Credit Suisse Group AG (CS) 2002 Q4 法說會逐字稿

Morning ladies and gentlemen. Welcome and thank you for joining the Credit Suisse Group Fourth Quarter with slide presentation. The conference is transmitted live on the web and will be followed by a question and answer session. You will be able to ask any questions after the presentation.

Together with Barbara Yastine, Phil Ryan, Ulrich Korner, I am pleased to present our fourth quarter and full year results. Before we start, let me welcome Barbara Yastine, CFO of Credit Suisse First Boston to her first quarterly results announcement for Credit Suisse Group. Barbara joined us in November 2002 after 15 years with Citigroup. In 2000, Barbara was appointed Chief Financial Officer of Citigroup's Global, Corporate and Investment Bank. In her role as CFO of CSFB, Barbara has succeeded Richard Thornburgh who rejoined the Group as Chief Risk Officer.

In today's results presentation, I am going to start with a brief overview of our results and especially events that occurred in the fourth quarter and full year 2002. Once Phil has provided a more detailed review of the Group's financial, Ulrich Korner, CFO of Credit Suisse Financial Services, will review the results for the Credit Suisse Financial Services business. Followed by Barbara who will do the same for Credit Suisse First Boston. Finally I will conclude the presentation with a wrap up and our outlook for 2003.

Driven especially by development in the second half of 2002, the Group's financial performance was in word, unacceptable. For the full year, we had to record a consolidated net loss of CHF 3.3b, mainly due to loss of CHF 2.4b at Winterthur's (ph) within Credit Suisse Financial Services. A series of exceptional items totaling CHF 1.4b at Credit Suisse First Boston and chartered at the Corporate Center amounting to CHF 1.3b.

The fourth quarter for Credit Suisse Financial Services saw a strong turnaround to a net profit of CHF 705m. The improvement versus the third quarter was primarily driven by developments in the insurance unit. And there by the building of deferred tax assets on net operating losses.

As the exceptional items at CSFB they were all booked in the fourth quarter. CSFB recorded a net loss of CHF 1.3b.

In the third quarter [inaudible] presentation, we already mentioned that we were going to implement a change to our accounting principles. This change allows us to account for deferred tax assets on net operating losses. So positive cumulative effect from prior years was CHF 520m and was booked in the first quarter.

Our 2002 results were driven by what was probably one of the worst years in its financial history. Most of our competitors were obviously in the same position, but at the same time, we had to aggressively address structural problems unique to us. As an update to the analysis we showed you in the third quarter, you can see that by far the largest item were the losses at Winterthur’s, stemming from the development in its equity portfolio. The full year effect remained significant with negative net impact of over CHF 2.4b.

With a loss of over CHF 1.2b, the second largest item was earnings [inaudible] from the "legacy" assets at Credit Suisse First Boston. While charges associated with the settlement with U.S. Regulators and the formation of a special reserve for private litigation amounted to CHF 650m.

Our fourth quarter and full year results also included the loss from the Pershing (ph) transaction and further amortization charges related to [inaudible] retention payments.

On a net basis, we recorded on balance again from our investments. Together with the previously mentioned tax effect, these items amounted to nearly CHF 4.8b overall in 2002.

As John Mack and I mentioned in the third quarter results presentation, we must continue to focus on the bottom-line to deliver value for our stakeholders. We identified a set of short, mid-term priorities in the third quarter to which I would now like to give you a brief status report and update.

The Group has strengthened its balance sheet and improved its capital base through the issuance of Mandatory Convertible Securities. We will continue to importantly manage our balance sheet and will also see a further positive capital impact from the Pershing transaction.

Bringing down costs in line with revenues was a key focus for 2002. At CSFB costs were significantly reduced. Personal expenses are down CHF 1.9b, together with the head count reduction of 3,900 positions. The trend will continue into 2003. [inaudible] related guaranteed bonuses largely terminated as of year-end 2002 and for retention charges will run-off in mid 2003.

You will also see the positive impact of the recently announced CHF 500m cost savings program. At Credit Suisse Financial Services we are currently in the process of detailing a further cost reduction program in banking. It is anticipated cost savings of around CHF 300m, including the reduction of around 900 positions.

At Credit Suisse First Boston, we worked hard to get the "Legacy" Items behind us as quickly as possible. We reduced our net exposure in 2002 from CHF 5.3b to CHF 3b.

In European Private Banking, we continued to bring operations in line with our refocused strategy, emphasizing Private Banking Clients as our core target group. At Winterthur we saw a return to profitability, the profit for the fourth quarter reflects a satisfactory operating result and a positive effect of the change in the accounting principles.

As you will see later in more detail, we are implementing significant changes at Winterthur, targeting a reduction of administration expenses together with an elimination of around 350 job positions at the Swiss Head Office. Other structural measures together with positive price influence especially in the non-life business should allow Winterthur to return to profitability in 2003.

Today we announced changes in the organizational structure and management team of Winterthur as well as further cost reductions measures at the Corporate Center. I will now give you some details on this.

To start with, the insurance industry is undergoing a fundamental change. Realized gains from the investment portfolio will be much smaller than in recent years. The capital base has been [inaudible], limiting the ability to fund growth. Therefore, companies need to increase their focus on underwriting results, expenses and profits.

We already announced and initiated a number of measures at Winterthur last year as shown on this slide. However it was clear that more needs to be done. [inaudible] worked on additional measures during the last two months. Going forward, Winterthur will focus on cost management and profitability. [inaudible], Winterthur will use what it has today, a strong base and mass retail business, plus several strong local positions in the employee benefit and high-end life insurance products. And it will put a strong focus on [inaudible] managing capital and risk.

To achieve this we aligned a management model of Winterthur. Life and Non Life Divisions will be brought together in selected countries and there will be one Winterthur Executive Board. The first priority will be to push further to achieve operational excellence. The former Corporate Centers of Insurance and Life and Pension will be merged, resulting in the reduction of around 350 jobs. In addition, management will continue to implement measures already announced and will strive to realize further cost savings.

With regard to the business portfolio, Winterthur will continue to focus on selected core markets and to divest positions with limited value generation potential. In order to implement the strategy change effectively, the Board of Directors has approved the new Executive Team at Winterthur as shown here. Except for Switzerland and the U.K., Life and Non Life operations will be managed jointly. In Switzerland, Winterthur is the market leader in both Life and Non Life and both businesses play key roles in achieving Winterthur's overall targets. Therefore we keep them separate but with a clear mandate to work together closely on all the relevant matters. The larger units will report directly to the CEO, the Non-European and smaller European market units will be grouped in order to ensure an appropriate management focus.

Let me now hand over to Phil, who will take you through the Group's financial results in some detail.

