Credit Suisse Group AG (CS) 2007 Q4 法說會逐字稿

Welcome. We're pleased to have been able to announce record earnings for the full year 2007, ending the year with a strong capital base and an increased dividend for 2007 in the face of challenging conditions for our industry. More importantly, looking ahead, we believe Credit Suisse is ideally positioned to build shareholder value.

What we will present to you today will essentially boil down to three major points - we have outperformed much of the industry, we have managed our risks well, we have a resilient business with attractive growth prospects.

First, Credit Suisse has outperformed much of the industry over the last year by virtue of its high-quality business franchises, diversified business model, strong capital and solid funding base and strong risk management culture. In the future, this positions us well with a unique business line and geographical diversity of earnings, strong momentum with clients, employees and prospective employees, continuity of management and strategy at a time when many competitors are disrupted, and an extremely strong capital base with no dilution of existing shareholders.

Second, our net write-downs in the fourth quarter and for the year were relatively small. Our risk exposures in leveraged finance and CMBS are well-diversified and have been reduced substantially during the fourth quarter. The prospects are good for continued risk reduction, which also bodes well for recovery in these businesses.

Third, our prospects for profitable growth in 2008 and beyond are attractive compared to the rest of the industry, particularly if this is a more difficult year for the business. Our globally diversified earning streams provide the basis for stability and growth, especially in more difficult markets. Our Wealth Management business, which achieved record results in 2007, plays a particularly important part in this. Its increasingly global footprint provides strong and steady earnings and the combination with our Investment Banking and Asset Management business is at the heart of our unique business model and growth strategy.

We can build tremendous value through our integrated bank and we will explain how we are going to do that and lay out specific goals for that effort. We have excellent growth prospects across our businesses and we head into 2008 with one of the leanest operations in the industry.

Our 2007 performance is relevant because it has given us a solid base and momentum to build on - solid earnings, strong capital, conservative funding, momentum with our clients, stability of management and employees, and manageable risks which we continue to work down. It also demonstrates the quality of our management team, in my view crucial for our future prospects.

These are highly unusual times in our industry and in the markets. At Credit Suisse, we do believe we have a unique opportunity to build value for our shareholders. I am confident our 2008 performance will be strong relative to the industry. This is because of our good position in the current markets, our diversified business mix, our continued progress on efficiency and further opportunities to fully realize the value of our integrated model.

We intend to make these opportunities to create value from the integrated bank as transparent as possible. So today we will provide you with a more detailed and transparent presentation of our results and our prospects. You will see that we are giving you a very transparent view of our business, particularly our risk positions. We believe that this is the right thing to do, despite the fact that in most of these areas our exposures are not material.

Obviously, markets today are full of uncertainty and our objective today is to provide comprehensive disclosure, comprehensive disclosure not only of what happened in our business, but more importantly how we believe we're going to build substantial value in our business over time, in good and bad market conditions, and what milestones you can expect us to meet in pursuing that value creation.

We believe we are exceptionally well-positioned as a result of what has taken place over the last eight months, and we believe we can capitalize on that position and take our business to the next level in terms of profitability and growth.

So what are we going to cover today? First, Renato Fassbind will discuss the details of our results. After Renato speaks, Wilson Ervin, our Head of Risk Management, will give a thorough description of our risk positions and focus on what happened within the fourth quarter. Then I will talk about what we think the prospects are for this year and, most importantly, what our focus is going to be throughout 2008 and beyond. We will then open it up for questions for any of the speakers and our three division heads will also be available for questions at that time.

Renato?

Thank you, Brady, and good morning to everyone here in the auditorium and to those of you via the web or the telephone.

Let me start with slide five. We are pleased with our record results for 2007, which we achieved despite the severe market dislocation in the second half of the year. Our diversified business mix, integrated operating model and strong risk management culture enabled us to deliver year-on-year growth in revenues and income from continuing operations.

And we exceeded the original net income target of CHF8.2b for 2007, which we established back in 2004. The strength of our Private Banking platform was an important pillar of our performance this year, as we delivered record results in both Wealth Management and Corporate and Retail Banking. In Investment Banking, we navigated well through the problems emerging from the credit crisis, successfully avoiding excessive exposures and losses.

Based on our performance and our capital strength, the Board of Directors will propose a 12% increase in the cash dividend to CHF2.50 per share.

Slide six sets out a few key performance metrics. I have already mentioned the growth in income from continuing operations. Diluted EPS also improved from the third quarter to CHF1.21 and to CHF7.65 for the year, which is up 6% from last year. The return on equity in the quarter was 12.4%, in line with previous quarters. The full-year return on equity was at 19.8%. The cost/income ratio was just below 80% in the second half of the year, reversing some of the ratio improvements we saw in the first half. We closed the year at 70.8%, slightly above the 2006 ratio.

The target tax rate for the year was 22%. The income tax expense for the year included two special items which totaled CHF398m, of which CHF83m relates to the fourth quarter. If you adjust for these two special items, the effective rate this year was just under 20%, as we benefited from the profit contribution being biased towards lower tax regimes and effective tax planning. We have also lowered, important to note, our tax rate guidance for 2008 to 21%.

Taking a closer look at the divisions, on slide seven. This slide shows you the analysis of our integrated banking business, as the combination of Private Banking, Investment Banking and Asset Management provide a balanced and diversified earnings mix.

We achieved a record result in Private Banking. We have talked about the need to balance our ambitious growth plans with our strong focus on maintaining our profitability and improving our productivity margins. We achieved this in 2007 with a 19% growth in pre-tax income, while improving the pre-tax margin to over 40%.

Pre-tax income in Investment Banking was down 19% from last year's record results, reflecting the challenging environment in the second half of 2007. It would have been down 11% if we excluded the one-off insurance settlement received in 2006.

For Asset Management, pre-tax income went down 30% as the losses we incurred on the securities purchased from our money market funds masked an otherwise strong improvement in the profitability, as indicated with the shaded boxes on this chart, which exclude the losses from these positions. Recording these losses was disappointing. We're also going to spend some time today to explain what happened here.

Slide eight is a new disclosure for us. I mentioned earlier the benefits of diversified income streams coming from Private Banking, Asset Management and Investment Banking. The charts on this slide show you a similar picture of revenue and pre-tax income contribution, this time not valuation but by geographic region.

Revenue contribution, as shown on the left, shows a unique diversification, with the Americas, EMEA and Switzerland contributing equally to revenues. And while Asia is currently smaller, it shows an impressive 23% growth rate.

In terms of pre-tax income, our home market Switzerland continues to be the anchor of our profitability. Most importantly, these numbers demonstrate the growth of our franchises outside the United States. Pre-tax income in Asia and Europe both grew at 50% in 2007 and you can see that our franchise in Switzerland also showed very healthy growth at 19%.

These growth rates show strong momentum in regions around the world. You can see that we also have a uniquely balanced global footprint, as steady growth from developed markets is supported by a growing contribution from emerging markets in Asia, EMEA and Latin America. The balance -- this balance and the strong growth rates in Switzerland, Europe and Asia are a critical differential strength for us and demonstrate our progress towards becoming a global company and the resilience of our diversified business model in delivering consistent earnings.

Let me review the cost ratios on slide nine. We are making progress towards our commitment to achieve top quartile levels of efficiency. Our Group's cost/income ratio improved in 2007 despite the challenging markets. At the Group level, the 2007 compensation ratio was down 43% compared to 45% last year. Later in this presentation, Brady will talk about how we see the cost/income ratio to develop over the next few years.

Let me turn to the divisional results, starting with Private Banking on slide 10. In Wealth Management we continue to deliver strong results. We achieved record revenues and pre-tax income and the pre-tax margin came in above our target level of 40%. Net new assets stood at CHF50.2b this year, representing a 6.4% annual growth.

We maintain a strong and health client base and have seen some signs of more cautious behavior as clients sought to reposition their portfolios away from higher risk or more volatile asset classes. All client investments are selected after a comprehensive needs-based assessment of their risk appetite and are executed on our open platform. We actively advise our clients in this process and draw upon our outstanding set of products, research and related specialized services.

While the current improvement in profitability is very strong, we don't stop there. As shown on slide 11, we are expanding our global franchise, focusing on both the larger mature markets and the fast-growing emerging markets. In 2007 we opened 10 new locations in established and new countries, such as Austria, Israel, Australia, China and the United States.

We also added around 1,000 new employees globally. More specifically, we hired 320 new relationship managers in 2007, well above the average of around 200 relationship managers per annum over the last three years. We clearly increased the pace at which we are hiring relationship managers. Of the 320 total in 2007, 70% were added in the second half of the year, with a bias towards Asia, Middle East and Latin America. We expect this trend to continue. Our strong performance and the turmoil we see at many competitors means this is an ideal time for us to acquire great people. Our hiring pipeline continues to be very strong and we plan to add close to 1,000 relationship managers by the end of 2010.

Let me go on with slide 12, which shows total revenues increase of 17% for the year, which included a 23% increase in recurring revenues. Some of the increase relates directly to the 13% increase in average assets under management. We also benefited from an increase in net interest income and commissions and fees, including fees from managed investment products. We focus on managed investment products as they are an efficient way for our clients to diversify risk in their portfolios and give them access to alternative investment classes.

It has always been our main objective to provide comprehensive and professional investment advice to preserve and grow our clients' wealth. In today's environment, the products themselves have become more complex and the time to react to changing markets has become even shorter. As clients have less time to manage their financial investments, especially in these challenging markets, managed investment products have become an important feature of our clients' portfolio.

As you can see at the bottom of the chart, the share of recurring revenues for the year increased by more than 3 percentage points to 66.7%. This is fully in line with our strategy to increase the share of our revenue coming from recurring fee income and we have been making progress here as we continue to see positive trends in our industry-leading gross margin.

The full-year margin, as you can see on this slide, increased to 115 basis points as a result of strong growth in recurring revenues. This more than offset the reduction of -- by 3 basis points in the transaction-based margin. This is a clear indication that our momentum in delivering value-added services to our clients continues to build. This trend will continue and even gain momentum from our increased effectiveness at delivering the entire Bank's resources to our clients.

We remain above our 6% per annum net new asset target. In the early quarters of this year, inflows in particular from Asia lagged our potential, but we are seeing an acceleration of momentum in net new assets, including a flight to quality in Private Banking. Asia in particular is showing strong improvement.

The Swiss Corporate and Retail Banking business, on slide 14, delivered another strong result. Annual pre-tax income of CHF1.6b was a record, driven by record revenues and good cost control. Credit costs continued to be low as the favorable environment continued.

Before I now leave the review of the Private Banking businesses, I would like to reiterate the fact that we expect these businesses to continue to show stable results and provide a strong anchor to our future profitability, particularly in Wealth Management, which offers unique growth prospects within the financial services industry.

Let me continue with the results in the Investment Banking division on slide 15. The quarterly pre-tax income stood at CHF328m, an improvement from the previous quarter. And while our overall Investment Banking business was down 19%, lower profits in fixed income were offset by record years in equity and banking, showing the resilience of the overall business.

