Credit Suisse Group AG (CS) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen. I would like to welcome the audience here in Zurich, and the viewers of our live webcast, to our quarterly and annual result conference here. I'll make a brief introduction and then I'll give over to Renato Fassbind, who will present you the details. We will then be happy to answer any questions. In order to help us to do this, we also have our colleagues from the Group Executive Board here with us on the platform. You know the 3 CEOs who run the business, but [they do do all their best to run] efficient. And we also have Urs Rohner, who runs the Corporate Center and is the General Counsel for the Group.

I would now like to refer you to the disclaimer on page 2 of our results presentation.

Ladies and gentlemen, we believe that we have delivered good results, both for the fourth quarter and for the full year in 2004. Our business responded well to the changing market conditions and the work -- generally we worked hard to capture opportunities and produce solid revenues.

As a result, we've generated net income of CHF5.6b for the full year 2004 and CHF959m for the fourth quarter. Our earnings per share were CHF4.80 for the full year and CHF0.82 for the fourth quarter. Our return on equity was 15.9% for the full year and our Tier 1 ratio at the end of 2004 was 12.3%, which obviously represents one of the best capitalized banks in the world. That also explains why our return on equity is not higher.

You should be aware that the fourth quarter result includes a number of items. The increase in the provisions related to the sale of Winterthur International in 2001, amounting to CHF242m, and also the disposal of a minority holding of CHF148m, and severance costs at Credit Suisse First Boston amounting to CHF112m. All of these numbers are after tax.

As ever, 2004 was a year of change in our market environment. We saw positive market sentiment in the first half, which reflected better conditions in the equity and fixed income markets. The second half, market conditions became less clear. This led to lower volumes and historically low volatility. In addition, the markets were affected by rising short-term interest rates, a weakening U.S. dollar, and higher commodity prices. After the U.S. presidential election, markets regained some of the momentum but volatility remained at historically very low levels.

Overall, our 2004 results represented a significant improvement over 2003. However, they also highlighted some areas where we need to improve. The strategic plan that we announced in December was designed to address these issues and drive future growth.

These strong results also meant that we have been able to further strengthen the Group's capital base. This will enable us to fund our growth strategy and to return capital to our shareholders.

The Board of Directors will propose a dividend of CHF1.50 per share but also, additionally, the Board will seek authorization from the annual shareholder meeting for a 2-year share repurchase program of up to CHF6b.

I would now like to focus on some of the highlights of 2004. First, let us look at the Private Banking. This business performed well in the fourth quarter and this helped to drive the strong full-year result. Private Banking's annual result was mainly due to strong asset-driven revenue generation and efficiency improvements. We also succeeded in growing revenues in the fourth quarter - not everybody was able to do that.

In 2004 we not only reduced costs and enhanced efficiency, but we also invested in growth by expanding our presence in key markets. We achieved 5.2% net new asset growth, which took the total net new assets to CHF26.4b. That is reflecting inflows from all regions.

In Corporate & Retail Banking we reported a good result in the fourth quarter, which helped it to produce a record performance for the year. These results benefited in particular from an increase in commission and the income from efficiency improvements and a low level of net credit provisions.

Looking now at Institutional Securities in the fourth quarter, this segment showed lower revenues in investment banking but a strong performance in fixed income trading and also in equities trading. The full year results were an improvement on 2003, driven by higher trading results, gains in investments, lower provisions for credit and lower tax expenses.

In Wealth & Asset Management we saw an improved performance in the fourth quarter, due mainly to increased revenues in the Alternative Capital Division. In addition, the full year result benefited from increased private equity investment-related gains, as we mentioned in the previous quarters.

Compared to last year, we saw a significant improvement in this business.

Winterthur, I think we can say, recorded a solid result for 2004. Both insurance segments showed improved underwriting results. These were driven by cost containment and efficiency improvement and stable investment income, due to lower levels of realized losses. Despite being negatively impacted by provisions relating to the disposal of Winterthur International in 2001, these results show that Winterthur is making continued progress towards sustained profitability.

Ladies and gentlemen, overall the results show that we are capable of delivering strong performance from a broad-based business. We have real potential to leverage our resources more effectively as an integrated Group. This will have the effect of strengthening our market presence, driving cost and revenue synergies, and helping improve the consistency and quality of our earnings.

As you know, we presented our new strategic plan in December. The plan has 2 objectives. We will integrate our banking units to create 3 distinct business lines - Private Client Services, Corporate and Investment Banking and Asset Management. These changes will be implemented over the next 2 years, as we told you previously. The aim is to better address client needs in a rapidly changing market environment. As a result, we will be able to realize growth opportunities and to improve returns to our shareholders.

The second part of the plan is designed to deliver growth in each of our business segments. In the first step, we are currently focusing on the merger of the 2 legal bank entities in Switzerland, which is scheduled for the second quarter. This merger is a step in the integration of the operation of our banking units. Please be aware that the legal status of our U.S., U.K. and other broker dealers will not be affected by these changes and there will be no significant impact on clients' activities -- clients' banking activities.

At the same time as driving forward this merger, we are making progress on various other fronts. In Asia Pacific we have created a management council to promote cooperation across the 2 existing business units. In Europe, Investment Banking and Private Banking are coordinating their activities in order to capture and grow selling opportunities. And we are already seeing the fruits of -- the first fruits of this enhanced collaboration.

I am delighted to be able to tell you that Richard Thornburgh - as you know he's a member of the Group Executive Board and a former CFO of the Credit Suisse Group - has agreed to take the role of leading the integration of the 2 banking units. And he will do that for the time being in addition to his current responsibilities.

Over the next few weeks, Richard will be assembling a team to drive forward these efforts. We will provide you with further information then in the coming quarters on how we've focused on the merger of the banking units and the resulting activities out of this.