Thank you Ozzie. On a group consolidated basis, our year-over-year operating revenues were down 28% and quarter-over-quarter up 13%. The biggest shift in the fourth quarter was the improvement in operating revenues in the Insurance business, which benefited from satisfactory technical results, although the investment result was flat quarter-over-quarter.

Focusing on the banking business. Revenues were down quarter-over-quarter 2% and 24% for the year. The primary factor in the drop in interest income was lower interest rates overall and lower level of interest rate related activity. In the Fees and Commissions category quarter-over-quarter were approximately flat. The year-over-year down 15%. Which was driven by a number of factors, such as underwriting commissions down over 50%, brokerage down about 14%, portfolio management down about 9% and commissions and securities transactions down about 29%.

Trading, again down in the fourth quarter. Reflecting a lower risk profile overall and a lower level of activity, but also reflects asset write-downs in a number of areas at the Group, such as for NCFE.

Turning to the expense side. Expenses overall down 3% quarter-over-quarter, down 20% year-on-year. The personnel costs in the fourth quarter were down 9% on lower head count and lower bonus accrual at CSFB. If you look at the per capita variable compensation across the Group, it is down 35% to 40%.

Let me make a brief comment here on taxes. Ozzie mentioned in his introduction and we made it clear in the third quarter, we are changing our accounting rules to come closer to our eventual standard of U.S. GAAP and we made a number of adjustments in the fourth quarter to recognize the benefits of net operating losses and creating a deferred tax asset. For 2002 the benefit was CHF 1.3b and there is also an accumulative effective tax change of CHF 520. Going forward we still believe that the inherent tax rate underlying the business as it returns to profitability would be around 25%.

Going next to provisioning. You will also remember in the third quarter, we announced we would set up an allowance for inherent loan losses. This is to come in line with the difficult credit environment and also some developments in loan loss provisioning indicated by our banking regulators. Essentially this loan loss allowance deals with the statistical loss probability in those loans that do not have a current reserve.

We indicated in the third quarter that this inherent loan loss allowance would be between CHF 700m and CHF 900m and it came out at CHF 778m. So on the right for the fourth quarter, we identify the inherent loan loss separately. Looking at the specific charges at CSFB, credit related charges are down 36% quarter-over-quarter. The large losses in the quarter was NCFE and three large energy credits. The vast majority of losses in the fourth quarter were in the U.S. For the full year about two thirds of the losses were in the U.S. portfolio.

At Credit Suisse, a tick-up in provisioning in the fourth quarter, which reflects higher statistical charges but also losses associated with two specific situations. We do see lower provisioning, obviously in the fourth quarter and going into next year. And the flow of impaired assets has slowed. However, it is way too early to declare victory in this difficult environment.

I will point out that we strive to improve the credit disclosure in our financial statements and on page 11 you will see a new layout for how we present our credit picture.

On the next slide, just focusing on CSFB briefly. When you look at 2001, the actual credit losses were CHF 1.278b. The increment is only CHF 286m or 22% year-over-year in what was one of the worst credit environments in history in the U.S. Also, adding to the valuation losses and provisions was the CHF 305m of "legacy" charges and CSFB's portion of the inherent loan loss reserve.

Looking at the impaired assets. Up very slightly quarter-over-quarter to CHF 12.4b. At CSFB impaired assets were up. It reflects a noticeable jump in non-performing loans by far the biggest contributor here was reclassifying the BZed (ph) credit from a repo into a loan exposure. That was offset by a drop in impaired assets at CSFB coming from loan sales and reduced real estate exposure and various efforts at CSFB to mitigate credit losses.

At CS, a continued strong improvement in the way they bring down their historic non-performing loans. Overall, impaired loans to do from banks and customers, up slightly to 4.9%, but down versus the previous year. And our coverage ratio of valuation allowances to impaired loans, up slightly, reflecting the establishment of the inherent loan loss reserve to 62%.

And again, I would highlight the risk disclosure on slides 9 through 11 which has been completely revamped and you will also see a move to focus on our economic risk capital as the primary measure for measuring our risk.

Before I finish, a couple of quick comments on capital, an area that has always been a great focus for us over the last year. The capital ratios continued to improve and continue to be very strong. In the fourth quarter we had the mandatory convertible issuance. The dollar weakening against the Swiss Franc is a positive for our capital picture. Risk rated assets are down just under 10% year-over-year. Also helped by the Swiss Franc/dollar relationship, but there was also a great deal of focus on prudent management of risk rated assets.

So overall, a consolidated [inaudible] ratio for the Group in the lower right hand corner, 9.7% compared to 9% in September. For the banking only account, 10% BIS compared to 9.4% in September. You will notice a drop in the CSFB capital ratios, which relates to the fact that many of the losses associated with the special items that Ozzie mentioned and Barbara will talk about hit the capital at CSFB. That will be largely rectified with the Pershing closing, which will increase CSFB's capital ratio by about a percentage point. At the moment these capital ratios include all the bad aspects of the Pershing divestiture and none of the good aspects, as that will be included upon the closing.

I will point out one other point that I make every quarter. And that is people are always focused on the level of acquired intangible assets that we include in our capital. That is on the right side about half the way down, CHF 3.3b. That number is up slightly because of the weakness of the dollar against the franc. Pro-forma for the Pershing sale, that number will drop down to plus or minus CHF 2b from CHF 3.3b. And if you included on a pro-forma basis also the move to U.S. GAAP, which will occur at the end of this year, that number would drop down to just above CHF 600m. So for those of you that are focused on that, that issue is going away pretty rapidly.

The last point on Winterthur is the EU solvency is up to 167% versus 155% in September. Which has been a reflection of slightly stronger solvency capital and a slightly lower requirement. I will also point out that even though the EU solvency model is a very imperfect one and is only the roughest of indicators, our ERC models indicate the same move.

And with that, I would like to turn it over to Ulrich Korner.

Thanks Phil. Let me start with an overview of Credit Suisse Financial Services' results, page 18. Credit Suisse Financial Services produced a net operating profit of CHF 535m in the fourth quarter, up by CHF 1.6m versus Q3. For the full year, Credit Suisse Financial Services reported a net operating loss of CHF 136m.

Net profit of CHF 705m in Q4 includes a cumulative effect of a change in accounting principles of CHF 266m. On the other hand, we recognized an additional charge of CHF 73m for the restructuring of the European Private Banking business.

Key drivers behind our results are as follows. In the Banking segments, operating income decreased by around 8% versus the previous year. This decrease was only partially offset by reduction expenses of around 3%. The major reasons for the reduced operating income, there is a lower asset base, lower [inaudible] volumes and the lower interest rate environment.

In the Insurance segment. The main driver was obviously the lower investment income, which reduced combined [inaudible] results by around CHF 3.3b versus the previous year. Operational performance in the insurance segments was however satisfactory, both [inaudible] growth and efficiency improvements continued strongly throughout 2002.

