Credit Suisse Group AG (CS) 2008 Q1 法說會逐字稿

Good morning. This is the conference operator. Welcome and thank you for joining the Credit Suisse Group first quarter 2008 results conference call. As a reminder all participants are in a listen-only mode and the conference is recorded. You will have the opportunity to ask questions directly after the presentation.

(OPERATOR INSTRUCTIONS).

At this time I would like to turn the conference over to Mr. Brady Dougan, Chief Executive Officer of Credit Suisse Group. Please go ahead Mr. Dougan.

Good morning everybody. Thank you for joining our call to discuss first quarter results. The operating environment in the first quarter of 2008 continued to be extremely challenging for the entire industry, as you know. Market conditions deteriorated further in March, leading to additional write-downs in our leveraged financed structure, products businesses within Investment Banking. As a result Credit Suisse reported a net loss of CHF2.1 billion in the first quarter of '08. To a large extent this loss was driven by net write-downs of CHF5.3 billion in leveraged finance and structured products in our Investment Banking division.

However, at the same time we've continued to reduce our risk positions, during the first quarter of 2008 we reduced our exposures in commercial mortgages by 25%, and the leveraged finance by 41% compared to the end of last year. While our first quarter results are clearly unsatisfactory, we remain well positioned to advance our strategy and capture growth opportunities arising out of the current market disruption.

During the quarter clients turn increasingly to the best capitalized and most stable financial institutions, including Credit Suisse and we saw good asset inflows in Private Banking and good client activity across a number of businesses, for example in prime services. Moreover our capacity to generate revenues remained strong. Excluding the areas affected directly by the credit crisis most of our businesses performed well with revenues near or in some cases above those in the first quarter of 2007.

Growth momentum in most European and major emerging markets, and in particular the robust economic environment in Switzerland, helped to mitigate the adverse effects of these market developments on our business.

In addition we generated approximately CHF1.2 billion of our core net revenues from cross divisional activities and we have a strong pipeline of business. We are continuing to focus on efficiency. Total operating expenses declined 23% from the year ago quarter and 12% from the fourth quarter, reflecting lower compensation expenses in both periods. Although non-compensation expenses increased 3% year-over-year, they declined 19% from the fourth quarter in part due to a continuing downward trend in the Investment Bank.

Our business model has proved resilient to the extreme market conditions of the past ten months and we remain well positioned to seize the opportunities arising from the changing financial landscape. Our results demonstrate the benefits of our integrated banking model in terms of both diversification and collaboration.

I am joined on this call by our Chief Financial Officer, Renato Fassbind and our Chief Risk Officer, Wilson Ervin. In our discussions today we're going to continue to endeavor to maintain a very high level of transparency. Renato is going to take you through the details of the results and Wilson will walk you through our risk positions and how we've managed to further substantially reduce these through the quarter. We'll then take any questions and I will sum up. Renato?

Thank you Brady and good morning. I will start my presentation on slide five. Despite the significant valuation reductions which were reported in Investment Banking and from our money market assets [laid] out in asset management, many of our businesses continue to perform well. Private Banking continues to deliver good results demonstrating benefits of a diversified and integrated global business. In Wealth Management we recorded asset inflows of CHF13.5 billion and our Swiss Corporate and Retail Banking business produced another strong result both in revenues and pre-tax income.

The valuation reduction of CHF5.3 billion masked an otherwise good underlying earnings power in the Investment Bank. There was strong performances in many of our client focus businesses. For example, we record the record revenues in prime brokerage and very strong revenues in global rates and foreign exchange. And while the environment was very challenging for the mortgage and credit markets, in particular in March, we continued to actively manage down our positions. Following on from the significant reductions we achieved in the fourth quarter of last year, our exposure to CMBS was further reduced by 25% and leveraged finance balances were reduced by 41%.

Maintaining capital strength and the conservative liquidity position was always a priority for us. At quarter end our Tier 1 ratio and the Basel II stood at 9.8%, only slightly below our target level of 10%. In terms of liquidity we maintained the cash long position of more than CHF15 billion and also increased the liquid assets accepted under existing Central Bank facilities from CHF60 billion at year end to CHF82 billion at the end of the first quarter.

In summary, while our first quarter results are clearly unsatisfactory, our capacity to generate earnings remains strong and we remain well positioned to create long term value and seize opportunities that arise from the market dislocation.

I will skip over slide six and seven for this call and start with the review of the divisional results in more detail starting with Private Banking on slide eight. In Wealth Management we continued to deliver good results despite the challenging markets with positive momentum across all regions. The 12% and 13% reduction in pre-tax income, as shown on the left side, reflects the impact on a significant reduction in assets under management and considerably lower client activity. Our client base remains strong but also cautious, given the high volatility observed in many financial markets. The cautious behavior primarily affects our transaction based revenues especially when volatility persists for such an extended time.

We continue to invest in our Private Banking franchise and see strong indicators for growth. In the first quarter of 2008 net new assets stood at CHF13.5 billion. And we continued to hire relationship managers across all regions. We added a total of 110 relationship managers during the quarter, including 40 in Asia Pacific and 50 in Europe and the Middle East. 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. The pre-tax income ratio did come down this quarter to 37.2% below our 40% target level. But we remain confident to achieve the target level over the mid-term.

As shown on slide nine the gross margin on assets under management remain stable at the 117 basis points. Compared to the first quarter last year, recurring revenues increased by CHF102 million or 6% to CHF1.68 billion. As a result the recurring asset margin was up 7 basis points to 85 basis points. This increase in the recurring revenues is in line with our strategy to further strengthen our stable revenue basis.

Transaction based revenues as shown underneath the chart on the left, decreased to CHF629 million in the first quarter, reflecting the adverse market environment and cautious client behavior. Consequently the transaction based margin dropped to 32 basis points.

In summary, we were able to maintain the margin and actually improve the recurring component of our revenue stream from 66% last year to now 73%.

But overall revenue levels were affected by lower client activity and the impact from the reduction in assets under management, which brings me to the next slide, number ten.

Net asset inflows in Wealth Management stood at CHF13.5 billion, significantly above the levels experienced in the second half of last year but slightly below the very strong performances in the first quarter of last year.

We have added, for transparency, splits for our net new assets, assets under management and relationship managers by region for our quarterly report. As you can see also on the slide, inflows were strong in Switzerland with CHF5.3 billion, but also in the Americas.

Already at the end of last year we commented on the de-leveraging we have seen in some of our larger clients' portfolios. This was a feature in particular in Europe and the Middle East, or EMEA, resulting in a reduction in the reported net inflows to CHF2.1 billion for that region, as assets were liquidated to redeem funding.

The chart on the right side shows that assets under management came down by 11% during the first quarter. Currency effects amounted to close to CHF60 billion of that reduction as both the US dollar and the euro trended lower against the Swiss franc.

Negative market movements resulted in a further CHF43 billion reduction in assets under management. Net new assets have developed positively across all regions and continue to meet our medium term target of 6% per annum.

The Swiss corporate and Retail Banking business, shown on slide 11, delivered another strong result. Quarterly pre-tax income of CHF464 million was supported by solid economic conditions in Switzerland. The result was driven by strong revenues, good cost control and continued low credit provisions.

Our results also include a CHF64 million unrealized gain on a synthetic collateralized loan portfolio. You see a loan transaction referred to as Clock Finance hedges a portion of the credit risk intrinsic in the underlying loan portfolio. As spreads widened on credit protection, our position created a fair value gain.

Before I 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 12. The Investment Banking results continue to be influenced by two very distinct developments. At the headline level, the pre-tax loss this quarter was CHF3.46 billion, driven by leveraged finance and structured products write-downs amounting to CHF5.3 billion.

We made further progress in reducing our risk position. Wilson Ervin will present details on this shortly.

At the underlying level, most client business outside the problematic mortgage and credit market, continued to perform well. Let's have a look at that with a fixed income comparison, as shown on slide 13.

This chart shows you a flat movement in our fixed income businesses outside the areas most affected by valuation reductions. Starting with the negative total fixed income trading and debt underwriting revenues of CHF1.4 billion recorded in the first quarter 2008, we then backed out CHF4.3 billion of negative revenues recorded in our structured products and leveraged finance businesses.

After deducting the fair value gains on Credit Suisse's own debt, allocated to Investment Banking, we arrive at an adjusted revenue level of CHF1.66 billion. And we compare this with the revenues recorded in the same period last year, again excluding any contribution from structured products and leveraged finance, you see that we were maintaining revenues at the same level as the very strong first quarter results of 2007.

As listed on the right, there are many businesses that recorded very strong revenues this year, in some cases even at record levels. Very strong revenues were recorded in our global rates and foreign exchange businesses. In addition, we recorded strong performances in emerging markets and fixed income prop.

It is also worth noting that the fixed income results in the first quarter include the CHF500 million net fair value reduction on our corporate loan book. We value around CHF29 billion of our corporate loans in the Investment Bank at fair value. Had we not chosen to fair value these loans, the corresponding credit provision charge on an accrual basis would have been only a fraction of this CHF500 million, reflecting the sound underlying credit quality of our portfolio.

