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credit-suisse Annual Report Part 2
1. FINANCIAL REPORT
44 Comments to the financial statements
46 Consolidated income statement
48 Consolidated balance sheet
50 Consolidated statement of source
and application of funds
51 Consolidated off-balance sheet business
53 Notes to the consolidated financial statements
61 Notes to the banking and insurance business
63 Notes to the banking business
65 Notes to the insurance business
68 Notes to the consolidated financial statements
93 Report of the Group’s auditors
94 Income statement (parent company)
95 Balance sheet before allocation of
retained earnings (parent company)
96 Notes to the financial statements (parent company)
100 Proposed allocation of retained earnings
101 Report of the statutory auditors
43
2. COMMENTS TO THE FINANCIAL STATEMENTS
Credit Suisse Group’s Annual Report contains two sets of financial statements: the
consolidated annual financial statements of Credit Suisse Group at 31 December 1997
and the annual financial statements of Credit Suisse Group, parent company, for the
financial year ended 31 March 1998. It is the latter set of statements which forms the
basis for resolutions voted on by the Annual General Meeting of Shareholders. Both
sets of statements have been examined by independent auditors. Their reports are pre-
sented on pages 93 and 101.
The consolidated financial statements include the Credit Suisse First Boston sub-
group, the Credit Suisse sub-group, Neue Aargauer Bank, the Private Banks, the
Winterthur sub-group, CS Life and the financial subsidiaries and long-term holdings of
Credit Suisse Group. The consolidated financial statements include individual reporting for
the banking and insurance units. The merger of “Winterthur” Swiss Insurance Company
(Winterthur) was treated as a “pooling of interests”; its financial results have been in-
cluded in the consolidated income statement and balance sheet. Income statement and
balance sheet notes relating specifically to insurance activity are also detailed separately.
The closing of the announced merger with Winterthur oc-
The 1997 financial year
curred on 15 December 1997. As at 31 December 1997, Credit Suisse Group owned
99.9% of the outstanding shares of Winterthur. Former Winterthur shareholders re-
ceived 7.3 shares of Credit Suisse Group for each registered share of “Winterthur”
Swiss Insurance Company. As a result, the share capital of Credit Suisse Group was
increased by the issuance of 70,714,107 registered shares at a nominal value of
CHF 20 per share. Winterthur is included in the consolidated reporting of Credit Suisse
Group under the “pooling of interests method”.
As of the 1997 financial year, Credit Suisse Group applied a new dynamic
provisioning method for the management of credit risks. It was originally intended to
include the dynamic credit provisions in the annual income statement. However, the
final regulatory guidelines for applying dynamic credit provisioning methods to the finan-
cial statements has led to the decision that this method will be used only for
management accounting. Because the credit situation in the Swiss market remains
difficult, especially in the real estate area, it was necessary to make a provision of
around CHF 1.1 bn for pre-existing non-performing loans. In 1997, CHF 1,186 m was
released from the reserves for general banking risks and included in the income state-
ment as extraordinary income. Extraordinary expense of CHF 1,629 m was also added
to the reserves for general banking risks during the year.
A reserve of CHF 1 bn was created in 1996 for the expected restructuring costs
of Credit Suisse Group. Costs of CHF 298 m in 1996 and CHF 450 m in 1997 were
incurred and charged to this reserve. Additional obligations incurred in connection with
the restructuring required an additional extraordinary provision of CHF 349 m, leaving
a reserve balance of CHF 467 m as at 31 December 1997. At Credit Suisse First
Boston, an extraordinary provision of CHF 332 m (CHF 237 m after tax) was created
for expected restructuring costs associated with the acquisition of the European
investment banking business of BZW. An extraordinary provision of CHF 115 m
(CHF 82 m after tax) was created to implement the new organisational structure at
Bank Leu, which became effective 1 January 1998. An extraordinary provision of
44
3. CHF 488 m (CHF 401 m after tax) was created for technology, primarily for expenses
related to the additional data processing requirements associated with the introduction
of the euro and the modification of systems to prepare for the year 2000. The provision
consisted of CHF 220 m (CHF 147 m after tax) for the international banking business,
CHF 198 m for the Swiss banking business and CHF 70 m (CHF 56 m after tax) for
the insurance business. A provision of CHF 375 m (CHF 300 m after tax) was made
for integration and restructuring costs for the insurance business. Total extraordinary
restructuring costs amounted to CHF 1,659 m (CHF 1,369 m after tax).
The sale of Electrowatt Ltd. contracted last year was completed on 29 December
1997. After obtaining an additional 53.3% of the remaining Electrowatt Ltd. shares
existing in the market through a public offering at a price of CHF 550 per share, Credit
Suisse Group held 99% of the outstanding shares. These shares were tendered to the
buyers, Siemens AG and an energy consortium consisting of Nordostschweizerische
Kraftwerke, Bayernwerk AG, Energie Baden-Württemberg AG and Credit Suisse
Group. Credit Suisse Group holds a 20% stake in this consortium.
On 30 September 1997, Fides Informatik was sold to EDS, an international infor-
mation services firm. Credit Suisse Group retained a 67% stake in Fides Information
Services, which was spun off from Fides Informatik at the same time and which is
active in electronic banking and financial information services.
The annual financial statement for Credit Suisse Asset Management International
Fund Holding, Zurich, includes approximately CHF 29 m in non-recurring after-tax pro-
fit, which is a result of moving the closing dates of all the company’s mutual fund
management subsidiaries to 31 December 1997.
A provision of CHF 27.5 m was made for Göhner Merkur to reflect continued
stagnating economic activity in Switzerland and pressure from the increased number of
foreclosures in the real estate market.
CS Life has been fully consolidated in the income statement for 1997 and prior
years.
Events after year-end As of 1 January 1998, the business activities of Bank Leu
Ltd. were focused on private banking. Commercial relationships and individual
customers were transferred to the responsibility of Credit Suisse.
