Investment Bank

John P. Costas Chairman and CEO Investment Bank

The Investment Bank recorded a pre-tax profit of CHF 4,540 million for full-year 2004, up 18% from a year earlier, and at its highest level since 2000, reflecting revenue growth across all business areas. At the same time, costs increased as the businesses continued to expand. Specific operational provisions also contributed to the rise.

In full-year 2004, the compensation ratio fell to 51% from 52% in 2003, reflecting the completion of the strategic hiring program in investment banking and because of increasing revenues.

Total operating income in 2004 was CHF 15,977 million, up 15% from CHF 13,936 million a year earlier, reflecting strong improvements in all businesses.

Equities revenues were up 21% from 2003. Growth in revenues occurred around the globe, but was particularly strong in the US and Europe. Significant increases were seen in secondary cash commissions and proprietary trading revenues. Prime brokerage saw an impressive revenue gain following the acquisition of ABN Amro’s prime brokerage business in the US.

Fixed income, rates and currencies revenues were up 6% from a year earlier. Strong gains were seen in the rates business, mainly due to the structured LIBOR and mortgage businesses. Fixed income was driven by credit derivatives, emerging markets and global syndicated finance businesses, foreign exchange and cash and collateral trading. The positive result was slightly offset by negative revenues relating to Credit Default Swaps (CDS) hedging existing credit exposure in the loan book.

Investment banking revenues increased 12% from a year earlier. Excluding currency fluctuations, revenues were up 32%, reflecting improving corporate activity levels. It was a record year for our global advisory business, with double-digit growth seen in Europe, the US and Asia.

Business Group reporting

Private equity also contributed to our result, recording revenues of CHF 257 million in 2004, a significant improvement compared to the negative revenues of CHF 77 million a year earlier, as market conditions allowed for successful divestments and lower writedowns.

Higher personnel costs and general and administrative expenses prompted total operating expenses in 2004 to rise to CHF 11,437 million, a 13% increase from CHF 10,081 million a year earlier. Personnel expenses increased 12% from a year earlier, reflecting higher performance-related compensation which rose due to higher revenues, as well as an increase in salaries reflecting the 8% additional headcount. General and administrative expenses were up 22% from 2003’s CHF 2,074 million due to higher operational provisions, rising professional fees and increased IT spending.