The results reflect the importance of our strong risk management culture in a stressed environment. On the full year, our fixed income business was profitable, a strong achievement in very difficult markets. Write-downs were well contained as we made good progress inroads to reducing risk positions. Wilson will present further details on this shortly.

On the next slide, I would like to look at the equity trading and underwriting results side by side. Full-year trading revenues increased 32% to reach a new record of over CHF7.7b. Trading results in the fourth quarter were excellent, with strong performances in global cash, prime services and derivatives. Equity underwriting revenues increased compared to the third quarter and were up 14% for the year, driven by increased contributions from IPOs, most notably in Latin America. In IPOs we improved our market position to number three, with an 8% market share for 2007.

Let's look at a similar analysis of fixed income revenues with slide 17. Fixed income trading conditions have been challenging, but many businesses continued to perform well. We saw a solid fourth quarter performance in rates, fixed income and foreign exchange, while the challenging markets continue to affect structured products and leveraged finance.

Let's have a look on how this has changed the revenue structure of our overall fixed income businesses. Slide 18 shows the combined contribution from our primary and secondary fixed income businesses. A significantly reduced contribution from leveraged finance and structured products is clearly visible. Nevertheless, we recorded an 18% increase in everything else, driven by strong performances in a number of areas, including rates, derivatives, emerging markets and foreign exchange. It is important to note that both leveraged finance and structured products reported positive revenues in these challenging markets, and the overall fixed income business was a positive pre-tax business in 2007.

The banking results on slide 19 show that combined underwriting and advisory results were up 3% from 2006. I have already discussed the underwriting performance shown on the left side. Advisory fees, as shown to the right, increased 19% from 2006. While this is encouraging, we also believe that our market share in M&A under-represents our potential and high ambitions, but building established and lasting relationships with corporates in the highly competitive advisory market remains a longer-term process.

Again, continuity of business strategy and people and our capital strength allowed us to excel in serving our customers over this period, so we expect to see continued market share gains.

Next, let's look at Investment Banking expenses on slide 20. We maintained our disciplined approach to compensation, despite challenging market conditions. Our compensation is based on many factors, including individual, product area and firm-wide performance. So the headline Investment Banking compensation ratio increased slightly from last year's level, to 50.6% in 2007. This ratio reflects the right balance between discipline and investment in the context of our record result as a firm, although this ratio would have been higher without the revenues from the fair value adjustments on Credit Suisse debt.

G&A expenses in Investment Banking are down in 2007, due to a continued focus on cost management. In fact, we got back to 2005 levels despite a 30% higher revenue base. This is a cost management discipline that I believe is unrivalled among investment banking competitors over that period.

Let me continue with Asset Management division on slide 21. The impact of the losses incurred on the securities purchased from our money market funds is in sharp contrast to the otherwise strong financial performance across most of our Asset Management businesses. Excluding the position losses, our result is up 74% over 2006.

As we realigned the Asset Management division during 2006, implemented and executed on our growth strategy in 2007, we have quickly seen the benefits come through. The improvement in this year resulted in an increase in underlying revenues of 22%, while total expenses increased only by 5%. Within expenses, G&A expenses actually declined 11% and compensation increased 12% as we hired investment talent to strengthen our basis for future business growth. This led to an underlying increase in pre-tax income from CHF733m to CHF1.27b. Including the money market losses on a reported basis, this business reported a loss of CHF247m in the quarter, resulting in a reduction in pre-tax income for the year from CHF508m in 2006 to CHF354m in 2007.

Since releasing the securities from the funds, we have reduced the portfolio on our balance sheet by 60% to CHF3.9b. The money market funds themselves have been stabilized at a strong liquidity position and no longer contain material exposures to subprime, CDOs or SIVs. Wilson will cover this later in his presentation, so let's have a look at the underlying revenue trend on slide 22.

Here we have split the revenues into the more stable asset management fees shown below and private equity gains in the upper part of the slide. The Private Equity business finished the year very strong, reporting CHF305m in gains in the fourth quarter alone. Recurring revenues also increased, both for the quarter and the year, driven by growth in our alternatives business and also in balanced mandates.

Net new assets, as shown on slide 23, have been materially affected by the situation in the money market business, where we have seen outflows of around CHF28b. This more than offset the strong new inflows in alternative investments during the year, amounting to over CHF25b. We also had positive contribution from balanced mandates and fixed income. We believe that the alternative asset inflows will fuel further revenue growth, as we have best-in-class capabilities in alternatives and this business accounts for 40% of our recurring asset management revenues.

This ends the discussion of the segments and I will now continue with the Group's capital position, as shown on slide 24.

Capital continues to be a strong story for Credit Suisse, as we remained well capitalized. As a sign of confidence in our prospects, we are proposing a cash dividend of CHF2.50 per share, an increase of 11% on the CHF2.24 we paid for 2006.

Just to remind you, last May we established our current CHF8b program to be completed by mid 2010. We accelerated this plan in August, to complete the plan in 2008. We are clearly well ahead of the pace in our CHF8b repurchase program, having bought back over CHF4b as of today. We originally intended to complete the program in full in 2008, but this appears currently less likely as we will continue to adjust our buyback activity in light of business and market conditions.

Our Tier 1 ratio has come down somewhat in the quarter, as risk-weighted assets have increased. This increase is primarily due to higher market risk equivalents, driven by the changes in VaR we have experienced during the quarter. From January 1 of this year, as you know, we are operating under the Basel 2 rules. We will report the new BIS Tier 1 ratio in the first quarter of 2008 and I can tell you that our year-end 2007 Tier 1 ratio would have been some 120 basis points lower than under Basel 1.

While Basel 2 is clearly a much improved measure for risk and capital compared to Basel 1, we have kept our Tier 1 target ratio at 10%, but we may allow our reported ratio to temporarily fall below this level, depending on where we see market opportunities. Compared to our peers, our Tier 1 ratio is clearly among the highest at the year end and we believe the capital advantage is very important in these markets.

We also believe our funding capabilities and asset liability structure are big advantages in this environment. The graph on slide 25 shows the balance sheet divided into main categories and, in short, it shows our main funding to asset relations. Reading at the asset side from the top downwards, it starts with our matched and secured repo business, a low-risk asset but a major part of our balance sheet. Next down are the liquid assets that consist primarily of trading, inventories and specifically include CHF60b of prime liquid positions that we could mobilize to generate additional liquidity at any time, if needed.

One category further down, in blue color, you can also see that our lending activities are typically self-funded from our deposit base. Overall, we ensure that funding in the short and medium term is extended to maintain a very conservative funding profile. The external market weakness actually worked in our favor here, as Credit Suisse was considered to be a safe haven in this market environment.

The funding sources shown on slide 26 are managed closely to get an optimum diversification across products, client segments and geography. Two key messages for this slide are stickiness of deposits and diversification. Our retail deposits and long-term debt together account for over two-thirds of our unsecured funding base. That said, our strong capital base and a general flight to quality amongst depositors helped to further grow our stable client deposit base. All our global funding activities are centralized into a single global treasury department. This way, we can ensure a most efficient access to global funding markets.

To conclude my presentation, let me summarize with slide 27. While markets were clearly difficult in the second half of the year, we still delivered a record full-year result in both revenues and income. Private Banking also delivered record results, while maintaining its growth momentum and further investing in the international expansion. In Investment Banking, we maneuvered well through the challenging environment, benefiting from the bank-wide risk management culture. And while performance in Asset Management was affected by the situation in the money market business, the underlying performance was very strong, bearing the fruits of a significant realignment which started two years ago.

We have the capital and strong balance sheet today to weather further disruptions in the market, as the conservative liquidity planning and strong risk management culture positioned us well going into the crisis and also thereafter.

With that, I welcome Wilson on this podium to present the next section of the presentation. Thank you very much.

Thanks, Renato. Morning. I last met with many of you of at a risk management Investor Day we held back in May of last year. The market environment at that time was still quite positive and feels like a very different world from the one we're living in today.

We used that day to set out the key features of our risk management approach, including how we prepare for crisis conditions. These features included a strong focus on proportionality, making sure risk was sized correctly to your balance sheet and your business franchise, mobility of assets, making sure you're active in the markets and you close tight through trading flows, and hedging to protect assets while they're on your balance sheet. We also talked about structural features, like a proactive risk culture, independent risk control and strong governance. These topics may have seemed a bit academic in the benign markets of last spring, but they have been critical in helping Credit Suisse get through the challenges of late 2007.

We ended 2007 in good shape, not perfect, we could have done better in Asset Management, but overall in a very strong position. Our balance sheet remains strong, our positions are manageable and we are able to focus on executing our strategy.

My objective today is to show you how we've navigated through these difficult markets and why our write-downs are small in the context of our peer group. There is always a fine line between being transparent and maintaining some confidentiality around your trading positions, but today we'll be primarily focused on transparency, given the concerns of investors, and are aiming for best-in-class disclosure on risk.

Next slide, please. My discussion will be divided into three sections today - first a detailed view on key business sectors in Investment Banking that have been most affected by the recent market conditions, second a presentation on the actions taken to address stress conditions in our asset management and money market funds, and finally a discussion of our overall risk framework, our key tools and our governance process.

Our Investment Banking business navigated effectively through difficult markets. We took total 2007 net write-downs of approximately CHF2b, which is among the lowest in our peer group. We were profitable in the third and fourth quarter and we delivered strong earnings across 2007. We avoided excessive subprime and CDO risks. Our positions are actively managed and they reduced significantly in the fourth quarter.

In Asset Management we addressed stress conditions in the money market sector. Securities were taken on balance sheet and marked to market, and that caused some significant losses. These money market funds are now restored to normal operations and the purchased securities have been reduced by 58% during the fourth quarter.

We have a strong risk framework in governance. We have an independent risk function that reports to the CEO, with strong senior oversight. We have independent pricing controls and consistent fair value disciplines across these key sectors, reporting to Renato, our CFO. We have disciplined credit selection and our credit performance continues to be solid.

In the next section I'll be giving you a lot of quantitative information on our positions and write-downs on a granular business line basis. Our hope is that this additional disclosure will help you more clearly understand our positions and how we achieved the strong results of 2007.

This slide presents an overview of the key business lines in the Investment Bank that are active in the markets which have seen the greatest challenges in 2007. We'll go through each of these sectors in more detail in the next few slides, but we've pulled together a summary of key information here to put this in context. We show you four key business lines in the various rows with a couple of breakouts. For example, in leveraged finance we show you both unfunded commitments as well as funded exposures that are on our balance sheet today.

The first block of numbers shows you the exposures at Q4 and Q3 and then the percentage change between those quarters. Next we show you the net write-downs in Q4 and for the full year. The second business is our commercial real estate business, or CMBS business. Here we've reduced our positions by 28% during the quarter, to CHF25.9b. Write-downs during the quarter were CHF384m and CHF554m on a year-to-date basis.