45
4. CONSOLIDATED INCOME STATEMENT
1997
Notes 1996 Change Change
in CHF m
(p. 61 ff) in CHF m in CHF m in %
RESULT FROM INTEREST BUSINESS
Interest and discount income 18,761 17,829 932 5
Interest and dividend income from trading portfolios 5,764 6,108 –344 –6
Interest and dividend income from financial
investments from banking activities 406 318 88 28
Interest expenses from banking activities 20,352 20,767 –415 –2
4,579 3,488 1,091 31
NET INTEREST INCOME 1, 2, 6
RESULT FROM COMMISSION AND SERVICE FEE BUSINESS
Commission income from lending activities 387 313 74 24
Commissions from securities and investment transactions 6,389 4,751 1,638 34
Commissions from other services 307 320 –13 –4
Commission expenses 491 442 49 11
6,592 4,942 1,650 33
NET COMMISSION AND SERVICE FEE INCOME 1, 2
5,312 3,901 1,411 36
NET TRADING INCOME 1, 2, 7
NET INCOME FROM INSURANCE BUSINESS
Premiums earned, net 25,258 24,307 951 4
Claims incurred and actuarial provisions 25,557 23,866 1,691 7
Commission expenses, net 2,277 2,192 85 4
Investment income from insurance business 7,395 5,890 1,505 26
4,819 4,139 680 16
NET INCOME FROM INSURANCE BUSINESS 1, 2, 9, 10
OTHER ORDINARY INCOME
Income from the sale of financial investments 82 256 –174 –68
Income from investment activities 81 130 –49 –38
– of which from participations valued according to the equity method 30 77 –47 –61
– of which from other non-consolidated participations 51 53 –2 –4
Real estate income 45 27 18 67
Sundry ordinary income 407 442 –35 –8
Sundry ordinary expenses 893 658 235 36
–278 197 –475 –
OTHER ORDINARY INCOME 1, 2
21,024 16,667 4,357 26
NET OPERATING INCOME 1, 2
46
5. 1997
Notes 1996 Change Change
in CHF m
(p. 61 ff) in CHF m in CHF m in %
21,024 16,667 4,357 26
NET OPERATING INCOME CONTINUED 1, 2
Personnel expenses 9,901 8,087 1,814 22
Other operating expenses 3,847 3,244 603 19
13,748 11,331 2,417 21
TOTAL OPERATING EXPENSES 1, 2
7,276 5,336 1,940 36
GROSS OPERATING PROFIT
Depreciation and write-offs on non-current assets 590 676 –86 –13
1
Valuation adjustments, provisions and losses from banking business 2,624 1,251 1,373 110
1, 8
3,214 1,927 1,287 67
DEPRECIATION, VALUATION ADJUSTMENTS, LOSSES
GROUP PROFIT BEFORE
4,062 3,409 653 19
EXTRAORDINARY ITEMS AND TAXES
Extraordinary income 1,323 1,340 –17 –1
1, 3
Extraordinary expenses 3,534 5,407 –1,873 –35
1, 4
Taxes 1,250 1,172 78 7
1, 2
601 –1,830 2,431 –
GROUP PROFIT/GROUP LOSS
Minority interests 204 252 –48 –19
397 –2,082 2,479 –
NET PROFIT/NET LOSS (AFTER MINORITY INTERESTS)
47
6. CONSOLIDATED BALANCE SHEET
31 Dec. 1997
Notes 31 Dec. 1996 Change Change
in CHF m
(p. 61 ff) in CHF m in CHF m in %
ASSETS
Cash and other liquid assets 3,404 2,932 472 16
33
Money market claims 24,013 20,077 3,936 20
12, 33
Due from banks 145,778 122,645 23,133 19
33
Claims from the insurance business 6,424 6,017 407 7
33
Due from customers 144,491 159,291 –14,800 –9
13, 14, 33, 34
Mortgages 78,904 78,073 831 1
14, 33
Securities and precious metals trading portfolios 103,826 85,380 18,446 22
15, 16, 33
Financial investments from the banking business 15,770 11,581 4,189 36
17, 19
Investments from the insurance business 93,387 81,113 12,274 15
18, 19
Non-consolidated participations 1,192 1,990 –798 –40
20, 21
Tangible fixed assets 6,271 6,239 32 1
21
Intangible assets 181 110 71 65
21
Accrued income and prepaid expenses 9,419 7,503 1,916 26
Other assets 56,508 41,445 15,063 36
23
689,568 624,396 65,172 10
TOTAL ASSETS 24, 25, 35, 36
Total subordinated claims 2,566 1,616 950 59
Total due from non-consolidated participations 43 128 –85 –66
48
7. 31 Dec. 1997
Notes 31 Dec.1996 Change Change
in CHF m
(p. 61 ff) in CHF m in CHF in %
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities in respect of money market paper 12,520 11,236 1,284 11
33
Due to banks 180,236 194,572 –14,336 –7
33
Commitments from the insurance business 6,045 5,012 1,033 21
33
Due to customers in savings and investment accounts 48,533 47,296 1,237 3
33
Due to customers, other 195,571 166,563 29,008 17
26, 33
Medium-term notes (cash bonds) 7,216 8,681 –1,465 –17
33
Bonds and mortgage-backed bonds 45,594 27,580 18,014 65
27, 33
Accrued expenses and deferred income 11,677 8,749 2,928 33
Other liabilities 58,168 43,176 14,992 35
28
Valuation adjustments and provisions 7,129 4,820 2,309 48
29
Technical provisions for the insurance business 91,228 83,850 7,378 9
30
Reserves for general banking risks 2,890 2,388 502 21
29, 31
Share capital 5,322 3,886 1,436 37
31
Capital reserve 9,366 10,200 –834 –8
31
Revaluation reserves from the insurance business 5,337 3,163 2,174 69
31
Retained earnings 334 3,462 –3,128 –90
31
Minority interests in shareholders’ equity 1,801 1,592 209 13
31
Group profit/Group loss 601 –1,830 2,431 –
31
– of which minority interests 204 252 –48 –19
31
Total shareholders’ equity 25,651 22,861 2,790 12
31
689,568 624,396 65,172 10
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 35, 36
Total subordinated liabilities 16,636 13,397 3,239 24
Total liabilities due to non-consolidated participations 567 263 304 116
49
8. CONSOLIDATED STATEMENT OF SOURCE AND APPLICATION OF FUNDS
1997 1996
Source Application Net in/outflow Source Application Net in/outflow
in CHF m in CHF m in CHF m in CHF m in CHF m in CHF m
