Credit Suisse Group AG (CS) 2008 Q4 法說會逐字稿

Good morning. This is the conference operator. Welcome and thank you for joining the Credit Suisse Group results conference call. As a reminder, all participants are in a listen-only mode and the conference is recorded. (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 us here.

One year ago, as we entered 2008, Credit Suisse had four priorities. First, to sustain our strong capital position. Second, to continue to reduce our risk positions. Third, to maintain our client momentum. And fourth, to move ahead with the implementation of our strategy.

Our overall approach was one of conservatism, strong capital, aggressive risk reduction, and a cautious approach to distressed acquisitions. This approach proved to be beneficial.

During 2008, as a result of the market disruption, capital strength became the focus for regulators, investors, and clients. Our aim was to continue to be recognized as a bank with an unquestioned capital position. We also wanted to remove any uncertainty about future regulatory capital requirements.

Today, with a Tier 1 ratio of 13.3%, we are one of the best capitalized banks in the world. We see capital strength as a key competitive advantage and are pleased to have been able to maintain it at high level despite a very tough fourth quarter.

We are also pleased to have been able to do this without significantly diluting our shareholders. We have fewer shares outstanding today than we did in 2006 and without having required any government support. Throughout the crisis, our funding and deposit base have been rock solid, and we have been a net provider of liquidity to the market.

In August, we completed most of our long-term funding needs for 2008. In September, after the bankruptcy of Lehman Brothers, we were a safe haven for the industry. Now, at the beginning of 2009, we come into the year with one of the strongest capital ratios in the industry and with a solid funding base.

Moving on to our risk positions. One year ago, our objective was to aggressively reduce our risk positions. We entered the crisis with little subprime exposure but, as a market leader in leveraged finance and commercial mortgages, we had significant positions.

We made a decision at the start of the crisis to aggressively reduce our exposure to the affected asset classes, and it has served us well. Unlike some of our peers, we did not transfer any of these assets to a banking book but reduced them dramatically by selling them.

As a result, our leveraged loan exposures were down 98% compared to the third quarter of '07. CMBS is down 75% compared to third quarter '07 and residential mortgages and subprime CDOs, where our exposure was much smaller to start with, are down 69% over the same period.

We have reduced our assets in these illiquid categories dramatically over the course of 2008 and started 2009 with much lower exposures.

As we announced in early December, we accelerated our transitioning of the Investment Bank to a new, capital-efficient business model which focuses on client and flow business.

Overall, risk-weighted assets in Investment Banking have been reduced by 31% compared to year-end 2007, and we plan to reduce them further to $135 billion by the end of 2009. We have aggressively reduced risk and, as a result, we are well positioned going into 2009.

Our third priority was to remain focused on serving our clients, strengthening our franchise, and taking advantage of our status as a safe haven in a very disrupted industry. I'm pleased with what we have achieved.

Private Banking maintained momentum with CHF51 billion of net new assets, with inflows over one of the most tumultuous periods in the history of the financial markets. In addition, our Corporate and Retail Banking business in Switzerland posted a record result and showed significant client momentum.

Despite significant losses in the Investment Bank, there were many areas where we saw tremendous client momentum, in particular, in client businesses such as prime services, where we were able to dramatically increase our market share. We are certain that the value of these franchise gains will be significant when markets turn more favorable.

So, in 2008, our client franchise momentum was dramatically strengthened, and we have entered 2009 well positioned with our client base. We have made substantial progress in our strategic initiatives in each division.

In Private Banking, we've seen the best environment in a generation to grow our business. With many of the largest players in Private Banking disrupted by the crisis, we've exceeded our hiring goals in quantity and in quality, attracting the highest quality groups in the industry to our stable platform.

In Investment Banking, we made substantial progress in 2008 towards our goal of a more client-centered, capital-efficient business model. This transformation was accelerated in the fourth quarter, and we enter 2009 with a business model that has lower volatility, is more client-focused, and which will throw off significant capital during 2009.

In Asset Management, we implemented the necessary strategic changes to build a scalable, high margin business by focusing on our leading position in alternative investments, our asset allocation business, and our Swiss franchise.

So, the progress on the strategic front has been encouraging.

Lastly, our collaboration revenues of CHF5.2 billion held up well in a very tough environment, showing that our integrated business model is a source of stable, high margin earnings.

Compensation is an important issue, important in the way we manage our business but also in the wider social context. It's a difficult topic in this environment but having variable compensation, obviously, is vital to enable us to respond flexibly in an industry with cyclical revenue patterns, and it's also an important lever for us to produce shareholder returns.

We've worked hard to try to take a prudent and constructive approach, one which is designed to reflect the performance of individuals in the firm and, at the same time, more closely align the interests of employees with those of the shareholders. And one which is intended to position us well going into 2009 with a workforce who feel they are part of a stable platform and where they are incented to work hard for our shareholders, our clients, and the Firm.

Overall, variable compensation paid as unrestricted cash and retention payments, amounts which are contingent upon future performance of some kind, are designed to ensure that the interests of shareholders and employees are aligned.

The unrestricted cash element, which was around CHF2 billion, was down over 60% from last year. Certain business areas were reduced more than others and the reductions were more for senior personnel than for junior. In fact, managing directors throughout the firm did not receive any unrestricted cash payment above their salary. All payments to them were in the form of retention elements.

As you know, Managing Directors and Directors in our Investment Bank received awards in the new Path program consisting of illiquid assets that will pay out over time, only with the liquidation of those assets.

Overall, variable compensation was down 44%, year-on-year.

The Chairman, myself, CEO of the Investment Bank, received no variable compensation. And other than three members of the ExB who had contractual arrangements, the remaining members of the ExB only received retention payments in addition to their salary, so no unrestricted cash.

And, importantly, we'd like to make the point that the value of equity-related compensation held by current Managing Directors declined by over 75% over the last year. And, clearly, the value of that decrease exceeded the variable compensation awarded to them for 2008.

So, we think that this shows how effective long-term incentive schemes can be in aligning the interests of employees and shareholders. And we think that the decisions that we've made around awarding retention for 2008 are going to support motivation amongst our senior people and keep them engaged in creating value for our shareholders.

So, we've tried to strike the right balance in a difficult environment. And I think we've taken responsible measures that are consistent with the aim of balancing interests of shareholders and employees.

I don't need to remind you that the industry faced enormous challenges in 2008, and we certainly didn't get everything right by any means. However, we did act swiftly and decisively, and I believe we have strengthened the relative position of Credit Suisse.

We have also tried to be as transparent as possible, providing a high level of disclosure, maintaining consistent accounting standards, and commuting quickly whenever a major issue arose. We believe that's been the right approach in these volatile markets, and we hope that you've found that helpful.

Today, I think we're in a position to manage our businesses in a way that will enable us to be less susceptible to negative market trends if they persist in the months to come but also to prosper when and if we see markets recover.

We're encouraged by a strong start to 2009, and we're quarter-to-date profitable across all divisions.

Renato Fassbind is now going to present you the results in more detail. After Renato speaks, we're going to have Wilson Ervin take you through a review and the outlook for the risk environment. Paul Calello is then going to give you further insight into the implementation of our client-focused, capital-efficient strategy for the Investment Bank. And I'll then finish by speaking about our priorities and the outlook for 2009.

So, with that, I'll turn it over to Renato.

Thank you, Brady, and good morning to you. I will start my presentation on slide six, with an overview of the fourth-quarter results.

We reported a net loss of CHF6 billion in the quarter, driven by widespread market disruption. Private Banking delivered another solid operating performance in the fourth quarter. However, pre-tax income of CHF876 million was impacted by provisions for auction-rate security settlements and an account closeout provision in highly volatile markets.

Revenue in Private Banking remained solid. And continued strong net inclined inflows demonstrated the resilience of the business.

Investment Banking recorded a pre-tax loss of CHF7.8 billion in the fourth quarter. This reflected write-downs in leveraged finance and structured products, and negative trading revenues in fixed income and equities. Client-driven businesses, including flow-based rate products, delivered solid results.

Asset Management recorded a pre-tax loss of CHF670 million as a result of significant valuation reductions in private equity and other investments and on securities purchased from our money market funds.

We have maintained our strong capital ratio, which remains one of the strongest, if not the strongest, in our industry, at 13.3% and in line with the 13% guidance we have provided for you at the beginning of December.

Our strong capital and funding position and the significant cost reductions planned, will reinforce the strong position of Credit Suisse as it enters in 2009.

We are committed to investing in our integrated client-focused business model. We have realigned the Investment Bank by adapting it to the new environment, including a significant reduction in risk.

Finally, and as Brady has already mentioned, we have had a strong start to 2009 with all of our businesses profitable quarter-to-date.

Slide seven reconciles the fourth quarter results with the pre-announcement of the October and November results and shows how it was impacted by two non-operating items, which we announced also separately in December; namely, some CHF600 million of after-tax costs from the accelerated implementation of our strategic plan and the CHF500 million loss from the sale of part of the Global Investors business, which included a goodwill charge.

On a pre-tax basis, the restructuring costs were CHF833 million and are recorded in the corporate center. The after-tax loss of the sale of part of our Global Investors business was CHF500 million and is shown in discontinued operations.

On slide eight, you will see Wealth Management's disclosed pre-tax income of CHF363 million. The results includes two significant provisions; an additional CHF97 million provision in respect of auction-rate securities and a charge of CHF190 million related to an account closeout in highly volatile markets.

The result was affected by a lower asset base and also includes credit provisions of CHF113 million on loans collateralized by securities relating to deleveraging of numerous client positions in highly volatile equity markets.

The business model remains resilient in these challenging markets. And despite a lower asset base, we continued to achieve strong asset inflows and stable margins, as you will see on the next two slides.

On slide nine, we show you the revenues on the left and the gross margins on assets under management on the right. The 8% reduction in revenues was in line with the decline in average assets under management.

We were successful in maintaining recurring revenue levels in 2008, down only 2% year-on-year, and supported by higher net interest income. In terms of gross margin, this compensates for the sharp reduction in client activity reflecting adverse markets and more cautious behavior.

Our revenue margin was unchanged at 115 basis points. In the fourth quarter, the gross margin increased 8 points to 117 basis points, as the transactional margin recovered from a particularly low level in the third quarter.

Let me turn to net new assets on slide 10. On the left-hand chart, you can see that net client inflows were strong at nearly CHF14 billion in the fourth quarter of 2008 with good contributions from all international regions. However, we did see significant deleveraging as clients sold securities and other assets to meet margin calls on the loans used to fund the purchase of these assets.

The unprecedented market dislocation seen during the fourth quarter resulted in loan repayments as clients rebalanced their portfolios. The deleveraging was most pronounced in Switzerland.