In summary, we have momentum in many of our businesses, as we are continuing to diversify our revenue sources by taking advantage of the dislocations in the market.

On slide 14, equity trading revenues decreased 33% and 36% against the comparable periods. The key driver of this reduction is equity prop trading, which incurred losses in the current quarter compared to significant gains reported in the first quarter of last year.

Our client related businesses continues to perform very well. Client services achieved record revenues with strong growth in client balances in the quarter and a significant number of new client mandates.

We achieved good results in the global cash business and our electronic trading platform AES. So as was the case in fixed income, many client related businesses showed a very strong performance and the underlying earnings power in equity trading remains strong.

Next let's look at the Investment Banking expenses on slide 15. We maintained our disciplined approach to compensation, as compensation expenses were reduced as a result of the lower quarterly results. To pre-empt any questions you may have on this, let me please say that, given the first quarter result and the market uncertainties, it is too early to give you guidance on full year absolute compensation levels or compensation to revenue ratios. We will need to review the strengths of the business results and staffing levels at the end of the year and also determine any potential changes in the amount of share-based awards as part of the performance based compensation.

G&A expenses in Investment Banking are down in the first quarter due to a continued focus on cost management and despite an increase in headcount. As you may recall we started our cost management activities some while ago, at the time when the environment was less challenging. We told our employees back then that it's better to start working on efficiency programs when revenues are growing. We now have systems and programs in place to effectively and efficiently manage our cost base. We believe that these actions now put us in a much better position to adapt to current market levels going forward.

Let me continue with the asset management division on slide 16. Our results here continue to be affected by losses in respect of the money market lift outs. We recorded losses of CHF566 million on these assets in the first quarter. Since we lifted the securities from the funds, we have reduced the portfolio on our balance sheet by over 75%, with exposures standing at CHF2.2 billion at the end of March.

While we [come off] an improved performance in 2007 with an underlying annual pre-tax income of close to CHF1.3 billion, the current results show that we need to continue making the necessary changes that allow us to deliver our profitable growth strategy.

This brings me to slide 17. We have regrouped asset management to increase the focus on our strengths, namely our world class alternative investment and asset allocation businesses while maintaining the commitment towards our clients.

We are now managing the division along three business lines as shown on slide 17. One, alternative investments comprising of our leading private equity and real estate businesses and our single and multi-manager hedge fund strategies. Two, multi asset class solutions or MACS comprising of active asset allocation strategies and solutions across all asset classes. And three, global investment strategies comprising of our traditional equity and fixed income mandates and also the Swiss institutional advisory business.

In the columns to the right you can see how these businesses compare in assets under management, net new asset inflows in the quarter and for the full year 2007 and what percentage they contribute to asset management revenues.

Looking at the second column all the way down, the net new assets for the quarter were a negative CHF20.2 billion driven by outflows in money markets and Swiss institutional advisory assets reported within global investment strategies.

But I want to focus your intention in particular on the alternative business further up which continues to show good asset inflows and accounts for 40% of the division's revenues. We believe that the alternative asset inflows will fuel further revenue growth also driven by our best in class capabilities.

On slide 18 we have split the revenues into the more volatile private equity gains shown in the upper part of the slide and the stable asset management fees shown below. The private equity business started the year with net negative revenues due to reduced realizations and unrealized losses on our stakes in public company investments, in particular in China. Recurring revenues, as shown below, were at CHF648 million in the quarter. This is at the same level as in the first quarter last year despite the fall of [CHF100 million] -- CHF100 billion in assets under management mostly in fixed income.

Higher contributions from our alternatives business were offset by lower revenues in global investments in line with the reduction in assets under management. The overall gross margin actually improved from 37 basis points to 40 basis points reflecting growth in our higher margin businesses.

Compared to the fourth quarter the margin came down 7 basis points. Here the key drivers are significantly lower performance fees as these are recorded on a semi-annual basis. In addition lower revenues in global investment and MACS also reflect the reduction in assets under management during the quarter.

Overall, assets under management declined 13% in the first quarter of 2008, most effected by a worse -- adverse foreign exchange impact and market movement.

I will now close my presentation with the Group's capital position as shown on slide 19. Capital continues to be a strong story for Credit Suisse as we remain well capitalized. We have now transitioned to Basel II. The chart on the left gives a high level comparison of the risk-weighted assets and Tier 1 ratio as a result of moving from the old to the new method of calculation. We have included a more detailed description of the movement in our quarterly report.

During the quarter the Tier 1 ratio came down slightly from 10% at the end of the year to 9.8% at the end of the first quarter. Risk weighted assets came down by 7%. Tier 1 capital also declined due to foreign exchange movements and the net loss we recorded in the quarter. This was partly offset by the issuance of CHF1.5 billion in hybrid Tier 1 capital during the quarter and lower reductions for goodwill and other intangible assets. We have reduced our share re-purchase activity in light of recent market conditions.

In summary, we have maintained our strong capital ratios without diluting existing shareholders. Compared to our peers, our Tier 1 ratio is among the highest in the industry. We successfully transitioned to Basel II and will propose to pay an increased dividend of CHF2.50 to shareholders at the annual meeting that takes place in Zurich tomorrow.

We strongly believe that a strong capital base together with a conservative liquidity profile is a competitive advantage especially in these markets. We will continue to prudently manage our balance sheet exposures and capital in order to remain in the position to seize opportunities that arise from the market dislocation.

With that I welcome Wilson Ervin to present the next section of the presentation. Thank you.

Thank you Renato. As we did at year end, we want to update you on how our risk positions have developed in the first quarter. We're committed to continuing a high level of transparency and we'll take you through the key risk exposures in detail using a format consistent with the approach we took last quarter.

As you know, market conditions have been very difficult this quarter, prices have declined across nearly all credit markets. Conditions were tough in January and February and got worse in March. The quarter saw several forced liquidations by hedge funds and other participants which led to a cycle of declining prices and further liquidation in certain asset class. Trading liquidity was also generally weak during the quarter in these markets due to anticipated as well as actual liquidations.

The quarter culminated in some extra ordinary actions by the Central Banks to maintain order in the markets late March. We have seen some improvements in recent weeks but only in selected areas so far.

We took significant write-downs in this quarter as we marked our positions to market. Although these write-downs had a significant impact on our P&L we have been able to manage them within our existing capital resources and Credit Suisse remains one of the best capitalized firms in our industry. We have also continued executing our risk reduction program which we pursued aggressively since last fall.

Let's turn to slide 21 and I'll walk you through an overview of the business lines in Investment Banking that have been most affected by the recent market turmoil.

Across the top of this page we show a few different columns; the first column of numbers shows you the exposures at Q1'08 and then Q4'07 and the percentage change. The last two columns show you the net write-downs in Q1'08 and for the full year 2007. These write-downs total CHF5.3 billion in Q1 compared to CHF3.2 billion we showed for all of 2007.

Going down the side, the first two rows describe our big underwriting businesses, leveraged finance and commercial mortgages. And the next two rows show trading based businesses. In levered finance we've cut our positions from CHF35.1 billion to CHF20.8 billion in the first quarter. This is a reduction of 41% in the quarter. Net write-downs are CHF1.7 billion as we marked this portfolio down by 9 percentage points to an average price of 85% to keep it in line with market levels.

On the next slide you can see we've also made progress in committing our commercial real estate portfolio. Here we've reduced our exposures by about 25%, net write-downs are at CHF0.8 billion in Q1.

The bottom two rows show our residential mortgage in subprime CDO businesses. As mentioned last quarter, we cut back origination activities a long time ago in both these areas so we managed these as trading businesses. We show the exposures on a net basis as there is no large underwriting position here [now it goes] to the two origination based businesses at the top of the slide.

The residential mortgage line shows how our positions here continue to be reduced. They were down to CHF5.5 billion in the quarter and the subprime segment was cut to CHF1.1 billion. Write-downs there were modest in Q1.

The next line shows our CDO positions which have been the most difficult area for us. Our exposure to directional marked moves was only CHF0.7 billion on a net basis. However we will also address gross long and short positions in a later slide as basis movements between longs and shorts were the main factor in write-downs this quarter. The net write down totaled CHF2.7 billion in CDOs and I'll go into that in more detail in later pages.

The final point before we leave this page, as you can see at the bottom we continue to hold substantial index hedges to manage risk in these focus sectors. We've reduced these hedges somewhat in line with reductions in our asset portfolio but they're still important in keeping our overall portfolio balanced against possible risk scenarios. These now total CHF20.9 billion of high yield credit, cross over credit and mortgage index short positions.

While these hedges have been valuable overall, the efficiency of our hedges dropped with some of the dislocations in the markets in Q1. The prices for cash positions generally dropped more than the gain in the relevant index hedge which meant the result in some net write-down, even for a position that was matched out in nominal terms. This is partly due to market supply and demand technicals and partly due to pressures in the financing markets. Those pressures have led many participants in the market to value derivatives which don't require cash more highly than bond positions which do require funding.

