life business where the investment risk is borne by policyholders 4,654 2,846 64

Deposits received from reinsurance ceded 1,253 750 67

Convertible bond and warrant issues 465 922 – 50

Payables to insurance companies 1,271 707 80

Payables to agents and policyholders 3,468 2,280 52

Sundry creditors 2,420 2,319 4

Accrued expenses and deferred income 1,497 1,771 –15

Other liabilities 4,104 3,623 13

Shareholders’ equity 11,325 9,487 19

Minority interests 1,967 1,563 26

Shareholders’ equity after minority interests 9,358 7,924 18

TOTAL LIABILITIES 122,455 113,087 8


27.2%, rose more sharply than premiums because Winterthur used the positive financial

results to reserve for increased life expectancy. The financial results were also excellent.

Net investment income rose 14.8%. Net profit (before extraordinary items, tax and

minority interests) in life business increased to CHF 430 m from CHF 362 m in 1997.

NON-LIFE OPERATIONS

Gross premiums

Net premiums

Premiums earned, net

Claims incurred, net

Dividends to policyholders incurred, net

Operating expenses, net (including commissions paid)

UNDERWRITING RESULT, NET

Net investment income

Interest on deposits and bank accounts

Other interest paid

Other income and expenses (including exchange rate differences)

PROFIT (before extraordinary items, tax, minority interests)

Investments

Technical provisions

Combined ratio

Claims ratio

Expense ratio

Technical provisions ratio

1998in CHF m

13,793

12,257

11,803

– 8,920

–335

–3,771

–1,223

2,261

140

– 98

–180

900

27,327

21,463

109%

76%

31%

182%

Changein %

6

4

5

2

14

6

–5

6

9

38

30

18

4

2

1997*in CHF m

13,038

11,773

11,288

– 8,705

–294

–3,571

–1,282

2,124

128

–71

–138

761

26,390

20,975

110%

77%

30%

186%

LIFE OPERATIONS

Gross premiums

Net premiums

Premiums earned, net

Claims incurred, net

Change in actuarial provision, net

Allocation to participation, net

Operating expenses, net (including commissions paid)

Net investment income

Interest on deposits and bank accounts

Interest on bonuses credited to policyholders

Other interest paid

Other income and expenses (including exchange rate differences)

PROFIT (before extraordinary items, tax, minority interests)

Investments

Technical provisions

Expense ratio

Claims incurred and change in actuarial provision

* restated for the sale of HIH (Australia) and the reinsurance business

1998in CHF m

14,827

14,673

14,674

– 6,959

– 9,263

–1,918

–1,360

5,758

207

–117

– 302

–290

430

84,178

75,189

9.3%

111%

Changein %

23

22

23

13

27

16

8

15

73

17

60

353

19

14

12

1997*in CHF m

12,085

12,026

11,915

– 6,138

–7,285

–1,652

–1,259

5,014

120

–100

–189

– 64

362

73,997

66,963

10.5%

112%

29


The breakthrough in negotiations with class action plaintiffs was reached

on 12 August 1998 with the agreement on a global settlement. The full

and conclusive settlement commits the major Swiss banks to pay

USD 1.25 bn. Even after the settlement, the Volcker Committee continued

its investigation into dormant assets under the terms of the 1996

Memorandum of Understanding with Jewish organisations. A number of

European insurance companies (including Winterthur Life) are also

facing class actions. These companies have reached agreement on a

procedure for the settlement of claims from the Holocaust period.

Conclusion of settlement negotiations The terms of the settlement reached under

the aegis of Judge Korman commit the major Swiss banks to pay USD 1.25 bn. UBS AG

undertakes to pay two-thirds and Credit Suisse Group one-third of this sum, whereby

further contributions from companies which did not participate in the settlement are

expected. In return, all claims made against Swiss commercial banks, the Swiss National

Bank and Swiss firms (excluding insurance companies) will be withdrawn. Following the

announcement of the settlement, all threats of sanctions and calls for a boycott were

dropped. In November 1998, in accordance with the terms of the agreement, UBS and

Credit Suisse Group paid the first instalment of USD 250 m into a blocked account in

the USA. The remaining amount will be transferred in three further annual instalments.

On 10 February 1999 the World Jewish Restitution Organisation endorsed the settle-

ment agreement which had been worked out with plaintiffs and Jewish organisations.

Once Judge Korman has approved the proposed method for distribution of the funds –

to be devised by the claimants – and once notification of the settlement has been

effected worldwide, the first payments can be made to those with legitimate claims.

Dormant accounts On behalf of the Volcker Committee, a number of international

audit firms searched the archives of most Swiss banks in an effort to uncover any as

yet unidentified dormant accounts dating from the Second World War period. A particularly

lengthy task was the compilation in electronic form of lists of names to be matched

against external lists of Holocaust victims. In this phase alone, up to 250 members of

staff of the various Credit Suisse Group banks and some 65 external auditors were

involved in preparing and compiling the relevant documents. Regardless of the time and

expense involved, Credit Suisse Group fully supports the historical investigation.

Claims against insurance companies In mid-1997 a class action lawsuit was filed

against 16 European insurance companies, including Winterthur Life. The plaintiffs claim

that these companies failed or refused to pay out benefits, particularly in connection

with life policies, to which victims or survivors of the Holocaust were entitled. A con-

siderable search effort is currently under way in Winterthur’s archives.

THE ROLE OF THE SWISS FINANCIAL SERVICES INDUSTRY IN THE SECOND WORLD WAR

30


In August 1998 – in close co-operation with American insurance regulators - an agree-

ment was reached with individual European insurers, setting out a procedure for the

settlement of claims arising from the Holocaust era. The body set up to oversee these

provisions - the International Commission on Holocaust Era Insurance Claims (ICHEIC),

chaired by former US secretary of state Lawrence Eagleburger - has already started

work. Winterthur Life is taking active part.

