Credit Suisse Group AG (CS) 2005 Q1 法說會逐字稿

Good morning. This is the conference operator. Welcome and thank you for joining the Credit Suisse Group first quarter 2005 results conference call. [OPERATOR INSTRUCTIONS]. At this time I would like to turn the conference over to Mr. Renato Fassbind, Chief Financial Officer of Credit Suisse Group. Please go ahead Mr. Fassbind.

Good morning ladies and gentlemen. I would like to welcome the listeners of our webcast and the participants of the telephone conference to our first quarter 2005 results announcement.

I will lead you through today's presentation, which will be followed by a Q&A session. For the Q&A session I will be joined by the CFOs of our divisions - Ulrich Korner from Credit Suisse, Neil Moskowitz from CSFB and Hans Ulrich Lienau from Winterthur - that we can hopefully answer all detailed questions you may have.

Before we start, I would like to briefly make reference to the announcement we have sent out to you yesterday afternoon. I am very pleased to inform you that Ian Roundell has been appointed the new Head of Investor Relations of Credit Suisse Group, effective immediately. He is actually here with me today.

Ian is joining the Group from Fortis, where he was Director of Investor Relations and previously held several positions at Barclays, including Senior Manager of Financial Reporting and Head of Investor Relations.

Given the vast experience and know-how Ian brings with him, I am convinced he will be able to further strengthen our Investor Relations function and make a noticeable contribution towards our communication with the financial community.

Also, I would like to take this opportunity to thank Marc Buchheister for his outstanding and valuable contribution in leading the Investor Relations team over the last 12 months. I am delighted that Marc will continue to play a key role in the department and will be working closely with Ian and the rest of the team to further enhance our Investor Relations effort.

I would now like to refer you to the disclaimer on page one of our results presentation, and then start my presentation with slide number two.

Credit Suisse Group achieved a strong start to 2005. All segments generated solid revenues, due to improved market conditions. Private Banking performed well, reporting strong net income and repeating the strong performance compared to first quarter last year. Corporate and Retail Banking reported record results with strong net income and sound revenues. In Institutional Securities, we continued to close our performance gaps.

The results for the first quarter show our strength in fixed income trading, but also show that in other areas we are clearly not yet where we want to be in terms of revenues and productivity.

Wealth and Asset Management reported net income largely unchanged from last year's first quarter, characterized by mixed revenue trends and a reduction in operating expenses.

Our Insurance business benefited from increased volumes and expense reductions, resulting in productivity gains. Overall, net income stood at CHF1.9b, up significantly compared to the fourth quarter, and also up slightly compared to the very strong first quarter of last year.

The increase in profitability is also reflected in the return on equity for the Group, which stood at 20.6%. Return on equity for the Banking business was 22.9%. This is the Group as a whole, excluding Winterthur, while return on equity for Winterthur was 12%.

With CHF7b in net new assets, or an annualized rate of 5.2%, Private Banking is above our medium-term target of 5% in this segment.

Last Friday our shareholders approved the share repurchase program in the amount of up to CHF6b, which will be conducted over the next two years. We can commence buying back shares as early as May 9, which is next Monday. And our buyback activities will be easily visible by the various electronic market information systems. In addition, we will post a weekly summary of buyback volumes on our Investor Relations webpage.

On slide three, we summarize some further key points regarding our consolidated results. Net revenues were up 1% versus the first quarter last year, while benefits, claims and credit losses increased by 2%.

A couple of technical comments about these two line items. To align the Group to industry practices, we have included the new income statement line item for Winterthur's Life and Pension segment to reflect the investment income credited to policyholder account balances. This item was previously included in net investment income as part of net revenues and was disclosed separately in the notes to the financial statement.

This change in presentation has no impact on net income, but increases net revenues and total benefits and dividends by the same amount at Life and Pensions, and also affects the consolidated P&L in a similar way. Prior periods have been restated to reflect the current period's presentation.

Please keep this change in mind when you compare our actual results with your forecasts. The full restated history is also available in an Excel file on our Investor Relations homepage.

Basic earnings per share in the quarter stood at CHF1.64, up 5% from the first quarter last year.

Before discussing the segment results in detail on the following pages, I wanted to use slide four to point out the progress we have made in the integration of our banking units.

Last December, we presented our strategy to integrate our banking units, creating the organizational framework necessary to grow our increasingly global business. The market reacted positively to our announcement. And we are confident that we can achieve our goal of becoming a leading competitor in the global financial marketplace.

However, we also know that promises are one thing, but delivery is what matters. We need to continue to demonstrate that we are taking credible steps to transform our strategy into tangible results. As the first step, we will be creating a single legal entity from our existing Swiss banks, Credit Suisse and Credit Suisse First Boston. As previously announced, this will be completed by May 16.

The rating agencies have by now all confirmed that the merger would not affect the existing long-term and short-term ratings.

In terms of immediate organizational changes, we have appointed global heads for our tax and global treasury functions, both reporting directly to me. But this is just the first step. An integration project which is organized in 26 workstreams has been put in place.

The plan is that the new organization will be operational as of January 1, 2006, and that our external reporting will be based on the new integrated structure as of that date. Alongside our work on the integration of the two banking units, we are continuously striving to improve our processes and realize efficiency gains.

Now back to this quarter's results, starting with Private Banking on slide five.

Private Banking segment reported a strong result for the first quarter of 2005. Client activity recovered from the subdued levels we experienced during most of the second half of 2004. Net income of CHF685m was virtually unchanged compared to the first quarter last year, and up 11% from the previous quarter.

In line with our strategy to forcefully grow our presence in Asia, Private Banking opened an office in Bangkok in March 2005. The new office will serve as a point of contact for international clients. As previously announced, our new branch in Dubai started business on April 1 this year.