FROM OPERATIONS,
–24 365
EQUITY TRANSACTIONS AND INVESTMENTS
8,317 7,672
OPERATING ACTIVITIES
Net profit for the year/net loss for the year 601 1,830
Provisions for credit and other risks 2,617 1,132
Losses 133 180
Provisions for taxes 1,250 1,101
Depreciation and write-offs 617 661
Creation of extraordinary valuation
adjustments and provisions 3,330 5,016
Extraordinary income 1,213 0
Income from participations valued according
to the equity method 30 77
Accrued income and prepaid expenses 1,916 1,692
Accrued expenses and deferred income 2,928 3,181
1,746 551
EQUITY TRANSACTIONS
Share capital 1,436 115
Capital surplus and retained earnings 1,358 582
Dividends paid 1,114 1,055
Foreign exchange differences 38 1,164
Minority interests 104 255
93 –486
INVESTMENTS IN LONG-TERM ASSETS
Investments in companies 813 411
Real estate 280 209
Other tangible and intangible fixed assets 1,000 688
FINANCIAL INVESTMENTS, PROVISIONS,
–7,372
OTHER ASSETS AND LIABILITIES –10,180
Investments from banking business 4,189 4,263
Investments from insurance business 12,274 16,170
Valuation adjustments and provisions 1,198 866
Technical provisions1 7,378 13,767
Other assets 14,889 13,763
Other liabilities 14,992 13,923
18,942 23,646
FROM OTHER BALANCE SHEET ITEMS
–15,833 –71,422
ASSETS
Money market claims 3,936 6,723
Due from banks 23,133 8,566
Claims from the insurance business 407 929
Due from customers 13,870 47,740
Mortgages 2,227 7,464
34,775 95,068
LIABILITIES
Liabilities in respect of money market paper 1,284 4,488
Due to banks 14,336 49,032
Commitments from the insurance business 1,033 919
Due to customers in savings and inv. accounts 1,237 3,462
Due to customers, other 29,008 36,767
Bonds and medium-term notes 16,549 400
18,918 24,011
CHANGE IN LIQUID ASSETS
Securities and precious metals trading portfolios 18,446 23,156
Cash and accounts with central banks 472 855
1 In line with insurance practice, the change in the technical provisions is shown as a total amount under changes in provisions affecting the cash flow.
50
9. CONSOLIDATED OFF-BALANCE SHEET BUSINESS
31 Dec. 1997 31 Dec. 1996 Change Change
in CHF m in CHF m in CHF m in %
CONTINGENT LIABILITIES
Credit guarantees in form of avals, guarantees
and indemnity liabilities 9,852 9,703 149 2
Bid bonds, delivery and performance bonds,
letters of indemnity, other performance-related guarantees 4,965 6,738 –1,773 –26
Irrevocable commitments in respect of documentary credits 3,112 3,491 –379 –11
Other contingent liabilities 5,508 3,320 2,188 66
23,437 23,252 185 1
TOTAL CONTINGENT LIABILITIES
64,490 59,545 4,945 8
IRREVOCABLE COMMITMENTS
63 76 –13 –17
LIABILITIES FOR CALLS ON SHARES AND OTHER EQUITY
473 510 –37 –7
CONFIRMED CREDITS
Mortgage Other Without
Total
collateral collateral collateral
ANALYSIS OF COLLATERAL AT 31 DECEMBER 1997 in CHF m
in CHF m in CHF m in CHF m
CONTINGENT LIABILITIES
Credit guarantees in form of avals, guarantees
and indemnity liabilities 9,852
37 4,586 5,229
Bid bonds, delivery and performance bonds,
letters of indemnity, other performance-related guarantees 4,965
161 1,366 3,438
Irrevocable commitments in respect of documentary credits 3,112
0 313 2,799
Other contingent liabilities 5,508
108 546 4,854
306 6,811 16,320 23,437
TOTAL CONTINGENT LIABILITIES
At 31 December 1996 221 7,431 15,600 23,252
383 25,151 38,956 64,490
IRREVOCABLE COMMITMENTS
At 31 December 1996 160 25,139 34,246 59,545
0 0 63 63
LIABILITIES FOR CALLS ON SHARES AND OTHER EQUITY
At 31 December 1996 0 0 76 76
10 463
0 473
CONFIRMED CREDITS
At 31 December 1996 0 0 510 510
31 Dec. 1997 31 Dec. 1996 Change Change
in CHF m in CHF m in CHF m in %
32,581 29,162 3,419 12
FIDUCIARY TRANSACTIONS
51
10. CONSOLIDATED OFF-BALANCE SHEET BUSINESS
31 Dec. 1997 31 Dec. 1997 31 Dec. 1996 31 Dec. 1996
31 Dec. 1997 Positive gross Negative gross 31 Dec. 1996 Positive gross Negative gross
Notional replacement replacement Notional replacement replacement
amount value value amount value value
in CHF bn in CHF bn in CHF bn in CHF bn in CHF bn in CHF bn
DERIVATIVE INSTRUMENTS
INTEREST RATE PRODUCTS
Forward rate agreements 193.7 0.3 0.1 163.9 0.1 0.3
Swaps 1,551.1 39.5 38.2 1,141.1 34.0 30.7
Options bought and sold (OTC) 598.3 5.1 5.0 357.8 3.1 3.3
Forwards 0.1 0.0 0.0 16.3 0.1 0.0
Futures 420.8 0.0 0.0 195.2 0.0 0.0
Options bought and sold (traded) 219.0 0.0 0.0 82.1 0.0 0.0
2,983.0 44.9 43.3 1,956.4 37.3 34.3
TOTAL INTEREST RATE PRODUCTS
FOREIGN EXCHANGE PRODUCTS
Forwards 667.6 19.2 17.7 792.9 15.8 16.9
Swaps 212.9 9.2 10.3 165.6 7.7 8.8
Options bought and sold (OTC) 534.2 5.3 5.7 351.8 2.4 2.7
Futures 0.4 0.0 0.0 0.0 0.0 0.0
Options bought and sold (traded) 0.1 0.0 0.0 0.7 0.0 0.0
1,415.2 33.7 33.7 1,311.0 25.9 28.4
TOTAL FOREIGN EXCHANGE PRODUCTS
PRECIOUS METALS PRODUCTS
Forwards 26.3 1.6 2.0 15.7 0.5 0.6
Options bought and sold (OTC) 8.6 0.5 0.7 9.7 0.0 0.6
Futures 1.8 0.0 0.0 7.0 0.0 0.0
Options bought and sold (traded) 0.0 0.0 0.0 1.1 0.0 0.0
36.7 2.1 2.7 33.5 0.5 1.2
TOTAL PRECIOUS METALS PRODUCTS
EQUITY/INDEX-RELATED PRODUCTS
Forwards 1.1 0.1 0.0 0.1 0.0 0.0
Options bought and sold (OTC) 203.2 10.1 10.2 117.9 3.9 4.2
Futures 20.6 0.0 0.0 12.5 0.0 0.0
Options bought and sold (traded) 63.4 0.0 0.0 48.7 0.0 0.0