Now let me spend a few minutes on each of these areas to give you a more detailed look at our exposures and our portfolio breakdown. First let's look at our leveraged finance business on the next slide. As you can see on slide 22 we have remained disciplined in selling down our portfolio. Back in September we had exposure of roughly CHF59 billion in leveraged finance. We've got that to CHF35 billion in Q4 and CHF20.8 billion at the end of March.

We got some benefit from exchange rate movements in the first quarter, but the majority of the reduction was from a strong sales effort. This has been an orderly process and we've now started to sell down by way of large heavily discounted transactions. We did sell a few loans of terms financing but this amounted only to CHF2 billion which we show at the footnote at the bottom of the page for full transparency. We value all these positions on a fair value basis and have now transferred any of the positions to [accrual box].

At the end of the quarter our exposures were valued at an average price of 85%, which is a significant reduction compared to the 94% mark we carried at the end last year. Net write-downs this quarter were CHF1.7 billion as a result of severe spread widening, but not because of any credit problems in the portfolio which we address on the next page, page 23.

While the size of the positions are significantly lower, the distribution of them is broadly similar to what we showed you last quarter. Our portfolio is largely with large-cap companies with stable cash flows, it is generally US focused with low exposure to cyclical industries. We have some significant concentration in larger deals, but the quality of the underlying credit remains good and the companies are performing on plan.

Our leveraged finance business is a strong franchise for us and the distribution skills and focus have been a key asset in this market. They have come through previous downturns in a stronger position and we believe they will do so again.

Now let's turn to commercial mortgages on page 24. The story is broadly similar on our commercial real estate activities. As you can see we have reduced our gross exposures by 25% during the fourth quarter, going from CHF25.9 billion to CHF19.3 billion. All positions are fair valued and we do not have a hold book for this business. Valuations have been written down in line with observed trading levels for cash and index instruments and incorporating specific asset fundamentals.

We took write-downs of CHF1.3 billion on a gross basis based on these market moves in Q1. Credit hedges and interest (inaudible) at CHF800 million in net terms. As in leveraged finance we have kept a significant hedge portfolio in place to protect against further shocks or an economic downturn scenario.

Now let's turn from exposures to the portfolio analysis for CMBS, and please turn to page 25. The story here is largely similar to what you saw in our Q4 presentation, probably the main changes at the top left which shows our geographical diversification. Much of our sales in the quarter were in the United States and the relative weight of that region declined.

Our credit quality remains internally good, with good loan to value support and a low percentage of development loans. It's important to note that credit performance for commercial real estate is fundamentally different form the residential markets. Our portfolio is generally well diversified and then secured by high quality income producing real estate.

Now let's turn to our trading exposure starting on page 26. These are smaller nominal terms but are closer to the center of the recent market storms and it's seen sharper price action. As mentioned we have largely been out of the underwriting business in RMBS since early 2007. Our portfolios evolved into a secondary trading book and we show our positions on a net basis. But our shorts in this book are less than CHF1 billion at this point. So our gross positions aren't too much different from our net positions here.

The main stories of further reduction and exposures. We show exposures for subprime and also include Alt-A, Prime and European and Asian exposures for completeness. Our decision further cut positions in the latter part of 2007 and early 2008 proved beneficial, particularly in Alt-A, as (inaudible) extended to that sector. The net write-downs were minimal here in the first quarter.

A few other comments. We mark these books to market based on trading levels and relevant cash instruments and derivatives and while the ABX model is the best guide for valuation, it is amongst the most transparent reference points in the market. If the valuations for our positions are compared to the prices for the closest ABX index they come out as conservatively marked. This is true for both the RMBS portfolio and for CDOs which I'll turn to next.

One slide 27 we give you some more detail on our CDO positions which were our most difficult area during the quarter. The top box shows our positions at Q1 versus year end on both a gross and a net basis. The second box shows how our net position [evolved] by category and the last box shows the net write-downs. The final box shows our write-downs for the quarter which totaled CHF2.7 billion and includes the losses we discussed in our previous announcements.

The ABS and index category describes securities backed primarily by subprime loans. This year we lost about CHF1.8 billion overall in the first quarter. About CHF400 million of that came from the clients in overall market levels but the majority of losses were from basis risk or valuation changes between longs and shorts. Simply put, our hedges didn't work very well this quarter and the long positions went down more quickly than our shorts [rallied].

We also took about CHF0.7 billion of losses in the second category, synthetic CDOs in Q1. In this area we changed back some of the model parameters to relatively severe levels as we discussed a few weeks back. This is designed to ensure that our derivatives valuations are priced consistently with observed trading levels, even if those parameters are fairly extreme.

The third category, cash CDOs, were relatively flat in P&L terms in Q1. This category has moved to a distressed net asset basis back in 2007 and was relatively insensitive to further downward market movements. This gives you an overview for the losses in our CDOs, they don't put to the exact write-down figure due to small adjustments in other categories such as corporate credit and rounding differences, but I hope it gives you some rough intuition behind the main drivers of this move.

As mentioned, we've taken a number of steps to correct this portfolio, put in a new trading team in February and have made some initial progress in reducing and re-balancing our positions. Large sales would be difficult in light of the low levels of market liquidity but we have made some progress in reducing some of the risk factors that caused the losses in Q1 and cutting down the sensitivity of the books. There is still risk here but market dynamics have become a bit more stable in the market in recent weeks.

This concludes our look through the focus areas of Investment Banking. There have been some other areas of interest that have been raised in the market but I haven't talked about them in detail as they haven't had a major impact on Credit Suisse. But I'll make a few summary comments here in case there are questions.

One, we don't sponsor any SIVs; two, we're not in the [auction rate] underwriting business; three, we don't use monoline wraps to hedge our books; four, our credit losses are in good shape and continue to perform well. We did see some defaults by several hedge fund clients during the quarter, but losses were minimal as our collateral protection was well structured and sufficient to fund the loans. Lastly, our counterpart exposure to other financial firms are also collateralized on a daily basis. So while our write-downs have been challenging in the focus sector in our Investment Bank, we've worked hard to make sure these issues are contained.

Let's turn now to the asset management division on page 28. Last quarter we discussed some actions taken to remove stress securities from our third-party money market funds, a decision we took to protect our investor franchise. Our third-party money market funds continue to operate normally for our investors. They have no material exposure to SIV, CDOs or US subprime and carry good levels of overall liquidity. However, we did see some further write-downs for the securities we lifted out of our money market funds in late 2007. Positions in our lift out book are market-to-market like normal inventory, and now carry typical discounts to PAR at 15% to 50%. Our weighted average price for this portfolio was about 65% at quarter end.

In the top panel you can see an update of our gross exposures by asset type in our lift out book, approximately CHF1.5 billion of the exposure to SIVs, which is down from CHF2.5 billion in Q4. We have CHF500 million in asset backed securities and CHF200 million of corporate bonds and these represent significant declines from Q4.

In the middle panel you can see how the size and lift out book evolved during the quarter. We did execute one lift out of an FRN during the quarter when spreads for financial firms widened, but we've cut the portfolio by CHF1.9 billion with the majority coming from sales and maturities.

The final box updates you on the write-downs taken from the lift out book. These total CHF0.6 billion in Q1 versus a loss of CHF0.9 billion for all of 2007. We're continuing to work on reducing this portfolio and bringing this matter to a close, but also in a way that protects value for our shareholders.

We've talked through the specific areas that have been hardest hit by the recent market turmoil, but before concluding I would like to turn briefly to some high level views of risk to show you how these specific areas fit into the overall picture for the Bank.

Page 29 gives you a trend line for two high level risk metrics for the whole Bank. ERC, or economic risk capital, is a proprietary model for us. It covers all our major risk types, including market, credit, and investment risk. It helps us track risk developments on a consisted basis across business and across [time]. Our overall ERC declined by 7% versus year-end, and is down 17% versus the Q3 level. This has been driven largely by the reductions in our lev fin and CMBS areas, as well as by a few other factors.

As we mentioned last quarter, ERC has worked pretty well during this crisis at measuring and tracking risk. More importantly, it has been helpful in our decision making as it forced us to put on credit hedges before the crisis hit, back when they were cheaper and more liquid.

On the bottom half of the slide we show value at risk, or VaR. VaR is a narrower measure than economic risk capital but does cover a wide section of trading risk in the Investment Bank. They're subject to some volatility because it relies on recent market data to estimate risk for a given position. When markets are benign, a trading position might count as 5 million of VaR, but when markets become more volatile, as they are today, the same position might count as double that in VaR terms.

In the chart at the lower right, you can see that our nominal VaR figures remain elevated due to this volatility effect. This increase in nominal VaR does not reflect increases in average trading positions, which you can see by the darker bars, which are just for this effect to track VaR [as if we had] consistent data methodology throughout this period. This risk adjusted trend shows that our positions are pretty stable over time if using consistent measuring stick.

