Credit Suisse Group - SEC Report

 


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 20-F


REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)

 

OF THE SECURITIES EXCHANGE ACT OF 1934



ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

 

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2006



TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

 

OF THE SECURITIES EXCHANGE ACT OF 1934



SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)

 

OF THE SECURITIES EXCHANGE ACT OF 1934

(Commission file number 001-15244)

Credit Suisse Group

(Exact name of Registrant as specified in its charter)

Canton of Zurich, Switzerland

(Jurisdiction of incorporation or organization)

Paradeplatz 8, P.O. Box 1, CH 8070 Zurich, Switzerland

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

American Depositary Shares each representing one Share

New York Stock Exchange

Shares per value CHF 0.50*

New York Stock Exchange*

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2006: 1,062,467,061

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes

No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes

No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17

Item 18

* Not for trading but only in connection with the registration of the American Depositary Shares.

 


 

 






Credit Suisse Group
Supplemental Information 2006





Table of contents




Table of contents
Definitions
Sources
Accounting basis and reporting currency
Cautionary statement regarding forward-looking information
Item 3: Key information
Selected financial data
Exchange rate information
Risk factors
Liquidity risk
Market risk
Credit risk
Cross border and foreign exchange risk
Operational risk
Legal and regulatory risks
Competition
Item 4: Information on the company
Regulation and supervision
Overview
Banking
Investment banking and asset management
Property and equipment
Additional information
Item 4A: Unresolved staff comments
Item 5: Operating and financial review and prospects
Critical accounting policies
Fair value
Contingencies and loss provisions
Goodwill impairments
Income taxes
Pension plans
Off-balance sheet arrangements
Guarantees
Retained or contingent interests in assets transferred to unconsolidated entities
Variable interest entities
Contractual obligations and other commercial commitments
Derivatives
Freestanding derivative instruments
Risk management
Over-the-counter derivatives
Related party transactions
Summary of significant accounting policies and recently issued accounting standards
Liquidity and capital resources
Credit Suisse Group consolidated and the Bank legal entity
The Bank legal entity
Information required by Industry Guide 3
Selected statistical information
Item 6: Directors, senior management and employees
Item 7: Major shareholders and related party transactions
Item 8: Financial information
Consolidated financial statements
Legal proceedings
South Africa litigation
Litigation relating to IPO allocation
Research-related litigation
Enron-related litigation and inquiries
NCFE-related litigation
Refco-related litigation
Parmalat-related legal proceedings
Dividend policy
Item 9: The offer and listing
Listing details
Trading in our own shares
Item 10: Additional information
Articles of association
Registration and business purpose
Directors
Dividends
Pre-emptive subscription rights
Repurchase of shares
Notices
Liquidation
Disclosure of principal shareholders
Exchange controls
Indemnification
American Depositary Shares (ADSs)
Material contract
Taxation
Swiss taxation
US federal income tax
Item 11: Quantitative disclosure about market risk
Item 15: Controls and procedures
Item 16A: Audit committee financial expert
Item 16B: Code of ethics
Item 16C: Principal accountant fees and services
Item 16E: Purchases of equity securities by the issuer and affiliated purchasers
Item 18: Consolidated financial statements
Item 19: Exhibits
No. Exhibit title
Signatures


Credit Suisse Group Annual Report

Highlights 2006
Message from the Chairman
Dear shareholders, clients and colleagues
The strongest capital base in our history
Strong leadership for sustained success
Message from the Chief Executive Officer
Dear shareholders, clients and colleagues
A strong performance in Investment Banking
Continued expansion in Private Banking
Realignment of Asset Management
Strategic priorities
Information on the company
Credit Suisse at a glance
Global banking divisions
The year at Credit Suisse
Launch of the integrated global organization
Further strengthening of the integrated organization
Sale of the insurance business
Expansion of Credit Suisse’s global footprint
Launch of new business initiatives through joint ventures and alliances
Realignment of Asset Management
Integration of Credit Suisse’s independent private banks
Appointment of Brady W. Dougan as the new CEO of Credit Suisse and other changes in the Executive Board
150th anniversary celebrations
Organizational structure of Credit Suisse
Overview
Divisions
Shared Services
Regions
Vision, mission and principles
Strategy
Strategic plans in our three divisions
Investment Banking
Products and services
Investment Banking products and services
Private Banking products and services
Asset Management products and services
Marketing and distribution
Investment Banking marketing and distribution
Private Banking marketing and distribution
Asset Management marketing and distribution
Operating environment and competition
Operating environment and competition for Investment Banking
Operating environment and competition for Private Banking
Operating environment and competition for Asset Management
Operating and financial review
Overview
Factors affecting results of operations
Presentation of results
Summary of Credit Suisse Group results
Recent developments
Credit Suisse Group
2006 compared to 2005
2005 compared to 2004
Investment Banking
2006 compared to 2005
2005 compared to 2004
Private Banking
2006 compared to 2005
2005 compared to 2004
Asset Management
2006 compared to 2005
2005 compared to 2004
Corporate Center
2006 compared to 2005
2005 compared to 2004
Assets under management
Assets under management
Client assets
Net new assets
Risk management
Overview
Risk management principles
Risk management oversight
Risk Management oversight: key management bodies and committees
Risk categories
Risk limits
Economic risk capital
Introduction
Concept
Application
Key position risk trends 2006
Market risk
Overview
Value-at-Risk
Assumptions
Limitations
Scenario analysis
Assumptions
Limitations
Trading portfolios
Non-trading portfolios
Credit risk
Definition of credit risk
Credit risk management approach
Loans
Ratings and risk mitigation
Non-performing loans
Credit provisions
Loan valuation allowances and provisions for inherent credit losses
Summary of loan valuation allowance experience
Liquidity and funding risk
Operational risk
Legal risk
Reputational risk
Corporate governance
Introduction
The importance of corporate governance
Complying with rules and regulations
Corporate governance framework
Company
Shareholders
Significant shareholders
Cross shareholdings
Shareholder base
Capital structure
Board of Directors
Membership and qualifications
Independence
Meetings
Meeting attendance
Chairman of the Board
Board responsibilities
Board Committees
Members of the Board of Directors and the Committees
Honorary Chairman of Credit Suisse Group
Secretaries of the Board of Directors
Changes in the Board of Directors
Management
Executive Boards of Credit Suisse Group and Credit Suisse
Management changes
Executive Boards of Credit Suisse Group and Credit Suisse (as of December 31, 2006)
Advisory Board of Credit Suisse Group
Compensation
Compensation approach, principles and objectives
Overview of the components of compensation at Credit Suisse Group
Share-based compensation plans
Board of Directors compensation
Executive compensation
Shareholder rights
Voting rights, transfer of shares
Annual General Meeting
Changes of control and defense measures
Duty to make an offer
Clauses on changes of control
Internal and external auditors
Internal Audit
External auditors
Employees
Information policy
Consolidated financial statements
Consolidated statements of income
Consolidated balance sheets
Statement of changes in shareholders’ equity
Comprehensive income
Consolidated statements of cash flows
Consolidated statements of cash flows – continued
Notes to the consolidated financial statements
1 Summary of significant accounting policies
Principles of consolidation
Foreign currency translation
Cash and cash equivalents
Reverse repurchase and repurchase agreements
Securities lending and borrowing (SLB) transactions
Trading assets and liabilities
Investment securities
Other investments
Loans
Premises and equipment
Goodwill and other intangible assets
Recognition of impairment losses on tangible fixed assets and other intangible assets
Income taxes
Life settlement contracts
Other assets
Other liabilities
Share-based compensation
Own shares and own bonds
Net interest income
Commissions and fees
2 Recently issued accounting standards
Recently adopted accounting standards
Standards to be adopted in future periods
3 Business developments and subsequent events
Divestitures
Acquisitions
Significant shareholders
Subsequent events
4 Discontinued operations
Provisions from the insurance business
5 Segment information
Overview
Revenue sharing and cost allocation
Taxes
Net revenues
Income from continuing operations before taxes, minority interests, extraordinary items and cumulative effect of accounting changes
Total assets
Segment reporting by geographic location
Net revenues
Income from continuing operations before taxes, minority interests, extraordinary items and cumulative effect of accounting changes
Total assets
6 Interest and dividend income and interest expense
7 Trading activities
8 Noninterest revenues and expenses
9 Securities borrowed, lent and subject to repurchase agreements
10 Investment securities
11 Other investments
12 Loans
13 Premises and equipment
14 Goodwill
15 Other intangible assets
16 Life settlement contracts
17 Other assets
18 Deposits
19 Long-term debt
20 Other liabilities
21 Accumulated other comprehensive income
22 Earnings per share
23 Income taxes
Tax benefits associated with share-based compensation
24 Employee share-based compensation and other benefits
Share-based compensation
Compensation expense
Fair value assumptions for share-based compensation
Shares
Share options
Performance Incentive Plan (PIP)
Credit Suisse Incentive Share Unit (ISU)
25 Related parties
Board of Directors compensation
Executive compensation
Loans to members of the Board of Directors and the Group Executive Board
Liabilities due to own pension funds
26 Pension and other post-retirement benefits
Swiss pension plans
International pension plans
Other post-retirement defined benefit plans
Defined benefit pension and other post-retirement defined benefit plans
Assumptions
Plan assets and investment strategy
Estimated future benefit payments for defined benefit pension and other post-retirement defined benefit plans
Defined contribution pension plans
27 Derivatives and hedging activities
Trading activities
Economic hedges
Hedge accounting
28 Guarantees and commitments
Guarantees
Disposal-related contingencies and other indemnifications
Lease commitments
Other commitments
29 Transfers and servicing of financial assets
Securitization activity
Variable interest entities
Collateralized debt obligations
Commercial paper conduits
Financial intermediation
30 Financial instruments
Concentrations of credit risk
Fair value of financial instruments
31 Assets pledged or assigned
32 Capital adequacy
Broker-dealer operations
Dividend restrictions
33 Assets under management
34 Litigation and other contingencies
35 Significant subsidiaries and associates
Significant subsidiaries
Significant associates (Value according to the Equity Method)
36 Supplementary subsidiary guarantee information
37 Significant valuation and income recognition differences between US GAAP and Swiss GAAP (true and fair view)
Scope of consolidation
Discontinued operations
Real estate held for investment
Investments in securities
Trading positions
Bifurcation of precious metal loans
Goodwill and intangible assets
Pensions and post-retirements benefits
Reserves for general banking risks
Nontrading assets measured at fair value
38 Credit Suisse Group Parent Company
Condensed statements of income
Condensed balance sheets
Condensed statements of cash flow
Report of the Group Auditors and the Independent Registered Public Accounting Firm to the General Meeting of Credit Suisse Group, Zurich
Controls and procedures
Evaluation of controls and procedures
Changes in internal control over financial reporting
Management report on internal control over financial reporting
Report of the Group Auditors and the Independent Registered Public Accounting Firm to the General Meeting of Credit Suisse Group, Zurich
Parent company financial statements
Statement of income
Balance sheet before appropriation of retained earnings
Notes to the parent company financial statements
1 Contingent liabilities
2 Balance sheet assets with retention of title to secure own obligations
3 Off-balance sheet obligations relating to leasing contracts
4 Fire insurance value of tangible fixed assets
5 Liabilities due to own pension plans and Credit Suisse Group bonds held by pension plans
6 Bonds issued
7 Principal participations
8 Release of undisclosed reserves
9 Revaluation of long-term assets to higher than cost
10 Own shares held by the company and by Group companies
11 Share capital, conditional and authorized capital of Credit Suisse Group
Report of the Capital Increase Auditors to the Board of Directors of Credit Suisse Group, Zurich, on Conditional Capital Increase
12 Significant shareholders
13 Legal reserves
14 Provisions
Proposals to the Annual General Meeting
Proposed appropriation of retained earnings
Proposed reduction of share capital by repayment of par value
Report of the Statutory Auditors to the General Meeting of Credit Suisse Group, Zurich
Main offices
Enquiries
Credit Suisse Group
Impressum
Cautionary statement regarding forward-looking information




Definitions

For the purposes of this Form 20-F, unless the context otherwise requires, the terms “Credit Suisse”, “the Group”, “we”, “us” and “our” mean Credit Suisse Group and its consolidated subsidiaries and the term “the Bank” means Credit Suisse, the Swiss bank subsidiary of the Group, and its consolidated subsidiaries.



Sources

Throughout this Form 20-F, we describe the position and ranking of our various businesses in certain industry and geographic markets. The sources for such descriptions come from a variety of conventional publications generally accepted as relevant business indicators by members of the financial services industry. These sources include: Standard & Poor’s, Thomson Financial, Dealogic, the Loan Pricing Corporation, Institutional Investor, Lipper, Moody’s Investors Service and Fitch Ratings.



Accounting basis and reporting currency

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (US GAAP).

Our consolidated financial statements are denominated in Swiss francs, or CHF. For convenience, certain amounts referred to in this Form 20-F are converted from Swiss francs into US dollars (USD) at the rate of CHF 1.00 = USD 0.8200, which was the noon buying rate for Swiss francs on December 29, 2006, in New York City as certified by the Federal Reserve Bank of New York. You should not construe this convenience translation as a representation that the Swiss franc amounts actually denote the corresponding US dollar amounts or could be converted into US dollars at the indicated rate. The assumed rate also differs from the rates used in the preparation of the statement of financial position of the Group as of December 31, 2006 and 2005, and the results of operations and cash flows for each of the years in the three-year period ended December 31, 2006.



Cautionary statement regarding forward-looking information

This Form 20-F contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. In addition, in the future we, and others on our behalf, may make statements that constitute forward-looking statements. Such forward-looking statements may include, without limitation, statements relating to the following:

– Our plans, objectives or goals;

– Our future economic performance or prospects;

– The potential effect on our future performance of certain contingencies; and

– Assumptions underlying any such statements.



Words such as “believes,” “anticipates,” “expects,” “intends” and “plans” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. We do not intend to update these forward-looking statements except as may be required by applicable securities laws.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other outcomes described or implied in forward-looking statements will not be achieved. We caution you that a number of important factors could cause results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors include:

– The ability to maintain sufficient liquidity and access capital markets;

– Market and interest rate fluctuations;

– The strength of the global economy in general and the strength of the economies of the countries in which we conduct our operations in particular;

– The ability of counterparties to meet their obligations to us;

– The effects of, and changes in, fiscal, monetary, trade and tax policies, and currency fluctuations;

– Political and social developments, including war, civil unrest or terrorist activity;

– The possibility of foreign exchange controls, expropriation, nationalization or confiscation of assets in countries in which we conduct our operations;

– Operational factors such as systems failure, human error, or the failure to implement procedures properly;

– Actions taken by regulators with respect to our business and practices in one or more of the countries in which we conduct our operations;

– The effects of changes in laws, regulations or accounting policies or practices;

– Competition in geographic and business areas in which we conduct our operations;

– The ability to retain and recruit qualified personnel;

– The ability to maintain our reputation and promote our brand;

– The ability to increase market share and control expenses;

– Technological changes;

– The timely development and acceptance of our new products and services and the perceived overall value of these products and services by users;

– Acquisitions, including the ability to integrate acquired businesses successfully, and divestitures, including the ability to sell non-core assets and businesses;

– The adverse resolution of litigation and other contingencies; and

– Our success at managing the risks involved in the foregoing.



We caution you that the foregoing list of important factors is not exclusive. When evaluating forward-looking statements, you should carefully consider the foregoing factors and other uncertainties and events, as well as the information in Item 3 “Key Information – Risk factors.”




Item 3: Key information



Selected financial data

Credit Suisse Group is a global financial services company domiciled in Switzerland.

Effective January 1, 2006, the Group aligned its organizational structure to form a fully integrated global bank, with three segments: Investment Banking, Private Banking and Asset Management. These changes reflect the increasingly complex needs and global orientation of Credit Suisse’s clients, who require sophisticated, integrated solutions and access to a broad spectrum of products and services. They also reflect the changes in the way Credit Suisse operates as a bank as a result of globalization and new technologies, and the growing competitive pressure in the industry.

The newly integrated global bank operates under the single brand Credit Suisse.

In December 2006, the Group completed the sale of “Winterthur” Swiss Insurance Company (Winterthur). The results of operations, assets and liabilities of Winterthur are presented as discontinued operations. For further information on the gain from the sale of Winterthur and its results, see note 4 “Discontinued operations” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.

Prior period results presented in this Form 20-F have been revised to reflect the operational and management structure in place during 2006. The Group’s segments are managed and reported on a pre-tax basis. Minority interest-related revenues and expenses resulting from the consolidation of certain private equity funds and other entities in which the Group does not have a significant economic interest in such revenues and expenses are reported in the Corporate Center. Net income is unaffected by the consolidation of these entities due to offsetting minority interests.

The following table shows the Group's condensed consolidated statements of income for the five most recent years:
in CHF m, except where indicated20062005200420032002
Net revenues38,60330,48927,03324,32525,154
Provisions for credit losses(111)(144)835772,773
Total operating expenses24,41423,23219,58119,09023,729
Income/(loss) from continuing operations before taxes, minority interests, extraordinary items and cumulative effect of accounting changes 14,300 7,401 7,369 4,658 (1,348)
Income tax expenses/(benefit)2,3899271,2931,239(962)
Minority interests3,6301,9481,080150150
Income/(loss) from continuing operations before extraordinary items and cumulative effect of accounting changes 8,281 4,526 4,996 3,269 (536)
Income/(loss) from discontinued operations, net of tax3,0701,310639(2,473)(3,990)
Extraordinary items, net of tax(24)00718
Cumulative effect of accounting changes, net of tax014(7)(33)60
Net income/(loss)11,3275,8505,628770(4,448)
Earnings per share, in CHF
Basic earnings per share from continuing operations before cumulative effect of accounting changes 7.53 3.98 4.25 2.78 (0.46)
Basic earnings per share10.305.174.800.64(3.85)
Diluted earnings per share from continuing operations before cumulative effect of accounting changes 7.19 3.90 4.23 2.75 (0.46)
Diluted earnings per share9.835.024.750.63(3.85)
Dividend/repayment of capital2.701)2.001.500.500.10
Return on assets0.9%0.5%0.5%0.1%(0.4%)
Return on equity27.5%15.4%15.9%2.2%(11.4%)
Dividend payout ratio26.2%38.7%31.3%n/a(2.6%)
Equity to asset ratio, in %3.5%3.1%3.3%3.4%3.3%
1) Proposal of the Board of Directors to the Annual General Meeting on May 4, 2007 (dividend of CHF 2.24 and par value reduction of CHF 0.46).