Let's now turn to slide six, which outlines development of revenues and expenses. With the improvement in client activity, revenues remained robust and were virtually unchanged compared to the strong first quarter 2004. Here, net interest income benefited from dividend income from the equity portfolio, which was offset by lower ex-dividend valuations recorded in the trading line.

Commission and fees were down 6%, as client activity didn't return to the high levels reported in the same period of last year. Market participants are still acting cautiously, due to the ongoing low level of market volatility.

On the cost side, further efficiency gains were achieved this quarter as non-personnel costs were reduced by CHF31m from the same quarter last year. This positive impact was partially offset by an increase in personnel expenses.

Now, over to the development of the gross margin on slide seven. Private Banking's gross margin remained at industry-leading levels with 138 basis points. This compares well to our over-the-cycle target of over 130 basis points.

Lower product issuing fees and lower brokerage commissions were the main factors behind the reduction in the transaction-driven margin from the very strong first quarter last year. Compared to the previous quarter, the gross margin improved by 10 basis points, as underlying revenues increased substantially.

Net asset inflows, as shown on slide eight, totaled CHF7b this quarter, which represents an annualized growth rate of 5.2%.

Strategic key markets in Asia and Europe continued to record double-digit growth rates. The growth in assets under management since the beginning of the year reflected the positive impact of the higher European equity markets, as well as the strengthening of the U.S. dollar.

Assets under management at Private Banking stood at CHF564b at the end of the first quarter of 2005, up CHF25b or 5% compared to year-end 2004.

Now to CRB on the next slide. Corporate and Retail Banking reported a record result in the first quarter of 2005, as net income of CHF274m was up 45% compared to the corresponding period last year, and up 7% from the previous quarter.

The return on average allocated capital stands at over 22%. This result mainly reflects substantial revenue growth, a seasonally low cost base, as well as net releases of provisions for credit losses.

To support the strategic aim of further growth within the Swiss residential mortgage business, Corporate and Retail banking intensified its marketing activities. During the first quarter of 2005, that resulted in an 8.7% annualized rise in residential mortgage volumes, which was again above market growth.

Provisions for credit losses this quarter resulted in a net release of CHF19m, reflecting an ongoing favorable credit environment, requiring a low level of new provisions.

Over to slide ten. Net revenues are up 9% compared to the corresponding period of 2004. The growth in net revenues was mainly driven by strong trading results, as well as by higher commission and fee income. This improvement more than offset the slight decrease in interest income, reflecting higher hedging costs and margin pressure in the Swiss market.

Operating expenses increased by 7%, compared to the same period last year. This was mainly driven by higher performance-related compensation accruals, reflecting a better result.

Other expenses remained flat compared to the same quarter last year, as the first quarter usually tends to benefit from a seasonally lower cost base.

As in all of the segments, in Corporate and Retail Banking, we are working on measures to further improve our efficiency. The segment's cost/income ratio stood at 61.5% in the quarter, further improving towards our mid-term target of below 60%.

Now over to Credit Suisse First Boston segment, starting on slide 11. First quarter of 2005 was Credit Suisse First Boston's second strongest quarter in terms of revenues and net income since 2003. The first quarter business environment was quite favorable, with positive economic growth, higher market volumes and improved corporate profitability.

U.S. Federal Reserve Board continued to raise interest rates at a measured pace, increasing them by 50 basis points during the quarter. But both the Bank of England and the European Central Bank left their respective rates unchanged.

The flattened yield curve and tightened credit spreads resulted in strong client-driven activity and a more favorable trading environment. While trading volumes were up, equity prices were mixed, and volatility remained low relative to historical norms.

In this environment, CSFB performed well in fixed income and equity trading, while underwriting results were mixed. In line with the increase in U.S. interest rates during the quarter, the U.S. dollar strengthened against most major currencies. However, it still remained weaker than in the first quarter of last year.

This movement in the exchange rate impacted CSFB's result in particular. Versus the first quarter of 2004, revenues excluding minority interest were down 5% when measured in Swiss francs, and were flat in U.S. dollar terms.

CSFB continued to maintain a disciplined approach to compensation expenses, by reducing its compensation to revenue ratio to 51.9%. Net income in the Institutional Securities segment stood at CHF540m, as you can see on the slide, down 13% compared with the same period of last year, primarily reflecting lower revenues relative to an exceptionally strong year-ago quarter.

Due to the continued favorable credit environment, provisions for credit losses amounted to a net release of CHF19m. Let's now look at the revenue development in more detail, starting on slide 12.

Fixed income trading generated revenues of over CHF1.9b. The increase versus the already strong first quarter of last year reflects improved results in emerging markets trading, asset backed securities and commercial and residential structured products. This was partially offset by weaker results in proprietary risk taking and leverage finance. Leverage finance results were down, primarily due to lower volumes in the U.S. high-yield market and spread compression.

Effective January 1, 2005, CSFB enhanced its estimates of fair value of OTC derivatives to bring them closer to how the dealer market prices such contracts. This change in estimates resulted in a positive CHF125m adjustment, which has been reflected in revenue for the quarter.

Compared to the fourth quarter 2004, fixed income trading increased substantially, due to strong performances in emerging markets' trading, commercial and residential structured products, interest rate products, and the enhancement in fair value estimates I just mentioned, partially offset by weaker results in treasury products.

The first quarter 2005 average daily VAR - value at risk - was US$54m, down slightly from the first quarter last year, and up from US$45m in the previous quarter. Still below peer average. We are prepared to increase CSFB's VAR over time. But as we have mentioned many times before, only if and when suitable opportunities arise.

