ZURICH, Switzerland, Nov. 14, 2002 (PRIMEZONE) -- Credit Suisse (NYSE:CSR):
-- Insurance Results Expected to Recover in Fourth Quarter 2002 -- Legacy Costs and Credit Provisions at CSFB, Exceptional Items in Private Banking and Lower Revenues due to Current Market Conditions Partially Offset by Further Cost Reductions -- Board of Directors Appoints Leonhard Fischer -- Former Member of the Boards of Management of Allianz AG and Dresdner Bank AG -- New Chief Executive Officer of Winterthur Group
In the third quarter of 2002, Credit Suisse Group recorded a net operating loss, which excludes the amortization of acquired intangible assets and goodwill as well as exceptional items, of CHF 1.8 billion. This compared with a net operating loss of CHF 285 million in the second quarter of 2002 and a net operating profit of CHF 21 million in the third quarter of 2001.
The Group's net loss for the third quarter of 2002 amounted to CHF 2.1 billion, versus a net loss of CHF 579 million in the second quarter of 2002 and a net loss of CHF 299 million in the third quarter of 2001.
Credit Suisse Group's third quarter 2002 result is largely attributable to further significant net operating losses in the insurance units due to low investment income, which negatively impacted the Group's performance by CHF 1.4 billion. Other factors contributing to the Group's result included a net operating loss of CHF 426 million at Credit Suisse First Boston due to legacy costs, higher credit provisions and reduced revenues due to poor market conditions. Private Banking posted a lower net operating profit before exceptional items and minority interests of CHF 303 million, and Swiss Corporate & Retail Banking continued to perform well with a net operating profit before minority interests of CHF 102 million.
The Group recorded an additional write-down of CHF 206 million on its investment in Swiss Life. Credit Suisse Group's net loss includes exceptional items of CHF 119 million recognized in connection with the realignment of the European Private Banking offering.
For the first nine months of 2002, the Group recorded a net operating loss, which excludes the amortization of acquired intangible assets and goodwill as well as exceptional items, of CHF 1.4 billion and a net loss of CHF 2.4 billion, versus a net operating profit of CHF 3.4 billion and a net profit of CHF 2.4 billion for the first nine months of 2001.
In September 2002, Oswald J. Grubel, Chief Executive Officer of Credit Suisse Financial Services, and John J. Mack, Chief Executive Officer of Credit Suisse First Boston, were appointed Co-CEOs of the Group, in addition to their current roles leading their respective business units. They are moving ahead with an accelerated agenda of measures in an effort to restore the Group's earnings strength in the coming quarters.
Oswald J. Grubel stated, "I am very pleased that the Board of Directors has appointed Leonhard Fischer the new Chief Executive Officer of Winterthur Group. Leonhard Fischer is a former Member of the Boards of Management of Allianz AG and of Dresdner Bank AG, where he was Head of the Corporate Client business and Investment Banking. Under his leadership, we will continue realigning Winterthur's strategy, premium structure, cost base and investment policy so that it will again be profitable in an environment where investment income will remain at a much lower level than in previous years."
He added, "To further strengthen our Private Banking franchise, we have begun realigning our European offering to substantially reduce costs, and we will continue to concentrate on enhancing client solutions and innovation."
John J. Mack said, "Credit Suisse First Boston's revenues declined across all businesses due to challenging conditions in the third quarter, but our core businesses remain strong, as demonstrated by our ability to maintain or improve market share and rankings in key areas. We will continue aggressively adapting our cost structure to the current environment and have launched an initiative to save another USD 500 million, in addition to the USD 2.4 billion achieved already."
He continued, "Additional measures to improve our financial performance include the disposal of legacy asset portfolios associated with non-continuing businesses, as well as the contractual run-off of remaining incentive compensation guarantees and retention awards related to the acquisition of DLJ. The implementation of these measures should enable Credit Suisse First Boston to achieve a return to profitability in 2003."
