Investment Bank

Neither the cost / income nor the compensation ratios were meaningful in third quarter 2007 due to negative total operating income.

Investment Bank Value at Risk (VaR), 10-day, 99% confidence based on 5 years of historical data, ended the quarter at CHF 676 million, up from CHF 454 million at the prior period end, mainly driven by increased market volatility. The largest contributor to Investment Bank VaR at quarter end was credit spread on mortgage-related positions.

Average 10-day VaR, by contrast, was lower at CHF 447 million compared with CHF 520 million in second quarter. The change in market conditions, which began in August, is only partly reflected in third quarter average VaR - the full impact will not be felt until fourth quarter.

In third quarter 2007, we suffered our first "backtesting" exceptions since 1998 (see Risk Management & Control section).

The gross lending portfolio was CHF 154 billion, up from CHF 150 billion on 30 June 2007.

The return on allocated regulatory capital was negative 0.3%, which reflects the losses mentioned above. High volatility in credit markets and exchange rate movements resulted in an increase in risk-weighted assets on derivative products. Structural changes seen in the mortgage-related and asset backed securities markets have resulted in increased regulatory capital requirements for certain assets. The backtesting exceptions we experienced in the quarter also raised capital requirements.

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