Investment Bank

Key performance indicators

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The pre-goodwill cost / income ratio in fourth quarter 2005 was 70.2%, up from 66.7% in the same quarter a year earlier. Revenue growth, driven by strong performances in investment banking and equities, was offset by higher personnel expenses and rising general and administrative expenses, mainly for travel and IT.

The compensation ratio for fourth quarter 2005 was 50%, up three percentage points from the same period a year earlier, reflecting higher performance-related compensation and increased staff levels, the latter up 7% from a year earlier. Share-based compensation was also higher, since awards made in 2005 for the 2004 financial year contained an increased proportion of stock. The final determination of annual performance- related payments prompted the compensation ratio to fall four percentage points from the 54% in third quarter 2005.

The full-year compensation ratio, at 53%, rose two percentage points between 2005 and 2004. Client-facing business areas, which are more service intensive but use less capital, saw faster growth this year.

Market risk for the Investment Bank, as measured by the average 10-day 99% Value at Risk (VaR), fell to CHF 315 million in fourth quarter, from CHF 343 million in third quarter, while quarter-end VaR was higher at CHF 355 million compared to CHF 309 million at the end of third quarter.

At the end of fourth quarter, the Investment Bank’s outstanding loans stood at CHF 87 billion, down by CHF 9 billion from 30 September. This was mainly due to lower exposure to interbank operations. Both the non-performing loans to gross loans and the impaired loans to gross loans ratios were at 0.2%, unchanged from their levels in third quarter.

The return on adjusted regulatory capital (before goodwill) was 28.6% for full-year 2005, down from 32.4% a year earlier. The return was affected by the increase in risk-weighted assets, driven by additional undrawn committed facilities and higher exposures to corporate counterparties. This was partially offset by higher pre-tax profit.

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