Credit Suisse Group AG (CS) 2003 Q4 法說會逐字稿

Good morning. I want to welcome all of you to our Q4 and full year results. Together with Ossy, I'm pleased to welcome all of you, and take you through our results. I'll start off the presentation, with an overview of the year.

Ladies and gentlemen, this is the conference operator. Welcome and thank you for joining the Credit Suisse Group Q4 and Full Results 2003 Conference Call.

As a reminder, all participants are in listen-only mode and the conference is recorded. After the presentation, there will be an opportunity to ask questions by pressing '*' and '1' on your touchtone telephone. Anyone who wishes to register for a question, should press '*' and '1' any time during the conference. Should anyone need assistance during the conference call, they may signal an operator by pressing '*' and '0' on their telephone.

At this time we'll join the conference at St. Peter forum in Zurich.

We shared some common goals. Our first priority was clearly to return to profitability. As you can see we have done that. We said we would strengthen our capital base. We've done that.

We said we would lower the costs of all of our businesses. We've done that. We said we would return Winterthur to profitability. We've done that. We said we would continue to make progress at First Boston on some of the legacy issues. We clearly have done that.

We said we would realign our private banking activities in Europe and we've done that. We believe we've delivered on all those goals that we said to you in November of 2002.

Clearly, we had some help. Our market was a lot better, there's no question about that. At the same time, we cut our operating expenses by 20% on a year to year basis. The credit quality of the portfolio has improved and our provisions clearly were used in a sense that we did not use all the provisions.

We continue to exit some of our non-core businesses, which we said we would do. If you look at our insurance business, there’s a big turnaround there, especially on investment income. We've increased it by CHF5.2b, to CHF6.6b.

So there was great progress in 2003. Private Banking had CHF1.9b in profits, up 13%, and net new assets of almost CHF18b. Again, there was great recovery from the weak second half of 2002.

Corporate and Retail Banking saw net profits grow by 36%, over CHF0.5b, and its cost/income ratio improved significantly.

The Insurance unit, we believe, was a remarkable turnaround from the prior year's loss of CHF2.4b, to a positive CHF2.1b in 2003.

Credit Suisse First Boston, again, there was a turnaround. We had a profit in this past year of CHF1.2b. Clearly there's a lot more work to do at First Boston.

One of the things that we said was very important, we have to get our reputational issues behind us. We avoided any new reputational stories, we think that's a major step for us. We were making a lot of progress on changing the culture, and making sure we create an equity culture.

Capital is very important, as you know. We've improved our Tier 1 ratio now, it's at 11.7%. That's a great improvement over 2002. Over time, we will continue to increase our dividend.

We want to be as competitive as anyone in the industry on our dividend. At the same time, we think we need to be one of the best-capitalized companies in the business.

So overall, the net profit in 2003 was CHF5.2b, versus a loss last year of CHF3.3b. We had a return on equity of slightly over 17%, versus a negative 10% last year. We've made significant progress in reducing costs throughout the group.

In terms of 2004, both Ossy and I feel pretty good about it. We're early in the period but from what we see with the business activity level, things that we're already doing, we're optimistic about what lies ahead in 2004.

With that, let me turn it over to Phil, and he will take you through the rest of these slides.

Thank you John.

Starting on slide 6, I'd like to go through several key items that are important for understanding both the quarterly results and the year results for 2003. The full results are shown here, I'll go from left to right.

First is to make clear that we have a CHF200m after-tax gain from the sale of two units, DLJ Direct, which was part of the CSFB Financial Services, and Corner Bank, which was part of the Private Bank. Next is that we had an impairment of intangibles in Q4, which had an after-tax impact of CHF176m.

This was the result of a transfer of a portfolio of business from [CSAM] over to private client services. In the process of that, it was clear that the asset under management level had fallen to such a level that an impairment was required. This comes through in the CSFB results.

Probably the most dramatic change is the next one, which is the new tax legislation in Germany. Germany during the year, in an effort to bolster its insurance businesses, put through a rule that allowed us to deduct losses on equity security positions from 2001 through this year.

That resulted in a very large tax benefit, which you can see there is CHF782m. Essentially, this is largely shared by the policyholder, so that's offset by an increase in policyholder dividends, of CHF711m. The net impact of this change is CHF50m positive, for both Life and Pension, and Insurance.

For those of you that followed us in 2002, you'll remember exactly the opposite happened. We had large losses on equity positions, those losses were not tax-deductible, so we had a large loss in Germany but still had a positive tax charge. At that time, that negative impact to us was also largely shared by the policyholder. It is fairly distorting to the P&L, which is why we point it out.

The fourth factor is the changes to our Swiss GAAP accounting, which occurred in Q4. We disclosed in Q3, in November, that these were coming. They are the full-year impact of several changes that have been accelerated into Q4. All of these changes are in line with our move to US GAAP.

The primary factors here are accounting for derivatives, which largely impacted CSFB, to the tune of around negative CHF85m, and accounting for own shares, which was a negative CHF100m after tax at the corporate center.

Barbara will particularly mention this fact, because it does distort some of the line items at CSFB. The key thing out of these four factors are the three circled numbers. Our operating income stays on a consolidated basis, it's lower by CHF1b, because of these. The tax line has a benefit of CHF800m in it, with the net effect being negative CHF115m.

Going to slide 7, I’m looking at operating income. Looking at it both year over year and quarter over quarter, operating income is essentially flat. Looking at the lighter bar, which adjusts for the four items that I mentioned on the previous page.

In Q4, net interest income was down slightly, due to lower margins in the banking business. Commissions and fees, and particularly lower brokerage commission were down, relating to volumes and market conditions.

Trading income, when you adjust for the Swiss GAAP changes, was positive 100, which is in line with Q3, but lower than we would like to see it. The insurance contribution, when adjusted for the German tax impact, was in line.

Looking at our consolidated operating expenses, year over year, it was obviously a dramatic story. Expenses were down CHF4.9b. This reflects flexibility in the cost base, lower headcount, lower operating expenses and there is a foreign exchange benefit in here.

The cost/income benefit year over year is quite dramatic. You'll also see in the Q4 numbers the cost/income ratio jumps up. That is largely because of the operating income effect that I showed you two slides ago, as it relates to those special items.

I'd like to just take a moment for this group and just make a mention about the tax rate. Due to the German tax effect I talked about and the fact that CSFB had some tax cases benefit in Q3, and a very positive tax mix in Q4 (some of it's profits in no-tax or low-tax environments), the tax situation is somewhat unusual. For the year, the reported tax rate is 6.3%. If you back out the German tax benefit, it's 18%.

We still believe that the steady state normal tax rate is 25%. The results get even more unusual in Q4, where you have a tax rate of over 100% negative. If you back out the German impact it's a 10% rate. We still believe the 25% rate is the right rate to look for.

Going next to the provision line, year over year, obviously, as John mentioned, this is one of the dramatic drivers of the profitability turnaround. However, looking at Q4, the credit portion of the provisions, adjustments and losses, went up from CHF96m for both units combined in Q3 to CHF190m in Q4.

There are four drivers to this change. First was an increase associated with the consumer lending model in Switzerland. There was an increase associated with a large corporate client in Switzerland, that had trouble in the quarter.

