Credit Suisse Group AG (CS) 2003 Q1 法說會逐字稿

Good afternoon. This is the conference operator. Welcome and thank you for joining the Credit Suisse Group first quarter results 2003 conference call. As a reminder, all participants are in listen-only and the conference is being recorded. Should anyone need assistance during the conference call, they may signal an operator by pressing "*0" on their telephone.

At this time, I'd like to turn the conference over to Mr. Philip K. Ryan, Chief Financial Officer of Credit Suisse Group, and Ulrich Korner, Chief Financial Officer of Credit Suisse Financial Services, and Mrs. Barbara Yastine, Chief Financial Officer of Credit Suisse First Boston.

Please go ahead, Mr. Ryan.

Thank you very much. Good afternoon for those in Europe, good morning to those in America. I'm joined by Ulrich Korner (audio gap) we'll go through the presentation (inaudible) I'll start out summarizing results.

The Group results were 652 million net profit for the first quarter comprise of 666 million for Credit Suisse Financial Services, 221 million for CSFB and a negative 235 million for the Group.

It's worth pointing out that the 235 million includes150 million associated with the writedowns of Swiss Life, market to market and Swissair which we wrote off in the first quarter.

Also worth noting that the amortization of goodwill and intangibles is noted at the bottom to produce a net operating profit which is more representative of the capital generation in the company to 856 million.

Also it's worth pointing out that because of the recognition of Pershing (ph) as a held for sale asset, you can see the amount of goodwill and intangible amortization decrease significantly in the fourth quarter to the first quarter.

On the next slide, first quarter results demonstrate the success in the many efforts we've had other over the last several quarters to return the group to profitability, lower cost was a factor in all of our businesses in the first quarter results.

Despite a challenging market, the franchise does remain strong, as represented by stronger revenues in CSFB fixed income, which is back to a more normal run rate, an increase in net new assets at Private Banking, and an increase in the gross margin, selective premium growth at Winterthur (ph) and an increase in profitability and increase in revenue at the corporate retail bank.

We've also continued to deliver on our priorities that were set in the third quarter earnings announcement of02, which is to further strengthen the capital base, which you'll see later, has improved both in quality and in amount. Realign Winterthur to respond to the new operating environment in the European insurance business, refocus and reduce expense run rates in our European Private Banking business, and lastly, to bring costs in line with revenues at CSFB.

Looking to the consolidated results, looking at operating income, operating income up quarter over quarter 10% for the group as a whole. For the banking business, up 8%,which is a mixture of a drop in net interest income, which is a reflection of very low interest rates, but also movements between net interest income and the trading line at CSFB.

Commission and fees were down somewhat, driven primarily by lower assets under management in the portfolio management business, and also lower equity brokerage commission across the company.

The big story on this chart is the trading income, which came back very nicely in the first quarter. Barbara will talk about it more, but mostly driven by the fixed income business and foreign exchange were the biggest swings. We also had a positive recovery in equities, but to a level well below historic levels.

Additionally, it's worth pointing out in the fourth quarter in trade trading, it did include almost 400 million loss from write-downs of legacy assets and the writedown of NCFE, which impact the comparison. On the insurance side, strong investment income in the first quarter and better technical results particularly in the property and casualty business resulted in the 11% increase quarter over quarter.

Switching to the expense side, expenses overall down 5% quarter over quarter, 22% down year over year. There will be some more detail on the line in Barbara's presentation, but the quarter over quarter results were affected by an unusually low fourth quarter at CSFB. Year over year, costs down 25%, that's a mixture of CSF being down 5%and CSFB being down 32%. Also good progress in the other expense line driven by cost reduction programs across the group.

I'll mention here that the tax rate in the first quarter was around 31%,which is a little bit higher than our normalized tax rate of 25%, and that again was driven by some tax issues in our German insurance business. But we do expect to get back to our more normalized tax rate.

Switches over to provisions, a dramatic change quarter over quarter. You'll remember in the fourth quarter, we took a large adjustment for estimate in our inherent loan loss preserve. Going forward from the first quarter on, adjustments to the inherent loan loss preserve are captured in the provisioning line. While we are still very concerned about the credit environment, the first quarter did not have any big credit surprises.

We continue to see gradual improvements and lower inflow of impaired assets, and we continue to be concerned about particularly the merchant energy section -- sector where we've got about $1.3 billion of exposure.

Additionally, the historic S & P default rates, the 2002 results are coming into those historic default rates which comes into the statistical models, which had an impact in the quarter. CSFS, we still expect modestly higher provisioning in the year, but that did not happen in the first quarter.

The 45 million of non-credit relates to litigation and premises issues. Looking at impaired loans on the next slide, impaired loans went down noticeably to10.8 billion. I will remind everybody here that we have made somewhat of a change here that relates to falling in line with changes in Swiss GAAPs which are also in line with U.S. GAAP, the standard we're going to at the end of the year, where certain real estate loans held for sale have been moved from -- counted as assets to low income assets held in the trading book.

That move, if you had done that in the fourth quarter of 2002,the balance would have been 11.6 versus 10.4,which gives you some idea of the natural movement in the portfolio. We continue to have improvements in the impaired loans to due from customers and also our valuation allowances as a coverage to impaired loans.

Lastly, looking at the capital picture, equity, despite the income of650 million for the quarter, that was offset by lower capital at Winterthur, given the mark to market of the investment portfolio, and a foreign exchange impact.

However, because of the billion francs of lower goodwill charge quarter over quarter because of the treatment of Pershing, the tier 1 capital is up 1 billion compared to the end of the fourth quarter. That offset by some foreign exchange impacts and higher risk-weighted assets resulted in a modestly higher tier 1 ratio to 10% from 9.7, and you'll also notice that the impaired tier 1 ratio, which is the ratio that we provide as additional information which strips out all of the acquired intangibles, the difference has become much smaller than in the past because of the significant drop of acquired intangibles from the closing -- or the moving Pershing to held for sale accounting. And that's demonstrated in the middle of the page under CS Group consolidated where acquired intangibles net of tax are about1.9 billion, where they were about 3.3 billion at the end of the year.