The following table shows selected information of the Group for the five most recent years:
20062005200420032002
Assets under management, in CHF bn1,485.11,319.41,068.01,032.8985.0
Consolidated balance sheets, in CHF m
Total assets1,255,9562)1,339,0521,089,4851,004,3081,027,158
Share capital6076246071,1951,190
Total shareholders' equity43,58642,11836,27333,99134,178
Consolidated BIS capital ratios1)
Risk-weighted assets, in CHF m253,676232,891199,249190,761196,486
Tier 1 ratio, in %13.911.312.311.79.0
Total capital ratio, in %18.413.716.617.414.4
Number of employees (full-time equivalents) 44,871 2) 63,523 60,532 60,477 78,457
Number of shares outstanding1,062,467,0611,125,360,1831,110,819,4811,130,362,9481,116,058,305
1) All calculations through December 31, 2003, are on the basis of Swiss GAAP.       2) Decrease related to the sale of Winterthur.





Exchange rate information

The following tables set forth, for the periods indicated, certain information concerning the noon buying rate for the Swiss franc expressed as USD per CHF 1.00:
YearPeriod endAverage1)HighLow
20020.72290.64810.72290.5817
20030.80780.74840.80780.7052
20040.87630.80820.88200.7575
20050.76060.80100.87210.7544
20060.82000.80340.83960.7575
1) The average of the noon buying rates on the last business day of each month during the relevant period.



MonthHighLow
March 2007 (through March 16)0.82790.8109
February 20070.82040.7980
January 20070.82470.7978
December 20060.83960.8161
November 20060.83570.7958
October 20060.80490.7842
September 20060.81250.7949





Risk factors

Our businesses are exposed to a variety of risks that could adversely affect our results of operations or financial condition, including, among others, those described below.

Liquidity risk
Our liquidity could be impaired if we were unable to access the capital markets or sell our assets
Liquidity, or ready access to funds, is essential to our businesses, particularly our investment banking business, which depend on continuous access to the debt capital and money markets to finance day-to-day operations. An inability to obtain financing in the unsecured long-term or short-term debt capital markets, or to access the secured lending markets, could have a substantial adverse effect on our liquidity. In a time of reduced liquidity, we may be unable to sell some of our assets, or we may need to sell assets at depressed prices, which in either case could adversely affect our results of operations and financial condition.

Our businesses may face asset-liability mismatches
Our businesses meet most of their funding requirements using short-term funding sources, including primarily deposits, inter-bank loans, time deposits and cash bonds. However, we have assets with medium- or long-term maturities, creating a potential for funding mismatches. Although a substantial number of depositors have, in the past, rolled over their deposited funds upon maturity and deposits have been, over time, a stable source of funding, this may not continue to occur. In that case, our liquidity position could be adversely affected and we might be unable to meet deposit withdrawals on demand or at their contractual maturity, to repay borrowings as they mature or to fund new loans, investments and businesses. For further information on the assets and liabilities of our banking businesses, see Item 5 “Operating and financial review and prospects – Information required by Industry Guide 3 – Selected statistical information – Investment portfolios – Deposits and – Short-term borrowings.”

Changes in our ratings may adversely affect our business
Reductions in our assigned ratings, including in particular our credit ratings, could increase our borrowing costs, limit our access to capital markets and adversely affect the ability of our businesses to sell or market their products, engage in business transactions – particularly longer-term and derivatives transactions – and retain our customers. Ratings are assigned by rating agencies, which may reduce, indicate their intention to reduce or withdraw the ratings at any time. For more information on our credit ratings, see Item 5 “Operating and financial review and prospects – Liquidity and capital resources.”


Market risk
We may incur significant losses on our trading and investment activities due to market fluctuations and volatility
We maintain large trading and investment positions and hedges in the debt, currency, commodity and equity markets, and in private equity, real estate and other assets. These positions could be adversely affected by volatility in financial and other markets, that is, the degree to which prices fluctuate over a particular period in a particular market, regardless of market levels. To the extent that we own assets, or have net long positions, in any of those markets, a downturn in those markets could result in losses from a decline in the value of our net long positions. Conversely, to the extent that we have sold assets that we do not own, or have net short positions, in any of those markets, an upturn in those markets could expose us to potentially significant losses as we attempt to cover our net short positions by acquiring assets in a rising market.

Our exposure to commodity price risk increased in 2006 as we expanded our commodities business, particularly energy trading, in our investment banking business.

We have risk management techniques and policies designed to manage our market risk. These techniques and policies, however, may not always be effective, particularly in highly volatile markets. For information on management of market risk, see “Risk management – Market risk” in the Credit Suisse Group Annual Report 2006.

Adverse market or economic conditions or trends may cause a decline in net revenues
As a global financial services company, our businesses are materially affected by conditions in the financial markets and economic conditions generally in Europe, the United States and elsewhere around the world. Adverse market or economic conditions could create a challenging operating environment for financial services companies. In particular, the impact of oil prices, interest rates and the risk of geopolitical events could materially affect financial markets and the economy. Movements in interest rates could affect our net interest income and the value of our trading and non-trading fixed income portfolios, and movements in equity markets could affect the value of our trading and non-trading equity portfolios.

Future terrorist attacks, military conflicts and economic or political sanctions could have a material adverse effect on economic and market conditions, market volatility and financial activity.

Adverse market or economic conditions could reduce the number and size of investment banking transactions in which we provide underwriting, mergers and acquisitions advice or other services and, therefore, adversely affect our financial advisory and underwriting fees. Such conditions could also lead to a decline in the volume of securities trades that we execute for customers and, therefore, adversely affect the net revenues we receive from commissions and spreads.

Underwritten transactions often have multiple managers and book runners instead of a lead manager and single book runner, and this trend has adversely affected our underwriting revenues.

Unfavorable market or economic conditions could affect our wealth management, corporate and retail banking and asset management businesses by reducing sales of our investment products and the volume of our asset management activities. In addition, a market downturn could reduce our commission and fee income that is based on the value of our clients’ portfolios.

Adverse market or economic conditions could negatively affect our private equity investments since, if a private equity investment substantially declines in value, we may not receive any increased share of the income and gains from such investment (to which we are entitled in certain cases when the return on such investment exceeds certain threshold returns), may be obligated to return to investors previously received excess carried interest payments and may lose our pro rata share of the capital invested. In addition, it could become more difficult to dispose of the investment, as even investments that are performing well may prove difficult to exit in weak initial public offering markets.

In addition, we are exposed to market risk through our proprietary investments in hedge funds.

An investment performance that is below that of competitors or asset management benchmarks could result in a decline in assets under management and related fees and make it harder to attract new clients.

We may incur significant losses in the real estate sector
We finance and acquire principal positions in a number of real estate and real estate-related products, both for our own account and for major participants in the commercial and residential real estate markets, and originate loans, including sub-prime loans, secured by commercial and residential properties. We also securitize and trade in a wide range of commercial and residential real estate and real estate-related whole loans, mortgages, and other real estate and commercial assets and products, including residential and commercial mortgage-backed securities. These businesses could be adversely affected by a downturn in the real estate sector or the economy as a whole.

Our revenues may decline in line with declines in certain sectors or products
Decreasing economic growth in a sector, such as the technology and telecommunications sectors, in which we make significant commitments, for example, through underwriting or advisory services, could negatively affect net revenues of our investment banking business.

In addition, a significant portion of the net revenues of our investment banking business in 2006 was derived from fixed income trading and leveraged finance, driven in large part by financial sponsors. A decline in leveraged finance or financial sponsor activity could have a negative effect on our results of operations.

Holding large and concentrated positions may expose us to large losses
Concentrations of risk could increase losses at our wealth management, corporate and retail banking and investment banking businesses, which may have sizeable loans to and securities holdings in certain customers or industries, including the financial services industry. Risk concentration may cause us to suffer losses even when economic and market conditions are generally favorable for others in the industry. We maintain a system of risk limits designed to control concentration risks. These controls, however, may not always be effective.

Our hedging strategies may not prevent losses
If any of the variety of instruments and strategies we use to hedge our exposure to various types of risk in our businesses is not effective, we may incur losses. We may only be partially hedged, or these strategies may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk. In addition, gains and losses resulting from certain ineffective hedges may result in volatility in our reported earnings.

Market risk may increase the other risks that we face
In addition to the potentially adverse effects on our businesses described above, market risk could exacerbate the other risks that we face. For example, if we were to incur substantial trading losses, our need for liquidity could rise sharply while access to liquidity could be impaired. In conjunction with a market downturn, our customers and counterparties could also incur substantial losses of their own, thereby weakening their financial condition and increasing our credit risk to them.

Credit risk
We may suffer significant losses from our credit exposures
Our businesses are subject to the risk that borrowers and other counterparties will be unable to perform their obligations. Credit exposures exist within lending relationships, commitments and letters of credit, as well as derivative, foreign exchange and other transactions. For information on management of credit risk, see “Risk management – Credit risk” in the Credit Suisse Group Annual Report 2006.

Our businesses establish provisions for loan losses at a level deemed appropriate by management. Management’s determination of the provision for loan losses is subject to significant judgment, and our banking businesses may need to increase their provisions for loan losses or may record losses in excess of the previously determined provisions if our original estimates of loss prove inadequate and this could have a material adverse effect on our results of operations. For information on provisions for loan losses and related risk mitigation, see Item 5 “Operating and financial review and prospects – Critical accounting policies – Contingencies and loss provisions” and “Risk management – Credit risk” in the Credit Suisse Group Annual Report 2006.

In recent years, our investment banking business has significantly expanded its use of swaps and other derivatives. As a result, our credit exposures have increased and may continue to increase in amount and duration. In addition, we have experienced, due to competitive factors, pressure to assume longer-term credit risk, to extend credit against less liquid collateral and to price derivative instruments more aggressively based on the credit risks that we take. Our investments in, or loans to, hedge funds, which have significant pools of capital but are unregulated, are an additional source of credit exposure. An increase in our investment bank’s provisions for credit losses, or any credit losses in excess of related provisions, could have an adverse effect on our results of operations.

Defaults by a large financial institution could adversely affect financial markets generally and us specifically
Concerns about, or a default by, one institution could lead to significant liquidity problems, losses or defaults by other institutions because the commercial soundness of many financial institutions may be closely related as a result of credit, trading, clearing or other relationships between institutions. This risk is sometimes referred to as “systemic risk” and may adversely affect financial intermediaries, such as clearing agencies, clearinghouses, banks, securities firms and exchanges with which we interact on a daily basis, and could adversely affect us.

The information that we use to manage our credit risk may be inaccurate or incomplete
Although we regularly review our credit exposure to specific clients and counterparties and to specific industries, countries and regions that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to foresee or detect, such as fraud. We may also fail to receive full information with respect to the credit or trading risks of a counterparty.

Cross border and foreign exchange risk
Cross border risks may increase market and credit risks we face
Country, regional and political risks are components of market and credit risk. Financial markets and economic conditions generally have been and may be materially affected by such risks. Economic or political pressures in a country or region, including those arising from local market disruptions, currency crises and monetary controls, may adversely affect the ability of clients or counterparties located in that country or region to obtain foreign currency or credit and, therefore, to perform their obligations to us, which in turn may have an adverse impact on our results of operations.

We may face significant losses in emerging markets
As a global financial services company and industry leader in emerging markets, we are exposed to economic instability in emerging market countries. We monitor these risks, seek diversity in the sectors in which we invest and emphasize customer-driven business. Our efforts at containing emerging market risk, however, may not always succeed.

Currency fluctuations may adversely affect our results of operations
We are exposed to risk from fluctuations in exchange rates for currencies. In particular, a substantial portion of our assets and liabilities in our investment banking and asset management businesses are denominated in currencies other than the Swiss franc, which is the primary currency of our financial reporting. Our capital is also stated in Swiss francs and we do not fully hedge our capital position against changes in currency exchange rates. Exchange rate volatility may have an adverse impact on our results of operations and capital position.

Operational risk
We are exposed to a wide variety of operational risks, particularly information technology risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. In general, our businesses face a wide variety of operational risks, including technology risk that stems from dependencies on information technology and the telecommunications infrastructure and business disruption, including the infrastructure supporting our businesses and/or the areas where our businesses or third-party suppliers are situated. As a global financial services company, we rely heavily on our financial, accounting and other data processing systems, which are varied and complex. If any of these systems does not operate properly or is disabled, including as a result of terrorist attacks or other unforeseeable events, we could suffer financial loss, a disruption of our businesses, liability to our clients, regulatory intervention or reputational damage.

We may suffer losses due to employee misconduct
Our businesses are exposed to risk from potential non-compliance with policies, employee misconduct and fraud, which could result in regulatory sanctions and serious reputational or financial harm. It is not always possible to deter employee misconduct and the precautions we take to prevent and detect this activity may not always be effective.

Legal and regulatory risks
Our exposure to legal liability is significant
We face significant legal risks in our businesses, and the volume and amount of damages claimed in litigation, regulatory proceedings and other adversarial proceedings against financial services firms are increasing.

We and our subsidiaries are subject to a number of material legal proceedings, regulatory actions and investigations, and an adverse result in one or more of these proceedings could have a material adverse effect on our operating results for any particular period, depending, in part, upon our results for such period. For information relating to these and other legal and regulatory proceedings involving our investment banking and other businesses, see Item 8 “Financial information – Legal proceedings.”

It is inherently difficult to predict the outcome of many of the legal, regulatory and other adversarial proceedings involving our businesses, particularly those cases in which the matters are brought on behalf of various classes of claimants, seek damages of unspecified or indeterminate amounts or involve novel legal claims. For information on management’s judgments in relation to estimating losses and taking charges for legal, regulatory and arbitration proceedings, see Item 5 “Operating and financial review and prospects – Critical accounting policies – Contingencies and loss provisions - Litigation contingencies.”

Failure to comply with extensive regulation of our businesses may subject us to significant penalties and may seriously harm our reputation
As a participant in the financial services industry, we are subject to extensive regulation by governmental agencies, supervisory authorities, and self-regulatory organizations in Switzerland, Europe, the United States and virtually all other jurisdictions in which we operate around the world. Such regulation is becoming increasingly more extensive and complex. These regulations often serve to limit our activities, including through net capital, customer protection and market conduct requirements, and restrictions on the businesses in which we may operate or invest. In recent years, a major focus of international policy and regulation has been on combating money laundering and terrorist financing. Applicable regulations impose obligations to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing, including verifying the identity of customers. Failure of the Group and its subsidiaries to implement and maintain adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences.

Despite our best efforts to comply with applicable regulations, there are a number of risks, particularly in areas where applicable regulations may be unclear or where regulators revise their previous guidance or courts overturn previous rulings. Authorities in many jurisdictions have the power to bring administrative or judicial proceedings against us, which could result in, among other things, suspension or revocation of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary action which could materially adversely affect our results of operations and seriously harm our reputation.

Changes in laws, rules or regulations, or in their interpretation or enforcement, may adversely affect our results of operations and capital requirements.

For a description of our regulatory regime and capital requirements, see Item 4 “Information on the company – Regulation and supervision.”

Legal restrictions on our clients may reduce the demand for our services
We may be materially affected not only by regulations applicable to us as a financial services company, but also by regulations of general application. For example, the volume of our businesses in any one year could be affected by, among other things, existing and proposed tax legislation, antitrust and competition policies, corporate governance initiatives and other governmental regulations and policies and changes in the interpretation or enforcement of existing laws and rules that affect business and the financial markets.

Competition
We face increased competition due to consolidation and new entrants
We face intense competition in all financial services markets and for the products and services we offer. Consolidation, through mergers and acquisitions, alliances and cooperation, is increasing competition. Competition is based on many factors, including the products and services offered, pricing, distribution systems, customer service, brand recognition, perceived financial strength and the willingness to use capital to serve client needs. Consolidation has created a number of firms that, like us, have the ability to offer a wide range of products, from loans and deposit-taking to brokerage, investment banking and asset management services. Some of these firms may be able to offer a broader range of products than we do, or offer such products at more competitive prices. In addition, new lower-cost competitors may enter the market and those competitors may not be subject to capital or regulatory requirements and may be able to offer their products and services on more favorable terms.

Our competitive position could be harmed if our reputation is damaged
In the highly competitive environment arising from globalization and convergence in the financial services industry, a reputation for financial strength and integrity is critical to our ability to attract and maintain customers. Our reputation could be harmed if our comprehensive procedures and controls fail, or appear to fail, to address conflicts of interest as we increase our client base and the scale of our businesses, prevent employee misconduct, produce materially accurate and complete financial and other information or prevent adverse legal or regulatory actions.

We must recruit and retain highly skilled employees
Our performance is largely dependent on the talents and efforts of highly skilled individuals. Competition for qualified employees is intense. We have devoted considerable resources to recruiting, training and compensating employees. Our continued ability to compete effectively in our businesses depends on our ability to attract new employees and to retain and motivate our existing employees.

We face competition from new trading technologies
Our investment banking, private banking and asset management businesses face competitive challenges from new trading technologies. Securities and futures transactions are now being conducted through the Internet and other alternative, non-traditional trading systems, and it appears that the trend toward alternative trading systems will continue and probably accelerate. A dramatic increase in computer-based or other electronic trading may adversely affect our commission and trading revenues, exclude our businesses from certain transaction flows, reduce our participation in the trading markets and the associated access to market information and lead to the creation of new and stronger competitors. We may also be required to make additional expenditures to develop or invest in new trading systems or otherwise to invest in technology to maintain our competitive position.

Financial services businesses that we acquire or joint ventures we undertake may not perform well or may prove difficult to integrate into our existing operations
Even though we review the records of companies we plan to acquire, it is generally not feasible for us to review in detail all such records. Even an in-depth review of records may not reveal existing or potential problems or permit us to become familiar enough with a business to assess fully its capabilities and deficiencies. As a result, we may assume unanticipated liabilities, or an acquisition may not perform as well as expected. We also face the risk that we will not be able to integrate acquisitions into our existing operations effectively as a result of, among other things, differing procedures, business practices and technology systems, as well as difficulties in adapting an acquired company into our organizational structure. We face the risk that the returns on acquisitions will not support the expenditures or indebtedness incurred to acquire such businesses or the capital expenditures needed to develop such businesses.

In addition, in recent years we have undertaken a number of new joint ventures and strategic alliances. Although we endeavor to identify appropriate partners, our joint venture efforts may prove unsuccessful or may not justify the capital we invest.

Moreover, if we fail to identify attractive businesses to acquire, or joint venture opportunities, we may be unable to expand our businesses as quickly or successfully as our competitors, which could adversely affect our results of operations and reputation.