At CSFB there was a CHF198m provision, associated with Parmalat, which is offset by a CHF178m gain in the operating income line. So the net impact P&L of Parmalat in this quarter was CHF19m net, pre-tax.

If you're looking at the provision line, the provision comes through as under new Swiss GAAP and obviously also under US GAAP.

Those three factors were offset by releases from our reserve for inherent credit risk and also some release of provisions associated with the improving credit quality of the portfolio. Litigation costs are down at CSFB over the quarter.

On the impaired asset side, we continue to make dramatic progress, both in terms of improving credit quality overall. The CSFB numbers here are affected by the fact that we made a decision to move CSFB to (let's call it) a more aggressive, or you could call it a more US-like provisioning practice, where when credits are more than 80% reserved you go ahead and write it off against provisions, reducing non-performers and the provisions by the same amount.

So about CHF930m of the drop you see here is associated with this change. The rest of the changes are largely related to overall improvements in the portfolio.

On slide 11 is the capital slide we show every quarter. I think one of the main factors here is that the risk levels at CSFB, and therefore the risk-weighted assets, are well below what we expected.

They were very modestly up compared to Q3. John will talk about this later, but we do expect risk-weighted assets to rise. We've already seen them rise somewhat so far this year.

Another factor affecting capital is the fact that we are going to US GAAP. Our ratios will drop under US GAAP, largely because of the elimination of acquired intangibles, as part of the capital base.

We also want to plan for growth and making sure that we fulfill our role under US GAAP, of being one of the best-capitalized banks in our peer group. We have established a guide post, which is to be well in excess of 10% under US GAAP going forward. Again, we wanted to be positioned as one of the best-capitalized banks in our peer group.

I'd like to spend a few minutes talking about our move to US GAAP. A lot's been written about it, there's a lot of focus on it as it becomes imminent. For many of us who have been working on this project for a long time, January 1 was a big day because the group is now operating fully under US GAAP.

This is a project that's been under way for over two years, extensive training, a lot of preparation work. I think we're pleased with the progress for it.

Just to remind everybody, it's been said that the reason that we're going to US GAAP is because the group has an American CFO. I can assure you that's not the case.

The Swiss stock exchange required us to move to US GAAP or IFRS. We did a cost-benefit analysis. If you believe that these two standards will converge over time, it was significantly less expensive and easier for the group to get to the convergence point through US GAAP rather than get to the convergence point through IFRS.

The first step in this process of the change that will occur in the first half of the year is today, where we're disclosing our Swiss GAAP results for the last time and these comments I'm making about US GAAP.

We will report the Swiss GAAP annual report, we'll disclose the Swiss GAAP annual report, on March 31, which will be the end of Swiss GAAP for us. The full year results and the quarterly breakdown of our US GAAP results for 2003 will be made available on our website on April 27.

On April 30, which is our AGM, we will pre-release certain of our US GAAP Q1 2004 numbers. The following week, on May 5, we'll do a full release of the first true US GAAP results. Then we'll file our 2003 US GAAP annual report with the SEC at the end of June.

What are the implications for Credit Suisse Group? The primary difference relates to the combination of Credit Suisse Group and Winterthur, which occurred in late 1997.

Primary factors here are the increase in goodwill and the equal increase in shareholders' equity. Also, there is a significant difference in cost base for many of the investments, which will impact the investment income going forward. There are a number of other factors that I'll touch on in the next page.

It's very important for everybody to realize that if you look at the primary factors that drive our value and drive our P&L, which is balance sheet income, net interest margin, buying and selling of securities, fee and commission income, premium income in the insurance business, operating costs, those items are largely unaffected by US GAAP.

There will be more volatility because of the loss of macro hedging and the higher standard for documentation and proof on hedging effectiveness. We believe that the first relevant US GAAP results are the ones we will publish on May 5, for Q1 2004.

Slide 14 is just to remind you, and perhaps to take the surprise out of our 2003 US GAAP results. We disclosed in Q3 that under US GAAP there were going to be two very large differences. The first is the goodwill allocated to the divested assets and the write-off of that goodwill, which is CHF1.7b.

The other is our announcement to impair CHF1.5b of goodwill in our Life and Pension business. So, right from the start, our US GAAP results for 2003 will be CHF3.2b lower.

Of course, that CHF3.2b is mirrored with increased equity, under US GAAP, so that money doesn't disappear but it will have a profound impact on our bottom line under US GAAP. Of course, the CHF1.5b impairment is a non-cash item.

Other items, such as other differences at Winterthur, accounting for derivatives, goodwill amortization, software capitalization, taxation on those items, pension costs, and a number of others, in combination, will lower the CHF2b residual in this charge. The bottom line will be that the US GAAP results will be very different from the Swiss GAAP results. I wanted to make that clear now, so it's not a surprise later.

With that mouthful, I'd like to turn it over to Ossy.

Ladies and gentlemen, I'm very pleased to announce that Credit Suisse Financial Services had a net profit in Q4 of nearly CHF1b. I'm sure you'll join me in congratulating especially the good results in Winterthur.

For the first full year in 2003, we recorded net profit of CHF4.3b. The main drivers behind the strong recovery are certainly cost reductions of CHF1.1b, as well as significant improvements in investment income, at both the Winterthur segment and also the divestiture gains recognized in Q3.

The banking segment's operating income decreased in Q4, but remained almost stable year on year. Despite a slight increase in Q4, operating expenses in banking for the full year were down by almost CHF0.5b. That clearly demonstrates strong progress in cost management and also it's reflected in a reduction of 4% in the cost/income ratio.

Private Banking's net new asset inflow in Q4 amounted to CHF4.2b, leading to a net inflow of CHF17.9b for the full year. Private mortgages business continued to grow strongly, with net new private mortgages of CHF6b for 2003.

Private Banking's results for Q4 include extraordinary income from the disposal of the minority investment, as you heard already. It was also affected by costs related to the realignment of our European activities.

Generally, I think that did not reflect the normal strength of our Private Banking. I'm sure it was a weak quarter for Private Banking issues, and that should be reversed in the coming quarters.

The insurance segments reported significantly improved investment results, driven by lower impairments and lower realized losses in the equity portfolio. As a result of steady progress in the underwriting results, the combined ratio improved significantly. In Q4, we achieved our target there, of below 100%. Administration costs at the two Winterthur segments were reduced during the year, by CHF670m.

In Q4, the insurance segments recognized tax credits resulting from changes in German tax legislation, as you already heard. After the related policyholder benefits, the tax credit had a positive impact on profit before minorities, of around CHF71m.

Looking into 2004, I would say our priorities are the Banking segments. We will place a strong focus on top-line growth. We did look very much at costs and reducing risk in the past, but now we are aware that we have to focus on top-line growth, especially in Private Banking. There we also want to achieve our net new asset growth target of 5%.

As I said before, the new year has already started very positively. As the saying goes, if you could multiply January by 12 it would be a good year.

In addition to this, we will continuously improve productivity and make further progress towards our medium-term goals, of bringing our cost/income ratio down substantially in Private Banking, below 55%, and in Corporate and Retail Banking below 60%.