You can see at the far left that we've grouped these two businesses, leveraged finance and CMBS, together as primary origination-based businesses. These businesses underwrite credit positions for our customers, which we then look to distribute to investors. The exposures for these businesses are shown on a gross basis.

The next set of businesses are our residential mortgage and subprime CDO areas. In this sector, the primary origination business has not functioned normally for some time and we curtailed our origination activities a long time ago. Today, these are trading businesses where we make markets for clients on both the long side and the short side of our balance sheet. It's difficult to identify what gross exposure means in these markets. It simply doesn't make sense, given the current business model. So we use net exposures here as a better measure for these businesses and that's how they're show on this page.

In the residential mortgage line, we show you the total of all our RMBS credit positions, not just subprime but also some of the higher quality sectors and our non-U.S. exposures. The subtotal for subprime is shown on the line below. As Renato told you when we announced the third quarter results, we worked on our subprime exposures before the market dislocation was in full swing. Our net exposures were small at that time and have been further reduced in Q4 to CHF1.6b.

As Renato also told you, our exposure to CDOs was minimal at the end of the third quarter. Our CDO positions fluctuate up and down as part of normal trading activities and our net position at the end of the year was actually up slightly versus Q3, as we saw opportunities near year end.

In addition to the trading hedges that are included in the net exposures within the trading-based lines in this chart, we have two additional categories of hedges. In particular, we hold substantial index hedges to manage risk in these sectors. These hedges total some CHF27.1b of high-yield credit, crossover credit and mortgage index short positions. We also carry certain single-name hedges. All of these hedge categories are important and have helped us keep our net write-downs to manageable levels. As you can see in the chart, our net write-downs were CHF1.3b in Q4 and CHF2.0b for the year, which is among the lowest of the major banks.

Let me address two questions upfront. First, some of you may ask how did Credit Suisse achieve such a low annual write-down total, given the numbers disclosed for Q3 and now Q4. There are a couple of elements to this. First, some of our hedge positions were quite profitable in the first half, as they often reacted more quickly to deteriorating markets than the underlying assets. Second, we're showing our write-downs on a net basis to be consistent with peers. And lastly, we've added back the embedded carry in these positions for a consistency, which was not included in our Q3 figures.

Second, the topic of monolines has been very high profile in the industry lately. Let me be clear, we do not rely on monoline wraps to hedge our subprime or CDO exposures. We have other monoline exposures, but these are more than offset by reinsurance and other hedges.

Let me now spend a few minutes on each of these areas, to give you a more detailed look at our exposures and our portfolio breakdown.

Next slide, please. First, let's turn to our leveraged finance business, which is a core franchise for Credit Suisse. We've been in this business for a long time and are recognized as a leader. This is a business in which established leaders often have considerable advantage over weaker players. Historically, we've come out of downturns with increased market share. Part of that advantage is our infrastructure and our depth of talent in sales, research and trading capabilities which are second to none. These are particularly important in difficult market conditions and they've helped us reduce inventories dramatically in the fourth quarter.

As you can see in the slide, we reduced our exposure to unfunded commitments by 52% in the quarter, from CHF52.3b to CHF25.3b. If you look at total exposures, including funded positions and equity bridges, our exposure has been reduced by 39%. In the next box you can see the components of this reduction. They included CHF3.6b of new fundings. In the unfunded line we show you CHF16.2b of unfunded positions were transferred into the funded book. And then we had sales termination write-downs respectively, of CHF14.4b of unfunded positions and CHF11.8b of funded positions, totaling some CHF26b of distributions, terminations and write-downs.

Prices for leveraged finance products moved lower in Q4. Our positions are all fair valued, based on market levels, and we do not have an accrual book. As at year end, our exposures were valued at a weighted average discount to par of 6.3%, but our hedges enabled us to keep our net write-downs to CHF231m.

On the next slide we give you a breakdown of our exposures, what are the actual credits underlying these nominal exposures. In this slide we try and give you a sense of our portfolio, as well as our disciplines around underwriting. Our portfolio is largely with large-cap companies with stable cash flows, substantial assets and multi-billion-dollar enterprise values.

As you can see on the top left graphic, our positions are largely in the U.S. and reflect our leadership with financial sponsors. The largest five commitments represent about 60% of our portfolio. Positions are often large in this business in the pre-syndication phase. And they're followed by approximately 41 transactions with an average size of CHF350m to fill out the balance.

Importantly, our underwriting procedures require a sign-off from both the underwriting team and from an independent credit risk management group for the credit sign-off. The quality of the underlying credits remains generally good and are generally performing to plan.

As you can see in the bottom graphic, our exposures are also well-diversified across industries, with little exposure to highly cyclical areas and no exposure to the auto sector or the home building industries.

So, to summarize our leveraged finance positions, we have reduced our commitments by 52% in Q4 and our total exposures by 39%. Our net write-downs are manageable, due in part to -- due to significant hedging activities. Our portfolios are well-diversified, though we do have some name concentrations. We have strong underwriting credit disciplines, which we kept intact even during the bull markets. Our credits are generally non-cyclical and performing.

Our leveraged finance business is a strong franchise for us. They have come through previous downturns in a strengthened position and I believe they will do so again.

Now, let's turn to commercial mortgages. The story is broadly similar in our commercial real estate activities, or CMBS. This is also a very strong franchise for Credit Suisse. It's an origination-oriented business that underwrites commercial mortgages and then sells them to investors. First let's look at exposures and then we'll turn to the portfolio breakdown.

As you can see, we reduced our gross exposures by 28% during the fourth quarter, going from CHF35.9b to CHF25.9b at the end of 2007. As you can see in the next panel, the roll-forward panel, we did do some new business in Q4, but the majority of activity was in reducing positions, which amounted to some CHF12.3b.

Net write-downs were at a similar level to those recorded in the third quarter, reflecting the continuing widening of spreads but not any specific credit issues. We value our positions based on an assessment of where the underlying fundamentals of the individual asset are, together with observed trading levels for cash and index instruments, including the CMBX index where appropriate. Our positions are all fair valued and we do not have a hold book for this business. Our net write-downs were mitigated by hedging, as well as by net carry earned on these positions, and amounted to CHF384m.

Now let's turn from exposures to the portfolio analysis for commercial real estate. First of all, it's important to understand that these credits are fundamentally different from residential mortgage exposures. The credits are larger, more transparent and were not subject to some of the more extreme exuberance that characterized the residential sector during the bull market. The credits are typically secured by high-quality, income-producing real estate.

We've good sector diversification, as you can see in the bottom chart, with the largest sector being office properties backed by corporate cash flows. We have good geographic diversification, as you can see in the top chart. There have been some particular concerns about the U.K. sector lately, so we've shown a specific figure for that country which, as you can see, is quite modest.

An important factor in assessing the quality of these loans is the loan to value ratio, or LTV. As you can see, our average LTV is 68% for the portfolio overall at the end of 2007. In the U.S. the average is 60% and our loans are mostly in the larger metropolitan areas. In keeping with our focus on properties with strong cash flows, development loans are a very small part of our portfolio, less than 5%. They carry an average LTV of around 50% to compensate for the higher underlying risk in this type of position.

As with leveraged finance, we employ a dual signature process, with both a market and an independent credit sign-off for positions. The credit quality is good and the portfolio continues to perform well.

So, in summary for CMBS, the markets have been challenging and we've taken some gross write-downs, but we've been able to keep net write-downs to CHF384m in the quarter, in part due to active hedging. We've cut our positions by 28% during this quarter and the strength of our franchise has helped in distributing this risk. Our credit quality remains generally good. It's well-diversified with good LTV support.

Now let's turn to our trading positions in RMBS and the CDOs. First, let's talk about RMBS, or residential mortgages. The story here is a further reduction in exposures, especially to subprime and Alt-A credits. As I mentioned before, in the absence of underwriting activity the residential mortgage business has essentially become a trading activity. Unlike leveraged finance or CMBS, we don't currently have a large underwriting book with hedges against it. Our portfolios have all been in the secondary trading book and we do business with clients on both the long and the short side, so it makes sense to look at this business on a net basis.

We currently have net subprime RMBS positions of about CHF1.6b, reflecting both our cash and our derivatives books. This is down 58% (sic - see presentation) from the already modest levels of Q3. We also show exposure to Alt-A, which represents a better credit class than subprime, and to prime, which designates the top credit class in the United States. We also disclose our non-U.S. positions. These have not generally been disclosed by peers, but we have included them here for completeness.

We did record some net write-downs in the quarter as the market stress levels continue to be high. Only a portion of that write-down was due to subprime. In fact, a considerable portion was due to other asset classes as we decided to cut positions and adopt a more defensive strategy in advance of 2008. In addition, we have further macro-related index hedges for this portfolio. These were helpful, but not large enough in Q4 to keep us in the black.

A few other comments. We mark these books to market based on market trading levels and related cash instruments and derivatives. And while the ABX is not always the perfect guide for valuation, it is one of the more transparent reference points out there in the market today. As a benchmarking test, we checked our valuations by pricing all of our positions against the nearest ABX index, and that exercise produced results consistent with the valuations on our books.

The other area where banks carry subprime risk is in their CDO activities. The story here is slightly more complex, given the nature of the instruments, but the essential features are the same as we saw in RMBS. While Credit Suisse was the leader in origination activities in the early part of this decade, we chose to scale back this business in recent years, as you can see by our very low league table ranking. As with RMBS, this business is now essentially managed as a net trading book and is actively managed.

While our exposures are relatively small, we set out our positions in some considerable detail to provide comparability to some recent peer disclosures. Let me try to decipher a bit of the jargon at the left, so you can understand what we're showing you here.

The first line is titled ABS and indices, and this designates security positions backed by subprime loans. You can see here that we held roughly CHF3.7b of exposures at the end of Q4, primarily in the higher-rated tranches. The second line, called synthetic ABS CDOs, designates bonds that are backed in turn by ABS securities. These are held in derivative form and we were short about CHF1b in this sector. The third line is cash CDOs, which are bonds backed by ABS positions in cash form, and this was quite small for us overall.

We did suffer some net write-downs in the quarter, after net gains earlier in the year. Our net positions are quite small overall and we continue to trade actively. And we have some index hedges against these positions as well.

So, in summary, our mortgage-related exposures in RMBS and CDOs have been repositioned in the secondary trading businesses. Our exposures are modest in size and we took steps to lighten them further in Q4. This has helped us be very active in the customer trading business and we are able to focus on our clients. While there were some write-downs in Q4, these were manageable and we believe we will continue to see good opportunities in 2008.

I'd like to conclude the Investment Banking section with comments on two other sectors that have had a lot of attention lately, monolines and SIVs. Let me repeat that we do not rely on monoline wraps to hedge our subprime-related activities. We do have approximately CHF2b of gross nominal exposure to monolines. However, we have reinsurance, other protection and trading positions that more than offsets this exposure.

Second, we do not sponsor any SIVs. Our other exposure to them totals just under CHF1b and most of these are undrawn liquidity lines. Most of our exposures are to the stronger, better-performing entities.