So with that -- and by the way, the Pershing transaction is expected to close on May 1st.

And with that, I'd like to turn it over to my colleague, Ulrich Korner, to go through the Credit Suisse Financial Services results.

Thanks, Phil. I'd like to start by giving you an overview of the -- for the first quarter of 2003. Credit Suisse Financial Services record is -- 666 million in the first quarter and is up13% versus the previous year. The reduction of 6%versus Q4 is due to the recognition as you all know of the deferred tax -- in the amount of466 million Swiss francs in Q4. Also positive is that all segments could improve their results leading to an overall return on equity of 22.6%.

With respect to some highlights from the first quarter, we found the following - worth mentioning. First, we made substantial progress in cost management in banking segments, operating expenses could be reduced by 9% versus the previous quarter.

However, as you know, the banking segments usually show quite a low cost base in Q1. That is why we estimated the current expense level to be around 50 million below the expected quarterly run rate.

In the insurance segment, administration costs are down 6% againstQ1, 2002. Net new assets, second highlight from our point of view, in Private Banking increased with an inflow of 1.5 billion, in the insurance segment, investment income clearly improved due to lower impairments and strong bond market performance. With regard to the realignment of the Winterthur organization, the merger of the two has been completed.

The refocusing of European Private Banking is progressing well, and has already led to improvements in costs. With respect to an outlook Credit Suisse Financial Services made -- progress towards its goal to return to solid profitability in 2003, but also remains exposed to the continued volatility in the financial markets, and that is especially true for our -- business. With that, I'd like to turn into the different business segments starting with private backing.

In the first quarter of 2003,privatePrivate Banking reported profit of 371 million, up10% versus the previous quarter. Operating income was in line with what we have seen during the second half of 2002, but -- compared to Q1 2002.

I will come back to that in a minute and show you the main reasons behind that development. Operating expense decreased 7% against previous quarter 8% versus the first quarter last year, thereby showing progress in our cost control efforts. The cross margin -- in the first quarter compared to 112 in the previous quarter.

Here please keep in mind that this figure has been restated for the transfer of the -- business from Private Banking to Corporate And Retail Banking. Despite an outflow of around 400 million related to the -- tax amnesty -- net new assets of Private Banking increased by 1.5 billion.

Assets under management overall decreased by 2% versus year-end457 billion, which was due to market performance and the foreign exchange. impact.

Coming back as I said to the reduction of operating income Q1, 2003 with Private Banking versus Q12002, you see on the next slide decrease in operating of350 million compared quarter on quarter, and this decrease can be split into three different --.

First, the decrease of transaction-based volumes overall due to the -- led to a 36% decrease of --income and also have impacted the trading income which went down 30%. As a consequence of that, the transaction-based income went down by189 million.

Second, as a result of lower equity valuations and the -- impact -- decreased by around 75 billion, impacting income by145 million.

Third, the interest-based income decreased 60 million against the previous year, driven about the low interest rate environment clearly affecting the margin on liabilities.

With that, I'd like to turn it to Corporate And Retail Banking. Corporate And Retail Banking for the first quarter showed a profit of 150 million, up158% versus the previous quarter but down versusQ1. Operating income rose 3% to 734 million. The decrease of 7% versus Q1 2002 is mainly driven by lower interest income and lower transaction-based commission.

Operating expenses decreased 14% from the first quarter due to the cost control and as I said at the beginning, also due to the usually lower cost level in Q1. The cost income ratio decreased 13.4 percentage points to 67.4% in the first quarter.

That compares to the unusual high18.8% in the previous quarter, but it's still something above the first quarter 2002. - related provisions recorded, 24 million below the statistical evaluation adjustments, but as Mr. Ryan also said, the credit environment is expected to remain difficult throughout the --.

Capital increased 6.7 percentage points against the previous quarter to -- then you see if you look at the Corporate And Retail Banking out flow of 3.4 billion in the first quarter. That also was due to shifts from -- accounts for corporate clients to transaction accounts, and these transaction accounts do not count as you all know as assets under management, and, therefore, lead in a technical sense to a net asset outflow of3.4 billion.

With that, I turn to the insurance segment starting with Life And Pensions. Life And Pensions reported a segment profit of 111 million Swiss francs, increase of 80 million in Q4. --written premiums decreased by 4% compared to the first quarter, adjusted for acquisitions, divestitures and accentuate impact - premium volume decrease around 2%.

This development basically reflects our selective underwriting and renewal policy, as well as strong reported single life business in the first quarter of last year, especially in Italy, U.K. and --. Administration costs decreased by 6% versus Q1 02, largely due to cost reduction measures. This decline in administration expenses was offset by higher amortization of deferred acquisition costs in line with the investment income development.

As a result, the overall expense -- increased to 6.8%. The investment income improved strongly with are turn of 4.9%. This improvement is driven by two factors.

First, the decrease in impairments of around 480 million. If you compare that with the first quarter 2002.

And second, by realized gains on bonds in, as I said, relatively strong bond market. Despite this overall strong result for Life And Pensions in Q1, this business will remain exposed to the volatility of the market, and this exposure may lead to sharp swings in the quarterly results going forward.

With respect to insurance, insurance reported a second profit of 92 million -- versus the first quarter last year. The recovery of the insurance result is largely driven by tariff increases, strict underwriting policy and improvements in investment income as well.

In the first quarter of 2003 -- increased6% to 4 billion. The organic premium growth local currencies was around 13% and is, as I said, largely driven by the strong -- increases across all major markets --. The 6% reduction in administration cost was offset by higher acquisition costs. These higher acquisitions costs are mainly related obviously to the strong organic growth and to the full integration of the Prudential -- business in the U.K.

Underwriting results improved substantially by 137 million, resulting in a combined ratio of 100.7%. These operation improvements were partially offset by reported charges of 63 million for the realignment of the -- -- Winterthur organization and the realignment of the international business portfolio.

Insurance reported filing increase in investment income of402 million versus the first quarter of the previous year, resulting in an overall investment return of 3.5%.

And this result was largely driven by lower impairments. With that, I'm at the end of the financial services part, and I'll turn it over to Barbara in New York.