288.3 10.2 10.2 179.2 3.9 4.2
TOTAL EQUITY/INDEX-RELATED PRODUCTS
OTHER PRODUCTS
Forwards 0.0 0.0 0.0 0.0 0.0 0.0
Options bought and sold (OTC) 3.1 0.1 0.0 3.1 0.1 0.0
Futures 9.5 0.0 0.0 0.6 0.0 0.0
Options bought and sold (traded) 0.6 0.0 0.0 2.8 0.0 0.0
13.2 0.1 0.0 6.5 0.1 0.0
TOTAL OTHER PRODUCTS
4,736.4 91.0 89.9 3,486.6 67.7 68.1
OVERALL TOTAL, GROSS
TOTAL REPLACEMENT VALUES
49.8 1 50.7 1 36.0 1 37.1
ACCORDING TO THE BALANCE SHEET
1 positive replacement value after deduction of CHF 3.1 bn (1996: CHF 2.1 bn) of assets pledged as security: negative replacement values of CHF 1.0 bn for traded derivatives
52
11. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SCOPE AND METHOD OF CONSOLIDATION
The assets and liabilities, off-balance sheet transactions and income and expenses of
all the banking, insurance and financial institutions in which Credit Suisse Group has a
direct or an indirect interest of more than 50% as of the balance sheet date are fully
consolidated in the financial statements. For the “Winterthur” Swiss Insurance Company,
Winterthur, legal entity, the capital is consolidated according to the pooling-of-interests
method. For the other Group companies the capital is consolidated according to the
purchase method as of 1 January 1990 (or later, if acquired thereafter). Inter-company
transactions and unrealised gains therefrom are eliminated. Minority interests in share-
holders’ equity and net profit are indicated separately, but are viewed as forming an
integral part of the corporate base. Other companies in which the Group has a stake of
20% or more are accounted for using the equity method. Long-term holdings which are
designated for resale are booked as “Financial investments”. Subsidiaries and long-term
holdings outside of the core business and less significant holdings are not consolidated.
GENERAL PRINCIPLES
The Group financial statements are drawn up in accordance with the accounting rules
of the Implementing Ordinance to the Swiss Federal Law on Banks and Savings Banks
of 1 February 1995 and the Federal Banking Commission guidelines of 14 December
1994 (with the amendments of 14 November 1996 and 22 October 1997), supple-
mented by the pooling-of-interests method and the provisions of the Swiss accounting
and reporting recommendations with respect to insurance companies (FER 14). As
required by the pooling-of-interests method, the consolidated financial statement of
Credit Suisse Group shows the combined results of Credit Suisse Group and Winterthur
as if the merger had been effective for all previous periods shown. In addition, the con-
solidation and valuation policies reflect the accounting principles set out in the Swiss
stock exchange listing regulations; they also largely conform to the provisions of the
4th and 7th EU directives and the EU directive governing the financial statements of
banks. The financial year for the Group ends on 31 December. Group companies with
a different closing date prepare interim financial statements as of 31 December for
consolidation purposes. Goodwill (the amount paid in excess of the equity acquired
when purchasing an interest in a company) was directly written off to shareholders’
equity until the end of 1996. Winterthur charges such goodwill (accumulated amount
1997: CHF 1,480 m) against revaluation reserves from insurance business. Credit
Suisse Group has restated this treatment and charged the accumulated amount to
retained earnings. For subsidiaries acquired after 1 January 1997, goodwill is stated in
the balance sheet under “Intangible assets” and written off over its estimated useful life
(not exceeding 20 years) on the income statement.
53
12. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CHANGES TO THE SCOPE OF CONSOLIDATION
The scope of consolidation has undergone the following changes:
“Winterthur” Swiss Insurance Company, Winterthur
In accordance with the agreement of 10 August 1997 between Credit Suisse Group
and Winterthur, the merger was accounted for on the basis of the pooling-of-interests
method. The figures for all applicable previous periods have been adjusted accordingly.
CS Life, Zurich
CS Life has been fully consolidated retroactively. The figures for all applicable previous
periods have been adjusted accordingly.
Banque Hottinguer, Paris
Purchased as of 2 October 1997 and subsequently merged with Credit Suisse
(France) SA, Paris, to form Credit Suisse Hottinguer.
FOREIGN CURRENCY TRANSLATIONS
In the annual accounts of the individual Group companies, income and expense items
denominated in foreign currencies are translated into the relevant local reporting curren-
cies on the basis of the exchange rate as of the transaction date. Assets, liabilities and
off-balance sheet items are translated as of the year-end rate. Hedged assets and liabi-
lities are carried at their forward hedging rates. For the purposes of consolidation, the
balance sheets of foreign Group companies are translated into Swiss francs at the
year-end exchange rate, and their income statements are translated using the average
exchange rate for the financial year. Translation differences are credited or debited to
shareholders’ equity and are shown separately in the statement of shareholders’ equity.
