CSFB. FC only (Page 1) - Credit Suisse

CSFB. FC only (Page 1) - Credit Suisse

GLOBAL INVESTMENT BANK 1998 ANNUAL REVIEW 1 4 6 8 16 24 28 30 32 34 35 36 38 47 Chief Executive’s Letter Fact Sheet Deals of the Year Investment B...

938KB Sizes 0 Downloads 12 Views

GLOBAL INVESTMENT BANK

1998 ANNUAL REVIEW

1 4 6 8 16 24 28 30 32 34 35 36 38 47

Chief Executive’s Letter Fact Sheet Deals of the Year Investment Banking Fixed Income and Derivatives Equity Private Equity Support Services Credit Suisse Group Board of Directors Executive Board Managing Directors Financial Statements Office Locations

Credit Suisse Group (“CSG”) is a global financial services

Credit Suisse First Boston (“CSFB”) is a leading global

company, providing a comprehensive range of banking

investment banking firm, providing comprehensive

and insurance products. Active on every continent and in

financial advisory, capital raising, sales and trading, and

all major financial centers, Credit Suisse Group comprises

financial products for wholesale users and suppliers of

five business units, each geared to the requirements of

capital around the world. It operates in over 60 offices

specific customer groups and markets:

across more than 30 countries and six continents and has

Credit Suisse Corporate and individual customers in Switzerland

over 14,000 staff. Credit Suisse First Boston is one of the world’s largest securities firms in terms of financial resources,

Credit Suisse Private Banking

with approximately $6.7 billion in revenues in 1998 and

Services for private investors in Switzerland

$7.1 billion in equity and $291 billion in assets as of

and abroad

December 31, 1998.

Credit Suisse First Boston Global investment banking Credit Suisse Asset Management Services for institutional and mutual fund investors

Credit Suisse First Boston is organized around the following four major operating divisions: Investment Banking Fixed Income and Derivatives

worldwide Equity Winterthur Worldwide insurance business

Private Equity

CREDIT SUISSE FIRST BOSTON

1

CHIEF EXECUTIVE’S LETTER

1998 was a year of sharp contrasts for Credit Suisse

the fall of communism, CSFB had profitably built leading

First Boston. As a result of the Russian collapse, the Firm

market shares in the Russian financial markets — fixed

reported pretax profit of just $82 million despite record

income, equities, derivatives, investment banking and

first-half profitability. Yet contrasting these disappointing

lending. The exposures associated with these activities

financial results were major advances in market share and

proved difficult to reduce swiftly when warning signs

strategic positioning. The substantial investments made in

intensified. Value declines of 95% in GKOs and 85% in

1997/8, together with successful organic development

equities, and heavy provisioning against counterparty

and improved risk management, position CSFB well to

default on loans and forward foreign exchange contracts,

prosper among the investment banking industry’s global

resulted in very large losses from Russia overall. Simply

“bulge bracket” in 1999 and beyond.

put, an important business area for CSFB suffered

Excluding Russia, CSFB’s pretax profits were $1,384 million — reflecting strong performances in many divisions, but losses in certain credit-sensitive areas,

from unprecedented economic collapse, though risk concentration compounded our losses. Important improvements are being implemented

notably high yield and distressed securities. This perfor-

with respect to CSFB’s risk management. In addition to

mance is comparable to results in similar business lines for

specific risk reduction, CSFB has also combined its Fixed

global competitors. CSFB’s risk mitigation efforts caused

Income and Derivatives businesses, repurchasing a 20%

capital ratios to strengthen during the year. At year end,

minority interest in Credit Suisse Financial Products

CSFB’s BIS ratio of 15.4% overall (Tier 1 8.4%) was

(“CSFP”) (as of April 1999). This is expected to reduce

among the strongest of our international peers.

risk overlap and produce cost and revenue synergies and more focused management across related risk areas. The

Russia

Firm’s independent risk functions have been strengthened

The global financial crisis, triggered by the unprecedented

with the creation of a new Strategic Risk Management

severity of Russia’s collapse, default and devaluation, had

Group and supplementing the existing Credit and Market

a major negative effect on CSFB’s 1998 profit. Since

Risk functions.

Strategic Developments

Without these acquisitions and strategic investments

1998 was also a year of enormous achievement for

in people, CSFB would have reported additional profits in

CSFB. The Firm accomplished major steps forward in its

1998. However, we are confident that they will produce

strategy of investing to expand its customer businesses

major financial and strategic benefits in the years ahead,

and global reach. The acquisition of BZW’s investment

accelerating the Firm’s rebalancing toward customer

banking, broking and equities business in Europe was

business, and closing selected market share gaps where

successfully completed and integrated, giving CSFB a

important.

major boost to its leadership in Europe and underlining its unique transatlantic positioning. An important new “home

Business Results

market” position in the UK was also gained. The combined

1998 was a successful year financially for many of

businesses are already operating better than originally

CSFB’s businesses.

planned, with results ahead of schedule and strong market

Equities revenues increased 52% ex-Russia. US

share gains. These include a leading position in UK equity

and European cash businesses and equity derivatives

trading, achieved during the second half of 1998.

showed particularly strong advances. Good market share

CSFB’s growing business in Asia was substantially strengthened by the acquisitions of BZW’s Asian businesses and the 100% consolidation of CSFB’s affiliates in Australasia: First Pacific and First New Zealand. The acquisition of Banco Garantia in Brazil for

gains were achieved across the board in capital markets, secondary trading and research. Investment Banking increased revenues 21% (with a 45% increase from Mergers and Acquisitions and Equity Capital Markets). This reflects market share advances in

$675 million, completed in August, fills an important strate-

all products offset by lower net interest income (7% of

gic gap and results in a unique leadership position in Latin

the total) as the developed markets loan book continued

America. Despite hostile market conditions and a sharp

to shrink, with equity capital supporting it reduced to

reduction in risk positions, CSFB Garantia has operated

$700 million.

ahead of budget with good profitability since the acquisition — both in 1998 and 1999 to date. CSFB also expanded organically, adding some

In Fixed Income, revenues declined 28% ex-Russia. However, Money Markets, Foreign Exchange and Government bond trading increased profits. Emerging

1,049 people in 1998 (9% of the total), including over

markets business was profitable outside Eastern Europe.

150 Technology bankers and research analysts. This latter

Investment Grade Debt capital markets global underwriting

move underpins the Firm’s commitment to strengthen its

share increased 99% on volume, up 2% overall.

business and is already providing impressive results. A major backlog of business includes the technology industry’s largest M&A transaction to date — advising Ascend on its $20 billion combination with Lucent.

since year end, John Nelson, who has joined the

Customer business in derivatives was up from 1997, and

Executive Board as Chairman of our European business-

despite trading losses (including Russia and Long Term

es. We are also pleased to welcome back to CSFB Dick

Capital Management), CSFP maintained an ROE of 14%.

Thornburgh as Vice Chairman of the Executive Board,

In Private Equity, the Firm now manages investment

having spent the last two and one half years as Credit

commitments of over $3.0 billion in several funds globally, and is well positioned to grow further. Significant gains

Suisse Group Chief Financial Officer. 1999 has begun very well, underlining the earnings

from the sale of past strategic investments were also

capacity of the Firm. It is our task now to capitalize on our

taken in 1998.

business strengths and recent investments coupled with

Finally, CSFB is continuing to improve its infrastruc-

reduction of risk concentration. CSFB is well placed to

ture and control environment — both stretched with the

create strong value for our clients and our shareholders

demands of recent times. A successful Euro conversion,

going forward.

major IT advances in global communications, and a new general ledger in London and New York are a few of the accomplishments of 1998, but with much remaining to do. This Annual Review describes in more detail CSFB’s global and product strengths and the strategies driving our business forward. Most importantly, this Review

Allen D. Wheat

reflects the lifeblood of our business — our client relation-

Chairman of the Executive Board

ships. Whether it be in mature or emerging markets, or

and Chief Executive Officer

with investors or users of capital and advice, our service to clients comes first. Our capital strength and expertise as principal increasingly link with our client businesses to ensure that we can provide differentiated service. The business achievements of 1998 and our bright prospects for 1999 are dependent on the skills, energy and dedication of our people. One of the best indications of our business’s health is significantly lower staff turnover, despite the tensions of 1998. To each of our people go heartfelt thanks for their efforts. We welcome also the outstanding new talent joining CSFB including,

CREDIT SUISSE FIRST BOSTON

In CSFP, revenues declined 4% (ex-Russia).

3

Market Share — Important Advances Were Made 1998 CSFB RANK

Global M&A

CHANGE VS. 1997 CSFB SHARE

CSFB RANK

CSFB SHARE

5

16.0%

0

+3.7%

5

7.3%

+2

+1.9%

5

5.6%

0

+0.7%

3

5.9%

+6

+2.1%

North America

6

27(3)

+4

+14

Europe

6

16

+6

+8

(1)

Global Debt Global Equity

(2)

US Secondary Equity Listed Equity Research (3)

(1) Based on announced transactions. (2) Includes equity-linked securities. (3) Number of ranked analysts. Europe reflects latest (February 1999) ranking versus prior year. Sources: Securities Data, Bondware, Autex BlockDATA, Institutional Investor

Financial Highlights 1998

DOLLARS IN MILLIONS (UNAUDITED)

1997

(3)

% CHANGE

For the year Revenues

$

6,713

$

7,171

-6%

Operating expenses

$

5,341

$

4,810

11%

Gross profit

$

1,372

$

2,361

-42%

$

82

$

1,828

-96%

$

(77)

$

1,207

-106%

$

7,274

-2%

$ 310,353

-6%

Pretax income

(1)

Net income (loss)

(1)

At year end Total shareholder’s equity

$

7,135

Total assets

$ 290,696

Selected ratios Return on average equity

-1%

18%

1%

25%

Expense/revenues

80%

67%

Staff expense/revenues

56%

49%

8.4%

8.5%

15.4%

14.9%

Pretax profit margin

(1)

(1)

Tier 1 BIS-based capital ratio Total BIS-based capital ratio

Employees

(2)

(2)

14,126

11,863

(1) Excludes extraordinary/exceptional items and minority interests. (2) These ratios apply to the Bank. (3) Certain 1997 amounts have been reclassified to conform to 1998 presentation.

19%

CREDIT SUISSE FIRST BOSTON

5

A Leader in Innovation

best

Best Lead Manager of Swiss Franc Bonds Euroweek Best Bank in Bond Origination—Europe Global Finance Bond House of the Year—Americas Project Finance International

CSFB’s new Super Booth on the floor of the New York Stock Exchange.

Top Bond House—Credit Derivatives/Equity Swaps Risk

top

best

Top House—Repurchase Agreements Risk

Best Equity Underwriter—Central Europe/CIS Central European Best Equity Trader—Central Europe/CIS Central European Best Equity House Finance Asia

best best

Best Foreign Securities House—Australia Euromoney

Best SFR House International Financing Review

Best Arranger for Latin America International Securitization Report Adviser of the Year, Asia/Pacific Project Finance International

1st

First Place—Top M&A Advisor WSJ’s CEER

First Place—European Equity Sales Force Reuters Review

top

2nd Place—Top Underwriters—Equity WSJ’s CEER

1998 DEALS OF THE YEAR Once again, Credit Suisse First Boston has been judged as a leader in client service by the financial press who cover our businesses. Below are the transactions recognized as Deals of the Year and other awards won by the Firm for financing and advisory work worldwide in 1998. The Firm won 75 awards this year, up from 61 in 1997.

TRANSACTION

AWARD

PUBLICATION

Adecco

Best of the Rest – Initial Public Offering

Corporate Finance

AES Southland

Power Deal of the Year, Americas

Project Finance International

Alstom

Best Equity Deal

Global Finance

Best of the Rest – Initial Public Offering

Corporate Finance

Best Equity Deal

Global Finance

Best Initial Public Offering

Finance Asia

Second Place – Best Asian Equity Issue, Australia

International Equity Review

Best Merger

Global Finance

Breakthrough Deal

Investment Dealers’ Digest

Deal of the Year – Mergers & Acquisitions

Institutional Investor

M&A Deal of the Year

Investment Dealers’ Digest

Bestel

Latin Corporate Deal of the Year

Euromoney

Bolivia-Brazil Gas Pipeline Project

Highly Commended

Project Finance

Honorable Mention, Project Finance

Latin Finance

Best US High Yield Issue

Euromoney

High Yield Deal of the Year

Investment Dealers’ Digest

US Domestic Bond Issue of the Year

Corporate Finance

US High Yield Bond of the Year

International Financing Review

Ceval Alimentos

Structured Trade Finance Deal of the Year

Latin Finance

Coryton

Power Deal of the Year, Europe/Middle East & Africa

Project Finance International

Csepel Aramtermelo

Best Syndicated Loan Project Financing

Euroweek

Daimler-Benz/Chrysler

Best M&A Transaction

euro

The Best Deal of the Year – All Categories

Global Finance

Deal of the Year

Investment Dealers’ Digest

Deal of the Year – Mergers & Acquisitions

Institutional Investor

Mergers and Acquisitions Deal of the Year

CFO Europe

Mergers and Acquisitions Deal of the Year

Corporate Finance

ENI

Second Place – Best European Equity Issue, Italy

International Equity Review

FNMA Debut Benchmark Notes

Best Agency Issue

Euroweek

Best Debt Deal

Global Finance

Best International Issue in US Dollars

Euromoney

Best US Agency Issue

Euromoney

AMP

AT&T/TCI

CalEnergy

AWARD

PUBLICATION

Best US Dollar Fixed-Rate Issue

Euroweek

Deal of the Year – International Bonds

Euroweek

International US Dollar Bond of the Year

International Financing Review

Power Deal of the Year, Asia/Pacific

Project Finance International

Project Finance – Runner-up

Corporate Finance

Northern Telecom/Bay Networks

Breakthrough Deal

Investment Dealers’ Digest

OTE

Best European Equity Issue – Greece

Euroweek

Best European Equity Issue – Greece

International Equity Review

Second Place – Best Secondary Share Issue

International Equity Review

Deal of the Year – Sovereign Issues

Institutional Investor

Sovereign Issue of the Year – Commended

Asiamoney

Philip Morris

Best International Deutschmark Issue

Euromoney

Project Funding Corporation

Best in Project Finance

Global Finance

PTT Exploration & Production

Best Asian Equity Issue – Thailand

Euroweek

Best Asian Equity Issue – Thailand

International Equity Review

Best Overall Equity Deal

Finance Asia

Best Primary Equity Transaction

Asiamoney

Best Privatization-Related Offering

Finance Asia

Qatar Telecom

Second Place – Best European Equity Issue, Middle East

International Equity Review

Republic of Austria

Swiss Franc Bond of the Year

International Financing Review

Republic of Italy

Emerging Currency Bond of the Year

International Financing Review

Tata Communications

Best in Project Finance

Global Finance

TCI

International Bond – Runner-up

Corporate Finance

Tri Energy

Best in Project Finance – Commended

Asiamoney

Best Project Financing

Euromoney

Most Innovative Deal of the Year

Project Finance

Project Finance Deal of the Year

Corporate Finance

US Equity-Linked Issue of the Year

ECM/World Equity

US Equity-Linked Issue of the Year

International Financing Review

ENTITY

AWARD

PUBLICATION

Credit Suisse Financial Products

Top House – Credit Derivatives

Risk

Top House – Equity Swaps

Risk

Top House – Exotic Products – Equities

Risk

Adviser of the Year, Asia/Pacific

Project Finance International

Best Arranger for Latin America

International Securitisation Report

Best Equity House

Finance Asia

Best Lead Manager of Swiss Franc Bonds

Euroweek

Best Synthetic Convertible Bonds for Nestlé

Global Finance

Best Synthetic Put Bonds – TERMS

Global Finance

Bond House of the Year, Americas

Project Finance International

Second Place – Most Impressive Lead Manager, Asian Equity Issues

International Equity Review

Second Place – Most Impressive Lead Manager, European Equity Issues

International Equity Review

Swiss Franc Bond House of the Year

International Financing Review

Top House – Repurchase Agreements

Risk

Meizhou Wan Power Project

People’s Republic of China

Union Pacific

Credit Suisse First Boston

CREDIT SUISSE FIRST BOSTON

TRANSACTION

7

Full Service Product Offerings Acquisition Finance Asset Finance Corporate Lending and Syndicated Finance Corporate Sales and Divestitures Equity and Convertible Underwriting General Financial Advisory High Yield Debt Underwriting Investment Grade Debt/Preferred Stock Underwriting Lease Finance Leveraged Buyouts Leveraged Finance Mergers and Acquisitions Private Placements Privatizations Project Finance Restructurings Share Repurchase Programs Structured Trust Products Supply Chain Finance Takeover Defense

