Annual Report 2005 - Bank am Bellevue

bellevue.ch

Annual Report 2005 - Bank am Bellevue

Annual Report 2005

Swissfirst AG


Annual Report 2005

Content

Annual Report 2005

Swissfirst AG – Group

Report of the Board of Directors 3

At a glance 4

Consolidated financial statements 2005 7

Balance sheet 7

Profit and loss account 8

Analysis of shareholders’ equity 9

Cash flow statement 10

Notes to the consolidated financial statements 12

Consolidation and valuation principles 12

Risk management 16

Information on the balance sheet 20

Information on the profit and loss account 31

Earnings per share 32

Business segments 33

Significant consolidated group companies 33

Acquisitions and disposals 34

Staff participation 36

Client assets 37

Differences IFRS / Accounting regulations

for banks under Swiss law 37

Events after the balance sheet date 37

Scope of consolidation 38

Group auditors’ report 39

Corporate Governance

Information on corporate governance 40

Swissfirst AG – Holding Company

Financial statements 2005 45

Balance sheet 45

Profit and loss account 46

Notes to the financal statements 47

Proposed allocation of retained earnings 50

Auditors’ report 51

Addresses 52

Disclaimer:

This Annual Report is a translation of the original Annual

Report written in German. In the event of any conflict in interpretation,

the German language version takes precedence.


Annual Report 2005

Report of the Board of Directors

Report of the Board of Directors

Dear Shareholders

Despite being still a relatively young company, the past financial year has

been a real milestone for Swissfirst: our merger with the Bellevue Group

has enabled us not only to consolidate and considerably strengthen our

market position, but also to virtually double our operating performance.

On September 9, 2005, the Boards of the Swissfirst Group and the Bellevue

Group merged their operating activities. Swissfirst AG purchased

Bank am Bellevue AG and Bellevue Asset Management AG from Bellevue

Holding AG. In a reciprocal arrangement, Bellevue Holding AG, which is

owned almost entirely by the staff of the Bellevue Group, acquired a

50 % stake in Swissfirst AG. Bellevue Holding AG subsequently assigned

the shares it obtained in Swissfirst AG to its shareholders, which are

now employees of the merged Swissfirst Group. As a result, the staff of

the “new” Swissfirst Group currently own around 70 % of the company’s

share capital.

the Bellevue Group and the Swissfirst Group. The goodwill associated

with this transaction amounts to CHF 160 million, while the share

capital (excluding minority interests) is CHF 316 million. The return on

average capital employed was an impressive 21.6 %, while the BIS

Tier 1 ratio has settled around 15 %.

Stock markets were quick to recognize the virtual doubling of our operating

result as well: Swissfirst’s share price climbed from CHF 52 to

CHF 80 over the course of the year. Shareholders also benefited from an

extraordinary payout in the form of a dividend and a par value repayment

totaling CHF 5.40 per bearer share. In light of the excellent business

performance in 2005, the Board of Directors will submit a proposal to

the forthcoming annual general meeting of shareholders for an ordinary

dividend of CHF 2.00 to be paid on each bearer share.

The Board of Directors is confident that the new Swissfirst Group is very

well positioned to exploit the synergy potential created by the merger

to generate value for both its clients and shareholders. This should make

the company’s shares even more appealing to investors.

The merger, which was effected on October 1, 2005, enables Swissfirst

to apply its existing know-how to a substantially bigger client base,

as the Group has roughly doubled its assets under management to CHF

10.9 billion. The businesses are such a good fit that the “new” merged

Swissfirst Group is now able to employ 160 people without overlaps

in individual lines of business. The two companies also complement each

other very well in terms of corporate philosophy, entrepreneurial thinking

and behavior. We are pleased to report that the integration of the

relevant operating companies was completed earlier than scheduled, by

the end of 2005.

Current Board members Hans E. Buck, Hans Kaufmann, Karl-Ludwig

Göldner, Alex Wassmer and Dr. Roland Oswald will be stepping down at

the forthcoming AGM. The company would like to take this opportunity

to thank them for all they have done. With their dedication, in-depth

knowledge and loyalty they have provided crucial impetus to the Swissfirst

Group in the formative years while the business was being built up.

The merger between the Swissfirst Group and the Bellevue Group marks

the start of a new era. In view of this, the “old guard” is handing over to

the new Board of Directors, and wishes them every success in what

continues to be a very challenging business environment.

2005 turned out to be an exceptionally good year for financial markets

and comfortably beat all expectations. Historically low interest rates in

the first half of the year laid the foundation for a solid economic performance.

Although interest rates started to creep upwards again over the

course of the year, this did not affect the bullish mood of stock markets

in the slightest. On the contrary, the Swiss stock market advanced more

than 30 % to top the rankings of European bourses, outperformed only

by Japanese equities, which had previously been unpopular with investors

for so long. The currency environment was also very favorable.

The Board would also like to take this opportunity to thank you, our loyal

clients and shareholders, for your continuing loyalty and trust in Swissfirst.

Our special thanks also go to the company’s executives and all our

employees whose hard work and dedication have propelled the Swissfirst

Group into a new dimension.

Dr. Roland Oswald

Chairman of the Board of Directors

Against this positive backdrop, the Swissfirst Group generated total revenues

of CHF 118 million, an increase of over 40 % on last year. Total

operating expenses only rose 16 % to CHF 42 million, resulting in a net

operating profit excluding minorities of CHF 60 million. The cost-income

ratio therefore improved from 42.9 % in 2004 to 35.3 %. All the business

segments improved both in terms of financial performance and assets

under management, and therefore contributed to these excellent results.