The key foreign exchange rates are listed in the notes to the consolidated financial state-
ments on page 60.
54
13. DEVIATIONS FROM THE RELEVANT EU DIRECTIVES
The Swiss accounting rules for banks conform in essence to EU directives and guidelines.
The areas in which Group accounting policies deviate from the accounting principles set
out in the directives of the European Union (4th and 7th EU directives and the EU
directive governing the financial statements of banks) can be summarised as follows:
– The classification criteria used in the balance sheet and the income statement differ
from those set out in the EU directive governing the financial statements of banks.
– The proportions of overall income and expenditure for operations outside Switzerland
are not detailed by geographical location but are provided as combined totals.
– No specific information is given concerning compensation or liabilities towards
Members of the Board of Directors or Members of the Executive Board of Credit
Suisse Group.
– Securities and precious metals treated as trading positions are valued at market.
Historical differences between cost and current market values are not disclosed in
the notes to the consolidated financial statements.
– Subsidiaries and long-term holdings which are not in the banking, finance or insur-
ance sectors are not consolidated.
– There is no formal management report on the business year.
The following are significant deviations from the EU directives governing the financial
statements of insurance companies:
– The classification and presentation used in the financial statements have been ad-
justed from those set out in the EU directives governing the financial statements of
insurance companies. Winterthur Group publishes an annual report which focuses on
the presentation of the result of the insurance business.
– Unrealised gains on life business investments are taken to revaluation reserves as
part of shareholders’ equity and not to funds for future distribution to shareholders
and policyholders.
GENERAL ACCOUNTING AND VALUATION PRINCIPLES
REPO BUSINESS
Repurchase and reverse repurchase trans-
Transactions involving monetary assets
actions are accounted for on the balance sheet as advances against securities serving
as collateral or as cash deposits against own pledged securities. These transactions are
shown in the balance sheet in the same way as those involving non-monetary assets.
Claims and liabilities from lending and
Transactions involving non-monetary assets
borrowing transactions of non-monetary assets such as money market paper, precious
metals or commodities and those arising from securities lending and borrowing are marked
to market and, depending on the counterparty, are shown as claims on, or liabilities
towards, banks or customers. Securities positions arising as a result of securities lend-
ing and borrowing are included in the securities and precious metals trading portfolios.
55
14. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
These positions are carried
Cash, bank balances, money market paper and loans
at nominal value. The necessary provisions for recognisable risks and potential losses
are normally deducted from the appropriate asset items in the balance sheet. Interest
and commission income from customers and banks which is more than 90 days in
arrears is not booked as “Interest from income business”. Instead, it is only included in
the income statement following payment. Provisions with regard to claims subject to
country risk, default risks and other bank risks are booked to “Valuation adjustments
and provisions”. This position contains no undisclosed reserves.
Leasing All leased items (capital goods, vehicles and real estate) are valued using the
annuity method and are stated as a separate item under lendings. The depreciation
charges contained in the rental income are set off directly against the book values of
the corresponding leased assets, so that only the interest portion of the rental income
is shown in the income statement.
Real estate is valued at the cost (including capital improvements) less
Real estate
depreciation over its useful life (40–67 years). No depreciation is charged on land
except where valuation adjustments have been made to allow for a reduction in the
market value.
Other tangible fixed assets such as computers, machin-
Other tangible fixed assets
ery, furnishings, vehicles and other equipment, as well as alterations and improvements
to rented premises, are depreciated using the straight line method over their estimated
useful life (3–5 years).
The goodwill included in this balance sheet position arises from
Intangible assets
the majority holdings acquired from 1 January 1997 in connection with the capital
consolidation. This goodwill is written down over its estimated useful life (maximum
20 years).
As a rule, employees are affiliated to legally autonomous staff pension
Pension fund
funds which are independent of the Group. The requisite contributions are made to the
pension funds and posted under “Personnel expenses”.
Tax expense is calculated on the basis of the annual results posted in the indi-
Taxes
vidual financial statements of the Group companies. Deferred tax assets and liabilities
are established for the expected future tax implications of temporary differences be-
tween the carrying amounts and the tax bases of assets and liabilities. Deferred tax
assets and liabilities calculated at the expected tax rate on the basis of adjustments in
the valuation of assets and liabilities for Group purposes are charged to tax expense
and recorded as other assets or provisions. No provision is made for non-recoverable
withholding taxes on undistributed profits of Group companies outside Switzerland nor is
a deferred tax asset recognised arising from tax losses brought forward in the case of
Swiss Group companies.
56
15. Claims and liabilities in respect of
Claims and liabilities of related companies
related companies towards Group companies which are accounted for using the equity
method are reported in the notes to the consolidated financial statements.
VALUATION AND ACCOUNTING POLICIES IN RELATION
TO BANK-SPECIFIC POSITIONS
The trading portfolio consists of balances held in
Securities trading portfolio
connection with the trading of readily realisable securities, securities acquired as a
result of underwriting activities and holdings of precious metals. Securitised and non-
securitised options are shown under “Other assets”.
Trading balances in bonds, shares and similar securities and precious metal
accounts and holdings are marked to market as of the balance sheet date. Balances
for which there is no representative market are valued according to the lowest value
principle. Profits and losses from the valuation of the trading portfolio and realised
gains and losses on these positions are shown under “Income from trading”. Interest
and dividend income from the trading portfolio is credited to “Result from interest
business”.
This balance sheet item com-
Financial investments from the banking business
prises securities and precious metal positions purchased as a long-term investment. It
also includes real estate and holdings assumed from the lending business and desig-
nated for resale. Fixed-interest debt securities which are being held until final maturity
are valued according to the accrual method. In this case, premiums and discounts are
accrued or deferred over the term of the instrument until final maturity in the relevant
balance sheet position. Realised profits or losses which are interest related and which
arise from the early disposal or redemption of the instrument are accrued or deferred
over the remaining term of the instrument, i.e. to the original final maturity, and credited
to or debited from “Result from interest business” as appropriate. Investment holdings
of equities and debt securities which are designated for resale and which do not consti-
tute trading balances are valued according to the lowest value principle. The notes to
the consolidated financial statements include details of both the cost price and the
market value of these holdings. Real estate assumed from the lending business and
designated for resale is valued according to the lowest value principle.