We have also been disciplined in ensuring that VaR continues to capture all trading risk in the Investment Bank. We haven't removed anything from VaR -- from markets that have more VaR. This ensures better transparency and consistency internally, and gives us a better line of sight to manage our overall trading book risk. Now I'd like to turn to page 30 to summarize.

This certainly was not an easy quarter, market prices deteriorated significantly in nearly all credit sectors, and hedging relationships dislocated to an unusual extent. While our hedge book was beneficial, it's net performance lagged the asset side. We took some tough mark-downs in leveraged finance and CMBS to make sure we stayed at market valuations. Our CDO book was especially challenging both in terms of market conditions and write-downs. We've worked hard in this quarter to fix this situation, and have taken the necessary steps to start getting that portfolio back on to the right path.

Market disciplines are especially important in ensuring clarity when conditions are stressed, and Credit Suisse has maintained a strong mark-to-market discipline in the Investment Bank. All our focus exposures are accounted for on a fair value basis, and all marks go through our P&L. We have not transferred any assets into portfolios that would require a change in accounting treatment or taken them out of our VaR reporting.

Our credit performance continues to be strong, both in our underwriting books and in our lending books, we have retained a significant but smaller hedge portfolio to protect against future market volatility or against recession-type scenarios. And lastly, in spite of difficult markets, we've achieved good reduction in exposures in our focus areas. We are encouraged by the progress we have made in rebalancing risk to a level that's more appropriate for current market condition, and we work to continue that progress.

With that, I'll hand it back to you, Brady.

Thanks, Wilson. A lot to go through. Hopefully you found that useful though. I think, with that, we're ready to open it up for questions. So, operator, if you can queue up for questions and we'll try to answer whatever we can.

We will now begin the question and answer sessions, with analysts first, followed by media.

(OPERATOR INSTRUCTIONS).

Your first question comes from Christian Stark at Cheuvreux. Please go ahead.

Yes. Good morning. It's Christian Stark from Cheuvreux. Just a couple of questions on the Private Banking side, first on the inflows and on the hiring that you had.

So first on the inflows, in Switzerland you had strong inflows, in Asia you mentioned some impacts of de-leveraging, and I just wondered whether that had stabilized?

Then, on the hiring in Asia, you had a very good increase and there I would like to know whether those were mainly experienced relationship managers which are expected to bring good net new money flows going forward, or whether that is mainly people that you are training up?

Then the next question's on Private Banking, on the gross margin. I wanted to know if you have seen any changes in the asset mix in Wealth Management, particularly amongst equities, structured products, or alternative investments?

And the last question, maybe you could give us an indication of the impact of change in funding costs for the asset-based fees? Thank you.

Thanks for those questions. First of all, on inflows, as you mentioned, we saw a very strong performance in Switzerland in between the Wealth Management area, and the Corporate and Retail Bank we saw, I think, close to CHF9 billion in inflows in Switzerland, which was a very strong performance as you mentioned. And, again, I think we're probably benefiting from being stable and well capitalized in, obviously, more difficult times. I think that the inflows in Asia Pacific were actually quite strong. They were -- we had a very strong quarter in the fourth quarter I know so the first quarter was a little behind the fourth quarter, but still very strong momentum, I think, in Asia Pacific and so that's -- we continue to see good flows there.

You mentioned de-leveraging in Asia Pacific. Actually, we saw de-leveraging in EMEA in our European business, not so much in Asia Pacific, and any other de-leveraging, clearly, does have some impact on our overall net new asset flows. But overall, I think very, very stable good strong flows in the first quarter.

On the hiring side, yes, we made -- I think we made good progress in hiring, and again, I think benefiting somewhat from our -- from the fact that we have performed better than many of our competitors, and are viewed as a very attractive platform to join. We exceeded our targets for the first quarter, and those were primarily producing relationship managers. When we report relationship manager hiring targets, those are really experienced producing relationship managers not trainee level type people.

I think in terms of the gross margin, as you say, it held up well at 117 basis points. I think in terms of the asset mix, I don't think it was broadly much different from the fourth quarter, so it remained pretty stable. We did see, however, that in terms of the gross margin, a larger portion of our gross margin performance came from our ongoing, our stable sources of revenue, and a little bit less from the transaction flow. So I do think that there was a bit of a -- that is one of the things strategically we are trying to actually push our revenue flow over to some of the more stable longer term sources, and we've succeeded in doing that in the first quarter.

And then your last question, in terms of changes in funding costs, we didn't really see -- I guess, in terms of particularly our Private Banking and our Wealth Management business, we benefit from, clearly, a strong deposit base with relatively low financing costs from that so our Wealth Management business is -- has excess funding. So it effectively generates additional funding. That, obviously puts us in a very good position in markets like these where in general interest rates have been higher, and so that definitely gives us some benefit.

But I'd say our funding costs was largely, I would say, flat to the fourth quarter. But again, the composition of our funding base in our Wealth Management business is clearly a big advantage for us in times like these particularly.

Perfect. Thank you.

Thank you. Next question?

Your next question comes from Matt Spick at Deutsche Bank. Please go ahead.

Good morning. I had two quick questions. Firstly, on the capital side, your balance sheet is shrinking quite quickly, and I know you're being helped in that by the dollar exchange rate, but you've gone from 1.4 trillion to 1.2 trillion and you're seeing declines in risk weighted assets. Could you make a comment about how much de-leveraging you think Credit Suisse needs to do and how far through that process you are? Was it really a one quarter process that you're pretty much through or is there further to go in that?

The second question was just on headcount in the Investment Bank. I can see that you've still got about 20,600 employees, about the same that you had in the fourth quarter, and that's about 1,600 more than you had in the first quarter of 2007. So again, I'm interested to know, if we do go back to say a 2005 revenue environment, is there any reason why we shouldn't go back to a 2005 level of headcount or am I just thinking about headcount in the wrong way when I try and think about revenue productivity? Thanks.

Thanks, Matt. In terms of the de-leveraging issue that you mention, actually as you say, our balance sheet did -- was reduced from the end of the fourth quarter to the end of the first quarter. And primarily that was around a lot of the efforts that we've talked about in terms of reducing risk, obviously, in the specific categories that we've highlighted but some other areas as well in terms of just reducing our risk profile.

In general, our leverage has been relatively stable. It's obviously --we actually have a lot less leverage than some of our competitors, but it's been relatively stable. And I would say in general -- so I don't think we are either have experienced or view ourselves as going through a big de-leveraging process, so I would expect our balance sheet probably to be relatively stable in the second quarter would be my guess. And obviously that'll depend on what opportunities we see. And if we see more opportunities we obviously may put more assets on the balance sheet, less we may actually reduce it.

But I don't -- there is not a particular objective that we have in terms of reducing the balance sheet further. We've got -- we obviously have plenty of capital, we're well capitalized, we are -- I think our leveraged ratios are conservative particularly compared to a number of competitors and so we feel like we're in pretty good shape there. I would expect the balance sheet to remain fairly stable in the second quarter.

In terms of headcount in the Investment Bank, yes, I think in general we are clearly going to be very active in reallocating resources within all our businesses but particularly Investment Bank from some of the areas that probably have lower growth profiles going forward to areas that we're looking to grow. And we see a lot of growth opportunities there, so we're clearly going to be very active with that.

In general in our Investment Bank we have one of the leaner footprints I think in Investment Banking among the industry, which actually positions us well in tougher times like this. But we are going to continue to be pretty aggressive about reallocating resources, but I would say right now we don't have a plan to dramatically or materially reduce headcount in the Investment Bank. We are going to be reallocating it to high growth areas which is probably the more important part of our plan.

Thank you.

Okay, thanks. Next question?

The next question comes from Derek De Vries of Merrill Lynch.

Thanks, good morning. A couple more questions on capital if I may. Your Tier 1 ratio of 9.8% that you report, that doesn't include a dividend accrual if I'm correct. So I was hoping if you would just comment on your thoughts on the dividend realizing it's only Q1?

And then if I assume you do, I think you sort of pay a dividend this year, I get to a Tier 1 ratio of 9.5% with a dividend accrual there. And I'm just trying to think in terms of comfort zones, obviously you target 10%. But your dividend -- I'm sorry, you Tier 1 ratio got all the way down to I think 9% in '02 before you did your mandatory convert. So I know it's a different management team, it's a different Basel regulatory regime, but would it be fair to categorize that that's your comfort range, the 9% to 10%?

And then I guess finally on capital; the financial stability forum report that came out was pretty clear that assets in the trading book we're going to require more capital going forward. And it sounded like they would use Pillar 2 or Basel II to capture that. And I was wondering if you'd had any discussions with the Swiss regulator on that topic?

And then maybe just a follow-up on your answer to the last question on capital. You say you're leverage ratios look good relative to peers and I guess it depends how you define peers, but if I look at the US GAAP reporting banks I think your tangible equity to tangible assets ratio doesn't look particularly strong. Is that something you focus on or do you tend to look more at your Tier 1s, your VARs, your economic risk capital? Could you just maybe comment on tangible equity to tangible assets as a tool to use as an analyst?