In the non-life insurance business, we will focus on sound premium growth, driven to a large extent by tariff increases of around 3% on average this year. In Life and Pensions, premium development could remain stagnant because we have to be selective in what kind of business we are writing, as we will be.

In both Insurance segments, we will further reduce administration costs. Our target in the non-life business is, very clearly, for a combined ratio below 100% for the full year.

Overall, I think I'm a little bit more optimistic for 2004, than you are usually used to seeing me.

Thank you Ossy. I'd like to lead you briefly through the segment results for Financial Services, starting with Private Banking.

[Indiscernible] Private Banking reported a segment profit of CHF508m, which is down CHF11m, or 2%, if you compare it to Q3. As mentioned earlier, this result includes extraordinary income from the disposals, with an after-tax impact of CHF81m.

The full year segment result was CHF1.9b, which represents an increase of CHF280m, or 13%, in comparison with 2002.

Quarterly operating income decreased by 9%, to CHF1.4b, due primarily to lower commission income, driven by the weaker US dollar and the generally lower trading volumes.

This decrease also affected, obviously, the Q4 gross margin, which was down 13 basis points to 112 basis points. For the full year, however, the gross margin at 121 basis points remained at a high level.

Operating expenses for the full year went down by CHF270m, 8%. Operating expenses in Q4 virtually unchanged versus the previous quarter. Other operating expenses thereby increased by CHF51m, driven to some extent by project costs in IT and in forced marketing activities in Q4.

In addition, operating expenses and depreciations were affected, as Ossy Grubel already mentioned, by costs for the realignment of the European activities, with an after-tax charge of altogether CHF46m.

Net new assets were at CHF4.2b for Q4, CHF17.9b for the full year. Assets under management increased considerably during the course of 2003 and were up CHF46b, to CHF512b in 2003.

Corporate and Retail Banking segment results for Q4 amounted to CHF120m, which is down 29% versus Q3, but significantly [improved on] what we have seen for Q4 in 2002. The segment profit for the full year was CHF565m, which is an increase of 36% if you compare that with 2002.

Operating income was almost stable quarter on quarter and year on year. The net interest margin for the full year was down slightly compared to 2002. Operating expenses in Q4 were CHF33m above Q3. Also here, this increase was driven by project costs in IT and by marketing activities.

Year on year, operating expenses improved significantly, with a reduction of almost CHF200m, or 9%, in comparison to 2002. Accordingly, the segment cost/income ratio was further reduced, to 67.2% for 2003, which is down 5.9 percentage points.

Valuation adjustment, provision, and losses, based on the statistical valuation adjustments, increased by CHF27m in Q4, due partly to change in the consumer lending law.

With that I'd like to tackle the Insurance segments, starting with Life and Pensions. Life and Pensions reported a segment profit of CHF723m for the full year, in comparison with a segment loss of CHF1.4b in 2002.

The Q4 segment profit amounted to CHF369m, up from CHF126m in Q3. This quarter on quarter increase was mainly due to higher investment income, driven by the overall favorable market conditions here.

Gross premiums written, if adjusted for acquisitions, divestitures and exchange rate influence, decreased by 3% in 2003, versus a reported figure of minus 9%. The decline was due to profit-oriented underwriting, probably reflecting the market conditions in that business.

Acquisition costs increased by CHF138m, or 19%, in 2003. This was driven by higher amortization write-downs of deferred acquisition costs, and the present value for future profits, due to lowered expectations for the long-term investment return.

However, if you look at the administration costs, they decreased by almost CHF350m, or 24%, in the same period. This improvement was mainly due to the ongoing efficiency measures. The return on invested assets amounted to 5.2%, compared to 1.4% in 2002. In Q4 it was especially strong, with an investment return of 6%.

Life and Pensions reported a tax credit in Q4, mainly resulting from the changes in the German tax legislation, as mentioned before. This tax credit led to a related increase in provisions for future policyholder benefits. After these policyholder benefits the tax credits had a positive impact on the segment profit for Life and Pensions of CHF53m.

Lastly, to the Insurance segment. Insurance reported a segment profit of CHF1.3b in 2003, compared with a segment loss of CHF992m in 2002. The full year segment result includes, as you all know, an after-tax gain of CHF1.3b from the divestitures, as well as CHF383m of provisions related to the current and former international business portfolio, as we discussed with you in Q3.

Adjusted for acquisitions, divestitures and exchange rate impact, our net premiums increased by 6%, versus a reported decrease of 7%, primarily benefiting from tariff increases across all our major markets.

Administration costs decreased 17%, or CHF326m, also here reflecting our progress in efficiency. The combined ratio improved by 2.4 percentage points, to 101% year on year. In Q4, as already mentioned, the ratio was below 100%, at 98.3%.

Net investment income was CHF1.2b in 2003, versus an investment loss of CHF10m in 2002. Total return on invested assets was at 3.8%. Similar to the Life and Pensions business, Insurance also reported a tax credit in Q4, resulting from the tax law changes in Germany. After the related increase of policyholder provisions, that had a positive impact on the segment profit of CHF18m.

With that, we are at the end of the Financial Services presentation. I'd like to hand it over to John.

Thank you Ulrich.

2003 was a significant turning point for CSFB. It also confirms the multi-year progress that we're making. We earned $870m profit, that's versus a loss of $1.2b in 2002.

We achieved a net operating profit of $1.4b, up $1.2b versus last year. We improved our ROE and our pre-tax margins, much better than what we've had in the past. We have our ROE up to around 16%. We still have room to go, I think, to close the gap versus our peers.

We've made a great deal of progress on our culture, in changing the firm from a cash culture to an equity culture. We think that is beginning to have impact, especially if you see what's happened to the stock price over the last eighteen months.

Costs are down 10% on a year to year basis. We've had substantial improvements in our provisions this past year. A lot of this was clearly our credit environment that we've been in. That has helped. Our reduced charges on our legacy assets have helped, and we've been much more active in our portfolio management.

So we're really pleased with the progress that we've made. Still, we have a way to go. In 2004 our number one priority is revenues. If you remember, when I first arrived here I said we don't have a revenue problem, we have a cost problem, and we had a legacy problem.

We think we have that pretty well in shape. I think that cost management is part of our D&A now. The issue, really, we started focusing on it in March of last year, it's about revenues and how we're going to grow revenues. So 2004, that's our number one priority.

We will focus on trying to leverage some of our strongest businesses, our leveraged finance business, which is number one in any category. We think we can continue to grow that business. Our private equity business, we believe we can continue to grow. Commercial real estate and our emerging market businesses, we see real opportunities.

If you think back, I think in 1998 or 1997, this firm bought Guarantia, which is the number one franchise in Brazil. We really haven't used it the way we should. We want to invest in it, build in it, we have a real edge there. We're looking across First Boston to see where we can invest and really start creating synergy and revenues.

If you look at us vis-à-vis some of our competitors, they're in a few businesses that we're not in. If you look at the commodities, at the energy trading business, we're not in that business.

My guess is that business in some of our competitors added between $800m and $1.2b in revenues. If you look at prime brokerage, we're still small in prime brokerage. We have a lot to do there. That is a big deal for two or three of our competitors.

