Credit Suisse Group Q3 2007 Earnings Call Transcript

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Credit Suisse Group (NYSE:CS)

Q3 2007 Earnings Call

November 01, 2007 5:00 am ET

Executives

Renato Fassbind - CFO

Christoph Brunner - COO ofPrivate Banking

Larry Haber - COO of AssetManagement

David Mathers - Head of Financeand Strategy of Investment Banking

Analysts

Jon Peace - Lehman Brothers

Matthew Clark - KBW

Kinner Lakhani - ABN AMRO

Jeremy Sigee - Citigroup

Georg Kanders - WestLB

Peter Casanova - MainFirst

Derek de Vries - Merrill Lynch

Huw van Steenis - Morgan Stanley

Kian Abouhossein - JPMorgan

Philipp Zieschang - UBS

Anke Reinken - Execution

Claudia Meier - Bank Vontobel

Peter Thorne - Helvea

Operator

Welcome, and thank you forjoining the Credit Suisse Group third quarter 2007 results conference call. (OperatorInstructions).

At this time, I would like toturn the conference over to Mr. Renato Fassbind, Chief Financial Officer ofCredit Suisse Group. Please go ahead, Mr. Fassbind.

Renato Fassbind

Yes. Thank you and good morningfor joining us for the Credit Suisse third quarter 2007 results presentation. Iassume that you have downloaded the slide presentation and related materialsfrom our website. This earnings call we will follow the usual format you knowalready from Q1.

First, I will walk you throughthe presentation and then we will be happy to answer any questions you may have.And for that I will be joined by Christoph Brunner, our COO for PrivateBanking, Larry Haber, our COO for Asset Management and David Mathers, our Headfor Finance and Strategy of the Investment Banking division.

On slide two let me first remindyou of the cautionary statement regarding this presentation. Let me begin thediscussion of the results with slide three. Extreme market conditions andevents characterized to the third quarter of 2007, affecting many of ourbusinesses and leading to lower financial results in the period.

Results for the first nine monthsof the year, however, reached record levels as our global diversification andbalanced business mix helped us to mitigate the overall impact of the moredifficult operating environment and sustain solid profitability.

Net income in the third quarterwas CHF1.3 billion, 31% lower than in the third quarter last year whichincluded income from discontinued operations of CHF424 million. This was resultin line with our guidance given at the end of the quarter, expecting a netincome of CHF1.3 billion plus minus 20%. Income from continuing operations wasdown 11%, and diluted earnings per share stood at CHF1.18 for the quarter.

For the first nine months of theyear, net income totaled a record CHF7.2 billion, driven by recordcontributions from Private Banking and Investment Banking.

Diluted earnings from continuingoperations per share for the nine months period increased 31% to CHF6.43 andreturn on equity improved to 22.5%. The quarter also included a significantpositive contribution on the tax line. We recognized a deferred tax asset inthe amount of CHF350 million. This was in respect of prior year losses in the U.S.and does not relate to this quarter's performance.

Our overall operatingperformance, although affected by the challenging market, has outperformedcompared to our peers. We know our risk exposures, and, although the marketimpact was more severe than expected, we continue to manage and monitor therisks diligently through these challenging markets.

Let me turn to our nine monthsperformance on slide four. Pre-tax income in Investment Banking stood at CHF4.5billion for the first nine months of the year, with a pre-tax margin of closeto 28%.

The nine months pre-tax income inPrivate Banking increased to CHF4.1 billion, which is 19% up on last year'slevel, with a pre-tax margin of 41%. The nine months pre-tax income in AssetManagement stood at CHF601 million, up on reported results from last year. Thepre-tax margin in that division stands at close to 27%.

Let me continue with slide five.We continued to make progress on our cost management initiatives as revenuesgrew by 13% and growth in total operating expenses was contained at 9%.

We are making good progresstowards our commitment to achieve top quartile levels of efficiency, and we areconfident that we can achieve substantial gains going forward by re-engineeringsystems and processes and by streamlining our operating capabilities.

Let me look at the results inInvestment Banking, starting on slide six. Investment Banking results declinedsharply, driven to a large extent by the dislocation of structured products andcredit markets.

We booked a CHF1.1 billion fairvalue write-down on our funded and unfunded non-investment trade loancommitments net of fees and hedges. These value adjustments amounted to CHF2.2billion before taking account of fees and hedges.

These markdowns relate to ourpipeline of leveraged acquisition financing, including both bank loans andbridge loans. These marks are on our total amount of leverage loan commitments.

Let me repeat. We marked theentire book as at the end of this September and look at each loan componentseparately. We also do not assume that agreed loan terms may be restructuredprior to funding.

We look at trading activity inthe market to confirm the marks and feel very confident about the data used todetermine the marks. In this regard, we have seen some transaction activityright at or are subsequent to the end of the third quarter which we believefurther validates the values we have assigned to our position.

Let me give you some details onthe size of the commitments and how these have changed during the quarter. Atthe end of the third quarter, our funded and un-funded non-investment tradecommitments stood at $52 billion, up from $39 billion at the end of the secondquarter. This increase resulted from commitments we expanded on a few largetransactions in early July, following several months of negotiations with thedeal sponsors.

In addition, we were not involvedin the vast majority of the transactions that were brought to the market inlate July, August, and early September, as our forward calendar going into thequarter was more skewed towards the fourth quarter and early 2008.

At quarter end, only around $8billion of our commitments were funded, including transactions in the processof being securitized. This demonstrates our disciplined approach to thisbusiness in the recent environment and our strong distribution capabilities. Infact, several major commitments in place at the end of the third quarter havebeen successfully executed.

In structured products, themortgage sector continued to experience liquidity challenges and increaseddelinquencies. The recorded markdowns of CHF1.1 billion related to ourstructured products business including RMBS, CMBS, and CDOs, net of fees andhedges. On a gross basis, we recorded markdowns of CHF2.5 billion.

Let me give you some furtherdetail on this CHF1.1 billion markdown. In broad terms, the markdown is equallysplit across the three product areas mentioned; RMBS, CMBS, and CDOs. Inaddition, it's important to note that the impact from subprime exposures wasslightly positive in the quarter.

As we indicated with our secondquarter results, we continue to feel comfortably positioned in terms of ourbalance sheet exposure to residential subprime, as evidenced by the positivecontribution during the third quarter. And our CDO exposure is a fraction ofwhat has been recently disclosed by some of our peers and is de minimis.

In our trading operations, ourspecialists are responsible for making their positions on a daily basis withprice testing and verification performed by a separate and independentfunction, our product control department, which, by the way, reports to me.

We have processes in place toensure that the reported fair values, including those derived from models, areappropriate and determined on a reasonable basis. Independent functions reviewand refine the mathematical models used to calculate the value of our complexproducts.