Reserves for general banking risks are pre-
Reserves for general banking risks
cautionary reserves charged to “Extraordinary expenses” to hedge against latent risks in
the bank’s operating activities.
57
16. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
These transactions are marked to market as of the year end. Unrealised
Derivatives
gains or losses are booked to the income statement as trading income, with the
counter-positions shown in “Other assets” or “Other liabilities” as appropriate. Hedging
transactions are valued using the same procedures as for the underlying transactions
they hedge.
Derivative financial instruments which form part of the trading portfolio are marked
to market provided they are traded on a stock exchange or form part of a representa-
tive market. If this is not the case, they are valued according to the lowest value prin-
ciple. Strategic positions are valued according to the lowest value principle.
Derivative financial instruments which are deployed in the context of interest rate
risk management are valued according to the accrual method. The interest component
is accrued or deferred over the term of the instrument according to the annuity method.
Realised profits or losses which are interest related and which arise from the early
disposal or redemption of the instrument are also accrued or deferred over the re-
maining term of the instrument, i.e. to the original final maturity.
CHANGES AGAINST 1996
Balance sheet, income statement, off-balance sheet business
Federal Banking Commission guidelines of 14 December 1994, with amendments of
14 November 1996 and 22 October 1997, apply to the annual financial statement for
1997. The changes primarily affect the following positions.
FINANCIAL INVESTMENTS
Fixed-interest deposits constituting financial investments are
Fixed-interest deposits
valued according to the accrual method. Debt securities which were not acquired with
the intention of being held until final maturity are now valued according to the lowest
value principle. As the implications for the Group financial statement are minimal, the
figures for the previous year have not been adjusted.
Real
Real estate taken over from lending business and designated for resale
estate taken over from lending business and designated for resale is now stated under
“Financial investments” rather than under “Tangible fixed assets”. The figures for the
previous year have been adjusted accordingly for the following positions of the Group
financial statement.
Adjustments 1996 in CHF m
Tangible fixed assets –1,137
Financial investments 1,137
Sundry ordinary expenses 158
Depreciation and write-offs on non-current assets –158
58
17. OTHER
As of 1 January 1997, purchased goodwill is no longer charged
Intangible assets
against shareholders’ equity, but is stated in the balance sheet under “Intangible
assets”.
Holdings of precious metals are
Securities and precious metals trading portfolios
no longer valued at the average price for December but are marked to market as of the
year-end balance sheet date. No adjustment has been made to the figures for the pre-
vious year since the amount involved is insignificant.
VALUATION AND ACCOUNTING POLICIES IN RELATION
TO INSURANCE-SPECIFIC POSITIONS
INVESTMENTS IN RESPECT OF INSURANCE BUSINESS
Real estate is valued at the market price. The market value of a property
Real estate
is calculated as its capitalised rental income at the interest rate applied in the country
or market in question. Undeveloped plots of land and buildings under construction are
carried at cost.
Bonds and loans are valued according to the amortised cost
Bonds and loans
method. The difference between the purchase price and the redemption value is
distributed over the remaining life so that a constant yield is achieved. The correspond-
ing valuation adjustment is shown under the position “Net investment income from
insurance business”. Default risk is accounted for through the use of write-downs.
Inter-company transactions and unrealised gains have been eliminated, with the
exception of assets booked as investments from insurance business.
Listed shares are marked to market at year-end. Unlisted shares are valued
Shares
at cost. If the yield or intrinsic value is endangered, a valuation adjustment is made.
Derivatives and other financial instruments are generally used to hedge
Derivatives
the exposure to changes in the fair value of recognised assets, liabilities and firm
commitments. Any gains and losses are therefore recognised in the income statement
together with the offsetting loss or gain on the hedged item.
Investments for the benefit of life insurance policyholders who bear the invest-
Investments for the benefit of life insurance policyholders who bear the
ment risk
investment risk are carried at their market value.
59
18. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Statement of higher and lower values arising from the uniform valuation of
Higher or lower
investments in the Group accounts and revaluation reserves
values arising from the uniform valuation of investments in the Group accounts in com-
parison with the figures contained in the statutory accounts are recorded as follows:
Valuation differences resulting from the revaluation of fixed-interest securities and
mortgages, unlisted shares and non-consolidated long-term holdings are included in
the income statement (under “Net investment income from insurance business”).
In the case of listed shares and real estate, compensated write-downs in respect
of the difference between the balance sheet value in the statutory accounts and the
cost value are stated in the income statement (“Net investment income from insurance
business”). Valuation differences between cost and market values are allocated to
shareholders’ equity (“Revaluation reserves from the insurance business”) directly, with-
out affecting the income statement, after deferred tax has been taken into account. In
the life insurance business, policyholders normally share in the gains realised on the
basis of statutory accounts.
The valuation of technical provisions is determined by pre-
Technical provisions
sumed liabilities in respect of policyholders and claimants. As a rule, calculations are
made individually, i.e. per insurance contract or claim. Statistical or mathematical
calculation methods are applied if these produce approximately the same results and if
they conform to the procedures approved by the supervisory authorities of the individual
countries in question. Technical provisions for life business are calculated with regard
to local regulations. The surplus due to policyholders is accounted for on the basis of
the resolutions passed by the individual companies as to the distribution of profit.