I will sum up at the end of the session but I would now like to hand over to Renato Fassbind, our CFO, to give you more details.

Thank you Ossy, and a warm welcome also from my side out of the cold Zurich town today. Let's begin by looking at slide 6, which summarizes how well we performed in 2004 compared to our medium-term targets.

Starting with Private Banking. We exceeded our medium-term targets for 2 of our 3 key performance indicators. First, our gross margin stood at 134 basis points, clearly reaching our target of 130 basis points. This was supported by a strong performance in the first half of 2004.

Second, we reported CHF26.4b in net new asset inflows in Private Banking for the full year. This represents a growth rate of 5.2% and once again reaching our medium-term goal of over 5%. Moreover, this good result reflects double-digit growth in Asia and onshore Europe.

Finally, our cost/income ratio in Private Banking improved to 58%, which is not yet at our target level. This is partly due to the ongoing investments in the international expansion of our global franchise.

Let's now turn to Corporate & Retail Banking, where we achieved a revenue growth of 2% compared to 2003. I would like to point out here that this comparison is negatively impacted as 2003 included a large positive effect from the changes in the fair value of interest rate derivatives used for risk management purposes and do not qualify for hedge accounting.

Our underlying revenue growth in Corporate & Retail Banking was up 7%, driven mainly by higher commission and fee income.

Moving on to CSFB. Despite noticeable improvements at CSFB, some performance gaps are still visible. For example, its pre-tax margin of 15% and its return on equity of 16% are below its medium-term targets of 20%. We have already begun implementing the strategy announced at our Investor Day, with the aim of closing the performance gap.

If we turn to our insurance business, I am pleased to confirm that Winterthur made strong progress towards its medium-term goals in 2004. Its return on shareholders' equity was 9.1%, including the provision for the sale of Winterthur International, which affected the ratio negatively by 2.8 percentage points. What's more, efficiency improvements brought the combined ratio at non-life to below 100% for the first time in many years, while the expense ratio at Life & Pensions was 9.1%.

On a consolidated Group level, the return on equity was 15.9%. Our goal is to improve the ratio by growing net income while efficiently managing our capital.

Let us now go into the performance review of the individual businesses in more depth. With net income of CHF616m, the segment's performance -- the Private Banking segment's performance was practically unchanged compared to the fourth quarter of 2003, and 21% higher than in the third quarter of 2004. This increase was due mainly to higher transaction-driven income, which reflected a slight recovery in client activity. Please allow me to remind you that net income in the fourth quarter of last year benefited from a disposal gain of CHF81m after tax.

Moving to the next slide. For the full year 2004, Private Banking posted net revenues up 10% compared to 2003. This improvement was driven by higher commission income, which reflected increases in both transaction-driven and asset-driven fees. Compared to the previous quarter, revenues were up 4%, due mainly to higher transaction-driven income, reflecting a slight recovery in client activity.

Total operating expenses decreased by 8% compared to the fourth quarter of 2003. This is due to further efficiency improvements and generally lower performance-related compensation accruals. Compensation costs in the fourth quarter of 2004 reflect a reversal of bonus accruals of CHF38m, due to the introduction of 5-year vesting on share-based compensation for parts of our workforce.

For the full year, operating expenses increased slightly, by 3%, reflecting higher commission expenses related to increased commission income and a rise in performance-related compensation, in line with better results.

Private Banking's full year cost/income ratio was down 3.8 percentage points from 2003.

Let's now take a look at gross margin development at Private Banking on slide number 9. Private Banking's full year gross margin of 134 basis points is virtually unchanged from the level in 2003. This also reflects an increase in the asset-driven component of the margin, driven by higher interest-related income, reflecting higher volumes as well as higher margins. In addition, Private Banking recorded higher portfolio and other management fees.

We will now move on to net new assets on slide 10. Private Banking reported net new assets of CHF26.4b for 2004. This represents an annual growth rate of 5.2%. In the fourth quarter of 2004, net new assets at Private Banking totaled CHF3.9b, as it continued to experience healthy inflows in Asia and onshore Europe. At the same time, we also continued to record a negative impact from matured structured investment products, as they're replaced by shorter-term products which do not qualify as additional assets under management, although this was on a lower scale than in the third quarter.

Assets under management stood at CHF539b at the end of 2004, up CHF28b or 5.4% from the end of 2003. Compared to the end of the third quarter of 2004, assets under management were down by CHF5b. Here our net new asset inflows and the positive impact, higher equity and bond markets, were more than offset by foreign exchange impact, especially as a result of the weakening of the U.S. dollar.

Now over to Corporate & Retail Banking on slide 11. Corporate & Retail Banking recorded strong net income of CHF901m in 2004, and improved both its cost/income ratio and return on average allocated capital. This enhanced profitability is attributable to solid revenues, efficiency improvements, and a low level of credit provisions. Corporate & Retail Banking further strengthened its client focus, primarily by reallocating resources to client segments identified as having greater potential, as well as by improving service and product quality.

If you look at the residential mortgages in Switzerland, which is a key area of business for Corporate & Retail Banking, we see that low interest rates created an attractive environment in 2004. This paved the way for a 9% rise in mortgage volumes at Corporate & Retail Banking last year, which is significantly above market growth levels and reflects an increase in market share.

In addition, retail clients were offered access to structured investment products that have been primarily targeted at our Private Banking clientele in the past.

Let's now look at the segment's revenues on slide 12. As you can see, net revenues for 2004 were virtually flat compared to 2003, with strong commission income partially offset by the impact of the changes in the fair value of interest derivatives shown at the top of the chart. Corporate & Retail Banking's fourth quarter operating expenses were down 14% compared to the corresponding period of 2003. This is mainly due to continued efficiency improvements, as well as generally lower incentive-related compensation accruals. In addition, compensation costs reflect the CHF19m benefit from the reversal of bonus accruals already mentioned with Private Banking's results.