Humanitarian fund payments The humanitarian fund for needy victims of the Holo-

caust was set up with CHF 275 m donated by the major Swiss banks, other Swiss

companies and private individuals to provide rapid assistance to Holocaust survivors

suffering hardship. Having made its first payments in eastern Europe at the end of 1997,

the management of the fund, installed by the federal government, extended eligibility to

non-Jewish Holocaust survivors in need and also widened its scope in geographical

terms. Since mid-August 1998 it has also been possible for US residents to submit

applications for assistance, for which USD 32 m has been set aside. By the end of

1998 a total of CHF 83 m had been paid out by the humanitarian fund.

Important events and measures

March/April 1998 US states and cities suspend their threat of boycott.

The major Swiss banks enter into talks with class action

plaintiffs and the World Jewish Congress.

June 1998 A USD 600 m settlement proposed by the major Swiss banks

is rejected. In the USA, a class action lawsuit is brought

against the Swiss National Bank.

July 1998 US finance chiefs lift the boycott moratorium. Subsequently,

various US states and cities announce sanctions against

Swiss banks.

August 1998 The major Swiss banks reach a USD 1.25 bn settlement

with class action plaintiffs and Jewish organisations.

August 1998 Memorandum of Understanding signed by US insurance

regulators, Jewish organisations and European insurers.

December 1998 In New York a new class action lawsuit is brought against

European insurers.

January 1999 The Volcker Committee announces that its investigation will

be completed by the end of May 1999.

February 1999 Signing of the settlement agreement by the major Swiss

banks, class action plaintiffs and Jewish organisations.

April 1999 Judge Korman gives his preliminary approval to the bank

settlement.

31


CREDIT SUISSE GROUP AND THE COMMUNITY

An attractive employer Credit Suisse Group offers interesting and challenging posi-

tions and career opportunities to its 62,296 employees worldwide. Targeted training

programmes promote the personal development of members of staff. In 1998 Credit

Suisse Group hired around 400 banking apprentices and 200 graduates in Switzerland.

The Group encourages women with children to continue their careers, promoting equal

opportunities at the workplace through, for instance, the provision of childcare and new

and more flexible work patterns.

An attractive investment for the ecologically minded Credit Suisse Group is com-

mitted to all areas of environmental protection. Its independently validated environmental

report describes the measures the Group has taken, especially with regard to product

ecology. The continued ISO 14001 certification of all offices in Switzerland, combined with

the Group’s commitment to product ecology, has prompted many ecologically oriented

investors to include Credit Suisse Group in their portfolios as a “best-in-class” stock.

Social commitment: financial support/Anniversary Foundation In 1998 Credit

Suisse Group provided support to various organisations and institutions dedicated to

social, charitable, humanitarian and cultural causes. More than 1,000 beneficiaries

received around CHF 15 m. The Anniversary Foundation promoted numerous social and

cultural projects, such as the refurbishment of the ICRC museum in Geneva and the

world skiing championships for disabled persons to be held in the Canton of Valais in

the year 2000. The CSFB Foundation Trust primarily supported educational and

personal development programmes for young people in US inner city areas. In addition,

Credit Suisse First Boston made financial contributions to more than 400 charitable

institutions.

Sponsorship Credit Suisse sponsored a large number of cultural and sporting events

in 1998, welcoming around 26,000 guests to more than 200 events in Switzerland.

Credit Suisse and Winterthur – both committed to promoting sport for young people –

acted as joint sponsors of the Tour de Suisse and the Swiss national football teams.

Credit Suisse Private Banking provided support in the fields of golf, equestrianism, classical

music and the visual arts. In addition to Winterthur’s involvement in gymnastics, handball

and music, the company’s “Foundation for the Prevention of Accidents” launched a

campaign to improve road safety to mark its 25th anniversary.

Credit Suisse Group’s global presence encompasses a wide variety of

cultures, countries and markets. Its activities are based on high ethical

standards which apply throughout the Group. In Switzerland, where Credit

Suisse Group employs 27,941 people, it plays an active part in shaping

social and economic conditions through its membership of banking

associations and other economic bodies.

32


CREDIT SUISSE GROUP PROJECTS

In addition to the IT remediation work in connection with the switch to

the year 2000, the focus at Credit Suisse Group in 1998 was on four key

projects: the conclusion of the strategic refocusing of banking operations,

exploiting synergies in bancassurance, and the preparations related to the

introduction of the euro and to the reconciliation of the Group’s financial

statements to US GAAP (generally accepted accounting principles).

Refocusing of banking operations The refocusing of the banking operations of

Credit Suisse Group into four business units geared to specific customer segments

and markets was implemented quickly and successfully. A large part of the project had

already been completed at the end of 1997. Related processing and IT projects were

concluded on schedule in 1998. The job reduction programme in Switzerland, developed

in collaboration with employee organisations, was realised in 1998 and proved to be

successful in practice. The planned reduction of around 3,500 jobs in Switzerland and

approximately 1,500 abroad was offset by the creation of virtually the same number of

new posts, connected primarily with new acquisitions and an expansion in business

volume.

Exploiting synergies in bancassurance A number of major targets were reached in

1998 with respect to the merger with Winterthur. As well as establishing the Individual

and Group Life division at Winterthur and bringing together around 80 Credit Suisse branches

and Winterthur agencies into shared premises, 1998 in particular saw further developments

in the range of products and services as well as the expansion of joint activities in selected

European markets. The more intensive sale of insurance products via banking channels

and the range of combined product packages are showing especially good results.