Finally, I want to add that wehave very limited exposure to commercial paper conduits, an activity that wehave historically avoided. Regarding CIF, let me clarify that we do not sponsorany of these structures, and have a limited amount of liquidity lines with wellcapitalized third-party entities that have negligible exposure to subprime.

Let's look at the Investment Bankingbusinesses in detail, starting with fixed income trading on slide seven. Thisis obviously the area that was most affected by the valuation reductions I havejust mentioned.

At the back of this presentation,on slide 22, you will find a slide that shows you how the total CHF2.2 billionin net valuation reductions are reported within Investment Banking revenues.Fixed income trading includes marks in the amount of CHF1.6 billion.

In addition, the U.S.high grade business was negatively impacted by widening credit spreads,particularly on financial institutions with subprime exposure, and the decreasein market liquidity.

The commodities business alsorecorded lower revenues due to poor trading performance in the energy sector.We continue to build out our commodities business with the objective of a morebalanced, diverse platform. We recorded strong performances in interest rateproducts, on higher volumes and a shift to higher quality credit instruments inthe quarter.

The life insurance finance businessand emerging markets trading also had strong results during the quarter. Fixedincome trading also included a fair value gain of CHF560 million due to widerspreads on our long-term debt.

Fair value adjustments in ourlong-term debt act as a hedge against movements in credit spreads in ourearnings. The mark-to-market gain on our liabilities reflects the same generalmarket movements in spreads we saw in our loan portfolio.

We'll now continue with theequity trading results on slide eight. These results reflect a strongperformance across our cash derivatives and client services businesses, offsetby losses in certain equity prop trading strategies, including approximatelyCHF300 million in quantitative trading strategies.

This loss is primarily related tothe statistical and risk arbitrage strategies. We have deployed some of thesestrategies in our equity trading operations with great success, for some time.

In August, however, decreasedinvestment-risk appetite coincided with a substantial increase in equity marketvolatility, the result of an extremely negative cycle of sharp, rapid declinesin stock prices unrelated to fundamental values and, in turn, unanticipatedlosses in our portfolio. Over the long run, and showing consistent application,we nevertheless believe this investment approach should continue to besuccessful.

On the positive side during thequarter, the cash business benefited from the increased deal activity, tradingvolumes and client flows, as well as the continued strong performance of AES,our industry leading, automated trading platform.

Prime services revenues increasedby over 50% compared to last year, as our global platform benefited from growthin client balances and new client mandates. Equity derivatives results improvedsignificantly relative to a weak third quarter last year. And equity tradingalso benefited from a fair value gain of CHF62 million due to wider spreads onour long-term debt.

We will now continue with theadvisory and underwriting results on slide nine. Debt underwriting revenuesdeclined 81%, reflecting lower levels of activity and markdowns of CHF199million on structured product positions, predominantly CDO assets.

Equity underwriting increased 46%due to higher levels of industrywide equity issuance as well as improved marketshare. Compared to the previous quarter, equity underwriting declined in linewith the lower level of industrywide equity issuance activity.

Advisory fees increased 17% fromlast year in line with higher market activity, partially offset by lowerrevenues in the private funds group, which raises capital for hedge funds,private equity and real estate funds. The decrease compared to the previousquarter was driven by lower M&A activity versus a strong second quarter.

Many of you have raised questionsabout the outlook of the M&A business, as it was recently driven by a veryactive financial sponsor client base. While we have seen a slowdown in sponsoractivity in the U.S.,sponsor activity in Europe and Asia,particularly in the emerging markets, continues to be strong.

Corporate activity in the U.S.has also picked up as asset prices have come down a bit, and sponsors no longerrepresent the very aggressive competition. And let's not disregard the amountof money sponsors still expect to put to work.

It is our likely scenario that,as soon as the banks distribute the majority of the commitments sitting ontheir books, acquisition finance will pick up again, although at somewhat lowerleverage levels. Slow deals smaller ones for now, have already begun and weexpect this to continue.

Let me continue with cost in IBon slide 10. Compensation to revenue ratio was 40% in the quarter. The currentquarter's calculation was applied consistent with the first half-year. Therehas been no change in our approach to share based awards or in our assumptionsregarding compensation deferrals. But the cumulative nine months, the ratio isat 50% and is now running in line with the full year 2006. However, the finalcompensation, and let me just be very specific, the final compensation levelsfor 2007 will be determined based on the strengths and breadth of the fourthquarter results.

G&A expenses were flat on thesame period last year, but up slightly on the previous quarter, primarily fromhigher transaction related fees. Most other general and administrative expensesdeclined.

We clearly remain focused on costinitiatives in the Investment Bank and the progress we have made, to-date,helps us through these more challenging markets. But we are still committed todriving absolute costs lower from the levels we are currently at.

Let me move to Private Banking,starting with slide 11. Wealth Management recorded pre-tax income of CHF900million, which was up 32% on the same quarter last year. Pre-tax margins remainstrong at the year-to-date, ahead of the 40% target. It is a good result inlight of challenging markets with increased volatility leading to changes inclients' confidence and risk appetite.

We saw a relatively high level ofclient activity until mid August, despite the usual summer slowdown. This wasfollowed by lower client activity in the volatile markets persisting until midSeptember. We then started to see signs of some return in clients' confidenceand activity until the quarter end.

In this volatile period, we saw adegree of rebalancing of client assets from equities into bonds and cash, andsome signs of deleveraging. There was also an increase in demand for totalreturn product.

Let's look at the revenues onslide 12. We have seen a strong development of our recurring revenues. As youcan see, they're up 29% on the same period in 2006, and up 21% in theyear-to-date comparisons.

Recurring revenues have now risento represent close to 70% of total revenues, as we have seen higher commissionsand fees from the growing asset base and focus on sales of managed assets. Wehave also seen higher net interest income from lower funding costs and higherliability margins and volumes.

Our transaction-based revenueswere also up year-on-year by 23%, from higher brokerage and issuing fees. Theyfell compared to the previous quarter as the summer slowdown and reduced clientactivity took effect.

Let me turn to the gross marginand asset development on the next slide. Looking first at gross margin, you cansee our gross margin is at 112 basis points for the quarter. In the nine monthsyear-to-date figures, we see a steady progression of three basis points,reflecting the higher recurring revenue streams and lower transaction basedmargin.

Looking at net asset inflow, wesee net new assets of CHF9.7 billion in the quarter. Our annualized growth ratein the quarter was 4.5% but looking at the rolling four quarters rate, it was6.2%, thus ahead of our 6% target.