Year-end rate used Average rate used
in the balance sheet 31 Dec. in the income statement
FOREIGN CURRENCY TRANSLATION RATES IN CHF 1997 1997
1996 1996
1 US dollar (USD) 1.44 1.44
1.34 1.22
1 British pound sterling (GBP) 2.41 2.35
2.27 1.90
1 Canadian dollar (CAD) 1.01 1.04
0.98 0.89
1 Singapore dollar (SGD) 0.854 0.97
0.96 0.87
1 Hong Kong dollar (HKD) 0.1852 0.185
0.1700 0.1575
100 Deutsche marks (DEM) 80.90 82.90
86.60 81.30
100 Dutch guilders (NLG) 71.36 73.65
76.46 72.50
100 French francs (FRF) 24.02 24.60
25.45 23.90
100 Italian lire (ITL) 0.0817 0.0840
0.0870 0.0790
100 Japanese yen (JPY) 1.11 1.19
1.16 1.12
100 Spanish pesetas (ESP) 0.9455 0.977
1.0135 0.961
60
19. NOTES TO THE BANKING AND INSURANCE BUSINESS
1 SPLIT OF INCOME STATEMENT INTO BANKING Banking business Insurance business Total
AND INSURANCE BUSINESS 1997 1997 1997
1996 1996 1996
Net interest income 4,579 0 4,579
3,488 0 3,488
Net commission and service income 6,592 0 6,592
4,942 0 4,942
Net trading income 5,312 0 5,312
3,901 0 3,901
Net income from insurance business 0 4,819 4,819
0 4,139 4,139
Other ordinary income 346 –624 –278
393 –196 197
16,829 4,195 21,024
12,724 3,943 16,667
NET OPERATING INCOME
Salaries and other compensation 6,967 1,371 8,338
5,191 1,509 6,700
Employee benefits 632 310 942
582 264 846
Other personnel expenses 412 209 621
348 193 541
Personnel expenses 8,011 1,890 9,901
6,121 1,966 8,087
Premises and real estate expenses 531 242 773
480 243 723
Expenses for IT, machinery, furnishing,
vehicles and other equipment 689 166 855
396 166 562
Sundry operating expenses 1,600 619 2,219
1,341 618 1,959
Other operating expenses 2,820 1,027 3,847
2,217 1,027 3,244
Total operating expenses 10,831 2,917 13,748
8,338 2,993 11,331
5,998 1,278 7,276
4,386 950 5,336
GROSS OPERATING PROFIT
Depreciation and write-offs on non-current assets 573 17 590
675 1 676
Valuation adjustments, provisions and losses 2,624 0 2,624
1,251 0 1,251
Total depreciation, valuation adjustments,
losses 3,197 17 3,214
1,926 1 1,927
GROUP PROFIT BEFORE EXTRAORDINARY
2,801 1,261 4,062
2,460 949 3,409
ITEMS AND TAXES
Extraordinary income 1,323 0 1,323
1,340 0 1,340
Extraordinary expenses 3,089 445 3,534
5,407 0 5,407
Taxes 842 408 1,250
833 339 1,172
193 408 601
–2,440 610 –1,830
GROUP PROFIT/GROUP LOSS
Minority interests 114 90 204
157 95 252
NET PROFIT/NET LOSS
79 318 397
–2,597 515 –2,082
(AFTER MINORITY INTERESTS)
61
20. NOTES TO THE BANKING AND INSURANCE BUSINESS
1997 1996 Change
2 INCOME AND EXPENSES FROM Switzerland Abroad Switzerland Abroad Switzerland Abroad
ORDINARY ACTIVITIES BY ORIGIN in CHF m in CHF m in CHF m in CHF m in CHF m in CHF m
Net interest income 2,539 2,040 2,443 1,045 96 995
Net commission and service income 3,539 3,053 2,883 2,059 656 994
Net trading income 883 4,429 958 2,943 –75 1,486
Income from insurance business 1,768 3,051 1,226 2,913 542 138
Other ordinary income –124 –154 349 –152 –473 –2
8,605 12,419 7,859 8,808 746 3,611
NET OPERATING INCOME
Personnel expenses 3,489 6,412 3,583 4,504 –94 –1,908
Other operating expenses 1,620 2,227 1,480 1,764 140 463
5,109 8,639 5,063 6,268 46 2,371
TOTAL OPERATING EXPENSES
3,496 3,780 2,796 2,540 700 1,240
GROSS OPERATING PROFIT BEFORE TAXES
% of total 48% 52% 52% 48%
Taxes 194 1,056 289 883 –95 173
% of total 16% 84% 25% 75%
3,302 2,724 2,507 1,657 795 1,067
GROSS OPERATING PROFIT AFTER TAXES
% of total 55% 45% 60% 40%
1997 1996 Change Change
3 ANALYSIS OF EXTRAORDINARY INCOME in CHF m in CHF m in CHF m in %
Gains from the disposal of participations 27 1,255 –1,228 –98
Other extraordinary income 1,296 85 1,211 –
– of which reclassification of reserves for
general banking risks 1,186 0 1,186 –
1,323 1,340 –17 –1
TOTAL EXTRAORDINARY INCOME
1997 1996 Change Change
4 ANALYSIS OF EXTRAORDINARY EXPENSES in CHF m in CHF m in CHF m in %
Realised losses from the disposal of participations 42 0 42 –
Restructuring cost CREDIT SUISSE GROUP 839 1,000 –161 –16
Restructuring cost BZW 332 0 332 –
Restructuring cost due to merger CS/SVB, CSFB Inc. 0 97 –97 –100
Information technology, year 2000, euro 488 0 488 –
Creation of reserves for general banking risks 1,629 1,763 –134 –8
Creation of provisions for risks from lending and
emerging market trading 0 1,446 –1,446 –100
Depreciation on real estate acquired at auction,
bank premises and IT 0 859 –859 –100
Other extraordinary expenses 204 242 –38 –16
3,534 5,407 –1,873 –35
TOTAL EXTRAORDINARY EXPENSES
62
21. NOTES TO THE BANKING BUSINESS
1997 1996 Change Change
5 INCOME STATEMENT OF BANKING BUSINESS in CHF m
Notes in CHF m in CHF m in %
4,579 3,488 1,091 31
NET INTEREST INCOME 6
RESULT FROM COMMISSION AND SERVICE FEE ACTIVITIES
Commission income from lending activities 387 313 74 24
Commissions from securities and investment transactions 6,389 4,751 1,638 34
Commissions from other services 307 320 –13 –4
Commission expenses 491 442 49 11
6,592 4,942 1,650 33
NET COMMISSION AND SERVICE FEE INCOME
5,312 3,901 1,411 36
NET TRADING INCOME 7
OTHER ORDINARY INCOME
Income from the sale of financial investments 82 256 –174 –68