Turning to Private Banking. The fourth quarter result was CHF 339m, growth margins stood at 118 basis points. Operating income for the full year declined by 11% versus the previous year. A large part of this decline was due to the reduction in [inaudible], which were down CHF 59b versus the previous year. There is a negative impact on operating income of around CHF 230m.

Net new assets for the full year amounted to CHF 18.7b or 3.4% of the asset base. In the second half of 2002 they were clearly negatively effected by the increased public attention surrounding the financial performance of the Credit Suisse Group.

Operating expenses are reduced by CHF 162m or roughly 4% versus 2001 despite investments in international expansion. This is clearly not enough to match the negative revenue impact by the lower asset base. Therefore, cost management will remain a high priority for our private banking business.

Corporate and Retail Banking. The segment result declined to CHF 46m in the fourth quarter due to lower transaction based income. In addition the realignment of the Swiss Private Client business generated project costs, which were booked as ordinary expenses.

Compared to 2001, the development of [inaudible] was positive with profit up 19% to CHF 363m. Operating income was up 2%, mainly driven by interest income where the net interest margin rose to 235 basis points, up from 226 in 2001. Here the impact of the low interest rate environment was more than compensated for by lower [inaudible] interest.

Expenses decreased by 2%. Risk cost declined by 5% versus 2001, based on statistical valuations adjustments. The provision actually recorded there CHF 127m, a [inaudible] statistical valuation adjustment due in particular to provisions on account of the anticipated liquidation of some larger positions. The cost/income ratio was down 2.4 percentage points and the ROE was 9.3% for the full year.

Life and Pension, page 21, recorded a segment loss of CHF 1.4b for the full year 2002 and a segment profit of CHF 93m for the fourth quarter. The fourth quarter result benefited from the first time recognition of deferred tax assets and losses in the amount of CHF 220m for 2002.

The full year result reflects a CHF 3.3b decline in investment income with an impact on the second result of CHF 1.6b compared to 2001. The equity exposure was reduced to 8% as of year-end down from 19% a year earlier. A large proportion of the existing exposure reflects a direct participation by the policy holders and thus reducing earnings volatility.

Gross premiums written rose by 9% for the full year, the organic growth rate in local currencies was 10%. This was a very solid performance, given that we selectively restricted acquisition efforts in certain businesses, especially in the second half of the year.

Operating expenses for 2002 were affected by CHF 292m of additional write-offs and deferred acquisition costs and a present value of future profits due to the change, long-term assumptions regarding the investment income. If you exclude these additional write-downs, the expense ratio for 2002 was 9.9%, down from 10.9% a year earlier.

Insurance too returned to profitability in the fourth quarter, posting a result of CHF 6m. For the full year, insurance posted a segment loss of CHF 1b. The impact of lower investment income on the bottom-line was CHF minus 1.7b here. The equity quarter and investment portfolio was down to 7% at year-end, down from 17% a year earlier.

The results in the fourth quarter benefited from the first time recognition of deferred taxes and the losses in the amount of CHF 176m but was also negatively affected by charges for the discontinued and divested businesses with an after tax impact of CHF 90m in the fourth quarter. For the full year these charges amounted to CHF 251m.

Net premiums earned grew by 5% to CHF 15.7b. Organic growth and local currencies was a strong 9%, helped by tariff increases in most markets and businesses. The technical performance overall improved [inaudible] for the full year, despite increased claims in the fourth quarter due to the adverse weather conditions in various countries. Operating expenses grew by 4% in 2002, which is below the premium growth rate. Clearly more needs to be done in that area.

Our overall objective for 2003 clearly is to return to solid overall profitability. As already mentioned we have initiated strong efforts to further reduce the cost base in all businesses to ensure this. In the Banking segments, we are aiming to improve our cost position by around CHF 300m. This will include an additional head count reduction of around 900 positions.

However, operating income in Private Banking will continue to suffer from the reduced asset base. And in Corporate and Retail Banking, we expect risk costs to increase somewhat due to the economic environment in Switzerland. In both Winterthur segments we have already taken a number of measures to improve our results.

All of these measures should allow us to return to profitability for the full year 2003. Quarterly results might however be impacted by the volatility in financial markets, especially in the Life and Pensions segment.

And with that I will hand it over to Barbara.

Thank you Ulrich. From a financial point of view for CSFB, this was a year of revenue decline. And that includes in the fourth quarter, largely offset by reduced operating expenses throughout the year. Unfortunately credit throughout the year has been high for us, resulting in a net operating profit of $11m in the fourth quarter and a full year $140m.

We also posted $813m after tax in exceptional items. And recorded the cumulative effect of changing accounting principles for a positive $162m. From a strategic point of view, we did in the quarter reach an agreement in principle to settle the U.S. Regulatory probes into industry research practices. We reached an agreement to sell Pershing and we substantially reduced our exposure to "legacy" assets.

Our objectives remain the same. To maintain our revenue generating capabilities and market position, to be responsive to the market environment as it relates to efficiency and cost, to manage risk relatively conservatively in the face of everything that is going on in the world, and to return to sustained profitability.

In the quarter revenues were down 11% mostly in fixed income. Fixed income results, which were down 47% from the third quarter, where about 25% of that decline reflected normal seasonal slowing in customer flows. Another 25% of the decline resulted from a conscious decision to reduce risk profiles in several areas. And finally about a half of the decline was due to a number of one-off items, which Phil eluded to earlier, including the fraud loss associated with NCFE.

For the Trading Businesses so far in 2003, revenues are above their fourth quarter level to a more normalized level. But it is still early in the quarter and we remain cautious about the world at large.

On the positive side, expenses were down 14% versus the third quarter. And credit provisions, as I mentioned, remained high. They did include $340m of credit provisions related to the establishment of reserves for non-impaired assets. And while the fourth quarter reflected a decline in specific credit provisions, we still remain cautious about the outlook in the coming quarters.

In terms of net operating profit contribution by each of our two major segments, both reported net operating profits that were up from the third quarter, but below their first quarter and second quarter level and below our acceptability level.

As I mentioned we experienced a number of exceptional items in the fourth quarter. We posted $150m pre-tax for the regulatory agreement related to research with U.S. Regulators. We also provided $450m for civil litigation arising out of the research matter as well as Enron and certain IPO allocation issues. The Pershing agreement resulted in us posting a $86m pre-tax loss or $250m after tax. And finally we had about $200m of restructuring items associated with our continued downsizing.

Those items combined with goodwill amortization and the accumulative effective of changes in accounting principles, produced a net loss of $811m for the quarter and $1.2b for the year.

As I mentioned, fixed income revenues were down 47%. Largely in developed credit products, which included NCFE, lower securitization results and widened spreads, as well as lower results in the emerging markets area.

