Results

Pre-tax profit was CHF 4,540 million for full-year 2004, up 18% from a year earlier, and at its highest level since 2000. Our result was achieved despite the significant weakening of the US dollar against the Swiss franc and it reflects revenue growth across all our businesses. In particular, the fixed income, rates and currencies business posted a record result, up 6% from 2003, while the equities business reported a 21% increase in revenues. At the same time, costs increased as our businesses continued to expand, with specific operational provisions also a factor.

Pre-tax profit in fourth quarter 2004 was CHF 1,229 million, up 3% from the same period last year and 72% higher than third quarter 2004, as we took advantage of the rebound in market conditions and volumes following the US elections.

Operating income

Total operating income in fourth quarter 2004 was CHF 3,927 million, up 10% from the same quarter a year earlier.

The equities business posted revenues of CHF 1,598 million in fourth quarter 2004. Strong markets following the clear outcome of the US elections in November prompted revenues to rise 35% from third quarter 2004. Compared to fourth quarter 2003, revenues were up 14% despite the weakening of the US dollar against the Swiss franc. Growth in revenues occurred across the globe, but was particularly good in Europe and the US. Both trading commissions and income from proprietary trading rose in line with higher market activity. Revenues from prime brokerage services grew significantly.

Fixed income, rates and currencies revenues were CHF 1,735 million in fourth quarter 2004, up 22% from fourth quarter 2003. Central bank rates action stimulated volatility and market activity during the quarter, reflected in both trading flows and trading opportunities. Performance was strong in foreign exchange, particularly in derivatives trading, which was supported by higher market volatility and increased customer activity. Credit default swaps hedging our loan exposures recorded negative revenues of CHF 52 million, an improvement from negative CHF 105 million a year earlier. Compared to third quarter 2004, fixed income, rates and currencies revenues were up 10%.

Investment banking revenues, at CHF 593 million in fourth quarter 2004, were down 5% from the same period last year as a result of the US dollar’s fall against major currencies and higher credit hedging costs for the investment banking loan book. Excluding these negative effects, investment banking revenues increased 22% over the strong fourth quarter 2003, driven by significant growth in advisory revenues, particularly in the Americas and Europe. Capital markets revenues declined compared to the record level a year earlier, reflecting decreased debt issuance from the exceptionally high levels of 2003. Compared to third quarter 2004, investment banking revenues were up 69%, driven by significantly higher advisory and equity capital markets activity, and the usual seasonal boost in deal completion.

Our private equity business posted revenues of negative CHF 4 million in fourth quarter 2004 because of the lower levels of exits when compared to third quarter 2004 and fourth quarter 2003, when revenues were CHF 44 million and CHF 113 million respectively. In fourth quarter 2004, writedowns on the private equity portfolio were CHF 36 million, compared to CHF 46 million in third quarter and CHF 102 million in fourth quarter 2003.

Operating expenses

Total operating expenses in fourth quarter 2004 were CHF 2,698 million, up 14% from the same period last year. Personnel expenses were CHF 1,849 million. Compared to a year earlier, personnel expenses rose 16%, driven by higher performance- related compensation in line with higher revenues in our investment banking and securities businesses and an increase in headcount. General and administrative expenses rose 17% to CHF 669 million in fourth quarter 2004 from the same period last year, reflecting increases in operational provisions, IT costs and professional fees. Depreciation expense was CHF 55 million, down 18% on fourth quarter 2003, reflecting individual IT writeoffs. Amortization of goodwill, at CHF 69 million, remained flat in fourth quarter 2004 from the same period last year.

Headcount

Headcount, at 16,568 on 31 December 2004, rose by 306 or 2% from the end of third quarter 2004 and by 1,291 or 8% from the same period a year earlier. Staffing increases were driven by continued business expansion, in particular in Asia Pacific and in the US, and included the impact of integrating Charles Schwab’s Capital Markets Division, and hiring additional risk and compliance personnel.