The total assets held on the balance sheet almost doubled to CHF 1.785

billion (2004: CHF 916 million) as a consequence of the merger between


Annual Report 2005 At a glance

At a glance

CHF m

2005 2004 2003 2002 2001

Gross operating profit 76,437 47,893 67,407 69,627 70,294

Net earnings (excl. minorities) 59,719 38,368 34,839 52,063 53,404

Commission income 81,623 62,501 78,481 84,044 87,161

Net interest income 13,617 11,307 9,152 10,154 9,429

Net trading income 12,077 7,054 11,847 8,537 5,863

Operating expenses 41,666 36,003 35,103 35,416 32,752

Shareholders’ equity (excl. minorities) 315,539 238,656 280,440 252,442 246,237

Number of employees (full-time equivalent) 164,8 112,8 103,4 98,6 89,7

Earnings per share on the aggregate par value (adjusted for the split) in CHF 5.69 3.84 3.49 5.11 5.24

Assets under management 2005 2004 2003 2002 2001

CHF m

Private Banking 2,849 2,036 1,436 1,290 1,554

Asset Management 4,906 1,755 1,451 1,281 1,257

Investment Banking 3,085 1,039 1,540 1,481 1,129

Corporate Items 74 64 40 29

Total 10,914 4,894 4,467 4,081 3,940

Summary of net earnings 1998–2005

CHF m

60

50

53.4

52.1

59.7

45.6

40

30

30.6

34.8

38.4

20

20.8

10

0

1998 1999 2000 2001

2002 2003 2004 2005


Annual Reportt 2005 At a glance

Performance 2000–2005 Swissfirst vs. SPI (adjusted)

350

300

250

200

150

1 00

Swissfirst

Swiss Performance Index

50

2000 2001 2002 2003 2004 2005

The SWF share

Initial listing on the former SWX New Market 10.11.1999

Listing switched to the main board of SWX 03.01.2003

in CHF

Issue price 33.25

Price at end 2004 52.00

2005 high (on 21 September 2005) 87.50

2005 low (on 25 May 2005) 49.00

Price at end 2005 80.00

Capital ratios for Swissfirst Group 31.12.2005 31.12.2004 31.12.2003 31.12.2002 31.12.2001

BIS core capital (tier 1)* CHF m 93.8 195.9 280.6 246.5 237.8

BIS risk-weighted assets CHF m 610.0 514.8 669.4 581.0 529.3

BIS core capital ratio (tier 1) in % 15.4 38.1 41.9 42.4 44.9

* after appropriation of profit


Group


Consolidated financial statements

Balance sheet

Consolidated financial statements 2005

Balance sheet

CHF 1,000

Note 31.12.2005 31.12.2004

Assets

Cash 317,267 39,222

Due from banks 485,687 223,292

Due from customers 1 371,940 393,336

Securities trading portfolios 2 80,287 37,029

Derivative financial instruments 18 43,371 21,647

Financial investments 3 196,223 133,770

Associated participations 4 1,383 1,383

Fixed assets 5 22,292 22,719

Intangible fixed assets 6 79,558 535

Goodwill 7 160,289 0

Prepaid expenses and accrued income 2,941 3,988

Current tax assets 18,450 10,262

Other assets 9 5,066 29,232

Total assets 1,784,754 916,415

Liabilities and shareholders’ equity

Due to banks 92,830 137,129

Due to customers 910,779 435,253

Derivative financial instruments and other trading liabilities 18 189,242 41,663

Debt issued 11 150,000 0

Deferred income 29,076 21,117

Other liabilites 10 43,619 5,138

Current tax liabilities 5,539 2,141

Deferred tax liabilities 12 18,939 3,565

Provisions 13 7,062 8,709

Total liabilities 1,447,086 654,715

Share capital 14 1,050 5,000

Treasury shares 1,351 –98,899

Capital reserve 27,250 0

Retained earnings 285,888 332,555

Equity attributable to shareholders of Swissfirst AG 315,539 238,656

Minority interests 22,129 23,044

Total equity 337,668 261,700

Total liabilities and shareholders’ equity 1,784,754 916,415


Consolidated financial statements

Profit and loss account

Profit and loss account

CHF 1,000

Note 2005 2004

Net interest income

Interest and discount income 21,222 15,485

Dividend income 2,183 877

Interest expenses –9,788 –5,055

Subtotal: Net interest income 13,617 11,307

Net commission and service fee income

Commission income from lending activities 96 143

Commission income from securities and investment business 20 85,422 66,842

Commission income from other services 3,420 2,440

Commission expenses –7,315 –6,924

Subtotal: Net commission and service fee income 81,623 62,501

Net trading income

Securities trading 7,797 3,660

Foreign exchange trading 4,280 3,394

Subtotal: Net trading income 12,077 7,054

Other ordinary income

Real estate income 253 258

Income from associated companies 0 234

Income from sales of financial investments 8,744 1,966

Sundry ordinary expenses –1,427 –1,052

Sundry ordinary income 3,216 1,628

Subtotal: Other ordinary income 10,786 3,034

Net operating income 118,103 83,896

Operating expenses

Personnel expenses 21 –24,035 –23,886

Other operating expenses 22 –17,631 –12,117

Subtotal: Operating expenses –41,666 –36,003

Gross operating profit 76,437 47,893

Depreciation and amortization on fixed assets 23 –1,405 –1,324

Depreciation and amortization on intangible fixed assets 23 –2,142 –392

Valuation adjustments, provisions and losses 13 –3,015 –726

Taxes 24 –6,041 –4,198

Group net profit 63,834 41,253

Attributable to: – Shareholders of Swissfirst AG 59,719 38,368

– Minority interests 4,115 2,885

CHF 1,000

Note 2005 2004

Earnings per share 25 6.02 3.95*

Earnings per share (diluted) 25 5.98 3.84*

Earnings per share on the aggregate par value 5.69 3.84*

* adjusted for the 2-for-1 split on 17.5.2005


Consolidated financial statements

Analysis of shareholders’ equity

Analysis of shareholders’ equity

CHF 1,000

Note

Share capital

Treasury

shares

Capital

reserves

Retained

earnings

Minority

interests

Total

shareholders’

