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Credit Suisse Group (the Group) is writing in response to the letter from the staff (the Staff) of the U.S. Securities and Exchange Commission (the Commission) dated September 6, 2006 (the Comment Letter) setting out comments with respect to the Groups annual report on Form 20-F for the fiscal year ended December 31, 2005 (the 2005 Form
20-F), filed with the Commission on March 31, 2006. For ease of reference, the Group has repeated the Staffs comments in italicized text prior to its responses.
Except where expressly noted otherwise, the Group intends to include in its future filings with the Commission, beginning with its annual report on Form 20-F for the fiscal year ending December 31,
2006 (the 2006 Form 20-F), the revisions requested by the Staff in its Comment Letter.
For a response to Comments 1-3, the Group refers the Staff to its letter dated April 28, 2006 to the Commissions Office of Global Security Risk, a copy of which is enclosed. The Group also
refers the Staff to the section titled Item 4Information on the CompanyRegulation and SupervisionBankingUnited States appearing on pages 14 and 15 of the 2005 Form 20-F, which contains disclosure regarding the
Groups business in the sanctioned countries.
Item 5: Operating and Financial Review and Prospects 2 Response to Comment 4:
[***] The Group respectfully submits that disclosure of these balances is not required by either U.S. generally accepted accounting principles or the Commissions rules and regulations.
Additionally, the Group has considered the matter and determined that inclusion of such disclosure is not material to an understanding of the Groups critical accounting policies for derivatives. Accordingly, the Group does not propose to disclose these amounts in the 2006 Form 20-F.
The Group notes that on September 15, 2006, the Financial Accounting Standards Board (the FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value Measurements, with an effective date of fiscal years beginning after
November 15, 2007, with early adoption permitted. This statement eliminates the requirement to defer trade date gains and losses of the kind described in the preceding paragraph.
Note 1 Summary of Significant Accounting Policies Response to Comment 5: Accounting for Loans
In recording loans at fair value with unrealized and realized gains and losses recorded in the income statement, the Group is relying on the AICPA Audit and Accounting Guide: Brokers and Dealers in
Securities (the Broker-Dealer Guide). As stated in its preface, the Broker-Dealer Guide applies to preparation and audit of financial statements of entities that are broker-dealers in securities. The activities of broker-dealers in securities are described in Chapter 1. The preface further states that
such entities are subject to the rules and regulations of the Securities and Exchange Commission and other regulatory bodies.
The Group notes that a diversity of practice exists regarding the application of the Broker-Dealer Guide. Indeed, at its August 3, 2006 meeting, the Agenda Committee of the FASBs Emerging Issues
Task Force decided to add to its agenda a project to consider the scope of the Broker-Dealer Guide and the types of inventory that may be accounted for at fair value. _____________________________________ 3
Moreover, the FASB currently has on its agenda a project entitled the Fair Value Option that is expected to be issued in the fourth quarter of 2006, with an effective date of fiscal years
beginning after November 15, 2007. If issued in its current form, the Fair Value Option would allow recognition of any loan at fair value by electing a fair value measurement attribute.
As a global financial services company with broker-dealer activities in numerous countries and subject to regulation in various jurisdictions, the Group applies the Broker-Dealer Guide to certain of
its subsidiaries engaged in broker, dealer and related activities, including those subject to regulation in the United States and abroad, and accordingly records loans at fair value as inventory pursuant to paragraph 7.02 of the Broker-Dealer
Guide.
Set forth below is the fair value and cost basis of the loans held in the subsidiaries to which the Group applies the Broker-Dealer Guide. 4
Accounting for Precious Metals
Credit Suisse and Bank Leu, each Swiss regulated banks and securities traders, hold inventories of precious metals to provide liquidity against deposit accounts denominated in such precious metals and
measured at fair value. The Group measures the inventories of precious metals at fair value in accordance with Chapter 4, Statement 9 of Accounting Research Bulletin No. 43, Restatement and Revision of Accounting Research Bulletins. Set forth below is the fair value of the precious metals held by such entities as of December 31, 2005 and 2004. The Group does not have
the systems in place to be able to provide the Staff cost basis information for precious metals inventories without unreasonable burden and expense.