Item 4: Information on the company





Information related to the business of Credit Suisse Group, the individual business segments and organizational changes in 2006, is set forth under the caption “Information on the company” in the Credit Suisse Group Annual Report 2006 on pages 9 to 30, and such information is incorporated herein by reference.



Regulation and supervision

Overview
The Group’s operations throughout the world are regulated by authorities in each of the jurisdictions in which the Group has offices, branches and subsidiaries. Central banks and other bank regulators, financial services agencies, securities agencies and exchanges and self-regulatory organizations are among the regulatory authorities that oversee the Group’s banking, investment banking and asset management businesses. Changes in the supervisory and regulatory regimes of the countries in which the Group operates will determine to some degree the Group’s ability to expand into new markets, the services and products that the Group will be able to offer in those markets and how the Group structures specific operations.

In recent years, a major focus of international policy and regulation, including in Switzerland, the European Union (EU), including the United Kingdom (UK), and the United States (US), has been on combating money laundering and terrorist financing. Applicable regulations impose obligations to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing, including verifying the identity of customers. Failure of the Group and its subsidiaries to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences.

The principal regulatory structures that apply to the Group’s operations are discussed below.

Banking
Switzerland
Although Credit Suisse Group is not a bank according to the Swiss Federal Law on Banks and Savings Banks of November 8, 1934, as amended (Bank Law), and its Implementing Ordinance of May 17, 1972, as amended (Implementing Ordinance), it is required, pursuant to a Swiss Federal Banking Commission (SFBC) decree, to comply with certain requirements for banks, including with respect to capital adequacy, solvency and risk concentration on a consolidated basis, subject to specific stipulations required by the SFBC. The Group is also subject to certain of the reporting obligations of Swiss banks. Furthermore, the Group’s banks in Switzerland, including the Bank, are each regulated by the SFBC on a legal entity basis and, if applicable, on a consolidated basis.

The Group’s banks in Switzerland operate under banking licenses granted by the SFBC pursuant to the Bank Law and the Implementing Ordinance. In addition, certain of these banks hold securities dealer licenses granted by the SFBC pursuant to the Swiss Federal Act on Stock Exchanges and Securities Trading of March 24, 1995 (Stock Exchange Act).

The SFBC is the highest bank supervisory authority in Switzerland and is independent from the Swiss National Bank (the National Bank). Under the Bank Law, the SFBC is responsible for the supervision of the Swiss banking system through the issuance of ordinances and circular letters to the banks and securities dealers it oversees. The National Bank is responsible for implementing the government’s monetary policy relating to banks and securities dealers and for ensuring the stability of the financial system. It publishes extensive statistical data on a monthly basis.

In addition to close and continuous prudential supervision and direct audits by the SFBC, under the Bank Law, a bank’s business is subject to inspection and supervision by an independent auditing firm licensed by the SFBC. These Bank Law auditors, which are appointed by the bank’s Board of Directors, are required to perform annually an audit of the bank’s financial statements and to assess whether the bank is in compliance with the provisions of the Bank Law, the Implementing Ordinance and SFBC regulations, as well as guidelines for self-regulation issued by the Swiss Bankers’ Association and other non-governmental organizations.

Capital requirements
Under the Bank Law, a bank must maintain an adequate ratio between its capital resources and its total risk-weighted assets and this requirement applies to the Group on a consolidated basis. For purposes of complying with Swiss capital requirements, bank regulatory capital is divided into three main categories:

– Tier 1 capital (core capital);

– Tier 2 capital (supplementary capital); and

– Tier 3 capital (additional capital).



The Group calculates its regulatory capital on the basis of US GAAP, with certain adjustments required by, or agreed with, the SFBC.

The Group is required by the Bank for International Settlements (BIS) to maintain a minimum regulatory capital ratio of 8% measured on a consolidated basis, calculated by dividing total eligible capital, adjusted for certain deductions, by aggregate risk-weighted assets.

The Basel Committee introduced significant changes to existing international capital adequacy standards. These changes are known as Basel II. Certain countries, including Switzerland, are currently in the process of modifying their bank capital and regulatory standards to implement the new standards. The Swiss Federal Council enacted the new standards, subject to a “Swiss finish,” as of January 1, 2007, in the new Capital Adequacy Ordinance. For most Swiss banks, the simpler methodologies of Basel II will apply. For large Swiss banks, such as the Bank, the advanced methodologies of Basel II will apply as of January 2008. The Group expects the implementation of Basel II to create an additional 15% capital requirement at year-end 2007. The final capital impact will, however, depend, among other things, on the growth in risk-weighted assets and changes in the business mix during 2007.

Liquidity requirements
Banks are required to maintain a specified liquidity ratio under Swiss law. According to the SFBC’s decree, Credit Suisse Group is only required to maintain adequate levels of liquidity on a consolidated basis within the meaning of the Implementing Ordinance and it is not required to comply with the detailed calculations for banks.

Risk concentration
Under Swiss banking law, banks and securities dealers are required to manage risk concentration within specific, predefined limits. Aggregated credit exposure to any single counterparty or a group of related counterparties must bear an adequate relationship to the bank’s eligible capital, taking into account counterparty risks and risk mitigation instruments.

Confidentiality requirements
Under the Bank Law and the Stock Exchange Act, Swiss banks and securities dealers are obligated to keep confidential the existence and all aspects of their relationships with customers. These customer confidentiality laws do not, however, provide protection with respect to criminal offenses such as insider trading, money laundering, terrorist financing activities or tax fraud. In particular, Swiss customer confidentiality laws do not prevent the disclosure of information to courts and administrative authorities when banks are asked to testify under applicable federal and cantonal rules of civil or criminal procedure.

European Union
Since it was announced in 1999, the EU’s Financial Services Action Plan (FSAP) has given rise to numerous measures (both Directives and Regulations) aimed at increasing integration and harmonization in the European market for financial services. While Regulations have immediate and direct effect in member states, Directives must be implemented through national legislation. As a result, the terms of implementation of Directives are not always consistent from country to country.

The Capital Requirements Directive, adopted in 2006, applies the Basel II capital framework for banking groups operating in the EU. In January 2007, the Capital Requirements Directive was implemented in various EU countries, including the United Kingdom.

United States
The Group’s operations are subject to extensive federal and state regulation and supervision in the United States. The Group’s US banking offices are composed of a New York branch (New York Branch), a US administrative office in Florida and representative offices in New York and California. Each of these offices is licensed with, and subject to examination and regulation by, the state banking authority in the state in which it is located.

The New York Branch is licensed by the Superintendent of Banks of the State of New York (Superintendent), examined by the New York State Banking Department, and subject to laws and regulations applicable to a foreign bank operating a New York branch. Under the New York Banking Law and related regulations (amended most recently in January 2007), the New York Branch must maintain, with banks in the State of New York, eligible assets in an amount determined on the basis of a sliding scale so that the amount of assets required to be pledged as a percentage of third party liabilities decreases from 1.0% to 0.25% as such liabilities increase from USD 1 billion or less to more than USD 10 billion (up to a maximum of USD 100 million), as long as the New York Branch continues to be well rated by the Superintendent. Should the New York Branch cease to be well rated, the Group may need to maintain substantial additional amounts of eligible assets. The New York Banking Law also empowers the Superintendent to establish asset maintenance requirements for branches of foreign banks expressed as a percentage of each branch’s liabilities. The Superintendent has not imposed such a requirement upon the New York Branch.

The New York Banking Law authorizes the Superintendent to take possession of the business and property of a foreign bank’s New York branch under circumstances similar to those that would permit the Superintendent to take possession of the business and property of a New York state-chartered bank.

In liquidating or dealing with a branch’s business after taking possession, the Superintendent would only accept for payment the claims of creditors (unaffiliated with the foreign bank) that arose out of transactions with that branch. After the claims of those creditors were paid out of the business and property of the bank in the State of New York, the Superintendent would turn over the remaining assets, if any, to the foreign bank or to its duly appointed liquidator or receiver.

In addition, under the New York Banking Law, the New York Branch is generally subject to the same single borrower lending limits applicable to a New York state-chartered bank. For the New York Branch, those limits, which are expressed as a percentage of capital, are based on the worldwide capital of Credit Suisse.

The Group’s operations are also subject to US federal banking laws. Under these laws, branches and agencies of foreign banks in the Unites States are subject to reporting and examination requirements similar to those imposed on domestic banks that are owned or controlled by US bank holding companies. Accordingly, the Group’s operations are subject to examination by the Board of Governors of the Federal Reserve System (FRB) in its capacity as the Group’s US umbrella supervisor. The New York Branch is also subject to examination by the FRB. In addition, pursuant to the FRB’s regulations, the New York Branch is subject to reserve requirements on deposits and restrictions on the payment of interest on demand deposits. Because the New York Branch does not engage in retail deposit taking, it is not a member of, and its deposits are not insured by, the Federal Deposit Insurance Corporation.

Among other things, US federal banking laws provide that a state-licensed branch or agency of a foreign bank may not engage in any type of activity that is not permissible for a federally licensed branch or agency of a foreign bank unless the FRB has determined that such activity is consistent with sound banking practice. US federal banking laws also subject a state branch or agency to the same single borrower lending limits applicable to national banks and these limits are based on the capital of the entire foreign bank. Furthermore, the FRB may terminate the activities of a US branch or agency of a foreign bank if it finds that:

– The foreign bank is not subject to comprehensive supervision on a consolidated basis in its home country; or

– There is reasonable cause to believe that such foreign bank, or an affiliate, has violated the law or engaged in an unsafe or unsound banking practice in the United States and, as a result, continued operation of the branch or agency would be inconsistent with the public interest and purposes of the banking laws.



If the FRB were to use this authority to close the New York Branch, creditors of the New York Branch would have recourse only against Credit Suisse, unless the Superintendent or other regulatory authorities were to make alternative arrangements for the payment of the liabilities of the New York Branch.

In recent years, a major focus of US policy and regulation relating to financial institutions has been to combat money laundering and terrorist financing. Laws and regulations applicable to the Group and its subsidiaries impose obligations to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing, verify the identity of customers and comply with economic sanctions. The Group’s failure to maintain and implement adequate programs to combat money laundering and terrorist financing, and violations of such economic sanctions, laws and regulations, could have serious legal and reputational consequences for the Group.

The Group takes its obligations to prevent money laundering and terrorist financing very seriously, while appropriately respecting and protecting the confidentiality of clients. The Group has policies, procedures and training intended to ensure that its employees know the Group's customers and understand the Group's criteria for when a client relationship or business should be evaluated as higher risk for the Group.

As part of its continuing evaluation of risk, in the first quarter of 2006, the Group determined to limit the amount of business with counterparties in, or directly relating to, Cuba, Iran, Myanmar, North Korea, Sudan and Syria. The Group has decided that it will not enter into new relationships with clients from these countries and will end all existing relationships with corporate clients and most private banking clients in these countries. Some designated relationships with private banking clients in these countries will be maintained subject to restrictions, including the centralization of the private banking relationship within Credit Suisse in Switzerland. The Group also has implemented payment and other restrictions with respect to these countries that are applicable to all its clients. These restrictions include, but are not limited to, prohibiting dealing in transactions in securities and other financial products offered, issued or administered by an entity located in these countries, such as securities issued by the government of, or a company located in, or held by custodians in, these countries. In addition, the Group has decided to close its representative office in Tehran, Iran.

The US State Department has designated such countries as state sponsors of terrorism, and US law generally prohibits US persons from doing business with such countries. The Group is aware of initiatives by governmental entities and institutions in the United States to adopt rules, regulations or policies prohibiting transactions with or investments in entities doing business with such countries. The Group is a Swiss-domiciled organization and its activities with respect to such countries are subject to policies and procedures designed to ensure that US persons are not involved and otherwise comply with applicable laws and regulations. The Group does not believe its business activities with counterparties in, or directly relating to, such countries are material to its business, and such activities represented a very small part of total assets as of December 31, 2006, and total revenues for the year ended December 31, 2006.

Non-banking activities of banking institutions
Federal and state banking laws, including the International Banking Act of 1978, as amended, and the Bank Holding Company Act of 1956, as amended, restrict the Group’s ability to engage, directly or indirectly through subsidiaries, in non-banking activities in the United States. The Gramm-Leach-Bliley Act of 1999 (GLBA) significantly modified these restrictions.

Once the GLBA took effect, qualifying bank holding companies and foreign banks qualifying as financial holding companies were permitted to engage in a substantially broader range of non-banking activities in the United States, including insurance, securities, private equity and other financial activities. The GLBA does not authorize banks or their affiliates to engage in commercial activities that are not financial in nature or incidental thereto without other specific legal authority or exemption.

Certain restrictions governing the acquisition of US banks were not affected by the GLBA. Accordingly, the Group is required to obtain the prior approval of the FRB (and potentially other US banking regulators) before acquiring, directly or indirectly, the ownership or control of more than 5% of any class of voting shares of any US bank, bank holding company or many other US depository institutions and their holding companies. The New York Branch is also restricted from engaging in certain tying arrangements involving products and services.

Under the GLBA and related FRB regulations, the Group and the Bank became financial holding companies effective March 23, 2000, by certifying and demonstrating that the Bank was well-capitalized and well-managed. If in the future the Group or the Bank ceases to be well-capitalized or well-managed, or otherwise fails to meet any of the requirements for financial holding company status, then it may be required to discontinue newly authorized financial activities or terminate its New York Branch. The Group’s ability to undertake acquisitions permitted by financial holding companies could also be adversely affected.

The GLBA and the regulations issued thereunder contain a number of other provisions that could affect the Group’s operations and the operations of all financial institutions. One such provision relates to the financial privacy of consumers. In addition, the so-called push-out provisions of the GLBA narrow the exclusion of banks (including the New York Branch) from the definitions of broker and dealer under the Securities Exchange Act of 1934 (Exchange Act). The US Securities and Exchange Commission (SEC) has granted a series of temporary exemptions to delay the required implementation of these push-out provisions. The narrowed dealer definition took effect in September 2003, and the narrowed broker definition is currently expected to apply to the Group beginning January 1, 2009. As a result, it is likely that certain securities activities currently conducted by the New York Branch will need to be restructured or transferred to one or more US-registered broker-dealer affiliates.

United Kingdom
The UK Financial Services Authority (FSA) is the principal statutory regulator of financial services activity in the United Kingdom, deriving its powers from the Financial Services and Markets Act 2000 (FSMA). The FSA regulates banking, insurance (long-term and general), investment business and the activities of mortgage intermediaries. In undertaking its role as regulator, the FSA generally adopts a risk-based approach, supervising all aspects of a firm’s business, including capital resources, systems and controls and management structures, the conduct of its business, anti-money laundering and staff training. The FSA has wide investigatory and enforcement powers, including the power to require information and documents from financial services businesses, appoint investigators, apply to the court for injunctions or restitution orders, prosecute criminal offenses, impose financial penalties, issue public statements or censures and vary, cancel or withdraw authorizations it has granted.

As a member state of the European Union, the United Kingdom is required to implement EU directives into national law. The regulatory regime for banks operating in the United Kingdom conforms to required EU standards including compliance with capital adequacy standards, customer protection requirements, conduct of business rules and anti-money laundering rules. These standards, requirements and rules are similarly implemented, under the same directives, throughout the other member states of the European Union in which the Group operates and are broadly comparable in scope and purpose to the regulatory capital and customer protection requirements imposed under US law.

The London branch of Credit Suisse, Credit Suisse International and Credit Suisse (UK) Limited are authorized to take deposits. Credit Suisse also has a number of entities authorized to conduct investment business and asset management activities. In deciding whether to grant authorization, the FSA first must determine whether a firm satisfies the threshold conditions for suitability, including the requirement for the firm to be fit and proper. In addition to regulation by the FSA, certain wholesale money markets activities are subject to the Non-Investment Products Code (NIPS Code), a voluntary code of conduct published by the Bank of England. The FSA participated in the development of the NIPS Code and expects FSA-regulated firms to take due account of it when conducting wholesale money market business.

The FSA cannot set capital requirements for the London Branch. The FSA does, however, require Credit Suisse International and Credit Suisse (UK) Limited to maintain a minimum capital ratio and to monitor and report large exposures in accordance with the rules implementing the Capital Requirements Directive. Furthermore, the FSA requires banks operating in the United Kingdom to maintain adequate liquidity.

The United Kingdom implemented the Markets in Financial Instruments Directive (MiFID) in January 2007. As a consequence, Credit Suisse’s authorized entities in the United Kingdom are required to comply with the new version of the FSA Handbook on November 1, 2007. The updates include the requirement to reclassify customers in accordance with MiFID provisions. The London branch of Credit Suisse will be required to comply principally with its home country regulatory regime; however, some of the new conduct of business rules in the United Kingdom will be applicable from November 2007.

Investment banking and asset management
Switzerland
The Group’s securities dealer activities in Switzerland are conducted primarily through Credit Suisse and are subject to regulation under the Stock Exchange Act. The Stock Exchange Act regulates all aspects of the securities dealer business in Switzerland, including regulatory capital, risk concentration, sales and trading practices, record-keeping requirements and procedures and periodic reporting procedures. The regulatory capital requirements and risk concentration limits for securities dealers are substantially the same as for banks. Securities dealers are supervised by the SFBC.

The Group’s asset management activities in Switzerland include the establishment and administration of mutual funds registered for public distribution. In accordance with the Swiss Law on Collective Capital Investment Schemes, which came into effect on January 1, 2007, and replaces the Swiss Law on Mutual Funds, these activities are conducted under the supervision of the SFBC.

European Union
In April 2004, as part of the FSAP, the European Union adopted MiFID. MiFID was required to be implemented into national laws by January 2007 (although this has not yet been done in most jurisdictions) and comes into force on November 1, 2007. MiFID replaces the Investment Services Directive and widens the scope of regulated investment services and instruments to include, for example, investment advice and services and activities relating to commodity derivatives. In relation to these and other investment services and activities, MiFID provides a "passport" for investment firms enabling them to conduct cross-border activities throughout Europe on the basis of authorization from their home state regulator.

MiFID establishes high-level organizational and business conduct standards that apply to all investment firms. These include new standards for managing conflicts of interest, best execution, customer classification and suitability requirements for customers. MiFID also sets standards for regulated markets (i.e., exchanges) and multilateral trading facilities and sets out pre-trade and post-trade price transparency requirements for equity trading.

