In second quarter 2004, the pre-goodwill cost / income ratio was 74.8%, 3.5 percentage points higher than in the same quarter a year earlier. The increase is attributable to higher general and administrative expenses due to the civil penalty of USD 100 million (CHF 128 million) levied by the Fed relating to our banknote trading business, and higher operational provisions. Without these factors, the ratio in second quarter 2004 would have been 6.3 percentage points lower.
The compensation ratio for second quarter 2004 fell by 2 percentage points from the same period last year to 53%, reflecting lower accruals for incentive-based compensation – which remained at roughly the same rate as first quarter. These accrual levels are driven by the revenue mix across business areas and are managed on a full-year cycle.
Market risk for the Investment Bank, as measured by the average 10-day 99% Value at Risk (VaR) fell in second quarter 2004 to CHF 421.9 million from CHF 465.6 million in first quarter 2004. The gradual decrease in VaR over the quarter reflected a deliberate response to market uncertainty in the face of increased concerns about inflation, the spike in oil prices which reached their highest levels for 20 years in May 2004 and reduced market opportunities, particularly towards the end of the quarter.
At the end of second quarter, the Investment Bank’s outstanding loans were up CHF 10.1 billion from 31 March 2004, reflecting increased exposure in the short-term money market interbank business. The non-performing loans to gross loans ratio decreased from 0.8% to 0.6%. The impaired loans to gross loans ratio decreased from 1.3% to 1.0%.
The level of private equity investments decreased slightly to CHF 2.2 billion on 30 June 2004 from CHF 2.3 billion at the end of first quarter, as reductions from successful divestments and returns of capital were offset by the funding of commitments. The divestments, together with reductions in the valuations of other positions, reduced the fair value of the portfolio to CHF 3.0 billion from CHF 3.2 billion in first quarter 2004. Unfunded commitments fell 7% from first quarter to CHF 1.3 billion in second quarter 2004.
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