Equity trading revenues, as shown on the right hand chart, stood at CHF926m. This decline versus the first quarter last year reflects weaker revenues in the convertibles business due to lower volatility, lower proprietary trading results and weaker equity derivative revenues. These declines were partially offset by improved revenues in prime services, driven mainly by business growth.

The Prime Services business continued to gain momentum by adding client mandates and by advancing in Global Custodian magazine's Annual Prime Brokers' survey, the number two position among all prime brokers, up from number eight in 2004.

Compared to the fourth quarter of 2004, equity trading revenues increased 12%, primarily due to stronger revenues in equity derivatives and prime services.

Now, over to Investment Banking on slide 13. First quarter Investment Banking results declined compared to the first quarter of 2004 and the previous quarter, with decreases in underwriting as well as advisory fees.

Net underwriting revenues decreased 23% from the first quarter 2004, due primarily to lower results in asset-backed securities and commercial structured products.

Leverage finance results were essentially flat, despite an 18% industry-wide decline in global high yield debt issuance.

For the first quarter of 2005, CSFB ran third in global high-yield new issuances. First quarter 2005 investment grade capital markets revenue increased, despite a significantly lower industry market share ranking, reflecting a change in client focus and strategy in this business.

Equity underwriting revenues decreased 43% compared to the first quarter of 2004, reflecting a 14% industry-wide decline in the volume of new equity issuances and strong first quarter 2004 results.

CSFB increased its market share to rank second in global IPOs, with key transactions for the quarter including the largest media IPO in Germany, by Premiere, the largest Russian IPO in history, by AFK System, and the Huntsman IPO and convertible offering in the U.S.

On the M&A side, advisory fees for CSFB decreased, due in part to the lower level of announced transactions during the previous quarters. But the picture in the first quarter has improved considerably.

CSFB increased its global mergers and acquisition market share, based on announced transaction volume, to number six or number 11 for the full year 2004. They licensed five of the top ten announced transactions in the first quarter 2005, and all of the top three private equity deals in the quarter.

Landmark transactions for us this quarter include the US$11.3b sale of [Femgard] to a group of private investment firms, and the US$21.8b sale of AT&T to SBC Communication.

All in all, the quality of these transactions is very encouraging, as most of the deals were not straightforward M&A transactions, which tend to carry a lower fee -- fee level, but rather highly customized and complex and thus more profitable mandates. Please note that the fees from the transactions announced in the first quarter will only be earned later during the year.

The next slide shows expense and margin development. Over the last couple of quarters we have seen an improvement in the pre-tax margin. We are fully aware that the single quarter or even the past few quarters don't yet make a trend, but the short-term industry outlook will likely affect margin development for the remainder of the year.

We also acknowledge that even at the 20% margin we achieved in the first quarter 2005 is not yet at a level that compares favorably to most of our peers. But as we started to implement the strategic and operational changes at CSFB, we expect to see a visible improvement in our pre-tax margin over time.

Compensation expenses decreased 8% compared to the first quarter of 2004, reflecting lower performance-related compensation costs, partially offset by increased salaries relating to higher headcount, severance costs of CHF58m, and higher costs related to deferred compensation plans.

Other expenses increased 11%, primarily reflecting higher commission expenses, professional fees and litigation provision.

Operating expenses were up 14% compared to the fourth quarter last year, reflecting a 29% increase in compensation expenses and a 10% decrease in other expenses.

Over to the next slide, to CSFB's Asset Management business. Wealth and Asset Management reported net income which was largely unchanged compared to the first quarter of 2004. Total operating expenses decreased 4%, reflecting lower compensation expenses and reduced other expenses. Compensation expenses in the first quarter of 2005 included severance costs of CHF7m.

Over to slide 16. And measured in Swiss francs versus the first quarter of 2004, net revenues excluding minority interests were down 3%, while in U.S. dollar terms net revenues were up 2%.

Revenues before investment-related gains decreased 1% compared to the first quarter of last year, due primarily to lower revenues from CSAM and PCS, offset in part by an increase in fees from alternative capital, driven by higher placement fees in the private funds business.

Investment-related gains, as shown on the top of the chart, decreased to CHF105m, reflecting stable gains from the sale of private equity investments, but an increase in interest costs associated with carrying the investment portfolio.

As shown on slide 17, net new asset inflows of CHF5.4b were recorded during the quarter. Inflows of CHF3.2b at PCS as a result of corporate and client cash inflows were the largest driver. Inflows of CHF1.6b at CSAM were due primarily to the launch of a new real estate fund in Europe, while Alternative Capital recorded inflows of CHF0.6b.

Assets under management increased by 4% to CHF502b since year end, as ForEx rates -- as ForEx rate movements, net new asset inflows and positive market performance were partially offset by the divestment of a single fund in [ACD].

Now over to the results at the Winterthur segment, starting with Life and Pensions on slide 18. With net income of CHF251m, Winterthur segments combined recorded a solid performance in the first quarter of 2005. This quarter's results underline, once again, that Winterthur has recovered to a position of strength, their costs are under control, while the business is continuing to grow.

After two years of rapidly falling costs, we expect that business volumes and premiums will grow and that costs will remain under control going forward, leading to sustainable profitability gains.

Life and Pensions, as seen on this chart, reported net income of CHF126m in the first quarter of 2005, down 9% from the same quarter of 2004. This decline in the quality result was primarily attributable to lower investment income from net realized gains, partially offset by improvements in the underlying business.

As a small but nevertheless important highlight, Life and Pensions achieved a strong start in the newly introduced second pillar pension business in Slovakia, and occupies the number one position in this market.

Onto slide 19. Gross premiums written increased by 7% to CHF5b. This growth was predominantly driven by higher premiums in Switzerland's Group Life business. Additionally, premiums increased in Spain and Germany.

