Global Asset Management

Results

Pre-tax profit was CHF 66 million in second quarter 2007. Our results in second quarter include the costs of DRCM's closure, which totaled CHF 384 million. This included accelerated amortization of deferred compensation to former DRCM employees. Excluding DRCM closure costs, pre-tax profit would have been CHF 450 million, up CHF 46 million or 11% compared with the prior quarter, a result of continuing strong performance fees, mainly in alternative and quantitative investments, and the Brazilian asset management business.

In first half 2007, pre-tax profit was CHF 470 million. Excluding the costs related to the closure of DRCM, profit would have been CHF 854 million, up CHF 146 million or 21% from first half 2006, reflecting higher asset levels from rising financial markets, stronger alternative and quantitative investment performance fees and the first-time inclusion of the Brazilian asset management business following the acquisition and integration of Banco Pactual in December 2006.

Operating income

Total operating income in second quarter 2007 was CHF 1,078 million, up 8% from CHF 997 million in the previous quarter. Institutional revenues were CHF 642 million in second quarter 2007, up from CHF 585 million in first quarter 2007, reflecting stronger performance fees from alternative and quantitative investments and the Brazilian asset management business. The closure of DRCM, and the effect of paying back outside investor interests, had a slight negative impact on revenues. Wholesale intermediary revenues were CHF 436 million in second quarter 2007, up from CHF 412 million a quarter earlier, mainly a result of an increase in management fees, which strengthened on the higher average asset base, and strong performance fees from the Brazilian asset management business.

Operating expenses

Total operating expenses were CHF 1,012 million in second quarter 2007, including costs related to the closing of DRCM of CHF 384 million. Excluding these costs, operating expenses would have been CHF 628 million, up by CHF 35 million from a quarter earlier on higher incentive-based compensation and increased professional fees. Personnel expenses were CHF 778 million in second quarter 2007, with CHF 318 million relating to DRCM closure expenses that included both severance payments and accelerated amortization of deferred compensation to former DRCM employees. Excluding this, personnel expenses would have been CHF 460 million, up from CHF 423 million a quarter earlier, with incentive-based compensation following higher performance fees. General and administrative expenses were CHF 162 million in second quarter 2007. Excluding DRCM closure costs, general and administrative expenses would have been CHF 124 million, slightly higher than CHF 115 million a quarter earlier, mostly due to higher professional fees, legal and travel and entertainment costs. Depreciation of property and equipment was CHF 35 million compared with CHF 7 million in the prior quarter, with most of the increase being a result of the closure of DRCM. Net charges-in from other business groups were CHF 33 million in second quarter 2007, down from CHF 43 million in last quarter, also mainly due to the closure of DRCM.

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