Let's now turn to the Asset Management division. In the second half of this year, conditions in the money market sector became highly stressed. Credit Suisse responded to these conditions and took actions to maintain liquidity and protect its client franchise. Specifically, we bought CHF9.3b of securities from our asset management third party funds onto our balance sheet. That restored liquidity to our money market funds, which are now operating normally. We also addressed some structural shortcomings to make sure these issues did not recur, and there is no material exposure to SIVs, CDOs or U.S. subprime in these lines.

Let's now turn to the securities that we purchased and moved onto to our own balance sheet. Valuation for these assets was impacted as market stress began to affect higher-rated securities, and that valuation stress was particularly severe in November but has been much more stable since then. These positions are marked to market like normal inventory, with typical discounts to par of 15% to 20% for most of the remaining inventory. These discounts led to a net write-down of CHF774m during the quarter.

You can see the progression of the portfolio for the year in the top chart, where we start with our purchases of CHF9.3b. Positions were reduced by sales or maturity of CHF4.5b, as well as some losses shown in the next line. Our exposure to these securities is currently CHF3.9b, which represents a reduction of 58%.

In the next panel you can see the breakdown of the positions underlying this portfolio today. Approximately CHF2.5b of the exposure is to SIVs, with CHF1b of asset-backed securities and CHF400m in corporate bonds. Of the ABS paper, about CHF420m is subprime related.

In summary, we acted swiftly to protect our funds and our client franchise and address the stresses in the markets. Our funds are liquid and operating normally. We took securities onto our balance sheet and we've worked those down by 58%. We continue to reduce and hedge these positions and are working hard to put this matter behind us.

We've just walked through a series of specific business areas, covering the markets that have been most affected by the recent market stresses. At this point, we'll shift gears to a broader view and spend a few minutes talking about our overall portfolio and some of the metrics we use to measure risk. Let's start with value at risk, or VaR.

VaR is a broad measure of trading risk and is used for measuring market risk during normal times. It does not cover our banking book or underwriting positions. It's based on observed market data and is therefore inherently backward-looking. As recent market swings were incorporated into the model, and particularly the extreme events of last August and November, VaR increased significantly, as you can see in the chart at the right. In fact, because of this effect, the VaR for the same positions increased by almost twice versus the pre-crisis calibration at mid year. So positions that would have counted as 100 at the end of June, those same positions would have counted as almost 200 in December.

If you want to adjust the numbers in the chart for model effects, our Q4 VaR was roughly flat versus Q2 and up 21% versus Q3, which is in line with normal fluctuations. In addition, our actual trading P&L was more volatile than predicted by VaR during this period and so new market volatility was incorporated into the model. The limitations of VaR are well-known and that's why we don't use VaR as part of our planning for stress events.

So, although VaR did not work well in addressing the onset of the recent market crisis, our economic risk capital model did. On this page I want to show you what ERC is and how we use it.

First, what is it? Economic risk capital is a proprietary risk model that's based on long-term stress market analysis. It's designed to capture all positions on a consistent basis, including market, credit and investment risks. The assumptions behind this model generally held up well, even during 2007 stress conditions.

Next, how did it work? First of all, it provides us a better tracking tool for risk. As you saw in our earlier slides, we've cut positions materially in our focus areas, especially in leveraged finance and CMBS. Because of model effects and the limited coverage of VaR, VaR didn't show that it actually went up. In contrast, ERC declined 10% in Q4, as the Investment Bank worked on key positions. I think that's a better reflection of reality. We disclose ERC on a quarterly basis, to show portfolio trends and the distribution of our risks. The pie-chart on the right shows our current distribution, which you can see is well-balanced across our major sectors.

Second, and more importantly, this tool helped highlight portfolio issues that aided management action in 2007. For example, it showed significant increases in leveraged finance risk early in 2007, which led to a management decision to establish significant hedges for that portfolio before the market turmoil. While good measurement is important, good action is the real objective here.

We've just been through a very granular view of our businesses and some of our metrics and are aiming for best-in-class transparency on risk. These are a lot of numbers and I thank you for your patience today. I'd like to wrap up by briefly discussing risk management in Credit Suisse more broadly.

Back at the risk Investor Day in May, we talked about a risk philosophy and maintaining strong disciplines across the Bank. Those strong foundations were important to us then and remain doubly so today. We maintain a broad perspective and the tools that are sophisticated enough so that we can capture our positions effectively and systematically, but we don't lose sight of common sense, which is perhaps the most important tool in the toolbox.

We have a strong risk culture that takes a proactive approach to managing positions and an independent risk function that reports straight to the CEO. While we work in close partnership with the business, we're empowered to say no. We have strong management oversight, including executives with strong trading floor experience in complex markets, and we have an active Board. Our management and governance has helped us to make good decisions both before and during this event.

So, in summary, Credit Suisse has been able to navigate the events of late 2007 effectively. It wasn't painless or perfect, but it has been effective and demonstrated the benefits of our disciplined approach to risk. Our positions are actively managed and have been cut significantly in Q4. We have extensive hedges in place to reduce P&L swings and our credit performance continues to be solid.

Taken together, these actions have helped us keep net write-downs to among the lowest levels in our industry and helped us deliver record earnings for 2007. Perhaps more importantly, it enables us to remain active with our clients and focused on doing business and executing our strategy, which Brady will talk about next. Brady?

Thanks, Wilson.

A record year, anchored by a record year in our core Private Banking franchise. And while these have been very difficult markets for our industry, impacting some of our Investment Banking and Asset Management businesses, we've been able to navigate these markets comparatively well, with good discipline and contained impact on our P&L, improving the benefit of the integrated model. We've tried to give you a higher level of disclosure, so you can see in a detailed way how we have worked through these markets. Not having had to raise capital and dilute shareholders has been important for our momentum and for our ability to execute on our strategy.

Again, we've had a record year. And in this context, it's important to look at the impact that depressed conditions in structured products and leveraged finance might have on the future earnings capacity of Credit Suisse. These are important franchises for us and we believe in the long-term value of these businesses. We are leaders in these businesses and we'll see great opportunities over time here, but there is no question that activity has slowed during this challenging market period and conditions remain difficult.

The good news is that we have been able to offset this in 2007 with contributions from other businesses. While leveraged finance and structured products dropped from 16% of our total revenues to 4%, other businesses grew strongly. Emerging markets, interest rates and equities improved in Investment Banking, and we delivered strong growth and profitability in Private Banking as well as alternative investments in Asset Management.

Despite the fact that these businesses went from CHF5.7b of revenues in 2006 to CHF1.4b of revenue in 2007, we delivered record revenues. So you can see the benefit of our diversified business model, as well as the benefit of strong risk management. We hope that the affected businesses rebound from 4% share of revenues and begin to recover during 2008, but we believe in the meantime we can replace these revenues with growth from elsewhere. So those who believe we are vulnerable to decreased revenue from these franchises should take note.

Let's now take a look at our prospects for 2008 and beyond. 2008 will be a challenging year. However, I believe that our strong performance in 2007, the integrated model, our strong capital position and conservative balance sheet and our diversified business and geographical mix means we start the year very well-positioned relative to our competitors. Our integrated bank initiatives further provide huge opportunity for improved performance. And, in addition, our focus on efficiency over the past two years means we have a lean organization and we have been building the culture and have the mechanisms in place to continue to adapt our cost base swiftly in our march towards best-in-class efficiency.

Let's take a more detailed look at the revenues that we're driving from our integrated business model. Our integrated bank initiatives are real. They are substantial, they are growing and they have huge potential. We want to give you greater transparency of how we can create value through the integrated bank and to show you how much value we can create and by when.

We estimate that in 2007 we produced CHF5.9b of revenue from our integrated bank initiatives, or about 16% of our total revenues, an increase of 20% over 2006. Here we have identified those revenues which we feel are a result of our divisions working together, collaboration revenues.

An example of added value would be the revenues which were generated because we now are more able to offer high and ultra-high net worth clients investment banking solutions. These represent a large proportion of the CHF2.3b flow between Private Banking and Investment Banking, which has increased by 43% since 2006. Similarly, one in three of all IPOs we managed globally during 2007 led to assets being placed in the Private Bank. And in Switzerland we had a 100% success rate. Before the integrated bank, this rarely happened. Last year, Investment Banking referrals were responsible for 10% of net new assets in Wealth Management.

An example of revenues which have been excluded are the commissions paid by the Private Bank for standard equity execution, with the rationale being that execution can be done with a third party with relatively little value diminution to either the Private Bank or the Investment Bank, but there is, of course, judgment involved.

We also show that over CHF3b of revenue was driven by collaboration between Private Banking and Asset Management, up 5% over 2006. The Asset Management/Investment Banking collaboration is only CHF500m, but it's up 54% from last year. This is a high-level view of how the integrated bank is adding value.

To show how we believe this will progress, we have laid out targets for this collaboration over the next years. You can see we expect these collaboration revenues to grow in excess of 20% per annum over the next three years and total more than CHF10b by 2010. This is a target which we will report against regularly.

We believe collaboration revenues add to the value of the franchise. For instance, if a higher percentage of our IB revenues are coming from our Private Banking client base, we view that as higher quality, higher margin and more relationship-driven revenue. We believe these initiatives are supercharging our growth across client base, geography and product cuts.

While the previous slide showed our aggregate targets for these activities, this slide shows some of the specific initiatives we are undertaking to meet these targets. Between Private Banking and Investment Banking, we are focused on asset referrals from Investment Banking clients to the Private Bank, delivering Investment Banking solutions such as structured products for high and ultra-high net worth individuals and providing other solutions to this highly attractive market segment as well.

In terms of Asset Management and Private Banking, we will be concentrating on increasing the penetration of managed investment products within the portfolios of our private clients, developing innovative asset management product solutions for private clients and ensuring effective distribution of private equity and hedge fund products.

We are broadening our efforts away from our traditional U.S. base in private equity. For example, we set up a successful joint venture in China. And in the last 18 months, 75% of our new investments made in alternatives have been made outside the U.S. This is high margin, high growth differentiated business.

With regard to Asset Management/Investment Banking, we are seeking to increase the distribution of alternative investments through our securities and Investment Banking coverage. We will be developing further pension and insurance solutions, growing the scope of our fund-linked products and developing further hedge fund referrals.

Every single one of the bullet points has a whole structure of education, infrastructure to respond to the referrals and execute the business, and MIS systems to track and reward people who do this business. Talk to any of our employees or our clients and they will tell you that there's a substantial focus on collaboration, bringing value to our clients and to our bottom line.

On efficiency, we believe we've made good progress over the past two years towards becoming a much more efficient player. But we are not finished. In fact, we've only just begun. Our objective is to become clear best in class. We believe we have a lot of momentum towards that goal and we also believe that we have a lot of further potential for progress. Again, we're presenting here targets that we believe we can meet in terms of best-in-class efficiency.