Thanks, Uli. Some high points on Credit Suisse First Boston. We had a strong quarter. In fact, the 292 million of net operating profit represents our strongest net operating profit since the second quarter of 2001. The equity markets and M and A remained very weak, however, fixed income strengthened significantly in the first quarter.

We benefited from seasonal increases in debt issuances by clients as well as decreased client demand for derivatives and other product. The improvements in fixed income were very broad-based across product as well as across geographies with a -- contributing to a substantial increase in revenues in Europe.

Accompanying the increased activity in fixed income was, in fact, an increase in our risk appetite as measured by value at risk, returning to what we could consider to be more normal levels as the markets presented better risk reward opportunities for us. Our bottom line also benefited from the cost containment actions taken over the past 18 months, and we continue to work on ways to be smarter in these difficult markets. And having flipped the bulk of the costs - behind us in 2002, our ratio of non-comp expenses to revenues of 26% returned to a level more consistent with our competitors.

Credit provisions declined significantly from both the fourth quarter and the year-ago period, and while we remain cautious in our outlook on provision, it's still a long year ahead of us, we are encouraged by the declines in both non-performing loans as well as impaired loans. Legacy investments, which are holdover investments in private equities -- and real estate, performed in line with our expectations at the beginning of the year, resulting in a significant decline in write-offs for those businesses.

And the result was a bottom line much improved compared to recent periods and a 12.4% return on equity. We also made significant progress on a number of strategic fronts. Finalizing the regulatory agreements related to research and certain IPO allocation matters.

We did complete the sale of Pershing on May 1st, and finally, we continued to strengthen our management team with the addition of Michael Kineli (ph) from Bank of America to run our CSAM activities and Jerry Woods (ph) from Morgan Stanley to co-head fixed income. So all in all, we had a pretty good start to the year.

Now turning to the next page to get into some of the details, total operating income increased nearly $600 million, or24% from the fourth quarter, and decreased a little -- about 11% versus the first quarter of last year. The trend in operating income and expenses, however, is obscured by changes in the reporting of Pershing.

Effective January 1 of2003, Pershing's operating income is reported net of expenses, which significantly reduces the contribution for each revenue and expenses from Pershing in our numbers.

So we've included some of these numbers excluding Pershing results to give a more apples to apples comparison. Excluding Pershing, operating income -- versus the fourth quarter on a 2.5 times increase in fixed income revenue.

And for the year-over-year period, fixed income was also up, but was - the gain was insufficient to cover declines inequities and investment banking, leading to a 5%decrease year over year. Operating expenses were10% below the first quarter -- the first quarter of last year, excluding Pershing, but increased 26% from the quowrk (ph).

On higher accruals or incentive compensation tied to performance. Nonetheless, our comp to net revenue ratio for the quarter was 51.7%, which compares very favorably to the 55.2% recorded in the year-ago period, and is somewhat below the full year number for last year.

As I mentioned, provisions declined significantly in the quarter, with no surprises or particularly large items. This trend is generally consistent with what you will have seen from our competitors by this point.

We are also beginning to benefit from risk mitigation actions put in place over the last year. We still have a very long way to go to get through the year, and were main cautious in general and, in particular, will merchant energy.

However, as I said earlier, we are encouraged by the decline in non-performing loans and impaired loans in the period. And reserves as a percent of impaired loans increased compared to the fourth quarter 75%.

As I mentioned, ROE was a healthy 12.4%, and - margin was almost double that of our best quarter last year at -- as for number of employees, the chart have you in front of you shows for the first quarter of 2003 the elimination of roughly 3900Pershing employees coming out of the numbers, and that's for consistency in the presentation of some of the other numbers on the page.

But if you exclude that, have you a reduction of approximately 300 employees in our core employee population, and while we are not anticipating any future across the board cuts, with we do remain committed to assuring that we are appropriately sized for the environment and will continue to do what makes sense.

Turning now to Institutional Securities, the overall trends are consistent with what I described for the overall firm. I would point out that the provisions in the fourth quarter did include 340 million U.S. for losses inherent in the non-impaired portfolio. Per FASB5 (ph) as mentioned earlier. -- in the first quarter of this year is most comparable to324 million in the fourth quarter, or a reduction of about two-thirds.

As for the individual divisions within Institutional Securities, fixed income revenue more than doubled from the fourth quarter, due partially to typical seasonality and partially to more favorable market conditions and increased customer demand. We saw particularly strong increases in investment grade and high yield new issuances and related secondary trading.

In mortgage activity, an interest rate derivative. derivative., the latter of which benefited from the increased -- curve and volatility. Our market share in primary high yield reached 22% versus 12%a year ago, cementing our number one position in that market. Equity revenue was up a fairly modest 7% from the fourth quarter on increased customer demand for options and structure products and renewed investor interest in convertibles during the first quarter.

The cash business continues to be weak for us and the industry overall. Investment banking revenues declined 42% from the fourth quarter, which did include a309 million gain on the sale of an investment in Swiss --. Excluding that gain, revenues declined $82 million or 13% due to reduced equity issuance, which was down 24% for the industry overall.

Our market shares and rankings in equity and M and A were disappointing. Despite leading some notable transactions such as the largest U.S. and global IPO's, and we do expect to see some gains as the year goes on, and are encouraged by some recent mandates, including a mandate on the IPO of China Life, and the engagement as an advisor to Burns Phelps (ph) in Australia on its bid for Goodman Fielder (ph). Regally items, write-offs decreased to nominal levels versus a 200 to400 million a quarter range in 2002.

Total exposure declined 300 million from year- end to2.7 billion, and we did have some bright spots such as the sale of our investment in Galla Group (ph), returning three times our original investment. Turning to financial services, adjusting for Pershing for the reasons I explained earlier, financial services operating income was flat to the fourth quarter of 02 on a similar average asset base.

Expenses continued to decline. The first quarter provision relates to the sublease of some CSAM New York space. Credit Suisse Asset Management did continue in the quarter to experience net outflow of assets, although at lower levels than experienced in recent quarters. While we are working on continued improvement in the track record in the traditional equity and fixed income product, we are very focused on building out the alternative investment platform there, and to that end, recently brought over to CSAM a fixed income team from CSFB to lead the development of all alternative investment product.