equity

At 31.12.2003 5,000 –22,540 0 297,980 20,983 301,423

Change in treasury shares –76,359 –14,028 –90,387

Other changes 876 876

Change of unrealized gains and losses (IAS 39) 15,248 15,248

Realized gains and losses reclassified to the income statements (IAS 39) 105 105

Dividend 2003 –5,994 –5,994

Change in minority interests –824 –824

Profit for the year 2004 25 38,368 2,885 41,253

At 31.12.2004 5,000 –98,899 0 332,555 23,044 261,700

Change in treasury shares 100,250 –75,552 24,698

Other changes –217 –217

Change of unrealized gains and losses (IAS 39) 9,959 9,959

Realized gains and losses reclassified to the income statements (IAS 39) 10,830 10,830

Capital increase 50 27,250 27,300

Capital reduction (AGM 17.5.2005) –4,000 –4,000

Dividend 2004 –49,962 –49,962

Change in minority interest due to disposal of subsidiaries –1,311 –4,871 –6,182

Change in minority interests –133 –159 –292

Profit for the year 2005 25 59,719 4,115 63,834

At 31.12.2005 1,050 1,351 27,250 285,888 22,129 337,668


10

Consolidated financial statements

Cash flow statement

Cash flow statement

CHF 1,000

2005 2004

Cash flow from operating activities

Interest income (excluding financial investments) 21,066 14,658

Fee and commission income 91,670 68,754

Interest expense –10,151 –5,153

Fee and commission expense –7,397 –7,172

Personnel and general expense –44,946 –40,294

Other income 3,639 3,513

Subtotal 53,881 34,306

Net change in assets and liabilities relating to operating activities

Receivables and assets –278,641 50,963

Trading positions 82,599 19,429

Liabilities 431,227 –53,586

Other 71,572 16,225

Cash flow from operating activities before tax 360,638 67,337

Tax expense –11,217 –10,156

Cash flow from operating activities after tax 349,421 57,181

Cash flow from investing activities

Purchase of financial assets –106,249 –36,573

Purchase of fixed assets –1,436 –293

Proceeds from the disposal of financial assets 81,438 59,227

Disposal of fixed assets 1 779

Interest income from financial investments and associated companies 1,144 1,415

Dividends received from financial investments and associated companies 2,481 877

Investments of subsidiaries –276,109 0

Addition of cash and cash equivalents following acquisition of subsidiaries/shareholdings 43,221 0

Disposal of subsidiaries 1,328 26

Reduction of cash and cash equivalents following disposal of subsidiaries/shareholdings –1 0

Net cash flow from investing activities –254,182 25,458

Cash flow from financing activities

Dividends paid –49,962 –5,994

Net movements in treasury shares 46,505 –76,941

Capital reduction (par value reduction) –4,000 0

Capital increase 27,300 0

Debt issue 150,000 0

Other movements 0 –15,507

Cash flow from financing activities 169,843 –98,442

Balance 265,082 –15,803

Cash and cash equivalents, beginning of year 54,327 70,130

Cash flow from operating activities after tax 349,421 57,181

Net cash flow from investing activities –254,182 25,458

Cash flow from financing activities 169,843 –98,442

Cash and cash equivalents, end of year 319,409 54,327


11

Consolidated financial statements

Cash flow statement

Cash and cash equivalents comprise cash (cash on hand, postal check account deposits and deposits at central

banks) as well as debt securities eligible for refinancing at central banks. The composition of cash and cash

equivalents was as follows:

CHF 1,000

2005 2004

Liquid assets 317,267 39,222

Securities eligible for refinancing at central banks 24,860 16,503

Pledged securities eligible for refinancing at central banks from which credit has been drawn –22,718 –1,398

Total 319,409 54,327


12

Consolidated financial statements

Notes

Notes to the 2005 consolidated financial statements

Consolidation and valuation principles

Accounting policies

Swissfirst AG, Zug, is the listed holding company of Swissfirst Group,

a financial services corporation. The consolidated financial statements

of the Swissfirst Group were prepared in compliance with International

Financial Reporting Standards (IFRS) on the basis of the historical cost

convention. The exceptions are trading positions, derivative financial

instruments and securities available for sale, which are carried at their

fair value. Consolidation is based on the individual audited accounts

of the group companies prepared in compliance with uniform principles.

In preparing the accounts, management is required to make estimates

and assumptions that influence the reported assets, liabilities, contingent

liabilities and contingent assets at the balance sheet date, as well

as the expenses and income falling in the reporting period. The actual

results may differ from these estimates.