Equities Division versus the third quarter, the cash business remained relatively stable. But in derivatives and convertibles, there were lower market opportunities and the market uncertainty affected customer volumes. Investment banking revenues were up versus the third quarter, primarily related to gains on sales of Credit Suisse stock. Although banking products themselves remained stabled versus the third quarter, but at levels that are far below what we experienced earlier in the year.

And in the Financial Services segment which saw a modest decline versus the third quarter. Due to lower global equity market values, net asset outflows in the asset management business and lower trading in customer debit volumes at both Pershing and Private Client Services.

Nonetheless, our market share has remained strong. We retained or improved our market position in fixed income equities, M&A and research. Further evidence that our focus on clients remains strong and that our cost reduction efforts have not jeopardized our ability to serve our clients.

While we remain cautious in our outlook for 2003, we believe we have the platform, the people and the market strength to continue to remain a market leader.

For Financial Services, as I mentioned earlier, in the year we experienced a $15b asset outflow and that does exclude Pershing. Predominately coming in the third quarter of `02. That outflow trend improved in the fourth quarter, but was still not positive.

And in Private Client Services, again lower activity on the part of Client reduced margin balances as well as trading volumes, both of which significantly impact earnings.

We continue to work on expenses. Expenses for the year were down 23% compared to 2001. Head count was reduced by 14% during the year or almost 3,900 positions, 1,400 of which came in the fourth quarter.

Our compensation to net revenue ratio declined somewhat to 52.6% to put us closer in line with other investment bank comparables but we do believe there is still more work to be done there and we believe better results will be posted in 2003.

And in non-personnel expenses, we reduced virtually every line item from 40% reduction in travel and entertainment, 35% reduction in professional services, 21% reduction in market data and communication.

We made significant progress in retiring our "legacy" issues. The bottom right table shows that we have reduced our exposure to discontinued real estate distressed assets and private equity by 45% during the year to $3b. And down from a high of $12b in 1999. The top box shows the impact of those reductions on our P&L in 2002. We had pre-tax charges in the fourth quarter alone of $273m and $1.1b for the full year.

In real estates, the reductions came largely from dispositions. In the distressed and private equity portfolios, the exposure reductions were largely related to mark downs and we have worked very hard this year to be realistic and conservative in these valuations. While the values can change with the markets, we do believe that the earnings drag of "legacy" items is substantially behind us.

Looking ahead, we continue to build on our leadership position. And again do believe that at today's [inaudible] level we have the platform, people and market position that can enable us to be profitable. We will continue to be vigilant on the firm's expenses and be responsible for market environment. We have dealt aggressively and effectively to get "legacy" assets off our books. And although our outlook for 2003 remains cautious, given the geo-political uncertainties, we do hope that we will see a modest improvement at least in credit in 2003, although frankly it's just too early to be able to announce.

And that said we do believe that all the actions that we have taken in the past year, will enable us to return to sustained profitability in 2003.

Thank you Barbara. Ladies and gentlemen. The Group's fourth quarter results were influenced by continued weakness in the financial markets, a number of exceptional items as we have seen and the change in accounting principles to allow for the capitalization of deferred tax assets.

In an effort to restore the Group to profitability, we have taken aggressive steps to address investment losses in our insurance business, set aside CHF 650m provisions for regulatory and litigation matters; reduced our exposure to "legacy" assets in our investment banking business; cut costs across the Group by 22% to CHF 6.8b since 2001.

These steps, we believe, will position the Group to enter 2003 with a stronger balance sheet and an improved capital base. At the same time we are benefited by continuing strength in our core business [inaudible] maintain leadership positions in key markets where we do business.

While we remain cautious for 2003 given the continued challenges in the market and global uncertainty, we expect that the measures taken in 2002 as well as those to be implemented during the course of this year, will restore the Group to profitability. The year has started reasonably well, but it always does as you know. And therefore well in that case nearly 10 months to follow, I think we certainly as long as the geo-political environment is as it is at the moment, we have to see probably volatile changes in the quarter-to-quarter reporting especially if you are an insurance company and the investment portfolio is heavily affected by that. But overall, I think at the end of the year we will have hopefully a reasonable profit.

Okay. At this point we would like to do question and answer. We will take questions from this room first and then we will switch over to the people on the web cast. So are there any questions for the Group?

Thomas Brown from [inaudible]. In Private Banking, the growth margin dropped quite considerably. Can you give us the reasons and did you give any prices? And what do you think for the whole year of 2003?

Where do we think its going for the whole year of 2003? I can't tell you that yet, but the margin, the 118 basis point compares very well with all our competitors, I think, and it did come down from the very high levels in the last couple of years where it reached levels of over 130 basis points. But at the below year, I think it was 123 basis points and in the first quarter it was 118 basis points.

I think it will hold around that 115, 120 basis point level. The main reason for it is that investors have become very passive in their investment style, they are nursing their losses on the equity positions and are not prepared in that kind of environment which we have at the moment to buy anything else than bonds probably, which might turn out not to be such a great idea.

Philip Totung (ph) from UBS Warburg. Two questions please? First, with respect to Private Banking inflows in Q4. Could you add some color in terms of geographical split? But also do you think that this dip is a temporary one or do you think that the drag on reputation could be a medium term issue?

Secondly, how comfortable are you with the present size of CSFB given the difficult revenue environment, given your conservative risk appetite, but also on the other hand your target of returning to sustained profitability which should imply then you are already moving up to double-digits sometime? Thank you.

Let me answer the Private Banking to add some color to it. Certainly I think if you look at for the whole year, the CHF 18b plus. As far as I know there was no other Private Bank who had a net asset inflow which was bigger. But correct me if you know better there.

So from the total amount, it was all right. Percentage wise, 3.4% in a year as we had last year, where the confidence in the market was shaken and also probably for a short period before we announced our third quarter results, the little big of confidence was shaken in us as well due to the headlines we produced with the help of the media. And that obviously to rebuild that trust which you can lose in a very short period, will take a little bit longer than a couple of months to rebuild that trust. But nevertheless, I think Private Banking shows that even under these very difficult circumstances it had to face in the fourth quarter, we managed to [inaudible] asset based and even get a few other million in. And I think nobody probably expected that reading the headlines.

The inflow in principle, I would say, Private Banking has less of an asset inflow problem that is actually not so popular and we had in the fourth quarter [inaudible] with outflows. So that is why the net result was as little as that and the closed markets in Private Banking are still the old Asian area. The Americas and the Middle East, specifically, in the fourth quarter, most of the inflows actually which was especially [inaudible] came from Europe.

I mean on the CSFB question, I think John has been very clear that he will continue to take steps to move the expense base in line with revenues in a time when the revenue opportunity has been moving. There was the program in the fourth quarter and there will be additional steps taken as he has made clear. Barbara, is there anything else you want to add to that?