John J. Mack and Oswald J. Grubel concluded, "Credit Suisse Group's third quarter results were clearly unsatisfactory. While the Group's core businesses remain strong, our financial performance must improve. We are working together closely to enhance our bottom line, restore profitability in 2003 and build long-term value for the Group's shareholders, clients and employees."
Capital Base Remains Adequate
As of September 30, 2002, the Group's consolidated BIS tier 1 ratio stood at 9.0%, versus 9.2% at the end of the second quarter. The capital ratios for the Group's individual businesses are well within the target ranges set by the Group and in line with industry peers: the BIS tier 1 ratio for the Group's banking business stood at 9.4%, up from 9.3% at the end of the second quarter. The BIS tier 1 ratios for the operating entities Credit Suisse and Credit Suisse First Boston remained strong at 7.0% and 11.9%, respectively, compared with 7.4% and 12.6%, respectively, in the second quarter of 2002. Winterthur's solvency margin, calculated in line with the EU directive, stood at 155%, up from 123% at the end of the second quarter.
As the Group expects to report a loss for the full-year 2002, it is lowering dividend estimates to CHF 0.10 per share. The Board of Directors will submit the dividend proposal to the Annual General Meeting of Shareholders on April 25, 2003, based on the 2002 consolidated results.
Throughout the year, Credit Suisse Group has demonstrated its ability to maintain adequate capital resources to support its businesses. Going forward, additional measures to strengthen the Group's capital base, if appropriate opportunities arise, could include a capital-qualifying financing, including equity-linked debt instruments, balance sheet securitizations and potential divestitures of non-core businesses. The likelihood as well as the amount and timing of such measures will depend on the market environment.
Net New Assets Affected by Weak Market Conditions
Credit Suisse Financial Services reported net new assets of CHF 1.5 billion in the third quarter of 2002, which included net new assets of CHF 3.4 billion in Private Banking and CHF 0.4 billion in Life & Pensions. These were largely offset, however, by CHF 2.3 billion in net outflows from Corporate & Retail Banking, due primarily to seasonality in the account balances of corporate clients.
Credit Suisse First Boston reported net asset outflows of CHF 15.2 billion, of which CHF 12.2 billion was attributable to its Institutional Asset Management business and was caused by foreign exchange impacts and performance issues, primarily from a single fixed income product. A CHF 3.0 billion outflow from the Investment Banking segment due to the divestiture of the global opportunities fund also contributed to Credit Suisse First Boston's results. For Credit Suisse Group, an overall net asset outflow of CHF 13.7 billion resulted in the third quarter, versus an inflow of CHF 4.2 billion in net new assets in the second quarter. For the first nine months of 2002, the Group reported net new assets of CHF 4.0 billion, compared with CHF 49.0 billion for the first nine months of 2001. The Group's total assets under management stood at CHF 1,221.8 billion as of September 30, 2002, corresponding to a decline of 5.5% versus June 30, 2002.
Business Unit Results
The Credit Suisse Financial Services business unit reported a net operating loss, which excludes the amortization of acquired intangible assets and goodwill as well as exceptional items, of CHF 1.0 billion in the third quarter of 2002. This compared with a net operating loss of CHF 271 million in the second quarter of 2002 and a net operating profit of CHF 738 million in the third quarter of 2001. The decline of CHF 1.8 billion versus the third quarter of 2001 is primarily attributable to much lower investment income from the insurance units as a result of the income statement recognition of lower equity valuations and the realization of losses when reducing the equity exposure of the investment portfolio. The business unit's net loss of CHF 1.2 billion in the third quarter of 2002 includes exceptional items of CHF 119 million recognized in connection with the realignment of the European Private Banking offering.
The Private Banking segment reported a net operating profit before exceptional items and minority interests of CHF 303 million in the third quarter of 2002, down 38% versus the second quarter of 2002. Operating income fell 16% versus the second quarter due to seasonal weakness, investor passivity and significantly lower revenues from the sale of structured products. Operating expenses fell 8% quarter-on-quarter due to reduced bonus accruals reflecting the lower results, as well as the implementation of cost reduction measures and the realization of synergies. Going forward, Private Banking expects good growth, particularly from Asia, the Middle East and Latin America.