United States
In the United States, the SEC is the federal agency primarily responsible for the regulation of broker-dealers, investment advisers and investment companies, while the Commodity Futures Trading Commission (CFTC) is the federal agency primarily responsible for the regulation of futures commission merchants, commodity pool operators and commodity trading advisors. In addition, the Department of the Treasury has the authority to promulgate rules relating to US Treasury and government agency securities, the Municipal Securities Rulemaking Board has the authority to promulgate rules relating to municipal securities, and the board promulgates regulations applicable to certain securities credit transactions. In addition, broker-dealers are subject to regulation by industry self-regulatory organizations, including the NASD and the New York Stock Exchange (NYSE), and by state authorities. The NYSE and the NASD have announced that they intend to merge their regulatory functions into a single regulatory organization, expected to begin operations in the second quarter of 2007. For their futures activities, broker-dealers are subject to industry self-regulatory organizations such as the National Futures Association (NFA), and regulation by state authorities.

The Group’s investment banking business includes broker-dealers registered with the SEC, all 50 states, the District of Columbia and Puerto Rico, and futures commission merchants and commodities trading advisers registered with the CFTC. As a result of these registrations, and memberships in self-regulatory organizations, such as the NASD, the NYSE and the NFA, the Group’s investment banking business is subject to overlapping schemes of regulation covering all aspects of its securities and futures activities, including:

– Capital requirements;

– The use and safekeeping of customers’ funds and securities;

– Suitability of customer investments;

– Recordkeeping and reporting requirements;

– Supervisory and organizational procedures intended to ensure compliance with securities and commodities laws and the rules of the self-regulatory organizations;

– Supervisory and organizational procedures intended to prevent improper trading on material non-public information;

– Employee-related matters;

– Limitations on extensions of credit in securities transactions;

– Required procedures for trading on securities and commodities exchanges and in the over-the-counter (OTC) market;

– Prevention and detection of money laundering and terrorist financing;

– Procedures relating to research analyst independence;

– Procedures for the clearance and settlement of trades; and

– Communications with the public.



The broker-dealers’ operations are also subject to the SEC’s net capital rule, Rule 15c3-1 (Net Capital Rule), promulgated under the Exchange Act, which requires broker-dealers to maintain a specified level of minimum net capital in relatively liquid form. The Group also has a “broker-dealer lite” entity (or OTC derivatives dealer), which is subject to the Net Capital Rule but calculates its capital requirements under Appendix F. The Net Capital Rule also limits the ability of broker-dealers to transfer large amounts of capital to parent companies and other affiliates. Compliance with the Net Capital Rule could limit Group operations that require intensive use of capital, such as underwriting and trading activities and the financing of customer account balances and also could restrict the Group’s ability to withdraw capital from the Group’s broker-dealer subsidiaries, which in turn could limit the Group’s ability to pay dividends and make payments on the Group’s debt. Certain of the Group’s broker-dealers are also subject to the net capital requirements of various self-regulatory organizations.

As registered futures commission merchants, certain of the Group’s broker-dealers are subject to the capital and other requirements of the CFTC under the Commodity Exchange Act. These requirements include the provision of certain disclosure documents, generally impose prohibitions against trading ahead of customers orders and other fraudulent trading practices, and include provisions as to the handling of customer funds and reporting and recordkeeping requirements.

The investment banking and asset management businesses include legal entities registered and regulated as investment advisers under the US Investment Advisers Act of 1940, as amended, and the SEC’s rules and regulations thereunder. In addition, the SEC has recently proposed rules that clarify its ability to bring enforcement actions against investment advisers (including advisers that are not registered or required to be registered with the SEC) that defraud investors in hedge funds or other pooled investment vehicles. The SEC-registered mutual funds that the Group advises are subject to various requirements of the Investment Company Act of 1940, as amended, and the SEC’s rules and regulations thereunder. For pension fund customers, the Group is subject to the Employee Retirement Income Security Act of 1974, as amended, and similar state statutes. Finally, because some of the investment vehicles the Group advises are commodity pools, the Group is subject to the Commodity Exchange Act for such vehicles.

United Kingdom
The Group’s London broker-dealer subsidiaries and asset management companies are authorized under the FSMA and are subject to regulation by the FSA. In deciding whether to authorize an investment firm in the United Kingdom, the FSA will consider the threshold conditions for suitability set out in its rules, including the general requirement for a firm to be fit and proper. The FSA is responsible for regulating most aspects of an investment firm’s business, including its regulatory capital, sales and trading practices, use and safekeeping of customer funds and securities, record-keeping, margin practices and procedures, registration standards for individuals carrying on certain functions, anti-money laundering systems and periodic reporting and settlement procedures.



Property and equipment

The Group’s principal executive offices, which the Group owns, are located at Paradeplatz 8, Zurich, Switzerland. As of December 31, 2006, the Group maintained 634 offices and branches worldwide, of which approximately 60% were located in Switzerland.

As of December 31, 2006, approximately 29% of the Group’s worldwide offices and branches were owned directly by us with the remainder being held under commercial leases, 74% of which expire after 2011. The book value of the ten largest owned properties was approximately CHF 1.7 billion as of December 31, 2006. Some of the Group’s principal facilities are subject to mortgages and other security interests granted to secure indebtedness to certain financial institutions. As of December 31, 2006, the total amount of indebtedness secured by these facilities was not material to us.

The Group believes that its current facilities are adequate for existing operations. Management regularly evaluates the Group’s operating facilities for suitability, market presence, renovation and maintenance.



Additional information

For additional information on the Group’s principal capital expenditures, see Item 5 “Operating and financial review and prospects – Liquidity and capital resources.”

For a breakdown of the Group’s net revenues by geographic market for each of the past three years, see note 5 “Segment information” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.

For selected statistical information relating to the Group’s banking business, see Item 5 “Operating and financial review and prospects – Information required by Industry Guide 3.”




Item 4A: Unresolved staff comments

Credit Suisse Group, a well-known seasoned issuer, has no material unresolved SEC comments on its periodic reports filed under the Exchange Act that were issued more than 180 days prior to the December 31, 2006, fiscal year end.




Item 5: Operating and financial review and prospects

Management’s Discussion and Analysis of Financial Condition and Results of Operations is set forth under Operating and financial review and prospects in the Credit Suisse Group Annual Report 2006 on pages 31 to 60 and such information is incorporated herein by reference.



Critical accounting policies

In order to prepare the consolidated financial statements in accordance with US GAAP, management is required to make certain accounting estimates to ascertain the value of assets and liabilities. These estimates are based upon judgment and the information available at the time, and actual results may differ materially from these estimates. Management believes that the estimates and assumptions used in the preparation of the consolidated financial statements are prudent, reasonable and consistently applied. For further information on significant accounting policies and new accounting pronouncements, see note 1 “Summary of significant accounting policies” and note 2 “Recently issued accounting standards” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.

The Group believes that the critical accounting policies discussed below involve the most complex judgments and assessments.

Fair value
The fair value of the majority of the Group’s financial instruments is based on quoted market prices in active markets or observable market parameters or is derived from such prices or parameters. These instruments include government and agency securities, commercial paper, most investment-grade corporate debt, most high-yield debt securities, exchange traded and certain OTC derivative instruments, most Collateralized debt obligations (CDO), most mortgage-backed and asset-backed securities, certain residential mortgage whole loans and listed equity securities.

In addition, the Group holds financial instruments that are thinly traded or for which no market prices are available, and which have little or no price transparency. For these instruments, the determination of fair value requires subjective assessment and varying degrees of judgment depending on liquidity, concentration, pricing assumptions and the risks affecting the specific instrument. In such circumstances, valuation is determined based on management’s best estimate of fair value. These instruments include certain investment-grade corporate debt securities, certain high-yield debt securities, distressed debt securities, certain CDOs, certain OTC derivatives, certain mortgage-backed and asset-backed securities, non-traded equity securities and private equity and other long-term investments. Valuation techniques for certain of these instruments are described more fully below.

Controls over the fair valuation process
Control processes are applied to ensure that the fair value of the financial instruments reported in the consolidated financial statements, including those derived from pricing models, are appropriate and determined on a reasonable basis. The Group determines fair value using observable market prices or market-based parameters whenever possible. In the absence of observable market prices or market-based parameters in an active market, observable prices or market-based parameters of comparable market transactions or other observable data supporting an estimation of fair value using a valuation model at the inception of a contract, fair value is based on the transaction price. Control processes are designed to assure that the valuation approach is appropriate and the assumptions are reasonable.

These control processes include the review and approval of new instruments, review of profit and loss at regular intervals, risk monitoring and review, price verification procedures and reviews of models used to estimate the fair value of financial instruments by senior management and personnel with relevant expertise who are independent of the trading and investment functions.

The Group also has agreements with certain counterparties to exchange collateral based on the fair value of derivatives contracts. Through this process, one or both parties provide the other party with the fair value of these derivatives contracts in order to determine the amount of collateral required. This exchange of information provides additional support for valuation of certain derivatives contracts. The Group and other participants in the OTC derivatives market provide pricing information to aggregation services that compile this data and provide this information to subscribers. This information is considered in the determination of fair value for certain OTC derivatives.

Price transparency of financial instruments recorded at fair value
Financial instruments recorded in the Group’s consolidated balance sheet at fair value have been categorized based upon the transparency of the pricing information available.

The categories of pricing transparency have been broadly segregated as follows:

Quoted market prices or observable market parameters: these financial instruments are valued based upon directly observable market prices or through the use of valuation models and techniques for which the required parameters are directly observable.

Reduced or no observable market parameters: these financial instruments are priced using management’s best estimate of fair value applying valuation techniques that are based on significant judgment since observable, market-based data is not generally available.

The following table sets forth a summary of the fair value methodology applied to the Group’s financial instruments:

December 31, 2006, in CHF m
Quoted
market
prices or
observable
market
parameters






Reduced
or no
observable
market
parameters





Assets
Trading assets
Money market instruments4,27272
Trading securities340,14819,468
Derivatives1)250,33517,861
Other23,2445,425
Total trading assets617,99942,826
Investment securities
Money market instruments6320
Available-for-sale securities19,95534
Total investment securities2)20,58734
Other investments and other assets
Private equity and other long-term investments4,08914,485
Derivative instruments used for hedging2,30432
Total other investments and other assets6,39314,517
Liabilities
Trading liabilities
Financial instruments sold, not yet repurchased139,207579
Derivatives1)250,99217,741
Total trading liabilities390,19918,320
Other liabilities
Derivative instruments used for hedging1,0266
Total other liabilities1,0266
1) Based on gross mark-to-market valuations of the Group's derivative positions prior to netting of CHF 210.0 billion.      2) Excludes debt securities held-to-maturity of CHF 773 million, which are carried at amortized cost, net of any amortized premium or discount.



Trading assets and liabilities
Money market instruments
Traded money market instruments include instruments such as bankers’ acceptances, certificates of deposit, commercial paper, book claims, treasury bills and other rights, which are held for trading purposes. Valuations of traded money market instruments are generally based on market prices or market parameters and, therefore, typically do not require significant judgment.

Trading securities
The Group’s trading securities consist of interest-bearing securities and rights and equity securities. Interest-bearing securities and rights include debt securities, residential and commercial mortgage-backed and other asset-backed securities and CDOs. Equity securities include common equity shares, convertible bonds and separately managed funds.

For debt securities for which market prices are not available, valuations are based on yields reflecting the perceived risk of the issuer and the maturity of the security, recent disposals in the market or other modeling techniques, which may involve judgment.

Values of residential and commercial mortgage-backed securities and other asset-backed securities are generally available through quoted market prices, which are often based on market information of the prices at which similarly structured and collateralized securities trade between dealers and to and from customers. Values of residential and commercial mortgage-backed securities and other asset-backed securities for which there are no significant observable market parameters are valued using valuation models incorporating prepayment scenarios and Monte Carlo simulations.

Collateralized debt, bond and loan obligations are split into various structured tranches, and each tranche is valued based upon its individual rating and the underlying collateral supporting the structure. Values are derived by using valuation models to calculate the internal rate of return of the estimated cash flows.

The majority of the Group’s positions in equity securities are traded on public stock exchanges, for which daily quoted market prices are available. Fair values of preferred shares are determined by their yield and the subordination relative to the issuer’s other credit obligations. Convertible bonds are generally valued using direct pricing sources. For a small number of convertible bonds no direct prices are available and valuation is determined using internal and external models, for which the key input parameters include stock price, dividend rates, credit spreads, foreign exchange rates, prepayment rates and equity market volatility.

The fair values of positions in separately managed funds, which include debt and equity securities, are determined on a regular basis by independent fund administrators. As valuations are not provided on a daily basis, models are used to estimate changes in fair value between such determination dates.

Derivatives
Positions in derivatives held for trading purposes include both OTC and exchange-traded derivatives. The fair values of exchange-traded derivatives are typically derived from the observable exchange prices and/or observable market parameters. Fair values for OTC derivatives are determined on the basis of internally developed proprietary models using various input parameters. The input parameters include those characteristics of the derivative that have a bearing on the economics of the instrument and market parameters.

The determination of the fair value of many derivatives involves only a limited degree of subjectivity because the required input parameters are observable in the marketplace. The pricing of these instruments is referred to as “direct.” For other more complex derivatives, subjectivity relating to the determination of input parameters reduces price transparency. The pricing of these instruments is referred to as “indirect.” Specific areas of subjectivity include estimating long-dated volatility assumptions on OTC option transactions and recovery rate assumptions for credit derivative transactions. Uncertainty of pricing assumptions and liquidity are also considered as part of the valuation process. The Group has applied the guidance contained in Emerging Issues Task Force (EITF) Issue No. 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities” (EITF 02-3), prior to the adoption of Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements.” In accordance with the provisions of EITF 02-3, the Group did not recognize a dealer profit or loss, unrealized gain or loss at inception of a derivative transaction, or day one profit/loss unless the valuation underlying the unrealized gain or loss is evidenced by: (i) quoted market prices in an active market; (ii) observable prices of other current market transactions; or (iii) other observable data supporting a valuation technique. The deferred profit or loss is amortized over either the life of the derivative or the period until which observable data are available.

Derivatives that qualify for hedge accounting under US GAAP are valued at fair value but are reported in Other assets or Other liabilities rather than in Trading assets or Trading liabilities. Fair values for these instruments are determined in the same manner as for derivatives held for trading purposes.

For further information on derivatives, see note 27 “Derivatives and hedging activities” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.

Other trading assets
Other trading assets primarily include residential mortgage loans that are purchased with the intent to securitize. Valuations for traded residential mortgage loans are based on pricing factors specific to loan level attributes, such as loan-to-value ratios, current balance and liens. In addition, current written offers or contract prices are considered in the valuation process.

Investment securities
Investment securities recorded at fair value include debt and equity securities classified as available-for-sale. These debt and equity securities are quoted on public exchanges or liquid OTC markets where the determination of fair value involves relatively little judgment. These instruments include government and corporate bonds held for asset and liability management or other medium-term business strategies. As discussed in note 1 “Summary of significant accounting policies” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006, unrealized gains and losses on securities classified as available-for-sale are recorded in Accumulated other comprehensive income/loss (AOCI); however, recognition of an impairment loss is recorded if a decline in fair value below carrying value is considered to be other than temporary. The risks inherent in the assessment methodology for impairments include the risk that market factors may differ from the Group’s expectations, that the Group may decide to sell a security for unforeseen liquidity needs or that the credit assessment or equity characteristics may change from the Group’s original assessment.

Other investments and non-trading liabilities
The Group’s Other investments include items for which the determination of fair value is generally more subjective, including hybrid instruments, private equity and other alternative capital investments.

Private equity and other long-term investments include direct investments and investments in partnerships that make private equity and related investments in various portfolio companies and funds. Private equity investments and other long-term investments consist of both publicly traded securities and private securities. Publicly traded investments are valued based upon readily available market quotes with appropriate adjustments for liquidity as a result of holding large blocks and/or having trading restrictions. Private securities, which generally have no readily available market or may be otherwise restricted as to resale, are valued taking into account a number of factors, such as the most recent round of financing involving unrelated new investors, earnings multiple analyses using comparable companies or discounted cash flow analysis.

The following table sets forth the fair value of the Group's private equity investments by category:
2006  2005  

December 31, in CHF m, except where indicated

Fair value

Percent
of total


Fair value

Percent
of total

Credit Suisse managed funds17,27392.8%7,95273.4%
Direct investments450.2%1481.4%
Funds managed by third parties and other private equity investments1,3097.0%2,73525.2%
Total18,627100.0%10,835100.0%



Internally-managed funds include partnerships and related direct investments for which the Group acts as the fund’s adviser and makes investment decisions. Internally-managed funds principally invest in private securities and, to a lesser extent, publicly traded securities and fund of funds partnerships. The increase in Credit Suisse managed funds was primarily due to the consolidation of certain private equity funds and other entities for the first time in 2006. For further information on this first time consolidation, see note 2 “Recently issued accounting standards” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006. The fair value of investments in internally-managed fund of funds partnerships, which is reflected in “Reduced or no observable market parameters” in the table above, is based on the valuation received from the underlying fund manager and reviewed by the Group. The fair value of investments in other internally managed funds is based on the Group’s valuation. Balances reported in internally-managed funds also include amounts relating to the consolidation of private equity funds under Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 46 (Revised), “Consolidation of Variable Interest Entities – An Interpretation of ARB No. 51” (FIN 46(R)), which are described in further detail in note 29 “Transfers and servicing of financial assets” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006. A substantial portion of the private equity funds consolidated primarily under FIN 46(R) is reflected in “Reduced or no observable market parameters” in the table above. Funds managed by third parties include investments in funds managed by an external fund manager. The fair value of these funds is based on the valuation received from the general partner of the fund and reviewed by the Group.

Contingencies and loss provisions
A contingency is an existing condition that involves a degree of uncertainty that will ultimately be resolved upon the occurrence of future events.

Litigation contingencies
From time to time, the Group and its subsidiaries are involved in a variety of legal, regulatory and arbitration matters in connection with the conduct of its businesses. It is inherently difficult to predict the outcome of many of these matters, particularly those cases in which the matters are brought on behalf of various classes of claimants, seek damages of unspecified or indeterminate amounts or involve novel legal claims. In presenting the Group’s consolidated financial statements, management makes estimates regarding the outcome of legal, regulatory and arbitration matters and takes a charge to income when losses with respect to such matters are probable and can be reasonably estimated. Charges, other than those taken periodically for costs of defense, are not established for matters when losses cannot be reasonably estimated. Estimates, by their nature, are based on judgment and currently available information and involve a variety of factors, including, but not limited to, the type and nature of the litigation, claim or proceeding, the progress of the matter, the advice of legal counsel and other advisers, the Group’s defenses and its experience in similar cases or proceedings as well as the Group’s assessment of matters, including settlements, involving other defendants in similar or related cases or proceedings. For further information on legal proceedings, see Item 8 “Financial Information Legal proceedings” and note 34 “Litigation and other contingencies” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.