(Dollars in Millions) Revenue

1998

1997

% CHANGE

$ 1,790

$ 1,479

21%

2,373

2,034

17%

$ 1,100

$ 2,841

-61%

Employees Average BIS Capital

Focused Industry Expertise Automotive Capital Goods Chemicals Consumer Products Depository Institutions Energy Health Care Insurance Lodging, Gaming and Leisure Logistics and Transportation Media and Telecommunications Metals and Mining Paper, Packaging and Forest Products Power, Utilities and Project Finance Retail Technology

INVESTMENT BANKING In what proved to be a challenging year in the financial

Charles G. Ward III

markets, the Investment Banking Division achieved record

Head of Investment Banking

results while repeatedly demonstrating its ability to execute groundbreaking transactions worldwide. CSFB recognized long ago that companies competing in a dynamic and unpredictable global economy need a wide breadth of investment banking services. We set out to capitalize on CSFB’s existing strengths and made selective acquisitions to build an investment banking business capable of providing unparalleled services to our clients around the world. In the past year, we took several important steps to propel us toward that goal. The acquisition of the European and selected Asian businesses of BZW has been a demonstrable success in expanding client service in these regions.

CREDIT SUISSE FIRST BOSTON

9 The acquisition of Brazil’s premier investment bank,

Two transactions reconfigured the competitive land-

Banco Garantia, gives CSFB a unique platform in the

scape in their respective industries: the $39.5 billion

largest economy in Latin America.

merger of Chrysler with Daimler-Benz and the $70 billion

CSFB took a bold step to bolster the Technology

merger of AT&T with TCI (see boxes on page 14 and

Group with the hiring of the top-ranked technology bank-

below), which also represent two of the ten largest M&A

ing and research team in the business.

deals of all time.

We also added 24 professionals in Germany, giving

In the US, we advised Wells Fargo on its $34 billion

CSFB one of the largest investment banking groups

merger with Norwest Corporation, creating the premier bank

among non-German investment banks.

in the western US. We worked with AMP, Inc. in considering and successfully warding off the year’s largest unsolicited

Mergers & Acquisitions

offer. AMP, Inc. ultimately entered into a friendly $12 billion

Our M&A Group continues to rank as one of the world’s

agreement to merge with Tyco International that provided

leading strategic advisors. In 1998, a record-setting year

shareholders with $1.5 billion in additional value. We also

for M&A activity, we demonstrated superior innovation and

advised Northern Telecom of Canada on its $9.1 billion

capabilities by advising clients worldwide on precedent-

acquisition of Bay Networks in the first strategic transaction

setting transactions.

involving the voice and data markets.

Largest Private Placement of the Year

In the largest private placement of 1998, CSFB priced a $450 million offering of senior notes for Hearst-Argyle Television, the largest publicly owned “pure play” television broadcasting company in the US. Amid volatile capital markets in which many transactions were being pulled and restructured, Hearst-Argyle required funding related to pending TV station acquisitions. CSFB proposed a rapid-execution private placement to Hearst-Argyle. After ten days of marketing, we increased the offering size by $150 million. The company succeeded in securing a blue-chip list of institutional investors.

Strategic Transaction Changes Industry Paradigm

The landmark $70 billion merger of AT&T with Tele-Communications Inc. (TCI) proved to be one of the most complex transactions announced in 1998 and promises to revolutionize the telecommunications and cable television industries. CSFB advised AT&T on the transaction, which involved the acquisition of TCI and its tracking-stock subsidiaries, Liberty Media and TCI Ventures. Concurrent with the closing of the TCI acquisition, the combined assets of Liberty Media and TCI Ventures traded as separate tracking stocks also under the AT&T umbrella. In advising on the complex structure, CSFB again proved itself to be a foremost advisor on tracking stocks. Investment Dealers’ Digest selected the transaction as its M&A Deal of the Year, stating, “The union underscores the strategic vision, financial innovation and complexity required by mergers that effect industry transformation.”

Mergers and Acquisitions Highlights CREDIT SUISSE FIRST BOSTON CLIENT

DESCRIPTION OF TRANSACTION

AT&T Corporation

Merger with Tele-Communications Inc.

$70,000,000,000

Chrysler Corporation

Merger with Daimler-Benz AG

$39,500,000,000

Zeneca Group PLC

Merger with Astra AB*

$35,000,000,000

Wells Fargo & Company

Merger with Norwest Corporation

$34,400,000,000

Total SA

Acquisition of Petrofina SA*

$13,000,000,000

AMP Incorporated

Sale of Company to Tyco International Ltd.*

$11,700,000,000

AT&T Corporation

Acquisition of Teleport Communications Group Inc.

$11,300,000,000

H.F. Ahmanson & Company

Sale of Company to Washington Mutual, Inc.

$9,900,000,000

Istituto Mobiliare Italiano SpA

Merger with Istituto Bancario San Paolo di Torino SpA

$9,300,000,000

Northern Telecom Ltd.

Acquisition of Bay Networks, Inc.

$9,100,000,000

Southern Electric plc

Merger with Scottish Hydro-Electric plc

$8,000,000,000

Star Banc Corp.

Acquisition of Firstar Corp.

$7,200,000,000

Western Atlas Inc.

Merger with Baker Hughes Incorporated

$6,800,000,000

International Paper Company

Acquisition of Union Camp Corporation*

$6,600,000,000

Deutsche Telekom AG and France Telecom S.A.

Advice with respect to the impact of Sprint Corporation’s recapitalization on their 20% interest in Sprint

$6,300,000,000

Allegiance Corporation

Merger with Cardinal Health, Inc.

$5,400,000,000

Continental Airlines, Inc.

Strategic alliance with Northwest Airlines Corporation

$5,000,000,000

AMP Limited

Acquisition of National Provident Institution*

$4,500,000,000

Golden State Bancorp Inc.

Merger with First Nationwide Holdings Inc.

$4,500,000,000

Capstar Broadcasting Corporation

Sale of Company to Chancellor Media Corporation*

$4,100,000,000

CalEnergy Company, Inc.

Acquisition of MidAmerican Energy Company

$4,000,000,000

Aluminum Company of America

Acquisition of Alumax Inc.

$3,800,000,000

Courtaulds PLC

Sale of Company to Akzo Nobel NV

$3,800,000,000

Johnson & Johnson

Acquisition of DePuy, Inc.

$3,700,000,000

The St. Paul Companies

Merger with USF&G Corporation

$3,700,000,000

E.I. du Pont de Nemours and Company

Acquisition of 50% interest in The DuPont Merck Pharmaceutical Company owned by Merck & Co., Inc.

$2,600,000,000

Telecom Italia SpA

Acquisition of 25% interest in Telekom Austria*

$2,400,000,000

Ciba Specialty Chemicals

Acquisition of Allied Colloids plc

$2,300,000,000

Wessex Water Plc

Sale of Company to Enron Corporation

$2,250,000,000

ABB - Asea Brown Boveri

Acquisition of Elsag Bailey Process Automation N.V.

$2,200,000,000

Coltec Industries Inc.

Merger with The B.F. Goodrich Company*

$2,200,000,000

AMP Limited

Acquisition of Gio Australia Holdings Ltd.*

$2,100,000,000

Sedgwick Group PLC

Sale of Company to Marsh & McLennan Companies, Inc.

$2,040,000,000

Diageo plc

Divestiture of Dewar’s Scotch whiskey and Bombay gin brands to Bacardi Limited

$1,940,000,000

Hearst-Argyle Television, Inc.

Acquisition of the broadcasting division of Pulitzer Publishing Company

$1,850,000,000

Nationwide Mutual Insurance Company

Acquisition of Allied Group, Inc. and affiliates

$1,800,000,000

CVS Corporation

Acquisition of Arbor Drugs Inc.

$1,500,000,000

Ispat International N.V.

Acquisition of Inland Steel Company from Inland Steel Industries, Inc.

$1,430,000,000

*Pending at 3/25/99

APPROXIMATE DOLLAR VALUE

Equity Underwriting

Chemicals of Switzerland following its spin-off from

CSFB demonstrated its global equity underwriting expert-

Novartis, on which CSFB also advised. Ciba acquired

ise by executing world-class transactions under both

Allied Colloids Group for $2.3 billion, helping Allied

favorable and challenging market conditions.

Colloids fend off a hostile offer. In the UK, we advised

CSFB holds a renowned position as a highly

Southern Electric on its $8 billion merger with Scottish

innovative creator of equity securities designed to achieve

Hydro-Electric, creating one of the UK’s premier energy

clients’ goals. In 1998, for example, we devised a unique

companies.

$2.1 billion “installment receipt” offering to assist

CSFB is representing Total SA of France on its

Ameritech in divesting its stake in New Zealand Telecom.

pending $13 billion acquisition of Petrofina SA of

The resulting issue was New Zealand’s largest-ever equity

Belgium, which will create the world’s fifth largest oil

deal. We employed our original convertible preferred

company and the largest non-state-owned French

HIGH TIDES (Remarketable Term Income Deferred Equity

company. CSFB advised on Italy’s largest-ever merger:

Securities) structure to raise $300 million for Budget

the combination of banking titans IMI and San Paolo.

Group in the first-ever remarketable tax-deductible pre-

CSFB is representing Telecom Italia on its acquisition of

ferred issue. We acted as joint lead manager and

a 25% interest in Telekom Austria for $2.4 billion — the

bookrunner for $1.5 billion of TIDES for Union Pacific, a

largest European telecommunications M&A deal in 1998.

transaction honored by International Financing Review as

In 1998, we continued our leadership in privatizations by advising, among others, the Government of Colombia on

its Equity-Linked Issue of the Year and the largest tax deductible convertible preferred ever.

the $1.1 billion sale of 65% of Corporación Eléctrica de la Costa Atlántica to an international consortium.

Ideas, Execution, Financing

CSFB advised our long-standing client Ispat International N.V. on its objective of gaining a foothold in the US steel market. We proposed that the company acquire Inland Steel Company, which it did for $1.4 billion — the largest acquisition in the US steel industry. To finance the transaction, CSFB acted as lead arranger and administrative agent for a comprehensive financing package totaling $1.26 billion. CSFB structured $700 million of hybrid “covenant light” bank loans, featuring traditional high yield “incurrence-based” covenants, but offering prepayment ability similar to a bank loan.

Underwriter for the Largest Equity Issues CSFB served as joint global coordinator and joint bookrunner for the initial public offering of Alstom. The $4.2 billion offering ranks as the largest European corporate IPO ever and was selected as a Deal of the Year by Global Finance and Corporate Finance. Although Alstom undertook a complex reorganization prior to flotation, the final offering was more than three times oversubscribed. The highly complex process involved three stock-market regulatory regimes and preferential allocation to shareholders in two different countries. Alstom now trades in Paris, with secondary listings in London and New York. The scale and complexity of this exercise illustrate CSFB’s global expertise in executing multifaceted equity transactions.

CREDIT SUISSE FIRST BOSTON

In Europe, CSFB represented Ciba Specialty

11

Landmark Asian Issue

Surpassing Clients’ Expectations

CSFB served as joint global coordinator and joint bookrunner to PTT Exploration and Production Public Company Limited of Thailand on the sale of some 37 million shares. With CSFB’s assistance, the company succeeded in raising $265 million under what can only be described as hostile market conditions. The issue traded well in the immediate aftermarket, outperforming the Bangkok SET index by 35% in the following three months. The transaction won a host of awards, including being selected by Finance Asia as both its Best Overall Equity Deal and Best Privatization-Related Offering.

When regulatory agencies required Diageo to divest its Dewar’s Scotch whiskey and Bombay gin brands, the food-and-beverage giant turned to CSFB to conduct the largest spirits brand sale in history. After a brief and intense marketing effort, Diageo agreed to sell the brands to Bacardi for $1.93 billion, a price significantly above independent analysts’ predictions. CSFB prides itself on its ability to execute significant divestitures and on surpassing our clients’ expectations.

In Europe, CSFB acted as joint global coordinator

Finance Asia honored CSFB as the Best Equity

and joint bookrunner for Europe’s largest-ever corporate

House, highlighting our role in the equity issue for PTT

IPO: Alstom’s award-winning $4.2 billion offering. We

Exploration and Production in Thailand and in the demutu-

acted as joint lead manager for the IPO of Coca-Cola

alization and IPO of Australia’s AMP, the largest insurance

Beverages plc, which was 13 times oversubscribed. In the

company demutualization in history.

US, we led well-received IPOs for Capstar Broadcasting, one of the largest broadcasting IPOs ever, and Keebler

Debt Underwriting and Corporate Lending

Foods, the venerable American cookie brand. In the first

CSFB offers a broad array of financing options ranging

US equity issuance for a tower transmission company, we

from investment grade and non-investment grade debt to

acted as lead manager on American Tower’s $750 million

corporate lending, acquisition finance, private placements,

offering following its separation from its parent, American

and asset-backed and lease finance. CSFB is a proven

Radio Systems, which merged with CBS.

leader in every one of these categories.

CSFB continued its lead standing as global

Our significant balance sheet enables us to commit

coordinator for equity privatizations worldwide. We complet-

capital quickly to support our clients’ transactions. CSFB

ed the third global offering of OTE, the Greek national

continues to be a leader in the delivery of integrated bank

telecommunications operator, amid substantial market

and bond financing commitments in leveraged transac-

volatility. The $1.1 billion transaction was one of only two

tions, having lead managed more than $60 billion of

major secondary offerings executed after European equity

syndicated loans and high yield bonds in 1998. When

markets peaked in July, and was the only privatization offer-

combined with our strengths in mergers and acquisitions

ing. CSFB also completed the fourth offering for ENI, Italy’s

and equity underwriting, our integrated leveraged finance

largest company. The four-phase privatization raised nearly

product delivers full service financing capabilities to

$25 billion for the Republic of Italy over several years.

private equity sponsors and other acquisitive and growthoriented clients on a rapid basis. Nowhere was this more

demand. Institutional Investor named the transaction its

out market, where CSFB was voted by Euroweek as one

Sovereign Bond Deal of the Year. We also executed

of the top houses in arranging European LBOs.

several bond offerings in anticipation of the Euro. We

CSFB continues to be at the forefront of the global

acted as joint bookrunner for the Government of Canada

high yield market, developing innovative structures and

on its DEM4 billion global bond issue, which established

executing transactions during difficult market conditions.

a liquid benchmark issue prior to the adoption of the single

We employed an innovative dual-tranche structure to help

European currency. CSFB acted as joint bookrunner

Fresenius Medical Care finance its growth capital needs.

on Greece’s debut Euro 2 billion issue. We also led a

The company tapped the newly developed European

DEM2 billion offering for Philip Morris’s first institutionally

high yield market with a DEM300 million Trust Preferred

targeted international offering. The offering achieved

Securities offering on top of a traditional $450 million

substantial savings over dollar financing and remains the

tranche. The DEM bonds were issued at the lowest

largest corporate bond issue in the DEM market.

high yield new issue yield to date. Our success in raising $1.4 billion for CalEnergy effectively reopened the

Project Finance

moribund high yield market in the latter half of the year.