Well given the current size of the employee base. That current size is consistent with us returning to sustained profitability this year, based on what we see. And in fact delivering a full year competitive type return on equity number. But as Phil says we continue to look at absolutely everything and we will be as responsive as we need to be in this market.

Theo Chelsman (ph) from [inaudible]. I have a question maybe directed to Phil. If you could give us some or elaborate a little bit on this inherent loan loss provision? Is that a new methodology? And could it impact also provisions going forward in 2003? And my second question relates to the Winterthur that was dropped. I wondered whether this head count reduction and the streamlining of poor markets that you mentioned, whether this would necessitate some restructuring charges?

Well on the inherent loan loss provision, this is something that we announced in the third quarter. It was a move to move us in line with the direction that the Swiss Federal Banking Commission is going with regards to provisioning methodology. And it also is reflective of a difficult credit environment. Essentially what we had done in the past was record provisions against known losses. This move broadens that out and looks at provisions statistically driven against your non-impaired portfolio.

So in the fourth quarter, we made an assessment, took the provision of CHF 778m and because previously in the old Swiss GAAP methodology, those inherent losses were covered by the reserve for General Banking risk. We reversed the reserve for General Banking risk into an extraordinary income in an amount equal to the setting up of this new inherent loan loss reserve. So it is a series of steps meant to come in line with those items.

Now going forward, it strengthens our reserve coverage overall. And in future periods, in addition to evaluating the known losses you have on your portfolio, you have to make an assessment of what is the statistical loss in your non-impaired portfolio and adjust your inherent loan loss reserve every period.

[inaudible], we won't take any restructuring charges, any charges which are associated with that go through the P&L and we think we will be financing this year.

Christian Stark (ph) from [inaudible]. Just coming back to Private Banking net money inflows. For the full year the 3.4% looks very respectable, but in the fourth quarter, you had 0.4% inflows and recently in an article in mid-January there was a stated target of 5% net new money inflows for Private Banking. Has that changed?

This is our long-term target, 5% and it is something to go for. So if you lower the target to 3% it doesn't make much sense because it is too low. But the longer target which Private banking should achieve and targets are obviously always a little bit higher and didn’t reflect probably the market change as much as we had in the last few months. But I think we will keep it there and it gives the guys something to go for.

Bill Smengfirst (ph). I have three questions please. The first two on Credit Suisse Financial Services. You do mention that on your cost base in Private Banking and Retail and Corporate Banking, project costs seems to have a large factor. Can you highlight what those are again? And give us some sort of idea on the dynamics that both may play in 2003? That's the first question.

The second question is really a reminder on your hedge policies placed on top of your Winterthur investment portfolios. Could you remind me when these run out? How much they did cost you in complete form for 2002? And what your hedge philosophy is going to be for this coming year? That's question two.

The last question please is on Credit Suisse First Boston. It is to do really, not with your acquired intangible assets, its more with your goodwill structure. Question there, what condition do you need to see before you have to consider impairment of this $9b volume? Thank you.

Project costs we mentioned. If you look at the cost line Q4 versus Q3 then you see a certain cost increase in the Banking segment. This increase is mainly driven by additional project costs. For example and especially due to the realignment of the Swiss Private Client Business between Private Banking and Corporate and Retail Banking [inaudible] the last amount of these associative costs in Q4.

And the second effect which you see especially in the Corporate and Retail Banking segment is somewhat seasonal related effect because you have an over proportional [inaudible] project especially in Q4 which are finished in Q4 and therefore receive their final project cost charges. And that is what you see basically in the Banking segment.

Going to the hedging of the investment portfolio of Winterthur. Most of the hedging obviously was done during the course of last year when our equity position was pretty high and that had [inaudible] in the fourth quarter to prevent us from CHF 3b of additional losses, if we wouldn't have hedged during the year obviously firstly was the prices and [inaudible] was the savings we made.

The equity position came substantially down and we produced [inaudible] going forward the exposure, which is relatively small, and where we are directly impacted, I think it is something like only 2% or so. And the equity position is higher in countries like the U.K. and Germany and Belgium as the policyholder takes most of the risk obviously and there we also have less influence on doing any hedging because the regulators there do not allow you to do that.

I don't think it is any major risk anymore from the prospect of the whole portfolio. And yes from time to time we will do some hedging, but it might not only be in equities, it also might be in bonds and any other securities we have because you have to get to reasonably investment results these days, you have to operate with the volatilities of the markets here and protect yourself a little bit.

On the goodwill question. I think at the third quarter result, we made it clear that we are going to go through at the end of the year with the normal goodwill review that is required by the accounting rules. And the circumstances we have discussed in the past continue to be the case where CSFB is essentially two thirds CSFB and one-third DLJ and when you put them together the earnings power the combined company has to justify the goodwill. So the test continues to show a fairly comfortable result and the conclusion was that no impairment was required.

But I will make the same comments that we make every time that this discussion comes up. And that is obviously the equity market is going to make its own judgment and there is a disconnect between what the equity market says and what the accounting rules are. And lastly the goodwill is excluded from all of our capital ratios and is not an impact with regards to how we manage the balance sheet or manage our capital.

Alistair Ryan (ph) from UBS Warburg. Can I just ask whether there has been any turnaround in investment performance at Credit Suisse Asset Management?

It improved somewhat in the fixed income area from what we saw in the third quarter period sort of last year. It is still not in aggregate where we would like it to be. The business has set a goal for itself of exceeding benchmark 65% of the time and they are working towards that goal and making good progress on it.

[inaudible] from [inaudible]. I would like to have some more insight into the Life and Pension Business as [inaudible] to. How much of the premium outstanding still carry a guarantee of 3.25% of the total business?

[inaudible] business. 20% of our [inaudible] business.

Can you give us an update on the Pension plan of the Group? What is the current status and what are the assumptions?

The various Group Pension Plans are all in a funded position and there are normal contributions made to the Plans this year. But there is no special issues to report.

There is no under funding?

That is correct.

Leo Jenue (ph). First question. When you bought Donaldson, the good thing was that you paid half of it with common stock from Credit Suisse, which you were given to AXA. Do you know if AXA still owns these shares or not? Have they sold them? With this question, how is the situation of Martin [inaudible] now with these shares?

And the last question. You have stopped the buyback program where you paid approximately 70 francs a share for 50m shares. What was the reason for the buyback at that time? Thank you.

To the best of our knowledge, AXA sold almost, or essentially all of the CS shares within 9 months following the acquisition. With the [inaudible] stock, the Bank Group is in control of it, a big block has been sold. There is still some in the shares of various bank members.

As it relates to the buyback, a share buyback is a capital management tool used to manage the capital for the benefit of the shareholders. At the time the buybacks were made, earnings were good, the market environment looked good and capital was strong. So it is easy to look back, but as soon as we had a feeling for weakness in earnings and the capital base we stopped the program and have not restarted it.