And with the addition of Michael Kineli, we do think that we will start to see some traction on those fronts soon. As for the Private Client Division, lackluster equity market is producing lower transaction levels and client debit balances at PCS and we remain focused on extensive and maintaining the franchise.

Phil?

Thank you, Barbara. In conclusion, on the last slide, the summary slide, while the level of performance in the first quarter is not yet satisfactory or up to our full potential, we are pleased we made progress towards the goal of returning the company to sound profitability in2003.

Our long-term priorities remain valid, which is continued growth in our franchise and focus on our clients, a strict cost control, sustained profitability, and to maintain a strong capital base.

Given the continued challenging environment and the lack of clarity on what the future market and volatility looks like, we do remain uncertain and cautious about our out look for 2003.

And with that, Operator, I'd be happy to begin to take some questions, I guess first from analysts and investors.

We'll now begin the question and answer session. Anyone who wants to ask a question may press "*1" on their touch tone television. If you wish to remove yourself from the question queue, then you may press "*2". Anyone who has a question may press the star 1 at this time.

First question is from Mr. Ronet Gush, Citigroup. Please go ahead, sir.

Thanks. It's Ronet Gush from Citigroup. I have a couple of questions. The first one in relation to legacy assets. You've disclosed that on supplemental slide 10 in detail. I was wondering, Phil, why has there been such a small writedown in this quarter in terms of revenues and provisions compared to previous quarters we've seen? Is it simply a hiatus or did you get more optimistic about legacy assets?

Second question relates to CSAM. Previous quarters you've touched upon the fixed income franchise. Is that still the issue, or anything else going on there?

My last question is on Private Banking. We've had a couple of quarters where you've discussed restructuring activities both in on shore Germany and on shore Spain and -- with re largely through that restructuring program, particularly in the domestic Swiss business, or is there more to come in terms of restructuring, head count reduction, et cetera?

Barbara, you want to take the first two?

Sure. On legacy asset write downs, no it's not a hiatus, but at some point, they really are markdown to market, frankly, and that really is the case. As we've said, we took very hard looks last year in a bit of a falling market as to where those valuations should be. We try to (inaudible) on the side of caution to the extent that there was judgment involved, so in fact, we just haven't had any new surprises, have not had any dramatic changes in the market environment surrounding those investments, and we haven't had any significant amount of new developments with the investments themselves that would cause us to have a significant change in our view of the inherent value with them.

So, you know, basically what we're seeing is kind of the culmination of a lot of work to really grind down to kind of near-term realizable values. On the CSAM performance side, fixed income is a primary area for us. It's a very big portion of CSAM's assets, so largely what you see happening in the net outflows is in the institutional money management business, track record is everything.

And it does take, you know, three years, if you will, to grow out of less than stellar three-year track records, so it is a very long fall to change that track record history in places where our performance is not as strong as we would like it to be.

I wish I could tell you that this would not continue, but what's really happens is as engagements in mandates with institutions come up for re-bidding, they look (inaudible) near-term performance, they look at our track records in those products, and make a decision about whether or not they want to move their money someplace else. We are still receiving new mandates, so it's not all bad news.

We are getting new mandates as well as losing some old mandates, but obviously we haven't totally flipped that switch. The second thing that is happening pretty broadly, both inflows from and to the private bank to other institutional investors s in fact, a change in appetite on all those parties towards more alternative investments.

Frankly a lot of people are just stepping back, looking at the kind of yields and returns they'd been getting from traditional equity and fixed income products, and deciding that now is a good time to be more invested in alternative investments. So we have both of those things happening at the same time.

To your last question with respect to European and Private Banking, as I said, we felt that we made substantial progress there within there focusing of the initiative towards Private Banking -- significant in Germany and Spain, if we look at the client side in that business, we generate positive net new assets nearly above average growth in all countries in Europe, especially in Germany, in Italy, and in the U.K.

So we are really not content with what we have achieved so far, but we are quite confident that we are on the right track there.

Can we have the next question?

The next question is from Matt Speich (ph) from Deutsche Bank.

Good afternoon. A couple of questions on the private back. My first question was for the inflows you had in the private bank in the first quarter were a bit better than Q4, but they still seem sub-par, even if you take into account, you know, some of the factor that is would have been going on in Q1, so my first question was, would you agree that they're still a bit sub-par, and when do you think you can turn those around or when do you think you can improve your standing with your clients?

The second question on the private bank was on currencies. You've mentioned a couple of times the U.S. dollar exchange rate has impacted the level of assets under management. And there I was just curious because about a third of your assets are in the U.S. dollar but almost a similar amount are in the Euro -- trends are very different. Could it actually be that exchange rates are going to start working in your favor in the asset management business? Because it certainly looks like they will in Q2 to me.

And my final question on the private bank was if I look back to your previous indications of 115 to125 basis points of margin under the old provisional basis for the private bank, that's not directly comparable, but it seems to me that 114would be about in the midpoint of that range previously if you did adjust it back. Would you agree that your Private Banking margins are about in the middle of the range you'd expect to see on an ongoing basis? Thanks.

If I can start with your last question, the margin, as I said, went you by two basis points to114 basis points, comparable to the not restated figures of last quarter of 118. The difference is due to the shift from Corporate And Retail Banking to Private Banking, and therein the mortgage volume which was 50 from Private Banking to - and the respective income line.

That is why this comparison is somewhat distorted between Q4 andQ1. With respect to the overall level, it's clear that the level is not as it was at the first quarter 2002, but it's increasing, and I think it goes in the right direction -- with your last remark.

With respect to currencies, as I said, the result on a Q1 comparison, Q1 2003 to Q1 2002is affected by the low asset management base which is around 75 billion lower. We estimate that's around half of that -- line is due to - impact and the other half is due to the lower equity valuations in the market. The first question, could you repeat that, please?

The level of new assets.

And what's the question?