I will continue with Corporate& Retail Banking on slide 14. Sound economic fundamentals provided acontinuing positive environment, as pre-tax income rose 15% to CHF389 million.

Net interest income benefitedfrom higher liability volumes and margins and lower funding costs, whichpartially offset by lower asset margins. We continue to see a low level of newprovisions and overall a small net release of credit provisions.

With that, let me move to ourthird segment, to Asset Management, with slide 15. Asset Management recorded apre-tax income of CHF45 million in the quarter, down significantly against bothcomparable periods. Market conditions, primarily reflecting the extremeliquidity situation, adversely impacted our overall results in two areas.

First, we saw significant outflowsin our money market funds and, as a result, we took steps to reposition certainof our U.S.money market funds and purchase securities from these funds. These securities,including asset backed commercial papers, floating rate notes, and notes issuedby structured investment and CDO vehicles.

We put valuation reductions onthese securities in the amount of CHF146 million. We purchased these securitiesto address liquidity concerns caused by the U.S.market's extreme conditions.

Second, we recorded lower privateequity gains. Outside these effects, our business showed momentum, with stablemargins and healthy new asset inflows in higher margin businesses.

As shown on slide 16, revenuesbefore the CHF146 million charge and private equity gains, totaled CHF681million, that is up 3% from the previous quarter, and up 13% from last year.And as shown below the chart, the gross margin on assets under managementremained stable at 37 basis points for the quarter.

As shown on top of the chart,private equity gains declined to CHF59 million, adversely affected by thechallenging market conditions during the third quarter. Our strategy ofgeographic diversification in private equity has made this business lessdependent on the U.S.private equity cycle, as we saw gains increase in the non-US margins.

Finally, a brief comment on netnew assets in that segment on slide 17. Actually we saw net new money outflowwith CHF21 billion net during the quarter. It is driven by an out flowing moneymarket assets of CHF27 billion, mainly for corporate, offset by continued goodinflows of CHF7 billion in our higher margin assets, including balanced andalternative investments.

With that, let me make somecomments on capital management on the next slide, number 18. First, our sharerepurchase program. As a result, to be prudent, due to the challengingoperating environment, we have been reducing our share buyback activity, butexpect to complete the CHF8 billion repurchase program during 2008.

As of today, we are at CHF3.7 billion,with two more months to go until year end. Our Tier 1 ratio reduced by 100basis points to 12%. As you can see from the chart, risk weighted assets remainflat, but the Tier 1 capital is down. This is due to reduction in shareholders'equity, as the contribution from net income was more than offset by sharerepurchases and foreign exchange-related translation adjustments.

In terms of our fundingpositions, our liquidity and funding measures and a strong capital base helpedus to maintain a comfortable liquidity profile throughout the dislocation ofthe market during the third quarter. We consistently had good access to fundingsources, also benefitting from our large and stable customer deposit base.

From a risk perspective, I woulddescribe the third quarter as a period of stress in terms of market events, as webegan reducing our risks at the end of last year and continued managing downthis risk in the first half of 2007.

Not surprisingly, we haveexperienced seven VaR tax testing exceptions during the quarter. Market eventswe saw in the quarter went well into the tail end of the distribution curve ofour VaR models, which were in line with expected outcomes from our stress testingsimulations. The financial result, although significantly down against previousquarters, was within our range of expectations, given the severe market eventscombined with the risks we have taken.

Go to slide 19. In summary, weremain committed to our key performance indicators as shown on this slide andour goals over the medium term, namely: a double-digit diluted EPS growth rate;two: a growth in net new assets of about 6% over the cycle; three: a return onequity above 20%; and four: top quartile efficiency ratios.

We are now seeing encouragingsigns that conditions are improving in a number of areas, although it is tooearly to predict when the effect of market segments will return to more normalactivity levels.

The global economic fundamentalsremain healthy. Capital formation and wealth creation continue at high levels,with the emerging markets playing an increasingly important role in globalgrowth. These trends are driving convergence in the financial needs of private,institutional, and corporate clients, and demand for sophisticated financialcapabilities that transcend traditional financial categories.

Turning to slide 20, let meconclude with a few comments on the relative strength of our results. Ourperformance in the third quarter meant the progress made on the nine monthsbasis reaffirmed the importance of our integrated global business model, indriving revenues and enhancing efficiency throughout the entire market cycle.

We recognize the importance as anintegrated Bank of expanding and diversifying our revenue streams, particularlywithin investment banking. We are accelerating the growth of high-prioritybusinesses, including commodities, derivatives and prime services.

In addition, we are continuing toexpand our private banking presence in key growth markets, driving growthinitiatives centered on high margin capabilities within asset management. Ourintegrated global business model also enables us to improve our operatingleverage. Enhancing our efficiency and continuing to reduce our costs remainsan area of strategic focus.

With that, I would like to askthe conference operator to initiate the questions-and-answer session.

Question-and-Answer Session

Operator

We will now begin the question-and-answersession. (Operator Instructions). The first question is from Mr. Jon Peace,Lehman Brothers. Please go ahead, sir.

Jon Peace - Lehman Brothers

Yes, morning. I had twoquestions, please. The first one is just on your balance sheet exposures andyour write-downs. I just wondered: if you could give us a bit more color on thelevel of CDOs, RMBS and CMBS against which you took your charges? I think yousaid your CDO was de minimis, do you mean: less than CHF1 billion? And: whatwas the size of RMBS and CMBS? And the charges you took on those instruments:are you happy with those charges as you see things today on the 1st of Novemberhaving seen the market deterioration in the last month?

And the second question was juston your capital situation. Under Basel II, I think you had indicated justbefore you expected to be slightly worse off. What kind of impact do you seefrom that now? And, with your recommitment to the accelerated share buyback,what do you foresee for dividend growth next year? And: do you see yourdividend basis as CHF2.24 or CHF2.70? Thanks very much.

Renato Fassbind

Okay, thank you for the question.We are not giving our present exposures we have on the balance sheet in numberson the items you mentioned. As we said, both in subprime and in CDOs, they arede minimis. I think on the residential mortgage area, we are pretty well-positionedthere, and, of course, CMBS is an important business for us, as you know fromthe past, and that is an area where for the time being more comfortable withthe assets as well.

So, coming back to your question,if the charges reflect what we feel it should be. I have to be very clear onthat, that this is at the end of the September, and we fair value our positionson an almost daily basis in some of the areas and that is what we feltaccording to the models and according to the market data we had the rightpositioning.

On the capital question, youasked the -- I lost myself. The Basel II, sorry, yes, of course. The Basel IIimpact, as you know, we have indicated a number of some 15% or 1.5 percentagepoints in Tier 1 ratio at the target of 10% Tier 1 ratio. We are comfortablethat we will be within that. It might even slightly be better than that at theend of the day, but we maintain that for the time being.