CSFB has assembled the industry’s leading project

CSFB ranks as a perennial leader in managing

finance team. The combination of unmatched investment

industrial "event" debt transactions. In 1998, CSFB led a

banking services and the industry’s most seasoned pro-

$1.75 billion debut public debt offering by Computer

fessionals enables CSFB to advise on prominent projects

Associates – the largest-ever senior unsecured debt offer-

worldwide.

ing by a software company. In support of Raytheon’s

As sole advisor on the Bolivia-Brazil Gas Pipeline

acquisition of Hughes Aircraft (on which CSFB advised),

Project, CSFB assembled a package of $2.2 billion in

we jointly led a four-tranche, $1.6 billion transaction.

project financing. The project’s sponsors committed more

We later acted as joint lead manager on two additional

than $800 million. The $1.4 billion balance included debt

Raytheon offerings totalling $2.2 billion. In both of these

financing from the World Bank, the Inter-American

cases, CSFB had previously arranged committed syndicat-

Development Bank, the Andean Pact development bank,

ed loan facilities in excess of $10 billion in support of

the Brazilian development bank and other sources. The

these clients’ strategic objectives.

transaction ranks as Brazil’s largest-ever project financing.

CSFB has historically been a leading underwriter of

We also acted as both financial advisor and lead arranger

sovereign debt issues in a variety of currencies. In 1998,

for Tri Energy’s $446 million financing — the first project

we successfully completed a high-profile, $1 billion issue

in Southeast Asia to close after the Asian economic crisis

for the Ministry of Finance of the People’s Republic of

began. Corporate Finance named Tri Energy as its Project

China. This benchmark deal, China’s first sovereign issue

Finance Deal of the Year; Project Finance named it Most

since 1997 and CSFB’s eighth lead-managed offering for

Innovative Deal of the Year; and Euromoney honored it as

China, saw the offer size double in response to heavy

Best Project Financing.

Helping Clients Grow

CSFB helped King Pharmaceuticals grow in 1998 from a small private company into a leading public growth company, with a market capitalization in excess of $800 million. CSFB lead managed a $195 million senior secured credit facility for King, and then proceeded with a successful IPO. At year-end, CSFB advised King on its $363 million acquisition of three products from Hoechst Marion Rousel, for which CSFB arranged a $575 million financing package. King’s stock price has doubled since the IPO, demonstrating why CSFB prides itself on helping its clients grow and prosper.

CREDIT SUISSE FIRST BOSTON

apparent than in the developing European leveraged buy-

13

Meeting Our Clients’ Needs

has assembled this dynamic institution to assist our clients

At CSFB, we continue to strive to meet our clients’

in seizing opportunities the world over.

investment banking needs. Toward that end, we now call

CSFB offers what few other investment banks can:

the following financial centers home: Frankfurt, Hong

the widest possible array of investment banking products,

Kong, London, New York, São Paulo, Sydney and Zurich.

one of the strongest balance sheets of any global financial

Our recent acquisitions and staffing additions have aug-

institution and a real presence in every major financial

mented our corps of highly skilled professionals. CSFB

market in the world.

Chrysler Corporation A 30-Year Relationship The Evolution of a Relationship In 1998, CSFB served as exclusive financial advisor to Chrysler on its historic $39.5 billion merger with Daimler-Benz. CSFB’s leading role in the transaction was the culmination of a long-standing and close relationship with Chrysler spanning more than 30 years. This unprecedented combination of two automotive giants, the largest cross-border auto merger ever completed, required groundbreaking M&A technology to balance an intricate mix of legal, tax and accounting objectives. The merger of Daimler-Benz and Chrysler created the world's largest automotive company based on market equity value. Upon closing, DaimlerChrysler shares became the world’s first global ordinary shares, with a single class of shares trading on all of the world’s major securities exchanges. A host of financial publications — Institutional Investor, Investment Dealers’ Digest, CFO Europe, euro, Corporate Finance, Global Finance — hailed the DaimlerChrysler merger as a Deal of the Year. As Investment Dealers’ Digest succinctly put it, “After DaimlerChrysler, the automotive industry will never be quite the same.” The chart below details some of the highlights of CSFB’s relationship with Chrysler from 1980 to present and its positive impact on Chrysler’s shareholder value.

Chrysler Stock Price

(Adjusted for stock splits)

$70

$60

$50

$40

$30

$20

$10

$ 0

June 1980 CSFB advises lenders regarding $650 million of financing concessions — Chrysler avoids bankruptcy

February 1981 CSFB manages $1.2 billion of unprecedented government-backed bonds for Chrysler

November 1985 CSFB manages $1.2 billion of financings — Chrysler returns to the traditional debt market after early repayment of government-backed bonds

March 1983 CSFB joint-lead manages $432 million offering as lenders sell the shares they received in the reorganization

November 1987 CSFB lead manages $1 billion offering of asset-backed securities for Chrysler Financial

CREDIT SUISSE FIRST BOSTON

15

November 1998 Merger with Daimler-Benz closes; stock of DaimlerChrysler begins trading as the world’s first global ordinary share

offering of convertible preferred securities — the largest rule 144A convertible to date

October 1991 CSFB joint-lead manages $408 million offering — Chrysler has the financing to begin the rollout of its new product line

February 1990 CSFB sole advises Chrysler in its sale of Gulfstream Aerospace for $825 million

$70 April 1995 CSFB is lead defense advisor to Chrysler with respect to Tracinda’s $22 billion bid — the largest unsolicited bid to date

October 1997 CSFB is sole share repurchase agent — Chrysler has returned $4 billion in cash to shareholders in two years

$60

$50

$40

$30

$20

$10

$ 0

(Adjusted for stock splits)

February 1992

CSFB lead manages $863 million

December 1997 CSFB lead manages $494 million IPO of Chrysler’s car rental operations and arranges $2 billion of associated securitized financings

Chrysler Stock Price

February 1993 CSFB lead manages $2 billion offering — the second largest industrial equity offering to date

May 1998 CSFB sole advises Chrysler in its $39.5 billion merger with Daimler-Benz — the largest industrial and cross-border merger

Government Securities Corporate Securities Global Foreign Exchange Emerging Markets Securities Interest Rate Swaps New Issue Underwriting Asset-Backed Securities High Yield Finance Credit Derivatives Mortgage Securities Real Estate Finance Money Markets Precious Metals Fixed Income Research Futures Prime Brokerage Commodities Derivatives

(Dollars in Millions)

1998

1997

% CHANGE

(1)

$ 2,585

$ 4,525

-43%

Employees

2,130

2,020

5%

$ 4,457

$ 3,221

38%

Revenue

Average BIS Capital

FIXED INCOME AND DERIVATIVES 1998 was a year of unprecedented challenges and

Christopher Goekjian

Marc Hotimsky

changes for the two divisions then known as Fixed Income

Co-Head

Co-Head

Fixed Income

Fixed Income

and Derivatives

and Derivatives

and Credit Suisse Financial Products. Combined in January 1999 to form the Fixed Income and Derivatives Division (“FID”), the newly merged entity now brings the Firm’s standard of client service to a new level. After a first half in which all Fixed Income businesses had record earnings, the unprecedented combination of a moratorium on foreign payments with a massive devaluation of the Ruble and a default on Russia’s domestic debt shook the entire financial world. Since Russia had long been a strategic market for CSFB, we were one of that country’s most exposed foreign banks. The aftershocks of the Russian crisis soon spread into other markets and the general credit spreads’ widening affected the derivative

(1) Revenues for FID in 1998 include $1,740 from Fixed Income and $845 from CSFP. Revenues for FID in 1997 include $3,379 from Fixed Income and $1,146 from CSFP. The employees and average BIS capital data for FID for the years provided also reflects the pro forma combination of Fixed Income and CSFP.

CREDIT SUISSE FIRST BOSTON

17 businesses and the credit businesses such as High Yield and Distressed Securities as well as Emerging Markets outside Russia. The crisis prompted us to adopt a lower risk profile that we expect to maintain in 1999. The news in Emerging Markets was not all bad. Our acquisition in July of Banco Garantia, the largest investment bank in Brazil, was a major element of our emerging markets strategy. The integration of Garantia into CSFB took place immediately and painlessly, thanks to the two firms’ great similarity in culture and to the alignment of their employees’ interests. The acquisition has allowed CSFB to expand its global reach and attain deep local penetration in a market with great opportunities for our clients going forward. The other piece of good news for 1998 is that, despite the global financial crisis, a number of businesses performed extremely well: The Principal Transactions Group had strong financial results, the Money Market and Foreign Exchange businesses were unaffected by the crisis, the Government Bond business had one of its best years across all regions and CSFP’s client derivative activities showed another year of strong growth. In addition, we improved significantly our client market penetration, particularly in Debt Capital Markets.

Debut of Benchmark Notes Program Given its large annual borrowing needs, Fannie Mae needed a consistent source of core funding. CSFB helped develop a solution — the Benchmark Notes Program. The debut issue, for which CSFB served as joint bookrunner, was premarketed at $3 billion to $4 billion. It was ultimately oversold at $4 billion, priced at 19 basis points over five-year US Treasuries, and won Deal of the Year or equivalent awards in a wide variety of categories from publications including International Financing Review, Euromoney, Euroweek and Global Finance (see pages 6-7). The widely emulated program of monthly issues has reduced Fannie Mae’s borrowing costs and allowed it to tap the market even in the most difficult times. The issues have remained liquid on the cash and repo markets with good two-way flows.

Execution that Reopened the High Yield Market While volatility disrupted the global capital markets in the latter half of the year, CSFB demonstrated its ability to complete transactions for clients under the most challenging conditions. CalEnergy, an independent power producer, sought to tap the high yield corporate bond market in support of its $4.0 billion acquisition of MidAmerican Energy. (CSFB also served as M&A advisor on the deal, the first-ever acquisition of a regulated US utility by an independent power producer.) After a hiatus of more than a month in which no high yield offerings were priced, CSFB successfully marketed and executed a four-tranche, $1.4 billion offering, one of the year’s largest high yield deals. The transaction garnered Deal of the Year awards from Corporate Finance, Investment Dealers’ Digest and International Financing Review and was named Best US High Yield Issue by Euromoney.

The biggest business development in 1998 was the

Interest Rate Products

decision to combine CSFB’s fixed income securities activi-

The Interest Rate Products business combined the

ties with CSFP’s derivatives business. We successfully

Government Bond activities of CSFB with the Interest

implemented a similar consolidation for equity products in

Rate Derivatives activities of CSFP. This joint approach

1997. This effort should make service to our fixed income

was started early in 1998 as a precursor to the eventual

clients seamless and more efficient.

complete integration of CSFB and CSFP, which was

As a result of this combination, CSFB presents one unified group handling all fixed income cash and derivative

effective January 1, 1999. It resulted in tremendous synergies and was immediately appreciated by our clients.

products to assist clients in managing their assets and lia-

We have brought together a leader in interest rate

bilities. Our product and regional team structure allows us

swaps and other fixed income derivatives with a strong,

to focus on delivering product-based solutions to the ever-

worldwide government securities franchise in the devel-

changing goals of our 5,000 corporate, sovereign and

oped world. This creates a very powerful combination. The

institutional customers worldwide. We have expanded our

advent of the Euro and the liquidity that is now available

global penetration and reach by committing ourselves to

in one currency allows investors and borrowers to use a

understanding the needs of our customers and channeling

myriad of products to manage their risk. CSFB is now well

the vast resources of the Firm to meeting those needs.

positioned to offer all of these.

As outlined in the following text, we have grouped under one umbrella similar or complementary activities

Credit Products

that existed in CSFB and CSFP to create centers of

The Credit Products business regroups all client activities

excellence — businesses with a related range of activities

with a credit component: Investment Grade and High

that more efficiently utilize the Firm’s resources.

Yield Securities, Asset-Backed instruments, Mortgage Securities and Credit Derivatives across the developed markets. Under the new structure, Credit Products provides an optimal platform for delivering the fullest

CREDIT SUISSE FIRST BOSTON

19 range of debt and debt-related products to meet our

of ten transactions with a total notional amount of CHF3.4

clients’ financing needs. The linkage of our derivatives

billion. CSFB continues to be the largest dealer to domes-

expertise with our underwriting and placement capabilities

tic Swiss Franc bond investors, and the dominant CHF

will enable us to best service arbitrage borrowers. The

bond trader in Switzerland.

new combined structuring group will facilitate custom-

The reorganization has been warmly welcomed by

tailored solutions to our clients’ asset and liability problems,

our Swiss clients who are now being served by a unified

while the merger of credit derivatives with asset-backed

distribution network with powerful access to a broad area

technology creates new opportunities for our clients in

of products.

terms of capital raising and credit risk management. In 1998, CSFB rose to No. 5 in the World-Wide

Commodities

Debt league table and No. 2 in Asset-Backed Securities.

The creation of FID’s Commodities Group brings together

In addition, we introduced the first European High Yield

CSFB’s and CSFP’s Precious Metals and Energy busi-

transaction with a Deutsche Mark issue for Fresenius.

nesses. While CSFB is the recognized leader in physical gold transactions and is noted for its imaginative

Swiss Fixed Income

commodity derivatives transactions, Commodities is now

In Swiss Fixed Income, CSFB continues to top the league

a full-service provider of precious metals and energy prod-

tables in both Capital Markets and Derivatives. In 1998,

ucts targeting defined customer segments with 24-hour

CSFB lead managed 94 issues totaling more than 23 bil-

coverage worldwide. Our products include structured

lion CHF — the strongest showing ever by a bank in the

hedgings, swaps, forwards, options, loans and leases,

CHF capital market.

spot trading, clearing, physical supply of “good delivery”

International Financing Review recognized CSFB as

and, through Valcambi SA (a CSFB subsidiary), refining

Swiss Franc Bond House of the Year, and our 2 billion

capabilities. Commodities’ product and client coverage

CHF offering for the Republic of Austria as Swiss Franc

portfolios create synergies, compiling comprehensive

Bond of the Year. In 1998, CSFB developed a market for

market intelligence and market information that we share

Swiss Mortgage-Backed Securities through the issuance

with clients, contributing to their success.

Innovative Structure Achieves Record-Low DEM Credit Spread CSFB acted as joint lead manager on a dual-currency issue of ten-year Trust Preferred Securities (US$450 million, DEM300 million) for Fresenius Medical Care, the world’s largest dialysis products and services provider. CSFB proposed adding the DEM tranche, which ultimately saved the company 50 basis points over same-duration US Treasuries. The bonds were issued at the lowest ever DEM high yield, new issue credit spread (which was identical to that of the US tranche), and the lowest ever new issue yield for a fixed rate, single-B issue in any currency. The structure attracted strong demand from a broad investor base, allowing for significant increases in the DEM and USD issuance sizes.