Operating expenses for the full year 2004 were down 5%. Here, higher performance-related compensation accruals, in line with higher net income, were more than offset by cost containment and efficiency improvements.

Finally, the segment's cost/income ratio showed an improvement of 4.1 percentage points compared to 2003.

Let's now look at slide 13, which brings us to CSFB's segment. At Institutional Securities, fourth quarter 2004 net income was CHF269m. As the business is managed on a U.S. dollar basis, the weakening of the dollar against the Swiss franc affected the segment's results. In particular, revenues were down 6% when measured in Swiss francs, while in U.S. dollar terms, revenues were down only 1%.

The fourth quarter result was positively impacted by lower credit provisions and lower tax expenses, and negatively impacted by severance costs. As a result of a continued favorable credit environment and a significant recovery related to the sale of an impaired loan, provision for credit losses amounted to a recovery of CHF118m during the fourth quarter of 2004. Net income for the full year increased by 47%, reflecting higher trading results, lower credit provisions, and lower taxes.

Let's now look at revenues, starting with the trading results on slide 14. Fixed income trading generated revenues of CHF1.3b, a decrease of 5% from the previous quarter. Compared to the strong third quarter of 2004, fixed income trading declined by 5%. This was primarily due to declines in mortgage-backed securities and emerging markets results, and partially offset by improved results in interest rate products and proprietary trading.

Moving to slide 15. Equity trading, as shown on slide 15, increased 19% from the previous quarter, due to a strong performance in the U.S. cash business as a result of improved investor confidence producing higher transaction volumes and customer activity. Equity proprietary trading activities had a very strong quarter as volatility increased and equity market trends became more apparent as the result of improved market confidence. In addition, prime services continued to show steady growth in balances as well as client mandates.

Now on to investment banking revenues on slide 16. Compared to the previous quarter, we saw a 32% decrease in debt underwriting revenues. The declines were most notable in residential mortgage-backed securities, which had an exceptionally strong third quarter. Results in leveraged finance declined, as well as our financial sponsor activity, it was lower than in the strong third quarter of 2004. For the full year 2004, debt underwriting increased by 7%, driven by strength in the leverage finance business.

CSFB was ranked second in global high yield new issuances for the full year 2004 and third in global investment grade new issuances.

Equity underwriting revenues increased 75% compared to the previous quarters as equity market conditions improved considerably, reflecting an industry-wide increase in the volume of new issuances. CSFB maintained its number 3 position in global IPOs in 2004.

However, fourth quarter 2004 advisory fees declined considerably, as the previous quarter and the same quarter last year included sizeable fees on large transactions. Full year 2004 advisory fees were 18% lower than 2003. This year-on-year decrease reflects a decline in our global M&A market share based on volume, and CSFB dropped from number 7 for the full year 2003 to number 11 for the full year 2004. However, CSFB was ranked sixth in terms of fee revenue market share, highlighting its focus on higher margin middle market advisory services.

This concludes the revenue discussion. Let's now move on to the expenses on slide 17. Total fourth quarter operating expenses were 7% higher than in the fourth quarter of 2003 as compensation expenses increased, reflecting higher headcount, increased salaries and severance costs of CHF68m. Other expenses increased slightly in the quarter, reflecting higher professional fees and travel and entertainment costs, offset by lower provision expenses. Full year 2004 operating expenses increased 9% from 2003, and this was primarily a result of higher incentive compensation costs, severance costs, and higher salaries, mainly reflecting increased headcount.

Now over to the Wealth & Asset Management segment, starting with slide 18. Wealth & Asset Management reported net income of CHF63m for the fourth quarter of 2004. Compared to the previous quarter, net income increased primarily due to higher revenues in the Alternative Capital Division, partially offset by severance costs of CHF88m associated with the announced changes in the structure of the Alternative Capital Division.

Full year 2004 net income increased significantly to CHF530m. This rise was mainly due to the high -- to higher -- sorry, to high levels of private equity-related gains and an impairment charge, which was included in the 2003 results.

Let's move on to slide 19, which shows us the segment's revenues by division. Net revenues excluding minority interests decreased by 19% compared to the same quarter last year, which included CHF134m gain from the sale of a 50% stake in a Japanese online broker. Compared to the previous quarter, net revenues increased by 22%, mainly due to improved results in the private funds businesses, which were partially offset by lower private equity gains.

Before I proceed, I would like to make some general comments about the volatility we experienced from investment-related revenues. In Wealth & Asset Management we are a global leader in private equity. We manage over $18b in third party money in this business - other people's money. We have a broad and diversified portfolio of private equity franchises, which produce very steady annual fee income of around $200m per year, which more than covers its expenses. On top of that, we periodically record gains on the portfolio company. We expect this to be a relatively reliable contributor over time, but in any gains -- but in any 1 quarter the gains number may be lumpy. But this should not be considered non-recurring, as it is an integral part of our business model.

Now on to the slide 20, with details of net new asset development at Wealth & Asset Management. The segment reported a net asset outflow of CHF200m during the fourth quarter as outflows of CHF3.2b in CSAM, primarily due to the loss of 2 large accounts, were mostly offset by seasonal corporate cash inflows - CHF1.9b in PCS and inflows of CHF1.1b in the Alternative Capital Division.

Assets under management at the end of 2004 totaled CHF482b. This represented a very slight decline compared to the end of the third quarter. Here, net new asset outflows and the negative impact of foreign currency exchange rate movements were largely offset by the impact of strong equity market performance. For the full year of 2004, the segment reported the net new asset inflow of CHF2.6b and assets under management of CHF480b, up CHF7.9b versus year-end 2003.