The Corporate & Retail Banking segment posted a net operating profit before minority interests of CHF 102 million in the third quarter of 2002, up 7% on the second quarter of 2002 and up 29% on the third quarter of 2001. The growth in net operating profit versus the second quarter of 2002 is primarily attributable to a 7% decrease in operating expenses. Operating income declined 2% quarter-on-quarter.
The operating cost/income ratio stood at 67.6% in the third quarter of 2002, compared with 69.8% in the second quarter of 2002. The return on average allocated capital increased to 10.5%, from 9.5% in the second quarter of 2002.
Credit Suisse will, in the future, focus its online banking services in Switzerland on "Direct Net," and will further expand this platform. The online brokerage "youtrade" will be discontinued as of January 31, 2003, due to the significant decline in trading volumes and revenues.
The Life & Pensions segment reported a net operating loss before minority interests of CHF 1.5 billion in the first nine months of the year, versus a net operating profit before minority interests of CHF 500 million in the first nine months of 2001. This result reflects a CHF 3.0 billion decline in investment income compared with the first nine months of 2001. Life & Pensions recorded an increase in gross premiums written of 18% in the first nine months of 2002 versus the first nine months of 2001.
Adjusted for acquisitions and divestitures, premiums rose 17% on a local currency basis. The expense ratio for the first nine months of 2002 stood at 9.3%, excluding write-downs of deferred acquisition costs of CHF 235 million, which were recognized as a result of lower long-term investment return expectations. After taking account of these write-downs, the expense ratio stood at 10.9% in the first nine months of 2002 and was thus still below the expense ratio of 11.5% in the first nine months of 2001, reflecting cost management efforts.
Due to lower investment income, the Insurance segment reported a net operating loss before minority interests of CHF 998 million in the first nine months of 2002, compared with a net operating profit before minority interests of CHF 500 million in the first nine months of 2001. Net premiums earned increased by 4% in the first nine months of 2002, compared with the first nine months of 2001, to CHF 11.7 billion.
Adjusted for acquisitions and divestitures, the segment reported growth of approximately 8% on a local currency basis. The combined ratio improved by 2.9 percentage points against the first nine months of 2001, to 103.5% in the first nine months of 2002.
Both insurance units further reduced the equity exposure of their investment portfolios in the third quarter of 2002, in an effort to mitigate the impact of equity market volatility on their capital.
The Credit Suisse First Boston business unit reported a net operating loss, which excludes the amortization of acquired intangible assets and goodwill, of USD 255 million (CHF 426 million) in the third quarter of 2002, compared with a net operating profit of USD 229 million (CHF 371 million) in the second quarter of 2002 and a net operating loss of USD 103 million (CHF 170 million) in the third quarter of 2001. A net loss of USD 425 million (CHF 679 million) was recorded in the third quarter of 2002, compared with a net profit of USD 61 million (CHF 101 million) in the preceding quarter and a net loss of USD 281 million (CHF 472 million) in the third quarter of 2001. The decline in results versus the second quarter of 2002 was mainly attributable to lower operating income, which was down 24% on the second quarter to USD 2.6 billion (CHF 3.9 billion), and to higher provisions and charges associated with commercial lending and legacy items, including losses for noncontinuing real estate, distressed assets and private equity. The third quarter of 2002 also included a USD 65 million (CHF 104 million) provision related to excess office facilities. As a result of cost reduction measures, third quarter 2002 operating expenses fell 18% versus the second quarter of 2002 and 29% versus the third quarter of 2001 to USD 2.2 billion (CHF 3.2 billion). In the first nine months of 2002, Credit Suisse First Boston has reduced expenses by USD 2.4 billion or 25% (CHF 4.8 billion or 29%) versus the first nine months of 2001, and it has launched an initiative in October 2002 with a view to achieving an additional USD 500 million (approximately CHF 770 million) in savings.