Reopening the East Asian Market In December 1998, China’s Ministry of Finance turned to CSFB for the third time in as many years to tap the sovereign bond market. For the first time, pricing was led by strong demand in Asia. The issue was doubled in size to $1 billion and priced at the aggressive end of the range. CSFB acted as joint lead manager in this important benchmark transaction, which made a statement about China’s financial health and leadership in the region. The offering effectively reopened the East Asian market, dormant since the spring. The transaction was named by Institutional Investor as an International Deal of the Year and was commended by Asiamoney as Sovereign Issue of the Year.

Global Foreign Exchange

structuring team offers an efficient, multiproduct delivery

CSFB has become one of a handful of top players in the

platform and advanced structuring capabilities. We recent-

US$1.4 trillion-a-day foreign exchange market. We are

ly created a G20 Emerging Market Sales Group to ensure

moving significant flows through our market-making desks

comprehensive delivery of emerging markets products to

and have developed close relationships with a diverse

clients in G20 countries. The new structure has also facili-

global client base. In addition, the Firm has developed a

tated the flow of ideas. Thanks to these enhancements,

unique identity in the market, offering a leading-edge

CSFB can now offer a broader range of instruments,

product on a large scale. This year’s FID integration brings

both onshore and offshore, to ensure the most efficient

our option books together across the maturity spectrum

solutions for clients as well as optimal risk management.

— a move that strengthens our premier position in the

In 1998, CSFB again demonstrated its leadership in

derivatives market and broadens our offerings to clients.

emerging markets underwriting by acting as joint lead

Technologically, we are introducing Internet delivery of

manager in China’s US$1 billion sovereign bond issue.

most applications, which include research and advisory as well as automated trading.

Principal Transactions Group The CSFB Principal Transactions Group continues to be

Emerging Markets

recognized as one of the industry’s most innovative real

CSFB is one of the few large emerging markets partici-

estate financing groups and preeminent financial engi-

pants that can offer its clients the full range of emerging

neers. In 1998, despite a deterioration in fixed income

markets products: from debt capital markets securities

credit markets, PTG securitized more than US$13 billion

with both international and domestic issues to emerging

in assets, an increase of 225% from the prior year. For

markets currency derivatives and credit derivatives.

the year, PTG ranked as No. 2 in commercial real estate

Surprisingly, very few firms run their business this way.

securitizations and No. 3 in the lead manager underwriting

Supported by a unified emerging markets macro, credit

rankings. Our success despite the market’s tumult was

and relative-value research group, our Emerging Markets

due to an emphasis on high-margin products, diverse product lines and a multitude of exit strategies.

CREDIT SUISSE FIRST BOSTON

21 Prime Brokerage and Futures

efficiently deploy its capabilities to attractive market

Through an integrated platform, CSFB offers our institu-

opportunities and support client needs.

tional fixed income clients a variety of services ranging

This integration occurred on the heels of the fourth

from electronic trading, prime brokerage, and futures

quarter of 1998, which was characterized by a general

execution and clearing. With a fast-growing number of new

widening of credit spreads reflecting a tightening of fund-

subscribers, CSFB is among the leaders in capturing the

ing conditions for most market participants. CSFB’s glob-

potential of electronic trading. CSFB offers full Internet

ally diverse and stable financing franchise minimized the

electronic trading systems to institutional clients covering

impact of these events on the Firm’s cost of funds and

major futures exchanges. We also introduced a Fixed

overall credit availability. This aided CSFB in supporting

Income Prime Brokerage service, which offers customers

the capital-raising needs of clients throughout the period

the ability to clear, receive risk management services, cus-

of market turbulence.

tomize reporting and get real-time transaction information. In 1998, the Fixed Income Listed Derivatives area

Research

increased the number of contracts executed and cleared

This past year was an exciting one for CSFB’s Research

by 70% as it continued to expand its capabilities in

Group. While maintaining very close links between

electronic trading.

research units and the business clusters, we also put in place key initiatives across research as a whole. These

Money Markets

included improved technology and better communication

The creation of FID has combined the Money Market/FX

between the macro researchers and the credit analysts.

Forwards and unsecured funding functions of CSFB and

This has further improved the ability of research to play a

CSFP. This structure should allow the Firm to more fully

major role in our new-issue businesses, marketing to

streamline financing flows and concentrate its resources

clients and trading support. In recognition of this, CSFB’s

(capital, balance sheet, technology, etc.). This should

fixed income research was voted No. 3 in Institutional

further improve the ability of the Firm to rapidly and

Investor’s survey of 1,600 CFOs in 1998. Another

Largest One-Shot Transaction in Swiss Franc Market CSFB served as bookrunner and lead manager for a 1.5 billion Swiss Franc issue for the Republic of Austria. The deal, which performed well due to exceptional timing, represented the largest stand-alone transaction ever issued in the Swiss Franc capital market. Later reopened to 2 billion Swiss Francs, the offering became one of the most liquid issues in the international segment. While CHF bonds are usually placed exclusively in Switzerland, the Republic of Austria deal represented the second issue in which international demand exceeded 10%. The first was a CSFB-led 1 billion Swiss Franc issue for the Republic of Italy.

TERMS™ In 1998, CSFB’s debt underwriting and structured derivative trading desks jointly developed an innovative synthetic-debt product, Term Enhanced ReMarketable Securities (TERMS™). The Firm sold a higher volume of this new product than anyone else. TERMS are remarketable put bonds that allow clients to issue debt at advantageous rates to the most efficient universe of buyers. The bullet to the put date is sold to investors, while the right to reset the coupon on the security is sold to the underwriter. This flexible debt structure provides the issuer with a lower cost of funds as well as protection from the market’s recent volatility and relatively wide credit spreads.

important development was the formation of the Global

Coverage

Emerging Markets Research team, which allows for more

The Coverage Group is the final and most important

effective use of research resources among emerging mar-

“center of excellence” for the Division, as it is the vehicle

kets strategists, economists and Garantia’s strong

that allows us to deliver the previously described products

research team in Latin America. We laid the groundwork

and services to our clients. By putting together the client

for broadening our Global Credit Research team by linking

coverage crews of both CSFP and CSFB in Fixed Income,

research teams in the US, Europe and Asia, positioning

we have assembled a group of over 500 professionals

ourselves for the arrival of the Euro and recovery in Asia.

organized regionally to cover the United States and

The new effort will offer clients broader coverage of key

Canada, Europe, Japan and the Emerging Markets. Our

industrial sectors in the US and in Europe, as well as the

clients can now easily access the whole gamut of CSFB’s

development of our new Global Credit Strategy Group.

technical expertise, from the simplest securities to the

In addition, the Research Group is prepared for the 1999

most complex derivatives strategies, and the Firm’s vast

launch of a “new generation” of interactive research

range of products and services. Our ability to explore

websites for clients.

every alternative and speak as one firm with one voice to each individual client is what makes CSFB a true powerhouse in the Fixed Income and Derivatives business.

In 1998, CSFB lead managed three bond offerings, with a combined nine tranches, that raised a total of $3.8 billion for Raytheon. All three transactions were characterized by extremely broad distribution. This led to strong performance in the aftermarket, which positioned Raytheon to access the market on favorable terms in the future. The offerings, which came in March, November and December, were all priced at or through the initial price talk and increased in size. This was particularly impressive amid market volatility in November and December, when most offerings were downsized and/or priced outside the price talk.

Largest Corporate Bond Issue in DEM Market When Philip Morris wanted to establish its first large, liquid benchmark deal in Europe ahead of the Euro launch, the company tapped CSFB as joint bookrunner for a 2 billion Deutsche Mark issue — the largest corporate bond issue in the DEM market. Despite turbulent markets and the tobacco industry’s difficulties, the issue was priced 15 to 20 basis points below secondary levels of the company’s outstanding US domestic paper. The issue achieved broad distribution among institutional investors in the Netherlands, Italy and Germany. This represented a new investor base for the company, which was seeking to achieve international diversification of investors and currencies to mirror its cash flows.

First French State Financing of Public Asset Through Private Sources Owned by a consortium that has entered into a 30-year concession with France to construct and operate the stadium, Stade de France called on CSFB to serve as lead manager of a 799 million French Franc senior note issue. Fully guaranteed by Financial Guaranty Insurance Co., the transaction represents the first time the French state financed a public asset through private sources and the first securitization of uncertain and irregular cash flows. Proceeds were used to refinance loans put in place to finance part of Stade de France.

CREDIT SUISSE FIRST BOSTON

Broad Distribution Breeds Strong Aftermarket Performance

23

Research Sales Trading Underwriting Equity Finance/Prime Brokerage Convertibles/Warrants Derivatives Proprietary Trading Private Corporate Equity

(Dollars in Millions)

1998

1997

% CHANGE

(1)

$ 1,655

$1,276

30%

Employees

1,649

1,110

49%

$ 1,018

$ 567

80%

Revenue

Average BIS Capital

EQUITY In 1998, Credit Suisse First Boston further strengthened its

Brady W. Dougan

established position among the global bulge-bracket equity

Head of Equities

firms. Despite tumultuous market conditions, CSFB improved its performance and capabilities in virtually every aspect of the equity business, from strategic platform to financial and qualitative results. Our ability to meet client needs led to strong growth in revenue, primary and secondary market share, and research ranking. The Equity division’s global footprint expanded dramatically; we now have more than 1,600 people worldwide. CSFB is alone in having three major home markets — the US, the UK and Switzerland — including two in the critical and rapidly changing landscape of Europe. With 300 analysts talking to 2,000 companies worldwide, 300 salespeople talking to 5,000 institutional accounts

(1) Revenues for Equity in 1998 reflected above include $1,425 from Equity and $230 from CSFP. Revenues for Equity in 1997 reflected above include $1,212 from Equity and $64 from CSFP. The employees and average BIS capital data for the years provided also reflect the pro forma combination of Equity and CSFP.

CREDIT SUISSE FIRST BOSTON

25 and 200 traders trading over 10,000 stocks, we have

Acquired in late 1997 and 1998, BZW’s equity

a strategic platform and critical mass that allows us to

businesses in both Europe and Asia have added great

dominate world markets.

value. In the UK, the combination of the CSFB and BZW

Organic growth and successful integration of acquired

equity businesses last year has enabled us to become a

franchises further strengthened our equity platform in

market leader in UK equities. Finance Asia named CSFB

1998. Perhaps owing to our adaptable, entrepreneurial

Best Equity House of 1998, recognized the $265 million

culture, we have met the considerable challenge of merger

privatization of Thailand’s PTT Exploration and Production

integration by accepting the best of our new partners’

Public Company (for which CSFB served as joint global

culture and business without diluting the strength of our

coordinator and joint bookrunner) as its Best Overall

preexisting operations.

Equity Deal and Best Privatization-Related Offering, and named the CSFB-led demutualization of AMP Best IPO. In Latin America, our acquisition of Banco Garantia

First Independent Tower Company Public Equity Offering

in Brazil gave CSFB the region’s top equity platform, while our purchase of full ownership in First Pacific and First New Zealand operations provided us with Top-Three equity capabilities Down Under.

Just 18 days after American Tower Corp. was spun off from American Radio Systems, CSFB executed a $746 million issue for American Tower, the first-ever public equity offering for an independent tower company. At a time when most common stock issues were being offered at a discount to their filing price, American Tower’s stock price appreciated by 15% from filing to pricing. The issue was oversubscribed, and upsized by 23%.

World’s Largest Demutualization and Listing AMP Limited, Australia’s largest life insurer, turned to CSFB to complete the final step in its $12.4 billion demutualization with the listing of 1.07 billion shares on the Australian and New Zealand stock exchanges — including a $2 billion offering to institutional investors. CSFB helped AMP create a unique structure that allowed AMP members to sell their shares, or buy additional stock, while capturing part of the immediate aftermarket price appreciation in the sales to new investors. Leveraging near-unanimous support for the demutualization, the offering enjoyed participation by one-third of AMP’s more than 1.7 million members and yielded a strong, global base of institutional shareholders. Finance Asia recognized the offering as its Best IPO of 1998.

First Remarketable, Tax-Deductible Convertible Offering

Following its acquisition of Ryder TRS, Budget Group Inc. tapped CSFB as lead manager and bookrunner for a $300 million transaction aimed at maintaining operational flexibility while achieving low-cost financing and a credit upgrade without issuing more common stock. CSFB utilized an innovative convertible product, HIGH TIDES, that attracted a new investor base and lowered the yield by 100 basis points versus a 30-year preferred through its remarketable feature.

To help our clients capture opportunity in the tech-

proprietary trading capabilities with our structured equity

nology revolution, CSFB added a world-class technology

derivative business, we were able to enhance our risk

research group in July. Their contribution was virtually

management capabilities and allocate resources toward

instantaneous, elevating CSFB to third in the new issue

profitable opportunities in equity finance, program and

technology league tables for the second half of 1998, and

index trading, and new convertible bond structures. We

holding a spectacularly successful technology conference

also continued our undisputed leadership in the develop-

in December.

ment and distribution of structured derivative products.

The strength and focus of our Equity and Investment

The combination of these factors, prudent risk manage-

Banking divisions have translated into exceptional execu-

ment, opportunistic investment and superior distribution led

tions by the Equity Capital Markets group and preemi-

to an explosion in the profitability of our equities derivative

nence in the new issue equity market. In 1998, CSFB

unit in 1998. The reorganization of our Fixed Income

was the outright leader as global coordinator, and the

distribution in 1999 and its combination with CSFP present

No. 3 global IPO firm. We have maintained our position

a tremendous new opportunity for our equity derivatives

as the preeminent lead manager in privatizations, as

unit. We will expand and better coordinate our distribution

demonstrated by executions in 1998 for ENI, Telstra and

of structured and listed equity products to our current

OTE, among others. We are a Top-Three player in the

clients and also to an entirely new client base.

European new issue markets and a leader in the convertible and synthetic convertible areas. Although volatility in the equities markets caused

We continue to believe that global bulge-bracket equity firms will be a small and enormously powerful group, with worldwide sales, trading and research cover-

severe losses in the equity derivatives departments of

age of a quality that sets the standard for excellence in

many of our competitors, we enjoyed a record year in our

every category. Over the course of 1998, in several key

equity derivatives and convertibles unit (“EDCU”) for both

areas, CSFB demonstrated leadership, not just member-

revenues and contribution. By combining our listed and

ship, in this group.

Largest Broadcasting IPO

CSFB acted as joint lead manager and bookrunner for Capstar Broadcasting’s $589 million initial public offering, a transaction more than three times larger than any prior broadcasting IPO. Despite difficult market conditions and depressed stock prices in the broadcasting sector, the transaction was priced within its original filing range, was oversubscribed and achieved the highest radio valuation to date on an after-tax cash flow basis.

Swiss Re Zurich called on CSFB to monetize its ING shares through a convertible offering totaling 925 million Dutch guilders. The structure included a cash settlement option that enabled Swiss Re to maximize flexibility. The issue size was increased after the deal generated demand of more than 5 billion guilders in less than three hours. With a five-year maturity, the securities were priced on very attractive terms, carrying a coupon of 1.25% and an exchange premium of 31.5%.