We expect to the keep the Private Bank steady at 60%, while continuing to aggressively grow the business. We expect to bring the Investment Bank down from a 75% cost/income ratio in 2007 to 70% in 2010. And we expect to bring Asset Management's ratio down by 4%, from 2007's 64% level to 60% in 2010. All this will lead to an improvement in our Bank-wide cost/income ratio by 4 percentage points, from 69% in 2007 to 65% in 2010, a 4 point pre-tax margin improvement over that period. This would mean absolute efficiency gains to our bottom line of well over CHF1b per annum.

In each of our divisions and shared services areas, we have specific efficiency initiatives which we are convinced will enable us to meet our targets. On this slide we highlight three core areas for savings.

First, process improvement and reengineering, where we expect significant efficiencies. This will include the integration of sourcing, procurement and payment activities across the Bank into one end-to-end automated supply management process, reengineering our investment operation system landscape and transforming and migrating HR to a single global IT platform.

Second, outsourcing and offshoring. This will be achieved by outsourcing fund accounting in three locations, by offshoring private equity accounting and by locating our Human Resources transactional services in one of our centers of excellence, as well as other deployment to these centers in Raleigh, Wroclow, Pune and Singapore. In fact, we expect to have around 15% of our total workforce in these centers by the end of 2008. This is allowing us to increase and reengineer our capabilities at much lower costs.

Through continuous cost management, we expect significant efficiencies. This will include reduction in temporary staff and contractors, optimization of IT end-user equipment and servers, as well as exchange flow optimization and the reduction of brokerage, clearing and exchange fees.

Again, every one of these streams has teams of cost-cutting professionals driving them and management being held accountable to deliver on them. So we are convinced that getting to a 65% overall cost/income ratio as a bank puts us in the best-in-class category and we believe we will achieve that. So there is substantial potential value creation from executing on these initiatives and we have a record of executing and the momentum to do so.

In terms of overall goals, you can see them here. 20% RoE over the next three to five years, double-digit earnings per share growth, annual net new asset growth above 6%, in excess of CHF10b of our revenues coming from high-quality collaboration sources by 2010, a 65% cost/income ratio by 2010 and a 10% Tier 1 ratio. We think this is achievable and if we do consistently achieve these targets over time, we will be creating more earnings and a higher valuation. And we have one of the strongest capital positions in the industry, which will help us get there.

We will continue to conservatively manage our capital and remain well-capitalized. We will balance the desire to be opportunistic in expanding our business with the recognition that we need to be prudent with our capital. And we will balance organic growth with returning capital to shareholders. Given the strength of our capital position, we have no need to raise capital as many of our competitors have. However, we will use -- look to utilize strategic third party capital on a business-specific basis in Investment Banking and Asset Management, to allow us to super-charge our growth and build some of our best businesses while reducing the volatility of our earnings.

We see terrific growth prospects across all of our divisions and regions around the world, whether in challenging or strong markets. In Private Banking there are excellent opportunities for growth. We see a continued acceleration of flight to quality benefiting Credit Suisse. Stability of people, consistency of business model and strategy and strong financial performance in 2007 positions us as a safe haven for Private Banking clients.

We will use our award-winning advisory process to help increase the proportion of managed investment products in our client portfolios. These offer clients an excellent balance between risk and return in challenging markets. Currently, 42% of client portfolios contain these products and we have seen encouraging results from a new initiative to grow this percentage during 2007 with strong sales growth. A number of the 1,000 relationship managers we're planning to hire by 2010 will focus on the growing ultra-high network client base.

We currently have a relatively modest share of this market, in which assets under management are growing at a faster rate than other client segments. We believe that our integrated model is uniquely suited to providing these clients with the sophisticated advice and solutions they are seeking. The potential to increase the delivery of the integrated bank to such clients is illustrated by the fact that revenues arising from this activity have tripled year on year. And we know we've only scratched the surface here, there's really enormous upside.

We see growth opportunities not only in the emerging markets, for example Asia's now growing net new assets at higher than our target rate, but also in more mature markets such as Germany. Switzerland, obviously an incredibly important core market for us, continues to offer steady growth opportunities for Private Banking, offsetting some of the volatility in other parts of our business, at the same time really setting the example of the integrated bank.

In Investment Banking, although we expect markets to remain difficult, we also see growth prospects. We've responded swiftly to the changing environment by reducing headcount and resources in the areas that have been negatively affected by recent market developments. At the same time, we're investing in growth areas such as algorithmic trading, commodities, derivatives, life insurance finance and prime services. And we're continuing to build on our strong presence in the emerging markets. And we see evidence of strong upside in offering Investment Banking products to Private Banking clients.

Not only will these initiatives drive incremental revenues, they will also help to reduce the earnings volatility of our Investment Bank, a key initiative to increase our valuation.

In Asset Management, we continue to focus on the high-growth areas. For example, we are expanding and leveraging our exceptional alternatives business by scaling up the traditional private equity businesses and geographically expanding it, as well as building our real estate and credit strategies. We currently have excellent private equity funds. Over three-quarters of them have performed in the top quartile and 96% above median for the last 10 years, but the bulk of these funds are U.S. based. As I mentioned, 75% of our funds have been invested outside of the U.S. over the last 18 months, so these trends are very positive. With our global reach, this global investing expertise offers huge opportunities.

We'll also be focusing on growing the hedge fund portion of our business. We have a best-in-class hedge fund of funds business, but we will build our single strategy hedge fund business primarily through organic means, leveraging on our Investment Banking franchises. For instance, we started a large credit fund run by some of our key leveraged finance professionals. We will also continue to focus on our best-in-class asset allocation capabilities to provide exceptional returns for our clients. Across all businesses and across an entire global footprint, we see tremendous opportunities to grow our business regardless of the environment.

Despite the continuing turmoil in the credit markets and the difficult conditions that we expect to continue at least in the near term, we believe our integrated model sets us apart from many of our peers and gives us attractive opportunities to build long-term value for our shareholders. We believe we can deliver profitable growth across market cycles, through the targeted and measurable initiatives that we have put in place. In 2007, we demonstrated our ability to manage through challenging market conditions and we are committed to building on the strength and resilience of our business.

Before I invite you to ask your questions, I just want to sum up. As you've heard, we believe Credit Suisse is ideally positioned to build shareholder value. During 2007 we outperformed much of our industry. We managed our risks well and this puts us in a good position, with attractive growth prospects in 2008 and beyond.

There are a number of reasons for this. We have a strong capital position, quality business franchises, a strong integrated business model and a strong risk management culture. We have a unique business and geographical diversity of earnings, an excellent momentum with clients, employees and prospective employees. We start 2008 with one of the leanest operations in the industry and we aim to be best in class in terms of cost/income ratio within three years.

We have continuity of management and strategy, at a time when many competitors are disrupted. We have a world-class Wealth Management business, with an increasingly global footprint which provides strong and steady earnings. Combined with our important Investment Banking and Asset Management franchises, we have a unique integrated business model and strategy. Taken all together, we have a truly exceptional opportunity to build value for shareholders.

Thank you for listening.

With that, we're going to open the floor to questions. I think, as is the normal practice, as you know, I'm going to take first of all questions from analysts and investors, and then after that we'll take questions from the media. As I mentioned before, obviously Renato and Wilson and I are available for questions, but we also have our three divisional CEOs available to take questions. And I might just introduce them briefly - Walter Berchtold, who's the CEO of our Private Banking business, Paul Calello, who's the CEO of our Investment Banking business, and David Blumer, who's the CEO of our Asset Management business.

So with that, we will open up for questions from analysts and investors. And please, if you wouldn't mind giving your name and institution before asking your question. Yes.

Thomas Braun from Classic Funds. Three questions, if I may. First, how did you start in the New Year?

Second, have you any indications for further write-downs in the first half of this year?

And third, the results in Investment Banking, would you say that the second half of last year Investment Banking is reasonable guidance for the first half of this year? Thank you.

I think in terms of -- we've tried to be extremely transparent and detailed in our disclosure on our fourth quarter numbers and our positions. We're not going to talk about the first quarter and how things are progressing in the first quarter. So, we've tried to be very transparent on the fourth quarter and hopefully that will be a good basis.

I think in terms of -- obviously, we do feel we're well-positioned in terms of our coming into 2008. You can see from where we ended up in the fourth quarter. You can clearly see what our risks were at that point in time. So we feel that we continue to be well-positioned in terms of being able to manage our business going forward.

In terms of the Investment Banking environment, maybe, Paul, do you want to address that in terms of what, I guess, we see as prospects for 2008?

Certainly. As you saw, the second half of the year was definitely more challenging than the first half for Investment Banking, but it was profitable for us in all our divisions, in all our various areas across fixed income, equities and underwriting and advisory. We see quite good prospects going forward. If you just look at the dynamics of the market in terms of volumes, particularly Brady mentioned in some of our businesses like rates certainly has been a more favorable environment, and foreign exchange and derivatives across equity and fixed income and prime services. So I don't think you can just look at the second half of last year, which was a particularly tumultuous time, to reflect on what the first half of this year is going to be.

Next question.

My name is [Oliver Stoke] from [Handelstachen] Business Daily. You told us about the cost-cutting program in the next years. What are the consequences of this for the number of employees?

I guess I'll answer that, but I think we are going to try to hit the analysts first, but let me answer that in terms of cost. I think, as we mentioned, we see a lot of opportunities for growth. We also see parts of our business that have been impacted that we're clearly not going to grow as quickly. And so we are going to continue to be very active about readjusting our resources in the business into areas where we see growth. We see a lot of growth prospects, but we do clearly want to be very active about reallocating our resources. We've already done a lot of that and we will continue to look at making sure that our resources are balanced properly against the opportunities that are out there.

There was a question at the back.

Good morning. Claudia Meier from Bank Vontobel. My first question goes to the fact you said that there would be a slide, to quote you, in Private Banking. From other institutions, especially (inaudible), we have heard that they are benefiting from larger institutions losing clients. So probably you can give your view on this one.

And then the second question would be on Basel 2. I would wonder whether you also have a special kind of arrangement with the EBK on their BIS ratio might go to.

And then the last question, I'm sorry to come back on forward-looking statements, I would like to have some feeling where you think the leveraged finance and structured product incomes could go, whether they are still dead for half a year or a year, or how long it takes until the market recovers here. Thank you.

The Private Banking question, Walter, do you want to address that?

In terms of losing clients, we do not see that happening at all. And what we see is quite a big attractiveness, actually, for relationship manager who want to move over to us, because it's a very attractive business model, especially the integrated bank. And I need to stress that here, the integrated bank gives a lot of opportunities to serve the clients much better.

I think your second question was with regard to Basel 2 and arrangements with the regulators. I don't think we're going to comment on any arrangements with regulators. Obviously, we would just re-emphasize that we're one of the most strongly capitalized banks in the world. We continue to be, having managed through this period well, obviously. And ending up the year with one of the highest ratios of any of the banks in the world we think positions us extremely well going forward.

I think, in terms of a forward-looking statement on the businesses, maybe I'll make a brief comment and then Paul can comment as well. Obviously, structured products, leveraged finance, these businesses have been impacted and are slower. Clearly, we hope that those businesses will become -- will pick up and become more active during the year. We also see what we think are going to be some very interesting opportunities to invest in these businesses and we think we've got a good platform for that. I don't know, Paul, if you want to add anything to that?