I think the question was, was the 1.5 billion considered sub-par, and from our standpoint, it represents continued strength in the franchise. We still get -- are experiencing good flows in Asia, Latin America, and the Middle East, and the outflows in continental Europe have slowed down significantly. Uli mentioned the Italian tax amnesty, the fact that we only had outflows net of400 million. The inflows are not necessarily where we'd like them to be, but definitely heading in the right direction.

Ok. Can I just follow up on the currency issue, because I'm not sure if maybe -- maybe I didn't put my question properly enough the first time. I understand completely that currency has been an issue in the past and that's quite clearly explained in your presentation and I don't have a problem with that, but trying to look ahead at what the implications will be in the future, it does seem to me to be the case that because almost as much of your assets are Euro denominated and U.S. dollar denominated and the Euro isn't weakening dramatically versus the Swiss franc, in fact, quite the opposite is true, can you comment on whether that's the correct interpretation and that you could be positively impacted in the second quarter by currency movements?

Yes. To the extent the Euro continues to be strong or the dollar arrests its decline, you will see the reverse impact we've seen over the last couple quarters. So your intuition is correct. Next question, please?

We have a question from Michael Dunst (ph). Please go ahead, sir.

Good afternoon. Two questions. First I would be interested on a split regarding your personal expenses on page 5 of your handout and the other split into bonus-related and unbonus (ph)-related personal expense on a quarterly basis, and the second point comes out the -- ratio which was 142% at the end of 2002. Could you give us also the comparable number for the end of March 2003, and relate to this is a question, do you feel comfortable with your current level of U.S. currency ratio and what is your internal target there? Thanks.

On the first part of your question, for sometime in the -- I think leading up to 2001, we did disclose the split between bonus and personnel expense. None of our competitors followed that, and we decided to fall back in line with our competitors, so we do not disclose a split of salary versus bonus.

As it relates to the solvency, I think we stated in our release that while in the past we had tried to estimate this number on a quarterly basis, we don't feel that that's appropriate any longer, and, therefore, we have not provided an estimate for the first quarter. We will only be discussing the ratio based upon formal statutory closings, which we do once a year.

As it relates to the appropriateness of the 142, the exact - the appropriate amount of capital in the insurance industry is a difficult thing to pin down. We look at our economic risk capital models, the statutory capital as required in all the jurisdictions where we do business.

We look at other benchmarks such as provided by the rating agencies, and we also look at the U solvency level, so it's one of many factors we consider, and the change based upon the statutory closing does not change our view on the level of capital that we need to have at Winterthur. Next question.

We now have a question from David Williams (ph), Morgan Stanley. Please go ahead, sir.

Three questions, please. One is your life business, if you could really give some insight on how you sustain what that result is. It came as a surprise to me as that it should be so strong in what was a difficult quarter for those markets.

Second, in your tier 1 ratio also, you're required to deduct the accrual for the dividend that you expect at year-end. I'm wondering if you could shed some light in what accrual you've made in the quarter.

The third point, with your tier 1 ratio now up 10%, which is very respectable and, as you pointed out, even with the deduction for intangible assets at 9.25, you are actually starting to edge up now into a territory that might be considered to be sort of top of the arena in terms of capital strength. Exactly where are you targeting tier 1 to be now, if you could shed some insight into your target there, please?

Phillip Ryan Ok. Certainly on the life results, the largest factor there is the investment return. The investment return is volatile. I think we mentioned that in our press release. We are, as Uli mentioned, the first quarter results were enhanced by moving into low and moving into corporate, so interest rate trends and movements in the portfolio will dictate earnings over the coming quarters, and that will also be reflected by volatility in interest rate movement. So there is a fair amount of volatility in those results.

By taking the level of impairments me we did has, in fact, cleared out most of the backlog of unrealized investments -- from the first quarter of 2002 in the life business of approximately500 million Swiss francs, and we look forward, we've continued to reduce the overhang from quarter one versus where we were at the end of the year, and we believe, in fact, that while the first quarter result was very strong, as Phil said, there will be volatility around this.

We also have dealt with a problem probably more aggressively than some of our competitors in2002.

David, as it relates to the tier 1 level, we're very pleased with the progress that's been made in building capital back to a strong level. I think we feel we still have some more distance to go, particularly at Winterthur in building capital back up.

As you know, our tier 1 capital level does include Winterthur both in the numerator and the denominator and includes the 1.9 billion of acquired intangibles, which requires us to have a higher level given those quality issues.

So we're very committed to continue to build capital. I don't think we believe we are quite there yet, but definitely pleased, very pleased with the progress that's been made.

In the past, we have indicated the dividend accrual rate. I'd like to get away from that going forward, other than to say that we do belief believe we need to continue to retain capital and so there's a return to the robust levels of the past is not likely.

We have a question from Alistair Ryan (ph) from UBS. Please go ahead.

Alistair Ryan Thanks. Just the restatement of certain charges -- charge into sundry ordinary expenses, could you just give us a sense of how big that re-statement is, how much would have come through about that line and had had been restated this quarter.

Secondly just on the Winterthur capital adequacy again, with premiums up quarter on quarter and the equity level of Winterthur down, would it be a reasonable assumption that the 142%capital level would have declined modestly over the quarter?

I'm going to let John answer the second question. The first question, I'm going to ask you to repeat after John answers the Winterthur capital.

I think to be clear, the non-life premiums are, in fact, up in the first quarter. They're up largely driven by price increases that we've been able to support the risks at higher price levels. We will continue to raise prices where we find the opportunities in all markets. Your question is, with the equity -- reported equity capital down from 5.6 billion to 5.3 billion, does that mean the ratios are stretched a little more. I think you can work out the math yourself. I'd also say that we were selective in the life insurance underwriting and you see our life premiums are, in fact, down in the quarter, so we think the quality of the business is higher.

We believe that the capital we have is adequate for the business we write today and the business we'll write for the course of 2003.

Could you repeat your first question? We didn't get it.

Sure. It's page 34 of the press release. It's note 1 to the decline value of debt securities are reported in sundry ordinary expenses from this quarter. And sundry ordinary expenses is a fixed 21 million figure. I'm just trying to add back the net charge that would have been in the - line under the previous circumstance. I'm trying to get myself a like to like comparison, so obviously that charge was impressively low in the first quarter.