Yes, sure. Thanks, Derek. On the first question, in terms of capital, as you said our view is that around the 10% Tier 1 capital ratio, I think that is among the highest for major banks in the world, so we feel like we are well capitalized around that level. We think, that certainly from -- virtually from all points of view, whether it be a regulatory point of view or from a client point of view, we think that, that is very sufficient capital.

So I think in general our target remains 10% and we believe that, particularly as we -- our hope obviously is that the business performs better in subsequent quarters and we can obviously continue to accrete capital. So our view is that around 10%, that's a good level and that we feel comfortable with that.

On the -- I don't know, Renato, do you want to answer the dividend question on that, or --?

Actually included in the Tier 1 ratio is a dividend accrual on an ongoing basis depending on what we estimate to be the dividend going forward. So it is included.

So in that 9.8% you have a dividend accrual in there?

As much as we are forecasting a dividend, yes.

Okay.

It's fully included, yes.

And Derek, to answer your question about kind of -- we say, we feel comfortable around 10%. Obviously as we get farther away from 10%, we obviously reassess things. But in general within a fairly broad range, around 10%, we feel reasonably comfortable that we are very well capitalized.

I do think obviously there will be a major movement around the world for additional capital requirements. I think that's no secret. I think that will probably happen over time. And without commenting on any particular -- any specific regulator I think clearly there'll be increased capital requirements from regulators. So we'll see how that develops over time. But again we feel like we are very well positioned at around a 10% Tier 1 ratio.

And with regard to leverage ratios, yes, to be honest we don't see that as particularly significant. We clearly do focus a lot more on ERC particularly, VaR to some extent and our capital ratios in general. Our Tier 1 is what we do focus more on. Obviously the leverage ratio, it does not give you any kind of an indication of the quality of the assets or quality of what's on the balance sheet or the riskiness to what's on the balance sheet. So we focus particularly on ERC as what we think is the most reasonable explanation of what reasonable representation of what we have, how we're managing our risk.

Great, thanks. All very helpful.

Thank you. Next question?

The next question comes from Matthew Clark of KBW.

Good morning. I was hoping to just get a bit more granularity on some of your trading revenues just because you've given in the past disclosure, I think in 2006 that you made about CHF2 billion of revenues on the leveraged loan side and about CHF1 billion on the CMBS side and those businesses are obviously suffering at the moment. But we don't have any granularity on the businesses that you claim to be doing better at the moment. So I was hoping maybe you could give an indication of the size in revenue terms of the businesses that you see are doing better at the moment?

And then secondly, a follow-up on the capital side coming from a different angle. If you saw your Tier 1 ratio move up towards the 11% level, would you then feel comfortable restarting the buyback to bring it back down to the 10%? Or do you see 10% as being a minimum level and you would like to develop a cushion above that? Thank you.

Thanks, Matthew. I guess first of all with regard to trading revenues, we're not going to do a lot of specific disclosure, but I think as we've mentioned to you, basically pretty much most of the areas outside of the leveraged finance and structured product areas perform quite well in the first quarter. And we've given you that reference point of first quarter '07, which was obviously a pretty good market and a pretty good time for the industry.

In particular I think we've said that the prime brokerage business has performed very well. Our rates businesses have performed well. Our cash, our customer businesses on the equity side have performed quite well. I think the emerging markets business has also performed quite well. So I think all of those are areas that have performed extremely well in the first quarter. And again, rather than getting into specific levels, we wanted to reference back for you all the fact that, that taken as a whole pretty much everything outside of those affected areas of private equity gains and then obviously the write-downs in these areas, really performs pretty much on a par with first quarter '07, which we think is a pretty strong statement about the earning's capacity of the business.

With regard to Tier 1 and how high we would let it go; obviously again we're comfortable around 10%, to the extent that we were moving up above that and we didn't see the organic opportunities in the business. I think certainly our intention would be to return that capital to shareholders probably through our established buyback program. So I think that would certainly be a direction we'd go in subject to markets and our outlooks on the markets, etc. But that would definitely be something that we'd think about.

Okay, thank you.

Thank you. Next question?

The next question comes from Jeremy Sigee of Citigroup.

Hi there, morning. Thank you. Could I ask two questions please. One is to get into a bit more detail on your hedges, could you give us an idea of the split, I think as you did in the last quarter of the index hedges, the rough split between leveraged finance and CMBS?

And then part B of that question if you like is, could you give us a rough order of magnitude of the single name hedging that you might have against the leverage finance portfolio on top of that?

And then second question on Wealth Management; the geographic split is interesting and you've given some indications, but could you be a bit more explicit about how that split looked last year, say first quarter '07 or full year '07?

Sure. Let's -- why don't we start with -- maybe I'll ask Wilson to answer your first question on the hedges.

Okay.

Hi Jeremy. We talked in the overview slide about CHF20.9 billion of index hedges at Q1 '08. Those are just for the index hedges related to these four focus area businesses here. They reference leveraged finance, cross over and CMBX type indices as well as some other commercial real estate indices. I believe that a slight majority of that is on the credit side but we have a mix of risk there because we do want to have some diversification in our hedges.

In terms of your question on single names, within the leverage finance business where there's large exposures, generally with our position as underwriter that's a difficult transaction to do. So we don't have material single name hedges against that book.

Okay.

Jeremy, I'd say with regard to the geographic split in terms of the asset flows; I'm sure you -- I'm sure you're probably already aware but we've got, in our Q1 report, we've actually got a pretty good, pretty extensive disclosure on page 25 of the different regional numbers which is under Private Banking so that will give you give you some indication.

But maybe just to answer your question a little bit, I think that we are -- I think we are definitely building momentum in the Asia Pacific region in terms of net new asset flows; that's an area where we've actually, I think in the past we've been weaker. And I think in the past six to nine months we've actually building a lot of momentum there, I think that's been good. I think the -- I think the Swiss region is showing continued strength now and maybe somewhat increased strengths, so I think that has been positive. And the other areas I'd say, were -- are probably pretty much on a par with last year, the US has been reasonable, the other emerging markets have been reasonable. And so -- and Renato (inaudible)

And Jeremy, you can find now on our Internet all the details for the fourth quarter, so they -- the history on those numbers.

Okay, that's good, I appreciate the disclosure. Could I just ask a small follow-up? Are you seeing any fall out from the Lichtenstein issues in terms of European clients who have money offshore in Switzerland?

We -- obviously the[Lichtenstein issues haven't really -- haven't directly affected us. And so I'd say, obviously if you look our net new asset inflows, they've continued to be strong and so I'd say no.

So even if there's no direct impact, it's not causing say German clients to re-think their money in other offshore centers like Switzerland that you're seeing?

No, we haven't seen that.

Okay, thank you very much.

Thank you Jeremy. Next question.

The next question comes from Kian Abouhossein at JP Morgan.

Yes, hi. I have a few questions. First of all on page 12 of your presentation, looking at that slide and reconciling it with the one-off that you have given and the revenues, I assume that structured products and leveraged finance would generate about CHF250 million of revenues in the first quarter of '08, is that something that looks reasonable?

The second question relates to bonus accrual on slide 14 -- sorry, slide 15 -- and here, if I look at the number, it looks to me that you are taking a quite conservative approach and maybe only accruing salary and share bonuses and maybe look at cash bonuses as you go along through the next nine months, is that something that you can talk about?

And the third question is on capital -- operational risk capital is coming down within the Group relative to fourth quarter looking at your press release. Is -- has basically the regulator signed-off under Pillar 2 on your operational risk? And secondly, do you have any core Tier 1, i.e. tier 1 ex-hybrid in mind that you want to achieve considering that you're propping up your capital with hybrid capital? Thank you.

I think with regard to the first question in terms of -- I guess you're trying to back into what structure of products made in the first quarter, is that right?

Yes, because your -- the slide's very helpful and you have [note] one where you clearly take out the revenues and in order to reconcile it, I come to about CHF250 million for structured products and leverage finance revenues?

But you're trying to get to underlying revenues, ex the write-downs -- is that what you're --?

Exactly, exactly.

No, in -- before we actual disclose the specific revenues in the areas, in terms of your question which seems to be about the actual flows, ex the write-downs, I actually don't have the numbers, I don't -- your assumption doesn't sound like it would be way off but I don't actually have the numbers for that.

Okay.

Either -- so, sorry. In terms of the bonus side, we've obviously accrued compensation in the first quarter. I think, as everybody knows, this is a process that you [true up] as the year goes on and as you get a better feel for how the business develops, and also how the compensation environment develops. I think we certainly feel that what we've accrued in the first quarter is appropriate given the current kind of environment status. But we'll obviously have to reassess that as we go forward in terms of what the appropriate accrual is in future quarters.

And sorry, it includes cash bonus as well? Or is it the full year share plus salary?

It includes, it obviously -- the compensation line includes all the basic salary, benefits and also, yes, current year charges where bonuses are included in that, yes. Absolutely.