This completes the review of CSFB's results. Now over to Winterthur, starting on slide 21. In 2004 Life & Pensions reported net income of CHF522m compared to net loss in the previous year. The segment's result in 2004 was primarily driven by cost containment, efficiency improvement and stable investment income.

Let's move to slide number 22. Life & Pensions saw its total business volume increase slightly compared to 2003. Growth in 2004 was driven primarily by a 28% increase in deposit business, which included 36% growth in its unit-linked businesses. This reflects the ongoing strategy of increasing the focus on less capital-intensive products. In 2004, Life & Pensions reported a decrease in gross premiums written of 10%. The Swiss Group Life business was the main driver behind this decrease.

Insurance underwriting and acquisition expenses in 2004 decreased by 27%, benefiting from a lower level of charges related to deferred acquisition costs and present value of future profits. Additionally, administration expenses declined by CHF50m, reflecting cost savings in almost all market units. The expense ratio improved by 1.7 percentage points, down to 9.1%.

Now on to slide 23. In 2004 the investment return amounted to 4.8%, representing a slight increase from last year. Net current investment return decreased slightly to 3.8% and net realized gains increased by 0.3 percentage points, reflecting lower realized losses on equity investments, as seen on the right hand side.

Now let me move to the -- over to the Non-Life segment, starting with slide 24. In 2004, Non-Life reported a net income of CHF206m compared to a net loss last year. This increase was primarily driven by continuous cost containment, an improved underwriting result and higher investment income, which were partially offset by a charge of CHF242m after tax, related to the sale of Winterthur International back in 2001.

Let's move to slide number 25. For the full year 2004, Non-Life saw net premiums earned increase by 3%. This growth primarily reflects tariff increases across most markets and the consolidation of the non-mandatory part of Swiss health business since the third quarter of 2003. The segment's combined ratio improved to 99.7%, with the fourth quarter combined ratio improving further to 99.4%. A decrease of the claims ratio was recorded despite hailstorms in Europe and accident claims in the Swiss portfolio related to the tsunami catastrophe in South Asia, and it reflects improved claims management in several countries.

The expense ratio decreased as operating expenses have been reduced despite a premium growth. What's more, administration expenses decreased by 4% over the same period, reflecting further cost savings.

And let's now finally take a look at slide 26, the last one on this segment. Non-Life generated a total investment return of 4.5% for 2004, compared to 4.1% last year. Its net current investment return stood at 3.5% versus 3.6%. And finally, net realized gains increased to 1%, reflecting lower losses in equity securities.

This concludes the presentation of the segment results. I would like to continue with a discussion of the Group's capital position. There was a further increase in the Group's consolidated Tier 1 capital ratio to 12.3% in 2004, representing the highest within our peer group. This increase was attributable to continued earnings generation, combined with a decrease in risk-weighted assets for U.S. dollar-based balance sheet and market risk exposures.

Let me take this opportunity to make some quick comments about Winterthur's equity, in addition to the information on this slide. Thanks to its solid operating performance and continued strong investment margins, Winterthur maintained its capital position in the fourth quarter of 2004. This was in spite of the additional provision related to the sale of Winterthur International, back in 2001. Winterthur's shareholder equity stood at CHF8.2b at year-end 2004, unchanged from the end of the previous quarter, and that's CHF476m from the end of 2003.

Let's now look at slide 28, which will provide you with some background information on the announcement of the share repurchase program. We announced in December that we might explore the possibility of launching a share repurchase program and we have since further analyzed our capital position with regard to this issue. As the Group has returned to its full capital strength and has also delivered a sound operational performance, the Board of Directors has decided to launch a share repurchase program in the amount of up to CHF6b. At current share price levels, it would be equivalent to approximately 10% of the Group's share capital.

In this context, I would like to reiterate our Tier 1 target of over 10%, which already includes the currently estimated impact from the introduction of Basel II. The repurchase program will commence after the Annual General Meeting on April 29 and will last for a maximum of 2 years. The registered shares, repurchased via a second trading line on virt-x, will subsequently be cancelled. As previously indicated, the Board will also propose a dividend of CHF1.50 per share for the financial year 2004. Both items remain subject, of course, to approval by shareholders at the Annual General Meeting on April 29.

And with that I would like to hand back over to Ossy, who will conclude the presentation with the outlook. Thank you.

Thank you very much, Renato. Now, before I go over the outlook, and the outlook we have in written form there for regulatory reasons, and the outlook is as it is written. Though you probably will argue it's another masterpiece going forward, but these things in future probably won't be.

Now let me quickly look back at what we have here, and this year we have produced for the first time a normal year, let's put it that way, for quite some time at least. And if you look back where we've come from in 2002, and you look at the different segments where we market performed, or outperformed the market. But we also told you that in some segments, we know our gaps, we are aware of our gaps, we know where we have to improve. We told you that a year ago as well, that we want to do that. And looking at all that, and putting it together, I think that is quite a reasonably good performance.

And I also would like to thank our employees, and obviously we couldn't do that without the enthusiasm of our employees. Going forward and [indiscernible] that is a major thing, but also generates a lot of enthusiasm with our employees and I think on -- be it in Credit Suisse First Boston, or be it in Credit Suisse, or even be it in Winterthur, I sense that the employees we have today, they're determined to perform better. There is a good connection with the management, and I would like to point out again I'm very happy being in the position I am today, with having a management who knows what it's doing.

Now we'll go over to questions. We will --

[OPERATOR INSTRUCTIONS].

Before we go into questions, I think it would be helpful to answer 1 thing, namely - there are a lot of things that's been written about in the last few days, that is the Winterthur XL position. And therefore I will ask Urs Rohner to give you as many details about that as possible, and to clarify the position because it came a little strangely across for us. In a way I think that we have to make absolutely clear how things are looking there. Urs.