Euro The euro project groups worked intensively for more than three years on the

necessary preparations in connection with the introduction of the new European currency.

In 1998 the focus was on sensitising customers to the euro, developing new euro prod-

ucts, as well as carrying out technical and operational adjustments. At the end of the

year, tens of thousands of accounts and securities were switched to the new currency,

and foreign exchange trading and payment transactions systems were adjusted.

Reconciling the Group’s financial statements to US GAAP In spring 1998 Credit

Suisse Group embarked on a project to reconcile its financial statements to US GAAP

(generally accepted accounting principles) in a phased process lasting until 2001.

Reconciliation to US GAAP will bring the Group a number of benefits, including easier

access to the international capital markets, better benchmarking with competitors and

an improved ability to make acquisitions.

33


CREDIT SUISSE GROUP AND THE YEAR 2000

The challenge faced by financial institutions worldwide as the year 2000

approaches is substantial. Credit Suisse Group is addressing the year

2000 issue utilising a priority-driven methodology, encompassing inventory

and assessment, remediation or replacement, testing, third-party risk

analysis and contingency planning. The Credit Suisse Group Board of

Directors and Executive Board have given the highest priority to the year

2000 project, and intend to discharge this responsibility fully and to work

diligently to provide this assurance to the company’s customers,

shareholders and markets.

State of preparations By the end of February 1999, Credit Suisse Group had reme-

diated 93% of its business-critical systems. These systems are in daily use and are being

made ready for the extensive programme of industry testing in 1999. Credit Suisse Group

also relies on its customers, business partners and suppliers for their year 2000 com-

pliance. Risk assessment processes have been put in place, and over 7,000 customers

and business partners were contacted during 1998. Warranties are being sought for

vendor-supplied IT components. These components are also being tested within the

Group’s technology environment.

Focus for 1999 During 1999, Credit Suisse Group will remain focused on achieving,

maintaining and demonstrating year 2000 compliance. The Group’s target for achieving

compliance of all systems is the end of June 1999 and procedures have been put in

place to ensure that remediated systems continue to be compliant throughout 1999. The

Group has demonstrated its year 2000 readiness through participation in 30 industry

tests during 1998 and is committed to participate in 59 industry tests in 1999.

The year 2000 issue is widespread and, in many cases, it is not possible to

guarantee that problems will not occur. Credit Suisse Group has started a contingency

planning process which is targeted for completion by the end of June 1999. This process

includes risk identification, business continuity planning and monitoring, as well as the

formation of management teams to respond quickly to unexpected events.

Project governance Credit Suisse Group has organised its governance structure for

the year 2000 issue to reflect the normal organisation of its business. The Board of

Directors and the Executive Board of Credit Suisse Group are provided with status

reports on a regular basis and are satisfied that appropriate steps are being taken to

mitigate the risks to the Group.

Costs Credit Suisse Group took an exceptional charge in its 1997 accounts for IT

restructuring in preparation for the introduction of the euro and for the year 2000 of

CHF 401 m after tax (CHF 488 m pre-tax). Of this amount, CHF 276 m was used in

1998.

34

02_CSGB_E_Risk Management 30.4.1999 21:13 Uhr Seite 35

Credit Suisse Group pursues an effective risk management policy

throughout its business units, with clear goals of capital preservation and

capital optimisation. The Group’s risk management approach is aimed at

meeting the challenges of a rapidly changing market environment and

maximising the potential for the most efficient allocation and management

of economic capital throughout the entire Group to the benefit of

shareholders and other stakeholders.

Overview of risk management Intermediating financial risks and proactively managing

these risks is one of the Group’s prime businesses. Credit Suisse Group perceives risk

management as an ongoing process. It starts with the definition of business objectives,

policies and strategies. It proceeds with the identification, assessment, management

and control of all risks associated with the Group’s activities. The cycle closes with the

reaffirmation and validation of objectives and strategies. Success factors for risk manage-

ment include a strong commitment from senior management to independent risk manage-

ment and controls, as well as clear policies, procedures, risk acceptance criteria and

risk measurement across all products and business activities.

The primary objectives of Credit Suisse Group’s proactive approach to risk manage-

ment are to preserve the Group’s capital base and to optimise the allocation of regulatory

and economic capital to the individual business units. Strategic plans have been adopted

to enhance risk management capabilities to a “best practice” level throughout the Group

with the goal of staying at the forefront of the industry.

The Board of Directors is responsible for the determination of the general risk

policy, the strategic risk management organisation and for defining the overall risk

appetite. The Board of Directors meets at least five times a year. The Chairman’s Com-

mittee of the Board of Directors is responsible for reviewing the Group’s risk exposure

on a quarterly basis. The Board of Directors has delegated certain risk management

and control responsibilities to the Group Chief Risk Officer (GCRO) and the Group Risk

Coordination Committee (GRCC). The GRCC, which meets at least on a quarterly

basis, 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. In continuous efforts to enhance the

integrated risk management process, the GRCC meetings held in 1999 will normally be

followed by a meeting of the Group Executive Board’s Risk Management Committee,

which focuses on issues and new projects and products from a risk perspective and

deals with risk-relevant compliance issues. This Risk Management Committee and the

GRCC are led by the GCRO. Various risk committees at the business unit level are

established by the respective Chief Executive Officers.

Integrated Group-wide risk management is based on a partnership between all the

entities involved in risk management, at both the Group and the business unit level. It is

CREDIT SUISSE GROUP RISK MANAGEMENT

Economic capitalEconomic capital at Credit SuisseGroup is defined as an equityreserve or cushion for unexpectedlosses. It ensures that CreditSuisse Group – even under ex-treme conditions – remains solventand stays in business. It is impor-tant to recognise that economic capital is distinct from regulatorycapital, which focuses on marketand credit risk. Conceptually,economic capital is comprehensiveand covers all significant risks.