Net new assets were CHF42 billion in 2008 with a good distribution of inflows across all regions, despite the CHF12 billion negative impact of deleveraging in the fourth quarter just mentioned. The deleveraging effect has reduced our headline rolling four-quarter net new asset growth to 5% at the end of 2008 compared to the 6.2% we reported at the end of the third quarter.

Slide 11 shows the development of assets under management in 2008. The green bar shows you the strong net new asset development of CHF42 billion as just explained. The assets under management fell by 23%, or nearly CHF200 billion, in 2008 due to the decline in global equity and bond markets, and the strengthening of the Swiss franc against most other currencies.

Over CHF100 billion, or half of this annual reduction, occurred in the fourth quarter alone. A lower asset base level going into this year will impact 2009 revenues.

Let me continue with Corporate and Retail Banking on slide 12. Pre-tax income in this field increased 28% to CHF513 million compared to the third quarter of 2008.

Although the Swiss economy started to show signs of weakening fundamentals, this result reflects the resilience of our business model in a more challenging environment. The fourth quarter results benefited from CHF57 million of fair value gains on loan portfolio hedges.

In the fourth quarter, we actually grew the Swiss loan book by CHF4 billion. That means we increased the lending to our Swiss customers.

Net new assets on Swiss institutional and retail clients were CHF8.7 billion during 2008.

With that, let me turn to Investment Banking on slide 13. The extreme market disruption and substantial volatility we experienced in the first nine months of 2008 intensified in the fourth quarter and had an adverse impact on our trading results.

These elements of market turbulence were especially important factors in negatively impacting our results. First negative impact -- first, the negative impact of the severe widening of credit spreads resulting in sharp declines in fair value levels of credit instruments across most markets. Second, an increase in the divergence between cash and synthetic markets creating some extreme moves in long-standing hedging relationships. Third, extraordinary high levels of market volatility.

These factors had substantial impact on the fair value of our trading books.

Net valuation reductions in our structured products and leveraged finance businesses were CHF3.2 billion in the fourth quarter of 2008.

Although we have now successfully reduced dislocated assets by 88%, as I will show in the next slide and since the end of the third quarter of 2007, we have achieved solid results in both the fourth quarter and for the full-year 2008 in client-driven businesses, including flow-based products.

Slide 14 is an update of the risk-weighted assets development we presented in December. This shows the progress we made with our risk reduction plans.

As you can see, we reduced risk-weighted assets by $72 billion, or 31%, to $164 billion during 2008 in the Investment Bank. This was better than our $170 billion year-end 2008 targets we gave you, despite a $16 billion increase in risk-weighted assets during the fourth quarter as a result of methodology changes.

Our sustained and consistent approach to risk reduction continued in the fourth quarter. On slide 15 you can see that, if you look at our combined dislocated asset balances since the start of the turbulences during 2007, they have been reduced by 88%.

We apply rigorous standards when we fair value these dislocated assets and have also not transferred any of these assets to an accrual accounted banking book. I'll repeat that. We have not transferred any of the assets to an accrual accounted banking book.

These dislocated assets now stand at CHF11.6 billion in total. Wilson will go through some of the features of our risk reduction in more detail later.

Slide 16 is the same slide we presented back in December, which gives you a sense of what our pre-tax income would have looked like over the last four years for the realigned Investment Bank we intend to operate from 2009 onwards.

This is probably a more conservative view of the results than we would have actually achieved, given that this was a mechanical exercise of simply stripping out all the revenues from the businesses we are exiting but doesn't assume success of the new capitalization business that improves revenue relative to assets for the businesses being repositioned.

A good example here would be our emerging markets business. The numbers have been adjusted slightly in early years compared to our original slide we showed you in December, as the final realignment plan has developed. But the differences are very small.

Although we may not earn the absolute level of earnings you see for 2007, the repositioned model demonstrates that we should be able to produce higher average margins and returns over the cycle. You will also see significantly less risk capital allocated to Investment Banking.

All-in-all, the repositioned model should produce robust earnings with lower volatility over the cycle. As Brady mentioned, Paul will go into much more detail on the results, the realigned model, and the pro forma earnings later.

Let me move to Asset Management on the next slide, number 17. At the year-end, we announced that we had signed an agreement to sell part of our traditional long-only Global Investors business in return for up to 24.9% of the enlarged share capital of Aberdeen Asset Management, a UK-listed company. The transaction is expected to close in the second quarter of this year, subject to the customary closing condition, including regulatory approvals and, of course, approval from Aberdeen shareholders.

The businesses we are selling are now reported under discontinued operations so that's the line between the earnings from operating -- the pre-tax, and then you have the discontinued operations just as the last line before the net income. And the Asset Management results we will present on the next few slides reflect that change and only include the results of the continued businesses. So, everything else, even from a historical perspective, is taken out through that line below pre-tax.

Looking at the fourth quarter performance, the downturn in global markets resulted in unrealized losses on private equity and other investments of nearly CHF600 million and a further CH164 million of write-downs incurred on the money market lift-out portfolio. Excluding these two items, the ongoing business would have been marginally profitable.

The money market lift-out portfolio has been further reduced by 44% in the fourth quarter, resulting from sales, asset maturities, restructurings, and write-downs. They now stand at less than CHF600 million, which compares to the much, much bigger amount, if you may remember, we had in the third quarter in 2007.

On slide 18 we show you the Asset Management fee split into alternative investments, MACS, and the remaining traditional investment businesses adjusted for the businesses being sold, as I mentioned before.

This shows fees only and excludes any performance fees, investment results, net interest income, and other revenues and demonstrates that the business, going forward, will be heavily biased towards the alternative and MACS businesses.

Asset management fees in the alternatives business were CHF226 million during the quarter. Despite the market turbulence that has driven asset values lower, they have held up well compared to previous quarters, reflecting continued growth of the business.

Overall, the gross fee margin on assets under management was broadly stable at 33 basis points.

On slide 19, you can see that our private equity and other investments have delivered a solid contribution across the cycle. Licensees have risen steadily over the past five years, and we have experienced healthy gains on our private equity portfolio over the cycle.

Significant market deterioration in 2008 has impacted private equity valuations across a number of sectors, including real estate, distressed debt, funds -- distressed debt funds, energy, commodities and emerging markets.

The size of our own portfolio of private equity and other investments stands at CHF4 billion at the end of 2008, of which CHF2.6 billion is private equity and relates mainly to co-investments facilitating fund-raising activities.

The private equity portfolio remains well diversified in terms of vintage and industry. It is focused on the middle market and excludes highly leveraged large-cap exposures, the sector probably most exposed to the recent change in the market environment.

On slide 20, we show you current levels of assets under management and 2008 net new assets side-by-side by asset category.

In the net new asset column, you can see, as I mentioned previously, that the alternative investments business, which comprises our leading private equity and real estate business and our single and multi-manager hedge fund strategies, saw good asset inflows of CHF11.4 billion during 2008. We believe that the alternative asset inflows will fuel further revenue growth, driven by our best-in-class capabilities in that area.

Despite experiencing outflows during 2008, the MACS business held up well despite the turbulent market. The majority of asset outflows in 2008 related to traditional investment strategies and were predominantly in low margin businesses.

In the fourth quarter, and in line with our strategy to focus on higher margins and scalable activities, we also decided to close our money market funds.

This slide concludes the divisional results review, and I will continue with the Group's funding and capital position on slide 21. On that slide you can see, on the left, the composition of our assets at the end of the third quarter and where we have reduced the balance sheet during the fourth quarter.

Looking at each of the asset categories in turn, you can see at the top of the chart that cash balances, including cash due from banks, has almost doubled to CHF90 billion. All other assets categories have reduced.

Reverse repos reduced by 21%, reflecting general market conditions across all regions. Trading assets are down 22% in the quarter or 35% compared to the beginning of 2008. Within trading assets, convertible bonds, preferred securities, and asset-backed securities are all at lower levels. Wilson will provide more detail on the trading risk reduction later.

The reduction in loans resulted from exchange rate movements mainly during the quarter. And they are underpinned by our strong deposit base which is 117%, as you can see on the slide, of loans outstanding.

Other assets were lower as brokerage receivables reduced from the exceptionally high balances in the third quarter, when many trades didn't settle across the industry for a prolonged period of time following the Lehman bankruptcy.

We have seen increased market spreads in the last few months. However, our refinancing requirements are relatively small. Our short-term financing requirements have come down by more than one-third from a year ago to CHF100 billion as we have reduced our balance sheet.

Long-term funding maturing in 2009 is around CHF13 billion and represents a mere 1% of total liabilities.

As we continue to reduce our balance sheet, we may even not need to refinance all of this debt. Any additional funding costs will be more than compensated by our stable and low-cost deposit base. We believe that this will continue to be a key competitive advantage, especially when compared to institutions that primarily rely on wholesale funding.

Let me move to our capital position on slide 22. During the quarter, the Basel II Tier 1 ratio improved by nearly 300 basis points to 13.3%, making us one of the best capitalized banks globally.

We benefited also from a 16% reduction in risk-weighted assets in the fourth quarter, and we are positioned well to continue building the client franchise.

We raised CHF11.2 billion of capital in the fourth quarter, CHF10 billion of which was raised in October through the issue of CHF4.5 billion of core Tier 1 capital and CHF5.5 billion of hybrid Tier 1 capital. And don't forget, our share count today is below the January 2006 levels.

As we indicated at the third quarter results, the Board of Directors will be recommending a nominal dividend of CHF0.10 per share.

Let me talk a few words about our capacity reduction program. In December, we presented the data on slide 23 setting out how we are adjusting our capacity to align the business with the profitable opportunities we see going forward.

The measures include a reduction in headcount of 5,300, or 11%, for the Bank as a whole. These reductions, together with other cost efficiency measures, will lower costs by CHF2 billion on an ongoing run-rate basis.

At the end of 2008, we have already achieved around half of these headcount reductions, which should contribute about 50% of the CHF2 billion run-rate savings expected to be achieved by the middle of 2009, already now, always on an annual basis.

Around two-thirds of the reductions will come in the Investment Bank and the shared services supporting this business.

Now, on the next slide, we will talk about collaboration, an integral part of our integrated Bank. Private Banking, Investment Banking and Asset Management are cohesive and complementary businesses serving the same client base. They are manageable as a combined set of businesses. And our integrated model brings a number of benefits in the emerging competitive landscape, and our clients value our approach.

As you can see on slide 24, despite the turbulent market -- despite the market dislocations, collaboration revenues were CHF5.2 billion, only CHF700 million lower than 2007, which is a much lesser decline than the overall revenues that declined much more. And, as a percentage of overall revenues, consequently, collaboration revenues increased dramatically in 2008.