Deposit business, which includes unit-linked business, grew by 5%, with significant growth in the Central and Eastern European Swiss and German operations.

Despite the increase in business volume, underwriting, acquisition and administration expenses remained relatively flat overall, leading to a 0.3 percentage point improvement in the expense ratio to 6.3%.

Now over to slide 20. In the first quarter of 2005, the net investment return backing traditional life policies amounted to 5.3%, compared to 5.6% in the same quarter of the previous year. Net current investment return remains stable at 3.8%, but net realized gains decreased by 0.3 percentage points to 1.5%, with the slightly lower gains and an increase in realized losses.

Over to the Non-Life segment, starting with slide 21. Non-Life reported a net income of CHF125m, an increase of 21% compared to the first quarter of 2004. This increase was primarily driven by further improvements in underwriting results and reduced charges for divested operations.

Some brief comments on [Excel]. As we already have informed you some time ago, the proceeding before that independent actuary is pending. I am not in a position to make a precise statement with respect to the relevant timetable, as it is up to the independent actuary to determine the relevant time schedule. However, we do not expect any results before the end of the year.

From a material point of view, we can reiterate that, on the basis of the facts known, we believe that the currently recorded provision is adequate to cover the contingencies related to this transaction.

Net premiums earned, as shown on slide 22, decreased by 3% to CHF2.7b. This decline was primarily due to a lower level of premiums financed through bonuses in the German health business and the impact of the weakening U.S. dollar, partially offset by premium growth in Switzerland in the Motor, Accident and Health business.

Combined ratio improved by 1 percentage point to 99.4%, as a lower level of large losses and improvements in several market units reduced the claims ratio to 75.3%.

On the cost side, underwriting, acquisition and administration expenses remained relatively flat overall. Thus, with stable expenses and slightly lower premiums, the expense ratio increased to 24.1%.

Let's go on to the investment results on slide 23. The net investment return decreased slightly to 5%. The net current investment return remains stable at 3.5%, while net realized gains decreased by 0.1 percentage point, as slightly higher gains were more than compensated by higher realized losses.

That concludes the review of the segment results. Now for a few comments about the Group's and Winterthur's capital situation on the next slide.

The consolidated BIS Tier 1 ratio decreased slightly to a still strong 12.1%. This slight decline is driven by an increase in risk-weighted assets, due to the strengthening of the U.S. dollar and the increase of certain balance sheet position and market risks, in line with our business plans.

Compared to year-end 2004, Winterthur increased its shareholders' equity by CHF0.3b, to CHF8.5b.

When presenting our first quarter results, we also usually give an update on the year-end solvency position at Winterthur, based on its consolidated EU solvency ratio. Since year-end 2003, its ratio has increased from 168% to stand at 192% as of December 31, 2004.

Onto slide number 25. Our strong start to 2005 is reflected in the progress we made against the Group performance goals we presented in December. As you will note, we met or exceeded our goals in most areas. Of course, one quarter is not yet a trend and there are still enough areas that leave room for improvement.

We have a lot of work still to do and we fully expect that we will have our ups and downs as we continue down the path of implementing our strategy. It will take time to realize the full potential of our franchise. But for now we are encouraged by these results, and believe more than ever that we are on the way to delivering on our plan.

That leads me to the summary and outlook, as detailed on slide 26, which is the last slide. Following a generally more favorable business climate in the first quarter, we expect to see market activity to slow considerably in the second quarter. However, we expect market conditions to improve again in the second half of 2005.

Less buoyant market conditions are likely to result in more subdued client activity overall, bringing with it a corresponding decrease in business volumes. We will concentrate on diligently responding to these trends to capture growth opportunities and ensuring we have the necessary measures in place to respond rapidly to changing client requirements.

With that, I would like to open the Q&A session by taking the first question from the telephone conference. Thank you.

[OPERATOR INSTRUCTIONS]. The first question is from Mr. Vasco Moreno, KBW.

Good morning. It's Vasco Moreno from Keefe, Bruyette and Woods.

Good morning to you.

Good morning. Just a few questions actually. On Private Banking, are you seeing any kind of deterioration in terms of the compensation trends in Private Banking? I suppose the issue is are you finding that you actually have to actually compensate your employees better than you did say a year ago or a couple of years ago?

The second question is related to the large inflow in the PCS business in the U.S. Can you give us some idea as to what that was as a one-off? Is that business recuperating as far as your franchise is concerned?

The third question would be on the corporate center. We saw you had CHF25m pre-tax profit. Can you give us an idea as to whether or not the over-the-cycle losses that we usually tend to see, if that has changed in any way? And why the reason or -- yes, why the -- what's the major factor behind the pre-tax profit in the first quarter?

And I suppose lastly, can you just give us your thoughts on the disposal of Winterthur. Obviously you've talked about it before. Not that the environment is that much better for a disposal right now, but if you can just give us an update on that that would be great.

Sure we can do it. Thank you for your questions. Let me start with the two last ones before I give the word to Ulrich Korner and Neil Moskowitz respectively.

On the corporate center costs, as we said, we expect the corporate center line and, by the way, these are not losses. These are costs that we are having on corporate center. And that line also includes adjustments which are inter-segment, inter-Company adjustments that can go this or that way. And as we clearly gave a guidance, this will be roughly around minus CHF200m for the full year, which we are not changing.

On Winterthur, the situation is the same as we outlined before. We are up for an IPO for Winterthur. We are preparing Winterthur for an IPO. You have seen the announcement regarding the governance structure yesterday and we changed the board composition.