35

36


the task of Group Risk Management (GRM) to foster this partnership and to harmonise

the risk management approach towards the different risk types across the various

business units. GRM’s mandate – as independent “risk conscience” without any risk posi-

tions of its own – is to ensure an effective and coherent implementation of the Group’s

risk management strategy.

As the main operating units, the five business units of Credit Suisse Group are

responsible for the implementation of their own risk management strategy within the

Group’s overall framework. Each business unit has a specialised risk management structure

in place – including risk committees, the appropriate tools, systems, procedures and

controls – that is foremost suited to managing the risks taken in that particular business

unit. The risk management structure is independent of front-office divisions. The key to

successful risk management at the business unit level has been the design of a comple-

mentary “top-down strategic” and “bottom-up tactical” risk management approach with

formal policies and procedures addressing all areas of significant risk. This, in turn, has

fostered a risk management culture, which is an important factor for success at Credit

Suisse Group. The structure is robust and flexible enough to cope with changes in the

business environment and allows for the global integration of the various risks that can

affect the Group’s portfolio. The Group also leverages the extensive experience and

know-how of its specialised entities, particularly Credit Suisse Financial Products, a sub-

sidiary of Credit Suisse First Boston, which is an acknowledged market leader in risk

management.

In the normal course of its financial services activities, Credit Suisse Group engages

in transactions that give rise to various types of risks. The following overview shows

Credit Suisse Group’s seven major risk classes. One of the important aims of the Credit

Suisse Group restructuring in 1996 and 1997 was the allocation of risk types to spe-

cialised business units. While most business units are exposed to all risk types, these

risks vary as to relevance to the individual business unit. Market risks are concentrated

at Credit Suisse First Boston, while credit risks are most important at Credit Suisse and

Credit Suisse First Boston. Winterthur is primarily exposed to insurance risks, compared

with business volume risks at Credit Suisse Private Banking and Credit Suisse Asset

Management. All business units are exposed to operational, reputational and strategy

risks.

Risk culture with modern risk management andestablished control measures as part of corporate culture

Market Risk

Credit Risk

Insurance Risk

Business Volume Risk

Operational Risk

Strategy Risk Reputational Risk


Market risk Market risk is the risk of loss arising from changes in the values of financial

instruments resulting from the movement of market rates, prices and volatilities. 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. Credit

Suisse First Boston devotes considerable resources to ensure that market risk is com-

prehensively captured and understood, accurately measured and effectively managed.

Credit Suisse First Boston’s independent Risk Measurement and Management

(RMM) department is now responsible for the measurement and reporting of all credit risk

and market risk data for Credit Suisse First Boston. RMM was formed by integrating

the existing credit risk reporting and systems functions of the Credit Risk Management

department with the market risk functions in the former Market Risk Management

department. Establishing RMM was one of the organisational changes that was prompt-

ed by the market turmoil of 1998.

RMM uses the following two core techniques to measure and manage market risk

exposures:

– The Value at Risk method (VaR method) estimates the potential loss arising from

a given portfolio for a predetermined probability and holding period, using market

movements determined from historical data.

– The Scenario Analysis method estimates the potential loss after stressing market

parameters. These market parameter movements are derived from past extreme

events and hypothetical scenarios.

RMM consolidates market risk exposures arising from all trading portfolios and geo-

graphical centres, and evaluates Credit Suisse First Boston’s aggregate VaR on a daily

basis. Stress testing of all major portfolios is undertaken regularly using scenario analysis.

Value at Risk Credit Suisse First Boston has used a VaR methodology to model

market risk since 1995, Credit Suisse Financial Products since the business was

established in 1990. The methodology is subject to continuous review to ensure that it

remains relevant to the business being conducted, captures all significant risks, is

consistent across risk types, and meets or exceeds regulatory and industry standards.

Credit Suisse First Boston’s VaR is defined as the 99th percentile greatest loss that

may be incurred on the portfolio over a ten-day holding period. In general, two years of

underlying data are used to derive the market movements used for this calculation.

These movements are recalculated on a quarterly basis and after periods of market tur-

bulence. The parameters and procedures meet the quantitative requirements prescribed

by the Basle Committee on Banking Supervision and the Swiss Federal Banking

Commission.

Variance-covariance versus historical simulationVariance-covariancemethods are based oncalculating volatilities ofthe variables under con-sideration (e.g. equityindices, FX rates), andcorrelation matrices forchanges in these vari-ables. They assume thatthe changes (or loga-rithmic changes) in thesevariables are normally distributed.

Historical simulationuses actual historicalchanges in these vari-ables over the observationperiod, and so avoids assumptions about theirdistribution. Historicalsimulation implicitly allowsfor correlations withouthaving to rely on a correla-tion matrix. In addition,historical simulation allowsfor easy implementation offull or partial revaluation ofoption portfolios.

37


20%

2%

59%

1%

1997 AVERAGE MARKETRISKS OF CSFB1

Total interest ratesTotal foreign exchangeTotal equity

Total commoditiesTotal cross risk

18%

1 excluding correlation effects between the risk factors

23%

1%

57%

1%

1998 AVERAGE MARKETRISKS OF CSFB1

Total interest ratesTotal foreign exchangeTotal equity

Total commoditiesTotal cross risk

18%

1 excluding correlation effects between the risk factors

38

The Basle Committee on Banking Supervision published its “Amendment to the Capital

Accord to Incorporate Market Risks” in January 1996. These recommendations were

implemented in the most recent revision of Swiss Banking Law and allow banks to calcu-

late regulatory capital required to support market risk based on the results of their

internal VaR models scaled up by a multiplication factor of three or more. The capital

cushion created by this multiplication factor is intended to compensate for the regulators’

general concerns about uncertainties or weaknesses in any bank’s risk model.