The consolidated financial statements are prepared in Swiss francs. For

consolidation purposes, the following principles apply when translating

the financial statements prepared in foreign currency by foreign subsidiaries

into Swiss francs: the balance sheet is converted at exchange

rates on the respective balance sheet date, and the profit & loss account

at average annual exchange rates. Any exchange rate gains resulting from

consolidation are reported as translation differences under the earnings

reserves.

Consolidation period

The consolidation period for all interests and associated companies is

the calendar year, apart from Bank am Bellevue and Bellevue Asset

Management AG, which were only consolidated for the fourth quarter

of 2005.

Accounting and valuation principles

Principles of consolidation

Scope of consolidation and consolidation method

The consolidated financial statements comprise the financial statements

of the holding company Swissfirst AG and the financial statements of

the Group subsidiaries, which are presented as a single economic entity.

All Group companies in which the Group directly or indirectly owns a

majority of the voting rights or over which it in some other way exercises

control are fully consolidated. Acquired subsidiaries are consolidated

from the date on which effective control is transferred to the Group.

The principal Group companies are listed in Note 27 and on page 38 along

with details of the scope of consolidation.

Equity and net profit attributable to minority interests are reported under

shareholders’ equity in the consolidated balance sheet and as minority

interests in net profit in the consolidated profit and loss account.

The consolidated financial statements are prepared according to uniform

accounting principles. Intra-Group transactions are eliminated in the

consolidated financial statements.

Unconsolidated interests

Associated companies in which the Group owns between 20 % and 50 %

of voting rights and/or over which it exercises a significant influence

(“associated companies”) are accounted for using the equity method.

Foreign currency translation

The individual Group companies present their annual accounts in local

currencies. Transactions in foreign currency are translated into Swiss

francs at the respective daily exchange rates. The financial assets and

liabilities denominated in foreign currencies are translated into Swiss

francs at the respective exchange rates on the balance sheet date.

Exchange-rate gains and losses are recognized in the profit and loss

account under “Foreign currency trading”. Non-monetary items in

foreign currencies carried at acquisition or production cost are translated

at historical exchange rates.

Recognition of business transactions

All completed transactions are recorded and valued. In compliance with

IAS 39, all financial instruments are assigned to one of four categories:

– Receivables and loans

– Financial instruments, which must be held to maturity

– Financial assets and liabilities recognized in the profit and loss

account and carried at fair value

– Financial investments available for sale

In the consolidated financial statements, all transactions are recorded

on the closing date (closing date basis).

Income from services is recorded at the time the services were rendered,

i.e. upon completion of a transaction or throughout the time the corresponding

services were rendered.

Due from banks and clients

Amounts due from banks are stated at nominal value at the time of initial

recognition. Amounts due from clients are initially stated at cost, which,

in the case of originated loans or advances, normally corresponds to the

principal amount.

Impaired claims, i.e. claims for which it is unlikely that the counterparty

will be able to fulfill its future obligations (doubtful receivables), are

valued on an individual basis and specific valuation adjustments are

made for the impaired amounts. The valuation adjustment is calculated

based on the difference between the carrying value of the claim and the

prospective amount recoverable, taking into consideration the net proceeds

from the liquidation of any collateral. Specific valuation adjustments

are offset against the respective receivables in the balance sheet.

Loans that do not generate income are generally classed as non-performing

loans. Loans are deemed impaired when the contractual payments

of principal and/or interest are in arrears for more than 90 days.

Interest in arrears for more than 90 days is discontinued and instead

allocated directly to valuation adjustments and provisions. Loans are


13

Consolidated financial statements

Notes

deemed non-performing when the collection of interest due is so doubtful

that an accrual of such interest is no longer meaningful.

Increases in or reversals of valuation adjustments are recognized in the

profit and loss account. As a rule, related positions are removed from

the accounts when a legal authority confirms the conclusion of the liquidation

process.

Securities lending and borrowing agreements

Own securities that have been lent continue to be reported as a trading

position or financial investment as long as control over the securities

has not been transferred. Borrowed securities are not carried in the balance

sheet as long as control over the securities is retained by the lender.

Gains or losses from securities lending operations are reported in net

fee and commission income.

Trading positions

All trading positions are stated at fair value. Realized and unrealized

gains and losses are stated in the results from trading activities.

treasury shares are carried under shareholders’ equity under earnings

reserves.

Fixed assets

Tangible fixed assets comprise property, furniture, fixtures and fittings, IT

and telecommunications equipment, and art objects. Valuation is based

on acquisition cost less necessary depreciation. Fixed assets are depreciated

on a straight-line basis over their estimated useful life as follows:

Real estate (value of buildings)

20 years

Furnishings, fixtures and fittings

5 years

IT (hardware), telecommunications equipment

3 years

Art objects

3 years

On every balance sheet date, fixed assets are tested for impairment if

events or changes in circumstances indicate that the carrying value

no longer corresponds to the economic benefits. If the carrying value

exceeds the recoverable value, an impairment loss will be recognized.

Financial investments

This item comprises securities purchased with a long-term investment

objective.

Held-to-maturity financial investments

Fixed interest securities classified as held-to-maturity are measured

at amortized cost using the effective interest rate method. They are

considered impaired when it is deemed likely that the full amount due

in accordance with contractually agreed terms cannot be collected.

In the event of impairment, a corresponding reduction in carrying value

to the recoverable amount will be expensed.

Available-for-sale financial investments

All financial investments classified as “available for sale” are stated

at fair value. Unrealized gains and losses are reported in equity until

the financial investment is sold or its value is deemed to be impaired.