But we are not in a hurry to dispose this asset if we do not get the right price for it. And it would not be in the interest of the shareholders and therefore we will not do that. So timing is basically depending on how the market develops. And right now there is no significant move to what we are seen before.

I would give now the word to Ulrich to answer the question about the compensation plans in Private Banking.

Yes, thanks Renato. With respect to compensation, Private Banking, I would like to make basically two comparisons with respect to your question. The first one is in respect to Q4 compensation benefits. There you have two different effects which you can see in that with respect to that increase.

First one is the increase which Renato mentioned before, which is due to higher performance-related compensation accruals which are fully in line with the better result in that comparison. And the second effect which you see there is that Q4 '04 basically benefited from a reversal of bonus accruals due to deferred compensation in Q4 '04.

If you can make the same comparison Q1 versus Q1 a year ago, you see only a slight increase in that respect. And that slight increase is driven basically by additional headcount. And that additional headcount is in the front offices of Private Banking and is fully in line with our strategy, with special focus on Asia, for example, but also on Europe.

Hi, this is Neil Moskowitz. With regards to the PCS business and the inflow of assets and is that a sign that the business is recuperating, I would say that the inflow of assets is both corporate cash assets and assets from existing clients. We're always happy to have those assets come in.

I would say that with regards to the business recuperating, that may not be proven of itself, although it's a good sign. I think two other things are more indicative of the business and the outlook for the future in terms of improved outlook.

One is that we hired a new head, Gary Neuser, who I think has got a lot of great ideas, who's going to bring some fresh -- some fresh insight into that business. And the secondly I think, in general, that business will be helped as we get closer and do a better job of integrating with the larger private banking business in Credit Suisse Group.

Thank you very much gentlemen.

You're welcome.

The next question is from Mr. Jeremy Sigee, Citigroup. Please go ahead sir.

Thanks very much. I was going to focus on Institutional Securities, if I could. Firstly, could you just clarify the number of private equity gains that's included in other income, which I think is about CHF250 to CHF300m? Could you just clarify that? And also talk a bit about what the nature of that portfolio that's different from what you have in Asset and Wealth Management.

Secondly, still in that division, there's obviously a big drop in the non-comp expenses. I wonder if you could talk about any specific drivers for that and the sustainability of that relative to the drift up that we saw last year as we went through the year.

And thirdly, finally, I just wondered if you could -- you're making a cautious comment about the second quarter, but a more optimistic statement about how you see the second half development. I just wondered if you could talk about any lead indicators that support that optimism for the second half.

Neil, you start please.

Alright, I'll start first. I just want to clarify your question first about the private equity gains. Are you talking about the private -- could you clarify that?

Yes, I'm talking about -- there's a reference to private equity gains within other income in Institutional Securities, so not in Wealth and Asset Management, but in Institutional Securities, which I think is something CHF250 to CHF300m. But I just wondered if you could clarify that number. So within the other income of Institutional Securities.

Right, it is within the other income, there are several items in there. One of those items does relate to private equity gains which are on a set of private equity portfolios, which essentially are the private equity portfolios that we had on board prior to our DLJ merger.

And those portfolios over time, we have whittled down and, frankly, are pretty happy with the set of holdings that we have right now in there. But they remain in legacy in that they were not -- they were something that came on before we really made the business a core business focus. Any other portfolios that have been taken on since then are part of the regular operating private equity portfolio.

With regards to the number on the private equity gains and other, I would not ascribe the entire other revenues that you see to the private equity gains. In fact, probably the biggest portion of the change that you will see from one quarter to another is merely netted out because it's minority interest. But there were some private equity gains in the first quarter that did contribute to some of those gains in other as well. I hope that clarifies the difference between that and what's in WAM.

The second question was around non-comp and the drop we saw. I assume you are referring between the fourth quarter last year and the first quarter this year. Is that correct?

Yes.

Okay. And how sustainable is that drop over time? Generally I do notice in our business that you tend to find non-comp expenses do drift up more toward -- as you get to the end of the year. While everyone tries to accrue for those properly, the fact of the matter is a lot of the bills from the legal firms and other professional fees tend to come in very heavily at the end of the year.

So I would expect that, all things being equal, that number would drift up a little bit. That said, we will try to manage that very closely. And it is something we watch very closely.

Thank you Neil. And regarding the outlook, I can give you some of our views on this page. Globally, we believe that the economic outlook is somewhat slower than over the last six months, but still overall expanding at a reasonable pace.

By region, the U.S. is fastest in all major economies, as corporate spend will partially replace, we believe, slow in consumer spend. Elsewhere, the euro zone will be disappointing in our view. Switzerland expanding only slowly. Japan is in a slow structural recovery.

U.S. short grades are set to continue -- are set to continue rising significantly, we believe to around 4% by year end. Thus the Fed remains concerned over inflation, despite slower economy. And this is likely to cause U.S. bond deals to move up somewhat from current levels.

Our appreciation of the development is more reflecting what we see happening right now in the markets. And we believe that this trend is temporary and will pick up sometime in the second half.

I hope you're right. Thank you very much.

You're welcome. Next question please.

The next question is from Mr. Kinner Lakhani, ABN Amro. Please go ahead sir.

Hi. I've got two questions. The first question is actually on the chart on page 15 of the quarterly report where you show the adjusted trading revenues versus value at risk. I wonder if you could comment on the -- how the quarter has basically evolved. It does look like March is significantly weaker than January and February. And is that more an indication of what we can expect in the coming months? And in particular which areas of trading revenues would have been relatively weaker?

Second question is on equities actually, where on a year-on-year basis you seem to have underperformed the industry. To what extent is this a franchise issue or to what extent is it business mix?

Thank you for the question. Neil, can you take this please?