Following a detailed review of the VaR model and the related processes and controls,

the Swiss Federal Banking Commission approved Credit Suisse First Boston’s internal

VaR models for use in the calculation of market risk capital effective 30 June 1998.

Positions are aggregated by type of risk rather than by product. For example,

interest rate risk includes risk arising from money market and swap transactions, bonds,

interest rate options, foreign exchange, equity and commodity options. The average

market risks of Credit Suisse First Boston are shown on the left.

The VaR risk measurement methodology that Credit Suisse First Boston uses is a

combination of variance-covariance and historical simulation. Under historical simulation

used by Credit Suisse Financial Products, exposures are determined by taking current

positions (sensitivities) and calculating a series of ten-day profit and loss movements

using two years of historical data. Risk is calculated as the 1st percentile of the ob-

served profit and loss distribution. Where historical simulation is not used, the VaR is

calculated by multiplying the risk sensitivity by a market shock based on the 99th percen-

tile confidence interval over a ten-day period (“extreme move”). It is planned to migrate

completely to the historical simulation method for all divisions within Credit Suisse First

Boston. During the transition phase, there will be no offsets between the two methods.

In arriving at aggregate VaR, it is necessary to consider offsets between different

markets, currencies and risk types to reflect the observed relationships between these

markets and the impact of diversification. In the historical simulation method, the offset

between different currencies or risk types can be taken into account by summing the

ten-day profits and losses for each of the underlying components and calculating the

1st percentile of the profit and loss distribution based on the aggregated profit and loss

time series. This is a more robust approach because offset benefits are based on actual

relationships between underlying components. Where historical simulation is not used,

the aggregate VaR may be calculated using the variance-covariance method to offset

risk.

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 which

are used to identify potential risk concentrations. Limits also assist in allocating risk to

clusters, e.g. individual business clusters or regions and trading desks.

The chart on the next page illustrates the relationship between daily trading profit

and loss and one-day VaR over the course of 1998. This type of backtesting is the

method proposed by the Basle Committee on Banking Supervision for the assessment

-40

-35

-30

-25

-20

-15

-10

-5

5

10

15

CHF


of the accuracy of the VaR model. The VaR measure is intended to be larger than all

but a certain fraction – determined by the confidence level – of trading outcomes.

Backtesting is performed at two levels: the overall level (Credit Suisse First Boston)

and the individual trading book level. The one-day VaR is compared to the actual daily

trading revenue. Results of the process at the aggregate level (see below) show no

exceptions even during the period of high market volatility between August and Novem-

ber 1998 and therefore confirm that Credit Suisse First Boston’s VaR model is sound

and meets regulatory standards. Comparison at an individual book level permits the

review of risk modelling techniques at the level of a specific trading unit or risk model

and enables any problems that surface at the aggregate level to be traced back to their

source. Results for the major trading portfolios also provide useful insights into the

profit and loss and VaR reporting process.

Increased volatilities contributed to the increase in VaR in 1998, even though risk

positions were reduced considerably during the second half of 1998. The average one-

day VaR estimate in 1998 was CHF 307.6 m (CHF 201.9 m in 1997), and the minimum

and maximum levels were CHF 206.3 m (CHF 139.2 m in 1997) and CHF 382.2 m

(CHF 257.7 m in 1997), respectively. In contrast, the average daily trading revenue

was CHF 14.3 m (CHF 25.1 m in 1997), and the minimum and maximum levels were

CHF –173.6 m (CHF –102.6 m in 1997) and CHF 137.4 m (CHF 120.0 m in 1997),

respectively. Credit Suisse First Boston’s frequency distribution of daily trading revenue

for 1998 and for 1997 is illustrated on the right.

Scenario analysis Scenario analysis is an essential component of Credit Suisse

First Boston’s market risk measurement framework. Using this technique, market risk

of all major portfolios is measured by stressing the market data parameters (prices,

interest rates and volatilities). The market data is changed according to a predefined set

of scenarios. Scenario analysis supplements the VaR approach as it allows risk to be

viewed in cases where, for example, market conditions are disrupted. It is also particularly

useful in calculating more accurately the impact of larger market movements, whereas

Daily revenue

1st quarter 1998

One-day VaR (99%)

2nd quarter 1998 3rd quarter 1998 4th quarter 1998

RELATIONSHIP BETWEEN DAILY REVENUE AND VaR ESTIMATE FOR CSFB

0

0

0

0

0

0

0

0

0

0

0

0

m

0 100 200 300 CHF m0

100

200

300

CHF m

1998 VaR VERSUSTRADING LOSSES

Dai

ly tr

adin

g lo

ss

One-day VaR

0

5

10

15

20

25

30

35

40

45

1998 DISTRIBUTION OF CSFB’S DAILY TRADING REVENUE

No.of days

0 50 100–50–100 CHF m

Frequency of trading revenue

0

5

10

15

20

25

30

35

40

45

1997 DISTRIBUTION OF CSFB’S DAILY TRADING REVENUE

No.of days

0 50 100–50–100 CHF m

Frequency of trading revenue

39

40


analytical risk measures are only accurate for smaller movements. Reports are produced

for senior management and traders for a range of scenarios on a monthly basis. Market

data scenarios include yield curve and credit spread movements, changes in recovery

rates on emerging market bonds, exchange rate movements, equity index and stock

price movements, gold and oil price movements and changes in volatilities and correla-

tions. Many of the scenarios are based on extreme macroeconomic events from the

past, e.g. the 1987 stock market crash and the 1991 Gulf War. There are also some

scenarios that assess the impact of events that could occur in the future, e.g. an antici-

pated fall in equity prices.