A significant deterioration in creditworthiness, a breach of contract, a

heightened probability of bankruptcy or other indications of difficulties

experienced by the corresponding issuer of the securities held are

grounds for impairment.

Upon disposal or in the event of impairment of these financial assets,

the cumulative gains or losses carried in equity up to this time will be

taken to the profit and loss account.

Interest and dividend income from financial investments is credited to

interest income. Gains and losses on the sale of financial investments

are recognized in the results from the disposal of financial assets.

Treasury shares

The Swissfirst AG shares held by the Group are carried in shareholders’

equity as treasury shares at their weighted average acquisition cost.

Gains and losses on the sale of treasury shares are credited or debited

to earnings reserves. Derivatives physically settled by delivery of

Intangible assets

This position covers the categories client base, brand and other intangible

assets (purchased IT software, software licenses). Goodwill is reported

as a separate balance sheet item. The client base includes intangible

assets in the form of long-term customer relationships originating from

acquisitions. The client base is amortized on a straight-line basis over

an estimated useful life of ten to fifteen years, while the brand is amortized

with the same method over five years. Software and software

licenses are amortized on a straight-line basis over three years. All intangible

assets are tested for impairment annually to ensure their carrying

value corresponds to their economic benefits. Where necessary a valuation

adjustment is performed on the profit and loss account in addition

to the depreciation.

Goodwill

Goodwill is the amount paid by the Group in excess of fair value for the

interest acquired in the net assets of a subsidiary or associated company.

Goodwill is not written off, but allocated to the corresponding cashgenerating

units, which are tested for impairment annually. If the carrying

value exceeds the recoverable value, an adjustment is performed in the

profit and loss account.

Debt securities issued

Debt securities issued are carried at amortized cost applying the effective

interest rate method.

Provisions

Provisions are made if the Group has, as a result of a past event, a current

liability at the balance sheet date that will probably lead to an outflow

of resources and whose amount can be reliably estimated. The formation

and liquidation of reserves is performed in the profit and loss account

through valuation adjustments, provisions and losses.


14

Consolidated financial statements

Notes

Derivative financial instruments

Derivative financial instruments are initially recognized at acquisition

cost in the balance sheet and then subsequently stated at fair value.

Fair value is calculated based on quoted market prices, discounted cash

flow models and valuation models for options. If the computed fair value

is positive, the derivative instrument will be carried on the asset side of

the balance sheet and if negative on the liability side.

Hedge accounting

The Group may apply hedge accounting if the criteria specified in IAS 39

qualifying hedge accounting treatment are met. Each hedge transaction

is reviewed upon completion to determine whether it is to hedge the

value of a balance sheet item (fair value hedge) or the future cash flow

of a balance sheet item or a future transaction (cash flow hedge).

The changes in the market value of derivatives that qualify as fair value

hedges are stated in the profit and loss account in the same position

as the corresponding change in market value of the hedged risk in the

balance sheet position. If the hedging instrument no longer meets these

criteria, the adjustment in the carrying value of an interest-bearing

position is recognized in the profit and loss account on a straight-line

basis over the remaining duration of the instrument.

Changes in the market value of derivatives that are booked as cash flow

hedges are stated in shareholders’ equity. If a future financial transaction

or an obligation results in a balance sheet item, the gains or losses

previously stated in shareholders’ equity will be derecognized and set

off against the acquisition cost of this balance sheet item.

If the hedged cash flow or the obligation leads to direct recognition in

the profit and loss account, the cumulative gains and losses of the

hedging instrument stated in equity in previous reporting periods will be

stated in the profit and loss account in the same period as the hedged

transaction.

The Group made use of fair value hedges for individual positions (micro

hedges) during the past fiscal year. During the previous year no hedge

transactions as per IAS 39 were conducted.

Pension plans

In addition to the legally prescribed social benefits, the Group maintains

two employee pension plans based on the principle of defined contribution.

The pension plans are legally independent foundations for which

the Group is not liable. The benefits prescribed by Swiss or Liechtenstein

law are determined in accordance with national guidelines; these deviate

from IAS 19 in that they include the contributions made up to the balance

sheet date and the resulting earned interest but not the expected

future increases in wages, salaries and pension benefits. Under IAS 19,

these pension plans are disclosed as defined benefit plans.

The Group insures its staff at collective foundations and insurance companies,

which provide benefits upon retirement or in the event of death

or disability or after the conclusion of employment with the Company.

The contributions to be paid by the employees and the respective Group

company are based on the employee’s anticipated retirement date. The

pension benefits are based on the contributions paid by the insured and

the Group (defined contribution plan). The pension assets are independently

managed by the collective foundations and the insurance companies.

The Group has not assumed any obligations to make additional

funds available in the event that the foundations or insurance companies

are unable to provide the specified range of benefits.

For accounting purposes in accordance with IAS 19, pension expenses

and obligations are valued according to the projected unit credit method.

The corresponding calculations are made by actuaries on a periodic

basis. The pension expense entered in the profit and loss account corresponds

to the actuarially determined expense less employee contributions.

Actuarial gains and losses that exceed both 10% of the present value of

the plan obligations and 10% of the fair value of plan assets are systematically

amortized over the remaining working lives of employees participating

in the plan.