There was a shift from some provisioning over to mark to market, and I would encourage you to give Gerhard Beindorff (ph) or Marc Buchheister (ph) a call in investor relations to go through that. We don't have those details with us.

Thanks.

Next question?

We have a question from (inaudible) Chafner (inaudible).

Good morning. -- level of provisioning, two questions concerning that. If we look at provisions at CSFB, I wondered whether a charge that has been taken really reflects the economic situation in the first quarter, or whether the charge has been influenced by some extraordinary items and relating question to that is then what could be a normalized provisional rate going forward. Phil, you just mentioned that you expect to tie your provisions in 03. Does that relate to CSFB, does it relate to CS group as a whole? That's the first one.

And maybe if you could give us a feel for the head count development also going forward as in several divisions, we saw personal expenses now edging up slightly. I wondered is the restructuring kind of over and will personnel expense now flow more or less within come or the revenue line?

On the provisioning of CSFB, I mean, the number is real. The process we go through, the accounting rules that we follow make it a pretty accurate process both in terms of additional provisioning on loans that have gone bad, recovering provisions on those that have gotten better, and then the re-estimation of our inherent loan loss reserve.

As I said before, and I think Barbara reiterated, we're pleased at the lower level of provisioning, but we are in uncertain times and we are not going to predict what the rest of the year is going to look like. We did say that we definitely expect the provisioning in 2003 to be noticeably below 2002,and obviously for the first quarter results make that trend very clear.

In terms of head count development, I think Barbara made it clear for CSFB that the big programs are over, tactical cost reduction and continuing to look for opportunities for cost is a normal part of doing business, and that is also true for all our businesses, although the Swiss banking businesses and Winterthur are in the middle of delivering on the programs that were announced at the fourth quarter earnings and are well on track if not ahead of track in delivering that.

2003 provisions will be lower than in 2002is not very daring forecasting. You charged quite a lot last year. Would you also remain with that statement if you took all extraordinary charges in 2002 out so we're sweeping it out and say traded provisioning in 2003 in the normal basis without extraordinary -- also be lower in 2003 than in2002?

I don't think we believe you can strip out a clean normalized 2002. The 2002 provisions were heavily influenced by a number of large and mid-sized credit events that drove those numbers, so I think it's not realistic to come up with a normalized number.

I think it's fair to say that we're not very much in the mood right now for predicting the future. So you think it's up to you to decide what future provisions could be.

After all

Next question, please.

Next question is from Heinreich Weimer (ph) Bank Openheim (ph).

Just to come back on the Winterthur solvency ratio, perhaps you can just explain which of the changes in calculating it which led to this marked restatement for the end of 2002 figures, and the second element, I mean, as we know that in the first quarter, it must have deteriorated further and certainly optically deteriorated further, and as we also know that negative bond performance could massively deteriorate it, I think it's a most inappropriate moment to discontinue reporting it. I think right now it becomes very interesting to see this --ratio in a moment deteriorating to discontinue the reporting of it is certainly very comforting for investors.

The reason we discontinue that as we said was last year we tried to estimate a quarterly basis which is something that no other insurance company has done. We found during these volatile times that the estimation process was not creating an accurate enough picture for our taste, although the ratio gave the trend accurately, the level was not accurate enough and we found that out when we finished the statutory closing.

And again, I can't emphasize that nobody else does that, discloses such numbers quarterly, and we don't believe any more that it's appropriate for us to do it.

)Ok. Then

If I could, to reiterate, the CU solvency ratio was an attempt to provide supplemental information. It's not relevant for the way that we run our business in the sense that we have statutory regulatory requirements for the local capital, and as we said, we're in fine shape with the capital that we have and the business that is we run.

It's very much welcome if you replace the disclosure of the European solvency ratio by what you did basically disclosing a range of the main legal entities, whether they are between 150 and 200%. I think that's very helpful, and I agree that the local statutory is very relevant, and by the way, also -- exposed to bond performance.

And we remain very comfortable at the end of the first quarter with our positions in those countries.

Could you quantify that?

We only do statutory closings once a year, so what John is giving you is an instinctive feel for how things have moved, but we're not going to disclose numbers but not based on national closing.

Ok. Thank you. Second question obviously, Phil, in the discuss on man management options, perhaps you can give us guidance. Right now Citigroup started to expense management option, they also expensed an accrual in the first quarter statement, Citigroup is certainly a relevant benchmark. We also know that (inaudible) is very much in favor of expensing options. Perhaps you can just give us an accrual estimate what you should accrue for this management option expense for 2003, and perhaps even detail what (inaudible) annual statements, how that is -- to be split for the divisions. Can you repeat that (inaudible) is First Boston?

We have not yet decided on the implementation of FAS 123. I would suspect we will do that in the second quarter.

Ok. Interesting.

The amount of options we'll be using this year will be significantly down compared to last year, but we're not in the position to give out any further information.

You said the amount of options, but the value will be higher because the share price is higher, so would it be a rough estimate to expense100 million that would be less than a quarter of last year?

I'm not going to predict. And there's also a very (inaudible) issue with regards to the implementation of FAS 123 which relates to divesting schedule in the options and when they actually come into the P& L, so when we make those dissections, we will make it clear to our investor constituency.

Thank you. And -- most of it for First Boston and very little for the Swiss units?

Yes, I don't see any change there. I think it's going to be somewhere between two-thirds and 80% would be CSFB-related because that's where the need is with regards to providing competitive compensation for our employees. Next question, please?

The next question is from Fiona Swaffield (ph) (inaudible).

Good afternoon. A question on the combined ratio in the insurance business, you hit 107. That seems to include some one-expenses of 63 million. A lot of it is due to the claims ratio. Could you comment whether you think that's sustainable and how much is seasonality?

The second issue, someone asked you about provisions and you mentioned in CSFB there were --write-backs, particularly high write-backs in the CSFB -- in the first quarter. Thanks very much.