Largest Tax-Deductible Convertible Preferred Issue Amid its rail congestion crisis, Union Pacific Corp. looked to CSFB to raise $1 billion in equity-linked capital to fund capital improvements, help restore quality service and enable the company to maintain its investment-grade ratings. As joint lead manager and bookrunner, CSFB applied its TIDES convertible preferred structure. In the face of overwhelming demand, the issue size was increased to $1.5 billion, making Union Pacific’s the largest-ever tax-deductible preferred transaction. The issue was priced at the aggressive end of the dividend range (6.25%) and two points above the aggressive end of the premium range (27%).

Largest Equity Deal Ever in New Zealand CSFB acted as joint global coordinator and lead manager for Ameritech’s $2.1 billion global offering of its stake in Telecom Corp. of New Zealand (TCNZ), that country’s largest company. Since Ameritech wanted to execute quickly and at the best price, CSFB employed an “installment receipt,” or IR, structure, which allowed investors to pay the first 60% of the offering price at pricing and the rest 12 months later. The structure enabled Ameritech to divest its entire TCNZ stake at a premium. The deal represented the first SEC-registered use of the IR structure for a corporate issuer. Global demand among a broadened investor base exceeded supply by a 5:1 ratio.

CREDIT SUISSE FIRST BOSTON

Opportunistic Financing Lets Swiss Re Monetize ING Shares

27

Generating Superior Returns

A Global Network of Professionals Creates the Transaction Opportunities for Private Equity

Experienced Investors Significant Commitments of Capital Institutional Priority Compelling Incentive Systems Integrated Origination Effort Independent Execution and Commitment Process

1998

1997

% CHANGE

63

43

47%

Employees

PRIVATE EQUITY In 1998, Private Equity grew investment commitments for assets under management to over $3.0 billion, with two primary investment pools to address global private equity opportunities, particularly those sourced by CSFB and the other business units of Credit Suisse Group. One pool focuses on the US and Canada and the other on international investments in the rest of the world excluding Russia and the CIS (“International”). These two funds aggregate a significant commitment of Credit Suisse Group capital with that of outside investors to make direct investments in growth opportunities, corporate partnerships, recapitalizations, buyouts and other types of private equity investments. Professionals located in the regional centers of London, New York, Hong Kong, São Paulo and Moscow carry out private equity investing activities, responding to

David A. DeNunzio Head of Private Equity

CREDIT SUISSE FIRST BOSTON

29 the flow of opportunities seen by the global network of

with substantial US-dollar denominated revenue. These

investment bankers, private bankers and equity research

were the first investments to be made in Asia/Pacific by

analysts, among other CSG personnel. As a separate core

the International Fund. We also sold a portion of one of

division of the Firm, Private Equity benefits from the deal

our pre-fund investments at an attractive rate of return. Private Equity held closings of the US/Canada Fund

flow of CSFB, but has independent investment decision

in 1998 and in the first quarter of 1999, bringing total

making and governance. 1998 was an active year for our international busi-

committed capital to over $1.8 billion as of March 25,

ness. In addition to closing the International Fund at $608

1999. In the US, Private Equity invested slightly over

million of committed capital, well over our target of $500

$50 million. We also sold one investment and a portion

million, we completed several new and add-on invest-

of another at attractive rates of return. Events in the M&A and public equity markets in

ments. Internationally, Private Equity made five new investments and three add-on investments totaling nearly

1998 have created new private equity investment opportu-

$215 million. Taking advantage of the favorable valuations

nities. Many businesses continue to need capital to pursue

created by the Asian financial crisis, Private Equity’s

their strategic objectives and view private equity as an

Asia/Pacific team, based in Hong Kong, made two signifi-

increasingly attractive source of capital in this environment.

cant investments in the region, in each case in companies

Private Equity Transaction Types

Invested Capital by Industry

• Build-outs/Growth Capital

Chemicals 2%

• LBOs/Build-ups/Recapitalizations

Transportation 4%

• Corporate Partnerships

Finance 4%

• Market Insensitive Investments

Travel & Leisure 6%

• Transitional Equity Investments

Insurance 7%

1% Technology 2% Other 18% Telecommunications

17% Food Products

Consumer Goods 12% Supermarkets 12%

15% Manufacturing

7,500+

Corporate Services Credit Risk Management Controllers Human Resources Information Technology Internal Audit Legal and Compliance New Business and Strategic Planning Operations Regional Oversight Strategic Risk Management/ Risk Management Measurement Treasury/Tax

Employees Support the Firm’s Growth and Global Reach

Employees

1998

1997

% CHANGE

7,911

6,656

19%

SUPPORT SERVICES The Support Division at CSFB faced one of its most

Stephen A. M. Hester

demanding years ever in 1998. In addition to 99%

Chief Financial Officer

transaction volume growth over 1997, CSFB’s business set new precedents for complexity, sophistication and global reach. Two monumental historic challenges — conversion to a single currency in Europe and the potential Y2K computer meltdown coupled with merger integration and reorganization on every continent — increased regulatory and general control standards, and the multiyear challenges of upgrading the Firm’s infrastructure, placed further strain on our resources. In addition to generating volatility, the third-quarter market crisis created new company-wide challenges in terms of controlling risk and costs.

CREDIT SUISSE FIRST BOSTON

31 CSFB’s support departments underwent some structural changes last year that improved efficiency as we established a clear framework for strategic targets and

ledgers in London and New York, and facility construction in London as well. The Y2K effort remains on track. In a year when a great deal of talent joined the

evaluation criteria. We brought Information Technology

Firm, we absorbed 2,263 more people in addition to

(IT), Operations and Controllers into one coordinated man-

enhanced staffing for Y2K and Euro project teams.

agement bloc. We realigned Credit and Market Risk with

Meanwhile, professional staff turnover was down 4.8%

our new Strategic Risk Management function. (Additional

from 1997. Professional staff headcount increased by

details on market and credit risk procedures are outlined

27%, with the increase at the Managing Director and

on page 46.) We brought front-office IT under one man-

Director level being 36%. We also implemented new

ager, and accelerated the full integration of the company’s

global evaluation systems that will enhance both the

back-office operations.

fairness and effectiveness of our people development.

Our control focus expanded significantly. We

Despite the strains on our support systems, they

installed new global control officers and enhanced global

managed to increase productivity at the same pace as

compliance policies and coverage. We improved regulator

CSFB’s business divisions, and reinvested those savings

coverage as well as risk self-assessment in finance and

in better service and more sophisticated controls. Major

operations control. Global control plans were implemented

projects are under way aimed toward building a more

and market-risk models approved.

automated, better controlled, lower cost environment.

Our service to the front office proved equal to the

Looking back on 1998, we are proud of the perform-

considerable tasks of handling doubled trading volume and

ance of our support departments and the tireless efforts of

integrating the technology and communications platforms of

the people who make them work. Their contributions will

several acquired companies. We also enhanced daily finan-

become all the more critical, as there is much left to do.

cial and risk reporting and renewed our premises globally.

Like the Firm’s business divisions, the Support Division is

In addition to merger integration and the Euro con-

on track to meet CSFB’s industry-leading goals in the

version effort, special projects completed in 1998 included

coming years. This is truly a multiyear task, however, that

a new global Human Resources system, new general

will prove every bit as challenging as 1998.

CREDIT SUISSE GROUP

Credit Suisse Group is the parent organization of Credit

Credit Suisse First Boston is a leading global invest-

Suisse First Boston. Its widespread activities are linked

ment banking firm, providing comprehensive advisory, capital

by the strategy of capturing global leadership in the two

raising, investment, sales and trading, and financial products

dominant trends emerging in the world’s financial services

for users and suppliers of capital around the world.

market: asset gathering/asset management and financial intermediation. Credit Suisse Group operates a decentralized management structure based on five business units, each

The worldwide activities of Credit Suisse Asset Management are focused on the requirements of institutional and mutual fund investors. Winterthur Group is one of the leading insurance

geared to the requirements of specific customer groups

companies in Europe and one of the largest international

and markets:

insurance groups operating worldwide. It offers private and

Credit Suisse is a leading bank in Swiss domestic business, serving corporate and individual clients through a multichannel strategy and an efficient branch network covering all major locations. Credit Suisse Private Banking is one of the world’s

corporate customers tailor-made insurance and pension solutions at local and international levels. Credit Suisse Group is an institution unique in today’s global financial markets. Its five core businesses give a combination of strength and depth. While headquar-

largest private banks and has a strong presence in both the

tered in Zurich, Credit Suisse Group’s international

Swiss and International markets. It specializes in providing

presence provides thorough market coverage, from major

personal investment counselling and professional asset

centers to emerging markets.

management for a sophisticated international clientele.

CREDIT SUISSE FIRST BOSTON

33

“Credit Suisse Group has a unique position in the international financial services market as a global leader in asset gathering and financial intermediation. In 1998, the Group proved its strength in the face of a challenging market environment, and its five businesses remain well placed to build on their leading market positions.”

Lukas Mühlemann Chief Executive Officer of Credit Suisse Group

Corporate and individual customers in Switzerland

Services for private investors in Switzerland and abroad

Global investment banking

Services for institutional and mutual fund investors worldwide

Worldwide insurance business

BOARD OF DIRECTORS

Rainer E. Gut

(1)

Marc-Henri Chaudet

(2)

Chairman of the Board

Lawyer

Peter Spälti

Walter B. Kielholz

(2)

(3)

(3)

Vice Chairman of the Board

Chief Executive Officer of Swiss Re

Thomas W. Bechtler

Heini Lippuner

(3)

(3)

Chairman of the Board of Zellweger Luwa

Member of the Board of Novartis AG

Peter Brabeck-Letmathe

Lukas Mühlemann

(2)

Chief Executive Officer of Nestlé S.A.

(1) Refers to the Board of Directors for the legal entity Credit Suisse First Boston, a Swiss bank containing the activities of the global investment bank and the asset management business units. (2) Member of Compensation Committee. (3) Member of Audit Committee.

(2)

Chief Executive Officer of Credit Suisse Group

CREDIT SUISSE FIRST BOSTON

EXECUTIVE BOARD

35

Allen D. Wheat Chairman of the Executive Board and Chief Executive Officer

Brady W. Dougan Head of Equities

Christopher Goekjian Co-Head Fixed Income and Derivatives

Stephen A. M. Hester Chief Financial Officer

Marc Hotimsky Co-Head Fixed Income and Derivatives

David C. Mulford Chairman — International

John F. Nelson Chairman — Europe

Stephen E. Stonefield Chairman — Pacific

Richard E. Thornburgh Vice Chairman of the Executive Board

Charles G. Ward III Head of Investment Banking

MANAGING DIRECTORS Osmar Abib, Jr. Nayla Abousleiman John K. Adams, Jr. William V. Adamski Andrew J. Adcock Mark A. Adley Jon M. Africk Zubaid Ahmad Johannes Albeck Kristin M. Allen Peter G. Allen Guilherme Amaral James L. Amine David L. Anderson Russell L. Appel Rome G. Arnold Richard W. Atterbury Liza Bailey Robert F. Baker Alessandro Baldin Marcelo Barbara Thomas K. Barber Janos Bartha David C. Basile William R. Battey, Jr. W. David Bauer Allan J. Baum Joseph S. Becker Andrew S. Benjamin Jeremy J. Bennett Donald R. Benson Walter Berchtold Peter B. Blanton Benjamin R. Bloomstone Timothy D. Bock Harold W. Bogle Julia Bond Willem G. Bosch George F. Boutros William Brady Jonathan D. Bram John Brydson Paul D. Buckley Philippe M. Buhannic Jeffrey H. Bunzel John G. Burke Martin P. Caffrey Carlo M. Calabria Jorge A. Calderon Paul Calello Elaine C. Campbell Lloyd E. Campbell Joseph D. Carrabino, Jr. Christopher Carter Christopher R. Carter Carlos Eduardo Castanho Enrique L. Castillo

Christopher M. Chambers Jean-Christian Cheysson Charles W. Chigas Markus Christen Andrew Christie John C. Chrystal James F. Clark Michael W. Clark Benjamin H. Cohen Robert A. Cohen George W. Coleman Patrick D. Coleman Joseph A. Coneeny John E. Conlin David M. Connors Thomas A. Connors Brian M. Cook Adrian R. T. Cooper John F. Cozzi Julie Craddock Ernesto Cruz Robert A. Curley, Jr. David R. Curtis Richard B. d'Albert Alec D'Janoeff Stewart W. Dauman Adam de Courcy Ling Gilles de Dumast Adam de Jong Jose Ricardo de Paulo Simon M. de Zoete James D. Deasy Frank J. DeCongelio David A. DeNunzio Donald J. Devine Edward W. Devine Katherine E. Dietze Jack J. DiMaio, Jr. Greg L. Dowling Jean-Francois Dreyfus Charles B. Edelstein William J. Egan J. Anthony Ehinger Georg Ehrensperger Russell Elvidge D. Wilson Ervin Marcus A. L. Everard Bertrand F. Facon Frank J. Fanzilli, Jr. Michael A. Feder Mark L. Finerman Robert N. Finney H. Andrew Fisher Jeremy P. Fletcher Simon J. Ford Jean-Marc Forneri Peter A. Fowler

Jonathan R. D. Fox Michael P. Friezo Anthony M. Fry Yukio Fukuda Hideki Fukui Treacy Gaffney Joseph D. Gallagher John L. Garcia Seth D. Garrett Christian Gell Surojit Ghosh Richard Gillingwater Paul M. Gimson James T. Glerum, Jr. Joel Glodowski Irvin J. Goldman Andrew D. Gordon Nicholas Gordon-Smith Frank J. Governali Laurence S. Grafstein Marc D. Granetz Stephen R. Greene Michael D. Greenspan Steven S. Greenwald Charles Peter Greuter Jonathan P. Grussing Sanjeev Gupta Ralph E. Guyot Michael G. Hajialexandrou Gordon T. Hall Keith D. Hall Lawrence A. Hamdan David Han Matthew C. Harris Neil A. S. Harvey Thomas E. Hassen Randy L. Hazelton James P. Healy Gerhard Heinrich Colin H. Hely-Hutchinson Wallace C. Henderson Eric Hime Michael Hintze F. Perkins Hixon, Jr. John C. Hodge James B. Hoesley Paul R. Hofer Mark A. Holmes Alan E. Howard Alan H. Howard Gina Hubbell Peter M. Hyde Per O. Hyland Marco M. Illy Brian C. Imrie Andrew K. Ipkendanz Richard H. Ivers

Alfred G. Jackson Moez A. Jamal John B. Jardine Robert A. Jeffe Ian S. Jenkins Daniel J. Johnson Grant C. Johnson J. Leslie K. Johnston Joseph T. Josephson François Jourdain Hartmuth A. Jung Giles B. Keating Andreas I. Keller Sarmiento Patrick T. Kennedy Mark W. Kennelley Richard A. Kersley Susan S. Kilsby John V. Kirnan Charles P. Kirwan-Taylor Fritz T. Klein Cary A. Kochman Kenneth J. Kornblau J. Steven Kraus James E. Kreitman Robert S. Kricheff Paul Kuo Raymond S. Kuramoto Adam S. Kurzer Michael K. Kwatinetz Mark B. Landis François C. LangladeDemoyen Karim Lari Stephen M. Lazarus James H. Leigh-Pemberton Robert J. Levitt Brett M. Levy Barry Lewis D. Scott Lindsay Bruce W. Ling Samuel G. Liss Gerald M. Lodge Stephen T. Long Ann F. Lopez Frank H. López Christian Lubicz Robin R. Macdonald François J. Maisonrouge G. David M. Maletta II Guillaume A. Malle Carmen Marino Mark S. Maron Ian Marsh Jeremy Marshall Christopher G. Martin Keith T. Martin Michael E. Martin