Yes, I'll take them separately. With regards to leveraged finance, as you know, we clearly have a world-class franchise in leveraged finance, across the origination relationship with the sponsors on the distribution and trading side of the business. And without a doubt, the origination side of the business has slowed down. Although there's a lot of money, as you know, that's been raised among the financial sponsors and they are looking to put it to work, sometimes in different geographies, sometimes in -- right now tends to be in smaller transactions. So we already are seeing some transactions come to us that tend to be smaller in nature. They tend to be more attractive in size.

We've been in this business for about two decades. As Wilson said earlier, through downturns we've normally come out the other side quite strong and we certainly expect this not to be an exception there. So we do see the business, I believe, that it could pick up. The backlog has about halved in the past six months. And once that clears and we start to see equilibrium pricing, I think we will see transactions happen again in leveraged finance with some regularity.

With regards to the structured products, there's a lot of different products in there. And there the origination of the business has probably dampened for a much longer period of time, particularly in areas like RMBS. And as Wilson described, it's turned much more into a trading business. And given our activity in the market trading, there are opportunities that have arisen and we expect more to be focusing on the trading side of that market in those structured products than the origination side.

Next question here.

Philipp Zieschang from UBS. Three questions, please. The first one is basically on your exposure management. You clearly were able to reduce this significantly in challenging times. Could you just comment a bit more, please, on the commercial mortgage side and also on leveraged finance in terms of the split between cancellations and disposals? And what is your outlook there? Are you also seeing distressed funds stepping in already, or where does pricing need to go in order to see more activity on that front?

On the same background, with respect to your CDO exposure which is reduced in trading, and could you comment whether there were any derivative transactions that might come back on the balance sheet or is this basically cash sale and [gone]?

The second question is the integration revenue, which you've set out a plan to grow these by CHF4b, I think, a touch above CHF4b until 2010. Could you comment on the marginal cost/income ratio there, because I presume in 2005/2006 there has been quite some significant investment? So is that going to be a hockey stick or what should we apply there?

Third one, a brief one in terms of payout ratio. You've commented that your buyback might not be completed in 2008. Seems very reasonable, but could you comment in terms of dividend payment? You haven't, I think, had a firm payout ratio target yet. Is there a level you'd like to see this going to? Thanks.

Thank you. Paul, do you want to answer the first question on the exposures and CMBS and Lev Fin? And so I guess it was CMBS, Lev Fin, how much was terminations versus distributions, anything that might come back on as a result, whatever, particularly in CDO and the distressed funds.

Certainly. You saw the quite dramatic reduction in leveraged finance and Wilson showed on one of his slides the breakdown of that reduction. Of those sales which were over CHF14b, over two-thirds of that were outright sales. So the category also included cancellation. As you are aware, there were several deals cancelled in the market, which -- and write-downs which accounted for that other third. The story in CMBS is similar in terms of that course, and it was actually up to about two-thirds actual sales, cash sales for the most part, and the balance cancellations of transactions and write-downs.

I think to both of those what's critically important is this is where the value of our franchise really has shown through in terms of our sales capability. Having world-class sales people, distribution capability in those products has truly benefited us, we believe, through this period.

[Maybe one comment] just on your derivatives question. You asked if there were any other derivatives that might come back on the balance sheet as a result of some market turmoil. All the figures that we've tried to show you here include both derivatives and our balance sheet position, so we're trying to show you our net economic position, so that they're already included in those. So there shouldn't be anything extra that's outside that might come back.

(Inaudible question - microphone inaccessible).

In fact, as you know, during the heart of the crisis, probably three/four months ago, there was a lot of money raised for distressed funds. And in fact, we have not seen a lot of that money come into the market as of yet. And I believe that the market is clearly looking for a bit more stability, finding an equilibrium, probably for a bit more of that backlog to make its way through the system before they'll enter the market.

I think, on your question on integration revenues, as you rightly point out, our view is that clearly the -- probably the marginal impact in terms of the impact on the bottom line of those additional revenues will be higher margin than our -- than, say, other businesses, so it'll be higher than our average margin. So we believe we have put in place, clearly, some infrastructure to execute on that and I think as we now grow those revenues our hope is that it will be higher margin coming to the bottom line.

And then your last question on, I guess, payout ratio. Obviously, we've increased the dividend this year by 11 -- we're recommending an increase in the dividend by 11% over last year. We think that's obviously a very healthy increase in dividend, reflects our capital position, our competence in the business. I'm not sure we have any targets going forward. We obviously will -- our belief is that hopefully our business will continue to perform well and that the cash flow generation of the business will be strong, and that that will give rise to an ongoing ability to return capital to shareholders, whether through dividend or through share buyback. I don't know if you want to add anything to that at all?

Next question.

Kilian Maier, NZB. I have a question on your statement on capital deployment. You said you may partner with strategic third party investors to fund growth. Does this mean further cooperations like the one you with Glencore on the commodities side, or is it rather issuing a convertible to gain a foothold in Asia and get the GIC as investor? Could you please clarify a little bit on that statement?

Yes. Just to make it very clear, as we've said, we're well-capitalized. We don't have any plans to issue convertibles or any of the other capital raisings that we've seen in the industry, so we have no plans for that. The issue here is whether there are specific opportunities where some of our partners may want to put in capital into that specific business. So alternative investments is a good example where we have a best-in-class capability in alternative investments, and that might be an area where a large investor might want to take a big block of funds and put it in side by side with us to invest in, say, the alternatives funds area. That's the concept there.

Thank you.

Other questions in the room. We have quite a lot of questions on the telephone.

[Patrick Fry] from Bank (inaudible). A question on the estimates on this money market repositioning. Do I get it right that you had to protect your franchise and avoid low outflows from the money market falls and then you bought out these bad or what became bad securities?

And the second question is how many funds were affected?

David, do you want to answer that?

Thank you. We have taken a voluntary decision to actually provide liquidity to our fund investors and I think it was the right decision to be taken, to really protect our client franchise and also to the long-term benefit for the shareholders. There were one money market fund in the U.S. affected that was basically the main outflow.

But there remains now this CHF3.9b in the books which, depends on the market development, could be a loss or a gain, a profit again, we don't yet.

Yes, we obviously laid out for you the composition of the CHF3.9b. It's been fairly stable in terms of the marks on that since December. We continue to obviously further make progress on distributing and realizing maturities on it. And obviously we're not in the inter-market movements but clearly we hope to manage through that.

Should we go to the phone or we can come back and answer more questions from analysts here if we --

The first question is from Mr. Jon Peace of Lehman Brothers. Please go ahead, sir.

Yes, hi. Morning, everybody. Just wanted to say, first of all, congratulations on your disclosure. I think it's truly the best in class and you've set the bar high for your peers to follow.

I wanted to ask just on the leveraged loans and CMBS exposure, could you confirm that the marks that you've taken up to December 31 and you've benchmarked on indices like the LCDX and the CMBX, so while subsequent hits might be smaller we could use some movements in those indices in January as a proxy for what any further charges might be?

And specifically on leveraged loans, I guess I've got a question as to whether that CHF10.7b of funded loans could include any old difficult to syndicate positions, where the write-downs could be rather more than where the pricing in the LCDX is suggesting?

Then I had a follow-up question on Wealth Management. I just wanted to know what the impact of the timing of the Hedging-Griffo closure in Q4 was on the gross margin, to get an idea of the underlying run rate in 2008.

And also, on your forecast for net new money, the increase of a third in relationship managers is pretty aggressive. If you can deliver on that, do you feel maybe that 6% net new money target is on the conservative side? Thanks.

Well, first of all, thank you very much for your comment on our disclosure. That certainly was our hope, was to achieve that, so we appreciate your comment. Paul, do you want to address the issue of the leveraged finance CMBS exposure, I guess correlation to the indexes and how one can think about the relationship between those?

Sure. As you know very well, the exposures in leveraged finance are very identifiable. As you saw, five of our positions represent 60% of the portfolio, although even there there is a good diversity across the portfolio. Having -- so as a first measure, we really look to mark to specifics of our direct exposures. Having said that, we also look back at how closely related indices have performed. And in the case certainly of leveraged finance, we can say that our portfolio is comfortably, conservatively marked relative to the relevant indexes in leveraged finance.

Also, with regard to the RMBS portfolio, we can make similar statements compared to the relevant indices there. With regards to CMBS, it's a bit more complex of an issue because, as you know, CMBS doesn't include the same -- it doesn't include as a homogonous asset class (inaudible) below investment grade. In fact, it includes exposures to all different levels of the capital structure. Also, as you saw, as we demonstrated, the geographic diversity of our portfolio, it doesn't imply as much to the CMBX. And so what we've done there is to -- and so directly related to the CMBX, I would say it's very small, and certainly less than 5%/10% of our portfolio I think you could directly compare to the CMBX.

So what we've endeavored to do there, to give you comfort and around our own methodology besides looking at the single names and the specific exposures, we've provided you the information on the loan to value ratios in each of the markets in which we operate across the Americas, Europe and Asia, averaging 68% loan to value. And I think that gives you the best measure of the relative markings on that portfolio. Thank you.

And I think, as to your question on the funded versus the unfunded leveraged finance, I think they're are -- it's all very high quality and there's no differential between a funded loan versus an unfunded in terms of the overall quality there.

Both the funded and unfunded are marked to fair value. And I guess just one implication in Paul's statement, some of our positions are marked above the LCDX and some of them are marked below. We do that based on specific assets where we see those trading in the market, so it is asset by asset.

Walter (inaudible) questions.

On your question on Hedging-Griffo, Hedging-Griffo has added 2 basis points to the gross margin in the fourth quarter. You need to know these are performance fees and they are paid semi-annually in Hedging-Griffo. And we stick currently to the 6% growth rate in net new assets.

2 points in the fourth quarter, less of an effect annually, obviously, in terms of the annual number.

Thanks very much.

Next question on the phone.

Your next question is from Ms. Fiona Swaffield of Execution. Please go ahead, Ms. Swaffield.

Hi. Can we talk a bit more about capital, because if you look at your disclosure you talk about other adjustments having hit the Tier 1. I think it's quite a large swing, it looks like you lost about 70 basis points. It does mention pension actuarial gains. So could you tell us whether that's permanent?

And then also, could you talk about risk-weighted assets and whether, as a CMBS matures or the warehouse gets older, and also on leveraged finance, whether you're going to get quite a lot of RWA growth? So how confident are you about the Tier 1 ratio in that kind of environment? Thanks.

Renato, do you want to address the question on that?

Yes. In fact, the amount you see there in the Tier 1 ratio is a correction of something that happened in the equity. Basically, the equity went up because we have had to rebase our actuarial assumptions, which resulted in a higher equity amount actually to be booked directly into the balance sheet. Now, under the capital requirements from the regulators, these movements are eliminated in the Tier 1 calculation. So therefore you'll see this amount of, it's roughly CHF1.1b/CHF1.2b that you have as a correction item other. But that's first has -- that has first increased, so to say, our book equity and has been taken out for regulatory capital. That's the explanation for that amount.