With respect to the combined ratio, one clarification. I think in the text, we've described there is a 63 million charge for the restructuring related both to the home office and certain divestitures. Those charges are not part of the combined ratio. But rather are for discontinued businesses or businesses held for sale. The 107 I think is not only sustainable but improvable.

We've put a target to reach 100during the course of 2003 and we believe the combination of underwriting discipline and price increases which were in place in 2002 would repeat in 2003 are going to be adequate to get us to where we need to be. I would observe that the first quarter was a good quarter with respect to natural catastrophes. We did not have many large losses across the world. There is certain volatility there, but we have large -- very strong reinsurance programs that contain large loss as well.

Fiona, on my provisioning comment, I was talking about the process for determining our provisions on a quarterly basis in general, but there were no unusual write-backs in the first quarter.

Could I just come back to the charge, you said part was divestitures. Was this something to do with businesses you've sold in the past like Winterthur international?

We don't comment on the specific charges, but some of it related to some businesses which we in the recent past have sold.

Thank you.

Next question?

We have a question from Kinner Lakhani, ABN AMRO Ltd. (UK). Please go ahead.

Yeah, a couple of questions and then just a couple of numbers that I wanted to check. Firstly on equities, looking at your peer group, there does seem to be a much sharper rebound in 1Q3versus the second half run rate which is not evident at CSFB. I wonder if you can elaborate on this one.

Secondly, in terms of the writedowns of deferred acquisition costs, could you provide some flavor as to how sustainable, you know, this charge is going to be or whether you think it's just kind of one off? I'll ask Mike numerical questions in a second.

Barbara, do you want to answer the question about the equity levels?

Sure. A big difference between us and a number of our peers, again, it does depend on who you're looking at, would be in the prime banking area. We are -- a number of our peers are significantly larger in prime banking. People tend to report the lion's share of that activity as part of their equities numbers, and while we do have improvements in that area year over year and are making invest investments to build out that business, we are still a smaller player than some of our peers.

With any kind of major underwriting losses that may also explain for the difference?

No. No. I think what I would mention is that during the quarter, there was -- there were numbers of block trades and bought deals done by a lot of people and certainly by a number of our peers. I would say probably more so than we did, and I think probably some of those turned out just fine for a number of our peers.

Thanks.

With respect to the DAC question, I think we would expect deferred acquisition charges or the higher am amortization fee over the year at a lower level than 2002 where we had to adjust to a different investment environment in the first quarter. I can't predict whether it will be repeated, but it wouldn't be unusual.

Thanks for that. If I may, just a couple of numerical questions. I notice that your client assets are down 30% on page 2 versus the end of the previous year, whereas obviously assets under management are generally down 3%. Could you explain that one? And also within Corporate And Retail Banking, we seem to have a resumption of the other income line. I think we had an income level of 14 million. I'm wondering if there's any sustainability in that number.

I believe the answer to the first question is moving Pershing out to held for sale.

Of course. Yeah.

Let's try it again on the second number. We didn't follow you.

Sure. It was just Corporate And Retail Banking, there's a 14 million income, other income in the first quarter. I think it's a 14 million number. Whereas in the second half of last year, this number had pretty much disappeared. So I'm wondering if it's just a one-off kind of gain or a sustainable number.

I'll have to come back

Can you contact Marc Buchheister or Gerhard Beindorff on the second question.

Will do, sir. Thanks

We have a question from Jeremy Sigge (ph), Citigroup. Go ahead, sir.

Thank you. Can I ask three questions, please. Firstly, you referred to one point $.3 billion merchant energy exposure. I just wondered how much of that has been provided for already.

Second question, the comp ratio at CSFB, you noted the progress year on year, but I wondered if you could give us guidance on where you are in terms of the improvements in this number. Is this now clean of the guarantee problems that were weighing on the numbers last year or is the further improvement to come.

Final question, I got a bit confused on your comments about the non-life premium increase year on year. The reported number was 6%, which I believe includes some acquisition consolidation, but you were also referring to a 13%. What is the like for like clean of acquisitions?

Barbara, do you want to answer the first two questions?

Well, sure. Actually, on merchant energy, I'm afraid I just don't have the numbers with me on those provisions, so I would refer you to Gerhard Beindorff and I'll make sure that he has those numbers for you.

Thank you.

Second question, comp to net revenue, which overall, I take to be can that number come down further or are you about done, I guess is what I'm hearing.

)) And specifically is it clean now of the guaranteed comp packages that we were told were --in the past year.

With respect to guarantees, potentially, yes, it is clean. There is some level of guarantees for the current year are a necessary part of being in this business, but it will constitute a relatively small portion of our bonus pool at the end of 2003.

We do think that over time, we can actually bring that number down a little further, and what that really has to do with is continuing to do the personnel actions we've talked about, why they're not broad scale across the board.

They're kind of ongoing rationalization of our overall employee base, as well as, you know, basically making sure that we are paying competitive to the market, but not over the market on a kind of name-by-name basis. So we don't have any particular target, but I think you will see a number of our peers probably closer to 50% or 49%,and very conscious of the issue, I don't expect unnecessarily big movement between now and the end of the year, but we think over time that that number will be more competitive.

Jeremy, on the first point, I will mention that obviously we don't give out provisioning levels on classes of assets. We have been very focused on merchant energy and I think as we've said in the past, there's a special designated part of our inherent loan loss reserve just for this area, so we think we've got our arms around it.

(inaudible) 13% I mentioned is the premium growth in local currencies. And adjusted for the acquisition for divestitures

And again, almost two-thirds of that, we believe is coming through with price increases from 2002 into 2003 first quarter.

The 6% was more like 4%, like for like? That's what you're saying?

I'm not sure I said that.

The net premium -- reported up 6%

You said two-thirds of that -

and two thirds of that driven by price.

Ok. Next question.

We have a question from Christoff (inaudible) ZKB. Go ahead, sir.

Good afternoon. I have two questions. The first one, could you comment on the reduction of the commission income on the group level. Are there any Pershing effect there or is it just as you said a reflection of not so significantly lower asset under management.

And the second question is, how would you suggest us to deal with the risk of private legal actions against Credit Suisse in terms of time horizon and future cost. I think this is one of the major concerns, remaining concern in Credit Suisse stocks. Thank you.