The Group relies on paragraph 46 of SFAS No. 60, Accounting and Reporting by Insurance Enterprises, to record non-marketable equity
securities held in its insurance subsidiary, Winterthur Swiss Insurance Company (Winterthur), as available-for-sale. At December 31, 2005 and 2004, the fair value of these non-marketable equity securities totaled approximately CHF 1,798 million and CHF 1,881 million, respectively, and the cost of these non-marketable equity securities totaled approximately CHF 1,760
million and CHF 1,799 million, respectively. As a result of the Groups decision to sell Winterthur announced in June 2006, in the second quarter of 2006 the Group began reporting the results of operations of the Winterthur businesses being
sold as Income from discontinued operations, net of tax in the consolidated statements of income for all periods presented and the assets and liabilities of Winterthur as Assets of discontinued operations held-for-sale and Liabilities of discontinued operations held-for-sale, respectively, in the consolidated balance
sheet as of June 30, 2006. This transaction is expected to close by the end of 2006, subject to regulatory approvals and closing conditions. 5
Other investments
The Group will revise its disclosure in the 2006 Form 20-F to make clear that the non-marketable equity securities held by subsidiaries that are considered investment companies included in other
investments in footnote 12 of the 2005 Form 20-F are held by separate legal entities that are within the scope of the AICPA Audit and Accounting Guide: Investment Companies (the Investment Companies Guide). These entities are investment companies either exempt from, or not subject to, the requirements of the Investment Company Act of 1940 and carry
non-marketable equity securities at fair value in accordance with paragraph 2.28 of the Investment Companies Guide. At December 31, 2005 and 2004, the fair value of the non-marketable equity securities held by subsidiaries that are considered
investment companies totaled approximately CHF 8,543 million and CHF 8,430 million, respectively. At December 31, 2005 and 2004, the cost basis of these non-marketable equity securities totaled approximately CHF 8,986 million and CHF 9,742 million,
respectively. For the purpose of identifying investment company subsidiaries that may apply the industry guidance set forth in the Investment Companies Guide, the Group has included investments in entities that
engage in the same or similar activities as, or make co-investments alongside, the Groups investment company subsidiaries (e.g., the general partner of a private equity limited
partnership or private equity co-investment vehicle). Where such entities are engaged exclusively in investing activities involving the same or similar non-marketable equity securities, the Group applies accounting policies consistent with the
Investment Companies Guide. At December 31, 2005 and 2004, the fair value of the non-marketable equity securities held by these subsidiaries (included in the amounts presented in the preceding paragraph) totaled approximately CHF 519 million and CHF
370 million, respectively. At December 31, 2005 and 2004, the cost basis of these non-marketable equity securities totaled approximately CHF 337 million and CHF 408 million, respectively.
October 6th, 2006
BY EDGAR AND BY HAND
Mr. Paul Cline
Senior Accountant
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Mail Stop 4561
Washington, D.C. 20549
Re:
Credit Suisse Group
Form 20-F for Fiscal Year Ended December 31, 2005
Filed March 31, 2006
File No. 1-15244
Dear Mr. Cline:
1.
We note from public media reports that you may have operations associated with Cuba, Iran, North Korea, Sudan and Syria, which are identified as state sponsors of terrorism by the U.S. State Department and subject to U.S. economic sanctions imposed, in part, as a result of actions in support of terrorism and/or pursuit of weapons of mass destruction. In particular, we note a statement attributed to the company that Credit Suisses new policy will not affect current business relations its clients have in Cuba, Iran, North Korea, Sudan and Syria. Your Form 20-F does not contain any disclosure about operations associated with these countries. Please address the materiality of your contacts with these countries. Your response should describe your current, historical and anticipated operations in, and contacts with, Cuba, Iran, North Korea, Sudan and Syria, whether through subsidiaries, affiliates, joint ventures or other
direct and indirect arrangements.
2.
In your materiality analysis, please discuss whether your operations or contacts constitute a material investment risk for your security holders. Please also address the impact on
Response to Comments 1-3:
your business of any operational challenges or
regulatory compliance challenges resulting from operations associated with state sponsors of terrorism.
3.
In preparing your response please consider that evaluations of materiality should not be based solely on quantitative factors, such as the approximate dollar amount of revenues and assets associated with Cuba, Iran, North
Korea, Sudan and Syria, but should include consideration of qualitative factors that a reasonable investor would deem important in making an investment decision, including the potential impact of corporate activities upon a companys reputation
and share value. In this regard, we note from a public media report attributed to a company spokesman that Credit Suisse determined to wind down operations in these countries because of the geopolitical situation and as a result of internal risk
assessment. We also note that Arizona and Louisiana have adopted legislation requiring their state retirement systems to prepare reports regarding state pension fund assets invested in, and/or permitting divestment of state pension fund assets from,
companies that do business with countries identified as state sponsors of terrorism. Illinois, Oregon and New Jersey have adopted, and other states are considering legislation prohibiting the investment of certain state assets in, and/or requiring
the divestment of certain state assets from, companies that do business with Sudan. Harvard University, Stanford University, Yale University, Dartmouth College and the University of California Board of Regents have all adopted policies prohibiting
investment in, and/or requiring divestment from, companies that do business with Sudan. Your materiality analysis should address both your internal risk assessment and the potential impact of the investor sentiment evidenced by the referenced
legislative and educational institution actions directed toward companies operating in these countries.
Critical Accounting Policies
Derivatives
4.
We note that you do not recognize a dealer profit or loss, unrealized gain or loss at inception of a derivative transaction, or day one profit/loss unless the valuation is evidenced by observable market prices or inputs. Please
revise to disclose the gross amount of trade date profit and loss deferred as of each balance sheet date presented.
5.
Please tell us the specific accounting guidance on which you rely to record loans and precious metals at fair value with unrealized and realized gains and losses recorded in the income statement. In addition, please tell us the
fair value and cost for each of the above items as of December 31, 2005 and 2004, respectively.