In the integrated banking model, we are benefiting from retaining client flows in the Group that would otherwise have to be bought from our competitors.

We expect to see steady growth in these revenues over time and collaboration revenues represents one of our key performance indicators that we have now updated for you on our next slide, number 25.

As we have promised, we have updated our three to five year across the cycle KPI targets in the light of the new market environment, and as we typically do when we report about the full-year.

We have incorporated into these targets the realignment of the Investment Bank and the more focused, higher margin Asset Management business.

On that slide, we have highlighted where we have made revisions. The four changes for the Group as a whole are as follows. Firstly, the target to generate CHF10 billion of collaboration revenue by 2010, as it originally was, has been pushed out to 2012, recognizing the market turbulence we have seen this year.

Secondly, the annual return on equity is now targeted to be above 18%, reflecting the higher level of shareholders' equity we will operate with going forward. As you may remember, it was 20% before.

Thirdly, we have replaced the earnings per share target with a target of achieving lower earnings volatility versus our peer group, reflecting the capital efficient model we will be operating in the Investment Bank.

And, finally, we think that the minimum Tier 1 ratio target of 12.5% reflects the market environment and our objective in maintaining our strong counterparty status in these stressed times.

Finally, on slide 26, we have set out the divisional three to five year KPI targets. And, again, we have indicated where there have been updates.

Wealth Management and Corporate and Retail Banking KPIs remain unchanged. However, in Investment Banking, we have lowered the pre-tax income margin to 25%, reflecting lower utilization of capital but also the lower -- absolute levels of income we expect the business to generate. Over the cycle, we expect the earnings volatility to be lower.

In Asset Management, we have increased the pre-tax income margin, reflecting a change of mix towards the higher margin alternatives and asset allocation businesses going forward.

This slide concludes my presentation. And, with that, I welcome Wilson to the stage. Thank you.

Thanks, Renato, and good morning. Today, I'd like to talk about three things; first, the market backdrop and how it affected some of our positions and profitability in Q4; second, what we have done to reduce risk and adjust our exposures to a level that is more appropriate given current market uncertainty; and, third, an update on our current risks and our risk outlook as we look to 2009.

As all of you know, we've seen extraordinary financial turbulence in the markets after the failure of Lehman Brothers. While we avoided a number of these issues, our fourth quarter result was materially affected by three risk categories.

First, credit spreads widened dramatically late in the year. As you can see in the top chart, credit spreads from emerging markets and traded leveraged loans more than doubled during the quarter. Credit spreads widened in nearly all sectors, including corporate bonds, emerging markets, and asset-backed positions, and, in some markets, tested multi-decade highs. This had an adverse impact on the fair value of our credit positions in both our trading and banking books.

Second, and perhaps less prominent in the popular press, we've seen some extraordinary moves in hedging relationships. We capture this type of risk under the heading basis risks, which is a category that measures the risk between similar instruments in a given financial category. For example, cash corporate bonds and credit default swaps in the same name normally trade pretty closely together. But, as you can see in the middle chart, this changed in the fourth quarter.

Cash bonds dropped by much more than the equivalent CDS hedge as liquidity constraints and forced deleveraging hit cash bonds particularly hard. Many basis risks capped out to levels we've never seen before. We saw this effect in cash versus CDS spreads and in a number of other basis risk markets across equity and fixed income.

At Credit Suisse, we use hedges extensively to mitigate outright risks. While these hedges may still work in terms of credit fundamentals, we measure trading positions on a fair-value basis, and this drove about CHF3.3 billion of losses in the quarter.

Third, market volatility rose to exceptional levels in Q4, reaching post-war highs in many markets. For example, the S&P Index moved by more than 5% on 18 days during 2008, and most of those shocks were in the fourth quarter. The next most volatile year in the last half century was 1987, which saw only four days with swings of this magnitude.

At the lower left, we show how volatility in options markets mirrored this trend as investors sought refuge by buying option protection. The VIX index of equity volatility quadrupled from mid-year to the peaks in October and November.

So, this has been truly an extraordinary period. These categories of risk had substantial impacts on the fair value of our trading books, even after the risk reductions we did earlier in the crisis.

On the next page, we've tried to estimate the impact of each of these three risk factors on our results in Q4. At the left, we show total IB revenues, which was a negative CHF4.6 billion for the quarter. At the right, we estimate the losses from each of the risk categories we described on the previous slide, plus a column for other business activity.

In the first risk column, we show how the directional widening of spreads impacted both our primary underwriting businesses, leveraged finance and CMBS, as well as our secondary credit trading businesses. Taken together, we estimate this impact at about CHF4.6 billion across both categories.

Second, the disruption of hedging relationships or basis risk affected many strategies that have long positions with significant hedges. Some people call these relative value books, some call them long-short books, and some call them hedge positions. But whatever the name, these books were affected by the dramatic disruptions of the fourth quarter.

We estimate the basis risk widening cost us approximately CHF3.3 billion of fair-value losses in Q4. And while hedges helped us weather the storms in Q4, they were not perfect and we did see some slippage between the longs and the shorts.

Finally, the sharp spike in volatility affected our structured equity and interest rate derivative books as these books became much harder to hedge under conditions of extreme volatility. Our estimate of losses from this sector totals approximately CHF1.9 billion.

At the far right, you can see that other customer and market-making areas produced positive revenues during the quarter but not enough to offset the headwinds from these three risk categories.

In a few minutes, Paul will talk about the strategic response to this event at a business level. In the next few pages, I will talk about the risk response to these losses and how we've been adapting our risk profile.

So, how are we responding to this situation? Quite simply, we've been cutting our trading and underwriting exposures dramatically and reducing our sensitivity to market scenarios. We have done this consistently through the crisis and we expanded our efforts in the fourth quarter. These reductions will reduce our ability to participate in the possible market rebound. But our primary objective is to reduce our P&L volatility and move to a much steadier business model.

At the top of this slide, we show you how we've cut our underwriting exposures, as Renato mentioned earlier. Credit Suisse moved early in reducing risk in 2007 and this has proved to be the right strategy.

We've now largely eliminated leveraged finance underwriting exposures, which now total less than CHF1 billion. Our commercial mortgage positions were reduced by another 30% in Q4 and now stand at CHF8.8 billion. And I'll talk more about that portfolio on a later slide.

We also reduced our RMBS and subprime trading positions, as you can see at the bottom of the page. Our net subprime position was down slightly but, more importantly, we made good progress in simplifying this book during Q4. The gross position size was cut by 50% during the quarter.

Higher quality RMBS positions were also affected by the turbulence this quarter and we saw significant fair-value losses in that sector. Our exposure to those instruments dropped by 32% to CHF3.2 billion.

On the next page, we talk about how we responded in our other trading areas. We discussed in an earlier slide how the recent market shocks were expensive for any books with directional credit spread risks or basis risk. And on this slide we give you some detail on how we've reduced our risk exposure to those two risk types.

In the top chart, we show you how we've cut some of the key trading books that had directional credit spread exposures. Here, we show you the trend in net market exposure for three key books; traded loans, preferred securities, and emerging markets bonds. This shows you how our net market value exposure for these books is down between 60% and 75% versus the size a year ago and about half versus the end of Q3.

These are transfer-specific books but we see a similar trend if we look at broader measures of credit trading risk. For example, we run a global credit scenario across our trading portfolios on a global basis. And this figure is down by 75% as well.

In the bottom half of the page, we show some examples of how we've cut our exposure to basis risk. In these books, the net directional risk is mostly hedged so the key risk issue is how much exposure you have to the basis, or difference between your gross long position and your hedge.

The bottom chart shows you gross position sizes for three key risk books; convertible bonds, which we typically run on a hedge basis, subprime CDOs, and equity relative value trading. Here, we've cut out positions between 60% and 90% versus year-ago level and significantly versus Q3.

This page addresses two of the three categories we mentioned earlier in the presentation. We've also reduced our exposures to the third category of risk, the risk of our structured derivative books. For example, we cut our exposure to a shock equity scenario downturn event by more than 70% during Q4. Other risk measures for this category also show reduced exposures.

On the next page, we show you how some of the specific risk cuts have translated into reductions as shown by broader risk measures. Our broadest measure of trading risk is value at risk or VaR. In Q4, we brought this down by an average of 21% versus Q3 and by 53% versus Q4 2007.

As risk reductions were taking place through Q4, our VaR at the end of December was significantly less than the average for the quarter, which we show at the far right. On a consistent methodology basis, the underlying VaR at year-end was down 64% versus the quarter average a year ago.

Position risk ERC is our broadest overall risk measure and includes not only trading risk but other types of risk like underwriting and credit. Position risk at Credit Suisse dropped in Q4 from CHF11.9 billion to CHF9.8 billion, driven by a 23% reduction in the Investment Bank. For all of 2008, we cut position risk ERC in our Investment Bank by one-third.

So, we've reduced our risk significantly when you look at both specific measures and overall measures. We've been among the most aggressive banks in this regard for many quarters and we expanded our efforts in Q4. We have made good progress and are continuing to make some further reductions.

What I'd like to do in the next section is talk about risks on a forward-looking basis and try and address some of the key risk areas that people have been asking about.

In particular, people have been asking about how lending books are positioned from a risk standpoint given the serious challenges that we've all seen in the recent economic data. So, in this section, I'll talk first about our loan book in the Private Bank, which is our largest accrual-style book, then I'll talk to our corporate lending and emerging markets loan portfolios in the Investment Bank, and, lastly, I'll update you on our CMBS book.

On this slide, we give you an overview of the loan portfolio on our Private Banking division. This loan portfolio is largely focused on Switzerland and is accounted for on accrual basis.

Our PB credit book is largely a funded portfolio. Unfunded irrevocable commitments are only about 5% of exposures, so we focus here on the funded loan portfolio on our balance sheet. 85% of this portfolio is collateralized by financial instruments, such as securities, or by real estate. Together with the quality of the borrower, the high rate of collateralization gives us a highly rated portfolio, which is 92% investment grade.

In the top chart, we show you a portfolio ratings breakdown on a transaction-by-transaction basis, as measured by our independent CRM team.

Within the Private Bank, loans in the Wealth Management area amount to about CHF72 billion. Just under half is Lombard, our securities-backed positions, and the remainder is backed by mortgages with good haircuts. We did experience just over CHF100 million of losses in the Lombard sector in the fourth quarter. But I think that shows how resilient this book is and how it can withstand considerable stress in collateral values during a highly turbulent time.

The Corporate and Retail lending areas in Switzerland contain loans of CHF104 billion. This is split roughly half to commercial, mortgage and corporate lending, and about half to retail lending. This Retail sector is primarily residential mortgages, which comprises over 90% of that category.