Allowances and provisions for losses
As a normal part of its business, the Group is exposed to credit risks through its lending relationships, commitments and letters of credit as well as counterparty risk on derivatives, foreign exchange and other transactions. Credit risk is the risk that a borrower or counterparty is unable to meet its financial obligations. In the event of a default, the Group generally incurs a loss equal to the amount owed by the counterparty, less a recovery amount resulting from foreclosure, liquidation of collateral or restructuring of the counterparty’s obligation. Allowances for loan losses are maintained, as discussed in note 1 “Summary of significant accounting policies” and note 12 “Loans” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006. The allowances for loan losses are considered adequate to absorb credit losses existing at the dates of the consolidated balance sheets. These allowances are for probable credit losses inherent in existing exposures and credit exposures specifically identified as impaired.

Inherent loan loss allowance
The inherent loss allowance is for all credit exposures not specifically identified as impaired and that, on a portfolio basis, are considered to contain probable inherent loss. The loan valuation allowance is established by analyzing historical and current default probabilities, historical recovery assumptions and internal risk ratings. The methodology for investment banking adjusts the rating-specific default probabilities to incorporate not only historic third-party data over a period but also those implied from current quoted credit spreads.

Many factors are evaluated in estimating probable credit losses inherent in existing exposures. These factors include: the volatility of default probabilities; rating changes; the magnitude of the potential loss; internal risk ratings; geographic, industry and other environmental factors; and imprecision in the methodologies and models used to estimate credit risk. Overall credit risk indicators are also considered, such as trends in internal risk-rated exposures, classified exposure, cash-basis loans, recent loss experience and forecasted write-offs, as well as industry and geographic concentrations and current developments within those segments or locations. The Group’s current business strategy and credit process, including credit approvals and limits, underwriting criteria and workout procedures, are also important factors.

Significant judgment is exercised in the evaluation of these factors. For example, estimating the amount of potential loss requires an assessment of the period of the underlying data. Data that does not capture a complete credit cycle may compromise the accuracy of loss estimates. Determining which external data relating to default probabilities should be used and when they should be used, also requires judgment. The use of market indices and ratings that do not sufficiently correlate to the Group’s specific exposure characteristics could also affect the accuracy of loss estimates. Evaluating the impact of uncertainties regarding macroeconomic and political conditions, currency devaluations on cross-border exposures, changes in underwriting criteria, unexpected correlations among exposures and other factors all require significant judgment. Changes in the Group’s estimates of probable credit losses inherent in the portfolio could have an impact on the provision and result in a change in the allowance.

Specific loan loss allowances
The Group makes provisions for specific credit losses on impaired loans based on regular and detailed analysis of each loan in the portfolio. This analysis includes an estimate of the realizable value of any collateral, the costs associated with obtaining repayment and realization of any such collateral, the counterparty’s overall financial condition, resources and payment record, the extent of the Group’s other commitments to the same counterparty and prospects for support from any financially responsible guarantors. For further information on specific loan loss allowances, see note 1 “Summary of significant accounting policies” and note 12 “Loans” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.

The methodology for calculating specific allowances involves judgments at many levels. First, it involves the early identification of deteriorating credits. Extensive judgment is required in order to properly evaluate the various indicators of financial condition of a counterparty and likelihood of repayment. The failure to identify certain indicators or give them proper weight could lead to a different conclusion about the credit risk. The assessment of credit risk is subject to inherent limitations with respect to the completeness and accuracy of relevant information (for example, relating to the counterparty, collateral or guarantee) that is available at the time of the assessment. Significant judgment is exercised in determining the amount of the provision. Whenever possible, independent, verifiable data or the Group’s own historical loss experience is used in models for estimating loan losses. However, a significant degree of uncertainty remains when applying such valuation techniques. Under the Group’s loans policy, the classification of loan status also has a significant impact on the subsequent accounting for interest accruals.

For loan portfolio disclosures, valuation adjustment disclosures and certain other information relevant to the evaluation of credit risk and credit risk management, see “Risk management” in the Credit Suisse Group Annual Report 2006.

Goodwill impairments
As a result of acquisitions, the Group has recorded Goodwill as an asset in its consolidated balance sheet, the most significant component of which arose from the acquisition of Donaldson, Lufkin & Jenrette Inc. Goodwill was CHF 11.0 billion and CHF 12.9 billion as of December 31, 2006 and 2005, respectively. The primary decrease in Goodwill in 2006 was due to the sale of Winterthur. For further information on this divestiture, see note 4 “Discontinued operations” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006. The remaining decrease in Goodwill in 2006 was caused primarily by foreign exchange fluctuations in Goodwill denominated in US dollars.

Recorded Goodwill is not amortized, rather it is reviewed for possible impairments on an annual basis and at any other time that events or circumstances indicate that the carrying value of Goodwill may not be recoverable. Circumstances that could trigger an impairment test include, but are not limited to: a significant adverse change in the business climate or legal factors; an adverse action or assessment by a regulator; unanticipated competition; loss of key personnel; the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed of; results of testing for recoverability of a significant asset group within a reporting unit; and recognition of a Goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit.

For the purpose of testing Goodwill for impairment, each reporting unit is assessed individually. A reporting unit is an operating segment or one level below an operating segment, also referred to as a component. A component of an operating segment is deemed to be a reporting unit if the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. Investment Banking is considered to be one reporting unit, and in Private Banking, Wealth Management and Corporate & Retail Banking, are considered to be reporting units. In Asset Management, the two primary business areas, traditional asset management and alternative investments, are considered to be reporting units. If the fair value of a reporting unit exceeds its carrying value, there is no Goodwill impairment. Factors considered in determining the fair value of reporting units include, among other things: an evaluation of recent acquisitions of similar entities in the market place; current share values in the market place for similar publicly traded entities, including price multiples; recent trends in the Group’s share price and those of competitors; estimates of the Group’s future earnings potential; and the level of interest rates.

Estimates of the Group’s future earnings potential, and that of the reporting units, involve considerable judgment, including management’s view on future changes in market cycles, the anticipated result of the implementation of business strategies, competitive factors and assumptions concerning the retention of key employees. Adverse changes in the estimates and assumptions used to determine the fair value of the Group’s reporting units may result in a Goodwill impairment charge in the future.

During 2006 and 2005, no Goodwill impairment charges were recorded. For further information on Goodwill, see note 14 “Goodwill” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.

Income taxes
Deferred tax valuation allowances
Deferred tax assets and liabilities are recognized for the estimated future tax effects of operating loss carry-forwards and temporary differences between the carrying amounts of existing assets and liabilities and their respective tax bases at the dates of the consolidated balance sheets.

The realization of deferred tax assets on temporary differences is dependent upon the generation of taxable income during the periods in which those temporary differences become deductible. The realization of such deferred tax assets on net operating losses is dependent upon the generation of taxable income during the periods prior to their expiration, if applicable. Management periodically evaluates whether deferred tax assets can be realized. If management considers it more likely than not that all or a portion of a deferred tax asset will not be realized, a corresponding valuation allowance is established. In evaluating whether deferred tax assets can be realized, management considers projected future taxable income, the scheduled reversal of deferred tax liabilities and tax planning strategies.

This evaluation requires significant management judgment, primarily with respect to projected taxable income. The estimate of future taxable income can never be predicted with certainty. It is derived from budgets and strategic business plans but is dependent on numerous factors, some of which are beyond management’s control. Substantial variance of actual results from estimated future taxable profits, or changes in the Group’s estimate of future taxable profits, could lead to changes in deferred tax assets being realizable, or considered realizable, and would require a corresponding adjustment to the valuation allowance.

As of December 31, 2006 and 2005, the Group had deferred tax assets resulting from temporary differences and from net operating losses that could reduce taxable income in future periods. The consolidated balance sheets as of December 31, 2006 and 2005, included gross deferred tax assets of CHF 6.3 billion and CHF 11.7 billion, respectively, and gross deferred tax liabilities of CHF 1.1 billion and CHF 6.4 billion, respectively. The decrease from 2005 to 2006 is due to the sale of Winterthur. Due to uncertainty concerning the Group’s ability to generate the necessary amount and mix of taxable income in future periods, a valuation allowance was recorded against deferred tax assets in the amount of CHF 728 million and CHF 1,225 million as of December 31, 2006 and 2005, respectively, which related primarily to deferred tax assets on net operating loss carry-forwards.

For further information on deferred tax assets, see note 23 “Income taxes” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.

Tax contingencies
Significant judgment is required in determining the effective tax rate and in evaluating certain tax positions. The Group accrues for tax contingencies. Despite the belief that its tax return positions are fully supportable, certain positions could be reviewed by local tax authorities. Once established, tax contingency accruals are adjusted due to changing facts and circumstances, such as case law, progress of audits or when an event occurs requiring a change to the tax contingency accruals. Management regularly assesses the likelihood of adverse outcomes to determine the appropriateness of provisions for income taxes. Although the outcome of any dispute is uncertain, management believes that it has appropriately accrued for any unfavorable outcome.

Pension plans
The Group covers pension requirements, in both Swiss and non-Swiss locations, through various defined benefit pension plans and defined contribution pension plans.

The Group’s funding policy with respect to the non-Swiss pension plans is consistent with local government and tax requirements. In certain non-Swiss locations, the amount of the Group contribution to defined contribution pension plans is linked to the return on equity of the respective segments and, as a result, the amount of the Group’s contribution may differ materially from year to year.

The calculation of the expense and liability associated with the defined benefit pension plans requires an extensive use of assumptions, which include the discount rate, expected return on plan assets and rate of future compensation increases as determined by the Group. Management determines these assumptions based upon currently available market and industry data and historical performance of the plans and their assets. Management also consults with an independent actuarial firm to assist in selecting appropriate assumptions and valuing its related liabilities. The actuarial assumptions used by the Group may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of the participants. Any such differences could have a significant impact on the amount of pension expense recorded in future years.

The funded status of the Group’s defined benefit and other post-retirement defined benefit plans are recorded in the consolidated balance sheet. The previously unrecognized actuarial gains and losses, prior service costs or credits, and net transition assets or obligations are recognized in equity as a component of AOCI.

As of December 31, 2006, the Group’s Swiss defined benefit pension plans accounted for approximately 80% of the projected benefit obligations while the international defined benefit pension plans accounted for approximately 20% of the projected benefit obligations. The annual amount contributed to the Swiss plans and international plans over the last three years averaged CHF 387 million and CHF 238 million, respectively. In 2006, contributions of CHF 338 million were made to the Swiss plans and CHF 38 million were made to the international plans. The Group expects to make total contributions to the Swiss and international plans of approximately CHF 363 million in 2007.

The projected benefit obligations of the Group’s total defined benefit pension plans include an amount related to future salary increases of CHF 1,402 million. On the basis of the accumulated benefit obligation, which is defined as the projected benefit obligation less the amount related to future salary increases, the under-funded status of the plans was CHF 277 million for 2006.

The Group is required to estimate the expected return on plan assets, which is then used to compute pension cost recorded in the consolidated statement of income. Estimating future returns on plan assets is particularly subjective, as the estimate requires an assessment of possible future market returns based on the plan asset mix and observed historical returns. In calculating pension expense and in determining the expected rate of return, the Group uses the market-related value of assets.

As of September 30, 2006, the Swiss plans’ assets were allocated 18.6% to equity securities, 42.1% to debt securities, 16.0% to real estate, 12.1% to liquidity and 11.2% to alternative investments. The Swiss plans’ assets as of December 31, 2005, were allocated 13.1% to equity securities, 32.6% to debt securities, 25.4% to insurance, 12.2% to real estate, 11.5% to liquidity and 5.2% to alternative investments. Liquidity investments are mainly cash and cash equivalents, and alternative investments may include private equity investments, hedge funds and commodities. The year-end allocations were within the plans’ target ranges.

The plan assets for the international plans as of September 30, 2006, were allocated 44.7% to equity securities, 49.8% to debt securities, 4.9% to insurance, 0.2% to real estate, 0.2% to liquidity and 0.2% to alternative investments. The plan assets for the international plans as of December 31, 2005, were allocated 47.7% to equity securities, 18.1% to debt securities, 21.2% to insurance, 3.1% to real estate, 5.5% to liquidity and 4.4% to alternative investments. The year-end allocations were within the plans’ target ranges.

The expected rate of return on plan assets in Switzerland increased 0.3% to 5.0% as of December 31, 2006, from 4.7% as of December 31, 2005, due mainly to an improvement in expected rates of return from the Swiss debt markets. For the year ended December 31, 2006, if the expected rate of return had been increased 1%, net pension expense for the Swiss plans would have decreased CHF 110 million and net pension expense for the international plans would have decreased CHF 19 million.

The discount rate used in determining the benefit obligation is based either upon high-quality corporate bond rates or government bond rates plus a premium in order to approximate high-quality corporate bond rates. In estimating the discount rate, the Group takes into consideration the relationship between the corporate bonds and the timing and amount of the future cash outflows of its benefit payments. The average discount rate used for Swiss plans increased 0.3% from 3.0% as of December 31, 2005, to 3.3% as of December 31, 2006, due mainly to an increase in Swiss bond market rates. The average discount rate used for international plans increased 0.4% from 4.8% as of December 31, 2005, to 5.2% as of December 31, 2006, due mainly to an increase in bond market rates in the European Union and the United States. The discount rate affects both the pension expense and the pension benefit obligation (PBO). For the year ended December 31, 2006, a 1% decline in the discount rate for the Swiss plans would have resulted in an increase in the PBO of CHF 1,936 million and an increase in pension expense of CHF 180 million, and a 1% increase in the discount rate would have resulted in a decrease in the PBO of CHF 1,527 million and a decrease in the pension expense of CHF 58 million. A 1% decline in the discount rate for the international plans would have resulted in an increase in the PBO of CHF 799 million and an increase in pension expense of CHF 63 million, and a 1% increase in the discount rate would have resulted in a decrease in the PBO of CHF 579 million and a decrease in the pension expense of CHF 50 million.

Recognized actuarial losses are amortized over the average remaining service period of active employees expected to receive benefits under the plan, which is approximately 10 years for the Swiss plans and 7 to 25 years for the international plans. The expense associated with the amortization of recognized net actuarial losses for the years ended December 31, 2006 and 2005 was CHF 121 million and CHF 48 million, respectively. The amortization of recognized actuarial losses for the year ending December 31, 2007, which is assessed at the beginning of the plan year, is expected to be CHF 122 million. The amount by which the actual return on plan assets differs from the Group’s estimate of the expected return on those assets further impacts the amount of net recognized actuarial losses, resulting in a higher or lower amount of amortization expense in periods after 2007.

For further information on the Group’s pension benefits, see note 26 “Pension and other post-retirement benefits” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.



Off-balance sheet arrangements

The Group enters into off-balance sheet arrangements in the ordinary course of business. Off-balance sheet arrangements are transactions or other contractual arrangements with, or for the benefit of, an entity that is not consolidated with an issuer, and which include guarantees and similar arrangements, retained or contingent interests in assets transferred to an unconsolidated entity, and obligations and liabilities (including contingent obligations and liabilities) under material variable interests in unconsolidated entities for the purpose of providing financing, liquidity, market risk or credit risk support.

Guarantees
In the ordinary course of business, guarantees and indemnifications are provided that contingently obligate the Group to make payments to the guaranteed or indemnified party based on changes in an asset, liability or equity security of the guaranteed or indemnified party. The Group may be contingently obligated to make payments to a guaranteed party based on another entity’s failure to perform, or the Group may have an indirect guarantee of the indebtedness of others. Guarantees provided include customary indemnifications to purchasers in connection with the sale of assets or businesses; to investors in private equity funds sponsored by the Group regarding potential obligations of its employees to return amounts previously paid as carried interest; to investors in Group securities and other arrangements to provide “gross up” payments if there is a withholding or deduction because of a tax assessment or other governmental charge; and to counterparties in connection with securities lending arrangements.

In connection with the sale of assets or businesses, the Group sometimes provides the acquirer with certain indemnification provisions. These indemnification provisions vary by counterparty in scope and duration and depend upon the type of assets or businesses sold. These indemnification provisions generally shift the potential risk of certain unquantifiable and unknowable loss contingencies (e.g., relating to litigation, tax and intellectual property matters). The Group closely monitors all such contractual agreements to ensure that indemnification provisions are adequately provided for in the Group’s consolidated financial statements.

In December 2006, the Group completed the sale of Winterthur to AXA S.A. Under the share purchase agreement, the Group gave AXA S.A. certain customary representations and warranties and covenants about Winterthur and its business. As of December 31, 2006, the Group was not aware of any circumstances that could give rise to a claim by AXA S.A. under the agreement.

FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45), requires disclosure of our maximum potential payment obligations under certain guarantees to the extent that it is possible to estimate them and requires recognition of a liability for the fair value of guaranteed obligations for guarantees issued or amended after December 31, 2002. The recognition of these liabilities did not have a material effect on our financial position or results of operations. For disclosure of our estimable maximum payment obligations under certain guarantees and related information, see note 28 “Guarantees and commitments” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.

Retained or contingent interests in assets transferred to unconsolidated entities
The Group originates and purchases commercial and residential mortgages for the purpose of securitization. These assets are sold directly, or through affiliates, to special purpose entities that are, in most cases, qualified special purpose entities (QSPEs) that are not consolidated by the Group. These QSPEs issue securities that are backed by the assets transferred to the QSPEs and pay a return based on the returns of those assets. Investors in these mortgage-backed securities typically have recourse to the assets in the QSPEs; however, neither the investors nor the QSPEs have recourse to the Group’s assets. The Group is an underwriter of, and makes a market in, these securities.

Under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - A Replacement of FASB Statement No. 125,” a QSPE is not required to be consolidated with the transferor. The Group’s mortgage-backed securitization activities are generally structured to use QSPEs, and the assets and liabilities transferred to QSPEs are not included in the Group’s consolidated financial statements.

The Group may retain interests in these securitized assets in connection with its underwriting and market-making activities. Retained interests in securitized financial assets are included at fair value in Trading assets in the consolidated balance sheets. Any changes in the fair value of these retained interests are recognized in the consolidated statement of income. The Group engages in these securitization activities to meet the needs of clients as part of its fixed income activities, to earn fees and to sell financial assets. These securitization activities do not provide a material source of liquidity, capital resources, credit risk or market risk support to the Group. For quantitative information on the Group’s securitization activities and retained interests, see note 29 “Transfers and servicing of financial assets” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.

Variable interest entities
FIN 46(R) requires the Group to consolidate all variable interest entities (VIE) for which it is the primary beneficiary, defined as the entity that will absorb a majority of expected losses, receive a majority of the expected residual returns, or both. The Group consolidates all VIEs for which it is the primary beneficiary.