And then the last question on capital. Yes, our economic capital -- our ERC has been coming down. I guess your question was that, has the operational risk element of that been signed-off on, under the second -- [under 2] -- Wilson, do you want to answer that?

I can't give you disclosure on the specifics of the EBK approvals but I can tell you we now are operating fully under Basel II. The Swiss system is quite a tough system in regulatory capital terms both in Pillar 1 and Pillar 2 terms and we are operating on that right now.

But is it not fair to say considering what is happening in the market, considering that we have fraud issues, mis-pricing issues, that operational risks should increase materially over the next year or so?

I think that regulators in general are looking at different ways to alter capital calculations for the system. Basel II is a tough system, particularly as interpreted in the Swiss system. But I think there are some general questions that are going on, both in operational risk as well as some of the trading risk areas that I believe [Derek] mentioned earlier.

Okay.

I don't actually think that aspect of it is adding a tremendous amount to the overall issue. I just think it's more just capital adequacy concerns for the industry by the regulators, so --

And could you just comment on core Tier 1, have you any -- do you have anything in mind on -- if I strip out the hybrid, I think you're around 8% at the moment, do you have anything in mind in terms of core Tier 1 or Tier 1 ex-hybrid?

Yes, first of all, this is Renato Fassbind, first of all you have to understand that we have a cap given by the -- by our regulator of 15% of hybrid capital out of total Tier 1. And that's basically what we have filtered up with our recent hybrid issuance. We were before actually below that and so that is the cap we can go for.

So yes I'd say we obviously consider our overall capital. I think it's actually a very high quality capital base overall, so, we're mostly focused just on our overall Tier 1 capital ratio.

Okay, thank you very much.

Thank you. Next question?

The next question from Jon Peace of Lehman Brothers.

Hi, I just wanted to check, what is the dividend which you accrued in the Tier 1 in the first quarter? Is it going to be flat with the CHF250 million that you proposed for the full year of 2007?

And the other question I had was, is there anything you guys can do to stop the reversal of the gains that you've been booking on your own debt in the second quarter as the CDF spreads are tightened? Is there any other hedging you can do to avoid just the mechanical reversal of that? Thanks.

Yes, thanks John, I think on the dividend side, we generally -- we obviously will determine dividends in the context of markets etc. But we in general are, in general plan to continue to pay a dividend which is an appropriate percentage of our earnings, just as we have in the past. And so I don't think we're going to comment specifically on what was actually accrued in any particular quarter but that's our policy so -- and we'll continue to do that.

I think in terms of your question on the reversal of gains on fair value of own debt, I think it's a good question. And yes, there certainly are things that we can do with respect to that and there certainly are things that we have looked at and are looking at in respect of that. So our hope is that we could -- that in fact we could offer that somewhat.

And I think you do get some natural hedging in a sense from your asset portfolio to the extent that spreads for funded transactions in the market have gone down and we've benefited from that on the liability side. Our liabilities have been valued more appropriately. We've also seen some lift in the assets side.

Okay, thanks.

Thank you, next question?

The next question comes from Fiona Swaffield at Execution Limited.

Hi, I had questions in two areas. The first one is going back to just before Easter, when you took us through the fact that you weren't probably going to make -- you were probably going to make a loss. And at that time I think we talked a lot about weak underlying March. It's just that it's not that easy to see it in your numbers, particularly that slide you gave about the fixed income being quite resilient, Q1-Q1, so could you talk about what has been happening? I know you don't like to quote month-by-month, but what was it that you made you so much more nervous then or has something changed over that period or was it equities that you were more worried about?

And then in terms of the capital, I'm still struggling a bit on the risk-weighted assets because obviously they've fallen a lot yet I would have thought that your market risk weighted assets would have increased significantly because of the multiplier effects on the VaR, because I think you've got quite a lot of back testing exceptions again in the first quarter? So I can't reconcile that with to the fact that your position risk hasn't really changed much, so could you just talk about what's going on in risk weighted assets and whether they could go down further, whether it's some kind of efficiencies you're getting or something like that? Thanks.

Yes, sure Fiona, thanks very much. I guess to the first question, I think the only thing that's change since the call we had just before Easter is just that the difficult markets in March just accelerated in through the end of the month. So the only thing that really changed was that we got I think further -- there were further asset priced reductions and larger write-downs as a result.

I think the robustness of the business, which I don't recall specifically what comments were made at the time, but that's pretty much held up through the quarter, probably with a little less -- probably I'd say the client flows and the businesses were a little less buoyant in the last half of March. But in general that obviously held up generally well. So I think the main thing that simply happened was that further asset price deterioration and write-downs that resulted from that, if that answers your question.

Yes.

And Wilson can you just address the risk weighted asset part of that?

Yes on the market risk side, as you can see on the slides, we spoke to there on VaR, we already had a relatively high market risk charge from the increase in VaR in the fourth quarter, so there wasn't that much change from Q4 to Q1.

Doesn't the multiplier effect go up over time as the back testing exceptions keep on coming?

It went up a little bit but the brunt of that effect was already taken in Q4.

Okay, thanks.

Thanks Fiona, next question?

The next question comes from Matthew Czepliewicz of HSBC.

Yes, good morning, actually can I ask one question each on Wealth Management, Asset Management and the Investment Bank?

In Wealth Management first, the transaction margin being under a little bit of pressure, if you think back to the last slowdown and subsequent market recovery. And based on that experience, would you expect any recovery in the transaction margin to anticipate a market recovery or to lag it a bit? In other words, do you think your customers are going to bottom fish or they're going to wait for the momentum to build?

Second question, on Asset Management, on slide 17, the alternative investment core, if you will, of that business, you've had net new assets of CHF2.2 billion and that's a deceleration from the rate of 2007 and I think one would have expected a deceleration. But is that inflow do you think consistent with industry inflows in those areas in Q1 or might there have been anything exceptional in there?

And then the final question on the Investment Bank, and I appreciate this might not be an entirely fair question, but going to the CDO CHF2.7 billion net write-down for the basis price and the decline of the hedge effectiveness, I think Wilson you used the term of stabilization of dynamics in -- market dynamics in April. If you could just comment maybe a little bit, give a little more color on that? In other words, if you had struck your numbers today, rather than at the end of March, would that CHF2.7 billion have been materially different or would there not have been a great change there?

Okay Matthew, thanks a lot. I would say with regard to Wealth Management, typically, as you say, there's a bit of a cycle and there's a cycle to the Private Banking client behavior within the cycle. Clearly you get initially a lot of activity around repositioning portfolios, then things settle down until such point as people do believe there's opportunity and they once again reposition portfolios to take advantage of that.

I think that one of the very important features of this crisis is the fact that, actually, private clients in general but certainly our private client base, has been pretty much unaffected by most of the transfer, they weren't big subprime owners, they weren't -- so they're very -- actually very healthy and I think ready to be opportunistic but at the right time. And so part of it depends on what you predict as the path for the recovery. I think that I'm personally more of a believer in a V-shaped recovery. I think it may be pretty - when it does happen, who knows when it will happen, it will actually be a fairly -- it may be a fairly rapid recovery.

And so I think yes, I think our belief would be that, certainly our transactional aspect of our business there, will also perk up at that time. I think in general, we are seeing people being fairly conservative [on their] side. I don't know that I would say we would see it leading but I think it will happen pretty quickly when it happens, and so I would expect it to be, I would say, contemporaneous with the recovery in the markets.

On the alternative side, we -- the CHF2.2 billion in net new assets is -- obviously there's quarter-to-quarter variation and we view that as a pretty good, a good asset inflow for the first quarter and particularly for the market conditions that we saw.

I would say that there is also some seasonal aspect. It tends to be more later in the year, fourth quarter can be a strong quarter, but -- so I think our view is that we -- I don't view it as -- I view it as a pretty good performance. There are obviously very sticky assets and also high margin assets, so we like that. And so I viewed that -- we viewed that as a pretty good performance but I do certainly think we'll see some variability and I hope we'll see higher numbers in subsequent quarters as well. So Wilson to you want to try to address the issues around the CDO?

Sure. As you mentioned, March was a very difficult month and that was difficult both in terms of directional moves, if you look at some of the indices in the market, like the ABX, they were negative in March. And also some of the spreads were particularly difficult for our book. Since March, the ABX has stabilized, we've even seen some slight drift up. We've also seen some better trading conditions for cash, which actually I think the liquidity element is probably more important from my seat. It's helped us do some trades and continue some of the rebalancing on that book. There still is risk in the book, but that's in the context of the market. That is in a little less of a dislocated pattern right now.

I can't give you a specific mark-to-market update on that. We don't give week-by-week disclosure there but I can tell you that the trading conditions overall have been a little more stable and a little more liquid.

Alright, okay, thank you.

Okay, thank you, next question?

Your next question comes from Chris Malmer at Goldman Sachs.

Thank you, hi, it's Chris Malmer at Goldmans. I have two questions please.