It's important to understand that the Swiss market is a very different real estate market from some of the markets that have gotten into trouble lately and have been so much in the press. I'd like to spend a minute on that.

This difference can be seen graphically in the lower-right, which shows you the relative price history for residential real estate in both Switzerland and one of the US markets that's under stress.

We picked Los Angeles as an example, not because it's the most common comparison with Switzerland, but because it's a major market that helps illustrate some of the issues that have been in the press lately. The moods for the US residential market as a whole are somewhat more muted. But LA is representative of the real estate markets in the US Sunbelt across both the South and the West Coast.

As you can see here, the price of residential real estate in LA more than doubled during the first six years of this decade and is now giving back some of those gains. The fast increase and subsequent downturn has caused problems for higher loan-to-value loans, which were originated in the middle of that decade during the peak of the bubble.

In contrast, Swiss real estate values have been much more consistent, with small fairly consistent annual gains that average about 3% per annum. We haven't seen a big boom/bust cycle in Switzerland, and that's important if you're a creditor.

Part of this was, perhaps, driven by differences in mortgage practices between the two regions. Switzerland was not affected by aggressive mortgage lending structures that became prevalent in some other markets. For example, all our Swiss residential borrowers are subject to strict income checks and have to put up real equity in their purchases.

The average loan to value is about 65% in our residential portfolio in Switzerland. Swiss mortgage lending has a good loss history and standards remain conservative. So it should not be painted with the same brush as other markets and we feel good about the quality of this book.

Lastly, there has been a focus on consumer lending portfolios as a high risk category, especially in the US and the UK. Credit Suisse does not do direct consumer lending in these markets or other markets outside Switzerland. We do have some consumer portfolios in BANK-now and Swisscard, which total about CHF4 billion. But those are performing relatively well and are a fairly small portion of our balance sheet.

I'd like to turn next to our lending activities in the Investment Bank. Most of our loans there are housed in two areas; our developed markets Corporate portfolio and our emerging markets book.

Let's turn first to the Corporate loan book at the top. In the Corporate book, I'll be speaking to total exposures, including both loans and unfunded commitments for completeness. The chart at the right shows loans at CHF18 billion and unfunded commitments at CHF47 billion. Our exposures are 80% investment grade and our positions are well diversified across industries and names.

As you can see on the chart, we have significant hedges that we use to protect the value of this book on both a portfolio and name-specific basis. These hedges total some CHF23 billion.

The loans and hedges in this book are mostly accounted for on a fair-value basis. As market spreads widen during 2008, we marked down our loans and commitments by CHF3 billion. This was partly offset by fair value gains on our hedges, which totaled about CHF2.2 billion, offsetting roughly 75% of the markdowns.

At the bottom part of the page, we show our loan exposure to emerging markets. Our gross loan exposure here is CHF23 billion and there are few unfunded commitments. We have CHF17 billion of name-specific hedges, so our net exposure to emerging markets lending is only about CHF6 billion. These net exposures are well diversified across the major regions and across counterparties.

So, this gives you a picture of our two largest books in the Investment Bank. The remaining loan books are mostly positions backed by pools of collateral with haircuts.

So, to summarize, our credit exposure in the Investment Bank is generally highly rated and the risks are significantly reduced by hedging. We have taken significant fair-value markdowns to P&L already. And although we are concerned about the potential for a tough credit cycle, given recent economic developments, we feel that these features provide significant protections for these books.

I spoke briefly about the reductions in the CMBS portfolio before, and I now want to give you some more details here using a format we've used in prior quarters.

As mentioned, our exposures have been cut by a further 31% and now stand at just under CHF9 billion. The top chart shows you the geographical diversification today, of which 65% is to developed Europe, with the largest regions being Germany and the Benelux. The bottom chart shows you that the product mix remains diversified, with office property making up about half our exposure. Development loans, which are the toughest loans to manage in a down cycle, amount to only 3% of this book.

Although credit fundamentals for commercial properties have become more stressed, the large majority of our positions are performing and remain current. All our positions are fair valued and there have been no reclassifications to accrual books. The average price has been marked down to 74% of face value, although there is a wide variation by product and by market.

Our positions were structured with good loan-to-value support. On an origination basis we had an average LTV of 70%. We have also done a calculation that updates this loan to value on a basis that updates both the property value and the loan value to current market levels. We would estimate that our current market adjustable loan to value is about 82%. This means that our valuations can still withstand a further drop in property values and come out whole from a recovery perspective.

So, while this sector is clearly undergoing some stress, we've reduced it significantly. And we carry significant protections for potential credit events because of existing fair-value markdowns that have already been taken through the income statement.

Before concluding, I'd like to touch briefly on a few other areas of risk that have been prominent recently, which I've set out in this slide. First, our gross exposure to money lift-outs -- money market lift-outs has been reduced in Q4 through sales write-down and repayments. It's now down to CHF600 million and has carried an average price of less than 45% of face value.

Second, we hold about CHF400 million worth of auction rate securities on our books. This portfolio is relatively small compared with most of the settlement banks. And we hold this portfolio at an average price of less than 60% of face value.

Third, we do not sponsor any SIVs.

Fourth, we do not rely on monolines to hedge our subprime positions in RMBS or CDOs. We do have some trading in other positions that are wrapped by monoclines. But we have CDS and other forms of protection against this exposure and the gross sizes are moderate.

Finally, as I mentioned before, we have no direct unsecured loans to consumers outside Switzerland. And as you've seen, our Swiss portfolio is conservatively underwritten.

Today, I have tried to explain, at a summary level, how some of the recent market events have affected the Investment Banking results in the fourth quarter and how Credit Suisse has responded.

Moves in the financial market were severe. And although we avoided some issues and mitigated others, we were hit by three market shocks in Q4 that were material. Credit Suisse has responded to this event by consistently and aggressively reducing risk.

We are among the most aggressive in selling down our underwriting exposure early in this crisis and have made very good progress there. Our leveraged finance exposures in particular are now down to less than CHF1 billion. We have also taken steps to cut trading risk and VaR and extended these efforts to address the issues we faced in the markets in Q4.

Along with most observers, we expect the real economy will go through a period of significant stress. While we are hopeful that substantial government actions being considered will mitigate that outcome, we need to be prepared for tough scenarios as well as optimistic ones.

Our credit book in Switzerland is performing well. While Switzerland is not immune from global events, it is doing better than many economies. Our Swiss lending book is well diversified, well collateralized, and conservatively underwritten.

Our Investment Banking books have a good credit profile and significant protection from existing fair value discounts, loan to value ratios, and an extensive hedging program. We believe that we have made very good progress in reducing our risk exposures and responding aggressively to this crisis. I think a lower risk profile is the right position to take in a period of great uncertainty, and I think it's also the right way to support the business strategy of Credit Suisse.

With that, I'll hand it over to Paul who will talk to realignment of the Investment Bank and our business strategy there going forward. Paul?

Good morning. We heard Renato give you an overview of the fourth quarter, and Wilson's presentation gives you an idea of the risk trends that help to explain our results in light of exactly what's happening in the market.

I'm going to touch on the performance of the Investment Bank in the fourth quarter. But the focus of my presentation will really be on our progress in implementing the Bank's client focus and capital efficient strategy, details of that strategy, more than we gave you in December, and the financial implications of this model overall.

So, if we turn to slide 43, in the upper left-hand corner here you can see some of the market conditions, which Wilson amply described; namely, the sharp increases that we saw in credit spreads, the breakdown in hedging relationships, and the historically high levels of volatility and correlations.

These conditions, unfortunately, reflected poorly on our overall results in the fourth quarter. And I personally, and the management team of the Investment Bank, consider them unacceptable. However, the conditions in this quarter, and over the past year, have validated the acceleration of the Investment Banking strategy, which we talked about in December.

Under our new business model, the full-year pro forma results, our ongoing businesses, would have produced revenues of approximately CHF13.2 billion, which would have made us profitable on that basis. And I'll go through our pro forma analysis in detail later in this presentation.

We've made good progress in accelerating and adapting our strategy to the current market environment, and with the single-minded focus of bringing our risk down. For the year, we reduced RWA by 31%, and VaR by 53%. We expect to achieve cost savings in the Investment Bank of CHF1.3 billion in 2009. And we've already made very significant progress in aligning our resources capital, headcount, and technology with our new business focused areas.

Turning to slide 44, Wilson showed you a slide similar to this, but explaining how these results in the fourth quarter, along the basis of the risk themes, credit spread widening, basis risk, and volatility. This slide shows our fourth quarter organized by business and categories that reflect our strategic outlook.

The bar that you see on the far-left shows the CHF4.6 billion total loss in the quarter. And moving from left to right, we show results for our key businesses, those businesses we look to reposition, and businesses we're exiting, and our fair value gains in the far-right.

This first segment, representing CHF3.6 billion of gains in the quarter, is a bit -- represents the businesses that are very much central to our strategy. They meet the strategic criteria that we've set out; namely, that they're very client-focused, they're less volatile, less complex, more liquid, businesses which have -- Credit Suisse has demonstrated our strategic advantage.

It's important to emphasize that the strategy that we outline here, and the pro formas that we'll show you, are not based upon just businesses, taking out the businesses that lost money. In fact, you can see in the next bar to your right, the CHF3 billion of losses in the quarter as businesses that we are very much committed to, but we need to reposition.

Although conditions were challenging in these areas, in the fourth quarter they're important to the franchise, and they're been very important to the franchise overall. Businesses like emerging markets and US leveraged finance, where we have excellent client franchises, and we are confident that we can reposition the business to run with a much lower risk profile.

In the next bar over, which represents the CHF7.1 billion of losses in the quarter, we show business that we look to exit. We feel these businesses are fundamentally disadvantaged in the changed environment, are ones which we don't feel we have a particular competitive advantages. These are businesses that tend to have lower returns, they're more volatile, and businesses that are more complex or less liquid. And lastly, again, you see the fair value. This is self-explanatory.

Now, I'd like to expand on the discussion we began in December about accelerating our business plan. We looked to a number of things when we made the decision to accelerate our strategy; namely, what our clients need from us, how the Investment Bank can best serve in the integrated bank, areas where we feel we had a real competitive advantage, and reflecting how we see the marketplace evolving.

Positive trends for Credit Suisse include a client preference for strong counterparties, increased demand for flow and exchange based products, and positive outlook for many of our core franchises, and fewer competitors offer us better pricing. Many of these are unique competitive advantages for Credit Suisse.