As a normal part of its business, the Group engages in transactions with various entities that may be deemed to be VIEs, including VIEs that issue CDOs.

The Group purchases loans and other debt obligations from and on behalf of clients for the purpose of securitization. The loans and other debt obligations are sold to QSPEs or VIEs that issue CDOs. VIEs issue CDOs to fund the purchase of assets such as investment-grade and high-yield corporate debt instruments. The Group engages in CDO transactions to meet the needs of clients, to earn fees and to sell financial assets.

The Group continues to act as the administrator and provider of liquidity and credit enhancement facilities for several Commercial paper conduits (CP conduits). These CP conduits purchase assets, primarily receivables, from clients and provide liquidity through the issuance of commercial paper backed by these assets. The clients provide credit support to investors of the CP conduits in the form of over-collateralization and other asset-specific enhancements as described below. The Group does not sell assets to the CP conduits and does not have any ownership interest in the CP conduits.

The Group’s commitments to CP conduits consist of obligations under liquidity and credit enhancement agreements. The liquidity agreements are asset-specific arrangements, which require the Group to purchase assets from the CP conduits in certain circumstances, such as if the CP conduits are unable to access the commercial paper markets. Credit enhancement agreements, which may be asset-specific or program-wide, require the Group to purchase certain assets under any condition, including default. In entering into such agreements, the Group reviews the credit risk associated with these transactions on the same basis that would apply to other extensions of credit.

The Group has significant involvement with VIEs in its role as a financial intermediary on behalf of clients. These activities include the use of VIEs to structure various fund-linked products to provide clients with investment opportunities in alternative investments. In addition, the Group provides financing to client-sponsored VIEs, established to purchase or lease certain types of assets. For certain products, structured to provide clients with investment opportunities, a VIE holds underlying investments and issues securities that provide investors with a return based on the performance of those investments. The investors typically retain the risk of loss on such transaction, but the Group may provide principal protection on the securities to limit the investors’ exposure to downside risk. As a financial intermediary, the Group may administer or sponsor the VIE, transfer assets to the VIE, provide collateralized financing, act as a derivatives counterparty, advise on the transaction, act as investment adviser or investment manager, act as underwriter or placement agent or provide credit enhancement, liquidity or other support to the VIE. The Group also owns securities issued by the VIEs, structured to provide clients with investment opportunities, for market-making purposes and as investments.

For additional information, see note 29 “Transfers and servicing of financial assets” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.



Contractual obligations and other commercial commitments

In connection with its operating activities, the Group enters into certain contractual obligations, as well as commitments to fund certain assets. Total obligations increased in 2006, primarily reflecting an increase in both Long-term debt and short-term obligations. Long-term debt increased to CHF 147.8 billion in 2006 from CHF 133.0 billion in 2005, mainly due to increases in senior debt issued in the United States. Short-term contractual obligations increased to CHF 641.5 billion in 2006 from CHF 601.0 billion in 2005, as a result of greater levels of Deposits due to rising interest rates in all regions and increases in Brokerage payables due to higher levels of business activity across the United States and Europe.

For further information on commitments see note 28 “Guarantees and commitments” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.

The following table sets forth future cash payments associated with the Group's contractual obligations on a consolidated basis:
Payments due by period  

December 31, 2006, in CHF m

Less than
1 year




1 to 3 years




3 to 5 years


More
than
5 years




Total


Long-term debt obligations21,13954,57433,43238,687147,832
Capital lease obligations61318210247
Operating lease obligations6631,1489644,9087,683
Purchase obligations36030617016852
Total obligations22,16856,04134,58443,821156,614



The following table sets forth the Group's consolidated short-term contractual obligations:
December 31, in CHF m20062005
Deposits388,378364,238
Short-term borrowings21,55619,472
Brokerage payables33,18523,068
Trading account liabilities198,422194,225
Total short-term contractual obligations641,541601,003



The total accrued benefit liability for pension and other postretirement benefit plans recognized as of December 31, 2006, was CHF 1,778 million. This accrued liability is included in Other liabilities in the consolidated balance sheets. This amount is impacted by the application of SFAS No. 158, “Employers Accounting for Defined Benefit Pension and Other Postretirement Plans – An Amendment of FASB Statements No. 87, 88, 106, and 132(R),” and, among other items, changes in plan demographics and assumptions, pension expense funding levels and investment return on plan assets. Because the accrued liability does not represent expected liquidity needs, we did not include this amount in the contractual obligations table above. For further information on pension and other postretirement benefits, see note 1 “Summary of significant accounting policies” and note 26 “Pension and other postretirement benefits” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.



Derivatives

The Group enters into derivative contracts in the normal course of business for market-making, positioning and arbitrage purposes, as well as for its own risk management needs, including mitigation of interest rate, foreign currency and credit risk.

Derivatives are generally either privately negotiated OTC contracts or standard contracts transacted through regulated exchanges. The most frequently used freestanding derivative products include interest rate, cross-currency and credit default swaps, interest rate and foreign currency options, foreign exchange forward contracts and foreign currency and interest rate futures.

The replacement values of derivative financial instruments correspond to the fair values at the dates of the consolidated balance sheets and are those which arise from transactions for the account of customers and for the Group’s own account. Positive replacement values constitute a receivable. The fair value of a derivative is the amount for which that derivative could be exchanged between knowledgeable, willing parties in an arm’s-length transaction. Fair value does not indicate future gains or losses, but rather the unrealized gains and losses from marking to market all derivatives at a particular point in time. The fair values of derivatives are determined using various methodologies including quoted market prices, where available, prevailing market rates for instruments with similar characteristics and maturities, net present value analysis or other pricing models, as appropriate.

The credit risk on derivative receivables is reduced by the use of legally enforceable netting agreements and collateral agreements. Netting agreements allow the Group to net the effect of derivative assets and liabilities when transacted with the same counterparty, when those netting agreements are legally enforceable and there is an intent to settle net with the counterparty. Replacement values are disclosed net of such agreements in the consolidated balance sheets. Collateral agreements are entered into with certain counterparties based upon the nature of the counterparty and/or the transaction and require the placement of cash or securities with the Group. Collateral received is only recognized in the consolidated balance sheet to the extent that the counterparty has defaulted in its obligation to the Group and is no longer entitled to have the collateral returned.

The following tables set forth the details of trading and hedging derivative instruments:
Trading  Hedging  

December 31, 2006, in CHF bn

Notional
amount


Positive
replacement
value


Negative
replacement
value



Notional
amount


Positive
replacement
value


Negative
replacement
value


Forwards and forward rate agreements3,144.52.82.50.00.00.0
Swaps14,706.5139.6136.474.01.70.8
Options bought and sold (OTC)2,361.020.123.10.30.00.0
Futures1,308.40.00.00.00.00.0
Options bought and sold (traded)1,575.50.20.50.00.00.0
Interest rate products23,095.9162.7162.574.31.70.8
Forwards1,142.112.412.411.60.00.1
Swaps704.122.018.72.80.70.1
Options bought and sold (OTC)584.66.36.10.00.00.0
Futures9.80.00.00.00.00.0
Options bought and sold (traded)2.40.00.00.00.00.0
Foreign exchange products2,443.040.737.214.40.70.2
Forwards7.81.23.10.00.00.0
Swaps1.80.10.00.00.00.0
Options bought and sold (OTC)11.50.60.40.00.00.0
Precious metals products21.11.93.50.00.00.0
Forwards16.24.20.00.00.00.0
Swaps226.24.97.90.00.00.0
Options bought and sold (OTC)493.124.326.10.00.00.0
Futures69.00.10.00.00.00.0
Options bought and sold (traded)378.41.81.20.00.00.0
Equity/index-related products1,182.935.335.20.00.00.0
Credit derivatives2,088.019.021.42.10.00.0
Forwards10.40.50.50.00.00.0
Swaps112.05.96.00.00.00.0
Options bought and sold (OTC)25.11.42.00.00.00.0
Futures83.20.00.00.00.00.0
Options bought and sold (traded)15.00.60.80.00.00.0
Other products245.78.49.30.00.00.0
Total derivative instruments29,076.6268.0269.190.82.41.0
The notional amount for derivative instruments (trading and hedging) was CHF 29,167.4 billion and CHF 23,196.9 billion as of December 31, 2006 and 2005, respectively.



2006  2005  

December 31, in CHF bn
Positive re-
placement
value


Negative re-
placement
value


Positive re-
placement
value


Negative re-
placement
value


Replacement values (trading and hedging) before netting270.4270.1277.5277.5
Replacement values (trading and hedging) after netting60.359.958.858.8



Freestanding derivative instruments
A description of the key features of freestanding derivative instruments and the key objectives of holding or issuing these instruments is set out below.

Swaps
The Group’s swap agreements consist primarily of interest rate, equity and credit default swaps. The Group enters into swap agreements for trading and risk management purposes. Interest rate swaps are contractual agreements to exchange interest rate payments based on agreed upon notional amounts and maturities. Equity swaps are contractual agreements to receive the appreciation or depreciation in value based on a specific strike price on an equity instrument in exchange for paying another rate, which is usually based on an index or interest rate movements. Credit default swaps are contractual agreements in which the buyer of the swap pays a periodic fee in return for a contingent payment by the seller of the swap following a credit event of a reference entity. A credit event is commonly defined as bankruptcy, insolvency, receivership, material adverse restructuring of debt or failure to meet payment obligations when due.

Options
The Group writes option contracts specifically designed to meet the needs of customers and for trading purposes. These written options do not expose the Group to the credit risk of the customer because the Group, not its counterparty, is obligated to perform. At the beginning of the contract period, the Group receives a cash premium. During the contract period, the Group bears the risk of unfavorable changes in the value of the financial instruments underlying the options. To manage this market risk, the Group purchases or sells cash or derivative financial instruments on a proprietary basis. Such purchases and sales may include debt and equity securities, forward and futures contracts, swaps and options.

The Group also purchases options to meet customer needs, for trading purposes and for hedging purposes. For purchased options, the Group obtains the right to buy or sell the underlying instrument at a fixed price on or before a specified date. During the contract period, the Group’s risk is limited to the premium paid. The underlying instruments for these options typically include fixed income and equity securities, foreign currencies and interest rate instruments or indices. Counterparties to these option contracts are regularly reviewed in order to assess creditworthiness.

Forwards and futures
The Group enters into forward purchase and sale contracts for mortgage-backed securities, foreign currencies and commitments to buy or sell commercial and residential mortgages. In addition, the Group enters into futures contracts on equity-based indices and other financial instruments, as well as options on futures contracts. These contracts are typically entered into to meet the needs of customers, for trading purposes and for hedging purposes.

Forward contracts expose the Group to the credit risk of the counterparty. To mitigate this credit risk, the Group limits transactions with specific counterparties, regularly reviews credit limits and adheres to internally established credit extension policies.

For futures contracts and options on futures contracts, the change in the market value is settled with a clearing broker in cash each day. As a result, the credit risk with the clearing broker is limited to the net positive change in the market value for a single day.

Risk management
The Group uses derivatives to meet its own risk management needs, including mitigation of interest rate, foreign currency and credit risk. A description of the Group’s hedging activities is set out below.

Economic hedges
Economic hedges arise when the Group enters into derivative contracts for its own risk management purposes, but the contracts entered into do not qualify for hedge accounting under US GAAP. These economic hedges include credit derivatives to manage credit risk on certain of the Group’s loan portfolios and foreign exchange derivatives to manage foreign exchange risk on certain of its core banking business revenue and expense items. Additionally, the Group uses foreign exchange derivatives and interest rate derivatives to manage net interest rate risk on certain core banking business assets and liabilities. While the respective risks on the underlying assets have been hedged, an element of volatility is experienced in the accounting results because in many cases the expenses and revenue streams generated by the underlying assets are accounted for on an accruals basis, while the derivatives are accounted for at fair value.

Fair value hedges
The Group’s interest rate risk management strategy incorporates the use of derivative instruments to minimize fluctuations in earnings that are caused by interest rate volatility. Interest rate sensitivity is managed by modifying the repricing or maturity characteristics of certain assets and liabilities so that movements in interest rates do not significantly affect net interest income. As a result of interest rate fluctuations, the fair value of hedged assets and liabilities will appreciate or depreciate.

In addition, the Group uses cross-currency swaps to convert foreign currency denominated fixed rate assets or liabilities to floating rate functional currency assets or liabilities and foreign currency forward contracts to hedge the foreign currency risk associated with available-for-sale-securities.

Derivatives which are designated and qualify as fair value hedges are recorded in the consolidated balance sheet at fair value with the carrying value of the underlying hedged items also adjusted to fair value for the risk being hedged. Changes in the fair value of these derivatives are recorded in the same line item of the consolidated statement of income as the change in the fair value of the risk being hedged for the hedged assets or liabilities to the extent the hedge is effective. The change in the fair value representing hedge ineffectiveness is recorded separately in Trading revenues.

Cash flow hedges
Cash flow hedging strategies are used to mitigate exposure to the variability of cash flows. This is achieved by using interest rate swaps to convert variable rate assets or liabilities, such as loans, deposits and other debt obligations, to fixed rates. The Group also uses cross-currency swaps to convert foreign currency denominated fixed and floating rate assets or liabilities to fixed rate assets or liabilities based on the currency profile that the Group elects to be exposed to. This includes, but is not limited to, Swiss francs and US dollars.

Further, the Group uses derivatives to hedge its cash flows associated with forecasted transactions. For these hedges, the maximum length of time over which the Group hedges its exposure to the variability in future cash flows, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, is 22 months.

The effective portion of the change in the fair value of a derivative that is designated and qualifies as a cash flow hedge is recorded in AOCI. These amounts are reclassified into earnings when the variable cash flow from the hedged item impacts earnings. The ineffective portion of the change in the fair value of a cash flow hedging derivative is recorded in Trading revenues.

Net investment hedges
The Group typically uses forward foreign exchange contracts to hedge selected net investments in foreign operations in order to protect against adverse movements in foreign exchange rates.

The change in the fair value of a derivative used as a hedge of a net investment in a foreign operation is recorded in AOCI, to the extent the hedge is effective. The change in the fair value representing hedge ineffectiveness is recorded in Trading revenues.

Over-the-counter derivatives
The Group’s positions in derivatives include both OTC and exchange-traded derivatives. OTC derivatives include forwards, swaps and options on foreign exchange, interest rates, equity securities and credit instruments.

The following table sets forth the distributions, by maturity, of the Group's exposure with respect to OTC derivative receivables:

December 31, 2006, in CHF bn

Less than
1 year



1 to 5
years


More
than
5 years


Positive
replacement
value


Interest rate products14.754.894.7164.2
Foreign exchange products21.611.68.241.4
Precious metals products0.61.30.01.9
Equity/index-related products12.918.52.033.4
Credit derivatives0.712.26.119.0
Other products7.80.00.07.8
Total derivative instruments58.398.4111.0267.7
Netting agreements1)(208.9)
Total derivative instruments, net positive replacement value1)58.8
1) Taking into account legally enforceable netting agreements.



The following table sets forth the Group's exposure with respect to OTC derivatives by counterparty credit rating. Credit ratings are determined by external rating agencies or by equivalent ratings used by our internal credit department.

December 31, 2006, in CHF bn
Net positive
replacement
value


AAA24.3
AA21.3
A3.6
BBB3.5
BB or lower6.1
Total derivative instruments, net positive replacement value58.8



For further information on derivatives and hedging activities, see note 27 “Derivatives and hedging activities” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.



Related party transactions

The Group enters into related party transactions with its directors, officers and employees and those of its subsidiaries. For further information on related party transactions, see note 25 “Related parties” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006 and Item 7 “Major shareholders and related party transactions.”



Summary of significant accounting policies and recently issued accounting standards

For further information on significant accounting policies and recently issued accounting standards, see note 1 “Summary of significant accounting policies” and note 2 “Recently issued accounting standards” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.



Liquidity and capital resources

Credit Suisse Group consolidated and the Bank legal entity
Organization
Credit Suisse Group finances its operations in a manner consistent with its business mix, capitalization and ratings and in line with its asset and liability and risk management policies. Liquidity and capital management is coordinated at the Group level through the Capital Allocation and Risk Management Committee (CARMC). CARMC has primary oversight responsibility for liquidity, capital and funding. This committee, which meets on a quarterly basis, includes the Chief Executive Officers of the Group and the Investment Banking, Private Banking and Asset Management divisions; the Chief Financial Officer (CFO) and the Chief Risk Officers (CROs) of the Group and the Bank, the Chief Operating Officer of the Bank and the Treasurer. CARMC reviews the capital situation, balance sheet development and current and prospective funding and defines and monitors adherence to internal Treasury risk limits and capital and liquidity targets. Implementation of CARMC’s decisions is monitored through monthly reports for the attention of the CROs, CFO, Treasurer and other senior management.

Funding sources and strategy
At the Credit Suisse Group consolidated level
The Group’s funding requirements, including any supplementary capital needs, are based on regulatory requirements, liquidity requirements, rating agency criteria, economic capital optimization, taxation and other considerations. Sources of funding are diversified in liability type, currency, investor and geographic distribution. Given the depth of its private and retail banking businesses, the Group accesses core deposit funding from an international customer base that has proven to be a stable source of funds over time. This is augmented by the use of institutional market funding on both an unsecured and secured basis. Access by the Group to the institutional market is coordinated globally in an effort to ensure optimal distribution and placement of the Group’s securities.

At the Credit Suisse Group legal entity level
The Group is a holding company, and its primary cash requirements result from the payment of dividends to shareholders, the servicing of Group-issued debt, the purchase of the Group’s common shares and, from time to time, the acquisition of new businesses. Generally, the Group does not provide funding for its subsidiaries, as the Bank is the primary source of funding. The Group does provide capital and has issued, and may in the future issue, hybrid Tier 1 capital instruments through special purpose subsidiaries. Proceeds from these capital-related offerings are typically provided to one of the Group’s operating subsidiaries on a matched basis so that the Group has limited currency, interest rate or liquidity risk. Equity investments in subsidiaries are generally funded with equity capital. Double leverage, which compares the amount of equity at the holding company level to the amount of equity investment in subsidiaries, is actively managed and constitutes an integral part of the Group’s capital management strategy.

The Group expects to receive total dividends of approximately CHF 690 million for the 2006 financial year, compared with CHF 2,937 million for the 2005 financial year and CHF 2,778 million for the 2004 financial year.