And, as I said before, we arecommitted and confident that we finish the announced share buyback program ofCHF8 billion early -- already in 2008 rather than in 2010.

Jon Peace - Lehman Brothers

Thanks. And, just on thedividend: do you see your base next year as CHF2.24 or CHF2.70? And: do youplan to grow that in conjunction with the buyback? Thanks.

Renato Fassbind

That has a lot to do now with howthe business goes, and we haven't taken any decision on that. As you know, weare focusing on a dividend per share policy where we want to have decentincreases over time. But, it's too early now to say anything about thedividend.

Jon Peace - Lehman Brothers

Okay. Thanks very much.

Renato Fassbind

Welcome.

Operator

Next question is from Mr. MatthewClark, KBW. Please go ahead.

Matthew Clark - KBW

Good morning. A couple ofquestions: First question is just on the Private Banking division in both theinflows and the hiring there which have sometimes been lower than the peergroup. I'm just interested: why you're not willing to be more aggressive interms of your ambitions there? Why stick to the 6% inflow target when yougenerated above that in recent history when the peer group…?

Renato Fassbind

Hold on, can you hold on a secondbecause we can hardly hear you.

David Mathers

Did you say private bankinginflows and hiring or investment banking inflows and hiring, sorry?

Matthew Clark - KBW

I'm sorry I'll start again. Thequestion was on the Wealth Management business, and the inflows and hiringthere. Basically: why are you not being more ambitious with your targets, givenboth your recent history on inflows and also the levels being generated by thepeer group?

Renato Fassbind

Christoph: can you take that?

Christoph Brunner

Actually our target is really tohave 3,500 RMs in Wealth Management by end of 2009. In 2006 net new numbers areup by 110, in 2007 so far by 190, so we really expect that we are reaching ourtarget because we are showing good momentum.

And we also have a very goodhiring pipeline looking forward. However, as we mentioned also in the past, weare not prepared to take new RMs on board for every price. So, we are alsolooking really at our performance and productivity figures.

Matthew Clark - KBW

Okay, but there are members ofthe peer group who are able to hire at materially faster rates, while stillmaintaining their profitability. I'm just interested: whether you're stillhappy with your model or whether you're reviewing your strategy there?

Christoph Brunner

Actually, we're still happy withour model and we have no plans to change the model.

Matthew Clark - KBW

Okay. Thanks very much.

Operator

The next question is from Mr.Kinner Lakhani, ABN AMRO. Please go ahead, sir.

Kinner Lakhani - ABN AMRO

Yes, hi. Two questions, firstlyjust a follow-up on Wealth Management. Clearly, the revenue margin was quite resilient.I was wondering: if you could look ahead on that one and see where you thinkinvestor confidence and the revenue margin could go in the near term? It couldbe that the revenue margin in the short term in the third quarter was justsupported by repositioning. Do you see a dent on investor confidence?

And the second question is reallyin terms of the assets bought out from the money market fund. How do you feelabout the potential for further markdowns going forward on that area?

Renato Fassbind

I would assume you mean pre-taxmargins in Wealth Management, right?

Kinner Lakhani - ABN AMRO

The revenue margin, I apologize.

Renato Fassbind

The 112 basis points?

Kinner Lakhani - ABN AMRO

Exactly.

Renato Fassbind

Okay. As we said in the past, wesee no reasons why this should not be sustainable going forward, and I think weare on track in keeping that at that level. And, from that perspective, we areconfident.

Kinner Lakhani - ABN AMRO

And investor confidence, youthink, is not dented yet, basically?

Renato Fassbind

Say it again?

Kinner Lakhani - ABN AMRO

Investor confidence is not dentedyet?

Christoph Brunner

Looking at investor confidence,or at volumes, this really picked up since end of September, so we had a verygood October, so to say. Looking at our margin development what you really seeis that we increased our recurring margin and this is our strategy.

As you know, we launched someinitiatives like excellence in price management, like increasing the share ofmanaged assets, and this really helps to increase the recurring margin. Inaddition to that lower funding costs also helped.

Renato Fassbind

The other question, Larry?

Larry Haber

On the value adjustment that weprovided for the money market securities acquired by [technical difficulty]we're comfortable with the valuations that were provided, and those valuationswere managed through exactly the same process controls, in many instances thesame individuals that do similar work for the Investment Bank. So we're comfortablewith those valuations at the end of the quarter.

Kinner Lakhani - ABN AMRO

And: would you be comfortable asof today with those valuations?

Renato Fassbind

This is of course something wecan't answer, because we are fair valuing all our positions on an ongoing basisand we don't give any fourth quarter results yet.

Kinner Lakhani - ABN AMRO

Okay, thank you. That's fine.

Renato Fassbind

Thank you.

Operator

The next question is from Mr.Jeremy Sigee, Citigroup. Please go ahead, sir.

Jeremy Sigee - Citigroup

Thank you. A couple of questions,please. One: just a clarification, the discussion earlier on about themarkdowns. I just wanted to be sure, you're saying that you marked to the 30thof September, and my question would be: is that correct? And also: if you hadseen further deteriorations, like other people, would you have had to adjustthe mark for what you'd seen in October? So, that's the first question.

The second question was on costs,actually, mainly in the Investment Bank. Could you clarify how your compaccrual is calculated? Is it done as a percent of revenues or as a percent ofprofit pre-bonuses?

And then thirdly, I guess, onInvestment Banking: could you talk about the non-comp costs? You mentioned whythey've gone up: could you talk in a bit more detail on that? And: should weexpect those to come back down again in the next quarter?

Renato Fassbind

Let me take the first questionfirst on the marks. Again, we are fair valuing our positions at almost on adaily or weekly or monthly quarterly basis and, of course, we did so at the endof September.

And on that date, we arecommunicating that and I will not give any indications on how these have movednow in the quarter. And, as they are fair value marks, they can move both ways,depending on how the markets move. So you have to accept that we are not givingany indications about fourth quarter now.

Jeremy Sigee - Citigroup

Sorry to interrupt, but at otherfirms, if there had been a significant movement in October, they would feelcompelled by their accounting rules to make the adjustment even in reportingthese 3Q figures. Are you saying that your rules don't work that way, yousimply mark at 30th of September?

Renato Fassbind

Whatever our peers did, that's ontheir own discretion, and if they felt compelled, because they have their ownproblems, to come out with some October numbers that is not what I'm doinghere. We are talking about the third quarter and I don't give any indication onhow the fourth quarter is going at that moment. So that's typically normalpractice.

Jeremy Sigee - Citigroup

Okay.