Thanks Ossy. In terms of details, I may disappoint you a little bit in that, as you will appreciate, the terms of the contract call for a confidentiality clause. So I'm not in a position, and quite frankly we do not feel the need to comment on detailed numbers with respect to this whole matter.

What I would like to state, however, is the following. As you have undoubtedly seen, we have recorded an additional reserve of CHF310m pre-tax a couple of days ago, in connection with the so-called seasoning process resulting from the sale of Winterthur International to XL. This increase in reserve was the result of an in-depth analysis and investigation that Winterthur has carried out with the help of outside legal, actuarial and claims specialists. Within that process we have used what we believe to be the best experts in the industry. We've had their reviews then challenged and reviewed by other independent experts to get a second opinion, together with our internal experts at Winterthur.

And on the basis of the facts that we know today, we are very confident that the reserves that we have now recorded into provisions that we have had, both adequately cover the risks associated with the disposals for the sale of Winterthur International.

As you know, there is a significant difference between our provision and the number stated by XL. We have realized that; I do not want to comment, as I said, on XL's numbers. What I can reiterate, however, is that we feel comfortable about the numbers we have put into this process and in this baseball arbitration process, which is sort of a special process which is not so, I would say, the common process of how to resolve disputes.

Just that I may give you some comments on the procedure as well. As you may know, there is an independent actuary appointed to review the reserve deterioration over this 3-year seasoning period. He will then come up with a number, and the number that is closer to what's the finding of the independent actuary determines to be the number will then be the number for purposes of determining the final outcome between the parties.

This process has now started. It's impossible to state what the timeframe, the precise timeframe for that process is, but as I said, we have analyzed and reviewed but after that we have obtained in very thorough detail. And as I said, we are confident about the reserves that we have placed for this contingency.

That's as much as I can say -- want to say at this stage.

Okay, thank you Urs. I just wanted to make sure that you understand we have made our homework very thoroughly, because we know we have shareholder funds at risk and we are not taking these things lightly. Now, we are open to your questions.

Philippe Peson from UBS. 3 questions please. The first, and I can't avoid it, is also partly related to XL. Could you comment in which way this issue could impact your share buyback? Will you wait until it is resolved? You said that the time frame cannot be specified, but what is the expectation regarding the time frame?

The second one is Private Banking. Could you comment on the same-year term outlook in terms of Private Banking net new money? I -- we all you know your 5% target but in Q3 you commented that this impact from the redemption of structured products is only related to Q3 and this has re-occurred now in Q4. Could you maybe quantify that? And in general, what is your expectation, say, over the next 2 quarters - 2 to 3 quarters in terms of net new money?

And third point, in terms of credit provisions, do you expect further write backs? You commented also on the distressed loan sale in CSFB. Do you expect further transactions in this kind?

Okay, thank you very much for asking all your questions in 1 go. First, Renato, on does that affect our share buybacks? I don't think so, but --

The answer's no.

Now, onto time -- there was a question connected with the time there, Urs, on XL.

As I said, I cannot really specify a set time line, as there is no set time line set forth in the agreement. But I -- it's fair to say that we expect this procedure to take several months to conclude.

Walter, on Private Banking.

We are confident that we can achieve the 5% going forward, and we will have these fluctuations but we factor them in.

Brady.

With regard to the credit provisions, obviously the credit environment continues to be quite good. And we expect that to continue for the near to medium term. Obviously, at some point, we'll -- our expectation is that it's got to turn down, but for the near and medium term it's going to continue to be good.

With regard to the distressed loan transaction, I'm not exactly sure what you're referring to. Is it maybe disposition of legacy assets?

I saw in the quarterly report, you've stated that part of the provisional release is related to such a transaction.

Oh, I see. Yes, that was just a -- I think that what was referred in the report was basically a write back on credit for a loan provision that was made before, so that's just part of the overall credit environment.

The credit outlook in Switzerland?

What?

The credit outlook in Switzerland, I'm just --

Credit outlook in Switzerland?

For potential write back.

I think, as far as I know -- if you want to answer that, but as far as I know it's flat, so no provisions, no big write backs, it's --

So. Next one, please. Yes.

Can you comment on the 2 special items [roughly] for the loss on the minority holding, and also the severance costs? Are they one-off or do you expect more of that to come? Thank you.

I certainly hope they're one-off. Renato, on what we think is --

They are of course one-offs in -- because we have sold everything now what we owned, and that's irrespective of the one-off.

Which was triggered by roughly CHF25m on the -- the value on the balance sheet, regarding the participation and an exchange loss, which has been booked direct with you already before, of some CHF125m. So this is definitely one-off.

Revenue has gaps so the [extension] is not what it was in the equity but had to go through the P&L at the time of sale then, according to U.S. GAAP bookkeeping. Good, now, Brady on the severance costs.

We did report some severance costs in relation to the change in strategy that we had announced in December, in the fourth quarter. There will be some additional severance costs in the first quarter as a result of the continued restructuring, so there will be some additional costs, first quarter.

Yes, over there please.

Yes, Claudia Meyer from Bank Vontobel. Regarding the unification of the legal structure, can you comment on the name changes that are probably involved, or whether they are not involved? And whether you would expect some additional costs there? Thank you.

On the name changes and the branding, there's certainly the combination of the 2 legal entities, and the overall banking and [the dealing] will be called Credit Suisse. But as I said before, there will be not much change on the -- for the dealer relationships so -- They wanted no name change so we will keep that as it looks today, we will keep in, certainly in the Americas, the name Credit Suisse First Boston, which legally gives us clearly a business advantage.

Now, on the other point, Urs, you want to say something?

What was the other point, I'm sorry?

Costs of the merger.

We would anticipate the total costs to be between CHF80m and CHF100m on the basis of what we know today.

But that's not within 1 year, it's going to be over a number of years.