Taxes and deferred taxes

Income taxes are based on the tax legislation of each sovereign authority

vested with power of taxation and are recognized as an expense in the

profit and loss account for the period in which the corresponding income

is reported. Assets and liabilities related to current income taxes are

reported separately in the balance sheet in the respective items “current

tax assets” and “current tax liabilities”. Tax effects arising from temporary

differences between the stated value of assets and liabilities in the

Group balance sheet and their corresponding tax value are respectively

reported as “deferred tax assets” and “deferred tax liabilities”. They are

calculated at the tax rates expected to apply in the accounting period

in which the asset will be realized or the liability will be settled. Changes

in the deferred tax liabilities are reported as tax expense in the profit

and loss account.

Changes to accounting principles

The changes decided by the International Accounting Standards Board

(IASB) which became compulsory on January 1, 2005 have been adopted

by the Swissfirst Group. The most important consequences are described

below:

IAS 1 (amended 2003) – Presentation of financial statements

In addition to various other changes, this amended standard requires

companies to disclose minority interests in group companies as part of

the consolidated shareholders’ equity and also to disclose minority

interests in the profit or loss of group companies as part of the group

profit/loss.

IFRS 3 – Business combinations

In addition to various other changes, the rules introduced by this new

standard no longer permit goodwill to be amortized in a straight-line

method. Goodwill is now subject to annual impairment testing. The

standard is applied prospectively. Since the Group has not carried any

goodwill in the accounts since December 31, 2003, the new standard

only affects the merger between the Swissfirst Group and the Bellevue

Group completed in 2005.


15

Consolidated financial statements

Notes

Applied in conjunction with IAS 38 (Intangible Assets), the new standard

will, in the case of acquisitions, result in more “Other intangible assets”

than in the past, and there will be less goodwill. These acquired intangible

assets will be written off over their estimated useful life.

The other new standards listed below have no significant impact on the

Group’s shareholders’ equity, profit/loss and cash flow.

– IFRS 2 – Share-based payments

– IAS 8 (amended 2003) – Accounting policies, changes in accounting

estimates, and errors

– IAS 10 (amended 2003) – Events after the balance sheet date

– IAS 21 (amended 2003) – The effects of changes in foreign exchange

rates

– IAS 24 (amended 2003) – Related party disclosures

– IAS 28 (amended 2003) – Investments in associates

– IAS 32 (amended 2003) – Financial instruments: disclosure and

presentation

– IAS 33 (amended 2003) – Earnings per share

– IAS 36 (amended 2003) – Impairment of assets

– IAS 39 (amended 2003) – Financial instruments: recognition and

measurement

Standards approved but not yet implemented

Numerous new standards, amendments and interpretations of existing

standards have been published which must be applied to financial years

starting on or after January 1, 2006. The Swissfirst Group does not apply

these standards prematurely. Initial estimates indicate that the following

standards, amendments and interpretations will be relevant to the Group:

IAS 19 (amended) – Employee benefits

Accounting of actuarial profits and losses; extended disclosure requirements;

effective January 1, 2006.

IFRS 7 – Financial instruments: disclosures

New rules relating to the disclosure of significant information on the

size, timing and probability of future cash flows resulting from financial

instruments. Effective date: January 1, 2007.

Approval by the Board of Directors

The Board of Directors of Swissfirst AG approved these consolidated

financial statements on March 23, 2006.


16

Consolidated financial statements

Notes

Risk management

1. General information

Risk management is based on the risk policy formulated by the banks of

the Swissfirst Group, which is reviewed periodically.

Independent risk control bodies are charged with monitoring risks at all

three banking institutes and at Group level.

The Group Executive Board is informed on a regular basis about the

assets, financial position, liquidity and earnings of the Group and all related

risks by means of financial and risk reporting procedures commensurate

with each particular level of management. The non-banking

companies are included within this reporting system. Risk reports are

prepared for the individual companies as well as at Group level.

2. Credit risks

Credit risk is the risk of loss resulting from all forms of credit exposure

in the event of counterparty default.

Credit risks in dealings with individual clients are primarily assumed on

a collateralized basis. Credit risks are limited by means of an approval

procedure commensurate with the various management levels as well

as by authorization limits, the application of appropriate lending margins

and the periodic re-evaluation of long-term loans. Exception reports

are available to facilitate the monitoring of compliance with authorized

limits and lending margins.

In dealings with professional clients (banks/brokers/institutionals), credit

risks are assumed only with counterparties with high credit standings.

The monitoring of guidelines with respect to concentration of risk at

Group level is performed by an independent risk control body. New

counterparties in the securities and foreign exchange trading departments

must be evaluated and approved by the Executive Board.

3. Market risks

Market risks arise from the constantly changing prices in equity, bond

and money markets. Market risks are relevant in various respects,

above all in trading portfolios, financial investments and with regard to

the balance sheet structure.

by independent risk control departments. Average holdings (12 end-month

values) came to CHF 17.4 million in the review period, after including

the corresponding derivatives.

Foreign currency positions result mainly from transactions with customers.

Significant currency positions are to do with business policy and

are thus the exclusive domain of the Executive Board or Board of Directors

of the company in question. There is no trading in commodities or

goods. The table on page 17 shows the balance sheet broken down into

the major currencies and the gross foreign currency position.

3.2. Financial investments

The composition of the financial investments is defined and monitored

by the respective Executive Boards or the Group Executive Board.

3.3. Balance sheet structure

In balance sheet management, differences between the interest rate

profiles and underlying currencies of positions on the asset and liability

side of the balance sheet and of off-balance-sheet positions give rise

to interest rate and currency risks. The interest and currency risks of the

Group are low due to the following reasons:

– Swissfirst Group is hardly active in the traditional lending and deposit

business.

– Only in exceptional cases will long-term loans at fixed rates be granted.