I think, with regard to the risk-weighted assets question, I don't think we see any particular reasons for risk-weighted asset growth to -- in terms of some of the things you mentioned about some of the existing positions. I think we just -- we think there are going to be some good opportunities and we're grow our risk-weighted assets or shrink them, according to the opportunities that we see out there.

Absolutely. Maybe just an additional remark on the risk-weighted asset growth. As you can on page 54 of the report, the whole growth basically comes from the changes in market risk equivalence, which basically Wilson has explained to you from the impact that the VaR had on our ERC.

So what I'm trying to understand is you've got quite sizeable net exposures in the CMBS and leveraged finance. If you don't basically distribute those in 180 days, I thought that starts to come onto your balance sheet. Are you saying you're 100% confident you'll distribute it, or are you saying there's some things you've done that means it won't come into risk-weighted assets?

Maybe I can take a stab in answering that. With regard to the CMBS, it's already fully funded, marked to market, fully funded. With regard to the leveraged finance, if as more of the unfunded commitments become funded that would have an increase in our risk-weighted assets, if we are unable to continue the success we've had at selling down the portfolio.

Okay, thanks very much.

Next question on the phone.

The next question is from Mr. Matthew Clark of KBW. Please go ahead, Mr. Clark.

Good morning. Just another question on the CMBS exposure. Clearly, you've got quite a large gross exposure and we've seen the indices widen out massively so far this quarter. Could you just talk, firstly, about your hedging strategies there and whether you expect to benefit from an overreaction of hedges versus cash marks, or whether that doesn't provide any comfort for you?

And then secondly, in terms of your strategy on managing down that portfolio, whether you're inclined to hold them and wait for prices to improve, or whether it's a case of you'll just get them off your books if you can shift them at current market prices? Thanks.

Paul, do you want to address them?

Sure. And Wilson, please feel free to hop in. I would say, certainly with regard to our success at selling down the CMBSs, we have had good experience, as you saw in the fourth quarter, of selling down CMBS exposure. It, as I said earlier, relates to all different parts of the capital stack and we have had a good success at finding interested parties in those loans. Remember, as Wilson pointed earlier, the bulk of the exposures are to high-quality assets. They're income producing, most of them, as well. The bulk of it is office property.

I guess a couple of further points in that. As Paul said, we are shifting these assets at current marks. We did make good progress in Q4. I'd also caution you in applying CMBX. Although it's visible and that's useful to people, it did not really reflect our portfolio very well. It really only applies to, as Paul said, about 10% of our asset mix. It's also important when you look at the index that by far the largest portion of the capital stack are the AAAs, which have moved much less violently than the other parts of the index. So I think you need to be very careful in trying to extrapolate from that index to our positions. We do look at that, as well as at our cash positions and specific asset values when we're doing our mark to markets, but it is certainly not a one-for-one tracking device you can use for our portfolio.

Perhaps I could just follow up and ask if you could give a bit more detail about whether you've had more success selling down the higher rated or the lower rated tranches from the CMBS capital stack, as you describe it.

Yes, and I guess I'm going to respond in -- with the disclosure we've already provided, they've already received calls and emails from our trading desk saying we've disclosed more than anyone in the market has disclosed. At some point it becomes quite confidential and proprietary information. So I think, with that, I'd rather not comment on specifics of where we're selling down our portfolio.

But it has been across the board. It has (multiple speakers) things in different regions and different parts of the capital structure.

Okay, thank you.

Next question on the phone?

The next question is from Mr. Huw van Steenis of Morgan Stanley. Mr. van Steenis, please go ahead, sir.

Good morning. First, can I echo the earlier comments on the disclosure, which I think is very helpful. Two points. First, in asset management you've still got about CHF3.9b of SIV notes and the like, and you mentioned you're seeking to hedge those positions. To the extent you can, can you share any color on how successful you've been in Q1? Or should I really read that as that is effectively the net exposure going into the quarter?

And then secondly, going back to capital, I'm struck that your ERC has remained broadly flat in the investment bank, despite the VaR gapping out in the quarter and I think the ending VaR was even up another 23% again. To what extent, in your discussions with regulators or even your accountants, have there been heated discussions about whether you may need in the future to revise your ERC or whether you are truly confident that that rather than VaR is an appropriate measure that regulators and accountants as well as yourselves will look at to manage the business?

Okay. Well, first of all, thanks for your -- again, thanks for the compliment on the disclosure, appreciate it. On the asset management positions, I think, as we said, we've disclosed very clearly where we were at year end. Obviously, we -- as you can imagine, we've continued to [advert] that we're not going to update on where we are right now in terms of that. But you can imagine, obviously, that our objective is to continue to distribute and to reduce the exposures there. We also, I think, as Wilson mentioned, we do certainly have some hedging on against that. And so we continue to hope and believe that we'll be able to manage through that. Wilson, do you want to answer the question on ERC?

Sure. ERC is not really driven by VaR. We built it in part so that we would get away from this backward-looking feature of VaR. That can lull you into a false sense of security during a bull market. And VaR for the same positions in '04 and '05 would drift down, where ERC stayed stable. It's been a more useful guidepost for us to measure risk. It's really designed around how to handle crises, and that's why it was useful during this period. As you saw in our detailed business slides, we have cut some significant risk positions and that's why ERC is going down. I think that's actually a better reflection of our true risk position today than VaR, which is really much more volatile depending on market data.

Next question on the phone?

The next question is from Mr. Dirk Hoffmann-Becking of Sanford Bernstein. Please go ahead, Mr. Hoffmann-Becking.

Good morning. A question on the wealth management outlook. You stated that the clients are reducing their exposure to high risk assets and particularly structured products. Is this a development you expect to continue into 2008? And to what extent does that affect your one bank revenues forecast for 2008?

The second question is on compensation in wealth management, where you say that you have lower performance-related compensation due to an increase in deferred share-based compensation. Does that mean you have a change in the bonus model for wealth management?

And last question is around the money market fund. Does that affect the wealth management business in any way?

I will just start off -- I'll ask Walter to address maybe specifically, but maybe just to make a couple of general points. I would just reflect that actually the private client base for us, and I think generally for the industry, remains quite healthy. They have not had a lot of exposure to these -- to a lot of the issues that have come up over the past eight months and they remain a very healthy client base, and so that I think is a positive going forward. I'll let Walter make some more specific comments.

In terms of the -- in general on the performance-related compensation, as you mentioned, for wealth management, for the whole firm as well, we actually increased marginally our -- the share portion of our compensation this year in order to continue to get better alignment between our management and our shareholders, between our employees and our shareholders, and to get better alignment with longer-term goals of the firm. So we did marginally increase the deferral portion of our compensation, which did impact wealth management as well.

Do you want to make a comment on the outlook in terms of client exposure to structured products and how that may impact the business?

Sure. Obviously we are not, first of all, immune to markets and market movements, that's clear. But when it comes to like structured products, there are obviously lots of structured products which provide great returns in very uncertain markets. We have, for example, [the call] on total return with capital protection. So, structured products can really help in the current market environment and I would expect that the structured product program we have ongoing for many, many years will continue. But it is obviously subject, as well, to overall market opportunities we have. And we have lots of initiatives like the managed investment products, for example, which should help us to guide through these maybe little bit slower markets.

And just to your last question, the money market fund issue had no impact on any private clients.

Okay, thank you.

Next question on the phone?

The next question is from Mr. Kian Abouhossein of JP Morgan. Mr. Abouhossein, please go ahead, sir.

Yes, hi. First of all, your CMBS exposure, could you talk about your hedges? And if I look at the CHF27b of macro hedges and I look at your gross write-down versus your net write-down, is it fair to say that half of the CHF27b hedge relates to leveraged finance, half to commercial mortgages?

Okay. Wilson, do you want to answer that?

If you're looking at that CHF27.1b, it's probably actually more about two-thirds in the corporate credit sector, as I mentioned, the non-investment grade and the crossover credits, and about a third in mortgage-linked indices.

Yes, but in terms of applying these hedges to your gross exposures of leveraged finance on commercial, is that also a good indicator, two-thirds, one-third?

No, I'm just giving you a breakdown of what asset classes those hedges are in overall. Some of those hedges are held specifically within the business and some are held on a more pooled basis.

Okay.

We also made the point, I think Wilson made the point, that those are just index hedges. We've got single name hedges and -- so that's not the entirety of the hedging as well. So it's -- I think it's -- notwithstanding the extent of disclosure we've given, I think it's going to be difficult to properly reengineer back into exactly what is offset against what.

And if I look at the CMBS exposure, warehouse, it's roughly equal to your underwriting volumes in 2007, which I'm a bit surprised about in terms of size on your books. Can you explain why there's roughly a one-to-one equation?

I'll take this one. This has been a growth business for us for many years. We have successfully syndicated a lot of business. I don't know that particular ratio that you're talking about. That does surprise me a little bit. But we have in the past successfully syndicated on this. We have been bringing down this position pretty rapidly and we continue to make good progress in it.

Lastly, on monolines, first of all, your CHF2b monoline exposure or counterparty exposure, does that include basis trade risk counterparty?

And secondly, on a wider topic, do you see Credit Suisse as a supporter of a bank-wide support for the monoline industry?

On your first question, measuring gross exposure for monolines is something that we've done across the Bank. That includes both direct counterparty exposure as well as inventory positions that may have a monoline wrap. Sometimes we actually have two or three layers of protection. But if it does have a monoline wrap in it, we count that on a gross nominal basis. But as I said, our economic exposure, because of reinsurance and other trading positions, those hedges more than offset that gross exposure.

I think you asked your other question. Obviously, we haven't really been very involved because we don't have much exposure. We don't have much exposure to the monolines. Clearly, we would be supportive of having a healthy, functioning monoline guarantee industry out there. That is -- it is important for the business, so we are certainly supportive of that. Since we don't have any material exposure, we haven't been very involved in the discussions.

Okay, thank you very much.

Thank you. Next question on the phone?

The next question is from Mr. Derek Chambers of Standard & Poor's. Please go ahead, Mr. Chambers.

Yes. Derek Chambers from Standard & Poor's Equity Research. Again, thank you for the disclosure. One element that you're disclosing rather differently from others is the element of your exposure that is in trading-based portfolios. If we look at those in the RMBS and CDOs, you had more or less breakeven or even profit in the first nine months and then losses in the fourth quarter. I wonder if you could just say something about how we should think about that. Was it that you had residual positions which had to be written down? Or was it that just -- or was it difference in timing between hedging strategies for basis risk? And are these losses things that can move up and down in future or are they lost forever?