Yes. That's a total cost. For the 2005 P&L it's probably closer to, I would say about CHF30m from what we see right now. Bearing in mind that what we are talking about is just the legal entity merger between these 2 Swiss banks. For the sub-holdings, the former Volksbank and the former Eschoar(ph), basically, there's no other -- There's nothing. It's just the first step and not the total, I'd say, 1 bank concept.

Yes, please.

Thanks, it's [Alistair Owen] from UBS. Just a question on CSFB. The fourth quarter operating environment was very favorable - debt markets, equity markets and particularly in investment banking, M&A etc. Were you in any way disappointed at the lack of revenue leverage into that or were you expecting that, given the restructuring that you were undertaking at the time?

Well, I think we're -- with some of the areas we were pleased with the performance of the equity, performance we thought was quite good. Fixed income was actually pretty good, given that we had a very strong third quarter compared to the competition. I think the advisory side of the business and the investment banking side of the business, we were disappointed with the results given the market environment. And the announcement that we made and the strategy that we are in the process of implementing are clearly meant to address that.

A follow-up question from CSFB, please. It's Regina Anhorn from LODH. Could you say a word on your pipelines, please?

And [indiscernible] M&A, as I understand, the industry outlook is very good. Could you perhaps comment how you think you are placed, because you are more in mid-sized deals?

And then finally on the commodities side, where you may be introducing commodity trading, could you explain where you stand at this stage? Thank you.

I think with regard to the pipeline this year, starting the year, it's actually quite strong. For CSFB we have a fairly strong pipeline. But particularly again in some of the areas that we have been quite strong in the past, so like IPOs, where we have a very strong -- we have a strong pipeline coming in to the year.

With regard to M&A, we are performing pretty well. So far this year, in 2005, we've actually moved up to, I think, number 6 in the league tables in M&A. As you know, our -- we've always -- have a stronger revenue league table than a volume league table in those areas. But we feel that we're well-placed in M&A, and again a number of the steps that we're taking to restructure the business, we believe are going to positively impact our performance as the year progresses.

With regard to the commodity business, we continue to view as an attractive segment. We are making progress in building in to that organically. We have begun to hire people, we've begun to commence getting our process in place to trade in that business. And again we believe it's a business where we have a number of strengths across the firm in terms of our investment banking franchise, our private equity franchise, and our overall derivatives capability. But that is something where we are going to have a measured build into the business. But we are making progress.

If there are no further questions then we go over to questions from the webcast. Can I have the first question please?

That's great. Everything was clear, it seems.

Are there any questions from the webcast?

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

Good morning. Can I ask questions on 3 areas? Firstly, on the asset-driven margin in Q4 versus Q3, where you saw an improvement, could you talk about how much this is due to timing or time lags or whether -- I think you mentioned interest income. So is this a step change that's sustainable? So is 84 more like the level you could expect going forward because you've been growing the loan book in the private bank?

The second area is something you call retrocession agreements, I think on page 7, which I assume is reinsurance recoverable. And you mention that these are potential exposures to XL in addition to the SPA. Could you talk about the kind of exposure here that you could have, and also the timing of when these could be realized? Is it 2008, are these related to the duration of the insurance contracts?

And the third area is CSFB. You mentioned severance would be a small issue in Q1 and you're obviously investing. Could you talk about your plans for the staff cost-to-revenue ratio in '05 within CSFB? Should we expect a similar trend to '04 where you managed to absorb the costs of investing? Thanks.

Okay, let's start with Walter Berchtold and Private Banking.

Okay. The returns on assets around 130, we think we will be able to maintain, and the base -- the fixed basis which went up from 81 to 84, we do believe that we can keep it around these levels going forward.

Could you say whether the increase is due to interest. I think you mentioned interest income, so is it because the lending proportion of your assets has gone up, or is it income that's not included in the assets? Could you explain a bit more about that?

Well, it is certainly due to interest income and it is subject to 1 month's time lag. But the [release has got] to get out.

Okay. Thank you.

Renato.

Your question refers to what is called the Seller's Retrocession Agreement, which is reinsurance agreement between the seller, that is, us, and XL in addition to the seasoning process. And I am sure you are enquiring whether we can expect any, or we would expect any further claims from XL under the so-called SRA. We do not expect any material payable as a result of these recoverables from third party reinsurance companies because the reinsurance program supporting the Winterthur International business that was transferred to XL was comprehensive in terms of coverage and comprised of high quality - that is, AA and A rated global reinsurers.

But -- sorry, just to follow up. I think I read in the XL conference call, they mentioned a number of $1.3b that was covered. Would that -- would you agree with that number?

That's a number that they have said - I wouldn't be able to comment on it. The amount of reinsurance recoverables under this is a very high number but, as I said, both the quality of the reinsurance ceded to them, as well as the quality of the reinsurers, is very high, so we are not expecting any material claims resulting from that.

Brady.

With regard to the staff cost-to-revenue, obviously one important point to make is with regard to the fourth quarter in the full year '04 was that those severance costs were absorbed within the target that we'd set for cost-to-revenue for the year. And so, in fact, we believe we maintained discipline in the fourth quarter even though we absorbed material severance costs. That will obviously be the same in '05 in first quarter and throughout the year.

Clearly, with regards to our comp to revenue, our intention is to bring that down over time. We would expect to make progress towards doing that in 2005 but have not announced any specific targets.

Thank you.

Can we have the next question please?

We have a question from Vasco Moreno, KBW. Please go ahead.

Yes, good morning. Just a few questions. The first 1 is on share awards. Can you give us the impacts on the compensation ratios going forward associated with the share awards change? I suppose what I'm asking is, all else equal, should we expect a rise in the 2005, 2006 compensation rates on the back of the layering effect associated with this?

Second question is just a follow-up on what was already asked in terms of gross margins for private banking. In terms of the increased asset-driven margin, do you think it was due to mix or just better pricing in different products?