David Mathers

Moving on to your compensationquestion, moving on to the compensation point, we look at our compensation onthe basis of the results for the year-to-date, and the amount of compensationthat we expect to pay people. That's clearly driven by the revenue performance;it's driven by the business performance.

I think we've made it clear inthe first two quarters comments that we would expect to true up the accrualswe've made in those first two quarters as we went through the year. And then,when we got to this point in the year, we looked at the 50% ratio as beingabout right on the basis of the performance we'd seen for the first ninemonths.

I think as Renato commented inhis presentation, clearly the full year out term will depend upon how weactually do in the fourth quarter and how the whole environment proceeds overthe next few months.

Just on the non-comp costs, Ithink that clearly they are slightly up against the Q2 number and slightly downagainst the number a year ago. I think two points. I think we've consistentlycautioned against looking at non-comp as a percentage of revenues because Idon't think it's particularly helpful or gives a particularly clear indicationof where things are going.

And the answer to: why the numberactually went up slightly in the third quarter against the second quarter? Thereare a number of small factors, but I would point to two factors. There was somestamp duty costs relating to our Brazilian business, which came through in Q3and there was also some recruitment costs, which we actually book in this lineas well basically.

Jeremy Sigee - Citigroup

And so: can we expect that tocontinue its downward progress as in recent quarters?

David Mathers

I'm not going to make a comment.

Jeremy Sigee - Citigroup

Okay.

David Mathers

I would say that the [IBNA], theBank as a whole is very committed to its cost program. We're continuing to do alot of work in this area and, I think, we're generally pleased with how that'sgoing. But there's always going to be one-off items in any particular quarterwhich can influence the trend.

Jeremy Sigee - Citigroup

Sounds good! Thanks very much.

Renato Fassbind

You're welcome.

Operator

The next question is from Mr.Georg Kanders, WestLB. Please go ahead, sir.

Georg Kanders - WestLB

Yes, I would like you toelaborate a little bit more on your trading losses in equity, as you mentionedthe part of the CHF300 million in the special strategy. But: are the losses inother trading areas significant or are they really negligible?

David Mathers

Sorry, we couldn't quite hearyou. I think the question was about the equity trading business and the CHF300million of losses we actually disclosed in Q3. Is that correct?

Georg Kanders - WestLB

Yes, but, as I read from thestatements these CHF300 million: are not all the losses in the equities?

David Mathers

No, that's correct. Those are theones that we -- I think clearly equity prop is a volatile business, and infairness the CHF300 million that we disclosed in the third quarter relating tothe quantitative and risk strategies, we thought it was meaningful to disclosethem because I think of the unusual conditions we actually faced during August.

And having said that, I would saythat the results were obviously very good in the first half, and that CHF300million was primarily, if you don't mind me describing it this way, a give backof what we'd actually earned in the prior period to that. And, overall, theperformance of the equity prop group for the full nine months I'd describe asmore than satisfactory.

Georg Kanders - WestLB

Yes, but were these losses inother areas in total also significant? Or: is the CHF300 million just the bulkof the losses?

Renato Fassbind

If it was significant, we wouldhave disclosed it, and if you look at the nine months results, you can see thatwe have a very positive development in the equity division.

Georg Kanders - WestLB

So: there's not much to add tothis CHF300 million? That's the question.

Renato Fassbind

No, there's much to be disclosed.

Georg Kanders - WestLB

Okay, thanks.

Operator

The next question is from Mr.Peter Casanova, MainFirst. Please go ahead, sir.

Peter Casanova - MainFirst

Yes, good morning. Thank you verymuch. I would like to clarify what your comments on the leverage finance. Did Iunderstand correct that you said it went up from CHF49 billion to CHF52billion? And did you also say that out of CHF52 billion, CHF8 billion is funded?

Larry Haber

Sorry, I didn't hear that.

Renato Fassbind

Can you come a bit closer, it'svery difficult to hear from us?

Peter Casanova - MainFirst

Oh sorry, yes, is this betternow?

Larry Haber

Yes, I can hear you.

Peter Casanova - MainFirst

Yes, so the leverage finances. Myunderstanding is that's the only area where you give exposure, you said fromCHF49 billion and first half up to CHF52 billion in third quarter and of thisCHF52 billion, CHF8 billion is funded, is this correct?

David Mathers

Yes, in Swiss franc terms, youwent from CHF48 billion to CHF60 billion, in dollar terms from $39 billion toCHF52 billion.

Peter Casanova - MainFirst

Okay, perfect.

David Mathers

That's, just to be explicit,that's the funded and unfunded non-investment grade leverage financing.

Peter Casanova - MainFirst

Okay. And on the RMBS, CDO, CMPS,there's nothing to say at this point, because, obviously, this makes verydifficult for us to have a strong opinion on your stock going forward.

Renato Fassbind

Just not getting the balancesdown, as I said before, I can't emphasize this, but we are not giving out any numbers.

Larry Haber

I think (inaudible) as Renatosaid, essentially, there were three components in the CHF1.1 billion of netwrite-downs, and that's split roughly equally between the three areas weidentified.

Renato Fassbind

Yes.

Larry Haber

And as I also said, we actuallydid make a small net profit in our purely subprime positions in the thirdquarter.

Peter Casanova - MainFirst

Yes, I fully understand. Ourtrouble is that it is looking backwards. Obviously, we need to have a feel onthe future, but let's leave that aside. May I ask another question on thecompensation development in Q3? How did the bonus accrual work? Did you actuallyreverse bonus accrued from the second quarter? Or: is it still about a netcharge in the third quarter?

David Mathers

Mathematically, I think you cando the numbers. Clearly, the accrual rate in the third quarter was 40.0%. Theaccrual rate in the first two quarters was 51.5%. So, obviously, the percentagerate declined and clearly that would imply that there was some give back orreduction in the absolute bonuses between the first two quarters and the thirdquarter.

Peter Casanova - MainFirst

Okay. Thank you very much.

Operator

The next question comes from Mr.Derek de Vries, Merrill Lynch. Please go ahead, sir.

Derek de Vries - Merrill Lynch

Thanks, good morning. I havethree questions, but maybe before I do that, I just wanted to acknowledge howhelpful the risk disclosure you guys gave in January and again in May, and yourinvestor days has been in the last couple of months. So, good marks oncorporate communications to you guys.

Now, three questions. The firstquestion is given your large use of hedging on your AVS portfolio, I waswondering: if you could quantify, or at least qualify, what kind of exposureyou had to the monoline insurers? That would be helpful.

The second question I haverelates to the CMBS, where you guys are clearly a market leader. I would assumethe market froze up during the Q3 period, but I was wondering: if you couldgive us an update on how much it progressed during the period? And also, I'mwondering: if any of your write-downs that you disclosed relate to CMBS?