Susumu Omori Yoshinori Onaka Carlos Onis Eoin F. O'Shea J. Craig Oxman Phillip Z. Pace Luc P. Pajot Gunnar T. Palm Richard P. Palmieri Vincent N. Parkin Jake C. Peters David J. Pierce-Jones Silvio Piffaretti Carlos Pinheiro, Jr. Harry C. Pinson Steven M. Plag Jonathan Plutzik Fernando Prado Malcolm K. Price Trevor C. Price Simon E. Prior-Palmer Craig A. Puffenberger Zhi Zhong Qiu Frank P. Quattrone Kathryn M. Quigley D. Neil Radey Diego Recalde Thomas Reid Philip J. Remnant Thomas G. Rice Gordon A. Rich Melanie J. Richmond Nick C. Riley William M. Roberts Felix E. A. Robyns Carolynn H. Rockafellow G. Davide Rodrigues Luis Alberto Rodrigues Hartley R. Rogers H. Elliott Rogers, Jr. John J. Romanelli Jonathan K. Rouner Kevin R. Rush Paolo A. Rushing David Russell Mark Russell

Fernando Russo Olivier Sachs Jeffrey J. Salzman Thomas J. Sands Edward J. Santoro Pierre O. Sarkozy Guglielmo Sartori di Borgoricco Noriaki Sasaki Anne C. Schaumburg Paul G. Scheufele Michael Schmertzler John E. Schmidt Peter H. Schmuki Maurits Schouten Scott W. Seaton Philip W. Seefried, Jr. Mark D. Seligman Martin Senn William C. Sharpstone Lawrence A. Shelley Alan R. Sheriff Frederick E. Sherrill Hyun Joe Shin Andrew Shores Robert S. Sloan Geoffrey T. Smailes Jörgen Smeby Frederick M. R. Smith Elon D. Spar David Spaughton Lawrence D. Sperling Hansruedi Stadler David R. Stephen Thomas F. Sternfield Robert B. Stevens Andrew D. Stone Charles G. Stonehill Kevin Studd Stephan Sturm David A. Swain Marc Tabah Mavis Taintor Yoshinori Tanaka Michael H. Tarrant Masahito Tatsumi

Andrew R. Taussig Colin A. Taylor Luther L. Terry, Jr. Sudip V. Thakor Peter Thomas Robert L. Thornton, Jr. Earnswell T. Tiu Theresia Tolxdorff Ethan M. Topper Takatoshi Toyoda Paul Tregidgo Alexandre Treveza Michael A. Tunstall Bruce A. Tuckman Hans-Joerg Turtschi Robert D. Tyrwhitt-Drake Shigeru Ueda Scott J. Ulm Eric M. Varvel Philip S. Vasan Matty Vengerik David P. Walker Thaddeus J. Walkowicz John J. Walsh Alastair J. M. Walton Todd E. Warnock Caroline Watteeuw Philip N. Weingord Norman S. Weinstein Paul J. Weinstein Benjamin C. Weston David P. Wheeler Marc A. White, Jr. Jonathan J. Wilmot Lewis H. Wirshba Roger Wright John M. Wylie Kenkichi Yagi Shinji Yamada Steven M. Yanez Atsuyoshi Yoshida Louis G. Zachary, Jr. John Zafiriou Gail S. Zauder Karen E. Zimmerman

Vice Chairmen

Managing Director—Senior Advisors

Richard H. Bott Jonathan R. Davie Richard C. Holbrooke Steven Koch Ken Miller Robert S. Murley Mark R. Patterson Didier Pineau-Valencienne Alan H. Smith Gregory J. Terry

Nicholas O. Brigstocke Diana W. Chazaud John D. David-Jones Jaime de Marichalar Saenz de Tejada Richard B. duBusc Michael M. Fortier Charles B. Gates Geoffrey P. Hall John S. Harrison Joseph F. Huber Thomas W. Keaveney Hans Albert Keller William J. Kimmel Claus G. Labes Hamish Leslie Melville Arturo C. F. Mathieu

William G. McDonald William P. Melchionni Andrea A. Morante Douglas L. Paul William S. Pitofsky Alan G. Rieper Martin Romm Maximilian Sorg Neal M. Soss Marc H. Steglitz Charles W. Thomas Stephen M. Unfried J. Tijo Van Marle Pote P. Videt George B. Weiksner William M. Wigder John C. Wilson

CREDIT SUISSE FIRST BOSTON

David R. Mathers David J. Matlin Peter R. Matt Michael J. Mauboussin David A. Mayes Michael L. Mayo John M. McAvoy Claire M. McCarthy Michael J. McGhee John E. McGinty Joseph T. McLaughlin Patricia J. McLaughlin Jeremy S. Mead Sharon M. Meadows Simon L. Meadows Richard Meddings Marcelo Medeiros Ethan B. Meister Donald Meltzer Eric Meyer James W. Meyer Trygve Mikkelsen Rodney M. Miller Robert G. Millington Robert W. Mitchell Robin Mitra Juergen Moessner Philip J. Moineau Thomas John Moore Kevin J. Morley Harold D. Moseley Neil Moskowitz Richard H. Moulder Gordon S. Murray Peter J. Murray Stefano Natella Martin J. Newson Andreas Nickel Robert C. O'Brien Tetsuo Ochi Marc A. Odendall Adebayo O. Ogunlesi Timothy P. O'Hara Masahiro Ohshiro David C. O'Leary Thomas F. O'Mara

37

FINANCIAL STATEMENTS Income Statements of the Business Unit Year Ended December 31, 1998 and Year Ended December 31, 1997

1998

DOLLARS IN MILLIONS (UNAUDITED)

Revenues Fixed Income Equity CSFP IBD Other

1997

PERCENT CHANGE

$ 1,740 1,425 1,075 1,790 683

$ 3,379 1,212 1,210 1,479 (109)

-49% 18% -11% 21% na

6,713

7,171

-6%

3,728 351 1,262

3,523 259 1,028

6% 36% 23%

5,341

4,810

11%

1,372 195 1,095

2,361 148 385

-42% 32% 184%

82

1,828

-96%

Income taxes

159

621

-74%

Net income (loss) before extraordinary/exceptional items and minority interest $

(77)

$ 1,207

-106%

Extraordinary/exceptional items, net Minority interest

(42) (35)

(296) (85)

-86% -59%

826

-119%

Total Expenses Personnel expense Execution, clearing and brokerage Other operating Total Gross profit Depreciation and amortization Write-downs, provisions and losses Pretax income before extraordinary/exceptional items and minority interest

Net income (loss) after minority interest

$ (154)

$

(1) The income statements are for the Credit Suisse First Boston global investment banking business unit. They are based on Swiss accounting rules for banks as modified for revenue presentation and the treatment of execution, clearing and brokerage costs as an expense rather than as contra-revenue. (2) Certain 1997 amounts have been reclassified to conform to the 1998 presentation.

CREDIT SUISSE FIRST BOSTON

39

Balance Sheets of the Business Unit

DECEMBER 31,

DECEMBER 31,

1998

1997

PERCENT CHANGE

1,403 11,194 96,077

-39% 23% 5%

56,948 1,377 44,743

71,728 4,120 72,217

-21% -67% -38%

20,825 5,220 73,428 7,325 317 1,416 4,978 36,429 33,707

43,076 4,970 71,101 6,488 182 1,276 4,040 37,285 35,371

-52% 5% 3% 13% 74% 11% 23% -2% -5%

$ 290,696

$ 310,353

-6%

$ 14,489 134,788

$ 12,305 127,113

18% 6%

54,484 11,891

58,901 27,553

-7% -57%

131 51,751

322 67,621

-59% -23%

16,519 24,337 6,432 38,551 35,986 1,191

39,442 23,299 5,573 37,413 35,163 1,880

-58% 4% 15% 3% 2% -37%

283,561

303,079

-6%

7,135

7,274

-2%

$ 290,696

$ 310,353

-6%

DOLLARS IN MILLIONS (UNAUDITED)

Assets Cash Money market papers Due from banks of which securities lending and reverse repurchase agreements Due from other business units Due from customers of which securities lending and reverse repurchase agreements Mortgages Securities and precious metals trading portfolios Financial investments Non-consolidated participations Fixed assets Accrued income and prepaid expenses Other assets of which replacement value of derivatives Total Assets Liabilities and Shareholder’s Equity Liabilities in respect of money paper Due to banks of which securities borrowing and repurchase agreements Due to other business units Due to customers, in savings and investment deposits Due to customers, other deposits of which securities borrowing and repurchase agreements Bonds and mortgage-backed bonds Accrued expenses and deferred income Other liabilities of which replacement value of deriviatives Valuation adjustments Total liabilities Total shareholder’s equity Total Liabilities and Shareholder’s Equity

$

855 13,716 100,892

$

(1) The above balance sheets are based on Swiss accounting rules for banks. They include allocations from the real estate units within Credit Suisse Group.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION Credit Suisse First Boston (“CSFB”) is a global investment banking firm with principal activities in client financing and advisory services, sales and trading of securities, foreign exchange and derivative products, and other financial assets. CSFB is the investment banking business unit of Credit Suisse Group (“CSG”). CSFB’s component parts were not all managed or reported as a single entity prior to the CSG restructuring, effective January 1, 1997; hence, financial data is not presented for prior periods. CSFB is the principal business unit of Credit Suisse First Boston (the “Bank”), a Swiss bank and a subsidiary of CSG (the Bank was formerly known as Credit Suisse). The Bank also contains the activities of the Credit Suisse Asset Management business unit of CSG. Shown herein is financial data for the CSFB business unit, which constitutes substantially all of the assets and liabilities of the Bank as of December 31, 1998 and 1997, respectively. The results of the CSFB business unit also reflect certain transactions within CSG subsidiaries other than the Bank. More detailed financial information on the Bank and related unqualified audit opinion is contained in the Annual Report of the Bank. There continue to be significant flows of business and services among the entities of CSG. CSFB’s activities are subject to various risks including fluctuations in trading markets, currency risk, national economic and political risk and in the volume of market activity. CSFB’s results may also be impacted by competitive factors. Consequently, CSFB’s earnings may be subject to wide fluctuations. While the legal reporting currency of the Bank is the Swiss Franc, CSFB primarily manages its businesses based on a US dollar functional currency, as presented herein, and consistent with its earnings and asset mix. CSFB’s strategic plans contemplate continued investment in its businesses through organic growth and, if appropriate, selective acquisition. MARKET ENVIRONMENT CSFB’s 1998 results were heavily impacted by unprecedented economic events that led to a general downturn in markets overall. In the third quarter of 1998, Russia experienced an economic collapse leading to the default on and a restructuring of its sovereign debt obligations. The Russia collapse adversely impacted other emerging markets, primarily in Eastern Europe and Latin America. In addition to negatively impacting emerging markets, these events — in combination with the liquidity tightening on hedge funds (exacerbated by the recapital-

ization of Long Term Capital Portfolio LP in the third quarter of 1998) and the ongoing economic crisis in Asia — caused unprecedented volatility in global markets and credit-sensitive securities in the second half of 1998. Also, capital markets activity was substantially curtailed during much of this period. As a result, the strong markets that persisted throughout 1997 and the first half of 1998 turned downward in the second half of 1998. This downturn adversely impacted CSFB’s trading businesses — primarily its Fixed Income, Equity and CSFP divisions. While some market recovery is currently being enjoyed, the management of CSFB believes it prudent to guard against the possibility that difficult markets will continue in 1999. Consequently, CSFB has implemented selective cost-efficiency measures in an effort to enhance profitability while protecting and enhancing the expansions and investment of recent years. As an additional structural measure, commencing January 1, 1999, CSFB has integrated its Fixed Income and CSFP divisions into one — Fixed Income and Derivatives (“FID”). This integration will reduce duplication and produce synergies in product and risk management. In March 1999, CSG announced the repurchase of the 20% minority interest in CSFP held by Swiss Re, which will result in CSFP being a wholly owned subsidiary. This will facilitate the integration of FID. The results discussed herein are based on the historical organization of the Fixed Income, Equity and CSFP divisions. RESULTS OF OPERATIONS CSFB’s revenues for 1998 were $6.7 billion, 6% lower than 1997 revenues. Excluding Russia related losses, revenues were $7.3 billion in 1998. Revenues in 1998 decreased from 1997 in the Fixed Income and CSFP divisions. These decreases were offset, in part, by increases in the Equity, IBD and Private Equity divisions. The source of these divisional revenues are primarily realized and unrealized net trading gains, net interest income resulting from trading and lending activities, fee-based earnings from capital markets activities, commissions on customer transactions and advisory services. Divisional revenues are based on Swiss accounting rules for banks as modified for revenue presentation, the classification of execution, clearing and brokerage costs as an expense as opposed to a contra-revenue, and CSFB’s internal management reporting process in which revenues, including capital markets revenues and interest costs, are allocated to divisional results. Capital markets revenues and related costs are shared among IBD, Fixed Income and Equity. Divisional revenues for the years ended December 31, 1998 and 1997 are as follows:

CREDIT SUISSE FIRST BOSTON

41 ($ MILLIONS)

1998

1997

PERCENTAGE CHANGE

Fixed Income

47% Europe

Revenues for the Fixed Income division decreased significantly in 1998 when compared with 1997. This decrease was primarily the result of the 1998 market events noted previously. ROE, excluding Russia, was 1% in 1998. Excellent results, comparable to or above 1997, were produced by the Foreign Exchange, Money Markets and Government Bond areas. Debt capital markets, while financially affected by the market difficulties, showed underwriting volume and market share gains of 99% and 2%, respectively, reflecting the successful revitalization of this business into a Top-Five worldwide market position. Offsetting these good results, Emerging Markets Group (“EMG”), Leveraged Finance and Leveraged Funds results were loss-making and down considerably from 1997, though EMG remained profitable outside Russia. Revenues in real estate financing from the Principal Transactions Group remained robust, though somewhat lower than 1997.

9% Asia

Equity

Fixed Income Equity CSFP IBD Other

$ 1,740 1,425 1,075 1,790 683

$ 3,379 1,212 1,210 1,479 (109)

-49% 18% -11% 21% NA

$ 6,713

$ 7,171

-6%

The geographic distribution of revenues and employees for the years ended December 31, 1998 and 1997 are as follows: 1998 Revenues

(1)

44% Americas

Employees 40% Americas 45% Europe 15% Asia

1997 Revenues 50% Americas 35% Europe 15% Asia

Employees 39% Americas 48% Europe 13% Asia

(1) Excludes Russia related losses, which distort the European data.

Reflecting strong market share growth in all areas from the substantial organic and acquisition investment since 1997, revenues for the Equity division increased 18% in 1998 when compared with 1997 (52% excluding Russia in both years), primarily as a result of outstanding performance in derivatives and significantly improved results in customer-driven businesses in Western Europe and the US, which include trading, commissions and capital markets activities. These improved results were offset by significant declines in the Eastern Europe customer business due to the 1998 market events described above. ROE, excluding Russia, was 15% in 1998. Increases in Western Europe customer-driven business were significantly due to the BZW acquisition. Equity revenues, inclusive of those derivativerelated revenues reported as part of CSFP and equity capital markets included in IBD, exceeded $1,900 million and $1,450 million for the years ended December 31, 1998 and 1997, respectively.