The first question with regards to your note on the back testing, I assume that's the chart you're looking at is the back testing chart. Yes, I do think you see that the results particularly at the end of March on the trading side seemed to drop off a little bit. Again, that's some of the concern that we've noted about the second quarter coming forward, started the last couple of weeks in March.

And I think from listening to our competitors' announcements, they too experienced some issues starting around this time. Thus to the comments I think that [Ozzy] makes at the beginning of the -- in the beginning of the quarterly report around his views of the second quarter and then following slightly more optimistic the rest of the year.

The second question was around equity and underperformance. Were you talking to underwriting there? I just want to be clear.

No. I'm actually talking sales and trading revenue.

Yes, you talk to the trading side, the actual trading.

Absolutely.

Yes, I think actually our equity trading revenues were not as strong as we might have hoped they would have been the first quarter. That said, looked over a longer period, we do feel we had a good fourth quarter with our equity trading revenues.

We like where we are in terms of our franchise there, particularly around derivatives and convertibles. Again, it was a very tough quarter for convertibles. I believe you may know that there is actually more redemptions of convertibles in the fourth quarter -- in the first quarter than there were new issues.

So again, I think with equity trading, we don't think we have fundamental problems there. In fact, we like our positioning in some of the higher margin franchises.

Sorry, just to come back on the trading revenues on page 15 actually. Could you maybe comment on the composition of what is driving, let's say, the relative weaker performance in March compared to January and February in terms of fixed income versus debt. And if you could break that down even further.

That probably gets very fine to be cutting down fixed income and equity revenues, or breaking them down over what is essentially a two-week period there on the chart. That's probably a little detailed disclosure that we'd probably rather not do it this time.

Sure.

Okay. Thank you. May we take the next question please?

The next question is from Mr. [Kiana Abu Hussein], JP Morgan. Please go ahead sir.

Yes, hi. I have a few questions. The first one is related to alternative capital. In various divisions in the other revenue line you are taking gains here. Can you just tell me how much there are in total and how they break up between the divisions?

Yes, you're referring to the investment-related gains line on page 27?

That is correct, yes.

Okay. And your question is how much of those refer to alternative capital versus, say, Credit Suisse Asset Management or Private Client Services?

Yes. For each division if you could give me this.

Yes, basically the vast -- almost all of it refers to -- would be through alternative capital.

Okay. Okay. The second question is related to your private equity book in the Institutional Securities business. If I look at page 28, you talk about active private equity of CHF1.3b. Is that the size of the book? Or could you give us an idea of the size of the book.

You were saying page 28?

Yes, in your press release. That's actually -- no that's actually part of Wealth Management isn't it?

Yes, that's Wealth and Asset Management.

Can you give me an idea how big the book is?

In Wealth and Asset Management?

No, in Institutional Securities.

Yes, that's something we're not showing -- we're not showing that breakout at this point.

And just to understand the impact from that book, if I take the minorities interest, the change in accounting [since 46], which I assume is about CHF111m impact in other revenues in that line. Is that correct in the revenue line? [282]?

Yes.

If I then compare that to last year, which his a difference of about CHF70m, is that roughly your private equity gain?

No, private equity is part of the remainder, but not all of the remainder in other.

Alright. Then a question regarding your consolidation of your different operations. Is it actually possible under U.S. legislation to consolidate your U.S. operation CSFB into the Group? Or are there any issues legally that you cannot do that in the U.S.?

We don't quite understand the question. We have to consolidate all our operation worldwide into the Group.

Yes, but you have to operate separate subsidiaries and the U.S. law is quite clear on that. Do you -- can you actually find synergies in the U.S. by consolidating your operations in the U.S. alone?

Okay. I know what you mean. The merge of the legal entities is the two -- the merger of the two legal entities we have in Switzerland. That is what we are going to do. So we are merging the two entities that have banking licenses here into one.

And the broker dealer subsidiary in the U.S. is one of those. And, of course, they have to file separately also to the authorities in the U.S. And that will remain this way going forward.

So they will remain separate?

They will be a subsidiary of the new one bank which, in itself, has to provide certain filings to the SEC and the Fed and what have you.

And does that limit in any way synergy potential?

No it doesn't. Not at all.

Okay. And the last question is on your trading efficiency. If I look at your value at risk, and you actually talk about propping down year on year, but your value at risk was roughly the same. I look at Institutional Securities capital increasing. How would you -- I'm sure you do this comparison, how do you compare trading efficiency on the prop side compared to competitors? How would you rank yourself? At this point, I know, it's something that you're working on.

Well it's -- our competitors generally don't disclose what revenues they have on the prop side, per se. They generally just disclose either fixed income --

But I'm sure from volume environment studies or in terms of just looking trading relative to value at risk.

Yes, I think we do some internal measurements as best we can. We will run data that you guys can run yourselves. For example, we will look at our value at risk and compare that to our trading revenues as you guys probably do as well when you look across the competitive landscape and look how we compare on those measures. Although you have to be very careful and normalize your value at risk because everyone -- or most people report them a little bit differently. It could be 95 versus 99% confidence, then although it could be different days. So those adjustments -- you have to make those adjustments.

Okay?

Okay. Thanks.

Thank you. Next question please.

The next question is from Miss Fiona Swaffield, Execution. Please go ahead madam.

Good morning. Could you spend a bit more time of slide four in terms of the -- what the One Bank integration actually means? Do you think you're going to give the market targets in terms of what you're aiming to do on the revenue side and what you're aiming to do on the cost side because I think I'm struggling to understand exactly what it means in terms of magnitude? Could you talk about where you could get revenue synergies? Whether this is internalization of commissions, for example, and where you could get cost cuts. That would be very helpful.