Then, in a strong interest rate environment, and until recently a very weak stock market, municipal finance and municipal bond trading in the US is a big business. We're not in those businesses. So we need to figure out, and we're doing it, where we can invest in the business and grow revenues.

We're not happy with our league tables at M&A. If you look at numbers of deals done in 2003, we were number three. If you look at revenues we were number two. If you look at size of transactions, I think we were number seven or eight. Long-term, even though that's a very profitable business for us, we could not afford to be below the top five. So we will focus on that.

With that, let me turn it over to Barbara Yastine.

As Phil mentioned earlier, the changes in Swiss accounting had a meaningful impact when looking at trends at CSFB. The reason for that is that the full year impact, meaning four quarters, with the impact of the accounting changes, was booked in Q4. So if we want to look at comparable trends, I just want to isolate that off to the side. It did affect our revenues, our provision, and obviously pre-tax and after-tax.

Excluding the impact of the accounting changes, the Q4 net operating profit was up 52% versus Q3, to $545m. Net profit was up 26%, to $283m. Our Q4 revenues were also higher, up 6% versus Q3, to $2.6b. Q4 expenses increased 9% versus the prior quarter, due largely to increased compensation, having to do with revenue trends as well as market pay trends moving up a bit in Q4.

We mentioned earlier that we did record a $130m after-tax impairment on intangibles on the Asset Management business. That's being moved over to Private Client services.

We also did have a few disposals, primarily our DLJ on-line direct brokerage operation in Japan. That's recorded in the extraordinary line, in an extraordinary items total of $123m. As John mentioned, there were substantial improvements with margin and ROE.

On operating income, on a full-year basis you'll recall we sold Pershing earlier in 2003. Pershing had contributed approximately $900m in revenue in 2002. The revenue impact of the Swiss GAAP changes for us was about $150m.

Adjusting for those two things, year over year we had a revenue increase of about 2% and, as I mentioned earlier, 6% Q3 to Q4. One of the most gratifying things for us is that we finished the year, Q4, a lot stronger from a revenue perspective than we had in prior years.

On the expenses side, excluding Pershing (which eliminated approximately $650m of expenses), the continuing expenses decreased, as John said, by about $300m year over year.

As we talked about earlier in the year, CSFB extended the vesting period on its annual stock awards, to be more in line with our peers and to help us further on our retention efforts. This required a change in accounting, to recognize the expense on those share awards over the three-year vesting period.

The change also caused us to streamline our plans that we offer on a regular basis, and to make a very conscious decision to focus those deferred plans (by that I mean retention rich plans) on Credit Suisse Group stock.

In 2003 we awarded approximately $700m in stock, in the form of shares. That turned out to be a little more than we had initially expected. The reason for that was that we decided not to issue options this year and we decided not to have any other performance-based plans.

In the past we have had plans tied to the future ROE of Credit Suisse First Boston, and various other plans. This year we decided to focus all of that on Credit Suisse stock, to further crystallize in everyone's mind a one-firm, one-company kind of culture.

All told, the amount awarded in 2003 deferred to future periods, was $873m, which is about flat to the comparable amount in 2002.

Looking ahead to 2004, the question is what kind of drag does this put on your future earnings. In fact, expenses from prior year compensation items are expected to be flat going forward, actually fall a little tiny bit in 2004, move up a little bit, but essentially flat with what we've had in 2003, putting us in a pretty steady state situation.

The reason for that is that the natural build up in expense that would accompany the share plan accounting change is offset by dramatically reduced expenses from some prior year items moving down.

It would really be wrong to adjust the reported expenses solely for the share accounting change, because you'd also have to make some type of pro-forma adjustment for options that were granted in 2002, and that value was not granted in 2003.

What we did do for ourselves was go back and restate 2001, and said regardless of vesting, regardless of future performance, had we expensed in the period awarded all compensation grants to employees, what would that look like? In effect, the trends are the same that you see from 2001. The declines are approximately the same.

For 2003, the comp to net revenue ratio would be meaningfully less than 100 basis points different than the number we're actually reporting. So we're in a fairly steady state environment. As John said, as we look forward, we would hope and expect to have improvements in that ratio, driven by our revenue performance.

We made progress on all key financial indicators last year. Looking at the ratios excluding the accounting changes, the comp to net revenue declined to 51% in 2003, a 1% decline from 2002. The Q4 ratio 51%, it was about 250 basis points higher than the 48.5% we recorded in Q3, and that we had talked to you about earlier in the year.

This equates to roughly $75m in the quarter, which was a function of performance at CSFB, as well as the market for compensation moving up a bit as we closed out the year.

The margins in Q4 are 26%, and the ROE at 27% was clearly our strongest of the year. As we said earlier, the full year ratios still fall short of our long-term expectations.

In Institutional Securities, the reported numbers show a 20% increase Q3 to Q4. Here again, the most meaningful comparison is to isolate out the impact of the accounting changes, which would have us about flat.

We had improvement in credit products, as well as European and US interest rate products. That largely offset seasonal declines in the high-yield business, which (as we said) did remain strong in its category, continuing to rank number one with a 16% market share.

We had mixed results in equity, with revenues down 8% from Q3, but up 14%, very substantially, from a year ago. We had steady improvements in the cash trading business, particularly in Europe and Asia.

This was offset by somewhat lower derivatives activity. We also saw very good year over year performance increases in important products, such as convertibles and prime services.

So fixed income and equities are off to a strong start in 2004, with revenue well ahead of their Q4 2003 levels.

Investment Banking was up 25% from Q3, with good market conditions yielding strong year-end equity capital markets activity. We did participate in several major large transactions during the quarter, including China Life, the Virgin Blue IPO, and the rates offering for ADB.

Going into 2004, our pipeline is up about 20% from where we were in 2003. The number of equity mandates we have on the docket is more than two times the number of transactions we did last year. So the early indicators are feeling pretty good.

Average VaR, Value at Risk, as a measurement of risk, declined versus Q3 but you'll notice there is an increase in the period end VaR, as we increased our exposure to interest rates later in the quarter.

We are positioned to take more risk, have the ability and capital to do so, but will only do so in a disciplined way, when there are good risk return opportunities.

Q4 was the fourth consecutive quarter of revenue increase, at both the Asset Management business and Private Client Services. We had a 10% increase in revenues in Asset Management, on higher assets under management.

Market conditions continue to improve for the Private Client business, with sequential quarterly volume increases during 2003 as well as increased fee-based activities.

Financial Services does reflect a $71m after-tax gain from that disposal of the Japanese direct brokerage business we talked about earlier.

Q4 revenues were up 7% from prior quarters. Expenses were up 9%, due to ongoing restructuring of CSAM's businesses and higher performance-related accruals. I'm pleased to report that net assets rose as CSAM stabilized in the quarter. CSAM's net new assets in Q4 include a negative adjustment of $2b, to true up year to date asset flows for a change in asset reporting.

Excluding this adjustment, CSAM's net new assets were flat in Q4, after seven quarters of net outflows. Third party asset inflows, in fact, were positive at around $1b. PCS also reported a positive net flow of $600m, and the negative trend associated with departing brokers appears to be behind us.

