Investment Bank

Pre-tax profit in second quarter 2005 was CHF 1,077 million, up 12% from the same period last year. Pre-goodwill, pre-tax profit was up 5%. The result confirms our businesses’ ability to deliver consistently strong returns across varying market conditions. Excellent results in investment banking reflecting the strength of our corporate client franchise and resilient revenues from our equities business partly compensated for the shortfall in fixed income, rates and currencies revenues.

Compared to first quarter 2005, pre-tax profit was down 17%, due to lower results in fixed income, rates and currencies business as well as equities.

Operating income

Total operating income in second quarter 2005 was CHF 3,690 million, down 6% from the same quarter a year earlier.

The equities business posted revenues of CHF 1,438 million in second quarter 2005, up 3% from the same period in 2004. Prime brokerage had a strong quarter and performance in the derivatives business was solid, especially in Europe, aided by improved options volume early in the quarter. Income from secondary cash trading saw a moderate decrease on uncertain market conditions. Equity capital markets revenues fell significantly despite market share increases in most regions due to a lower level of issuance in the market. Compared to the strong first quarter 2005, revenues were down 13% due primarily to decreases in income from derivatives and secondary cash trading. Market conditions were difficult in April and May, with mixed economic signals and uncertain market trends, but improved towards the end of the quarter.

Fixed income, rates and currencies revenues were CHF 1,643 million in second quarter 2005. Compared to the result achieved in second quarter 2004, revenues were down 18%. Difficult trading conditions resulted in lower revenues in our credit fixed income and rates business lines. Revenues in the cash and collateral trading business rose, offsetting declines in foreign exchange trading. Results in the principal finance and commercial real estate business were flat compared to a year ago. Credit default swaps hedging our loan exposures recorded zero in revenues against positive revenues of CHF 12 million a year earlier. Compared to first quarter 2005, the second-best quarterly performance on record, fixed income, rates and currencies revenues were down 26%. Most major business lines had lower net revenues, with the exception of our foreign exchange and cash and collateral trading business, which was effectively flat quarter on quarter.

Investment banking revenues, at CHF 599 million in second quarter 2005, were up 17% from second quarter 2004, making it the best second quarter performance since 2001. Excluding the impact of currency movements and credit hedging costs, revenues increased 26%, driven by very strong growth in Europe and the Americas and solid growth in Asia Pacific. Compared to first quarter 2005, investment banking revenues were up 29%, reflecting our ability to take advantage of strong corporate activity levels, particularly in Europe, and participate in significant transactions in the Americas.

Operating expenses

Total operating expenses in second quarter 2005 were CHF 2,613 million, down 11% from the same period last year.

Personnel expenses were CHF 1,967 million. Compared to a year earlier, personnel expenses decreased by 2% as reduced accruals for cash bonuses, in line with lower revenues, were partially offset by a rise in headcount. Share-based compensation was up 30% from the prior year, mainly reflecting the increase in award value, mostly due to shares granted in 2005 as part of compensation for the financial year 2004.

General and administrative expenses declined 38% to CHF 461 million in second quarter 2005 from the same period last year, driven by a reduction in operational risk costs. While a year ago we recorded a civil penalty levied by the Federal Reserve Board relating to our banknote trading business and an increase of other operational provisions, this quarter we benefited from the reversal of provisions previously made.

Depreciation expense was CHF 29 million, down 54% on second quarter 2004 due to the transfer of further IT infrastructure functions into our central ITI unit in Corporate Center.