In the market disruptions that occurred in 1998, scenario results for emerging

market difficulties proved particularly useful in assessing Credit Suisse First Boston’s

maximum potential downside. In addition, scenario analysis is also performed to quantify

the impact on projected losses if portfolios can be partially re-hedged as markets fall.

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-market

methods. Swaps, forward rate agreements and options are used as hedging instruments.

With regard to structural balance sheet risk, Credit Suisse and Credit Suisse Private

Banking use market risk measurement methodologies. For asset and liability manage-

ment purposes, VaR is calculated based on the 95% confidence level and a twenty-day

holding period. Two years of underlying data are used to derive the market movements

used for this calculation.

Large portions of the retail portfolios of Credit Suisse and Credit Suisse Private

Banking consist of non-maturing accounts (e.g. variable-rate mortgages and savings

products). Their factor sensitivities are modelled with replicating portfolios based on the

effective repricing behaviour of non-maturing accounts.

Credit Suisse First Boston refinances assets that are marked to market daily with

floating rate liabilities.

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

MIS purposes in December 1996. As this framework is used for management information

purposes only, it is not reflected in the legal financial statements. This new approach to

assessing and managing credit risk is at the cutting edge of current thinking in risk

management. The framework is continually being refined, and coverage of credit-related

exposures is gradually being extended. CREDITRISK+ – a state-of-the-art credit risk

measurement and management tool developed by Credit Suisse Financial Products –


is a core component of this new framework. CREDITRISK+ was made available to the

public in 1997. 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 portfolio opti-

misation and pricing methodology.

A system of individual credit limits is the traditional means of managing credit risk.

Credit Suisse Group’s limit system also aims at optimising portfolio diversification. A 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 provisioning methodology. Annual credit provisions (ACP) equal

expected credit losses (derived from actual historical average losses). The annual

expected loss of a performing portfolio is a predictable risk, which is essentially a cost

of doing credit-related business. Actual losses which occur in any one year may be

higher or lower than this amount, depending on the economic environment, interest

rates, etc. In addition to the expected loss, an indicative worst case loss over a one-

year time horizon, the so-called 99th percentile worst case default loss, is also calcu-

lated. The 99th percentile worst case default loss is based on the 99th percentile of the

full credit default loss distribution, which is in turn based on historical default probabilities

and historical recovery rates. 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

managing the Group’s credit risk on an ongoing basis. The framework allows transactions

involving credit risk to be more correctly priced by performing the risk/return calculation

to ensure that an adequate return is being achieved for the level of risk taken.

The current implementation of the Credit Risk Management Framework covers

virtually all of Credit Suisse’s and substantial parts of Credit Suisse Private Banking’s

credit exposure. More than half of the counterparty exposure risks of Credit Suisse

First Boston are covered. Credit Suisse Financial Products has fully implemented the

Credit Risk Management Framework. It is planned to increase the coverage of Credit

Suisse Group’s Credit Risk Management Framework considerably by the end of 1999.

The two charts to the right show the relationship between the 1998 ACP, credit provi-

sions from transactions covered by the framework in 1998 as well as the development

of the 99th percentile worst case default loss.

Country risk Country risk is the risk that a sovereign is unable or unwilling to meet its

contractual obligations and/or imposes controls on capital flows. In such an event, both

credit and market risk can increase significantly for an extended period of time. While

country risk primarily affects market risk and credit risk, it is a risk-driver for other risks

as well. Given the international character of their activities, all business units of Credit

1996

1997

99 PERCENTILE WORST CASEDEFAULT LOSS

1998

CS CSGCSPB* CSFB0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

CHF m

* The worst case default loss was calculated jointly for CS and CSPB in 1996.

Most of the increases are due to improved coverage of the Credit Risk Management Framework.

TH

CS

1998 credit provisions

1998 PERFORMING PORTFOLIO: ACP VS CREDIT PROVISIONS

1998 ACP

CSGCSPB CSFB0

200

400

600

800

1,000

1,200

CHF m

41


CSFB EXPOSURE TO SELECTED EMERGING MARKETSas at 31 December 1998

Provisions

Asia LatinAmerica

Russia/eastern Europe

CHF m

0

1,000

2,000

3,000

4,000

5,000

6,000

Net exposure

COUNTRY EXPOSURE BY CSFBRATING (EXCLUSIVE OFPROVISIONS)as at 31 December 1998

CSFB: funded loans and related exposures (incl. exposures to trading counterparties)

AAA AA A BBB BB B/CCC

<CC

120,000

100,000

80,000

60,000

40,000

20,000

0N1 N2 N3 N4 N5 N6 N7

Internal ratings N1–N7 are approximately equivalent to the respective external ratings.

CHF m

42

Suisse Group are exposed to country risk. Its impact, however, is most pronounced at

Credit Suisse First Boston.

The events of this and last year have prompted important initiatives in the organisa-

tion of Credit Suisse Group’s risk management with respect to country risk. Credit Suisse

First Boston has set up a new group “Strategic Risk Management” responsible for

assessing its overall risk portfolio at a global level. The Credit Suisse and Credit Suisse

Private Banking business units have established new directives for country risk. These

and other organisational changes have enhanced the capability of Credit Suisse Group

to manage country risk impacts more proactively with commensurate risk discipline

throughout the Group.

Although key instruments for country risk management, country ratings and country

limits have been in place for many years, they are subject to an ongoing refinement

process. Country ratings provide a model-based and qualitative assessment of the risk

of sovereign default. They – together with major country limits – are periodically reviewed

by an independent team within Credit Suisse First Boston and require approval by the

Chairman’s Committee for their enforcement as a component of the business risk strategy.