Changes in Asset Management, predominantly to conform with new UK definitions, reduced the Financial Services Division's assets under management by about $23b. There was a further $1.5b associated with the sale of the Japanese brokerage business. Adjusting for these items, underlying assets under management were up 13% for the year. Including these items, assets under management were up 6%.

With that, I'd like to turn it back to Ossy to talk about the outlook.

Thank you Barbara. Now let me close today's presentation, before we go to the Q&A session, with a few summary comments.

I think John and I really think that all of our businesses in the group are now back on track, and well positioned to compete successfully in their respective markets. The client activity in our businesses and the improving economic environment, make us relatively optimistic for the current year.

We are confident that we will make further progress towards achieving leading performances in all our businesses. Having said that, we realize that with the cost-based market conditions, the focus is now on growing revenue in all our businesses.

Our group financial targets are return on equity in the 15% to 20% range, also a strong capital base with a Tier 1 ratio of over 10%. With regard to the dividend, our first priority is to strengthen the group's capital base, and then return to a competitive dividend yield.

With that, I hand over to Phil to conduct the Q&A session.

Thank you Ossy. As before, we'll take questions here in the room in Zurich, and then we'll go to questions from the conference operator.

As a reminder for those participating in the tele-conference, if you wish to register for a question, press '*' and '1' on your telephone, that's '*' and '1'.

Good morning. I have a question to John Mack. I agree fully with you that the return on equity has room to go up. Certainly, if one keeps in mind the nearly $900m share and option expense, which is not recorded in this return on equity.

That is more than half of your profit, that is over 2% of the market capitalization of the group, and probably 5% or more of the market value of Credit Suisse First Boston. I think we really have to look at the compensation ratio.

You mentioned that you are looking at the peers, and you are the only one that increased in Q4 the compensation ratio to beyond the year average level. All other competitors kept back pay in Q4, by decreasing the compensation ratio for Q1, because in the first three quarters they had over-accrued for bonuses.

Basically, this is a move that is at least a 10% compensation ratio differential, where your peers are 10% at least, easily, better in Q4.

I think there must really be much room to improve that. Where do you go there? I think this is a particularly urgent question. You rightly mentioned that in 2004 there are revenue opportunities, but costs are still absolutely unsatisfactory.

I don't think the costs are the issue. The issue now is revenues. To get the ratio more in line with our peers, the way to do that is to get the revenue number up.

I don't think it's a fair comparison to look at the first three quarters, then look in Q4, if they took their ratio way down. In my old firm, part of the strategy was to over-accrue in the first part of the year, then make the difference up, so you have that leeway in Q4.

You can't look at First Boston, unfortunately, I wish you could, on a one-year picture. This is a firm that lost a tremendous amount of money, had a lot of contracts that would burden them and in many ways, eroded the value of the franchise.

So if you go back and you look over a three-year period, of where the cost to revenue number was, if that's what you want to focus on, and look how it has gotten closer and closer to our peer group, I think that's the trend.

Going forward, you will see that continue to be pulled in. The way to get that ratio down, I believe, is not in cutting further costs. I think you've got to be diligent on costs. We have to grow revenues.

Let me ask Barbara to make an additional point on the deferral amount, because I think that your characterization is not correct.

As I said earlier, it is actually wrong to just adjust for the one year. As we said, the deferral amounts are pretty common. All firms have deferrals, simply because of retention. That's why you do it. You really don't want to hand out all your compensation in cash. So we circle back to the issue of revenue.

I would accept your answer more on the cost/income ratio, that Q4's not that relevant, if the over-accrual means that the first quarter brings back the overall year average to an acceptable level. The 52% was increased to 59%, if you take the shares into account, which are really diluted.

If I'm in Credit Suisse, I believe in the upside of the share, then paying with shares is a real and very expensive cost, even more expensive than cash, if I believe in the upside of the share. So that brings the cost/income ratio, adjusted for share and option grants, to 58% or 59%.

Mr. Wimer (ph.), we have a practice of buying back the shares on the market. So our share award program is hedged by cash purchases. We also hedge it pretty closely, so the dilution is not a factor. It's a timing issue with regard to expense recognition. We've got [inaudible].

[Inaudible] as cash, [are not] more expensive. I agree with that. That would still keep the compensation ratio at 58% to 59%.

Let me just mention one thing on that. The analysis that you've just done has taken the value of the awards in 2003 and put it in 2003, and taken expenses for prior year awards and put that in 2003.

As I said earlier, when we've gone back and stripped all that out, and just said let's assume the value is expense in that year, we are back at ratios that are within 1%, actually much less than 1%, of what we're showing now, which I think is what you would want to do.

So you highlight now (and that is very interesting) that you are able and have always been able, in spite of all that was said in the past, that you are not able to show because the accounting standards are still not well defined, that the re-statement shows that there's no deterioration.

The adjustment is not, unfortunately, by bringing the 2003 comp ratio down, you just bring the past comp ratios up. That obviously doesn't help on the 58% adjusted comp ratio.

It is a fact that the last two years were as bad. That's no consolation. There's no deterioration, probably, if the comp ratio of the past has been shown at the right level.

Other firms in our industry all have the same effect. We all defer compensation to improve retention. Everybody in our industry has, every period, there's expense coming in from prior periods and you're pushing expense out to future periods.

What Barbara's saying is that we have reached a steady state here, with the amount of prior period coming in being about equal to what we're deferring into the future.

There are outside research reports out there to try to unscramble that. Yes, if you unscramble it, you double up. You take the expenses from the past, plus the current year expenses, you are going to get a higher comp/revenue ratio. There's no question about that.

The difference is that, for example, one of the most relevant peers, UBS, already has the share expense in the expenses in 2003. UBS has obviously started a bit earlier.

Therefore at least one third of their options and shares granted is already not the full amount. That is right, but at least one third is already in there.

I think this is just a question of how to account for it. The real task is really how to get that down, that ratio.

It is. As I said to you earlier, the way to do that (I think), given what we've done on the cost side, is the revenue growth. It has to be on revenue growth. Again, you've got to look at CSFB over a three or four year period.

I can get the ratio to be the lowest in the industry. I could do that last year. I don't think I'd have any people left, but I could get it done.

We've got to rebuild what has been deteriorated over the last four or five years in this company. If you remember, when I first joined, I said I could be the only CEO who is hoping for a bear market to continue, because that gives me the chance to restructure this business. Having said that, I will tell you it's a lot easier when the markets are bear.

Now, what's beginning to happen, we just gave out our compensation numbers a few weeks ago, and checks in America are, I think, paid out next week. We're already beginning to see a few people being bid away at much higher prices than we were able to pay.

So it is a balancing act. The way to get that ratio down, I've said it four or five times, let's just [let it in] and go to the next question. That's why revenues are so important, that's what Ossy has said, that's why I've said.

One of my key managers came to me in March and said you know, John, I think that there's another $300m in costs that we can get out. I said you know, you're probably right, but to stop the organization, to focus on costs after we've taken so much out, I want to focus on revenues.

We will get those costs out over time. So to get that ratio to change, it's a revenue story now and that's what we're going to focus on.