And then the last questionrelates to the VaR, it's spiked up, I guess, as the quarter came to a close.I'm wondering: if that's just the volatility impact that you had flaggedpreviously? Or: if that's a decision on your part to take some more risks?

David Mathers

I guess, from the top then, interms of hedging and monoline exposure, I think, the answer is probably muchthe same as you've heard from other people over the last few weeks. We do havesome exposure to the monolines as part of our hedging policies, but it'sprimarily regarded highest quality assets which we'll give out here, and it'svery well diversified. So, not enormously meaningful, but there is, definitely,some there.

And with regard to the secondquestion, that was on the CMBS business and liquidity. I think, if I actuallymight take the third one first, I think we did disclose that in the CHF1.1billion of net write-downs, or fair value adjustments, that we took in thethird quarter. That was split roughly equally between CDOs, the residentialmortgage businesses, and CMBS. So: yes, we did take some adjustments in thefair value of the CMBS assets. And that did include some adjustments forliquidity which is coming back to your second point.

So on liquidity I think,generally speaking, I think you're absolutely right; CMBS is a major businessfor us. We disclosed our positions at the end of last year and we talked moreabout it at the investor day back in January. So, I think, you were aware it'san important business for us.

And liquidity-wise, it isimportant to say two things: Just like the fundamental economics of CMBS areobviously different to those of RMBS, because the business is clearly driven bycorporate cash flow and corporate credit policy. And that's very different tothe residential market, point one.

Point two, clearly theenvironment differs significantly between the Americas,between UK and Europe,and the Asia in terms of the underlying fundamentals. Ithink, we would say the underlying fundamentals in both Asiaand Europe are actually pretty good from an economicpoint of view. And, actually in the States, I think they're fine, but clearly,there is obviously more concerns about future economic distances tapers elsewhere,but so far, I am not too worried.

In terms of the liquidity points,I think really, as the outlook statement said, that we have seen earlier signsof an encouraging return to liquidity. I would say certainly in the United States, we've seen that, and less so in Europefrom a liquidity point of view. Notwithstanding the fact, that the fundamentaleconomics of the business and the assets is quite good.

Then, hopefully, we can come backon this, but on VaR, if you actually look at page 60 of the MD&A, there'san analysis there of the move in VaR. And you will see essentially that we havedisclosed something about halfway down on the first column, that the one day99% VaR would have been CHF126 million compared to CHF100 due to the data setchanges which we've loaded during the period. And there has been some increasein our interest rate on credit spread VaR. And that data set changes theprimary driver, there's clearly some movement in the position as well.

Derek de Vries - Merrill Lynch

Great, thank you.

Operator

The next question is from Mr. Huwvan Steenis, Morgan Stanley. Please go ahead, sir.

Huw van Steenis - Morgan Stanley

Yes, good morning. I have twoquestions. First is on comp again. It's 30% of your revenues in the thirdquarter in the Investment Bank, with a 6.22 of credit spread widening fairvalue benefits. If I deduct that your comp to revenue is actually 57% for thequarter. I was just wondering: if I've understood correctly that your comprevenue is going up in the quarter?

Are you really saying you areactually paying staff a cut of the fact your credit spreads are widening? Inwhich case, your bankers must be laughing all the way to the bank this year,because your credit spreads have widened further in Q4. Or: are you reallysaying that actually you've got much less flexibility on comp than perhaps youfirst thought?

David Mathers

I don't think there's much thatwe would really want to add to what we've said before. The fair value creditmove is to some extent a contra in terms of the position moves we've seenelsewhere, and I think once you keep that in mind when looking at the numbers.

The overall comp ratio of 40% hasbeen assessed on the basis of our revenues profitability for the year to date,more accurately to the end of the first -- Q3 and what we expect to pay on thatbasis.

Huw van Steenis - Morgan Stanley

But even if I do it on the fullyear basis, your comp ratio would be 52%, so, actually, an increase on the Q2run rate so again, your comp revenue has actually gone up, even on ayear-to-date basis.

David Mathers

I think I've said already, thatwe regard the fair value credit as partly a contra, so I probably wouldn'tagree with your analysis. And I think, as Renato said, basically, in terms ofthe Q4 outlook, we'll talk about that in the Q4.

Huw van Steenis - Morgan Stanley

Okay. Then, just secondly on the privatebank: I think 4.5% is obviously a very good number. Could you perhaps just giveus some color on which regions you're getting it from? And: whether you'vestarted to see any reversal yet of in Asia? Where,obviously, you had seen some defections too, leading to some outflows.

Renato Fassbind

If I understood you correctly,you're asking: where the M&As are coming from, correct?

Huw van Steenis - Morgan Stanley

I'm sorry?

Renato Fassbind

You're asking: where the M&Asare coming from originally?

Huw van Steenis - Morgan Stanley

Well: how, yes, the new assetsare coming from regionally in the private bank? Because, obviously, it's a verygood number, but: any sense of which regions are developing it? And: has Asiaremained a little bit weaker because of the people who have left?

Christoph Brunner

So overall, what we have seen isreally a slower quarter in terms of net new asset inflows, due to probably boththe summer seasonal effects and also some deleveraging we saw on the creditside. Originally, we had a strong result in Europe andsatisfying net inflows in Asia, Switzerlandand in Clariden Leu. But, overall, we think we certainly can do better and wewill.

Four reasons make us confidentthat we will show increased momentum in asset gathering. First, we now have allthe regional and mortgage management teams in place. Second, we now can fulldeleverage the established growth platform in Europe andin the main emerging markets. Third, we are making good progress in terms ofnet new RMs with a good hiring pipeline. And fourth, we see increasingly goodincremental M&A flows from IB and Asset Management into PB.

Renato Fassbind

Let me add to that, private bankhas a clear mandate, not just to buy market share or net new assets, but alsokeep up the profitability, meaning: the gross margins in the business. And, asyou can see and as we have just reconfirmed, we want to stay there. And, forus, besides volume, the profitability is equally important.

Huw van Steenis - Morgan Stanley

Great! Thank you.

Renato Fassbind

Welcome.

Operator

The next question is from Mr.Kian Abouhossein, JPMorgan. Please go ahead, sir.

Kian Abouhossein - JPMorgan

Yes, hi. I have three questions.The first one is…

Renato Fassbind

Can you get closer to the micplease, in order to hear you?

Kian Abouhossein - JPMorgan

Yes, is that better? I have threequestions. The first one is related to your level three assets. Could you tellme what the other level three assets are, the CHF42 billion? First of all,that's very good disclosure, but: I would love to have a little bit more detail,if possible?