First of all, if I could just clarify the movements in the risk weighted assets to the extent that the dollar, Swiss Franc exchange rate obviously impacts both your risk weighted assets and the capital. If you can give us an idea of what the net sensitivity to movement in the dollar is?

Second question would be on the fixed income revenues, you're showing underlying run rate as somewhat underlying in the quarter as being around [1.65%]. Would you be comfortable to basically consider this as some sort of a run rate going forward with potential obviously to upside if markets improve from here? Thanks.

I think in your first question about risk weighted assets and currency effects of risk weighted assets and capital, I think -- we think it's a balance equation.

On the ratio, it's more or less a balanced equation. Risk weighted assets have been affected, as you have seen, by the foreign exchange movements but also by some of the reductions of the exposures we had.

And the second question about fixed income revenues, well I think with regard to -- those numbers are primarily coming from what we're talking about as our non-affected businesses. And so I think with regard to those businesses, yes I think we would do that as a base going forward and hopefully markets will continue to be reasonable and we can continue to, in those areas, produce that.

Obviously, one of the big questions is, in terms of fixed income revenues and revenues in the Investment Bank generally is, will we see some asset price recovery and also will we see some return to client flows in those -- on the structured products and the leveraged finance businesses. And obviously our hope is that we will see that, but in terms of timing, it remains to be seen obviously. But so -- but yes I think it's a reasonable estimate to think that those -- that businesses that performed well in the first quarter will hopefully continue to.

Thank you very much.

Thanks. Next question?

Next question comes from Kinner Lakhani at ABN.

Yes hi good morning. Firstly a technical question on the Tier 1 capital. Are the gains on own debt -- do they register in terms of adding to the Tier 1 capital?

Secondly, could you talk through the key drivers and trends in terms of level three assets, particularly in terms of composition as well as the transfers in that we've seen over the quarter?

And finally in Wealth Management, clearly we've seen negative operating leverage, do you have any ambitions to try and control that or are we firmly in the growth strategy basically?

With regard to Tier 1 capital, no, gains on own debt do not impact capital. Secondly, in terms of key trends on level three assets, obviously we've been -- we are obviously working on reducing assets in some areas that certainly are subject to level three categorization. But separately I think obviously what you saw I think across the industry in the first quarter was, as markets were -- got more difficult, less liquid and a little more uncertain, you saw more assets obviously migrating into the level three category. And so, I think what you see probably in our numbers is some combination of those two trends.

And then lastly in terms of Wealth Management and operating leverage, we clearly do think that this is a great -- these are great opportunities to continue to grow our business and we're going to take advantage of those. We feel like, particularly in the Private Banking business, there is a real [flight to quality] in terms of firms like ourselves who have been more stable through this, and that's something that we're benefiting from. But we also see great opportunities to add relationship managers at this point.

So overall, we're obviously going to continue to be disciplined in terms of how we grow and build the business but we do see this as good opportunities to grow the business.

Okay thanks. Next question.

Next question comes from David (inaudible) of (inaudible). Please go ahead.

Good morning. Can I ask a question regarding the trading losses? On page 60 of your -- of the quarterly, you highlight how many days you had gains and losses in a very useful chart. In order to understand what happened in March, the severity of the losses, the number of days where you had 3 or 4 times the expected loss, let's say CHF200 million to CHF300 million Swiss francs, was it higher compared to the days where you had the gains? Because on the chart, it only shows plus CHF100 million and less than CHF100 million. So I just want to know if the extreme days were higher on the losses or on the gains? Because net-net you made losses, I imagine were on the losses, but I just want to understand the magnitude?

And secondly, if the magnitude was extreme, was it around the Bear Stearns days of the collapse, so when the situation -- when the markets were total dysfunctional, or were they evenly spread across a quarter? This in order to understand how your book was positioned and is positioned, so that if it was only around Bear Stearns, then we can relax going forward. If it happened during -- if it's more stable, the losses, then it worries me?

Yes Wilson, do you want to try to address that? By the way, thanks for the question David.

Thank you. First as a risk manager, we don't ever really want to relax, so would appreciate if we could but I don't think that's part of our job description.

With respect to the timing of the losses, we did see more of those in the March period. March was the period of most stress in the market, I would say in the week leading up to the Bear Stearns event as well as the couple of weeks subsequent market volatility crossed a lot of credit indices and a lot of different markets were quite disrupted. So in terms of exceptions and in terms of our P&L volatility, that was the most difficult period.

With respect to the distribution outside of this range, this has been an extraordinary period in terms of P&L volatility compared to our past history. The distribution beyond the ranges, I think is pretty symmetric, with one exception. We did have the CDO event during the quarter and that was obviously towards the negative end of that bar bell. But except for that, we saw also a number of pretty high positive days as well as a significant number of negative days.

Thank you. Can I have a follow-up on this? The CDO event, yesterday AMBAC in their results started releases some real CDO events rather than mark-to-market. Does this change your view of the rest of your own CDO book, because from mark-to-market losses, we're now started having actual cash losses? And does this make you more bearish or bullish [as] a view on how you manage this -- that part of the book?

Yes. I would say that the market prices that we see out there, we focus on the market prices. Those market prices do reflect some significant fundamental distress in that business and I think we will see other institutions who are on more of an accrual basis or a credit basis, starting to reflect those marks. The mark-to-market system in effect, upfronts that effect and we've taken all of that to our books.

I guess the second issue is just with respect to our own portfolio, we don't rely on the monolines for hedging, so any second order impacts are not important for us.

On this point of the monoline hedges, I hear in the industry there are lots of back-to-back hedges using monoline, so let's assume your trader -- you tell them as risk manager on an AMBAC wrap, then your trader goes to, let's say, HSBC and tells his friend there at HSBC you buy me an AMBAC wrap, I buy it from you. He thought he was hedged because he had bought AMBAC's, all the same protection, and then disaster, this increased the [sustaining risk]. Do you have any idea on your counterparty risk with other players? Do you monitor as a result the counter party risk with other financial institutions on a single name? So how much you're exposed to whatever, JP Morgan, UBS, Goldman Sachs, at any point in time?

Yes we do. In your example, I can't comment about what our counterparties might be doing to hedge themselves on the other side. However, we do monitor our counterparty exposures with all our major counterparties by category of exposure and by aggregate on a daily basis. We're collateralized on a mark-to-market basis with each of those counterparties.

Yes it's probably good -- maybe helpful to point out that we obviously had, during the first quarter, a number of distressed liquidations of various players in the market. And we had exposure to a number of those players collateralized and all the rest, and we basically got out of all of those liquidations with basically no losses. And so, I think that's probably worth pointing out. So yes, we certainly do look very closely and I think we've got a very conservative profile in terms of those risks.

I think it's an important industry issue, it's not a big issue for us.

Fantastic. Thank you so much.

Thank you very much. Next question.

Your next question comes from Philipp Zieschang of UBS.

Hi, a couple of questions please. The first one is on the Wealth Management business. You are -- you continue to highlight the stability of that business, also going forward in your comments, I was just wondering, would you see it as a say trust free tax margin for the business, we are standing now at 37%, it peaked around 42% in the second quarter? So if the environment continues like it is, what do you see in terms of pre-tax margin swing?

The second question is, and sorry to come back on capital, you said basically you feel very comfortable with your current close to 10% or around 10%, you also said in another comment that you believe the regulator is going to demand increased capital from the sector. So a) do you believe you will also have to hold more capital; and b) what do you think is the timing in terms of when these current discussions are going to be or when they're going to lead to decisions?

And the final question just -- you also highlighted your ERC capital now down to CHF11.1 billion. I was just wondering, were you -- from the outside world why do you think this is a good yard stick for your risk given what happened to the industry and given what happened to your Bank over the past couple of quarters with write-downs close to that level? Thanks.

Philipp thank you for your questions. I think our view is that we think that this 37% margin is kind of a trough level, so we think that it -- if markets continue to be challenging and difficult, that's probably pretty good lower band. I mean obviously we can't guarantee that, but we think that's a pretty good lower band. And we actually think that probably, from here if markets get a little better, it's more likely to get back up towards the levels that you saw -- that we saw last year. So in the 40s, low 40s.

Capital, yes, I just -- maybe I should make sure that I didn't mis-speak or that my comments aren't misinterpreted. I was just talking generally, I think regulators around the world clearly are -- will be suggesting and asking for probably more capital and we've already seen some of that and I think that will continue to be the case. And obviously Switzerland has already, as you know, is a conservative player within that. But I do think there will be a trend towards more capital being required. We do feel again as one of the best capitalized big banks in the industry that we'll be well positioned within that, but clearly that may have an impact on us over time as well.

Wilson could you address the ERC question? Why do we think ERC is a good measure?

Sure. We disclose the ERC to try and give you some transparency on our internal view of risk. While rate cap is important, and we do operate as a regulated institution, I think it's critical for us to have a strong internal view of risk and capital needs across our institution. We have a very tough ERC capital measure, that measure has held up generally quite well even against the market stress as we've seen. So when we look at the model -- what we see at the risk versus the risks we've seen in this market, it's generally held up well.