CSFP Revenues for CSFP decreased in 1998, when compared with 1997, primarily as a result of the 1998 market events described previously. These events caused revenue declines across most fixed income products including Swaps and Options, and Asset Trading and Credit Derivatives. CSFP had substantial exposure in Russia, and incurred additional losses on a derivative position with Long Term Capital Management LP. Nevertheless, CSFP’s customer-related business remained strong, increasing relative to 1997. Overall CSFP remained strongly profitable, with ROE around 14% and over 25%, excluding Russia, in 1998. IBD IBD revenues increased 21% in 1998, when compared with 1997 (45% increase in M&A and Equity Capital Markets) and market share gains were achieved in most product areas. Net interest income from corporate lending declined to just 7% of the total, reflecting the successful deployment of capital out of that business (IBD allocated BIS capital decreased from $2.0 billion at the end of 1997 to $800 million at end of 1998). IBD revenues, inclusive of total debt and equity capital markets revenues reflected in Fixed Income and Equity, exceeded $2,200 million and $1,850 million for the years ended December 31, 1998 and 1997, respectively. Substantial strategic moves ranging from acquisitions in Europe, Asia and Latin America to hiring programs globally, notably in the technology area, position IBD well for 1999.

Support infrastructure costs increased as a result of the increased demands of a changing business environment on CSFB’s internal control structure as well as the costs, in excess of provisions established in 1997, associated with year 2000 and EMU compliance. Staff costs increased 6% primarily due to the 19% increase in headcount associated with the previously mentioned initiatives, partly offset by substantial decreases in per capita bonus payments in those areas producing weaker results than 1997. Total staff cost did not track CSFB’s pre-bonus operating results due to the requirement to support the many profitable business lines and specific investment programs, notwithstanding concentrated losses in those business lines most impacted by the 1998 adverse market conditions. Excluding the effect of Russia, staff costs as a percent of revenues for 1998 were 52%, in line with industry norms. Execution, clearing and brokerage expense increased in 1998, when compared with 1997, as a result of increased trading activity in both fixed income and equity products. Other operating expenses primarily include costs for communications and equipment, occupancy, professional services and business development. The distribution of other operating expenses for the years ended December 31, 1998 and 1997 are as follows: Other Operating Expenses 1998 17% Business Development 33% Professional Services

Other Revenues reported in the Other division are primarily the result of investments managed at the corporate level, as well as revenues earned by the Private Equity division, which manages funds with investment commitments exceeding $3.0 billion, globally. Expenses CSFB’s aggregate expenses increased in 1998 when compared with 1997. These increases are primarily the result of acquisitions as well as increased hiring in most business divisions and investment in support infrastructure. Acquisitions included BZW, Garantia and First Pacific. In 1998, CSFB also made significant investments in personnel including a group specializing in technology banking and equity research.

25% Communications and Equipment

17% Occupancy 8% All Other

Other Operating Expenses 1997 14% Business Development 28% Professional Services

28% Communications and Equipment

19% Occupancy

11% All Other

Other operating expenses increased in 1998, when compared with 1997, across all categories due to increases in headcount and consultants as well as the impact of support infrastructure initiatives including Y2K/EMU costs and acquisition integration activity.

CREDIT SUISSE FIRST BOSTON

43 CSFB implemented a range of expense-saving measures in the fourth quarter of 1998 designed to save as much as $100 million in annualized expense, whilst maintaining the support for the key people and other investment programs currently in place. Write-downs, provisions and losses Write-downs, provisions and losses increased in 1998, when compared to 1997, primarily as a result of credit provisions. Credit provisions in 1998 were largely due to the economic collapse of Russia. Specifically, credit provisions were made against forward contracts, loans, reverse repurchase agreements, and other assets and derivative contracts involving Russian products and/or Russian counterparties. At December 31, 1998, CSFB’s credit provisions related to Russia totaled approximately $980 million. Credit provisions in 1997 were primarily related to the adverse effect on loans outstanding in Asia resulting from the economic crisis that occurred in that region in the fourth quarter of 1997. CSFB’s credit provisions related to Asia totaled approximately $410 million and $450 million at December 31, 1998 and 1997, respectively. Other than Russian and Asian provisions, CSFB’s loan provisions charged against 1998 and 1997 earnings totaled $86 million and $102 million, respectively (representing the expected loss amount (“ACP”) calculated by credit-plus-risk-management approach). Also contained in write-downs, provisions and losses are various litigation provisions. Additional information on write-downs, provisions and losses, and related exposures, is contained in the Bank’s and CSG’s annual reports. Income Taxes CSFB incurred income tax expense in 1998 in excess of reported pretax income. The effective rate (which is not expected to be representative of future rates) differs significantly from 1997 as a result of losses concentrated in tax jurisdictions with low tax rates or where net operating loss carryforwards exist while profits were made in other higher tax locations. In addition, the accounting practice of generally avoiding the establishment of deferred tax assets contributes to this effect. CSFB’s effective income tax rate for the year ended December 31, 1997, excluding extraordinary/exceptional items, was approximately 34%. This rate represents a blended rate of the various tax jurisdictions in which CSFB operates.

Extraordinary/Exceptional items and Acquisitions Extraordinary/Exceptional items in 1998 primarily relate to real estate write-offs ($50 million, net of tax) in Moscow driven by the level of business activity following the Russian default. In 1997, these items primarily included costs related to the acquisition of BZW ($165 million, net of tax) and an IT provision for year 2000 compliance and EMU conversion costs ($102 million, net of tax). Extraordinary items in 1997 also reflect additional costs associated with the 1996 restructuring, offset, in part, by gains on the sale of certain investments. BZW Acquisitions On November 12, 1997, CSFB entered into an agreement to purchase the UK and Continental European equities, equity capital markets, and mergers and acquisitions advisory businesses of BZW for GBP 100 million. These businesses employed approximately 1,000 people (excluding temporary staff) as of December 31, 1997. In addition, CSFB signed an agreement with Barclays to acquire certain of BZW’s equity, equity capital markets, and mergers and acquisitions advisory businesses in Asia. CSFB completed these acquisitions in stages, in late 1997 and 1998. As a result, the bulk of the acquisition was not completed in 1997; therefore it has not been consolidated in CSFB’s financial statements as of December 31, 1997. IT Provision The 1997 IT charge, net of tax, of $102 million primarily represents a technology-related provision for anticipated year 2000 compliance and EMU conversion costs. These costs include estimates for employee compensation, consultants, hardware and software. Actual costs are presently expected to exceed the amount provided in 1997, with additional costs being expensed in the operating results of 1998 and 1999. In 1998, $122 million has been expensed. Other Acquisitions and Investments First Pacific and First NZ Capital Acquisition In early 1998, CSFB agreed to acquire 75% of the common stock of First Pacific, Stockbrokers Limited and certain affiliates (“First Pacific”), which, when combined with its existing 25% ownership, resulted in First Pacific becoming a wholly owned subsidiary of the Bank. First Pacific is an investment banking firm with a leadership position in the equity markets in Australia. In addition, in early 1998, CSFB acquired the common stock of First NZ Capital, a New Zealand investment banking enterprise.

Garantia Acquisition On July 31, 1998, CSG and the Bank completed the acquisition of all of the outstanding capital stock of Banco de Investimentos Garantia S.A., a corporation organized under the laws of Brazil; Garantia Limited, a corporation organized under the laws of The Bahamas; and certain of their subsidiaries and affiliates (collectively, “Garantia”) (such transaction, the “Garantia Acquisition”). The initial consideration payable by CSG to the Sellers in the Garantia Acquisition consisted of (i) $200 million and (ii) ordinary shares of CSG having a fair market value of $475 million, which become freely transferable over a sixyear period. Furthermore, additional amounts will become payable, principally to continuing employees of Garantia, under a retention plan if Garantia meets certain performance targets during the 1998-2001 period. Garantia’s principal business activities are fixed income and equity trading, asset management and investment banking. Long Term Capital Portfolio, L.P. Recapitalization On September 28, 1998, CSFB agreed to participate with a consortium of commercial banks and investment firms in a recapitalization of Long Term Capital Portfolio, L.P. (“LTC”), a troubled private investment fund managed by Long Term Capital Management, L.P. Under the plan, consortium members provided approximately $3.6 billion in the aggregate in new equity capital to LTC. The Bank invested, directly and through an affiliate, $300 million to LTC in return for equity. CSFB engaged in transactions with LTC prior to the recapitalization, the majority of which were collateralized with US Treasury securities or other collateral. The net asset value attributable to this investment, which is carried at lower of cost or market, has appreciated since the date of purchase. LIQUIDITY AND CAPITAL RESOURCES Assets and Leverage CSFB maintains a liquid balance sheet with a majority of the Firm’s assets consisting of marketable securities inventories and other trading positions and collateralized financing agreements. Collateralized financing agreements consist of resale agreements and securities lending predominantly secured by government and corporate obligations. Levels of trading inventory and collateralized financing agreements are dependent on market conditions, volume of activity and customer needs. Accordingly, CSFB’s total assets and financial leverage can fluctuate significantly.

CSFB, as part of its corporate and investment banking and fixed income emerging market activities, also maintains a loan portfolio. In addition, as part of CSFB’s fixed income activities, trading inventories include emerging markets positions, whole loans, leveraged funds and high yield securities. CSG and its subsidiaries also make merchant banking investments through CSFB’s Private Equity division. In US dollar terms, total assets at December 31, 1998 declined approximately 6% when compared with December 31, 1997. This decline reflects the changes in risk profile adopted by CSFB during the later part of the year. CSFB’s ability to support increases in total assets is a function of its ability to obtain short-term secured and unsecured funding and access long-term capital markets. Funding and Capital Strategy Funding The Bank has a broad-based worldwide funding franchise. Global short-term funding is managed by a centralized financing unit, which oversees local funding operations, including those of CSFB. This global funding function provides coordination and control of pricing and funding tactics, while the local market presence provides for investor diversity and access to unique market opportunities. The Bank aims to continually broaden its funding base by geography, investor, issuing entity and instrument type. The Bank’s funding sources include interest-bearing and non-interest-bearing deposits, commercial paper, certificates of deposit, federal funds purchased, long term debt, capital securities and shareholder’s equity. The Bank places particular emphasis on a large base of well-diversified and historically stable fiduciary deposits for its day-to-day funding needs. Notwithstanding the historical stability of the Bank’s unsecured funding sources, CSFB has a secondary source of liquidity flowing through its broker/dealer businesses. CSFB can access significant liquidity through the secured funding markets (repurchase agreements and other collateralized arrangements), which have proven reliable in high-stress environments. This secondary source of liquidity is an important means of ensuring availability of alternative funding for the purpose of meeting business plans and commercial commitments. Finally, CSFB’s liquidity (i.e., unsecured and secured sources) is continually monitored to ensure that the Firm can meet its business objectives through various highstress scenarios.

CREDIT SUISSE FIRST BOSTON

45 To provide alternative funding sources, the Bank, through its subsidiaries, has renewed a committed revolving credit facility with various banks that, if drawn upon, would bear interest at short-term rates. The facility is for general corporate purposes. This facility provides for borrowings up to $1.5 billion during 1999. As of the date hereof, there were no amounts outstanding under the facility. Capital Strategy The Bank and its subsidiaries issue long-term debt through various US and Euro Medium-Term Note Programs as well as syndicated and privately placed offerings around the world. To satisfy Swiss and local regulatory capital needs of its regulated subsidiaries, the Bank raises subordinated long-term borrowings. At December 31, 1998, the Bank had long-term debt (including the current portion) of $24 billion, with $9 billion representing subordinated debt. The Bank expects to continue to access the capital markets in support of the Bank’s existing businesses, as well as any new business initiatives and the resultant capital and funding requirements. In selecting the most appropriate funding sources at any point in time, such factors as market conditions, interest rate levels, liquidity needs and maturity profile objectives are considered. Further, in order to manage interest rate, currency and other risks associated with the above borrowings, the Bank has entered into various derivative transactions. The Bank’s access to external financing is dependent on the short and long-term credit ratings of the Bank and certain of its subsidiaries. The cost and availability of external funding is generally a function of the ratings. As of the date hereof, the Bank’s debt ratings were as follows: LONG-TERM SENIOR SHORT-TERM

Moody’s P-1 S&P A-1+ Fitch IBCA Ltd. F-1+ BankWatch TBW-1

JUNIOR

SENIOR SUBORDINATED SUBORDINATED

A1 AA AA AA

A2 AAAAAA-

A3 A+ A+ A+

In March 1999, the Bank paid a dividend of 240 million Swiss Francs to its shareholder. In March 1998, the Bank paid a dividend of 850 million Swiss Francs to its shareholder.

The Bank and its subsidiaries are subject to various capital requirements imposed by various regulatory bodies around the world, including the Swiss Banking Commission. At December 31, 1998, the Bank was in compliance with these requirements. At December 31, 1998, the Bank had a BIS Tier 1 and total capital ratio of 8.4% and 15.4%, respectively, compared with 8.5% and 14.9% at the end of the prior year. Beginning January 1, 1998, the Bank commenced compliance on the new BIS and EBK methodologies for computing capital ratios, which are based, in part, on value-at-risk computations for trading positions. Risk Management General Approach The general risk management policy of CSG serves as the basis for the Bank’s risk management programs. The primary responsibility for risk management lies with the Bank’s (as well as CSFB’s) senior business line managers. They are held accountable for all risks associated with their businesses, including counterparty risk, market risk, liquidity risk, legal risk and operating risk, and are responsible for supplementing the Firm’s independent controls by maintaining adequate internal control systems. The risk management programs are aimed at ensuring that there are sufficient independent controls to monitor all risks properly. The Board of Directors is responsible for determining the general risk policy and risk management strategy of the Bank. The Chairman’s Committee of the Board of Directors approves the overall market risk ceiling, reviews the Bank’s risk exposure on a quarterly basis, and approves country limits and other risk ceilings. Risk Management at CSFB The policies and procedures regarding risk and capital allocation within CSFB are established by CSFB’s Credit Policy Committee/Capital Allocation and Risk Management Committee (“CPC/CARMC”). CPC/CARMC is chaired by the Chief Executive Officer and includes the Head of Strategic Risk Management, the Chief Financial Officer, the Head of Risk Measurement and Management, the Chief Credit Officer and the heads of the various business divisions of CSFB. CPC/CARMC approves capital management procedures, guidelines and risk limits, and allocates capital to the individual divisions. This allocation is an important element in setting upper limits on levels of activity in CSFB’s various businesses that create counterparty and market risks. CPC/CARMC also is involved with and approves business decisions that, in its view, involve greater than normal business risk.