Let's take another question.

Bernard Charlton (ph.) from New Zurich Bank. I have two questions, if I may, they both relate to the change to US GAAP.

The first is Phil, you said that you were going to expect the Tier 1 ratio to drop. My question is what do your estimates indicate for the drop? Will it be below 10%? Then you can rebuild it back to 10%, as you mentioned your target was?

The second question is if all other things being equal, will the level of revenues or the earnings power, be reduced? What shall we imagine from that change?

On the Tier 1 question, the biggest factor is the loss of the acquired intangibles, which of course many of this audience have been critical of over the years to begin with. The primary factor is already captured in the Tier 1 ratio that we disclosed without the acquired intangibles, which is about a 0.7% drop.

I have to emphasize that even then, you're looking at a Tier 1 ratio of over 11%. The biggest factor for us right now is the low level of risk-weighted assets at CSFB, and in anticipation that those will come up as the year goes on.

In relation to the revenue picture, I don't have a lot to add to the comments that I made earlier. Needless to say, the majority of our competitors are under US GAAP. We've managed the process to have a high degree of continuity, from Swiss GAAP to US GAAP.

The first time we'll see the real results will be the first quarter of next year. We're confident that we're going to produce an appropriate return. We did all of our budget and planning this year under US GAAP, so we go into it with our eyes open.

We've seen the January results, but there are going to be differences. Probably the biggest difference is the one I mentioned, which is increased volatility due to lack of macro hedging and the discipline around hedge accounting.

I have two questions on Winterthur. Firstly, could you give us any comment on the sustainability of that excellent 98% combined ratio in Q4, in the non-life business?

Secondly, on the investment returns, which were very high through 2003, whether that's a sustainable figure?

Finally, on increased credit risk, I note that around 10% of the portfolio is now held in [indiscernible], from 1% 12 months ago. Is that something you guys hedge out, or is that a conscious change in the risk profile of the investment portfolio there? Thanks.

Ossy, do you want to answer this question?

I'll take the investment question first. You can never say a given quarter investment result isn't sustainable and what it does during the future.

I think the question came up during the old calls of last year, in every quarter conference, what happens next quarter. You tell me what the markets are doing and I'll give you a good guess of what the investment income will be.

I think that overall we managed the investment income relatively well, considering that we had very low equity content in our investment portfolio during that time.

The other question on the composition of the investment portfolio, where the Tripe B part went from 1% to 9%, 2002 to 2003. Altogether, the total [equity] part went from 45% to 53%, so we needed to restructure the portfolio in a way to get on average a higher current yield out of that portfolio, without declining the overall weighting of the portfolio too much. So the overall weighting of the portfolio is still (as far as I know) AA-, it was probably AA+ before.

It was a conscious decision, to increase the credit risk structure in the portfolio, mainly during the first half of last year, as we have kept the equity risk in the portfolio very limited. Overall, it was a process of optimizing the overall risk composition of the portfolio.

The combined ratio?

The combined ratio, perhaps if you looked at the overall underwriting result of insurance you have seen that before dividends to policyholders incurred has improved by CHF392m during the course of 2003. You'll see they have improved. Expense ratios, you'll also see they have improved substantially, which is much more important here.

The decline of the claims ratio, which was 1.7 percentage points in 2003, from my point of view mainly reflects three factors. The first factor is an improved pricing, where we would like to go on with that, as we told you.

The second factor is selective underwriting in terms of business. The third one is a more efficient claims management overall. If you take that into account, I think that the target should be below 100% going forward, it's basically a realistic one.

Next question?

I'd just like to ask a question on the trading income on the group level. I see that 100% of the result was made in the first half. In the third quarter we saw a decline, due to reduced risk.

Now, in the fourth quarter, I think the value at risk increased slightly, but the result was unchanged. What can we expect, in terms of trading income in the future, on a sustainable level?

Early on, when we were trying to restructure First Boston, I thought, and one of the best examples I could give is that in 2002 we had this big trade on in Brazil. I asked the question if we were right, how much money could we make on this trade?

The answer was we could make $100m. I said, if we're wrong, how much money can we lose? They said, $300m. I said well, given the state we're in, I don't like that risk reward, so I want you to collapse that position, which they did.

If we had a consistent profitable business, I would take some risks like that. Given the state that First Boston was in, I thought it was imperative that we get our house in order.

After having said that, we've done a lot of reshuffling of our risk managers, we made a number of changes. We started in Q4, putting more money in the market. We continued that in Q1 of this year. First Boston has a history of playing big casino and I'm not a big casino player.

I like to take risks, I want to take risks with customers. I believe that if you see a trend in the market, we have good risk managers, we need to put more money at work. You will see us doing that but you're not going to see us just roll the dice, like this firm has done in the past.

Let me just make a technical addition to that, also.

The line reported as currently trading income is only principal. In fact, if you look at how a number of our investment banking peers actually relate it, they report something called trading related. As we go into 2004, we've decided that that would be helpful, to show people.

You'll notice, certainly for First Boston, and for the group overall, that there was a big decline in trading, the line called trading in the income statement, Q2 to Q3. The biggest portion of that really related to the change in the yield curve and whether or not the revenue generated, predominantly in fixed income, came in the form of interest or came in the form of trading.

As we move to 2004, I think it will help you all understand the underlying picture better, by building up a trading-related number for you, associated with the trading businesses, not just on that principal line.

Is there anything else?

Philippe Peson(ph.) from UBS. I have a question on Credit Suisse First Boston. You have mentioned that the business is, in your opinion, not really well diversified and that they still need to invest in order to improve their diversification.

What is the implied impact of that on the efficiency ratios, going forward? Does that delay your return into industry standard levels?

When I said diversified, I just mentioned two areas, or really three. The commodities business, the municipal business and I mentioned that prime brokerships were growing.

We are in certain businesses that our competitors are either in a small way or not in at all, at least from the pure investment banks. Our emerging markets business is one of those and even though most of our competitors are in a leverage finance business, no one has the same stature in capability that we have.

We think we can really expand that. I think we can do that without having tremendous impact on our efficiency ratios. I am pretty optimistic about that.

Operator, we would like to go ahead and take some calls from the telephone, for those that are on by webcast or telephone.

The first question is from Mr. David Williams, Morgan Stanley. Please go ahead, sir.

Good morning. I have got two questions. The first is on CSFB. A couple of areas of your principal expertise, high yields in emerging markets both in 2003 enjoyed very material narrowing on the credit spreads.

I just wondered if you could indicate just how much of the businesses have been contributing to CSFB and with credit spread seemingly having come to an end pretty soon, that how you see those businesses developing in 2004?

My second question is more generally for the group. You say that you are optimistic on the outlook and yet your dividend at just $0.50 on 4.2 of earnings per share, you got a pay out ratio of 11%.

When we see other banks within the sector and within your real peer group, doing significantly higher dividend increases, I just wonder how you can really reconcile the statement that you are optimistic for the outlook, given your pay out ratio of just 11%. Thank you.

On the dividend question. Ossy and I have been through a real restructuring of our businesses and we felt, this is what we have done in other areas, that we want to take steps in small increments.