All of this, however, is set against the backdrop of weak macroeconomic environment, serious concerns about credit quality, government intervention creating market uncertainties, and a more conservative marketplace with much lower demand for some of our complex products. And so, we've adapted our strategy to be more capital efficient and client focused, with lower volatility and less risk operating within the context of the integrated Bank.

Moving on to slide 47, the successful execution of our strategy is constructed of three main pillars; first, risk reduction, second realignment of our business portfolio, and third the continued streamlining of our expense base.

Turning to slide 48, earlier, I said that reducing risk exposure was the prerequisite for executing our strategy. Here is a slide that you've seen in previous quarters. It shows the substantial reduction of exposure in these dislocated fixed income assets. We've brought these exposures down through sales, expirations, cancellations, and write-downs as part of our partner asset facility offering, through which we transferred some of these illiquid assets to our employees as part of their compensation as you're aware.

It's important to stress, and we do here three times along the bottom, as Renato also did, is that we have not reclassified any positions to accrual or [hold books].

What you see on these charts is real trend reduction of our credit exposure over the last several quarters. Our risk reduction has not been limited to the dislocated fixed income assets. We've reduced risk positions across almost all our asset classes. For example, the chart on the upper-left shows the reduction in our convertibles book. We have reduced our positions by 70% in the fourth quarter.

In the chart on the lower-left, which shows equity trading strategies, we committed that we would sell down our equity and principal trading book, as well as our risk arbitrage positions, and now that is nearly complete.

The aggregate impact of all these risk reduction measures is significant, as I think Wilson described. Risk-weighted assets down 31% on the year, well below the internal targets that we set in December. And we continue to make progress in the early part of this year.

The next pillar is our focus on the Investment Bank's business mix and operating model as part of the integrated Bank. We've reviewed our businesses, as I note in emphasizing those that are most important to our clients and important to the integrated Bank. Those with lower volatility and risk, those more liquid and less complex, and those where we feel we have a competitive advantage.

On the next page, you will see we have grouped our specific businesses, and the various strategic approaches that we are taking, on slide 51. Here, we show our core franchise, building around our plain focused and costs and capital efficient strategy, also cost-efficient.

The darkest shaded column, furthest to the left, shows our key client business where we have built the strong market position. These are businesses where we have broad relationships, where we've seen an increase in business activity and market share due to our position through the crisis.

In the lighter shaded centre column, are businesses that we believe can, in fact, meet our criteria if they're repositioned with a lower risk model.

And the lightest column, furthest to your right, are businesses we regard as strategically challenged, and we will exit. We are exiting these businesses because we don't feel they can be repositioned within our criteria. They're either too capital or balance sheet intensive, they're too volatile or complex, or they're ones which we have no particular competitive advantage.

This is how we are aligning our business and resources as we implement the Investment Banking strategy.

On slide 52, we show an example of how we are also reallocating resources as we execute this business plan. It shows that although we have reduced capital overall, our ongoing client businesses have maintained the same basic level of capital. The significant reductions are in the areas that we are repositioning or exiting.

This particular graphic illustrates our capital allocation. But this also holds true for other resources such as headcount and IT expenditures.

The next two slides give you much more detail on how we're realigning the equities and fixed income departments. We thought it would be most illustrative to show you these businesses on a pro forma model for 2008.

We tried to show a pure pro forma model, choosing the businesses -- not just choosing the businesses that fit the strategy, so, again, not just taking out the ones that lost money over the last few quarters, but, in fact, ones that fit our strategic criteria.

Additionally, we did not adjust the pro forma for the risk profile of any of the ongoing businesses, although, looking forward, we will manage many of these repositioned businesses on a much lower risk profile.

So, I'll turn here to the slide on equities, and show the businesses that are in line with our new model. Again, furthest to the left, the key client businesses, shown in darker shading, are some of the most important franchises we have; cash equities, client services, and electronic trading. Our investments here have helped us become a top tier player. And we are growing these businesses to press our strategic advantage.

And the middle bar is where we are adapting our business model, and repositioning them to run on a lower risk profile.

Equity trading strategies and convertibles are two good examples. I showed you earlier where we brought the risk exposure down in both of these business areas very significantly. Particularly, in converts, we believe we can run this business on less on of a [backed-up] basis, and more [client] facilitation, and much lower risk profile.

Similarly, we have shifted out of more volatile equity trading strategies, as we turn our focus on more liquid and quantitative strategies, which have, in fact, demonstrated consistent and strong performance with relative no outlay.

Finally, furthest to the right, are businesses that we're exiting. These are complex equity trading strategies, highly structured derivatives, businesses that have just proven too volatile, or capital intensive, to fit our new model going forward.

Turning to fixed income, we think the pro forma for the change business, like the ones you just saw for equities, illustrates the impact of our plan.

The darkest bar on the left represents some of our most important client-facing businesses. It includes rates and FX, one of the few areas that actually has probably benefited from the market turmoil, and will benefit looking forward given all the government intervention. These businesses are important, both to our clients and meet our criteria, but they're also extraordinarily important in the services we provide in the integrated Bank.

The middle column, again, are those businesses we need to reposition or accommodate to a lower risk profile. Renato mentioned emerging markets, also US leveraged finance, are two good examples. Historically, these are leading franchises for us, but ones that need repositioning to be able to adapt to a more disciplined risk approach.

In the lightest column, farthest to the right, you can see the significant impact of losses in the business we're exiting. We've talked a lot about these areas most affected by the crisis, and we don't feel these are viable in a lower risk capital model.

These slides indicate how critical it is to execute on our strategy, and to be decisive about our positioning.

With the next slide I want to focus on the integrated Bank. One of our greatest advantages within Credit Suisse is the opportunity on cross-bank collaboration. And you can see here the resilience of our collaboration efforts over the cycle with both Private Bank and with Asset Management.

Collaboration opportunities include cross-selling introductions with both Private Bank and Asset Management, and, of course, our activity with Solution Partners, which is a joint venture between the Private Bank and Investment Bank. This provides solutions to our clients across both platforms.

We expect the Investment Bank to continue to generate about half of Credit Suisse's collaboration revenue, which you saw earlier targeted for CHF10 billion in 2012.

The final pillar of our strategic implementation is streamlining expenses. These are the recurring benefits we realize as a result of the discipline expense management that we've practiced now over several years.

Slide 57 shows our progress toward the headcount targets that we set out for 2009. These headcount reductions have already been announced in December, and are directly related to the implementation of our new business strategy. We continue to maintain one of the lowest headcounts of any major investment bank.

We also focus on reducing non-comp expenses. The chart on the right, from McLagan survey, shows our trend in non-comp expense per head compared with our peers.

As you can see here, we were slightly above industry average in 2005. But over the last four years, we've consistently reduced that spend, and our position is well below the benchmark. We continue to focus on expense reduction. And the current market conditions do provide us further opportunities to make strong progress.

We expect the culmination of headcount reductions, business realignment, and non-comp expense cuts to reduce our operating expenses by CHF1.3 billion, or more than 10% of the operating expenses for 2009. Obviously, cost reduction remains a key priority for the Investment Bank.

Last, we come to the financial implications of our strategic model. And on the next slide I'll revisit the pro forma analysis, which we shared with you in December, now reflecting full-year results.

Slide 60 shows the aggregate of all the pro forma P&Ls related to our client-facing capital efficient strategy. On the far left, you see our key client businesses, important franchises that generated nearly CH18 billion over 2008. These include rates, cash equities, client services; all areas where we feel we have a good competitive position.

To the right of that, the impact of the businesses where we are repositioning our business models. And they show a CHF4.5 billion loss on the year. These represent an important opportunity for us, and important businesses for our clients. They've had challenging years. And we're repositioning them to a lower risk profitable business, which will provide strong impact on our results going forward.

Combined, these two segments produced the net revenues of CHF13.2 billion for the pro forma Investment Bank. Offsetting this are the operating expenses of CHF11.1 billion. And, as I mentioned, we have clear focus on cost reduction in continuing to drive down these expenses.

So, overall, with this model, we are forecasting -- we forecast a CHF2.1 billion of profits in 2008, in one of the more challenging trading environments in history, again, on this pro forma model.

And if we turn to slide 61, this shows the same pro forma analysis through the cycle. It's similar to what we showed you in December. Again, updated for the full-year. It demonstrates, overall, the resilience of our business model through the cycle and, I believe, supports our ability to produce consistent profitability with lower risk and volatility and significantly less capital usage.

To sum up, our focus, particularly during the turmoil of the last year, has been to adapt, to accelerate and implement the strategy that leverages our strengths. One that is sustainable and contributes strongly to the integrated Bank.

Our strategy creates an investment bank that focuses on the products that meet our clients' needs. It develops key relationships across our client base. It leverages the strengths of the integrated Bank; one that places Credit Suisse strength as a stable counterparty; one that is profitable through the cycle. And it will generate capital for the Bank overall.

Our client focused, capital efficient model is one in which I believe in; one which our management team is committed to successfully executing; and one which we are convinced represents the best strategy for quality solutions to our clients, and a strong contribution to Credit Suisse and our shareholders.

Thank you for your attention. And I'll hand it back to Brady.

Thanks, Paul. What is the opportunity for Credit Suisse? Well, our strategy is clear. We remain committed to the integrated model, which we believe enables us to most effectively deliver best in class service to our clients, while realizing enhanced operating efficiencies.

The acceleration of our strategic plan, announced in December, will deliver a further substantial reduction of our risk and cost base. And our new business model will free-up substantial amounts of capital through continued de-risking, and our operating businesses will be capital generative.

This acceleration of our strategy, and our strong capital base, positions Credit Suisse well to address the challenges, and to capture the opportunities, in the new competitive landscape.

Paul explained to you how we're repositioning the business in Investment Banking. In essence, we believe that this business model is well suitable for the environment over the next three to five years, and that it will allow us to serve our clients well, produce more consistent earnings, and free-up capital.

In Private Banking, we will continue to judiciously invest in growth, both globally and in our Swiss businesses. In the fourth quarter in Private Banking, we continued to make progress with our international growth strategy and strengthened our team of relationship managers.

We see significant potential to gain market share in Switzerland, in both Wealth Management and Corporate and Retail Banking, and are increasingly benefiting from our strength and stability among our client base.

In Asset Management, we've streamlined our business portfolio by closing our money market funds, and by agreeing to sell the majority of our traditional funds business to Aberdeen Asset Management. Aberdeen is one of the UK's leading asset managers, and we will receive a stake of up to 24.9% in Aberdeen.

We are now in a position to focus our resources on alternative investments, asset allocation, and the Swiss businesses, which are scalable high margin areas, which we can generate excellent returns for our clients.

The new organization also provides further potential to reduce costs.

Our ambition is to become the leading alternative investment manager globally by leveraging existing strengths, for example, in private equity, and by closing gaps, for example, in single manager hedge funds.