– There is no active trading in foreign currency for own account.

– Foreign-currency loans with a fixed term are usually refinanced with

matching maturities.

The interest rate risks are measured and monitored at the Group’s

banking institutes using different methods (sensitivity of equity capital,

tables with interest rate profiles, etc.). Assuming a parallel change in

interest rates of 1%, the measured change in market value of the equity

capital at the Group’s banking institutes on the respective measurement

dates in 2005 was consistently below 2.0 % of the eligible equity of

the respective bank. Interest rate and currency risks are measured and

monitored by the independent risk control bodies. No derivative financial

instruments are used to control interest rate risks.

3.1.Trading portfolios

Securities trading for own account is largely limited to equities and related

derivatives and certificates. All positions in trading portfolios are

carried at fair value. Wherever possible, closing prices paid on financial

markets are automatically retrieved and used for valuation purposes.

OTC derivatives for which there are no prices directly observable on the

exchanges are valued using appropriate valuation models. The adequacy

of the valuation of these positions is assured through independent controls.

The positions are monitored directly by the Executive Board and/or


17

Consolidated financial statements

Notes

Balance sheet by currency

31.12.2005 CHF EUR USD Other Total

CHF 1,000

Assets

Cash 316,230 920 105 12 317,267

Due from banks 265,586 83,134 104,529 32,438 485,687

Due from customers 288,503 24,748 29,812 28,877 371,940

Securities and precious metals trading portfolios 77,006 2,174 1,107 80,287

Derivative financial instruments 43,371 43,371

Financial investments 196,223 196,223

Participating interests 1,383 1,383

Fixed assets 22,292 22,292

Intangible fixed assets 79,558 79,558

Goodwill 160,289 160,289

Prepaid expenses and accrued income 2,203 96 566 76 2,941

Current tax assets 18,450 18,450

Other assets 4,785 281 5,066

Total assets on the balance sheet 1,475,879 109,179 137,186 62,510 1,784,754

Claims from spot and forward forex transactions and currency options 30,647 76,596 53,188

Total assets 139,826 213,782 115,698

Liabilities and shareholders’ equity

Due to banks 12,862 9,991 46,173 23,804 92,830

Due to customers 664,144 103,554 107,567 35,514 910,779

Derivative financial instruments and other trading liabilities 189,242 189,242

Debt issue 150,000 150,000

Deferred income 28,108 75 789 104 29,076

Other liabilities 40,900 58 2,123 538 43,619

Current tax liabilities 5,539 5,539

Deferred tax liabilities 18,939 18,939

Provisions 7,062 7,062

Shareholders’ equity including minority interests 337,668 337,668

Total liabilities & equity on balance sheet 1,454,464 113,678 156,652 59,960 1,784,754

Liabilities from spot and forward forex transactions and from currency options 19,509 57,180 54,983

Total liabilities and shareholders’ equity 133,187 213,832 114,943

Net position per currency 6,639 –50 755 7,344

Gross currency position 7,444


18

Consolidated financial statements

Notes

Liquidity risks

Liquidity risk refers to the possibility that Swissfirst Group or its corporate

entities will not have sufficient liquidity to meet their liabilities.

Daily liquidity management at individual Group companies is performed

by the responsible departments. Independent risk control bodies ensure

compliance with the liquidity requirements stipulated by banking law.

The Group companies constantly endeavor to maintain a significantly

higher amount of liquidity than is legally stipulated.

The management of liquidity at Group level is performed by the Group

Executive Board in consultation with those responsible for liquidity management

in the individual Group companies.

The table on page 19 shows the maturities of the assets and liabilities

and the net position in the time frames specified.

Operational risks

Operational risks can arise, for example, from the inadequacy or failure

of internal processes, procedures and systems, from inadequate business

management or as a result of external events.

Operational risks are limited by means of internal regulations and directives

pertaining to organizational structures and controls. Internal procedures,

processes and systems are continually analyzed and improved.

The IT systems of the Group companies are continually upgraded.

Legal risks and compliance

The terms “legal risks” and “compliance” refer to those risks arising

from legal and regulatory aspects inherent to the business environment,

in particular liability and default risks as well as regulatory risks.

Risks associated with transactions are minimized by requiring standardized

master agreements and individual transaction confirmations. The

monitoring of risks in connection with the acceptance of client assets

and due diligence obligations at the individual Group companies has

been delegated to the corresponding compliance offices and specially

trained employees. When appropriate, external attorneys will be consulted

to limit legal risks.


19

Consolidated financial statements

Notes

Liquidity risk

31.12.2005 On sight Callable

CHF 1,000

Within

3 months

Maturities

Within

3 to 12

months

Within

1 to 5 years

After

5 years Total

Assets

Cash 317,267 317,267

Due from banks 290,275 108,769 72,140 14,503 485,687

Due from customers 1,159 139,385 68,296 69,061 93,339 700 371,940

Securities and precious metals trading portfolios 80,287 80,287

Derivative financial instruments 43,371 43,371

Financial investments 126,382 15,070 26,474 28,257 40 196,223

Participating interests 1,383 1,383

Fixed assets 22,292 22,292

Intangible fixed assets 79,558 79,558

Goodwill 160,289 160,289

Prepaid expenses and accrued income 2,941 2,941

Current tax assets 18,450 18,450

Other assets 5,066 5,066

Total assets 885,198 248,154 155,506 110,038 121,596 264,262 1,784,754

Liabilities

Due to banks 51,598 573 21,095 15,589 3,275 700 92,830

Due to customers 659,001 125,880 50,585 313 75,000 910,779

Derivative financial instruments and other trading liabilities 109,393 79,849 189,242