I think that the dividend issue is really more what we said and he mentioned and I will mention it again, that over time we want to be competitive in our pay out vis-à-vis our peer group. That is where we are going to go.

I don't think that you need to do that - we have just gone from losing CHF3b, to making CHF5b, I don't think we have to show how our optimism is by taking our dividend in one fell step up to where our competitors are. So that is my answer to that.

On your credit question in emerging markets, I didn't hear it all, but tell me if this is where you are going. Given that the credit spread has tightened and has really had a tremendous impact in emerging markets and we were able to benefit from that. Going forward, will we still be able to benefit, even though those spreads are very tight? Is that your question?

Yes. That sums it up.

What happens in the emerging markets when you have spreads that tighten like this and markets are stable, you get other opportunities. They are going to be M&A and equity opportunities and refinancing in the emerging markets, which I think will benefit us and we are well positioned to take advantage of that.

In the high yield area, I think the same thing is going to happen. It is very interesting.

When you go back over the last twelve months in 2003 and talk to my high yield Group and we were talking about less increased revenues, I actually went down and sat on their trading floor for six weeks with them, to get a better understanding.

They are getting more and more opportunities to finance through the levels of activity in M&A. You see the private equity buyers are very active in here. We are the premier firm when it comes to arranging bridges and doing financing, so I am optimistic that we will have a good year in the high yield business also.

Also on the leverage lending side, I think we have the experience and capabilities that we can invest in and expand our business. So it is a lot more than just credit tightening.

It is clear that there is nothing like being long in a non-investment grade product and all of a sudden the credit markets spread slightly and you happen to be long. That makes it pretty easy. I think we have to be a little bit more creative, but we are pretty positive on what we can do in 2004.

Thank you.

We now have a question from Mr. Jacques Henri-Colare(ph.).

Good morning. I have questions about the US GAAP effectively. Is the bank now managed under US GAAP and what are the risks of the Deutsche Bank quarterly surprise whereby the application of Rule 150 leads to a €2.9b write off against the equity?

The second question is still on the same accounting issues on restatements. We had about 12 or 13 restatements to the accounts today, which I thought created a bit of confusion and the question is what would be the impact of it on the January numbers? Can you give a qualitative comment on that? Thank you.

Jacques, we don't have a FAS 150 issue because we hedge our share-

I know. It was just an example. It is just a quarterly surprise linked to the US GAAP change.

The US GAAP is a different world. As you know, most of our competitors, or many of our competitors use it, so it is not as if we are the only people out there.

We have done a lot of work throughout the Group over a two year period to try to identify where our ineffectiveness with our hedge positions are, qualify those, turn them back to the business managers and make sure that they understand what the ineffectiveness risks they are running are and they have made a number of structural changes over the two years to bring that down.

I am not going to represent that we have got this perfect, but I don't know, even the companies that have been on it for the whole of their lives don't necessarily have it perfect. We have spent a lot of time and energy on it and if we do it right, we will be falling into the peer group of other US GAAP reporters.

We only had one accounting change in this quarter - I think you mentioned 15. I am only aware of 1. There are a couple of other factors in there. There is no question that our financials, because of history and the changes in segments etcetera, are complicated.

They are more complicated than they probably should be, and one of the advantages that all of us are looking forward to is the change to US GAAP gives us a chance to bypass a lot of the quirks in our reporting and go to a standard nationally recognized format. So we are all very much looking forward to the new formats and disclosures that will start in the first quarter of this year.

I hope so. Thank you.

The next question is from Mr. Jeremy Sigi, Citigroup London.

Thank you. Could I ask two questions please? First of all could you talk some more about the private banking margin trend? You referred to seasonality which we don't seem to have seen in previous years. I just wondered if you could talk through that a little bit more and the extent to which you expect that to rebound in the first quarter.

Secondly, could you talk some more as well about the disappointing results in your Equities unit? You have given a couple of reasons for that. Again, could you comment on the extent to which that rebounds in the first quarter?

Yes, in Private Banking, as I hinted, that was not our best quarter measured on what we could have done there, but certainly this year the trading days were less in Private Banking because the holiday season started and markets closed down very early. We did have lower product sales and lower commission income. We did have some impact from the US dollar in Q4 which was slightly more than we had in the previous quarters, but it is not better that the outcome was certainly not satisfactory for us.

It was a lapse, so to speak and I think it is very difficult to tell you now it would be different if we prove it to you and I think that when we have the first quarter results you will hopefully see that changed again. Over the year our margins are obviously holding up are still above 120 basis points.

Are there reasons to fear a structural effect here? In the past you have had higher margins than peers, is there a reason to fear a structural downward adjustment towards their levels?

No. That is not the case. There is more probably the effect that it is the competition for net new assets in the market generally which brings net new assets in at the beginning at a very low level of profitability which takes some time then to get these levels near the normal standard.

What is very evident and I think we more or less acknowledge in that market in Private Banking is that it is focusing much more on performance. The clients are focusing much more on performance and the companies in that market have to bring the client investment performance if they want to go on being profitable. But as long as you bring the performance, it is also clear the margin is not a problem.

On the Equity side, just two things. Clearly in the fourth quarter you had a little more volatility, I think, spread especially cash markets for all the firms, not just ours.

I think part of our results - we did have one particular risk hard position which did not work out well for us which was reflected in the fourth quarter. We can already see a good pick up in our Equity business in Q1 2004. So we are optimistic that that will be a much better quarter than what we had in 2003.

Thank you.

We now have a question from Mr. Mark Hogey (ph.), Lehman Brothers.

Yes. Two questions, if I could. Firstly on slide 14, the US GAAP conversion topic. I am just a little bit surprised because after you take out the Q3 elements that you obviously have already indicated, there seems to be quite a sharp drop in the balance. Can we eyeball that and take a view on the magnitude of the fall offs under US GAAP, or would that be incorrect?

The message that I wanted to give you is that there are two structural impacts that are very clear and we have indicated those and there are a long list of other factors and the net effect of those on the residual CHF2b we expect to be negative at the moment. We are not going to go into any more detail on that at this time.

Okay, fine. So you cannot give us a flavor of the magnitude for the moment?

We are not talking about moving the result to a loss, by any means, but what I can tell you that the net impact of all these other factors. If you go back and look at our past 20Fs you will see that these add up to a negative and so we were just hinting in that direction.

Thank you. Then my second question is regarding announced M&A in year to date. Where do you rank in announced M&A?

Given that this is about three very large deals, I would say we don't rank very high, but I don't know where that is.

We have a good backlog of deals, but if you did it on a total amount in billions, we would probably be in our same position. I think that there have been three deals announced in excess of CHF50b. We are not involved with them.

Are you involved in the Comcast new deal?

As of this morning, no.

Thank you.

The next question comes from Mr. Vasco Moreno, Fox-Pitt Kelton. Please go ahead.

Good morning. Three questions for John and then one question for both John and Ossy.

The first question is on the pipeline in Investment Banking. What are you seeing there?

The second question is in terms of the Investment Banking capacity. You mentioned basically that you have cut significantly over the past couple of years.