And the second issues is going back to this proprietary trading, at the time of the investor day in December, you talked about increasing your exposure to proprietary trading. Could you talk about where we've got to because obviously you mentioned that value at risk is flat Q1/Q1, but it's up a bit versus Q4. Have you not really basically gone down the road yet of increasing the proprietary trading? Could you marry that with the fact that you said proprietary trading is down Q1/Q1. So is it just that it hasn't been very successful or is it just that you haven't really put the capital to work yet?

And the third question is on the staff cost to revenue in the Institutional Securities business. I think Brady Dougan said in the last conference call that would be down year on year. Obviously it's started to go down. Could you comment in a more difficult revenue environment whether you can keep the staff cost to revenue ratio down 2005 on 2004? Thanks.

Thank you for the questions. I will take the first one. And that is the financial impact you ask about the One Bank integration. We have clearly pointed out on our December 7 analyst day that our target is the CHF8b net income for 2007, which does not -- I underline, does not include any benefit from the One Bank, which is obviously because they had to plan that as if they were still independent units.

So the benefits from the One Bank integration will accrue over the three years. But having gone through this kind of exercise [minefield] many times before, you also have costs associated in such an exercise going through. You have to invest in systems. You have to change structures and so forth.

For instance, as you could realize, we also had severance costs. So that is part of the normal ongoing business. And we are just being, in that sense, conservative in saying it will be at least a black zero. But we are not quantifying the effect for the three years until we have set the target for '07.

That means that at that time we are going to be, of course, on a higher cruising out of it when it comes to profitability. But that is the point we are taking. But we are working on all these integration streams, as I told you, and we will get the benefits of them.

So does that mean that at some stage later on in the process you will tell us -- give us some idea of how it's impacted the results?

Yes, we may do that. But to be quite honest it is always quite difficult to quantify that because what is now due to better market conditions, what is due to anyway cost control we have initiated a while ago, what is due to a different structure of the Group and so forth. This is utterly difficult in such an environment and in a Company of our size.

So of course, we will try to quantify as much as we can and also give you feedback if some improvement has been due to the One Bank development, for sure.

And then I give two questions -- the answer for the other two questions to Neil.

Yes, I think the first question you asked was that the Q1 to Q1 results in prop trading, at least from the narrative, appear not to be as strong. And the value at risk appears to be the same. And so how's the proprietary trading emphasis that you talked about in your strategy coming along. I think that was basically the question.

And I would start by saying that Q1 last year, on the prop side, we nailed it pretty well. We had a good bet on the dollar. And we got that right. And it was an excellent quarter for us in prop.

I would say that since December and even up to that, we have started to bring on some new folks in proprietary trading area. We are putting on trades in areas that we haven't put on some trades prior to that. For example, we have a new trader in Japan on the Japanese swaps desk who's putting on some trades there. And that strategy is underway. It was a good quarter, though not as -- a great quarter like Q1 was last year in prop.

The second question is around -- by the way I'd also mention in prop we have consolidated the entire prop effort firm-wide under Bob [Jane], who was previously head of equity prop, which was an area that we felt we had been fairly strong in for a while now. And Bob's in the process or organizing the entire Group across the firm and making new hires as well.

On the comp to -- was it comp to revenue or cost to revenue you were asking?

Staff compensation to revenue.

Staff comp to revenue. Okay. As you can see, the staff comp to revenue last year pretty much we had targeted [53.2]. We stayed on that number pretty much most of the year.

This year we do want to come in with a lower number than that. First quarter, as you can see, we have put up [51.9] as our benchmark. We will obviously endeavor to be lower than 53.2. We are going to see over the next quarter how our competitors are paying. And if this number is right, it looks -- it's certainly going to be lower than 53.2. Whether it's the exact number, it's hard to tell at this point.

Could I just come back to Renato's answer on the issue of One Bank. One thing that I think has been hinted at in December was the internalization of commissions. So how much the Private Bank and Asset Management pay internally rather than paying away to the rest of the market. Could you comment on whether that's something you're looking at, because that must be quite easy to track in terms of the impact it has on your numbers.

You can be absolutely certain that we are looking are looking at everything which improves, as you say, the internalization of our businesses. And it's actually part of one of the streams I just mentioned, one of the 26 integration workstreams we have created. Absolutely.

But is there any way you can explain to everybody where the starting point is? So would you think CS is below the rest of the market in terms of how efficient it's been internalizing?

Again, this is part of the work of these streams right now to assess the status quo, what can we do and where do we go going forward. And we may or may not communicate any of the conclusions of these streams going forward. But I am not in a position to give you any data right now for the simple reason that I don't have them yet because that's part of the workstream's task.

Okay. Thank you.

You're welcome. Thanks for the questions. May we have the next one please?

The next question is from Mr. Alistair Ryan, UBS. Please go ahead, sir.

Thanks. Two questions on Winterthur, if I may. First, is the IPO dependent on the XL settlement? Or are you looking at those two things as independent?

And secondly, in terms of investment risks, how would you sort of characterize the balance sheet, in terms of -- you know -- equity versus debt, and lower-grade credit versus high-grade? Thanks.

Okay. I'll take the first question and give the second one then to Hans to answer. The IPO, again, as I said before, is a question of the market being ready and willing to pay the price -- you know -- which is needed to satisfy shareholders' interests. And of course that is also reflecting whatever is the outcome of the XL settlement. Now again, as [we already] said, we are not in a hurry, and we hope that we can settle the XL case by this year. And most likely now, this is of course better for an IPO if these things are settled.

Okay. Hi. This is Hans Lienau. Did I get your question right that you wanted to know what the percentage of our equity portfolio is in comparison to the total portfolio?