We find that to be a better yard stick in terms of looking at how we would see the allocation of risk to different sectors, and how that risk has trended across time. And that's why we've stressed that it's in some of our disclosure and when we talked about how that ERC trend has moved down over time, we think that's really a good internal yard stick of how we see the overall risk of Credit Suisse moving down as we've de-leveraged in some of the key areas.

Okay thanks.

Thanks. Next question?

Next question from Stefan Stalmann of Dresdner.

Thank you. My questions have all been answered. Thank you.

Okay thanks, next question please?

Next question from Paul Tucker of Egerton Capital.

Thank you very much and good morning. I just had a couple of hopefully simply questions. Just on the disposals that you're making of the problem assets in leveraged finance and commercial mortgages and so on. Can you just give us a sense of how we should be thinking about those? And what I mean is, is it the case that you're getting rid of the higher quality, easier assets and the realized losses on those are relatively small and the things that are left are going to be proportionately or progressively more difficult to dispose? Or is it the other way round, that you're kind of getting rid of the things that you think are most toxic and you're just saying, let's get them off the balance sheet and not worry too much about the costs involved in doing that?

And then secondly, I just wonder whether you could make, and you've kind of alluded to it already, but whether there are any other comments that you could make looking into Q2 on how that basis risk issue has been developing where the market is becoming a little less dislocated?

And then finally, there was some headlines yesterday coming out of Brazil just with respect to an employee arrested from Credit Suisse in relation to tax evasion and money laundering, and I appreciate this might be a very new and live issue. But I wondered whether you could make any comment on that? And maybe specifically whether that was in the Investment Bank or Hedging-Griffo or anything else that you might feel able to add? Thank you very much.

Thanks for those questions. Maybe I can make a general comment on the disposals and then Wilson could talk a little bit more about that. We have been, I think probably more so than any of the players in the market, we have been a very consistent distributor of our risk in these areas. And part of that is I think we do have -- I think we have probably the highest quality franchises in these areas, so we've had number one rank sales, research etc., so I think we've had better distribution capabilities. And we have really been very consistent in terms of our sales of these over the whole period. As we mentioned ,we're -- our leveraged finance balances are 65% lower than they were at the end of the third quarter last year. And I think that's -- I think if you compare that to other players in the industry, I think that's been -- I think that's probably the most significant reduction in balances that are there and we've done it consistently over time. So I think that's -- and obviously I think that has served us pretty well.

But maybe I can turn to Wilson to let him talk a little bit about the actual sales we're making and how we're looking at them. And I would say, at this point we certainly do see that there is value in some of those assets and we're not just [fire selling] everything. And there's been a lot of this recent noise about big portfolios being sold, well we've been selling very consistently over the whole period. Wilson I don't know if you can add to that?

Sure. As Brady said, we haven't wanted to go the big fire sell route, we've wanted to be very disciplined throughout this period in moving down our assets. I'd say the distribution, there has more been driven by the timing of the deal process. We have sold both higher rated and lower rated assets. So I don't think there's been a significant quality difference that's been across the board. I'd say as a second matter, we also generally like the quality of our portfolio in both leveraged finance and CMBS, the credits there continue to perform on plan. So we don't see any real difficult assets there from a distribution standpoint. It's more been a question of timing.

With respect to your basis risk question, with respect to CDOs, as I said markets have normalized a little bit in April. I wouldn't see a big uptake or a big rally or anything like that but we have seen better liquidity conditions, more stability and I think that's helped for that book.

I think as to your last question with regard to this thing in Brazil. As you say it is new, it just came up yesterday and my -- I think all I would say is that it -- this individual doesn't have anything to do with the onshore business that's in Brazil, so Hedging-Griffo etc.. And obviously we feel like we conduct our businesses everywhere around the world in a way that's beyond reproach and in line with all, certainly our policies and local regulations and laws and things. So we're obviously going to be looking into that. And we'll obviously be defending our [employee] I think from -- against these charges.

Okay great and thank you very much.

Thank you. Next question.

The next question comes from [Dirk Hoffman] of Bear Stearns.

Good morning and thank you. Just two questions. The first one is on slide 29, the overall risk reduction, particularly the 7% reduction in ERC. If you strip up the effects impact there, would you still say that ERC has gone down and that the VaR positioning is flat? Or would you say that essentially there is at least a small uptick in -- if you compare it on an effects adjusted basis?

And secondly, on the basis risk, we talked a lot about basis risk and CDOs, did you experience similar things in CMBS and leveraged loans?

This is Wilson Ervin. With respect to the decline in ERC, if you strip out currency effects it still should have gone down. There are also some minor methodology effect as we updated, some of our models to current market conditions which also increased things like-for-like. But overall our ERC positions were down during the quarter and that reflects I think real risk reduction, particularly in leveraged finance and CMBS.

With respect to your second question on basis risk, we talked about that with respect to CDOs. We have seen some effects like that with respect to our hedges, as we mentioned earlier on our hedge efficiency and CMBS and leveraged finance, dropped somewhat in Q1 and this is because basically the value of cash assets, compared to derivative hedges, changed over during the quarter, and that hurt some of that hedge efficiency. Hopefully, that snaps back at some point. If you see some [common] financing markets, but we mark the books to market and so those went through the P&L during the quarter.

Thank you very much.

Good. Thanks. Next question? Next question?

No further questions. Hold on, please.

Yes. I understood there might be another couple of questions. Could you hold on just one sec? So there are no more questions in the queue?

We have one verifying now, sir. One moment. Georg Kanders of WestLB. Please go ahead.

Yes. Hello. I have a question on the losses in equity prop trading. You said that most of this is the reason why revenues in the equities business were down from Q1 2007. Is it right to assume that there were trading gains in Q1 2007, I don't remember here? And -- or are there really equity prop trading losses up to CHF800 million?

And the second question I have, is this profitability margin of 85 basis points on the assets, is this really sustainable or is this more an effect of the sharp decline in assets under management in the Wealth Management area?

Thanks for those questions. Yes, with regard to the equity prop area, yes, it was a substantial positive number in the first quarter of last year, and it's obviously a -- it's a negative number this quarter, so you're right, that swing is a combination of that movement.

I think in terms of the 85 basis points, I think our view is that, that is -- it is sustainable, in fact, our hope is that it will move up from there. We clearly have -- we have continuing programs to try to move it up, but that's, clearly that's one of the challenges, that's an area that we'll have to -- that we are hoping to impact but -- so we think that level's probably a reasonable level.

Okay. Thanks.

Thank you. Next question?

Next question from Elena Logutenkova of Bloomberg.

Hi. I have a question about exposures and reducing risk exposures. You said you are going to look to reduce them further in coming quarters, and I was wondering whether you could give a little bit of color on which areas you see more opportunities to reduce this exposure now? And whether you're looking to sell any bigger portfolios of assets? Or what you are planning to do there? Thanks.

Thanks, Elena. Obviously, as we say, we've been a very consistent seller over the last nine months to bring down risk positions. I think probably, in terms of additional activities, it will obviously be somewhat dependent on how the markets develop and what opportunities are out there. But I suspect that our bigger exposures are in the same kind of areas that we've highlighted. So my guess is that, as we mix sales, it'll probably be from those areas.

And we've been able to cut them down very materially from the [case] we saw in Q3 last year, so we've already made probably most of the progress we need to make there. But based on views on market and outlook, we'll continue to make some reduction.

But in which area do you see more opportunities to make those reductions now, in the current market environment?

I think it's been pretty broad based. As I said, we have seen some more liquidity come into the market in April so far. That's still early, it's still tentative but we have seen some more liquidity. And across all of the sectors that we've talked about here, leveraged finance, CMBS, and the subprime sector, we've continued to see opportunity to reduce and rebalance positions.

But you also see, and maybe worth making the point, that we've seen some of the press reports on other transactions where the leverage is provided by the sellers. We have done very little of that. In fact, I put some footnotes into our numbers here to show, I think we did about CHF2 billion of sales in the first quarter on that leveraged basis. And so we've actually shown that in the footnotes as being reduced from our overall balances, but most of our sales have been outright cash sales.

Thanks, Elena. Next question.

No further questions. Back to you Mr. Dougan.

Okay. Well first of all thanks everybody. I know this has been a long call so I apologize for that but hopefully we've been able to address a number of the questions. And I would just like to reiterate, obviously conditions in the first quarter were extreme, our results are not what we'd like them to be, but they were contained in a few areas.

I think the earnings capacity of the business is strong outside of those areas. I think we've seen that. Our capital remains strong, our risk reduction was very successful in the first quarter. And we continue to believe that our business model, with the geographic and the business diversity around the world, is something that is really providing us with a lot of strength. And we see this as certainly challenging markets, but also great opportunities for us to build our client franchises and to take the business forward. So thank you very much for your time. Bye-bye.

The question and answer session is now over. Thank you for your interest in Credit Suisse Group.