My question is are you now reaching levels of capacity or are you thinking again of potentially hiring in some areas? Or, as you said, maybe the salary issues in terms of compensation for some of your employees probably mean negative cost trends going forward, rather than positive?

The third question for you as well is on the risk appetites. This was asked before, but my question is more on the move in risk appetite from the first half of 2003 against the second half of 2003.

Given that some of your competitors are increasing their risk appetite for 2004, could you basically give us some flavor as to where you stand again, versus where you were in the first half of 2003?

The last question for both of you is on consolidation. Obviously there is a lot going on in the US in particular. Do you see a need for further consolidation, both within the retail market in Europe as well as the investment banking market globally?

On pipeline in IBD, I think Barbara mentioned it. On the Equity side, our pipeline is larger already in Q1 or in 2004 than we actually completed in 2003. There are a lot of enquiries that we are seeing around the world, especially in the United States.

You have gone through a bear market, you have gone through and are going through corporate scandals. You had Sarbanes-Oxley and the regulators are being very specific and also very analytical in all the business practices.

So what you had is Boards reacting to Sarbanes-Oxley, let's start there first.

I think they are more comfortable with it. I think they have put in place what they need to comply with it and now they are saying 'it's time to start running our businesses and being strategic'. They are seeing the markets pick up. They are seeing the economy pick up and they are saying that they need to execute their long-term strategic plan.

As a result you are seeing a pick up in M&A, you are seeing a pick up in Equity issuance and I think that has really increased the pipeline for the entire industry.

On IBD capacity, I think we are really pushing the edges as the business has picked up. We have been hiring senior people throughout the year. If you go back six months ago, seven months ago, we have hired three or four managing directors who have come from some of our competitors and just recently, we have hired three or four people. Not just in Investment Banking but in the Capital Markets area and Investment Banking in the US and in Europe.

So if this business level stays at the level it is at, we are going to be straining and I think that one of the areas that we are constrained is really on the junior people - the analysts and the young associates and with new classes coming on in May, hopefully we will be able to add more people without taking our costs up dramatically.

On risk, first half versus second half, in the first half our fixed income group had a very clear view of the market move and was positioned as such. They reduced that position in the second half and took up a little bit more of a defensive position, even though they were net long interest rate and also in the credit products.

We also had a little hiccup in our mortgage business, which I think was reported on, so clearly that hurt us. But as you go into the last quarter and especially into last month, you have seen our results pick up on our value at risk and clearly in the first quarter of 2004 we have continued that position.

Consolidation, both Ossy and I have focused on. We need to get this ship right. We have got the stock price up. We have a better currency. We are optimistic as we have said and I think that both Ossy and I believe that this is the right opportunity to strengthen our business on a global basis. We will do that.

I think that, as far as I am concerned, large consolidation right now is probably not the right thing for us. I think consolidation over a long period of time will happen, but we are looking now much more strategically than we have in the past. We don't think that we have been afforded that opportunity in the past. We have it now. We want to do what helps this company and helps shareholder value.

We still think our stock price is too low, just because of your hint.

Thank you.

We have a question from Miss Fiona Swaffield, Execution. Please go ahead.

Hi. Just a couple of questions, firstly on the slide on US GAAP. I just wanted to double check. You mentioned this list of other differences, but some of those are non-cash items, aren't they? I think you mentioned tax and that may be related to the charges from goodwill. Could you just talk about that?

The second issue is Winterthur. I don't know if I have missed it, but I couldn't see much mention of solvency and whether you were happy with the capital but also whether you think there are some things that you could do at Winterthur?

Some other insurance companies have been doing things such as IPOing in some parts of their business and I just wondered whether that was an option that you have looked at?

You are absolutely right. In these adjustments there are some non-cash items or in the case of goodwill amortization eliminating a non-cash item. So it depends upon the adjustment. The primary factor in the taxation line is the tax adjustment on the other adjustments, so yes, it is a mixture of cash and non-cash.

So if we were to look at the cash profit, it may not be that different?

That's correct. I mean, theoretically the economic profit is identical, but it is captured in different timing and in different ways between Swiss GAAP which is a more common sense concept based approach and US GAAP which is a very specific rule based approach that tends to be slower on revenue recognition and obviously would be much tougher on the use of hedging.

However, there is no question that economically you are doing the same thing and that is the point that I made earlier. If you look at what really drives our business, what really puts the share price where it is supposed to go, are not materially different between the two.

Once you make it through the transition and get everybody educated and going in the right direction, it really does come down to a handful of items.

As related to Winterthur, the solvency calculations get done later in the process. They are not ready yet. We will disclose them, probably the first quarter's earnings results as we have done in the past, but we don't see any issues there. I thought I heard the age-old question about strategy with regard to Winterthur. Ossy?

We have no intention at the present to IPO Winterthur and we also don't think there is an IPO market for insurance companies at the moment.

I was just interested given what Fortis did recently, but okay. Thank you.

The next question is from Mr. Jorg Vanders, West LB. Please go ahead, sir.

I have a question on slide 46. You outlined the margins in Private Banking and especially the asset-based margin came down by 5% roughly in Q4. You mentioned that you had a high margin on the performance.

Have I the right suspicion that there are some paybacks or adjustment to this asset based fees when the performance is not right? Because this asset based margin proved to be quite stable in the past?

The second is just a question on a number. In the Investment Banking Division there was a sharp increase in other income. Is there a special item? This was from CHF67m to CHF252m. This is a level never achieved in the past 8 quarters.

With respect to the slide you mentioned, 46, I have a couple of comments. The first comment is that if you look at the increase in issuing fees, that is driven clearly by some shifts from investment bonds with longer duration into such bonds with shorter duration. This is also one reason for the lower commissions on assets. That is the first point.

The second point, in addition to that as Ossy Grubel mentioned, the lower US dollar clearly impacted our commissions on assets.

The third point is that the balance sheet income, as you all know, is not linked to the assets on the management, therefore with the higher assets on the management basis, the margin goes down.

I think that these are the main three points which you can add here, which you see in that slide, but as we said going forward, our goal is clearly to keep the margin overall at the level of 420 basis points.

Yes and the asset based margin of the [indiscernible] is for the year still, but the other factor in there as well is the competition in the market where banks are chasing net new assets at very low prices.

In Investment Banking the two big drivers of the increase in other are corporate derivatives, where our bank obviously provides derivative solutions for corporate clients. The second one is the private funds area.

We are leading ways, if you will, funds for people seeking venture capital, seeking investors in mortgage funds, for instance. It is a very good business for us. It is a fee driven business, one we do very well and it has had a very strong fourth quarter.

Thank you.

We will take one more question and then we have to move on to our press conference at 11 a.m.

The last question is from Kinner Lakhani, ABN Amro. Please go ahead.

Most of my questions have been answered. I just had one question left on Life and Pensions. Given the change in the regulatory environment in Switzerland as of January 1 of this year, do you anticipate any kind of impact on the earnings stream going forward? Could you quantify that?

I think we already said last year that the change in the [indiscernible] rate has an impact of approximately CHF200m.

Is that pre-tax, or post tax?

Pre-tax.

Okay. I would like to thank everybody for attending and look forward to speaking with you all on May 5.

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