[***]
Particulars of the Groups trade date profit and loss deferred as of each balance sheet date presented in the 2005 Form 20-F are contained in a letter to the Staff of even date herewith, for which the Group has requested confidential treatment.
2005
2004
2004
Legal Entity
Principal Business Activity
DLJ Mortgage
Licensed mortgage broker
15,736
11,592
15,842
11,730
Capital, Inc.
The Group purchases U.S. residential mortgage loans as
part of its securitization activity and resells them after a
temporary holding period, an activity characteristic of
those engaged in by regulated broker-dealers
Credit Suisse
Over-the-counter derivatives dealer
241
0
241
0
Capital LLC
Credit Suisse
Non-depository bank regulated by the U.K. Financial
814
0
760
0
International
Services Authority (FSA) and engaged in derivatives
trading and other trading activities
Candlewood
Proprietary trading in distressed and par loans, an
57
2
37
2
Partners, LLC
activity characteristic of those engaged in by regulated
broker-dealers
2005
2004
2004
Legal Entity
Principal Business Activity
Total
1
The amounts disclosed as cost in this table generally represent the purchase price of the loans. The Group does not have the systems in place to be able to provide the Staff an amortized cost basis of the loans in accordance with SFAS
No. 5, Accounting for Contingencies, SFAS No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases, AICPA Statement of Position (SOP) 03-3, Accounting for
Certain Loans or Debt Securities Acquired in a Transfer, or any other applicable accounting literature.
2
Entity commenced operations in April 2005.
Precious Metals at Fair Value as of December 31,
Separate Legal Entity
2005
2004
Credit Suisse
2,214
1,394
Bank Leu
27
21
Total
2,241
1,415
Investment Securities
Response to Comment 6:
6.
Please tell us the specific accounting guidance on which you rely to record non-marketable equity securities held in the insurance business as available-for-sale. In addition, please tell us the fair value and costs of these
securities as of December 31, 2005 and 2004, respectively.
Response to Comment 7:
7.
We note that non-marketable equity securities held by subsidiaries that are considered investment companies are carried at their estimated fair value, with changes in fair value recorded in the income statement. Please revise
to disclose if the subsidiaries that are considered investment companies are separate legal entities and are within the scope of the AICPA Audit and Accounting Guide for Audits of Investment Companies. If the subsidiaries are not separate legal
entities, please tell us the specific accounting guidance on which you rely for your fair value accounting policy. In addition, please tell us the fair value and cost of these securities as of December 31, 2005 and 2004,
respectively.
6
the Investment Companies Guide.
8. | We note that non-marketable equity securities held by subsidiaries that are considered broker/dealer entities are carried at their estimated fair value, with changes in fair value recorded in the income statement. Please revise to disclose if the subsidiaries that are considered broker/dealer entities are separate legal entities that are subject to regulation as a broker-dealer. If they are not, please tell us the specific accounting guidance on which you rely for your fair value accounting policy. In addition, please tell us the fair value and cost of these securities as of December 31, 2005 and 2004, respectively. |
The Group will revise its disclosure in the 2006 Form 20-F to make clear that the non-marketable equity securities held by subsidiaries that are considered broker-dealer entities included in other investments in footnote 12 of the 2005 Form 20-F are held by separate legal entities that are subject to regulation as broker-dealers. These entities carry non-marketable equity securities at fair value in accordance with paragraph 7.02 of the Broker-Dealer Guide. At December 31, 2005 and 2004, the fair value of these non-marketable equity securities totaled approximately CHF 16 million and CHF 17 million, respectively. At December 31, 2005 and 2004, the cost basis of these non-marketable equity securities totaled approximately CHF 13 million and CHF 12 million, respectively.
The Group acknowledges that it is responsible for the adequacy and accuracy of the disclosure in its filings with the Commission, that Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filings, and that it may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
The Group hopes that its responses adequately address the Staffs comments. If the Staff has any questions concerning this letter or requires further information, please do not hesitate to contact Rudolf A. Bless, Chief Accounting Officer, in Zurich at 011-41-44-333-1968, Eric Smith, Co-Head of Accounting Policy, in New York at 212-538-5984 or me in Zurich at 011-41-44-333-1700.
Very truly yours, CREDIT SUISSE GROUP /s/ Renato Fassbind Renato Fassbind Member of the Executive Board Chief Financial Officer |
Enclosure | ||
cc: | Oswald J. Grubel | |
Member of the Executive Board | ||
Chief Executive Officer | ||
Credit Suisse Group | ||
Peter F. Weibel | ||
Chairman of the Audit Committee | ||
Credit Suisse Group | ||
Urs Rohner | ||
Member of the Executive Board | ||
General Counsel | ||
Credit Suisse Group | ||
Rudolf A. Bless | ||
Chief Accounting Officer | ||
Credit Suisse Group | ||
Eric Smith | ||
Co-Head of Accounting Policy | ||
Credit Suisse Group | ||
David I. Gottlieb, Esq. | ||
Cleary Gottlieb Steen & Hamilton LLP |