Michael Shultz (ph) from Banc [inaudible]. In the past you usually provided us with numbers to the counter-party group exposure and standard state [inaudible] rating classes. And it showed that 14% of these total counter party exposure was in non-investment rate exposure. Could you please provide us with the same number for this quarter? That's the first question.

The second question would be if I may come back to Pension liabilities. The U.S. GAAP figures of 2001 showed an under funding of some $1.5b. It's hard to believe that there is no under funding at the end of 2002? Or I am wrong there?

Well we operate under Swiss GAAP and I would have to get you together with a Pension expert to understand the difference, but we are over funded in the Swiss plan; we are actively funded in the U.S. plan; we are very slightly under funded in one of the regional plans. And the way we manage our pension position, we don't consider this an issue. If you would like, I could get a specialist in afterwards if you want to talk about the U.S. GAAP?

As it relates to the credit quality. There, as in the past, there have been a number of slides in the supplemental pack that deals with credit quality at CSFB and at Winterthur. Dick Thornburgh, do you want to--?

[inaudible] investment [inaudible] what we are going to do in the future is give you more U.S. style disclosures so you can compare our credit situation relative to a broader peer group to give you more insight. But the specific answer to your question is it has slightly improved. We don't think that is necessarily the right way to disclosing the data and we will work on that. The total balance is down primarily due to the fact of the weakening dollar.

This is Claudia Mann (ph) from Banc [inaudible]. I have a question regarding CSFB. You said you wanted to return to profitability in 2003. And I am just wondering that all the amortization payments and the funding costs and the goodwill amortization. In Swiss franc terms I am calculating you have about CHF 1.5b to amortize. And then you have CSFS where Pershing is going out, probably there you could also give some more detail regarding the bottom-line and the operating income? How this would involve that you would need to about double within investment banking. And I am just questioning whether this is possible and how you would go for it?

Let me start with Pershing. And I actually may ask you to repeat your question. With regard to Pershing. Pershing contributed about $200m pre-tax to operating profits. But ultimately there was approximately $200m pre-tax of amortization of intangibles and goodwill. From a net income basis, Pershing was somewhat neutral, positive contributor to operating profits, but offset by goodwill and intangible amortization.

I wasn't sure I understood. I know the gist of your question was you have earn a lot of money to pay for goodwill amortizations, but beyond that I wasn't sure what your precise question was?

The question was on an operating basis Pershing is a zero gain then?

On an operating basis about $200m pre-tax U.S. operating.

Yes, but on a net profit basis, that's zero some gain yes?

Right.

So you need to earn about CHF 2.5b just to get a zero result in CSFB. And you have for Financial Services, you earned about CHF 300m. So this would result in CSFB Investment Bank, they would need to earn about 1.3b? And now in this year you have just earned 600m. So this would involve a doubling and markets are probably not going to recover. I am just going to ask you how do you plan to do this?

Okay. Well we certainly aren't anticipating markets recovering. As a matter of fact, we are assuming things stay kind of like they are. It could possibly get a little worse, obviously. But on the other hand we are looking at regional opportunities, niche product opportunities which we haven't fully exploited which gives us a little bit of a cushion. A key driver is the fact that expenses have been brought down almost $3b and so that provides a good benefit in 2003.

Then from purely mechanical reasons, basically, that the retention payments, the amortization of retention payments declined significantly in 2003. Again buying us a little bit more of P&L opportunity. And so we do believe we may have to work hard, but we believe we can achieve that good profitability.

Also one of your numbers, I'm not sure, didn't sound, if I understand what you were saying. The goodwill and amortization impact after tax going into next year is about 900 francs. So I think the number, I heard you say, something more than 2b for the difference. It's much smaller than that. The other factor is we do expect lower credit provisioning to play a good role.

Yes but what would be the number you would need to earn for, I mean retention payments are falling back, but you still have funding costs and goodwill amortization. So this number would be 900m, you are saying?

For goodwill amortization and intangible amortization after tax, in Swiss francs.

Yes, but you still have the funding costs of about 500m?

Yes that is there and -

So this makes up the 1.5b I eluded to previously.

Yes, okay if that's what you mean yes.

Can you once again explain the change you made in terms of tax accounting? I had a look at the old annual report and I think that for deferred tax assets, you have already accounted in the past. So can you explain again, what really changed? Because it has had quite a big impact in 2002. And from which year on do you expect this normalized tax rate of about 25% you mentioned before?

Well we disclosed in our financials a number of permanent timing differences. As it relates to compensation plans, aspects in the management of the insurance business etc. But we have not in the past benefited our P&L or our balance sheet by net operating losses, which is in line with IAS and U.S. GAAP. It's sort of a quirk of our accounting history.

So we had made a decision to fall in line with what others do and begin to recognize those benefits. That came through in the fourth quarter. So this is clearly a change from what has been done in the past. Now going forward, we will operate this accounting policy like any company does. Does that answer your question?

[inaudible]

No it's throughout the Group. And the primary benefits came through in Winterthur and CSFB which is where the losses where. That is what you would expect.

[inaudible]

No we have not. We account for various permanent timing differences relating to compensation plans or different accruals in the businesses and insurance and a number of other areas. But we have never accounted for the benefiting of NOLs. And this is a change to move in the direction where we want to go and where our peers are. So this is clearly a change in accounting principles.

With that, let me open the floor to questions from people on the web cast. Do we have our first question?

We have a question from Ronet Gush (ph), Citigroup.

Hi, this is Ronet Gush from Schroeder Salomon Smith Barney. A couple of questions. Firstly, a largely follow-up question, it's one that has been asked already. One on Private Banking. In the third quarter there was an element of weakness in the net new money from some of the restructuring being done, particularly in Germany. To what extent does the fourth quarter number, you mentioned there were large growth numbers in both sides, but to what extent has the European platform begun to stabilize and recover from the restructuring assets? That's the first one.

The second one is about the net new money flows in asset management. In prior quarters you have talked about weakness and fixed income and in the presentation you have just mentioned that investment performance has got better. Is it still the fixed income drag at [inaudible] in the U.S. or is it other assets as well? And how many more quarters? I mean do you think it's going to be another couple of quarters, or is like another year? Or have we largely past the problems in terms of outflows now?

The third question is to do with the U.S. legal settlement. Obviously a few firms including yourselves have had the word 'fraud' used in the settlement I believe. Now could you comment in terms of when you made your litigation provision as disclosed in January. Are you still comfortable with that or do you think you need to increase that further this year? Those are the three questions thank you.

Firstly Private Banking assets, we had [inaudible] we had a total inflow of 6.5b but during the course of the year but that is not including 4b of the [inaudible] asset move. And we have total assets under management there of 23b and we did have as far as I am informed we did have net inflows in the fourth quarter in net new assets.