Country limits cap Credit Suisse Group’s exposure to any individual country. They are

supplemented by regional limits, further capping the maximum exposure to a specific

region. Regional limits mitigate the impact of contagion effects. Both country and regional

limits are periodically reviewed by the Credit Policy Committee and Capital Allocation

and Risk Management Committee (CPC/CARMC) of Credit Suisse First Boston.

The adoption of new rules, aiming at an automatic and simple response process

in the event of a country rating downgrade, introduces an additional element of discipline

to our risk culture. The systematic use and refinement of scenario analysis and stress

testing for countries have enhanced the methods for determining the appropriate size of

country limits given a certain risk appetite.


Operational risk Operational risk is the risk of loss arising from inadequacies of

business processes, procedures, security, as well as the risk of losses due to changes

in the legal, political and business environment. Operational risk is mitigated through

effective and comprehensive policies, procedures and a system of internal controls,

including risk management information systems, computer systems, communication

networks, fraud detection and, most important, segregation of duties. Trading units, for

example, are kept strictly separate from back-office operations, with each area reporting

to a different line of management. Independent pricing controls are in place and technical

and organisational control mechanisms ensure that transactions carried out by traders

are processed promptly and correctly. In the case of Winterthur, professional underwrit-

ing, efficient and reliable administration, fair and cost efficient claims handling and tight

controlling processes are an integral part of the operational risk management culture.

Settlement risk All business units engaging in trading activities monitor settlement risk

for its credit as well as its operational risk components. Late receipts of funds are

monitored with the aim of detecting possible default patterns in the making. Netting,

where legally enforceable, is a priority for all business units. Credit Suisse Group’s

structure of specialised entities further reduces settlement risk. Credit Suisse First

Boston is also a prominent member and promoter of CLS (continuous linked settlement

system), a market initiative that aims at eliminating this risk type by settling payments

against receipt of countervalues only. Participation in regulated clearing and depository

organisations further reduces settlement risk. The number of bank group limits of Credit

Suisse Group was reduced once more from 1,800 in 1997 to approximately 1,500 by

the end of 1998.

Legal risk Credit Suisse Group’s business units are mitigating legal risk by using

appropriate documentation – standard master agreements and individual trade confirma-

tions – and by continuous consultation with internal and external counsel to analyse

legal risk, improve documentation and strengthen transaction structures. Credit Suisse

Group is in the forefront of financial institutions working with the regulators on establishing

the validity of netting in various jurisdictions.

43


65%

1998ECONOMIC CAPITAL OFINSURANCE RISK

Non-lifeLife

35%

44

Risk management framework of Winterthur Winterthur follows Credit Suisse Group’s

overall risk management framework and devotes substantial resources to strengthening

its risk management activities. Winterthur is a business unit with many years of experience

and success in the insurance markets and has developed an outstanding expertise 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 measurement and control is

assumed by a central risk management unit. Groups of specialists focus on the various

risk components and implement concepts and tools such as economic capital. The latter

is a key tool for risk management, as well as for performance measurement. Substantial

resources are invested to further the development and refinement of economic capital

analysis on an ongoing basis.

Risk universe and risk management activities In order to understand the risk

universe of an insurance company, the flow of business and the accompanying flow of

risks have to be analysed. By selling insurance policies to customers as protection

against specific perils, the company becomes exposed to risk dimensions which need

attention and management activity. The policy (i.e. the protection) is sold against a

premium, which is in turn stored in assets to cover claims occurring at a future date,

sometimes many years later. This means that the company has to deal with managing

and limiting insurance risk by a set of reinsurance contracts, managing the financial

market risk in liabilities and assets, as well as managing and controlling credit risks of

assets and reinsurance contracts.

Because its business is primarily medium to longer term in nature, the overall risk

profile of Winterthur is stable and evolves moderately along the growth path of the

business. Whereas reinsurance programmes follow a yearly renewal process, assets are

mainly managed strategically, with a medium to long-term horizon. Within centrally set

boundaries, such as underwriting guidelines, reinsurance protection, reinsurance security

guidelines (credit risk), asset allocation strategy and allocated risk capital, the business

assumes the day-to-day risk management responsibilities. Several layers in the organisation

control compliance.

Market Risk Credit Risk Insurance Risk

Insurance Risk (gross)Premium

Underwriting

Assets Liabilities Reinsurance Retention


Insurance risk Winterthur follows stringent guidelines, especially with regard to the

businesses written, the selection of risks and the sums insured. Winterthur is faced with

several risks stemming from its underwriting activity. The premium charged to the

policyholder covers, among other elements, the expected costs of future claims. This

latter element is uncertain (stochastic) in its very nature and is the economic rationale

for customers to buy insurance. The stochastic nature is manifested in deviations of

actual claims from the expected value. This is called insurance or underwriting risk.

Winterthur operates two main insurance businesses: non-life and life.

Non-life In non-life business, insurance risk is manifested by claims that might be

more frequent, larger and/or might have to be paid earlier than expected (expected

pay-outs are priced in the tariff). Continuous monitoring, adjustment of tariffs, broad

diversification, adequate reinsurance protection and the expertise of underwriting staff

protect profits and keep insurance risk on predetermined, moderate levels.

Underwriters of Winterthur are specialist insurance experts. Established procedures

in loss control and premium audit form the basis for monitoring the risks on higher

aggregation levels. Exposures are ultimately aggregated at the business unit level and

reviewed on a net basis (after reinsurance). Economic capital is used to assess the

overall risk situation.

A well diversified insurance portfolio with many business lines spread over many

policyholders might nevertheless be vulnerable to natural hazards. In such circumstances

the policies do not diversify, but rather accumulate to large exposures. Substantial losses

could be triggered by a single event if adequate reinsurance protection were lacking.