On the first point, about a third of the reduction quarter over quarter in commission and fees relates to lower portfolio assets under management. So these are businesses where fees are based upon AUM, and AUM is down, and two-thirds of it is lower broke brokerage commission particularly on the equity side that would come from both the private bank, CSFB, and to a very minor extent, the retail bank. Those two factors really drive that difference.

On the legal risk side, as Barbara mentioned, we've finished our settlement along with the other brokerage firms. We also settled the IPO issue in December of 2001. We're the only firm that has settled all these issues. As it relates to the private litigation, it's going to take some time to resolve this issue. We have looked at the $450 million reserve we took in the fourth quarter of 2002 in light of events of the last couple months and do not believe there's any basis for changing that reserve estimate. So it's something that will be -- we'll be talking about for quite some time, but it will be a while before this is resolved.

Thank you.

Next question.

We have a question from York Panders (ph), West LD. Go ahead, sir.

Clarification, total impaired loans, you said without the loans booked to the trading portfolio, it would have been 11.6? Is this correct?

The year-end 2002 number would be 11.6 instead of 12.4.

Yeah. Ok.

That gives you the magnitude of the shift.

So this was the number, and then concerning the assets and the insurance portfolio, is now a share of equity of 5% not too low, given the risks that arise with the bond portfolio?

I was waiting for which quarter this question would arrive at. Because obviously when it's a big number, we're too high, the small number, we're too low. We believe that in the first case, we do have to continue to protect our balance sheet, and we will be cautious with the risks we take in the investment portfolio. Having said that, that 5% is not a magic number. The actual exposure is below that, and over the course of 2003, we will adjust our exposure based on our view in Credit Suisse groups of where markets might be moving and to our ability to assume risks in the investment portfolio.

Thanks

Next question.

We have a question from (inaudible). Please go ahead.

Good afternoon. I've got three questions on CSFB. First (inaudible) of the top line, do you believe it's possible to sustain this kind of activity on the fixed income business, or do you believe that -- market and equity premium market will rebound or simply it's not possible to sustain that level of activity?

Secondly, on the provision level, could you give us a split on your run build excluding (inaudible) around the $50 billion my estimate between Europe and the U.S.? And what is your opinion on the hedging strategy that some of your competitors just started to implement? (inaudible) starting to hedge (inaudible) does that make sense at this level of the credit cycle? Thank you.

I'll take two of those and then I'll ask you to repeat the second question you asked related to provisions, and I think a split of Europe versus U.S. First on the sustainability of revenue, fixed income does have inherent in it, whether it is at CSFB or any other firm, a level of seasonality as it relates to client demand for particularly on the new issuance side and then that activity tends to spur trading secondary activity throughout the marketplace.

So in every fixed income business I've ever seen, there is that inherent seasonality in the business, which tends to peak in the first quarter and decline thereafter. We will certainly be subjected to that.

So in the magnitude, does that mean that that makes sense to -- minus 20 or minus 25% for the coming quarter on that line?

I couldn't even guess.

Ok.

I couldn't even guess. So we are subjected to that. Some of the other things, though, that are going on is, you know, we did see in the first quarter away from those highly seasonal activities, we did see returns to better kind of risk-reward trade-off in various places throughout the market. For instance, interest rate derivatives. Interest rate derivative activity, customer interest in it, tends to be much more geared around volatility in interest rates than there is any particular seasonal pattern.

So how strong something like that might be going forward is going to be purely a function of what are the volatilities around interest rates, and I can't even begin to guess. For -- and M and A, I will say things feel a little bit better in those areas on the primary side, not on the cash trading side for equities, but in terms of equity issuance and M and A, things feel a little bit better in terms of client interest.

We are not seeing any particular big increases in pipeline or anything that would make you want to take any of this to the bank, but it is feeling a little bit better. So I know that's not, you know, a direct answer to your question as to how much revenues might be down, but frankly, we're at a bit of a flux point so it's hard to tell.

The third question as it relates to hedging, we did in 2002 put in place a loss mitigation program, which involved both I think more aggressive loan sales at the time we commit to a loan. As well as buying credit default -- and instruments to hedge our exposure.

We continue to look at it very carefully at the aggregate amount we are investing in that activity versus what we see happening on the new loan front as well as the overall credit environment. We're very committed to continuing to do it.

We think it is an important part of being a lender to actively manage that book of risks, and also to be perfectly honest, I think it also improves one's market sense about the cost associated with lending. So the discipline, we are very committed to, but we will continue to evaluate and adjust the amount of that activity that we do.

And I'd like to ask you to repeat your second question.

Yeah, my second question was regarding we're getting this -- on the Lumbuch (ph), my estimates if you exclude both (inaudible) and -- if you can first compare those figures. What is the split between Europe and U.S. in terms of loan exposure?

I just want to check back on - before answering your question, I think I'd like to answer that via Marc Buchheister or Gerhard, just to check back on what our practice is on disclosure on those items.

Ok. Thank you.

We'd like to just take one more question and then we're going to sign off here today. Operator, do we have one more question?

Yes. We have a follow up from Heinrich Weimer from Bank Openheim.

My question on slide 4 of the is up supplement, could you specify the real life gains and losses in the categories of bonds and equities? And the second question, on equity needs, you said that you want to further improve your tier 1 ratio but on the other hand, you highlighted that you want to be very reluctant to take on additional risk at First Boston, you have free cash flow from private bank and retail bank. Winterthur is still a careful investor. So basically the equity need is not that high any longer. Could you please confirm that we have reached the maximum number of shares right now and that from here on, we can expect a stabilization, no further new shares, shares for the option program bought back in the market and eventually with the perspective of low risk usage and need and the good cash flow generation, that you can even reduce the number of shares again?

We don't give the split that you're looking for on slide 4, and I think we've been pretty clear that we believe we have the means to rebuild our capital and are not looking for raising equity, given the environment as we see it.

And with that, I'd like to thank everybody. We look forward to seeing you again at the second quarter results in early August, and -- August 5. Thank you all very much.

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