At the Annual General Meeting on April 29, 2005, the Group’s shareholders approved the launch of a share repurchase program of up to CHF 6 billion over a maximum period of two years. On March 16, 2007, the Group announced that it had repurchased CHF 6 billion of shares and completed this share repurchase program. From time to time the Group also repurchases its own shares for the purpose of satisfying its obligations under its employee benefit plans. The Group intends to seek shareholder approval at its next Annual General Meeting in May 2007 to launch a new share repurchase program of up to CHF 8 billion. If approved by the shareholders, the program will commence after the Annual General Meeting and last for a maximum of three years. The shares would be repurchased through a second trading line on virt-x and cancelled.

In respect of the 2006 financial year, subject to shareholder approval, the Group will make a total distribution of CHF 2.70 per share, consisting of a dividend of CHF 2.24 and a CHF 0.46 par value reduction, or a total of approximately CHF 3,100 million. For the 2005 and 2004 financial years, the Group paid dividends of CHF 2,424 million and CHF 1,821 million, respectively.

As of December 31, 2006, the Group and its finance subsidiaries had borrowings of CHF 14.3 billion, an increase of CHF 0.8 billion compared to December 31, 2005. In January 2006, the Group, through one of its special purpose vehicles, issued EUR 1 billion of subordinated bonds due in 2018. The proceeds were used for general corporate purposes outside of Switzerland.

In May 2006, the Group established a Euro medium-term note program, which allows it and its finance subsidiaries (guaranteed by the Group) to issue notes denominated in any currency up to EUR 10 billion. The Group expects to amend this program in the second quarter of 2007 to add the Bank as an issuer.

In June 2006, Credit Suisse Group Finance (Guernsey) Limited, a finance subsidiary of the Group, filed with the Kanto Local Finance Bureau a Yen 500 billion shelf registration statement that allows it to issue, from time to time, senior and subordinated debt securities, guaranteed by the Group.

The cost of servicing debt and preferred securities issued by the Group and its finance subsidiaries, after taking swap transactions into consideration, was CHF 735 million in 2006, CHF 725 million in 2005 and CHF 693 million in 2004.

The Group maintains a shelf registration statement with the SEC, which allows it to issue, from time to time, senior and subordinated debt securities, trust preferred securities and warrants to purchase equity, debt or other securities. The shelf registration statement also allows the Group to guarantee securities issued by a finance subsidiary. The Group expects to amend its shelf registration statement at the end of March 2007 to: (i) add the Bank as an issuer of non-convertible debt securities; (ii) reflect the issuance of a full and unconditional subordinated guarantee by the Group and a full and unconditional senior guarantee by the Bank of the outstanding debt securities issued by Credit Suisse (USA), Inc. (CS (USA)) off its SEC shelf registration statements; and (iii) add CS (USA) as an issuer for the purpose of market-making transactions in such CS (USA) registered debt securities. Following this amendment, CS (USA) will cease to file periodic reports under the Exchange Act.

Factors that may affect liquidity and capital resources
The subsidiaries of the Group are generally subject to legal restrictions on the amount of dividends they can pay. For example, Article 675, in conjunction with Article 671, of the Swiss Code of Obligations provides that the Bank may pay dividends only if and to the extent: (i) they have earned a profit during a given financial year or have previously established reserves for the payment of dividends; (ii) the required portion of their annual profit has been allocated to reserves as prescribed by law, the articles of association or a resolution of the general meeting of shareholders; and (iii) allocation and payment of the dividends has been approved at the general meeting of shareholders. The Group does not believe that legal or regulatory restrictions constitute a material limitation on the ability of its subsidiaries to pay dividends to the Group. The amount of dividends paid by operating subsidiaries is determined after consideration of the expectations for future results and growth of the operating businesses.

Credit ratings
The Group’s access to the debt capital markets and its borrowing costs depend significantly on its credit ratings. Rating agencies take many factors into consideration in determining a company’s rating and may raise, lower or withdraw their ratings, or publicly announce an intention to raise or lower their ratings, at any time. Such factors include earnings performance, business mix, market position, ownership, financial strategy, level of capital, risk management policies and practices, management team and the broader outlook for the financial services industry.

Capital resources and capital adequacy
The Group’s capital needs are a function of various factors, including economic, market and, on a consolidated basis, regulatory requirements. The economic capital requirement is defined as that amount of capital needed to remain solvent and in business even under extreme market, business and operational conditions, given the institution’s targeted financial strength (i.e., long-term credit rating). This is measured through the use of internally developed statistically based models designed to quantify potential risk exposure. The Group is also subject, on a consolidated basis, to regulatory capital requirements and the risk-based capital guidelines which are set forth in the Implementing Ordinance issued by the SFBC. The Group also adheres to the risk-based capital guidelines set forth by the BIS. These guidelines take into consideration the credit and market risk associated with balance sheet assets and certain off-balance sheet transactions. As of January 1, 2004, the Group based its capital adequacy calculations on financial reporting under US GAAP, which is in accordance with SFBC Newsletter 32 (dated December 18, 2003). The SFBC has advised the Group that it may continue to include as Tier 1 capital the equity from special purpose entities, which are deconsolidated under FIN 46(R), in the amount of CHF 2.2 billion and CHF 2.2 billion as of December 31, 2006 and 2005, respectively.

The Basel Committee introduced significant changes to existing international capital adequacy standards known as Basel II. The Group expects the implementation of Basel II to create an additional 15% capital requirement at year-end 2007. The final capital impact will, however, depend, among other things, on the growth in risk-weighted assets and changes in the business mix during 2007. For further information on our risk-based capital guidelines, see Item 4 “Information on the company – Regulation and supervision.”

For further information on the components of our consolidated capital structure, see note 32 “Capital adequacy” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.

The following table sets forth the Group's consolidated capital and BIS capital ratios:
December 31, in CHF m, except where indicated20062005
Tier 1 capital35,14726,348
   of which non-cumulative perpetual preferred securities2,1672,170
Tier 1 ratio13.9%11.3%
Total BIS regulatory capital46,76431,918
Total BIS regulatory capital ratio18.4%13.7%



From time to time, the SFBC and BIS propose amendments to, and issue interpretations of, risk-based capital guidelines and reporting regulations. Such proposals or interpretations could, if implemented in the future, affect our capital ratios and the measurement of our risk-weighted assets.

In addition, various subsidiaries engaged in both banking and broker-dealer activities are regulated by the local regulators in the jurisdictions in which they operate.

Certain Group broker-dealer subsidiaries are subject to capital adequacy requirements. As of December 31, 2006, the Group and its subsidiaries complied with all applicable regulatory capital adequacy requirements.

Contractual cash obligations and other commercial commitments
The Group has contractual obligations to make future payments under long-term bonds and mortgage-backed bonds, medium-term notes, long-term, non-cancelable lease agreements and other long-term obligations. For further information on future cash payments associated with our contractual obligations pursuant to certain medium- and long-term debt operating leases on a consolidated basis as of December 31, 2006, see Item 5 “Critical Accounting Policies – Contractual obligations and other commercial commitments.”

For further information on off-balance sheet commitments, see note 28 “Guarantees and commitments” in the Notes to the consolidated financial statements in the Credit Suisse Group Annual Report 2006.

The Bank legal entity
The Bank believes that maintaining access to liquidity is fundamental for firms operating in the financial services industry. The Bank includes the investment banking, private banking and asset management businesses. Liquidity is managed on both a consolidated and legal entity basis within the international organizational structure.

The Bank’s Treasury department is responsible for the day-to-day management of capital, liquidity and funding, and relationships with creditor banks and fixed income investors. It also maintains regular contact with rating agencies and regulators on liquidity and capital issues.

Recent changes in the SFBC’s regulation of the Bank allow for a single funding book at the Bank to fund all branches and subsidiaries for capital and liquidity purposes.

Liquidity management
The Bank manages liquidity so as to ensure that sufficient funds are either on-hand or readily available on short notice in the event that it experiences any impairment in its ability to borrow in the unsecured debt markets. In this way, the Bank seeks to ensure that, even in the event of a liquidity dislocation, it has sufficient funds to repay maturing liabilities and other obligations so that it is able to carry out its business plans with as little disruption as possible.

The Bank has access to stable deposit-based core funds, the interbank markets and secured funding through the repurchase and securities lending markets. Historically, the Bank’s deposit base has proven extremely stable and is comprised of a diversified customer base, including retail and private bank deposits and wholesale and institutional deposits. In a stressed liquidity environment, the Bank could access the secured funding markets.

The majority of the Bank’s assets – principally trading inventories that support its institutional securities business – are highly liquid, consisting of securities inventories and collateralized receivables, which fluctuate depending on the levels of proprietary trading and customer business. Collateralized receivables consist primarily of securities purchased under agreements to resell and securities borrowed, both of which are primarily secured by government and agency securities, and marketable corporate debt and equity securities. In addition, the Bank has significant receivables from customers and broker-dealers, which turn over frequently. To meet client needs as a securities dealer, the Bank may carry significant levels of trading inventories.

As part of its Swiss domestic business, the Bank provides residential and commercial mortgages and secured and unsecured advances to a wide range of borrowers, including individuals, small and medium-sized corporate entities and utilities in Switzerland, Swiss public entities and local and regional governments. These assets are generally in the form of fixed customer-based term loans and loans callable on demand after a contractual notice period. These assets are well diversified by geography, customer type and instrument. Other assets include loans to corporate and other institutional clients, money market holdings and foreign exchange positions held directly in the Bank’s consolidated balance sheets.

The Bank’s other assets include less-liquid assets such as certain mortgage whole loans, distressed securities, high-yield debt securities, asset-backed securities, and private equity and other long-term investments. These assets may be relatively illiquid at times, especially during periods of market stress.

The principal measure used to monitor the liquidity position of the Bank is the “liquidity barometer,” which estimates the time horizon over which the adjusted market value of unencumbered assets (including cash) exceeds the aggregate value of maturing unsecured liabilities plus a conservative forecast of anticipated contingent commitments. The Bank’s objective, as mandated by CARMC, is to ensure that the liquidity barometer is maintained at a sufficient level such that, in the event that the Bank is unable to access unsecured funding, it will have sufficient liquidity for an extended period. The liquidity barometer parameters reflect various liquidity assumptions which are reviewed periodically and, if needed, updated.

The Bank’s objective is to ensure that the liquidity barometer equals or exceeds a time horizon of 120 days. The liquidity barometer reflects the relative stability of the unsecured funding base. Non-deposit liabilities are measured at their contractual maturities because historically, investors in publicly issued debt securities and commercial paper are highly sensitive to liquidity events, such that the Bank believes access to these markets would be quickly diminished. Conversely, the Bank’s retail and institutional deposit base is measured using contractual maturities which have been adjusted to reflect behavioral stability. Historically, this core deposit base has proven extremely stable, even in stressed markets. The conservative parameters the Bank uses in establishing the time horizon assumes that business franchise assets will not be sold to generate cash, no new unsecured debt can be issued and funds, which are assumed to be trapped because of regulatory restrictions, are not available to be distributed upstream in a stressed liquidity environment. Contingent commitments include such things as commitments to invest in private equity funds, letters of credit, credit rating-related collateralization requirements, backup liquidity lines provided to asset-backed CP conduits and committed credit facilities to clients that are currently undrawn. The adjusted market value of unencumbered assets includes a conservative reduction from market value, or “haircut,” reflecting the amount that could be realized by pledging an asset as collateral to a third-party lender in a secured funding transaction. The Bank regularly stress tests its liquidity resources using scenarios designed to represent highly adverse conditions.

The Bank maintains two large secondary sources of liquidity. The first is via a large portfolio of liquid fixed income securities, which is segregated and managed to provide for emergency liquidity needs only. This liquidity portfolio is maintained at a level well beyond regulatory requirements and could provide a significant source of liquidity for an extended period in the event of stressed market conditions. In addition to these assets held directly in the Bank, the Bank maintains another large source of secondary liquidity through the Bank’s principal broker-dealers and other regulated entities. The Bank has historically been able to access significant liquidity through the secured funding markets (securities sold under agreements to repurchase, securities loaned and other collateralized financing arrangements), even in periods of market stress. The Bank continually monitors its overall liquidity by tracking the extent to which unencumbered marketable assets and alternative unsecured funding sources exceed both contractual obligations and anticipated contingent commitments.

The Bank’s liquidity contingency plan focuses on the specific actions that would be taken in the event of a crisis, including a detailed communication plan for creditors, investors and customers. The plan, which is regularly updated, sets out a three-stage process of the specific actions that would be taken:

– Stage I – Market disruption or Group/Bank event

– Stage II – Unsecured markets partially inaccessible

– Stage III – Unsecured funding totally inaccessible



In the event of a liquidity crisis, a meeting of the Liquidity Crisis Committee would be convened by Treasury to activate the contingency plan. The Liquidity Crisis Committee’s membership includes senior business line, funding and finance department management. This committee would meet frequently throughout the crisis to ensure that the plan is executed.

Pursuant to the centralization of funding at the Bank, the secured bilateral committed credit arrangements between various third-party banks and Bank subsidiaries will not be renewed. As of December 31, 2006, the Bank maintained eight such credit facilities that collectively totaled USD 3.95 billion. These facilities require the relevant subsidiaries to pledge unencumbered marketable securities to secure any borrowings. Borrowings under each facility would bear interest at short-term rates related to either the Federal Funds rate, LIBOR or other money market indices and can be used for general corporate purposes. The facilities contain customary covenants that the Bank believes will not impair its ability to obtain funding.

Funding sources and strategy
Funding is centralized at the Bank. The Bank’s assets are principally funded with a mixture of unsecured and secured funding. Unsecured funding is primarily accessed through the Bank’s substantial retail and private bank deposit base, which is well diversified across customer categories, funding types and geography. The retail and private bank funding base is primarily comprised of time deposits and deposits callable on demand. While the contractual maturity of these deposits is typically under three months, they have historically shown remarkable stability, even under extreme market conditions. Additional unsecured funding is accessed via borrowings in the wholesale and institutional deposit markets. Secured funding consists of collateralized short-term borrowings, which include securities sold under agreements to repurchase and securities loaned. Additional funding is also sourced via short-term intercompany borrowings from other Group entities on both a secured and unsecured basis.

Secured funding consists of collateralized short-term borrowings, while unsecured funding principally includes long-term borrowings and, to a lesser extent, commercial paper. The Bank typically funds a significant portion of less-liquid assets, such as private equity investments, with long-term capital markets borrowings and shareholder’s equity. Unsecured liabilities are issued through various debt programs. Other significant funding sources include financial instruments sold not yet purchased, payables to customers and broker-dealers and shareholder’s equity.

Short-term funding is generally obtained at rates related to the Federal Funds rate, LIBOR or other money market indices, while long-term funding is generally obtained at fixed and floating rates related to US Treasury securities, LIBOR or other interest rate benchmarks, depending upon prevailing market conditions. The Bank continually aims to broaden its funding base by geography, investor and funding instrument.

The Bank lends funds, as needed, to its operating subsidiaries and affiliates on both a senior and subordinated basis, the latter typically to meet capital requirements in regulated subsidiaries. The Bank generally tries to ensure that loans to its operating subsidiaries and affiliates have maturities equal to or shorter in tenor than the maturities of its market borrowings. As such, senior funding to operating subsidiaries and affiliates is typically extended on a demand basis. Subordinated financing to regulated subsidiaries is extended on a term basis, and the Bank structures its long-term borrowings with maturities which extend beyond those of its subordinated advances to subsidiaries and affiliates.

In addition, the Bank generally funds investments in subsidiaries with shareholder’s equity. To satisfy the Swiss and local regulatory capital needs of its regulated subsidiaries, the Bank enters into subordinated long-term borrowings. As of December 31, 2006, the Bank had consolidated long-term debt of CHF 144.0 billion, including CHF 16.7 billion of subordinated debt.

Funding activity highlights
Prior to the centralization of funding in the Bank, CS (USA) issued long-term debt. For the year ended December 31, 2006, CS (USA) issued: USD 1.0 billion of 5.375% and USD 500 million of 5.85% notes due 2016; USD 1.0 billion of floating rate notes due 2013; USD 750 million of 5.5%, USD 750 million of 5.25%, and USD 2.5 billion of floating rate notes due 2011; USD 5.75 billion of floating rate notes due 2009; and USD 750 million of floating rate notes due 2008 under an SEC shelf registration statement; MXN 900 million of 8.82% medium-term notes; and USD 194 million of structured notes. CS (USA) did not issue any medium-term notes in 2006 under its USD 5 billion Euromarket program established in July 2001.

During the year ended December 31, 2006, CS (USA) repaid approximately USD 1.45 billion of medium-term notes, USD 2.25 billion of senior notes and USD 17 million of structured notes.

Credit ratings
Although retail and private bank deposits are generally less sensitive to changes in a bank’s credit ratings, the cost and availability of other sources of unsecured external funding is generally a function of credit ratings. Credit ratings are especially important to the Bank when competing in certain markets and when seeking to engage in longer-term transactions, including OTC derivatives.

A reduction in credit ratings could limit the Bank’s access to capital markets, increase its borrowing costs, require it to post additional collateral or allow counterparties to terminate transactions under certain of its trading and collateralized financing contracts. This, in turn, could reduce its liquidity and negatively impact its operating results and financial position. Its liquidity planning takes into consideration those contingent events associated with a reduction in its credit ratings.

Capital resources and capital adequacy
Certain of the Bank’s businesses are capital intensive. Capital is required to cover risks (economic and regulatory) on various asset classes, including, but not limited to, securities inventories, loans and other credit products, private equity investments and investments in fixed assets. The Bank’s overall capital needs are continually reviewed to ensure that its capital base can appropriately support the anticipated needs of its business and the regulatory capital requirements of its subsidiaries. Based on these analyses, the Bank believes that its capital base is adequate for current operating levels.

As a Swiss bank, the Bank is subject to regulation by the SFBC. These regulations include risk-based capital guidelines set forth in the Implementing Ordinance. The Bank also adheres to the risk-based capital guidelines set forth by the BIS. The SFBC has advised the Group that the Bank may continue to include as Tier 1 capital CHF 6.2 billion of equity from special purpose entities which are deconsolidated under FIN 46(R).

At the Bank, the regulatory guidelines are used to measure capital adequacy. These guidelines take into consideration the credit and market risk associated with balance sheet assets as well as certain off-balance sheet transactions.

The following table sets forth the Bank's consolidated capital and BIS capital ratios:
December 31, in CHF m, except where indicated20062005
Tier 1 capital26,60020,563
   of which non-cumulative perpetual preferred securities1,0651,044
Tier 1 ratio11.4%9.6%
Total BIS regulatory capital38,44129,815
Total BIS regulatory capital ratio16.5%14.0%



For further information on regulatory capital requirements, see Item 4 “Information on the company – Regulation and supervision.”