We have a long history of exceptional returns in our private equity business, and a very diversified platform, from which we believe we can achieve our goal of leadership in this area, and the value creation that goes with it.

In Switzerland, we're planning to build on our strong presence in our home market, for example, through improved institutional coverage.

In our asset allocation business, we will further leverage distribution through Private Banking, and increase our focus and resources in this area.

Asset Management will become a much more important contributor to the bottom line, and a much bigger part of our market capitalization as we drive this strategy forward.

From an overall Bank perspective, Renato has spoken about the good progress that we're making on the efficiency initiatives. We're also encouraged by the resilience of the revenues that arise from the collaboration between our businesses.

We had a strong start to 2009. We are quarter-to-date profitable across all divisions, yet this is not a light-at-the-end-of-the-tunnel message. 2008 has taught us that being cautious is the best policy. We aim to position Credit Suisse so we can remain strong if conditions continue to be difficult, but also to benefit from improving conditions should they materialize.

In the medium-term, we believe we will begin to see the impact of various government measures across the globe during the second half of the year. In the long-term, we think the prospects for our business are excellent. Continued wealth creation, in particular in the developed markets, is good, and we believe we have the right strategy to take advantage of this.

In conclusion, we believe we have everything we need to perform strongly in 2009. Our capital strength is exceptional, our liquidity is strong, and this capital strength has been maintained without any government involvement.

Our risk profile has been very significantly reduced. We have an attractive business model, and clear strategy. Throughout the crisis, we have maintained our client momentum, evidenced by strong performance in Private Banking, in particular, our net new assets, and in our Corporate and Retail Bank, our client-facing Investment Banking businesses, and our more focused Asset Management business.

We have made very good progress in moving our strategy forward in all our businesses.

So, with all this, we believe we are extremely well positioned to capitalize on our relative strengths in an industry landscape that has been dramatically disrupted over the last year. This will benefit our shareholders, our clients, our employees, and the Swiss financial market.

Thanks very much for your attention. And now we'll be happy to open it up for questions.

We will now begin the question and answer. (Operator Instructions).

(inaudible - microphone inaccessible) dropped sharply to 7.9%. And in the context that I believe the Swiss regulator and the new rules to be effective 2013, use 8% as a minimum, could you comment how the -- how you actually managed the business, whether equity Tier 1 ratio is of importance to you, and whether there are any constraints with respect to this one?

Second one is the reduction of the Investment Bank's balance sheet. Could you comment on how this CHF30-something billion risk-weighted assets reduction plan? And what is the associated total asset number? And how will the reduction take place? Is it going to be disposals. Are these assets just rolling off? And potentially, also, what costs you actually expect for that?

And, finally, just slide 60 and the pro forma clean Investment Bank, I was wondering, I think there are the CHF3-something billion gain on own debt are included in revenues. If I strip these out, I believe you were, even with your clean Investment Bank, loss-making. So, could you just comment whether we should include them, or why you actually included them in your slide? Thank you.

Sure. Why don't I -- I'll address the first question, maybe Paul or Wilson if you could address the reduction in balance sheet. I could talk a little bit about it, and then we can talk about the pro forma P&L.

With regard to the Tier 1 ratio, as you say, we do have a very strong Tier 1 ratio. And we feel we have a very high quality equity structure on the balance sheet. So, we are -- and we are, as we've announced, we are in excess of the FINMA's requirements for 2013, in terms of capital. So, I don't know exactly what your calculation is with the 7.9% or the 8%. We are in excess of the requirements from the regulator for 2013, in terms of the capital.

Maybe, just to check back, the FINMA, the former EBK, is basing whatever ratio they require from us on the Tier 1 capital. So, there's nothing -- it's not necessarily directly related to the equity. Of course, there is a translation for [NCC]. The goodwill is not included there but hybrid is included. So, there's [a traditional]. So, the equity ratio is not something, if I understand it correctly, that the FINMA is focusing on.

So, the ratios they are requesting, also, by the way, for the leverage ratio is based on the Tier 1 capital. [The] capital focus on Tier 1 rather than on equity Tier 1. What do you understand by equity Tier 1?

Well, if I strip out from your Tier 1 capital, the non-qualifying minorities, which are CHF1.7 billion, I think, and then, in particular, the Tier 1 hybrids, which are not loss absorbing, I end up with a ratio coming down from CHF13.3 to CHF7.9. And, obviously, the equity investor in these days is focusing on this number very much. So -- (Inaudible - multiple speakers)

What you are calling is the core Tier 1 ratio. That's what typically is mentioned, which is the Tier 1 ratio minus the hybrid.

Now, the FINMA has adopted [DOT] model now that allows us to have 35% of total Tier 1 as hybrid. That's, basically, the number we have roughly right now going forward. And with that, we achieve already the 2013 requirement.

I think, as you said, there are a lot of different ways to look at the capital. We think we're very strongly capitalized from virtually any point of view when we look at it. As you say, I actually think that Tier 1 hybrids are high quality capital. But, as you say, people can look at it and analyze it as they want.

But the other thing that I think is very important is we have a very capital generative business. And if you look at just -- if you can get normal markets making profits, and also with our strategy in the Investment Bank, which is to continue to reduce the risk-weighted assets here, that's going to free-up and generate more capital as well.

So, I actually think that this is a very capital generative model. And that's probably the most -- in terms of a forward-looking view, that's probably the most important point to make.

The second question was around the RWA reduction. Do you want to address that?

Why don't I address the second. Paul, why don't you do the third?

You asked a question about how the -- I think, how the RWA reduction is going to translate into a balance sheet reduction. I don't think we've given a specific forecast on that translation. But the reductions mostly going to be taking place in terms of trading assets to loan --.

You need to have a microphone, sorry, for people who are listening in on the webcast.

I think your question was regarding how the RWA reductions will translate into balance sheet reductions. Well, we haven't given a specific forecast for exactly how that will map. The balance sheet reductions will mostly take place in the trading assets. The loan assets tend to be more stable by nature. Those trading assets are, generally, on a fair value basis, so we don't expect any particular cost with respect to disposal. They're all mark-to-market.

If I understand your question around the pro forma analysis, and how we've incorporated fair value associated in with that, fair value, obviously, an important part of our capital management, and we have managed around partly fair value, and won't go into our corporate loan book, and so on, on fair value basis of that. But rather say that we did, and I said earlier, try to create a very pure pro forma.

So, part of that pro forma, actually, only included some of the fair value in the ongoing businesses, as well as the repositioned businesses, and took away some of the benefit of the fair value associated with the businesses that we're exiting.

If you wanted to strip that out completely, you could come up with more of a breakeven result in what was, probably, the most challenging year in Investment Banking history.

I think your next question was here.

Kilian Maier, NZB Neue Zuercher Bank. The first question is on your business update. Does your positive business update for January also -- is also valid for net new asset flows in Private Banking and Asset Management?

The second question would be on relationship manager hiring. The total number of relationship managers has stayed stable in Q4, maybe you could elaborate a little bit why you couldn't hire. At least, UBS lost 180, so they must have gone somewhere.

And the third question would be on tax loss carry forwards. In the meantime, you have quite some tax loss carry forwards. My question would be to which jurisdictions do they refer to? Is it mainly Switzerland related, or is it also foreign related, and to what extent?

And the last question would be on your partner asset facility. Can you provide a little bit more detail on that? What has been the valuation date? How big is it? How is it accounted for? And maybe also the time frame.

Sure. Good questions. Well, maybe I'll answer the first one. Walter, if you could take the second one on RM hiring. Renato, the tax loan. And maybe, Wilson, you can take a bit more of a description of the Path.

With regard to the business update for January, yes, as we've said, it was a strong start to the year. Not just January but, actually, quarter-to-date strong start. All the businesses are profitable. And we've had, throughout this whole -- throughout really the whole crisis we've had consistent strong client inflows. And, I would say, that those have continued into January and, obviously, in quarter-to-date. Obviously, we can't project what will happen for the whole quarter, but that's what we're seeing so far.

But do you want to address the issue on the RM fourth quarter?

Yes. Sure. We are flat, as you can see. But, if you look into the regions, you see we hired 30. Now, I don't know if they are from UBS, here in Switzerland, and we let 30 go in Asia. And that was due to a low performer program, which we are running every year. And then, clearly, the last quarter is always the one where you hold back a little bit in terms of hiring, because of compensation reasons.

But I think we would say, we continue to think we see the best opportunities that we've ever seen, really, to hire very high quality people in this area. We have taken advantage of that. We've hired top teams from competitors all around the world. And, frankly, there continues to be more consolidation, and more activity, in the Private Banking part of the world that we think is going to continue to offer good opportunities.

Renato, the tax losses?

Yes. Contrary to what you mentioned, the majority of the deferred tax assets, and the losses we had, of course, we have in the jurisdiction where they happened. So, the deferred tax assets on net operating losses are to over 50% in the US, they are to about 25% in the UK, and about 5% in Switzerland. So, only a minor amount in Switzerland.

And Path? So, you just asked for more of a description of Path? Just a little bit more detail?

On the Path facility, we transferred a pool of illiquid assets as at year-end. That pool consisted of CMBS, leveraged finance, and corporate loans. We did provide some leverage against those assets, as is customary in the market.

They were transferred as at fair value on that date, as at December 31. And we subjected that to a number of internal reviews from independent departments to make sure that was a true fair value. The payout on those assets will be extended, and will happen over an eight year period.

Okay? Next question.

Yes, hi. Chris Wheeler from MainFirst Bank. First of all, a couple of back questions on the Investment Bank. I'm think, on slide 37 you show unfunded lines of CHF47 billion. I think that's 80% of the total commitments there. Could you talk about the trends in that, and what efforts you've been making to reduce those unfunded commitments to clients? That's the first question.

Second, on Paul's CHF1.3 billion reduction on the nine month run rate, I'm assuming, from the slide, that's on the non-bonus element of the cost in the first nine months. And, if that is the case, would you provide us with what the nine month cost base was without the bonus element, he said laughingly?

The next question is, in terms of the Wealth Management business, in terms of net new money, you show a fairly small CHF2 billion net new inflow in Switzerland but, obviously, that's net of some pretty hefty deleveraging. Can you give us some sort of net gross figure for Switzerland? And also, perhaps give us some flavor for where the Americas growth is, because that's pretty strong, and I just wonder how much of that's the US, how much of that's hedging [growth flow], etc.

And, finally, the loan book in Wealth Management, CHF72 billion, I think you said 50% was Lombard lending, can you give us some geographic breakdown of that? Obviously, the focus, after yesterday, is on Asia, but also perhaps on any Russian and other geographic exposures you may be concerned about? Thanks very much.