The Investment Banking segment reported third quarter 2002 operating income of USD 2.1 billion (CHF 3.1 billion), down 27% compared with the second quarter of 2002, reflecting declines in all divisions, and down 27% on the third quarter of 2001. As a result of cost reduction measures, third quarter 2002 operating expenses were USD 1.8 billion (CHF 2.6 billion), down 21% compared with the second quarter of 2002 and down 33% compared with the third quarter of 2001.
The CSFB Financial Services segment reported operating income of USD 501 million (CHF 742 million) for the third quarter of 2002, reflecting a decline of 9% compared with the second quarter of 2002 and of 7% compared with the third quarter of 2001. Operating expenses were down 11% compared with the third quarter of 2001 due to cost reduction measures and the sale of CSFBdirect and Autranet reported earlier this year.
Accounting Policy
The Group is considering changing its accounting policy to allow for capitalization of deferred tax assets on net operating losses, as well as changing its estimation methodology with respect to inherent credit losses. The related impacts would be reflected in the fourth quarter 2002 results.
Outlook -- Restored Profitability in 2003
Credit Suisse Group remains cautious in its outlook for its fourth quarter 2002 results given the continued challenging market environment. However, the Group anticipates that the fourth quarter should see a recovery in results at Winterthur, as the impact of lower equity valuations on the investment portfolio is expected to be significantly reduced. The Group expects that the measures being implemented will restore sound profitability in 2003.
Today's Presentation of the Results
Speakers
-- Oswald J. Grubel, Chief Executive Officer of Credit Suisse Financial Services and Co-Chief Executive Officer of Credit Suisse Group as of 2003 -- John J. Mack, Chief Executive Officer of Credit Suisse First Boston and Co-Chief Executive Officer of Credit Suisse Group as of 2003 -- Philip K. Ryan, Chief Financial Officer of Credit Suisse Group -- Richard E. Thornburgh, Chief Financial Officer of Credit Suisse First Boston Analysts' presentation, Zurich (English) -- November 14, 2002, 8.00 am CET / 7.00 am GMT / 2.00 am EST at the Credit Suisse Forum St. Peter, Zurich -- Internet: - Live broadcast at www.creditsuisse.com/results - Video playback available approximately 3 hours after the event -- Telephone: - Live audio dial-in on 41 91 610 4111 (Europe), 44 207 866 4111 (U.K.), or 1 412 858 4600 (USA), ask for "Credit Suisse Group quarterly results"; please dial in 10 minutes before the start of the presentation - Telephone replay available approximately 1 hour after the event on 41 91 612 4330 (Europe), 44 207 866 4300 (U.K.) or 1 412 858 1440 (USA), conference ID 600# Media conference, Zurich (English/German) -- November 14, 2002, 10:00 am CET/9:00 am GMT/4:00 am EST at the Credit Suisse Forum St. Peter, Zurich -- Internet: - Simultaneous interpreting: German-English, English-German - Live broadcast at www.creditsuisse.com/results - Video playback available approximately 3 hours after the event -- Telephone: - Live audio dial-in on 41 91 610 4111 (Europe), 44 207 866 4111 (U.K.), or 1 412 858 4600 (USA), ask for "Credit Suisse Group quarterly results"; please dial in 10 minutes before the start of the presentation - Telephone replay available approximately 1 hour after the event on 41 91 612 4330 (Europe), 44 207 866 43 00 (U.K.) or 1 412 858 1440 (USA), conference ID 846# (English) or 951# (German)
The full press release including consolidated income statement can be downloaded as PDF from the enclosed link: http://reports.huginonline.com/881456/110403.pdf
Additional information on Credit Suisse Group's third quarter results (Q3 Report; slide presentation) can be found on the Internet at www.credit-suisse.com .