Information required by Industry Guide 3

Selected statistical information
The tables below set forth additional selected statistical information based on information in the consolidated financial statements.

Average balances and interest rates
The following tables set forth average interest-earning assets, average interest-bearing liabilities and average rates for the years presented. Month-end balances were predominantly used in computing the averages disclosed below. The Group believes these amounts approximate daily averages.
2006  2005  2004  
Year ended December 31, in CHF m
except where indicated
Average
balance

Interest
income

Average
rate

Average
balance

Interest
income

Average
rate

Average
balance

Interest
income

Average
rate

Assets
Cash and due from banks
   Switzerland1,756422.39%1,526281.83%1,470201.36%
   Foreign20,1256743.35%14,3243682.57%14,2882251.57%
Interest-bearing deposits with banks
   Switzerland16153.11%8333.61%6311.59%
   Foreign6,8742353.42%4,8361102.27%3,397641.88%
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions1)
   Switzerland4,3891814.12%16,5554202.54%11,2662982.65%
   Foreign378,97418,9605.00%333,44812,2643.68%289,1736,4392.23%
Trading assets
   Switzerland5,0701512.98%9,3836757.19%6,5263915.99%
   Foreign389,99417,5084.49%320,36213,1194.10%273,33311,9454.37%
Investment securities
   Switzerland1,706412.40%1,917381.98%2,004361.80%
   Foreign20,4956553.20%16,7154792.87%14,7563662.48%
Loans
   Switzerland125,6284,1133.27%118,4693,6633.09%114,8823,3552.92%
   Foreign74,2423,3964.57%62,9792,4283.86%54,3831,9713.62%
Other interest-earning assets
   Switzerland3274513.76%180147.78%202115.45%
   Foreign84,0574,2635.07%60,5012,5074.14%42,5891,1902.79%
Interest-earning assets1,113,79850,2694.51%961,27836,1163.76%828,33226,3123.18%
Specific allowance for losses(2,750)(3,774)(4,935)
Noninterest-earning assets209,668134,313147,014
Total assets1,320,7161,091,817970,411
Percentage of assets attributable to foreign activities 85.11% 81.55% 81.38%
Average balances and interest rates exclude discontinued operations.
1) Average balances of Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions are reported net in accordance with FIN 41, "Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements—An Interpretation of APB Opinion No. 10 and a Modification of FASB Interpretation No. 39," while interest income excludes the impact of FIN 41.



2006  2005  2004  
Year ended December 31, in CHF m
except where indicated
Average
balance

Interest
expense

Average
rate

Average
balance

Interest
expense

Average
rate

Average
balance

Interest
expense

Average
rate

Liabilities
Deposits of banks
   Switzerland4,3241383.19%4,707972.06%5,420450.83%
   Foreign96,8793,5023.61%76,5752,2432.93%66,3311,3572.05%
Deposits of non-banks
   Switzerland113,1971,3541.20%102,7318290.81%98,7636050.61%
   Foreign165,0667,4024.48%145,5974,3512.99%114,7842,0281.77%
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions1)
   Switzerland11,2913943.49%27,9165361.92%19,6573451.76%
   Foreign333,94017,4845.24%285,33911,1383.90%247,5815,5432.24%
Trading liabilities
   Switzerland440122.73%2,49101,993221.10%
   Foreign155,4466,5944.24%125,3754,8453.86%109,0725,2334.80%
Short-term borrowings
   Switzerland900.00%559183.22%1,843351.90%
   Foreign21,6596302.91%15,1433372.23%13,5902101.55%
Long-term debt
   Switzerland12,3383883.14%12,9114913.80%12,3423993.23%
   Foreign128,9254,0833.17%107,8183,4663.21%86,8092,5042.88%
Other interest-bearing liabilities
   Switzerland00001200.00%
   Foreign31,8301,7225.41%20,6308474.11%15,7364702.99%
Interest-bearing liabilities1,075,34443,7034.06%927,79229,1983.15%793,93318,7962.37%
Noninterest-bearing liabilities203,993123,167140,082
Total liabilities1,279,3371,050,959934,015
Shareholders' equity41,37940,85836,396
Total liabilities and shareholders' equity 1,320,716 1,091,817 970,411
Percentage of liabilities attributable to foreign activities 87.76% 82.79% 82.14%
Average balances and interest rates exclude discontinued operations.
1) Average balances of Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions are reported net in accordance with FIN 41, "Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements—An Interpretation of APB Opinion No. 10 and a Modification of FASB Interpretation No. 39," while interest expense excludes the impact of FIN 41.



The following table sets forth net interest income and the interest rate spread:
2006  2005  2004  

Year ended December 31
Net
interest
income
in CHF m



Interest
rate
spread
in %



Net
interest
income
in CHF m



Interest
rate
spread
in %



Net
interest
income
in CHF m



Interest
rate
spread
in %



Switzerland2,2921.70%2,8702.00%2,6612.00%
Foreign4,2740.30%4,0480.30%4,8550.50%
Total net6,5660.40%6,9180.70%7,5160.80%



The average rates earned and paid on related assets and liabilities can fluctuate within wide ranges and are influenced by several key factors. The most significant factor is changes in global interest rates. Additional factors include changes in the geographic and product mix of the Group’s business and foreign exchange rate movements between the Swiss franc and the currency of the underlying individual assets and liabilities.

The following table shows selected margin information:
Average rate  
Year ended December 31200620052004
Switzerland1.65%1.94%1.95%
Foreign0.44%0.50%0.70%
Net interest margin0.59%0.72%0.91%



The US Federal Reserve continued to increase short-term interest rates throughout the first half of 2006, raising the federal funds target rate by 25 basis points on four occasions, from 4.25% as of December 31, 2005, to 5.25% as of June 30, 2006, which then held constant until December 31, 2006. The yield curve continued to flatten throughout the first six months of 2006 and inverted in July, with long-term interest rates falling below short-term rates. This situation remained to the end of the year.

Throughout 2006, the European Central Bank periodically raised its benchmark interest rate by 25 basis points, from 2.25% as of December 31, 2005, to 3.50% as of December 31, 2006. The Bank of England increased its benchmark rate twice, by 25 basis points, during the last five months of 2006 while the Bank of Japan’s overnight call rate increased from zero to 0.25 basis points in July, which then held constant until December 31, 2006.

The Swiss National Bank sets a target range for 3-month Swiss franc LIBOR in order to manage money supply. On December 31, 2005, the target range for the three-month LIBOR was 0.50–1.50%. This increased by 25 basis points at each quarterly meeting throughout 2006, finishing with a target range of 1.50-2.50% as of December 31, 2006.

Analysis of changes in net interest income
The following tables allocate, by categories of interest-earning assets and interest-bearing liabilities, changes in net interest income due to changes in volume and in rates for 2006 compared to 2005 and for 2005 compared to 2004. Volume and rate variances have been calculated in movements in average balances and changes in average rates. Changes due to a combination of volume and rate have been allocated to the change due to average rate.
2006 vs. 2005  2005 vs. 2004  
Increase/(decrease) due to changes in      Increase/(decrease) due to changes in     

Year ended December 31, in CHF m
Average
volume

Average
rate

Net
change

Average
volume

Average
rate

Net
change

Cash and due from banks
   Switzerland41014178
   Foreign1491573061142143
Interest-bearing deposits with banks
   Switzerland3(1)2022
   Foreign4679125271946
Central bank funds sold, securities purchased under resale agreements and securities borrowing transactions
   Switzerland(309)70(239)140(18)122
   Foreign1,6755,0216,6969874,8385,825
Trading assets
   Switzerland(310)(214)(524)171113284
   Foreign2,8551,5344,3892,055(881)1,174
Investment securities
   Switzerland(4)73(2)42
   Foreign108681764964113
Loans
   Switzerland221229450105203308
   Foreign435533968311146457
Other interest-earning assets
   Switzerland112031(1)43
   Foreign9757811,7565008171,317
Interest-earning assets
   Switzerland(384)121(263)414315729
   Foreign6,2438,17314,4163,9305,1459,075
Change in interest income5,8598,29414,1534,3445,4609,804
Average balances and interest rates exclude discontinued operations.



2006 vs. 2005  2005 vs. 2004  
Increase/(decrease) due to changes in      Increase/(decrease) due to changes in     

Year ended December 31, in CHF m
Average
volume

Average
rate

Net
change

Average
volume

Average
rate

Net
change

Deposits of banks
   Switzerland(8)4941(6)5852
   Foreign5956641,259210676886
Deposits of non-banks
   Switzerland8544052524200224
   Foreign5822,4693,0515451,7782,323
Central bank funds purchased, securities sold under repurchase agreements and securities lending transactions
   Switzerland(319)177(142)14546191
   Foreign1,8954,4516,3468464,7495,595
Trading liabilities
   Switzerland012125(27)(22)
   Foreign1,1615881,749783(1,171)(388)
Short-term borrowings
   Switzerland(18)0(18)(24)7(17)
   Foreign14514829324103127
Long-term debt
   Switzerland(22)(81)(103)187492
   Foreign678(61)617605357962
Other interest-bearing liabilities
   Switzerland000000
   Foreign460415875146231377
Interest-bearing liabilities
   Switzerland(282)597315162358520
   Foreign5,5168,67414,1903,1596,7239,882
Change in interest expense5,2349,27114,5053,3217,08110,402
Change in net interest income
   Switzerland(102)(476)(578)252(43)209
   Foreign727(501)226771(1,578)(807)
Total change in net interest income625(977)(352)1,023(1,621)(598)
Average balances and interest rates exclude discontinued operations.





Deposits
Deposits by foreign depositors in Swiss offices amounted to CHF 44.6 billion, CHF 42.5 billion and CHF 37.2 billion as of December 31, 2006, 2005 and 2004, respectively.

The following table presents information on deposits for the years indicated. Designation of Switzerland versus Foreign was based upon the location of the office recording the deposit. Month-end balances were predominantly used in computing the averages disclosed below. The Group believes these amounts approximate daily averages.
2006  2005  2004  
Year ended December 31, in CHF m
except where indicated
Average
balance

Interest
expense

Average
rate

Average
balance

Interest
expense

Average
rate

Average
balance

Interest
expense

Average
rate

Noninterest-bearing demand13,65012,69110,246
Interest-bearing demand48,0993210.7%47,4281960.4%52,1831390.3%
Savings deposits43,4892540.6%44,3892550.6%43,6052570.6%
Time deposits50,2751,3432.7%37,6085721.5%31,6503591.1%
Switzerland155,5131,9181.2%142,1161,0230.7%137,6847550.5%
Noninterest-bearing demand1,4841,1941,396
Interest-bearing demand16,0014803.0%12,3082972.4%9,0231161.3%
Savings deposits2900.0%2600.0%1200.0%
Time deposits221,5739,9984.5%187,8516,2003.3%148,8253,1642.1%
Foreign 239,08710,4784.4%201,3796,4973.2%159,2563,2802.1%
Total deposits394,60012,3963.1%343,4957,5202.2%296,9404,0351.4%



The following table presents the aggregate of individual time deposits issued in Switzerland and in foreign offices, in the CHF equivalent of amounts greater than USD 100,000, together with their remaining maturities:
December 31, 2006, in CHF mSwitzerlandForeignTotal
3 months or less1020,17920,189
Over 3 through 6 months013,67413,674
Over 6 through 12 months359,4139,448
Over 12 months01,0511,051
Certificates of deposit4544,31744,362
3 months or less48,512149,769198,281
Over 3 through 6 months2,6787,61410,292
Over 6 through 12 months1,4673,8315,298
Over 12 months3437,3967,739
Other time deposits53,000168,610221,610
Total time deposits53,045212,927265,972



Short-term borrowings
The short-term borrowings of the Group’s operations consist of central bank funds purchased, securities sold under repurchase agreements, commercial paper and other short-term borrowings. Generally, original maturities of securities sold under repurchase agreements are less than six months, commercial paper are less than nine months and other short-term borrowings are one year or less.

The following table shows details of the Group’s significant short-term borrowings:
Year ended December 31, in CHF m200620052004
Central bank funds purchased and securities sold under repurchase agreements and securities lending transactions
Outstanding as of December 31288,444309,803239,724
Maximum amount outstanding at any month-end during the year390,626373,987309,555
Approximate average amount outstanding during the year345,231313,255267,238
Interest expense for the year ended December 3117,87811,6745,888
Approximate weighted-average interest rate during the year5.2%3.7%2.2%
Approximate weighted-average interest rate at year-end4.6%3.0%2.4%
Commercial paper
Outstanding as of December 3115,01910,3768,518
Maximum amount outstanding at any month-end during the year17,42910,37617,636
Approximate average amount outstanding during the year14,5917,1229,357
Interest expense for the year ended December 31406232148
Approximate weighted-average interest rate during the year2.8%3.3%1.6%
Approximate weighted-average interest rate at year-end2.9%1.4%2.7%
Other short-term borrowings
Outstanding as of December 316,5379,0966,825
Maximum amount outstanding at any month-end during the year9,84610,2487,518
Approximate average amount outstanding during the year7,0778,5806,076
Interest expense for the year ended December 3122412397
Approximate weighted-average interest rate during the year3.2%1.4%1.6%
Approximate weighted-average interest rate at year-end4.4%1.5%1.3%



Investment portfolio
Investment strategy
Our investment strategy is determined within the respective asset and liability management committee of each business. Exposures to market and interest rate risk are managed by modifying the components of the investment portfolio, either directly or through the use of derivatives. For additional information, see “Risk management – Market risk” in the Credit Suisse Group Annual Report 2006.

The following table presents the carrying value of financial investments:
December 31, in CHF m200620052004
Debt securities issued by the Swiss federal, cantonal or local government entities32012,63612,937
Debt securities issued by foreign governments19,12142,87328,360
Corporate debt securities98441,36442,119
Other70615,61210,934
Total debt securities21,1311)112,48594,350
1) Decrease related to the sale of Winterthur.



The following table presents the maturities and weighted-average yields of debt securities included in financial investments:
Within 1 year  1 to 5 years  5 to 10 years  Over 10 years  Total 

December 31, 2006
Amount
in CHF m

Yield
in %

Amount
in CHF m

Yield
in %

Amount
in CHF m

Yield
in %

Amount
in CHF m

Yield
in %

Amount
in CHF m

Debt securities issued by the Swiss federal, cantonal or local government entities 60 2.54% 170 3.14% 86 2.92% 0 316
Debt securities issued by foreign governments 2,843 2.10% 6,960 2.65% 9,850 3.22% 51 2.68% 19,704
Corporate debt securities7182.34%522.06%1641.94%492.94%983
Other4844.49%1613.23%502.51%0695
Total debt securities4,1052.43%7,3432.67%10,1503.19%1002.81%21,698
Since substantially all investment securities are taxable securities, the yields presented above are on a tax-equivalent basis.

As of December 31, 2006, no aggregate investment in debt securities from any specific counterparty was in excess of 10% of consolidated shareholders’ equity.

Loan portfolio
The following table shows the movements in the allowance for loan losses:
in CHF m, except where indicated20062005200420032002
Balance January 12,2413,0384,6467,4279,348
Discontinued operations(51)0000
Allowances acquired/(deconsolidated)00(24)264
Discontinued operations/Change in scope of consolidation(51)0(24)264
Switzerland(46)(104)65410880
Foreign(82)(30)142051,624
Net additions charged to the consolidated statements of income(128)(134)796152,504
   Commercial(256)(515)(663)(1,418)
   Consumer(140)(140)(197)(315)
   Public authorities(1)(3)(88)0
   Lease financings(9)(10)6(7)
Switzerland(406)(668)(942)(1,740)
   Banks00(1)(55)
   Commercial(318)(269)(811)(1,511)
   Consumer(7)(8)(13)(22)
   Public authorities00(5)(5)
   Lease financings0(22)(9)0
Foreign(325)(299)(839)(1,593)
Gross write-offs1)(731)(967)(1,781)(3,333)(3,692)
   Commercial24272228
   Consumer7223
Switzerland31292431
   Banks0220
   Commercial1101023217
   Consumer0300
Foreign1101073417
Recoveries1)141136584861
Net write-offs(590)(831)(1,723)(3,285)(3,631)
Provisions for interest486792155187
Foreign currency translation impact and other adjustments, net(36)101(32)(292)(985)
Balance December 311,4842,2413,0384,6467,427
Average loan balance 199,870196,593184,787181,723184,299
Ratio of net write-offs to average loans0.30%0.42%0.93%1.81%1.97%
Prior years not adjusted for discontinued operations.
1) The split of gross write-offs and recoveries by Switzerland and Foreign was implemented in 2003, and has not been applied retroactively.



The following table shows the analysis of the allowance for loan losses by Switzerland, Foreign and category:
2006  2005  2004  2003  2002  

December 31




in CHF m




% of
allowance
in each
category to
total loans








in CHF m




% of
allowance
in each
category to
total loans








in CHF m




% of
allowance
in each
category to
total loans








in CHF m




% of
allowance
in each
category to
total loans








in CHF m




% of
allowance
in each
category to
total loans




Banks00.0%00.0%00.0%00.0%10.0%
Commercial8060.4%1,0910.5%1,7040.9%2,3391.3%3,3651.9%
Consumer2870.1%4180.2%5370.3%6940.4%9270.5%
Public authorities10.0%40.0%110.0%290.0%240.0%
Lease financings340.0%450.0%600.0%210.0%220.0%
Switzerland1,1280.5%1,5580.8%2,3121.2%3,0831.7%4,3392.4%
Banks70.0%100.0%80.0%90.0%40.0%
Commercial3290.2%6280.3%6550.4%1,4960.9%3,0111.7%
Consumer130.0%390.0%490.0%510.0%590.0%
Public authorities70.0%60.0%50.0%70.0%140.0%
Lease financings00.0%00.0%90.0%00.0%00.0%
Foreign3560.2%6830.3%7260.4%1,5630.9%3,0881.7%
Total allowance for loan losses 1,484 0.7% 2,241 1.1% 3,038 1.6% 4,646 2.6% 7,427 4.1%
   of which on principal1,2720.6%1,9170.9%2,5261.4%3,8372.2%6,3313.5%
   of which on interest2120.1%3240.2%5120.3%8090.5%1,0960.6%



The following table summarizes gross write-offs of loans by industry:
Year ended December 31, in CHF m20062005200420032002
Financial services28034411135
Real estate companies3491144321712
Other services14582131106298
Manufacturing137150298897590
Wholesale and retail trade41208492188320
Construction312158101173
Transportation113428931670
Health and social services3932915
Hotels and restaurants1339414880