Okay. Maybe, Wilson, if you could take the first question, about the commitments on the Investment Banking line. And then, Paul, you can address the reduction in cost. I don't know, Walter, if you could address the issue of kind of a Swiss picture of the deleveraging impact. And then, I don't know, maybe Wilson again on the Wealth Management loan book.

Sure. On the unfunded commitments of CHF47 billion, those have been, actually, pretty stable. Those are largely to investment grade corporates. We have not seen any particular changes in draw down activity, even through this crisis, which some people have predicted. We've seen a little bit, but not very much. These are part of our core Corporate client base, and they've largely been pretty stable through this crisis. So, that's been pretty flat as a trend.

Paul, do you want to address the issue of the CHF1.3 billion reduction? And, I guess, we're probably not going to talk about, obviously, bonus, and --

We won't break into the bonus part of it, but good try. It does include some component of bonuses, so it's not exclusively non-comp. The bulk of it is non-comp expense savings. So, it's a run rate for our expense base overall. But it does include some assumption on bonus.

(inaudible question - microphone inaccessible).

Well, that was pro forma for full-year 2008. And so, if you look at 2009, we expect our expenses to go down in 2009 by CHF1.3 billion from that rate. So, we're really trying to give you an idea of the run rate of expenses in the Investment Bank, which are down about 10% plus.

But the nine month number would also include a bonus accrual from last year. So, if you just annualize last year, and take the CHF1.3 billion off, wouldn't that be?

Yes.

Is that right, [David], or no? Okay. Walter, do you want to address the issue on Switzerland? The deleveraging impact in Switzerland?

Okay. In Switzerland, about 50% of the deleveraging has actually happened in Switzerland, so about CHF6 billion, overall, in the fourth quarter. And net new asset intake is mainly US onshore. And I believe the last question you ask is about the Lombard bookings. It's about 90% of our Lombard portfolio is booked in Switzerland. But it's, obviously, composed of Swiss assets and offshore assets.

So, just to clarify, you're saying CHF6 billion for -- ?

Deleveraging.

(inaudible) by CHF6 billion of deleveraging, so you're saying it's CHF8 billion gross, and CHF6 billion for deleveraging gives you CHF2 billion net, which is what you're showing on the slide?

Yes.

Okay. Thank you.

We've also -- it's probably worth mentioning, on those Private Banking, the Lombard loans, we've actually had -- even though the markets have been very volatile over the last quarter, we've actually had, in general, a very good experience on those in terms of any credit losses, etc. So, they've been -- it's actually worked quite well.

Huw van Steenis, Morgan Stanley. Firstly, you had a very large swing in your OCI in the quarter, about CHF4.4 billion. I think, historically, FX has been quite a larger contributor to that. Could you clarify how much the move was FX? Or put the other way, given the dollar's especially now rallied as much as it's fell in Q4, how much of that will reverse in Q1?

And, secondly, in the loan book in the Investment Bank, your impaired loans doubled to 4%. I was wondering if you could give a bit of color about what sort of things they may be, and what underlying trends you're seeing, or you expect for 2009? Thanks.

Sorry, I didn't quite get the -- what was, the first question was on --

The other comprehensive income has moved adversely. And I was wondering how much of that was just FX translations in your OCI?

About roughly half is ForEx driven, and the other half is pension driven. Now, the question is when will that reverse? I would like to know that myself. We cannot predict the exchange rate. But should the dollar move again in the other way, then we would have, of course, a move back to that. But it's difficult for me to predict.

So, I don't know, Wilson, can you address the issue on the impairments in the loan book?

Obviously, we have started to see some tougher credit conditions after what's been four to five years of really exceptionally good credit performance. So, we have seen our non-performers tick-up somewhat in the Investment Bank. These are all accounted for on a fair value basis, so that is all reflected through the P&L.

Are there questions in here, or should we go to the -- there must be a lot of people on the phone, I assume? And we can come back here, as well, after we take the --

Don't worry, I'll be quick, so people on the phone can ask. It's [Yemi] here from Goldman's. I just have three very brief questions.

On page 10, just to finish off the debate on this deleveraging, can you just give us a sense, what the impact of the deleveraging was on Q1, Q2, and Q3, net new money flows, so we can compare with this CHF13.8 billion figure that you're giving us for Q4?

And I think the second question on this is that is it your sense there's much deleveraging to go, or do you think that this is more or less it?

The second question's on page 37, where you show your large corporate book, and you show extensive hedging, both of your large corporate and emerging market book. And I was just wondering what is your sense for the counterparty risk on the CDS's that you're making extensive use of here, and do you think there is any counterparty risk at all?

And, finally, just on the business update, I understand that you said that all of the businesses are profitable, quarter-to-date. I was just wondering, when you say all of the businesses are profitable, are you using year-end marks for your investments, or are you using up-to-date marks? So, are you referring to franchise revenues, or have you marked everything as of quarter-to-date, so to speak?

Well, we actually -- on the last question, we mark all of our positions on a daily basis. So, any results, quarter-to-date, would include any marks up or marks down in the assets, as well as any flows, and everything else that's happened. So, there's no -- it's whatever's happened since the end of the year to today, on a fair value basis.

They're all fair value, so it includes -- it certainly includes any improvements or any markdowns in any of the asset categories, plus all the flows. And it's been -- I think, as you can imagine, on both of those fronts, obviously, many of the markets have rallied, but also there's been good flow business.

The question of the deleveraging, about Q1/2/3, and then the -- whether we think we're done with the deleveraging, Walter, do you want to --?

[This is a rough number, I don't have the exact] number, but the first three quarters in total are about CHF5 billion positive. And in terms of deleveraging, I expect, actually, that the worst is behind us.

In terms of sequences, just so you can get a little bit of a feeling how this has happened, obviously, October was a lot of like additional margin costs, and so forth. But the real deleveraging has taken place in December, where portfolios got restructured. And that, I think, is across the Private Banking universe is done. And now it's, obviously, and how it will develop, but the worst is certainly behind us.

Do you want to address the issue, Wilson, of the counterparty risk, in terms of the hedging?

Sure. It's a very good question, and it's one we've spent a lot of time on over the last several months, particularly, with all the stress in the financial markets.

Our counterparties are, generally, large financial institutions. When you look at our top 10 hedge providers, they're all major commercial banks. Importantly, all those exposures are collateralized on a daily basis. So, in addition to having, generally speaking, good counterparties, we also move collateral daily to collateralize those positions.

In addition, in our emerging markets books, we have some positions that are collateralized by insurance. None of those insurers are monolines. They're all investment grade rated insurance companies, and they're well diversified. So, we've tried very hard to make sure that not only are they hedged, but these positions are hedged with good quality counterparties, diversified, and, generally, on a collateralized basis.

And I think we'd -- obviously, the last six months, would give anybody pause talking about hedged risks since, a lot of times, those hedges haven't worked.

I think, in the case of the emerging markets book, it's very specific name hedged, so there's a lot of very specific matching, so we feel pretty comfortable with that. In the Investment grade book, it's a little less, just specific name hedging. So, there's a little more potential basis risk, as you can see from some of the numbers I think Wilson mentioned; CHF3 billion mark-up -- or CHF3 billion markdown, CHF2.2 billion mark-up in the fourth quarter. So, there is some -- less than 100% matching hedging there. But we feel -- over a longer period of time, there could be quarter-to-quarter variations, but over a longer period of time, we feel like that is good cover and good hedging.

It's probably worth mentioning, you mentioned it, the unfunded commitments, as well. And just to be clear, those unfunded commitments in the Corporate loan book are also mark-to-fair value.

Should we go to the phone? There's probably a number of questions there. Should we start? Is that all? Okay. Let's go to the phone. Then we can come back to the room if there are other questions. First question on the phone?

Your first question comes from Matt Spick, from Deutsche Bank. Please go ahead.

Good morning. I had two quick questions. The first was on the FINMA leverage ratio, which you haven't disclosed the number. But if I take your asset base, and I strip out a little over CHF100 billion of Swiss loans in the Corporate and Retail Bank, and the goodwill and the cash components, I get to an estimated FINMA leverage ratio of about 3.4%. Does that sound about right to you?

And the second question is, again, on the balance sheet, looking at the year end, it's shrunk very, very quickly. You've got a core funding surplus already. The cash balances have built up to CHF90 billion, or cash plus bank balances. And it does look like an extremely liquid balance sheet.

And if I look at the cumulative gains on own debt, I think it's about CHF7 billion now, and normally I'd regard that as a very academic number, which is why it's not included in Tier 1 capital. But it does look like, if there's any bank out there that might be able to monetize and lock that in, it might be you. So, do you have any comments about whether that could be something that could be practical in 2009? Thanks.

Renato, do you want to address the FINMA leverage ratio?

Yes. On the FINMA leverage ratio, as we told you before, this is not something that is widely disclosed, because it is FINMA that had made the rules. As you know, on the -- our main competitor here in Switzerland has given some indications yesterday on how they have calculated the leverage ratio. You alluded to some assets that are deducted for FINMA purposes.

Without going into detail what that is, and it's, of course, pretty similar to what our colleagues have here in down the road, this is the way that we will calculate going forward. And the only thing I can confirm to you is that we are above the 3% minimum leverage ratio set out, by the way, for 2013. So, up to 2013, that we are absolutely clear, even if we talk so much about that. There is no leverage ratio requirement until 2013, but we would exceed the requirements [of APR] above 3%.

I think, with regard to the -- as you say, the balance sheet reductions, the funding position that we're in, we do feel -- obviously, we believe we've been in very good shape throughout. As you mentioned, with reduction in the balance sheet, and continuing reductions in the balance sheet, it is something that is factoring into our decisions around how we are funding in other potential decisions that we're making.

Certainly, we have about CHF12 billion of long-term debt that comes due in 2009. And so, if you looked at it, you'd say, well, that's CHF12 billion that has to be refinanced in the next year, which we would normally say that's a pretty -- that's obviously pretty manageable.

Given reductions in balance sheet, and what we're doing overall, it may not even be necessary to -- may not be necessary to replace that. On the other hand, we may want to displace some more shorter term debt with some longer term, if we get opportunities to raise that.

I guess the other issue you're raising is would we be actually buying back debt in order to take advantage of our situation. We, actually, have been buying back some smaller pieces of debt over time. I don't think we've made a decision yet whether or not that's something that we would do more broadly.

Great. Thank you.

Next question on the phone.

Your next question comes from Matthew Clark from KBW. Please go ahead.

