Investment Bank

2005 was our most profitable year since 2000. Pre-tax profit was CHF 5,181 million, up 12% from 2004. Before goodwill, pre-tax profit was up 6%. The result was driven by strong revenues in investment banking and in equities, reflecting our successful expansion in significant growth areas such as M&A, equity derivatives and prime brokerage. At the same time, costs increased as our business continued to expand.

Total operating income in 2005 was CHF 17,484 million, up 9% from CHF 16,083 million a year earlier.

Equities revenues were up 18% from 2004. Significant drivers of the increase were the derivatives business in the Asia Pacific region and in Europe as well as in prime brokerage where we saw an impressive revenue gain in the US. Our proprietary and our equity-linked businesses contributed slightly lower returns than the previous year.

Fixed income, rates and currencies revenues were down 4% from a year earlier. Revenues in the rates business were up against the prior year as a result of rising revenues in energy trading and derivatives. Credit fixed income saw lower revenues in structured credit as well as in the high-yield sector and in the foreign exchange and cash and collateral trading business. Credit default swaps hedging loan exposures recorded gains of CHF 103 million compared to losses of CHF 62 million a year earlier.

Investment banking revenues increased 31% from a year earlier. This reflected growth in each region. Revenues in the capital markets business rose as well on improved market conditions and our strengthened competitive position.

Higher personnel costs and increased allocated costs prompted total operating expenses in 2005 to rise to CHF 12,303 million, a 7% increase from CHF 11,473 million a year earlier.

Personnel expenses increased 14% from a year earlier, reflecting an increase in the bonus accrual and additional salary payments due to higher staff levels. General and administrative expenses were down 13% from 2004’s CHF 2,538 million. Lower provisions were partially offset by an increase in IT and other outsourcing costs.

The full-year compensation ratio, at 53%, rose two percentage points between 2005 and 2004. This reflects higher performance-related compensation and increased levels of staff.