Yes. I mean, is it -- you know -- as far as you can give figures, just how exposed are you to low-grade corporate debt or equity, relative to government bonds or high-grade credit? I mean, how would you characterize the sort of risk on Winterthur's balance sheet? Is it mainly interest rate risk? Is it mainly credit? Is it equity risk?

Well, generally, just to give a start with, we have the bulk of our portfolio, it's all high-grade investments. And we have very slight investments in BBB -- that's in the range of 8%. So, high-grade investment.

And I didn't quite get your second question. The equity is roughly 5% of our total portfolio.

Okay. That's exactly the question. Thanks.

Very good. Thank you. Can we get the next question, please?

The next question is from [Gregory Goulard], Merrill Lynch. Please go ahead, sir.

Yes. Good morning. Two questions. The first one, you reported CHF58m of severance cost savings in the Investment Bank. I was wondering if that would recur if the division head of the plan [indiscernible] securities of [indiscernible]. So, just [being backward and forward thing].

And the second, yes, I would like to dig into my former colleague, Fiona's, question about the One Bank because I think it's quite critical. If I understand well, I think that's basically the hint you gave to the market, Renato. When you had your investor day on the 7th, it seemed obvious that you would organize another investor day, or a communique at least, on -- you know -- new targets that would include those impact of the One Bank. Does it mean you're backtracking from that?

Okay. Let me take the first question -- the second question -- first. We're not backtracking at all from anything. You know, you have to distinguish between two things. One is the targets we have set out on December 7, which is still under the old structure-- Now, we are going to change the structure into a new structure, and of course we have to give to the market the targets under the new structure. Hopefully, in total, they're below the CHF8b you have seen before. You'll just see the different segments that will contribute to these CHF8b. So that will happen sometime in Q1 '06 when we have made all the restatements, so that you can see also the history. And then we'll, of course, also give the targets for the new segments going forward -- you know -- ideally of course at least up to the end of '07, to the market.

But that has nothing to do with the question that came in before regarding the benefits of the changes and the One Bank reorganization as such. And these are on top of these targets -- you know -- as we go. So we-- And we will report -- you know -- regularly on the progress of the One Bank development. It's just that we are now three months away from our initial communication, and we have done, of course,-- I mentioned for instance the Global Treasury and Global Tax functions, which is already operational. So that's a very first step. But the other 26 streams are really working hard right now to come up with solutions and -- you know. What is that for the Group as a whole? And results will be coming as we go throughout 2005, and we will communicate as soon as we -- you know -- know more. And of course we will also communicate that to the external market.

The other question will be answered by Neil.

The other question was with regards to severance, and do we see that, utterly the CHF58m, recurring on a regular basis. The short answer to that is no, in that really what you saw in the fourth quarter, as well as the first quarter, was the result of a strategy that we announced on December 7, and then the client-focused initiatives we took on as a result of that. Going forward, obviously, there's going to be severance. There's a lot of change that always happens in this business, but within CSFB and between CSFB and the other parts of the Group. But there's no planned severance at this point.

Okay, cool. Thanks.

Does that answer your questions? Okay, can I have the next one, please?

The next question is from Mr. [Ewan Stoney], Morgan Stanley. Please go ahead, sir.

Yes. Good morning. Two quick ones on the Private Bank. First, could you give us a little bit more color on the split of where your CHF7b of new money came from, and in particular what proportion is on Asia?

And then secondly, on the CHF7b, what's the [indiscernible] extra number, given Q1 is normally the strongest quarter of the year for trading -- for client activity and inflows? Would it be fair to say it will be quite challenging to meet your 5% mid-term goal this year? I mean, are there any special factors we need to think about? Or would your comment client activity becoming more subdued probably have a fair read across the Private Bank too? Thanks.

Thank you. Ulrich, can you take that?

Yes. With respect to your first question, we won't provide you with a full split of the CHF7b, but what I can assure you is that, especially the region you're asking for (Asia), but also on [Europe], they produced or achieved double-digit growth rates in the first quarter again. So, the inflow we saw there was very healthy, from our point of view.

And the second question, I'm not sure if I really got that fully. I understood that you were asking if that will be very difficult to meet our return target of 5% this year, based on what we have seen from the first quarter. And I would like to answer that we still believe very much in our mid-term target. There's no question. It's also not a question that we will have certain cycle over the year with respect to the reaching of that target. But we're still -- from what we have seen also in the pipeline -- we are still very optimistic for the whole year, with respect to that target.

Okay. Thanks.

Thank you for the questions. Next one, please.

The next question is from Mr. Christophe Richards, [indiscernible].

Yes. Thank you. Hi. Can you give us an explanation for the strong increase in 'other expenses' of the Group's P&L by 28%, compared to Q4, and whether these CHF1.8b of 'total other expenses' is a level which we can expect to be sustainable going forward? Because I think compared to the past it's on a quite low level. Thank you.

You've got me on the wrong foot. Which table are you--

The table on page 35, the Group consolidated statement of income. There I refer to the line item 'other expenses' of CHF1.79b.

Yes. You have to compare that, of course, as there is a lot of seasonality on that. You have to compare that with Q1 of 2004. And there you will see that it's almost the same.

Yes. But going back a little bit more in the past, I think it's still a low level. So you do not expect that to be a new low level? So, you think it can go up to CHF8b, quarter by quarter?

That's absolutely right. That's not the trend.

Okay. Thank you.

You're welcome. The next question, please.

Mr. Fassbind, there are no more questions at this time.

Okay. So, thank you very much for joining us for this interesting discussion. And I hope to see you all here again soon. Thanks a lot. Have a good day. Goodbye.

Ladies and gentlemen, the conference call is now concluded. You may disconnect your telephone. Thank you for calling.