And the second question is: couldyou talk about how through the quarter your warehouse exposure has changed inthe three sub-segments, CDO, CMBS and RMBS? I don't need to have absolutenumbers, but: can you give me an indication of percentage of how your netexposure has changed through the quarter, from beginning to the end, roughly?

And the third question relates tosubprime. Can you give me an idea of how big your overall net subprime exposureis within the total Group?

David Mathers

I think, if I talk about thewarehouse delta. I think first basically, we reduced the warehousesconsistently for the first three quarters. I don't think we're going to commenton moves into the fourth quarter. There's not much to add there.

Clearly, you can look at theleverage finance funding calendar externally and see that there have been dealsfunded since the end of the quarter. But I think, going beyond that, I probablywouldn't want to at the moment basically.

Kian Abouhossein - JPMorgan

But: can you give us an idea, ifI look at, let's say, your CMBS business, that from the beginning of the thirdquarter to the end, has it reduced by 30% your net exposure, has it been 50%?So: can we have an idea of how the risk has changed, as you've gone through thewrite-downs and through, I assume, further disposals?

David Mathers

Was that question on CMBS?

Kian Abouhossein - JPMorgan

Yes, CMBS, CDOs and RMBS. That's basicallyjust to get an idea of the percentage change, roughly, from the beginning ofthe quarter to the end of the quarter.

David Mathers

I think, we made it clear we'renot going to disclose our acquisitions on CMBS, I think: “full stop” really.

Kian Abouhossein - JPMorgan

Okay.

Renato Fassbind

On your question on the increaseof level three assets, by the way, these level three assets reflect a 6% inrelation to our total assets. So that's just to put that into perception. Theincrease was due to actually three areas.

It was corporate derivatives andthe equities world, it was mortgages held for sale, and it was medium termnotes and commercial paper backed by ABS Securities. Those are the three majormarket pocket drivers for the increase.

David Mathers

I think, your final question,actually, was on: the Group's subprime as opposed to the Investment Bankingsubprime?

Kian Abouhossein - JPMorgan

That's correct, yes.

David Mathers

On the Investment Bankingsubprime, I think I'd make two -- reiterate what Renato said, that our positionsubprime is once net of our hedging and risk mitigation efforts essentially isde minimis basically. I think for the Group…

Renato Fassbind

Well, the same goes for theGroup. We have our exposure to really the largest extent in Investment Banking.

Kian Abouhossein - JPMorgan

Okay. And: if I can add one morequestion on CMBS? You seem to be the only Bank that actually talks about CMBSissues. And I'm wondering, and you probably have looked at other peers as well:why is that? Why do you seem to be taking write-downs and your peers aren't? Iknow you're very large player, but other large players don't seem to highlightthis as any particular issue.

Renato Fassbind

I think you have to ask thatquestion to our peers, not to us. We offer fair value on our positions on aregular basis, as I mentioned before, and we also looked at these positions andfair valued them at the end of the quarter. I cannot judge on why our peershave not taken any actions in that area.

David Mathers

Can I just add to Renato'scomment? As I said before, I think the fair value adjustment for the CMBS doesinclude an assessment of the liquidity as well.

Kian Abouhossein - JPMorgan

Okay. Thank you very much.

Renato Fassbind

Welcome.

Operator

The next question is from Mr.Philipp Zieschang of UBS. Please go ahead, sir.

Philipp Zieschang - UBS

God morning. I have a couple ofquestions again on the private bank. Just, could you comment, because when youbasically issued your 6% target in terms of net new money, probably nobody inthe market really thought that this was ambitious? So: how do you view thistarget, given that you had a couple of rather slower quarters now? Is thatgoing to be a stretch or are you happy if you make it?

And, in that sense: could youdisclose what percentage of net new money growth actually came over the pastfew years from increased leverage within your clients' portfolios?

And the third component of that:could you comment how your business would look like excluding your loss making U.S.brokerage business? And: is there material impact in terms of client flows? Andalso, if you might comment on: what time horizon you have in terms of fixingthis? Thanks.

Renato Fassbind

I will answer the first questionvery straight on. We are confident that the 6% target is the right one and westick to that. And we always said this is a 6% target over the cycle. We arewell within that, as you can see in the fourth quarter rolling average, which Ithink is a good indicator.

On the trend we are above that,so the answer is: yes, we stick to that target, we have no reasons to reducethat. As a matter of fact, as you may recall, we have increased that a coupleof quarters back to 6% from 5%. Christoph: do you have an answer for the other?

Christoph Brunner

Actually, the U.S.business basically in the third quarter in Americas,we had no net new inflows in net new assets. So, we are not satisfied with thatone, as you know. What we are doing in U.S.,we are turning this business around into a high-end wealth management offering.We stick to that plan and currently there is no plan to sell that business.

Philipp Zieschang - UBS

And, in terms of the leveragewithin the client portfolio, because you've mentioned that…?

Christoph Brunner

Actually if you look at the loanbook, the loan tables, I think this is on page 58, you'll see that we had areduction of some about more than CHF1 billion and, more or less, this isreally the deleveraging effect in the third quarter.

Philipp Zieschang - UBS

Thank you.

Operator

(Operator Instructions). The nextquestion is from Mrs. Anke Reinken, Execution. Please go ahead, madam.

Anke Reinken - Execution

Yes (inaudible).

Renato Fassbind

We cannot hear you at all.

Anke Reinken - Execution

Hello, can you hear me?

Renato Fassbind

Now we can hear you, yes.

Anke Reinken - Execution

Sorry. Following up on theprivate bank and the net inflows again: why do you think your net inflows, 4%of assets, on this quarter, over a couple of quarters, you seem to beunderperforming your closest peers. Is it a function of, maybe, regional gap? And:do you think you have closed this now with the recent hires in Asia?

Secondly, on the recurringmargin, even if I adjust for the reclassification in assets, there seems to belike an ongoing step change in the recurring margin. Do you think that currentlevels at around 76 basis points are at sustainable levels?

Then thirdly, you have given us alevel of leveraged finance revenues in 2006, which were around CHF2 billion.Where are we now in terms of in the third quarter, if we ex the write-downs? So,if we see how much of a step change we have already seen on the revenue sidefrom leveraged finance. Thank you.

Renato Fassbind

Do you want to start, Christoph?

Christoph Brunner

So, as I said before, we think wecan do better than the 4.5% and we stick to our target that we will be above 6%in terms of net new assets. As Renato mentioned before, we are not prepared tobuy our market share for any price. You can do that especially in the ultrahigh net worth business.

I also mentioned that we think wehave the growth platforms now to expand or to accelerate as the gathering, andI think we certainly can do better in emerging markets like Latin, like Eastern Europe, like Asia. We had very goodresults, as I've mentioned before, in Europe and alsogood results here in Switzerland.