So that operation yes has stabilized after restructuring, but we are still in the process there to fine-tune quite a lot.

[inaudible] I don't think we have got a lot to clarify. We are certainly not going to make a prediction on future net new asset flows. We are very, very focused on the fixed income position and on some of the mutual fund flows. And as you saw in the fourth quarter, the outflows have slowed down. So we are very focused on it. Barbara do you want to comment on the litigation? Or maybe David Frick if there is anything to add?

Well I tell you what, I'll give it a shot David and if you need to add anything? The language related to the settlement is still being negotiated with the regulators largely. And given where we see that coming out, given how basically imperfect the science it is to actually predict civil litigation related to these things, we do remain comfortable with it. And David do you have anything to add to that? Okay. But we are actually expecting that it will take, the better portion of this year, if not longer, to really see how things truly develop on the litigation front with regard to these three buckets of issues.

And just to complete your question, we still feel comfortable with the 450 that we took. Next question.

We have a question from Peter Testa (ph), [inaudible] Investments.

Yes, its Peter Testa, [inaudible] Investments. Just a question on CSFB. You talk about keeping the [inaudible]] potential intact, but you have been losing market share it looks it from the table in all of your businesses. And it is clearly trying to shrink the business down to a more profitable quarter. But it's also just clear to analysts have consistently underestimated the revenue impact of the head count decrease. Can you give a bit more guidance on what you expect relative to the revenue impact of the head count reductions you took in Q4 and what else you are planning for 2003?

Then the second question is on other operating expenses, which have been more or less flat at around $1.6b a quarter. Should that be regarded as a fixed cost base?

And the last question is on Private Banking. Just as you go through restructuring there, head count reductions, can you give any feeling on whether you would expect a revenue hit and why not if not?

On the head count/market share issue. Our market shares did decline year-over-year, but if you go back and look at industry league tables that list last year versus this year and each of the participants. What you will see generally speaking in most cases is a dispersion of market share among call it the Top 10 or the Top 7 in the business. And that is largely a result of fewer big mega deals, which have a tendency to stick to one or two participants in the market at any given point in time. And tend to concentrate that market share then with the people who win the big elephant. Fewer of those transactions happening meant that there was a broader dispersion of market share among the industry.

In terms of the head count, we don't believe, so far, and neither do we see anything on the horizon that would indicate that our market position or our ability to get customer business has been affected by our head count reductions. We just don't see it.

Because your revenue performance has been somewhat worse than your major peers and you have also been more aggressive on head counts. So the two must be somewhat linked?

You know not really. And largely on the revenue side, you recall I talked earlier about the fixed income business and it being slowed down because of our own decision to take a more conservative profile in risk a little bit. Seasonal customer flows which would affect everybody else in the industry and some of these kind of write-down issues that Phil was relating to and issues such as NCFE. None of those things that I just described do we believe are attributed to head count related lack of ability to penetrate the customer base.

And another thing I would draw your attention to is if you do look at our fixed income business over the course of this year compared to our peers, what you will end up seeing is actually our revenue base stayed firmer than others through the first 9 months of the year. And in fact if you kind of look back fourth quarter to first quarter, we are a little bit more in line with everybody else.

As it relates to your operating expense question. Operating expenses year-over-year are down 21%. So we have made quite substantial progress on operating expenses and I think there are a number of programs under way to reduce it further. The fourth quarter did see a tick-up relating to some issues that Ulrich Korner mentioned earlier in the presentation. Also some coming through some severance costs and other project costs that are typically year-end phenomena's. So no, I don't see those, 1.6 as being a fixed number.

In Private Banking as I mentioned before, I think the growth margins will stay relatively stable at the lower level they reached now. On revenue, losses or lower revenues for this year. Obviously you have to take into account that the year in our case starts with nearly 60m less in assets, which were created through the market movement and through the weaker dollar. In Swiss franc terms that will have an impact on revenues for this year.

Any reductions we do in the labor force will not impact us with any special charges or with any revenue shortfall. We think the industry has a huge over-capacity due to the slowdown in the markets and the slowdown in activity of clients, which I reckon is still around the 25% level. On the other hand, I don't think that the markets will continue as they are at the moment. I am actually a little bit more optimistic as I mentioned before for the second half of this year. And so there might be some improvement in the results in the second half.

We have a question from Vasco Moreno, Fox Pitt Kelton. Please go ahead sir.

Yes good morning. Three questions actually. The first one is also on Private Banking. More related to net interest margin. We saw a bit of a strange development. Your net interest income actually went up quarter-on-quarter, while the total assets actually were reduced. Overall, we saw an interest margin up roughly 10% or about sort of 8 to 9 basis points quarter-on-quarter. In a very difficult sort of interest rate environment, I am just kind of wondering what happened there and if you could give some color as to what is going to happen in 2003 with respect to that?

The second question is related to Investment Banking. It's a pretty good performance I thought in terms of personnel expense to revenues and I was just wondering how much of this, if any, is related to part of your bonus payments being done via share or options? So if you could give us some color on that that would be great as well?

And then lastly and this is related to a question I think that was already asked, but I didn't quite get the answer for that. Can you give us actually an idea as to what the equity exposure is ex-hedges? I know its 6% at the moment, but I think it was 3% at the end of the third quarter including the hedges. Can you give us the number for the fourth quarter? Thank you.

Perhaps first briefly to the question with respect to the interest margin or the interest income line within Private Banking. It is true what you see in the report is that the interest income is more or less stable between Q4 and Q3. But if you compare that to Q4, 2001 you see that the interest income is significantly lower due to the overall low interest environment we are facing currently. And that is why also with respect to the overall operating income within Private Banking, it suffered a little bit also from the lower interest environment.

With respect to Corporate and Retail Banking, that makes basically the other difference. Where the interest margin increase somewhat compared to 2001, we benefited from lower endangered interest, and this lower endangered interest could compensate for the overall low interest environment. That is basically what happened with respect to the interest income in both banking units.

On the compensation line, you know we don't breakdown detail by business unit. I will say that in our annual report we will give full disclosure consistent with U.S. GAAP on the option expenses. And the pro-forma adjustment number is around CHF 490m.

Specific to CSFB, there were not big changes year-over-year as it related to impact of options on the compensation numbers as a percent of total and/or the overall share related as a percent of total.

The last question I believe was a portion of earnings relevant exposure in the equity market if I remember correctly?

Yes, that's correct.

In the Investment portfolio in Insurance, the P&L relevant equity exposure. Yes, the 2% figure that you mentioned earlier.

It's 2% as of the fourth quarter?

2% going forward and that is where the P&L is going directly through our P&L, which is related mainly to the Swiss Insurance unit. And the other countries, most of the other countries and the other equity positions are in countries where the policyholder is taking 90%, 95% of the risk.