Third question is related to the corporate center. You saw a greater than traditional [indiscernible] in the corporate center in the fourth quarter. Could you just confirm that that is entirely related to the non-recurring charges?

And lastly, also just to follow up on a question that was asked, the cost saves on a per-severance basis, could you assume that the ongoing cost saves will be more or less equal to the actual one-off severance costs at CSFB?

Okay. Renato, why don't you answer the first and the third question?

On the first 1 there will be no change in the comp revenue ratio due to the share program going forward.

And then the third question on corporate center costs, if you back out the Warburg Pincus effect, you will still have a slightly higher fourth quarter loss than in the other quarters. But that is seasonal and we have always seen that. So, as we have said before, the guidance for the full year is at around 200m negative overall.

And Walter, on margins?

Okay. On the margins, just as well come back on the other question we had, the mix is really coming from higher lending rates, the high custodian rates and then of the higher activities in the quarter itself in terms of products.

Brady?

I think with regard to the severance costs and the pay-back on those, as you know, the strategy is really around reorienting our resources and refocusing on our higher margin areas. And so the severance costs were really around achieving that goal. And so we will ultimately, we will obviously even be adding more resources in those areas where we have high margins and good results and products.

So it's unclear just to simply look at it as pure saves. It's really a reallocation of resources into areas which have higher margins. So I don't think we look at it as a pure -- here's the severance cost, here's the benefit in terms of lower cost going forward. We will actually be adding resources to the higher margin areas.

Okay. Thank you.

Thank you. Next question please?

The next question is from Jacques-Henri Gaulard, Merrill Lynch.

Yes. Good day to you gentlemen. 3 questions. First of all, the share buyback. There was some concern in the market that that would be linked to the floating of Winterthur. And some people have been saying, look, they're doing 6b, but probably it reflects that the fact that you're going to have an IPO and effectively it reflects the proceeds we are going to get from that. So the question is, is it something which is connected with this potential IPO or isn't it?

Linked to that question as well, still about Winterthur, as you said yourself back on December 7, it's a funky little asset that brings 1b per annum. Selling it would be reasonably diluted in terms of earnings. Is it still on the cards?

Another question, third 1. You had about 500m after tax of negative exceptionals. I was wondering if there were positive exceptionals in the quarter to mitigate that?

And roughly same old question to Brady. Everything being equal, Brady, do you expect you will have regained some market share in advisory this year? Is it part of the plan? Thank you.

Thank you Jacques-Henri. The share buyback is not linked to any immediate flotation of Winterthur. And I would say the insurance market, as you very well see on the prices here for the other insurance companies hasn't really -- hasn't improved really very much. There is no immediate flotation coming around the corner.

And the next 1 was --

It was on dilution. Virtually the same answer. That we have to see when and if we have a transaction going forward. But right now there is no consideration of that. And it's not part of the -- the 2 transactions are not interlinked.

Good.

Brady?

I think with regard to our market share, as you know, Jacques-Henri, our strategy is really to focus on those areas where we have real strength and where we have -- where there's margin and where we can drive profitability.

So I think that we clearly would expect over the course of the year to be improving our market share and our positions in those areas where we're quite focused. That is probably less likely to be represented in broader league table measures. Although I would think that over time we clearly would also be improving on the broad scale as we're achieving our goals in the focused areas that we are trying to drive.

Okay. Thank you. And the last 1, Renato, were there any positive exceptionals in the results? You have said there were 500m you had on the negative side or none?

I didn't quite get the detail of that question.

Any positive exceptionals that you had -- there were non-recurring that you mentioned on the negative front. Is there anything which were one-offs on the plus side basically?

Are you talking about the corporate center?

No, anything basically. Counterpart to what was the XL capital provisioning, the Warburg Pincus?

We mentioned a few of them. Of course, we had some tax effects which you can find in the text which had in private banking and in the -- and then you have some positive effects on the accruals of the compensation costs also in this segment. So these were the items that are factored out also in our announcement. So these were the positive effects, so to say.

And you obviously had the lower provisions positive effects. But everybody has that.

Oh yes, everybody has that, yes. But that doesn't qualify. Thank you very much gentlemen.

Some banks have them for years. We wish we had them as well. Next question please.

We have a question from Matt Spick, Deutsche Bank.

Yes, good morning. Just a couple of related questions on the use of cash flow. I was just noticing that the increase in assets under management at the Group level was around about 3.5% for the full year, which is slightly below some of your peers and maybe a bit disappointing given that we have had pretty strong capital market conditions overall in 2004.

1 way that other banks have managed to grow their assets has been with small bolt-on deals in areas like private banking. Now you have clearly got the cash flow to do those sorts of transactions. Will you look at bolt-on deals in areas like European private banking or emerging market private banking?

And the second question, which is really a length one, is the message that you'd like to give this morning that the CHF6b buyback facility is really a target to buy back CHF6b worth of shares over the next 2 years? Or is it more of a maximum number that you would use if you didn't find, perhaps, alternative uses for the cash flow in areas like useful bolt-on deals? Thank you.

Thank you Matt. First, very clearly we would ask to -- would like to ask our shareholders for the CHF6b buyback program. The time is 2 years. It gives us more flexibility on how markets are. But we do not and cannot say at the moment over what period the buybacks will be. And I think you can expect from us we will be in the market when we think our shares are cheap. And we won't be in the market when we think they are expensive. As shareholders we can determine that.

But with -- something else there. On private banking, when you said the overall assets on not only private banking, but overall assets increased only by 3.5% and that is relatively not at the upper end of some of our competitors. That might be true, but I think asset development is better to develop in a certain period, has very much to do obviously on how they are put together. So if you had a lot of dollar assets, for example, it will perform -- it would have performed less in the fourth quarter than if you had more non-dollar assets.