David Mathers

On the leveraged finance point,as you say, we disclosed the revenues last year at CHF2 billion. I think, quiteclearly, given CHF1.1 billion of write-downs that the revenues are clearly lessthis year than last year.

Anke Reinken - Execution

But: ex the write-downs?

David Mathers

I'm sorry?

Anke Reinken - Execution

Ex the write-downs? So: how muchof the underlying revenues have already declined in leveraged finance?

David Mathers

I will not comment.

Renato Fassbind

We will not give that number.

Anke Reinken - Execution

Okay. And: the recurring marginin Private Banking?

Christoph Brunner

You're talking about: the grossmargin we have in there?

Anke Reinken - Execution

Yes. Basically, there seem to bea shift in gross margin.

Christoph Brunner

The recurring margin?

Anke Reinken - Execution

Yes. The recurring margin hasimproved, so: is this sustainable and are you sort of like think there's anongoing level?

Renato Fassbind

It's fair to say it has improvedand I think it's also, it's particularly a result of the efforts that theprivate bank made in order to increase the revenues out of the recurringbusiness. Maybe, Christoph, you can give more flavor about that?

Christoph Brunner

Looking at the nine monthsimprovement, recurring margin is up by 5 basis points. Roughly 3 basis pointsare coming from interest income and the main drivers within interest income islower funding costs, and the second most important driver there is higherinterest income from liabilities, stemming from higher liability volumes andhigher liability margins.

2 basis points then are comingreally from non-interest income and the main drivers there are reallymanagement fees out of managed assets, and, as I mentioned before, also ourpricing initiative where we changed pricing in a way to have more recurringrevenue.

Anke Reinken - Execution

Thank you.

Renato Fassbind

Thank you.

Operator

The next question is from Mrs.Claudia Meier, Bank Vontobel. Please go ahead, madam.

Claudia Meier - Bank Vontobel

Good morning. I have threequestions if I may. The first one would be: are you disclosing the share ofultra high net worth individuals within your private bank?

And then second question is: I'veseen that the CEO of Clariden Leu has just stepped down and been replaced.Probably, you could give us an update on what your strategy is with theindependent private banks, Clariden Leu?

And then the third question wouldbe on the leveraged finance exposure, I'm not sure I got the reason: why yourexposure has actually trended upwards? So, if you could again, re-elaborate onthis one? Thank you very much.

Renato Fassbind

Let me take the first two ones onthe ultra high net worth, we do not give the split as you may appreciate. Onthe CEO for the Clariden Leu, I think, it's fair to say that they have done agreat job in integrating actually the four banks into the Clariden LeuIndependent Private Bank.

Our strategy remains the same asit was before. This is an important part of our Private Banking business, andit will be managed accordingly with particularities that this has had from asmaller scale point of view and from a very particular client deal. And it wasjust so that the old CEO felt that his path was finished and he decided toretire. He has successfully integrated the business, which was a great jobdone, and Mr. Nutzi has now taken over as CEO.

And David: can you answer on levfin?

David Mathers

Sure. On leveraged finance, inSwiss franc terms, as you rightly say, in terms of our funded and unfoundednon-investment grade, we opened at CHF48 billion and we closed at CHF60 billionand: why was that?

We had five transactions whichcame through in early July which we'd been negotiating through the secondquarter and that, basically, added CHF20 billion to our commitments.

I'm not going to be too specific,but I think if one looks at what's publicly available, TXU was one of those. Wewere actually an advisor of the company as opposed to the acquiring syndicate,and therefore, we actually came into the funding comparatively late in terms offinal docs compared to that where our competitors were.

So, it would probably be fairerto say that our opening positioning was more like, rather than being CHF48billion, was more like CHF68 billion, and it's then obviously come down toCHF60 billion by the end of the third quarter.

I think the other factor in termsof the relative moves is the point that Renato made just in terms of thefunding timetable. We were involved in very few deals that actually had to fundin July and August, I think the deals which were publicly available, I thinkyou can see which ones those were. And that was partly a decision by us interms of the deals we wanted to be involved with, deals we didn't and I thinkPaul Calello made that point back at the Q2s at the beginning of August.

However, that meant that giventhat a lot of our business, therefore, was loaded towards the end of the thirdquarter and the fourth quarter that the reduction from, let's say, that fairopening position of more like CHF68 billion, is therefore only about CHF8million. Actually, that's not really true because there's been some newcommitments taken on as well, but, I think, that gives you a better idea of themoves in our lev fin positions.

Claudia Meier - Bank Vontobel

Thank you very much.

Renato Fassbind

Thank you.

Operator

The last question is from Mr.Peter Thorne, Helvea. Please go ahead, sir.

Peter Thorne - Helvea

Yes. Sorry to labor the issue,but you say you have de minimis subprime exposure, the values of subprime hardin the next few weeks or have done already. Is it fair to say that you've gotde minimis extra valuation provisions to book or is there some other issuesconcern there?

And secondly, in your summary yousay you have -- the results reaffirm the importance of the integrated globalbusiness model. Exactly where is that clear in the results? I really can't seeit anywhere.

Renato Fassbind

Now let me take the second onefirst. I mean we're going to have roughly, I would say, CHF0.5 billion ofrevenues, more so to say in 2007 than in 2006, due to the integrated banksthrough all the activities we have to cross reference businesses, to refurbishthem, and so forth. That has helped, not only to increase revenues on one side,but, in particular, also to keep up results in the integrated banking frameworkand making sure that we have the right positions in the various divisions.

And another just one example isthat 10% of the M&A from IPOs have been channeled, so to say, into theprivate bank in order to increase net new assets there. So, there are variousexamples of how the integrated bank has worked properly and has helped us inthe third quarter to sustain profitability levels we are at.

David Mathers

On the subprime point, I think wehave said that our position is de minimis and that is partly a competentposition and partly a result of the positions and partly a result of the riskmitigation we've taken. And I'd caution that risk mitigation is not simplyindex hedges, it's a more complex strategy than that.

But the position, net-net, is deminimis in a risk sense basically, so one can presume what one wants from thatbasically, but that's where we are. But that's on regard to subprimeresidential.

Peter Thorne - Helvea

Thank you.

Renato Fassbind

Next question. Okay. So there areno more questions? Thanks a lot for your questions. Now we will go over toquestions for media. There are no questions in the media either.

Operator

That's correct, Mr. Fassbind.There are no questions from media.

Renato Fassbind

Okay. Then I thank everybody thatparticipated, wish you a great day, and thanks for your interest for CreditSuisse.

Operator

Ladies and gentlemen, theconference call is now over. You may disconnect your telephone. Thank you forjoining and have a nice day.

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