Investment Bank

Key performance indicators

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The cost/income ratio in second quarter 2007 was 70.8%, up from 69.5% in the same period a year earlier. The increase in performance-related personnel expenses, staff levels and general and administrative costs, along with weaker results in rates, municipal securities and precious metals as well as negative revenues on former DRCM activities, were only partially offset by higher revenues in our equities and investment banking businesses.

The compensation ratio in second quarter 2007 was 52.0%, down 0.4 percentage points from the same period a year earlier. The increase in revenues was only partially offset by higher performance-related compensation and salaries due to higher staff levels.

While average Investment Bank 10-day VaR was broadly unchanged from first quarter, active switching of equities and interest rate positions increased the range between maximum and minimum VaR, and reduced the diversification effect to 26% from 30% compared with first quarter.

Following the announcement on 3 May 2007 that, as part of the closure of DRCM, we would redeem outside investor interests, the portfolios were integrated into the Investment Bank. This introduced additional risk but other position changes on the same day resulted in an overall reduction in Investment Bank VaR. From that point, the general trend was downward and 10-day VaR closed the quarter at CHF 454 million, more than 20% down from the previous period-end.

The gross lending portfolio at the Investment Bank rose by CHF 34 billion to CHF 150 billion from the same period a year earlier, as a result of continued expansion of our prime brokerage area, which, among other activities, provides financing on a collateralized basis to hedge funds.

The return on allocated regulatory capital was 30.3% in first half 2007, down from 36.1% in the same period a year ago, driven by higher risk-weighted assets, mainly reflecting a rise in counterparty risk on the over-the-counter derivatives portfolio and on equities financing and lending, mainly related to our prime brokerage business.

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