Together with periodic portfolio reviews, Winterthur analyses the natural hazard risk

(flood, earthquake, windstorm) with scenario techniques, which leads to estimates of

probable maximum losses incurred by natural disaster. This information is used to guide

the risk selection in underwriting and to buy catastrophe protection in the reinsurance

market, which in turn creates counterparty risks. The loss to Winterthur of a single

event (e.g. winter storm in Europe) is confined to a worst case amount of well below

CHF 100 m.

Life In life insurance Winterthur is faced with similar basic underwriting risk character-

istics as in non-life. Deviations of actual death rates, disability rates, longevity and

surrender from expected values form the underwriting risk universe of this business. As a

leading life insurer, Winterthur benefits from a broad diversification in its portfolio. The

pure life insurance risks (after reinsurance of peak exposures) are small. This favourable

position is substantially driven by careful product design and portfolio selection, as well as

by the high stability and reliability of the statistical basis, such as death tables.

Savings elements are quite often embedded in life insurance products. These

financial risks can be substantial and must be managed accordingly. It is asset manage-

ment’s task to take care of these risk elements and to produce the kind of cash flows

the policyholders will claim.

40% 42%

1998ECONOMIC CAPITAL OFNON-LIFE BUSINESS

Small claimsClaims reserveCatastrophe scenarios

18%

78%

1998ECONOMIC CAPITAL OF LIFE BUSINESS

Group lifeIndividual life insurance

22%

45

46


The product centre for life business closely monitors and manages the life insurance

risks. Reinsurance protection is designed and managed at the business unit level.

Economic capital is used to assess and steer the risk profile of the life business.

Reinsurance Winterthur runs a well designed reinsurance structure to protect its local

businesses, its divisions and its capital at large. The architecture of the reinsurance

protection in place is such that, on all levels of the organisation (i.e. local business,

division and group), a set of internal and external reinsurance treaties absorbs all risks

which exceed a prudent retention level. Internal reinsurance treaties (e.g. Winterthur

reinsures a local unit) do not change Winterthur’s overall risk profile, but they can

significantly reduce a particular entity’s risk levels.

A division benefits from the diversification effect among its local businesses, which

allows a higher retention level to be run (i.e. a lower reinsurance protection). The same

effects are exploited at the business unit level. In economic capital terms, reinsurance

eliminates 22% of insurance risks.

Reinsurance protection follows the development of Winterthur and the developments

in reinsurance and capital markets. The current reinsurance structure of Winterthur

relies predominantly on traditional reinsurance products. Today’s soft reinsurance markets,

with relatively cheap tariffs for reinsurance, allow tight protection programmes to be run

at attractive prices. The 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 only. Therefore, Winterthur’s

reinsurance protection is not a simple aggregate of individual programmes, but rather a

coherent risk-return optimal structure.

Financial market risk of Winterthur’s assets Winterthur’s investment function

bundles market risks in liabilities as well as structural currency risks and passes these

risks to financial markets by investing capital and reserves in financial assets. Winterthur

invests in the main asset classes, such as money market instruments, bonds, loans,

mortgages, stocks and real estate. The asset allocation strategy for Winterthur is revised

on a yearly basis, always taking regulatory, local and product-related restrictions into

consideration. The portfolios in asset management are defined in line with the legal

business and product structure.

Operational currency risk management, cash management and liquidity manage-

ment are additional tasks of Winterthur’s investment function.

While market risk management is also performed within asset management, the

monitoring and control functions are independent of the asset managers. For performance

and risk control purposes, securities positions are marked to market.


The quality of assets is generally excellent (primarily bonds with AA and higher ratings;

rating of “A” as a minimum requirement). In order to promote diversification, asset

management controls are in place which prevent counterparty-specific accumulations in

assets of different classes. A similar observation holds for currency risk, which is miti-

gated by currency-congruent investment.

Derivatives are used as risk management instruments and not as an asset class in

their own right. Overall position monitoring also includes derivatives according to their

underlying risk content.

Asset and liability management The financial market risks of Winterthur’s assets are

not assessed in isolation. Assets of insurance companies are a result of the fact that

premiums are paid earlier than claims are settled. The resulting time difference of up to

50 years has its implications. Firstly, funds have to be invested in assets in such a way

that they generate cash flows in line with the cash outflows embedded in the liability

structure. Secondly, product-specific characteristics, such as maturity or profit-participating

bonuses, have to be treated appropriately.

Keeping pace with business developments, product innovations and the evolution

of financial markets as well as permanent monitoring of balance sheet strength are

necessary for the asset and liability management task at Winterthur to be fulfilled.

Credit risk The exposure of Winterthur to credit risk stems from holding debt instru-

ments and from the use of reinsurance. Assets subject to default or defaulting reinsur-

ance companies are the concrete manifestation of this risk.

Winterthur has defined high quality standards for investments. In addition, the

Group monitors counterparty-specific accumulations across asset management and

reinsurance credit risk exposures. The international diversification of the businesses is

also reflected in the international diversification of assets and therefore in credit

exposures. This in itself mitigates credit risk substantially.

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 thereby

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, performance measurement and capital allocation using a risk and

economic capital management framework, with economic capital usage as a common

denominator for all risks. Together with a proactive risk management culture and the

appropriate quantitative tools, the economic capital management framework will support

the decision-making process of senior management at Credit Suisse Group, thus linking

risk management to the Group’s shareholder value strategy.

22%

3%

55%

8%

1998RELATIVE IMPORTANCE OFASSET CLASSES

BondsEquityReal estate

MortgagesMoney market

12%

47

48


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