Income from investment activities 57 89 –32 –36
– of which from participations valued according to the equity method 30 77 –47 –61
– of which from other non-consolidated participations 27 12 15 125
Real estate income 45 27 18 67
Sundry ordinary income 282 257 25 10
Sundry ordinary expenses 120 236 –116 –49
346 393 –47 –12
OTHER ORDINARY INCOME
16,829 12,724 4,105 32
NET OPERATING INCOME
Personnel expenses 8,011 6,121 1,890 31
Other operating expenses 2,820 2,217 603 27
10,831 8,338 2,493 30
TOTAL OPERATING EXPENSES
5,998 4,386 1,612 37
GROSS OPERATING PROFIT
Depreciation and write-offs on non-current assets 573 675 –102 –15
– of which on real estate 120 123 –3 –2
– of which on other tangible fixed assets 453 538 –85 –16
– of which on non-consolidated participations 0 14 –14 –
Valuation adjustments, provisions and losses 2,624 1,251 1,373 110
8
3,197 1,926 1,271 66
DEPRECIATION, VALUATION ADJUSTMENTS, LOSSES
2,801 2,460 341 14
GROUP PROFIT BEFORE EXTRAORDINARY ITEMS AND TAXES
Extraordinary income 1,323 1,340 –17 –1
Extraordinary expenses 3,089 5,407 –2,318 –43
Taxes 842 833 9 1
193 –2,440 2,633 –
GROUP PROFIT/GROUP LOSS
Minority interests 114 157 –43 –27
79 –2,597 2,676 –
NET PROFIT/NET LOSS (AFTER MINORITY INTERESTS)
63
22. NOTES TO THE BANKING BUSINESS
6 ANALYSIS OF THE RESULT FROM 1997 1996 Change Change
INTEREST BUSINESS in CHF m in CHF m in CHF m in %
Interest and discount income
Interest income on claims due from customers 9,634 9,463 171 2
Interest income on claims due from banks 7,934 7,415 528 7
Interest income from money market claims 775 597 178 30
Credit commissions treated as interest earnings 330 264 66 25
Interest income from leasing operations 79 90 –11 –12
18,761
Total interest and discount income 17,829 932 5
Interest and dividend income from trading portfolios
Interest income 5,685 5,990 –305 –5
Dividend income 79 118 –39 –33
5,764
Total interest and dividend income from trading portfolios 6,108 –344 –6
Interest and dividend income from financial investments
Interest income 389 245 144 59
Dividend income 17 73 –56 –77
406
Total interest and dividend income from financial investments 318 88 28
Interest expense
Interest expenses for liabilities due to customers 11,900 8,956 2,944 33
Interest expenses for liabilities due to banks 8,452 11,811 –3,359 –28
20,352
Total interest expense 20,767 –415 –2
– of which interest expenses for subordinated liabilities 757 497 260 52
4,579 3,488 1,091 31
NET INTEREST INCOME
1997 1996 Change Change
7 ANALYSIS OF TRADING INCOME in CHF m in CHF m in CHF m in %
Income from securities and commodities trading 3,115 2,373 742 31
Income from foreign exchange and banknote trading 1,014 844 170 20
Income from precious metals trading 210 97 113 116
Income from trading in interest rate instruments 973 587 386 66
5,312 3,901 1,411 36
NET TRADING INCOME
8 ANALYSIS OF VALUATION ADJUSTMENTS, 1997 1996 Change Change
PROVISIONS AND LOSSES in CHF m in CHF m in CHF m in %
For default risks (credit and country risks) 2,193 908 1,285 142
For other business risks 298 163 135 83
Losses 133 180 –47 –26
– of which losses from lending activities 64 109 –45 –41
2,624 1,251 1,373 110
VALUATION ADJUSTMENTS, PROVISIONS AND LOSSES
64
23. NOTES TO THE INSURANCE BUSINESS
1997 1996 Change Change
9 INCOME STATEMENT OF INSURANCE BUSINESS in CHF m
Notes in CHF m in CHF m in %
NON-LIFE BUSINESS
Premiums written 13,694 13,414 280 2
10
Change in provisions for unearned premiums
and in actuarial provisions (health) –397 –343 –54 16
13,297 13,071 226 2
PREMIUMS EARNED
Claims and annuities paid –8,940 –8,605 –335 4
Change in provision for claims and annuities outstanding –1,214 –1,182 –32 3
–10,154 –9,787 –367 4
CLAIMS INCURRED
Dividends paid –189 –245 56 –23
Change in provision for dividend –106 –144 38 –26
–295 –389 94 –24
DIVIDENDS TO POLICYHOLDERS INCURRED
–3,955 –3,998 43 –1
OPERATING EXPENSES
–1,107 –1,103 –4 0
UNDERWRITING RESULT NON-LIFE
Net investment income 2,144 1,614 530 33
11
Interest on deposits and bank accounts
(incl. exchange rate differences) 128 129 –1 –1
Other interest paid –71 –64 –7 11
Other income and expenses –190 42 –232 –
904 618 286 46
PROFIT BEFORE TAX AND MINORITY INTERESTS
LIFE BUSINESS
Premiums written 12,072 11,279 793 7
10
Change in provisions for claims outstanding –111 –43 –68 158
11,961 11,236 725 6
PREMIUMS EARNED
Claims paid –6,038 –5,538 –500 9
Change in provisions for claims outstanding –113 –20 –93 465
–6,151 –5,558 –593 11
CLAIMS INCURRED
–7,305 –6,582 –723 11
CHANGE IN ACTUARIAL PROVISIONS
Bonus allocation –1,420 –1,402 –18 1
Change in participation fund –208 –130 –78 60
–1,628 –1,532 –96 6
ALLOCATION TO PARTICIPATION
–1,251 –1,187 –64 5
OPERATING EXPENSES
Net investment income 5,029 4,079 950 23
11
Interest on deposits and bank accounts 118 109 9 8
Interest on bonuses credited to policyholders –124 –159 35 –22
Other interest paid –189 –151 –38 25
Other income and expenses (incl. exchange rate differences) –61 120 –181 –
399 375 24 6
PROFIT BEFORE TAX AND MINORITY INTERESTS
65