Okay next question please?

We have a question from David Williams (ph), Morgan Stanley.

Hello I've got three questions. First of all on the Insurance business, the Non Life business. You've got a combined ratio of 103, still substantially above your below 100 target. Looking at the restructuring that you have announced today and even with the head count reductions, I don't see how you are going to get that combined ratio of below 100. If you talk through that? Together with explaining the return on invested assets in Q4. You seem to get just 0.5% return on those assets. But in Q4 at least according to your slide presentation pack, there were no equity related investment losses in the Insurance unit, in fact you had a write-back of positive in `99. So first question on the Non Life.

Second, on the Life business. Could you just explain what the impact of the mandatory crediting rate on the Swiss guarantee business would be? If you could confirm when that came into effect. I think it was the 1st of January, but if you could just talk through the impact that will have on your Life business?

And the third question, very simply, on CSFB Investment Bank. With the guarantees having come to an end and clearly they were a big drag on your expenses this year. Could you talk us through what your compensation to revenue target is for 2003 now that guarantees have come to an end? Thank you.

It was a combined ratio of 103.4 last year is still too high and moved up a little bit in the first quarter and mainly due to some claims in weather related claims. Through the price increases which should generally coming through this year now, combined ratios should come down 1% or 2% and the balance then has to be found in additional efficiencies and in cost-cuttings and lower administrative costs.

In the Life business, the reduction in the Group Life business 0.4 to [inaudible] which is starting at the beginning of this year has an impact of around, I think CHF 120m net roughly for this year.

In terms of the guarantees. We don't have a specific comp to net revenue target overall, just simply because that ratio will change depending on the year and depending on the circumstances. But if you look at where our peers came out in 2002, you had a band of about 46% to 51% and 52%. So we would think ourselves this year would moving closer to the 50%, 51% type range. But as I said, it's very early in the year and a lot can change.

Next question please.

We have a question from Jacques Henry Goula (ph), Merrill Lynch.

Yes good morning. A question about the fixed income business at CSFB. Frankly the valuation here is huge. I mean we had quite a lot of variation from peer, but minus 50% quarter-on-quarter is quite big. So I wanted to have a feel of how much of that would be due to an abnormally good Q3 or an abnormally bad Q4? And what type of number is it reasonable to proxy? Is this 800m more of a proxy for the full year? And I guess this could be related to the National Sentry provisioning with the 17% obviously provisioning you have taken of that, are you now comfortable about the fact that this story is over? So around the fixed income first question.

The second question around the cost-cuttings at CSFS. How much, you probably said and I didn't hear it and I apologize in advance. [inaudible] how much do you think will be gained by the 350 job cuts? And lastly, do they go on top of the CHF 300m gain you have announced for the Credit Suisse Financial Services cost cutting. And this CHF 300m do you expect to get them done in 2003? Thank you.

Okay, let me start on the fixed income question. Again, versus third quarter, fixed income was down 47% in revenue. That is a large number as you point out, about half of that decline relates to conscious decisions on our part to reduce our risk taking as well as lower customer flows. And the other half are things like NCFE and other items which we wouldn't normally expect to repeat. Probably most important is what I said earlier is that at least so far in 2003, fixed income is returning to a revenue level more consistent with what you saw in the first 6 months kind of, of last year. Although it is early in the quarter.

In terms of NCFE. From the 17% mark, frankly just doesn't leave us much exposure left, when you mark something down that significantly. But I do think that the stories about NCFE and as people peel the onion on the fraud and the rest of that stuff, I don't think the issue is necessarily going to go away anytime soon because there is still a lot for people to get through, to digest the story. From our position point of view as I said, the values are nominal at this point.

In [inaudible] we anticipate to cut administrative expenses by something around CHF 200m this year, which is not included in the CHF 300m.

Due to time, I'm just going to take two more questions. Can I have the next one please?

We have a question from Peter Thorn, [inaudible].

Yes, can I just ask about the Investment income you have got in your Insurance business in the fourth quarter? I mean when I was looking at the profit warning you gave in January, I somehow expected, got the impression that it was actually going to be somewhat better than it actually was. Was there some sort of difference between January and when you actually finalized the accounts?

In the process of closing the books, the Insurance results and the Investment side is flat quarter-over-quarter. I can't remember offhand exactly what we said on the 21st of January. But that is when the results came out.

Okay, can I continue on that then? And when I look at the Non Life results, the policyholder element seems to have [inaudible] around CHF 400m of 2002 and 2001. That's the dividends to policyholders and would you be able to explain that movement as well?

Yes, the major shift there relates to our health business in Germany where the dividends to policyholders is a function of the investment income reported in that business. Because we lost money in our investment income related to that business in Germany, the policyholder dividend flung around to the other side in 2002. We would expect it to go back in 2003 with a fairly normal investment income, maybe at lower levels than we have previously seen it. But this is consistent with what we have always explained that when we think about our combined ratio related to losses in the Non Life business, we exclude the policyholders' dividend because it is driven so much by the German health business.

And then maybe just to finish on Phil's answer on the investment income. What you will see on the supplemental slides number 6. The impairments and realized losses are down materially quarter-on-quarter Q4 to Q3 and so I think that's the improvement that we look forward to seeing going forward also into 2003.

Okay, while I've got you there. May I ask about the Life's business. Is there any change in how much you are giving to policyholders now? I mean is it reasonable to look at the fourth quarter performance repeating in 2003? Or should we take some other basis? I mean it's terribly hard to predict these figures.

Well I think it's extremely hard to predict the figures and frankly I'm sure the reason that the analysts are paid so well is they make some assumptions themselves on how to look forward on this. I would suggest that the Q4 was a fine number, but the volatility in the markets going forward is going to make it impossible to predict. Particularly on a quarterly basis for Life profits.

Even although you have reduced your [inaudible] significantly?

We will continue to try to improve the individual product profitability, both by adjusting bonuses appropriately and by appropriately charging for the risk factors in the Life businesses.

As John already hinted there, the Investment income is bringing the Life business from one side to the other. And the Investment portfolio is pretty big in the Life business and you not only have equity, you have bond movement in there as well. And obviously short-term rates going near to zero doesn't help that business either.

So going forward I think as I hinted before, you can see quarter-to-quarter completely different results from the Life business because it is so heavily driven by the Investment result.

Okay, let me take the last question.

We have a question from Mark Hobe (ph), Banc of America, London.

Yes, hello. You are two thirds of the way through the first quarter. How are net new money figures looking in the Private Bank?

We don't give out that kind of information on a monthly basis. Is that it Mark?

That's it, thanks.

Well thank you very much. Thank you for your patience and as I told you before, I don't think this year will look as bad as everybody thinks at the moment. And may your God be with you.

Ladies and gentlemen, the conference has now finished. You may disconnect your telephones. Thank you for calling.