Good morning. Just wanted to come back to the negative OCI move, and, in particular, on your pension fund. I think, in the past, you said that you're pension funds are in deficit under US GAAP, but surplus under Swiss GAAP, and that's why you didn't have to take the negative hit to your regulatory capital, but you did see it in your accounting capital. Could you just give us an update on that situation, and perhaps say how much your pension funds are in surplus or deficit under US GAAP versus under Swiss statutory accounting? Thanks.

Sorry, I don't have that detailed number between your Swiss statutory and US GAAP at hand right now. I would appreciate it if you could contact us in the next couple of days and clarify that matter.

Okay. Thank you.

And you will have more details also in the new disclosure of the annual report, which comes out in a month's time. But we would be able to give you the detailed number, but it's just that I don't have that in my hand. It's a very detailed [matter].

Okay. Thanks.

Anything else, Matthew, or that was it?

That's it, thanks.

Okay. Thank you. Next question on the phone.

Your next question comes from Kian Abouhossein from JP Morgan. Please go ahead.

Yes, hi. First of all, a question on the risk-weighted asset reduction in the Investment Bank. How much will it cost you to unwind these positions, assuming a revenue environment, or an environment generally, as in 2008?

The second question is regarding provisioning trends. We've seen the pick up in provisions. How do you see that developing into 2009?

In terms of Wealth Management, can you give us an idea of how top line margins should develop considering the deleveraging process that you saw in December, and also potentially in the future?

And, lastly, on page 60, just looking at the slide again, I wonder x on debt gains, how you get to pre-tax margin of 25%. If you can give me a normal environment that you would see for the new business model, in order to see how we could get to a 25% pre-tax margin. Thanks.

Well, I think on the risk-weighted asset reduction, I think Wilson actually addressed it a little bit before. I think our general view is that our assets are marked at fair value. And so, in general, we view, particularly, in any kind of a -- obviously, the fourth quarter was a very extreme environment. The first quarter, so far, has been a more normal environment.

I don't think that we view that continuing to reduce the balance sheet would necessarily have any particular additional cost to it. Obviously, we need to -- there are -- there continue to be certain asset categories that we've already determined that we want to reduce. We'll continue to do that. And then, in general, there are different ways to configure the business, as Paul mentioned, repositioning a number of the businesses. And so, frankly, we don't see any of that giving rise to any unusual costs, I would say.

Sorry, your second question was around --?

The provisioning trends.

Trends, yes. So, I don't know, Wilson, do you want to address that again or --?

As we tried to show in our slides, I think it's important to distinguish between two different loan books. One is our Investment Banking book, where we don't really have that many provisions because the books are mostly on fair value. So, we've taken a discount through our income statement already as we marked those to the credit spreads that are in the market, so that those spreads are -- already give us a fair amount of cushion with respect to any future challenges with those assets.

As we discussed, we do think that this current economic environment could be challenging. But we have already got a fair amount of fair value reserves. They give us, in a sense, a buffer for potential credit hits on those assets.

With respect to the Private Bank, that is more on an accrual basis. There, what we look to is really a good collateralization rate. We've talked about our Lombard losses, which even in a pretty extraordinary period in collateralization markets, held up pretty well. We only had about 109 million of hits in that portfolio, which I think shows the reliance of that book. We have good credit protection, with respect to our residential book in Switzerland. And a good ratings profile for our Corporate book.

We can't say that Switzerland is immune. But we can say that we think our portfolio looks pretty good, and that our current readings still show pretty good performance.

Do you, Walter, want to address the Wealth Management issue?

On the Wealth Management side, in terms of development of gross basis point income, the deleveraging will, most likely, have an effect of about 3 to 4 basis points. This is will incur in the recurring basis. And, obviously, the rest is related to markets, and right now they are very slow. So, I think the first quarter will be slow and then I'll expect a recover.

I think on the last question, maybe I can take a shot, and then Paul can add to it. But, we -- this issue of the 2008 number and the fair value own debt number in there, we're -- what we're trying to do is provide some kind of a framework for you to look at how this new Investment Banking strategy might operate over time.

So, for instance, the previous years that we showed, I don't think there were any material fair value own debt charges in any of those years. There was in '07, probably a smaller number but, okay. So, if you look at the years before that, so it's really meant more to kind of give a guide for how the business might look.

I think our view is -- but also, by the way, in some respects, you might say -- well, first of all, you can have a debate about whether fair value own debt is legitimate numbers in there in the first place. We're kind of having a discussion as if, well, of course, you just take those out. We can have the discussion about the fact that that does offset fair value losses in other parts of the business that we've had.

But, in any case, I think our general view is that this gives you some perspective on how we think we can run the Investment Banking business. That we think we can run it with a lot less capital, with good net income, and good returns on the business, and so that's really our impact. So, the 25% pre-tax margin, yes, we think that is doable, and we're fairly confident of that. But, I don't know, if Paul, maybe you can --

Yes. I think, if you turn (inaudible) you can see, and you're probably observing, if you look at just the period of the past few years, on just that raw pro forma basis, it's just under 20% margin there. Remember, you pointed out, it includes the fair value in, principally, in '08. But it -- I'll note it also includes CHF4.5 billion of losses in repositioned businesses, which I mentioned. We think we can run lower risk on a profitable basis. So, I think that's probably the swing factor.

Very helpful. Thank you.

Next question on the phone.

Your next question comes from Georg Kanders from WestLB. Please go ahead.

Yes. I have a question, how -- if you could elaborate a little bit more on the losses in December, as we had the biggest market distortions in October and November concerning volatility and basis risk. Could you please elaborate a little bit more what happened in December?

And, secondly, on the risk provisioning in the Wealth Management unit, is this also happened to a few clients in a specific area?

So, your first question was just talking a bit more about December conditions in December, and what the impact was. Your second question was in terms of -- you said in terms of risk provisioning in Wealth Management. You're asking was it just a few clients or broader, is that right?

Yes. That's right, yes.

Okay. Well, I think Wilson could talk more about it, but I think, actually, December was -- a lot of the trends that Wilson spoke about, which actually had probably accelerated into December really.

We saw extreme cash and index market decoupling, particularly cash markets. There was no liquidity. People weren't buying cash instruments, so those tended to be getting marked down. While, on the other side, index markets were rallying during the month. There continued to be a lot of volatility. I'd say, December was sort of a microcosm of what Wilson talked about for the whole quarter, probably even more extreme, or more relentless during the month. So, that was really December.

And I think particularly exacerbated by just your normal illiquidity during a December period. I think exacerbated all those trends, but I don't know if there is anything to add to that, Wilson, or --

The only thing I would --if you look at slide 29, we've tried to give you a sense of some of the key drivers, and give you that in a pictorial format. I think Brady highlighted a couple of the key elements.

We did see cash markets go into a very illiquid period in December. There was a lot of forced deleveraging, so a lot of the trading was not actually voluntary, but forced. And that made two-way markets very illiquid and very gappy. You can see some of the spreads -- credit spreads on page 49, as well as the widening of basis risk.

So, December was a pretty extraordinary time, a very difficult time in the markets.

So the Wealth Management provisioning, Walter, do you want to address that?

Well, the provisioning was for, I think, numerous clients. So, it's not like a single position, it was just across the whole portfolio. I think that was your question, right?

Yes.

Okay.

Next question on the phone.

Your next question comes from Jeremy Sigee from Citigroup. Please go ahead.

Good morning. Thank you. Just two specific questions, please. Firstly, on the charges for ARS, and also private equity losses, do we need to be ready for more of those to come through in the coming quarters, I guess, particularly from private equities? Is that likely to be a drip feed, or do you feel that's dealt with?

And second question, I don't know if you've disclosed, but if not could you, your exposures to Russia, and to the rest of CE, both in terms of loans and commitments, and, secondly, trading exposures?

Okay. Thanks, Jeremy. I think, with regard to the ARS, I can -- obviously, we can't -- it's hard for us to predict where prices will go in the markets in ARS.

We have a manageably sized book, certainly compared to what others have, and it's marked, I think, quite -- well, it's marked appropriately [against the] market, our accountants will tell us. But I think it's marked at $0.58 on $1. So, our general view is that, I would say, on the ARS, our hope would be that is not something that's going to be of any material size going forward. But, obviously, we can't predict exactly what will happen in the markets, but I don't think that will be.

And private equity, I don't know, Rob Schafir, do you want to address that? Does somebody have a microphone, the hand held?

What I would say about our private equity exposures is, number one, they're very diversified and, number two, they're typically in the mid-cap range, and they deploy a lot lower leverage than many of the big cap private equity exposures you've see in the marketplace.

So, we go through a very rigorous process in marking this portfolio every single quarter. And, certainly, it is subject to market and economic conditions. But I'd say, certainly on a relative basis, I think it is a much lower risk portfolio than the average private equity portfolio you'd see out there.

And they're all performing, right? They're not --

Yes. There's no -- these are all mark-to-markets. There are no realized losses or no bankruptcies, or anything of that nature in the portfolio.

And with regard to the last question, yes, Wilson, why don't you answer?

Yes. I think your last question was about emerging market exposure, such as to Russia.

Specifically Russia and Eastern Europe.

Yes. On slide 37, we give you breakdown of our loan exposure, which is, net, about CHF6 billion to the emerging markets. That is split pretty evenly between Eastern Europe, Asia, and Latin America. Obviously, bigger countries tend to be a bigger portion of that, but it is diversified within each of those regions.

We also have some derivative books, which are smaller, but do have some credit exposure in those countries. We have some cash inventory positions, which are also smaller, and which have been brought down pretty dramatically in Q4. So, I think that should give you a general picture, without giving you specific country-by-country numbers, give you a pretty good view of the diversification we have across emerging markets broadly, and for any given country in particular.

And I think also, I think Jeremy also asked briefly about the trading risks. The trading risks in emerging markets have been -- are relatively low now across all the regions actually. So, I suspect that would also apply to Russia and Eastern Europe.

That's correct. We showed you a trend in the emerging markets bond book in one of the pages, and shows you that's down at pretty low levels right now.

Okay. Thank you very much.

Thanks, Jeremy. Okay. Can we take any other questions here in the auditorium? Anybody else wants to ask anything?

Okay. Well, appreciate your time here today. As we say, we do believe that we come into 2009 well positioned; strong capital, good risk reduction, the client franchise is performing quite well. We think the way we've repositioned both our Investment Banking and Asset Management businesses is going to be very positive for how we can perform this year. And, obviously, with a strong start to the year, and profitability in all the businesses, that's encouraging to us. But, obviously, we'll all see how the markets and conditions treat us going forward.

But thanks very much for your time, and your attention. Appreciate it. Thank you.

That does conclude today's conference call. An email will be sent out shortly advising how to access the replay of this conference. Thank you for joining today's call. You may all disconnect.