And I think to simply assume that if we -- Suisse Bank or any other bank in private banking for that matter, you can easily compare where the asset growth rate is probably -- is probably not wider. I am sure that, for example, your bank, the asset mix is completely different from what it is with us.

So that dollar weakness has an important influence there in the fourth quarter. But --

Maybe I can illustrate that by a number. Just the foreign exchange impact on assets under management between Q3 and Q4 was 20b. Just to show you. This is a substantial impact.

One thing you asked as well, whether we consider any small takeovers like some of our competition does. We obviously do look at the market on a constant basis. We do know all the possible targets and if they make sense for us from a profit point of view, an integration point of view, we certainly will consider.

Thank you.

Was there anything else Matt?

That's all thank you.

Okay. Next question please.

We have a question from Jeremy Sigee, Citigroup.

Just again following up on the share buyback. Previously you said implementation of that would be dependent on a number of things. Clarifying Winterthur, you've now said it's not dependent on that. Also clarifying Basel 2. So first question, could you give us an idea of how you estimate the Basel 2 impact on your capital?

Secondly, are you saying therefore that you will start the buybacks as soon as you've got the AGM approval? There's no more contingencies to wait for? You can start straight away after the AGM?

And third question, your diluted share count went down in the fourth quarter because you didn't include the effect of the mandatory convertible this quarter. Could you just discuss a little bit what's going on there and whether that is included again next quarter?

Renato?

The impact on the [MCs] was included in the earnings per share figure. So maybe we should go into detail and show you how this has been calculated. But to my knowledge there has been no change.

Looking at the table on page 42, there is a note saying that's not -- in the fourth quarter it's not included. It is in the full year but not in the fourth quarter. Maybe we should just focus on the full year. I assume that dilution effect would be back in again going into the '05 quarters?

No, it was anti-dilutive in Q4. That is the answer.

And is that just a one-off -- how does that arise, I guess is the question? And would that situation prevail in the first quarter or would it be back to normal then?

I can't tell you off my head. Please contact our people and then they can walk you through in detail how this was calculated. It's a very complicated way of calculating these things under U.S. GAAP and I would appreciate if that could be done then we will get a proper answer in all the detail as well.

On the buyback program then, could you clarify the Basel 2 impact and is it the intention that is will start up at the AGM?

We are not commenting on our estimate on the Basel 2 impact for our Group publicly. It's just that I can confirm to you that we have a pretty clear picture on where we want to go on that, which is still a range. But it has been considered in the sizing of the share buyback program. And we will, of course, in net values [indiscernible] in 2006, '07 and will come to a better grip on what exactly, at the end of the day, it will be. But it will definitely be in the range we have provided for when we calculated the size of the share buyback.

So as far as you're concerned, all the preconditions are met now for the share buyback. And as soon as you've got permission you can kick off?

That's correct, yes.

Thank you.

But you [were rather wide] with your remark that suddenly there should be anything in the market coming up which we think we have to buy. That suddenly probably would offset some share buyback programs because it doesn't make much sense on the 1 hand issue shares and then buying them back. Obviously that has to be looked into for confirmation. Otherwise it is as we said.

Thank you.

Next question please.

We have a question from David Williams, Morgan Stanley. Please go ahead sir.

Good morning. It's a question on your capital policy and really dividends versus share buyback. Looking back on your history, in 2001 you paid out [2] strength of dividend on an earnings per share of 3.3. Today you have just had 4.8 of earnings per share and you are paying out 1.5. Could you just comment on your payout ratio and really what's influencing you to go through the buyback route?

If you are optimistic on the earnings outlook, we might be a little bit surprised that you're not really willing to commit more through the dividend channel.

Thank you very much. We did say, I think already at the last time we announced in December meeting, we announced that we are going back to a higher dividend and a more competitive dividend. And we still have a dividend here of 3%. And it's quite a lot above the risk-free way.

We also said that we will try to increase the dividend with the earning development. And I would not say that the dividend increase is very much put back because of the share buyback program. We have to, certainly -- on the dividend, I think, from the feedback I get from investors, half our investors are saying look, we don't need any dividend at all. And I ask the other half of our investors who are saying we want a dividend. And I'm sure if you survey people in the market you will get the same answer, in a way.

And I think one has to look at it in a way every year that what is better, share buyback? And depending obviously on the development of the Company and the on the development of the share price since at least the big majority of you -- your reports agree that our stock is undervalued. Why shouldn't we take your advice?

Thank you.

Next question please.

We have a question from Kinner Lakhani, ABN Amro.

All my questions have been answered. Thank you.

This is very nice. Thank you. Next question? Great, there seem to be no questions any more. Thank you very much for --

Excuse me, we have a question from Mr. Michael Schulz, [Bank Weil Stock].

Good morning. I have 1 question to the investment yields and sustainability of investment yields in insurance. Could you please make a comment on what you expect from investment yields, particularly from realized gains in the future?

Lenny?

We had 2 very good performance years in our investment income, which are as a result of completely changed investment philosophy in the year, at the end of the year 2002 and 2003. And we are confident that, given normal market environment, we can sustain that level.

But obviously if rates would ultimately reach the zero level very quickly, and other effects that you can have on financial markets, then we would have to lower our assumption. But at this moment in time we feel comfortable that we can continue with this performance.

If I give you a hint, generally in the market I think with these very low bond yields and very low credit rates, the focus is much more negative against. And also for a long time we had high equity yields. And then you have bond yields. So that is in the direction things are going in the investment side, not only for insurance companies.

Does that mean that you will freeze the share in equities again?

You have got it in 1.

Thank you.

Thank you very much. That was the last question. Thank you for coming here. It was a pleasure to see you again. And thank you very much for your work you do on us, for your good work. And have a good day.

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