CPC/CARMC’s policies are implemented by CSFB’s Credit Risk Management (“CRM”) and Risk Measurement & Management (“RMM”) functions. Strategic Risk Management The Strategic Risk Management (“SRM”) function was newly created in late 1998 and is responsible for assessing the overall risk profile of CSFB on a global basis, and recommending corrective action where appropriate. It acts as the independent “risk conscience” of the Firm in respect to all risks that could have a material economic impact on CSFB. The SRM function is headed by the SRM Officer, who reports to the Vice Chairman of the Executive Board. Credit Risk Management CRM is headed by the Chief Credit Officer, who reports to the Vice Chairman of the Executive Board. CRM is responsible for approving all credit risk assumed by CSFB. This includes loans and loan related credit risk, counterparty credit risk and country risk. In addition, CRM has oversight responsibility for concentrated positions in trading inventory. Unusual risks and specific policies and procedures are reviewed and approved by the Credit Policy Committee, which is chaired by the Chief Credit Officer. CRM’s responsibilities are carried out by senior officers within the Credit Risk Management function who are aligned with each of CSFB’s major businesses. Each of these CRM Units is organized along regional lines, and in some cases, further stratified along industry or other lines of specialty, for example, leveraged and project finance. Every credit is rated by CRM staff, and approval authorities are granted relative to staff experience, rating of the counterparty, and size and tenor of the transaction. These authorities are delegated by the Chief Credit Officer, who in turn has been granted the full legal lending authority of CSFB. CRM also is responsible for assessing the overall credit portfolio and recommending credit provisions as appropriate. Market Risk Management The market risk management function is led by the Head of RMM, who reports directly to the SRM Officer and the CFO. The independent RMM department consolidates exposures arising from all trading portfolios and geographical centers on a daily basis. The Bank uses two methodologies to measure and manage the market risks that the Bank may undertake: the “value-at-risk” concept and scenario analysis. The value-at-risk measures the 99th percentile greatest loss that may be expected on the portfolio over a ten-day holding period using market movements determined from historical data. The scenario analysis method estimates the potential loss arising from

the portfolio after moving market parameters. These movements are derived from past extreme events and hypothetical scenarios. Market risk is managed and controlled at three levels: (i) senior management is responsible for monitoring the Bank’s market risk utilizations, exposures and risk-adjusted performance, (ii) trading management is responsible for actively managing its positions against approved risk limits, and (iii) RMM is responsible for monitoring exposures against approved risk limits, obtaining appropriate approval for limit excesses and ensuring that trading management reduce exposures to within limits following limit excesses when appropriate. Management of Other Risks Other business-specific risks are managed primarily through designated groups and committees within the different divisions. For example, the Investment Banking Committee reviews and approves most investment banking transactions, with a special focus on risk (such as legal and reputational risks) that are inherent to such transactions. A similar risk management program has been established for the Private Equity division with the formation of an Investment Committee. Before any new activity is undertaken, the New Business Committee reviews the proposed business and its structure and infrastructure requirements. The aim of this Committee is to ensure that all risks (such as operational risks) that are inherent to such a venture are identified and addressed appropriately. This Committee is composed of the senior managers responsible for the Finance, Administration and Operations functions of CSFB. To supplement its control environment, CSFB has an oversight function that is structured regionally and is designed to complement CSFB’s functional organization. The oversight function consists of (i) selected Executive Board members who have overall responsibility for oversight in their respective regions, (ii) regional oversight managers who assist the Executive Board members with this responsibility, and (iii) a country manager in each country who manages local oversight issues. Regional Oversight and Country Management serve as an additional line of control and concentration on regulatory and reputational issues, the supervision of legal entities and the support of management in efforts to improve the control environment. This oversight function works with business and Finance, Administration and Operations executives in monitoring and enhancing CSFB’s controls. Various control committees act as a clearinghouse for certain control issues. Additional disclosure on the Bank’s risk management practices is contained in the Bank’s Annual Report.

CREDIT SUISSE FIRST BOSTON

OFFICE LOCATIONS

47

The Americas Atlanta Georgia Pacific Center 133 Peachtree Street N.E. 40th Floor Atlanta, GA 30303-1841 USA Voice 1 404 656 9500 Fax 1 404 522 3043 Boston 100 Federal Street 30th Floor Boston, MA 02110-1802 USA Voice 1 617 556 5500 Fax 1 617 542 1814 One Boston Place 30th Floor Boston, MA 02108 USA Voice 1 617 854 7100 Fax 1 617 854 7160 Buenos Aires Esmeralda 130 - Piso 22 1035 Buenos Aires Argentina Voice 54 11 4394 3100 Fax 54 11 4327 3547 Fax 54 11 4325 4717 Chicago AT&T Corporate Center 227 West Monroe Street Chicago, IL 60606-5016 USA Voice 1 312 750 3000

Houston 600 Travis Street Suite 3030 Houston, TX 77002-3003 USA Voice 1 713 220 6700 Fax 1 713 236 9222 Los Angeles 10880 Wilshire Blvd 21st Floor Los Angeles, CA 90024 USA Voice 1 310 481 2600 Fax 1 310 481 2800 Mexico Campos Eliseos #345, Piso 9 Edificio Omega Col. Chapultepec Polanco 11560 Mexico, D.F. Mexico Voice 52 5 283 89 00 Fax 52 5 283 89 30 Montreal 1250 Rene-Levesque Boulevard West Suite 3935 Montreal H3B 4W8 Canada Voice 1 514 933 8774 Fax 1 514 933 7699

Nassau Bahamas Financial Centre, 4th Floor Charlotte & Shirley Street P.O. Box N-4928 Nassau Bahamas Voice 1 242 356 8100 Fax 1 242 326 6589 New York Eleven Madison Avenue New York, NY 10010-3629 USA Voice 1 212 325 2000 CSFP Capital, Inc. Voice 1 212 325 5900 Palo Alto 2400 Hanover Street Palo Alto, CA 94304 USA Voice 1 650 614 5000 Fax 1 650 614 5030 Pasadena Two North Lake Avenue Suite 860 Pasadena, CA 91101 USA Voice 1 626 395 5100 Fax 1 626 395 5115 Philadelphia 11 Penn Center 26th Floor Philadelphia, PA 191032929 USA Voice 1 215 851 1000 Fax 1 215 851 0352

Portland 85 Exchange Street Suite 201 Portland, ME 04101 USA Voice 1 207 780 6210 Fax 1 207 780 6735 San Francisco 201 Spear Street 17th and 18th Floors San Francisco, CA 94105 USA Voice 1 415 836 7600 Fax 1 415 836 7751 Santiago Av. Andres Bello 2777 Piso 21, Of. 2101 Las Condes Santiago De Chile Voice 56 2 203 3190 Fax 56 2 203 3196 São Paulo Avenida Brigadeiro Faria Lima, 3064 01451-000 Sao Paulo, SP Brazil Voice 55 11 3048 2900 Voice 55 11 821 6000 Fax 55 11 821 6900 Toronto One First Canadian Place Suite 3000, P.O. Box 301 Toronto, Ontario M5X 1C9 Canada Voice 1 416 352 4500 Fax 1 416 352 4680

Africa, Europe and Middle East Amsterdam Johannes Vermeerstraat 9 1071 DK Amsterdam The Netherlands Voice 31 20 575 4444 Fax 31 20 575 4455 (Nederland) NV Strawinskylaan 3053 Atrium, 3rd floor 1077 ZX Amsterdam The Netherlands Voice 31 20 5045 403 Fax 31 20 5045 194 Brussels Winterthur Centre 56 Avenue des Arts 1000 Brussels Belgium Voice 32 2519 7423 Fax 32 2519 6352 Budapest Nagy Jeno U.12 H-1126 Budapest Hungary Voice 36 1 202 2188 Fax 36 1 201 9196 Cairo 32 Haroon Street P.O. Box 224 Dokki Cairo Egypt Voice 20 2 331 8800 Fax 20 2 331 8880 Frankfurt MesseTurm 60308 Frankfurt am Main Germany Voice 49 69 75 38 0 Fax 49 69 75 38 2444 Geneva 59 Route De Chancy P.O. Box 900 CH-1211 Geneva 70 Switzerland Voice 41 22 394 70 00 Fax 41 22 792 47 32

Guernsey Harbour House 4th Floor South Esplanade St. Peter Port, Guernsey, Channel Islands GY1 1AP Voice 44 1481 713 997 Fax 44 1481 714 111 Helsinki Etelaranta 14 4th Floor FIN-00130 Helsinki Finland Voice 358 9 622 2882 Fax 358 9 622 1535 Istanbul Buyukdere Caddesi Ali Kaya Sokak Polat Plaza B Blok No.4 Kat13 80840 Levent, Istanbul Turkey Voice 90 212 278 2500 Fax 90 212 281 6444 Johannesburg Sandton City Office Tower 9th Floor 5th Street, Corner Rivonia Rd 2196 Sandown Republic of South Africa Voice 27 11 884 67 41 Fax 27 11 884 71 21 Kiev 34 Chervonoarmiyska Street 252004 Kiev Ukraine Voice 380 44 247 1900 Fax 380 44 247 5790 Limassol 199 Christodoulou Hadjipavolou Avenue P.O. Box 57530 3316 Limassol Cyprus Voice 357 534 12 44 Fax 357 581 74 24 London One Cabot Square London E14 4QJ United Kingdom Voice 44 171 888 8888 Fax 44 171 888 1600 CSFP Voice 44 171 888 2000 Fax 44 171 888 1600

Lugano Via Canova 15 P.O. Box 2836 CH-6900 Lugano Switzerland Voice 41 91 802 64 82 Fax 41 91 921 00 67

Tashkent 1 Turab Tula Street 700003 Tashkent Republic of Uzbekistan Voice 998 71120 6166 Fax 998 71120 6177

Luxembourg 56 Grand Rue B.P. 40 L-2010 Luxembourg Luxembourg Voice 352 46 00 111 Fax 352 47 55 41

Tehran No. 309, First Floor Shahid Vahid Dastjerdi Ave. Between Africa And Vali Asr IR-19686 Tehran Iran Voice 98 21 878 7655 Fax 98 21 878 5215

Madrid Paseo De Recoletos 17-Planta 1 28004 Madrid Spain Voice 34 91 532 03 03 Fax 34 91 532 35 60

Vienna Palais Corso Mahlerstrasse 12-5 1010 Vienna Austria Voice 43 1 512 3023 Fax 43 1 512 302323

Milan Via Turati 9 20121 Milano Italy Voice 39 02 7702 1 Fax 39 02 7702 2216

Warsaw FIM Tower, XIII Floor Al Jerozolimskie 81 02-001 Warsaw Poland Voice 48 22 695 0050 Fax 48 22 695 0055

Moscow 5 Nikitsky Pereulok (Formerly Belinski Street) Moscow 103 009 Russia Voice 7 501 967 8200 Fax 7 501 967 8210 CSFP Voice 7 501 967 8200 Fax 7 501 967 8210 Paris 21 Boulevard de la Madeleine 75038 Paris Cedex 01 France Voice 33 1 40 76 8888 Fax 33 1 42 56 1082 Prague Staromestske Nam. 15 110 00 Prague 1 Czech Republic Voice 420 2 210 83111 Fax 420 2 210 83222

Zug Bahnhofstrasse 17 P.O. Box 234 CH-6301 Zug Switzerland Voice 41 41 727 97 00 Fax 41 41 727 97 10 Zurich Uetlibergstrasse 231 P.O. Box 900 CH-8070 Zurich Switzerland Voice 41 1 333 55 55 Fax 41 1 333 55 99 CSFP Uetlibergstrasse 231 P.O. Box 700 CH-8070 Zurich Voice 41 1 332 6400 Fax 41 1 332 6404

CREDIT SUISSE FIRST BOSTON

49

Asia/Pacific Osaka Yodoyabashi Centre Building 13th Floor, 3-4-10 Koraibashi Chuo-ku, Osaka 541-0043 Japan Voice 81 6 6204 3530 Fax 81 6 6204 3531

Sydney Gateway Level 31 1 Macquarie Place Sydney, New South Wales 2000 Australia Voice 61 2 9394 4400 Fax 61 2 9394 4382

Labuan Main Office Tower Level 10 (B) Financial Park Labuan 87000 Labuan F.T. Malaysia Voice 60 87 425 381 Fax 60 87 425 384

Seoul Hanwha Building 13th Floor 111-5 Sokong-Dong, Chung-Ku Seoul 100-070 Korea Voice 82 2 3707 3700 Fax 82 2 3707 3881

CSFP Voice 61 2 9394 4515 Fax 61 2 9394 4388

Beijing Silver Tower 31st Floor 2 Dong San Huan Bei Road Beijing 100027 People’s Republic of China Voice 86 10 6410 6611 Fax 86 10 6410 6133

Manila SGV II Building 9th Floor 6760 Ayala Avenue 1226 Makati City Philippines Voice 63 2 894 8101 Fax 63 2 891 0534

Shanghai 17th Floor, South Tower Stock Exchange Building 528 Pudong South Road Pudong, Shanghai People’s Republic of China Voice 86 21 6881 8418 Fax 86 21 6881 8417

Hong Kong Three Exchange Square 22nd Floor 8 Connaught Place, Central Hong Kong Voice 852 2101 6000 Fax 852 2101 7990

Melbourne 101 Collins Street 27th Floor Melbourne, Victoria 3000 Australia Voice 61 3 9280 1666 Fax 61 3 9280 1890

Singapore 80 Raffles Place #49-01 UOB Plaza 1 Singapore 048624 Voice 65 538 6322 Fax 65 531 2708

CSFP 13th Floor Voice 852 2101 6000 Fax 852 2101 7792

Mumbai (Formerly Bombay) 35/39 Free Press House 3rd Floor 215 Free Press Journal Marg Nariman Point Mumbai 400 021 India Voice 91 22 284 6888 Fax 91 22 285 1949

Auckland Coopers & Lybrand Tower 23-29 Albert Street Level 20 Auckland New Zealand Voice 64 9 302 5500 Fax 64 9 302 5580

Kuala Lumpur Menara Keck Seng Suite 27-02, 27th Floor 203 Jalan Bukit Bintang 55100 Kuala Lumpur Malaysia Voice 60 3 242 5199 Fax 60 3 241 6199

Bangkok Abdulrahim Place, 14th Floor 990 Rama IV Road Silom, Bangrak Bangkok 10500 Thailand Voice 66 2 636 1546 Fax 66 2 636 1553

Jakarta Danamon Aetna Life Building 24th Floor Jalan Jenderal Sudirman Kav.45 Jakarta 12930 Indonesia Voice 62 21 577 0762 Fax 62 21 577 0761

6 Shenton Way #11-08 DBS Tower 2 Singapore 068809 Voice 65 226 5088 Fax 65 420 4868 50 Raffles Place #10-01 Singapore Land Tower Singapore 048623 Voice 65 225 7400 Fax 65 226 5625

Taipei 14th Floor 205, Tun Hwa North Road Taipei, Taiwan 105, R.O.C. Voice 886 2 2718 8935 Fax 886 2 2718 8934 Room E-1, 11th Floor Hung Tai Century Tower 156, Sec.3, Min Sheng East Road Taipei, Taiwan 105, R.O.C. Voice 886 2 8770 1501 Fax 886 2 2719 8815 Tokyo Shiroyama Hills 26th Floor 4-3-1 Toranomon Minato-Ku Tokyo 105 Japan Voice 81 3 5404 9000 Fax 81 3 5404 9800 CSFP 27th Floor Voice 81 3 5403 4000 Fax 81 3 5403 4077/4088 Wellington Caltex Tower 282-292 Lambton Quay Level 10 Wellington New Zealand Voice 64 4 474 4400 Fax 64 4 474 4051

The terms “Credit Suisse First Boston,” “CSFB,” “CSFP,” “Firm,” “we” and “our” in this Annual Review typically refer to the business unit (versus the legal entity, which has the same name but also includes Credit Suisse Asset Management and certain real estate assets and which is referred to herein as the “Bank”). This Annual Review was prepared by the Corporate Communications Department of Credit Suisse First Boston and includes the most current information through April 1, 1999. Additional copies and/or additional information can be obtained on the Internet at www.csfb.com or through Corporate Communications in New York, London, or Hong Kong. © Copyright 1999, Credit Suisse First Boston Issued in the United Kingdom by Credit Suisse First Boston (Europe) Ltd: regulated by SFA.

Design: Russell Design Associates, NYC Photography: Shonna Valeska and Katharine Andriotis Printed on recycled paper