Maybe I can take that. I think it's a combination. It is a difference in timing. There were timing differences. Renato actually pointed to some of these earlier in the third quarter statement. But also, as you saw, we took down a significant amount of the assets. So part of taking that down, there were some penal effects related to taking down some of the categories. You pointed to the fact that we've disclosed it somewhat differently than others and I think that's right. With regard to the entire RMBS portfolio, we did disclose, as you saw, Alt-A and as well as the prime pieces. And most significantly, you saw the significant decrease in that Alt-A piece, which is probably most relevant.

And that probably had the biggest impact on those P&L numbers that you mentioned. For instance, one of the things that we had said, as you mentioned, is in the subprime area. Even on a year-to-date basis, in subprime we're probably breakeven to plus/minus around breakeven in subprime, so we've not had any even net write-offs in the subprime area. So that really is -- those numbers that you see are from the whole stack, as Paul mentioned. And you can see the dramatic reduction in the Alt-A segment, which is something that we felt was very prudent to have done in the fourth quarter. We'll see how that plays out.

And disclosed to you.

And disclosed.

Thank you.

Next on the phone?

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

Morning. Thank you very much. Two questions, please, one on asset management. You had very strong revenues in the line items above private equity gains and mark-downs, so [outflows] the underlying gains -- underlying revenues look very strong. Do we take those as a recurrent level, or are there any funny items in there that we should be aware of, because they look very strong?

And then the second question is on non-staff costs across several of the divisions, which you touched on and I wonder if you could just come back to it to give us a bit more detail about what some of the items are. For example, the corporate center has about CHF111m extra non-staff costs in it in the quarter. Wealth management has a big chunk more, as has the investment bank. So could you talk about what's in those extra costs and how quickly they fall away?

David, do you want to address the issue of the asset management underlying revenues?

I think, as also outlined by Renato, I think we have increased our recurring revenues over the course of the past quarters. There are no funny items in there. There are some performance fees in there but it just shows the growth in our recurring revenues and hopefully in our markets we do expect strong recurring revenues in the future as well.

Can you quantify performance versus management fees?

I think we have given a lot of details today in our disclosure. I think we don't want to go into that relationship. But certainly it's a smaller part of that number.

Yes, also I think I would just emphasize, Jeremy, the importance and the strength of the alternatives business within that is performing extremely well and continues to be a best-in-class capability for us. And I think that's the real underpinning to the strong performance in 2007.

On your question around G&A, do we have an answer to that or -- Renato?

There was a specific question on the corporate center side. Corporate center G&A expenses are pretty stabilized, not so that we suddenly spend much more money at corporate than the quarter before. The main item that makes it a little bit more volatile is that we have adjustments in there for inter-company adjustments. Basically, we have to eliminate certain profits taken down the line on the Group, but that can be volatile. And this is the normal accounting rules you have in the way we show the corporate center. In general, we can say that our non-compensation costs have been pretty well contained in 2007. You've seen that overall in the Bank actually we went down in the non-compensation costs and it's definitely our aim to further improve that.

The increase, you've gone 21, 22, 23 and then it's a jump to 27 in the fourth quarter. Are you saying that's intra-year volatility and we should just focus on the full year?

I would probably be more -- yes, I would say it's more instructive to focus on the full year. To be honest with you, Jeremy, we may have to come back to you with a detailed answer, but they're probably a timing -- sounds like a timing thing. In general, we continue to be focused on and pleased with the progress that we've made on our non-comp costs in terms of -- and the prospects for continuing to manage those.

That's great, and you've given us targets for the future as well, so that's understood. Thank you.

Thank you. Next question on the phone?

The next question is from Mr. Christopher Wheeler of Bear Stearns. Please go ahead, Mr. Wheeler.

Yes, good morning, everybody. A couple of questions on slide 30, if I may, which Wilson kindly showed us. The first one is, being a boring accountant, I'm trying to tie up the write-downs in the two periods, because obviously you disclosed CHF2.2b of write-downs in the third quarter and you have here CHF2b. So I'm just -- for the full year. We seem to have lost about CHF1.3b. I just wondered, is this in (inaudible) products? Are they always fixed income? Perhaps you can just clarify that. I'm sure that's a simple question.

The second question really comes back to the subprime mortgage exposure. You talk here about having CHF4.3b net. I'm assuming that's net of hedges at the end of the year. And you had something like CHF6.2b at the end of the third quarter. I think at the end of the third quarter Renato was very firm in saying that the exposure was de minimis. So I'm just trying to get my head around what -- was there other hedges, or is it part of the other CHF27.1b you mentioned there that was set off against that subprime? (Inaudible) the mortgage industries that led you to say that. Perhaps you can give us a view as to whether you can give us the net, having taken those indices, or those hedges against the indices off.

And then a third question on capital. I was just looking at your slide you gave us at the Investor Day last January, when you talked about CHF8b of excess capital. If I asked you to do that slide again, Brady, I'd just be interested what you think you'd say your excess capital is at the moment, perhaps at this point in time and maybe what you think it'll be at the end of the year.

And then finally, just to Walter, CHF12b was an excellent result for net new money in wealth management in the final quarter. Can you give us any indication as to how the re-jigging in Asia helped that, given I think that was all completed by August? Thank you.

Okay, a lot of good questions. Do you want to start with the reconciliation of the period write-downs?

Certainly. On a full year, you saw on that slide 30 that we had write-downs of CHF2b. And as Wilson mentioned, we can understand how there'd be a reconciliation issue from what we disclosed in the third quarter. And the difference can fully be explained by the fact that there were timing differences. Again, Renato mentioned some of those timing differences in the third quarter and that they were hedges that we've had on our portfolio that had gains in the first half that were not reflected, obviously, in the third quarter numbers that we mentioned.

In addition, to make the data comparable with our peers', we've looked at it on a net basis and we've also added back embedded carry in those positions, which all reconciled to the CHF2b total write-downs.

Just on your drill-down into the CDO questions, the numbers we've shown you there are the net exposures within the CDO related to subprime. As we mentioned, we also have some of these index hedges overall, which help mitigate risk. And let's say a third component that underlined our comments at the time was our mix of the quality of assets, where we tended to hold the higher tranches and the longs and be short in some of the more junior tranches, as well as being, we think, being better positioned in some of the vintages. We're in better performing vintages overall on our long side. So there are a couple of other components that played into that disclosure in Q3.

You didn't disclose anything in Q3, Wilson. I guess that's the question. You just said de minimis and I'm just trying to say are you really saying that the CHF6.1b did come down, because of that mix you mentioned, to virtually nothing?

What we're saying is at that time we had some significant macro hedges and we also had a good blend within that portfolio, so that from a trading perspective we thought the exposure was de minimis.

Okay, sir, thank you.

Yes, and you can see, obviously, as we said, the subprime performance in the fourth quarter was probably approximately breakeven for the year. So, as a result, you can see that we did not think it was exposure that -- there was not material exposure and there clearly wasn't.

Renato, do you want to address this question of the excess capital, CHF8b of excess cap? I don't know what --

If I remember correctly, the slide you referred to was when we discussed the (inaudible) what we potentially do with the excess capital. As a matter of fact, if I remember correctly, it was CHF4b because the other CHF4b was already in the calculation in there. At that time, the consequence what we did was we announced the share buyback program, which took care of the CHF4b already in the second half of 2007.

Now, how this slide would look like at the end of this year is very difficult to say. As Brady said, I think we are prepared to take opportunities if they are -- opportunities are there. At the same time, we have of course also to watch marketing and market developments and make sure that we have a prudent capital management for the Group as a whole. So at this point in time, I think it would be pretty difficult to already foresee on how this slide would look like at the end of '08.

Walter, do you want to address the issue of the net new assets in the fourth quarter and Asia's role in that?

Just to give you a little bit of flavor on that, the asset distribution, very happy about Asia. It contributed almost 50% to it. And we had very strong inflow from the Middle East and from Europe. And we had a little bit of a seasonal slowdown in Switzerland, which is always related to tax payments and amortization of mortgages. So that gives a little bit of a flavor about the split.

Thank you, gentlemen. Thank you.

Next question on the phone?

The next question is from Mr. Elie Darwish of Exane BNP Paribas. Please go ahead, Mr. Darwish.

Yes, good morning. This is Elie Darwish from Exane BNP. I would like just to come back on slide 38 and ask you to what extent did you hedge the CHF3.9b of securities transferred from money market funds to your own balance sheet at the end of Q4, actually, and if you actually -- there are hedges that can be used to reduce this gross exposure?

On the share buyback, this is my second question, I would like you to clarify whether the CHF8b program is effectively going to be completed by the end of '08, or are you now more flexible when you are doing the end of this program? Thanks.

I think, with regard to -- maybe I'll just take these two quickly. With regard to the hedging on the CHF3.9b of securities, as Wilson mentioned, we do have some material hedges against that but it's not completely hedged, certainly. And obviously, as we mentioned, any hedge, there are a few hedges that are perfect hedges, so we do have some hedging against it. As I mentioned, it's been relatively stable in terms of valuation since early December. So we -- but we do have some hedges there, clearly.

In terms of the share buyback, I think you probably said it correctly. We established the CHF8b program last May. By the end of the year, we had effectively executed on half of that program. It was originally programmed through 2010. We had thought that we might actually execute that in '08. And I think now, I think you've probably put it well, we're going to be flexible in responding to business opportunities and market conditions in order to see how that progresses.

Okay, thank you.

Next on the phone?

The last question is from Mr. Derek De Vries of Merrill Lynch. Please go ahead, Mr. De Vries.

Yes, thanks. I have two questions for Wilson Ervin, since we have you on the phone. The first relates to correlation trading. And I was wondering how happy you are with your models, and are you reducing your exposure to this business in light of what could be several standard deviations then in terms of downgrades? And then also, if you could just maybe give a comment on the systematic risk from correlation trading.

And then the second area is I was wondering if you could walk me through the pros and cons of your approach to offloading your leveraged finance exposure to [Harris] and say what this will mean for reducing your exposure in leveraged finance going forward. Thanks.

Wilson, why don't you answer the first on correlation trading. Maybe, Paul, you could answer the distribution one, distribution.

Hi, Derek. With respect to correlation trading, as we showed you, our overall CDO positions are relatively moderate and this does include correlation trading related to subprime assets. In general, we think we're positioned good for opportunities going forward. We think this is a time when having a small position enables us to be much more active with customers and we see good opportunities in two-way trading there.

With respect to your question on systematic risk, I would not say correlation trading per se is a big driver of that. I think what we're working through now is a big credit adjustment, so it's really more in the nature of the big credit and liquidity positions rather than systemic challenge now. I don't really think it's correlation trading per se.

Thanks.

Paul, do you want to answer the question on the --?

Yes, I think it's a short answer because, as we said earlier, we don't comment on specific positions, names relating to your question on Harris in particular. I think what we can say is the desk has been extraordinarily disciplined about selling down positions and opportunistic about doing so, and it's no exception with that position.

Okay.

I think on the analyst side, any further questions here in the room, any last questions that anybody would like to ask? Okay. If not, we really appreciate your attendance today. I think we're going to take a couple minute break and then come back in to address any questions from the media, if that's okay. Thank you very much, everybody.