Debt issued 150,000 150,000

Deferred income 18,924 5,225 4,927 29,076

Other liabilities 43,619 43,619

Current tax liabilities 5,539 5,539

Deferred tax liabilities 4,366 287 860 4,587 8,839 18,939

Provisions 210 343 722 585 5,202 7,062

Total liabilities 892,650 126,453 77,535 97,333 238,374 14,741 1,447,086

Net position at 31.12.2005 –7,452 121,701 77,971 12,705 –116,778 249,521 337,668

31.12.2004

CHF 1,000

Total assets 252,676 229,023 181,537 101,383 129,787 22,009 916,415

Total liabilities 263,992 113,248 131,082 28,976 113,930 3,487 654,715

Net position –11,316 115,775 50,455 72,407 15,857 18,522 261,700


20

Consolidated financial statements

Notes

Information on the balance sheet

1. Due from customers 31.12.2005 31.12.2004

CHF 1,000

Due from customers 367,646 389,401

Mortgages 12,837 8,057

Total gross 380,483 397,458

Provisions for doubtful debt –8,543 –4,122

Total net 371,940 393,336

Claims due from customers, grouped according to type of collateral, are as follows:

Mortgage collateral 17,467 12,502

Lombard and other collateral 342,626 372,302

Without collateral 11,847 8,532

371,940 393,336

2. Securities trading portfolio 31.12.2005 31.12.2004

CHF 1,000

Debt securities 1,250 6,010

of which: – listed 1,250 6,010

– unlisted 0 0

Equities 79,037 31,019

Total securities trading portfolio 80,287 37,029

of which: securities eligible as collateral for central bank borrowings 0 0

The equity holdings mainly comprise stocks of Swiss companies quoted on the Swiss Stock Exchange SWX.

3. Financial investments

CHF 1,000

31.12.2005 31.12.2004

Book value Market value Book value Market vaue

Financial investments – available for sale

Equities – at market value

– listed 117,244 117,244 65,810 65,810

– unlisted 9,130 9,130 28,258 28,258

Debt securities – at market value 31,995 31,995 19,079 19,079

Total financial investments – available for sale 158,369 158,369 113,147 113,147

Financial investments – held to maturity

Debt securities 37,854 38,271 20,623 21,615

Total financial investments – held to maturity 37,854 38,271 20,623 21,615

Total financial investments 196,223 196,640 133,770 134,762

of which: securities eligible as collateral for central bank borrowings 24,860 25,189 16,503 17,336


21

Consolidated financial statements

Notes

4. Associated participations 31.12.2005 31.12.2004

CHF 1,000

Participations valued under the equity method

Balance sheet value at 31.12.2004/31.12.2003 1,383 1,149

Share of profit 0 234

Balance sheet value at 31.12.2005/31.12.2004 1,383 1,383

As in the previous year, the balance sheet value refers to the interest (20 %) in 2trade Group Ltd., Zug.

5. Fixed assets

Furniture

and fittings

Reporting year

IT and telecommunication

Real estate

Total

fixed assets

Previous year

Total

CHF 1,000

At 1.1.2005/1.1.2004

Cost 1,655 9,803 26,370 37,828 38,535

Accumulated depreciation –1,253 –9,567 –4,289 –15,109 –14,035

Net book value at 1.1.2005/1.1.2004 402 236 22,081 22,719 24,500

Financial year 2005/2004

Net book value at 1.1.2005/1.1.2004 402 236 22,081 22,719 24,500

Net book value added as a result of first-time consolidation 254 0 0 254 0

Investments (net) 413 311 0 724 –457

Depreciation –323 –129 –953 –1,405 –1,324

Net book value at 31.12.2005/31.12.2004 746 418 21,128 22,292 22,719

At 31.12.2005/31.12.2004

Cost 9,013 10,114 26,370 45,497 37,828

Accumulated depreciation –8,267 –9,696 –5,242 –23,205 –15,109

Balance sheet value at 31.12.2005/31.12.2004 746 418 21,128 22,292 22,719


22

Consolidated financial statements

Notes

6. Intangible fixed assets

CHF 1,000

Customer

base

Reporting year

Other

intangible

Brand fixed assets

Total

intangible

fixed assets

Previous year

Total

intangible

fixed assets

At 1.1.2005/1.1.2004

Cost 0 0 2,245 2,245 2,405

Accumulated depreciations 0 0 –1,710 –1,710 –1,449

Net book value at 1.1.2005/1.1.2004 0 0 535 535 956

Financial year 2005/2004

Net book value at 1.1.2005/1.1.2004 0 0 535 535 956

Net book value added as a result of first-time consolidation (net) 0 0 656 656 0

Investments (net) 78,617 1,179 713 80,509 –29

Depreciations –1,517 –59 –566 –2,142 –392

Net book value at 31.12.2005/31.12.2004 77,100 1,120 1,338 79,558 535

At 31.12.2005/31.12.2004

Cost 78,617 1,179 4,354 84,150 2,245

Accumulated depreciations –1,517 –59 –3,016 –4,592 –1,710

Balance sheet value at 31.12.2005/31.12.2004 77,100 1,120 1,338 79,558 535

7. Goodwill Note 31.12.2005 31.12.2004

CHF 1,000

Opening balance 0 0

Additions 28 160,289 0

of which – Investment Banking (Bank am Bellevue AG) 97,375 0

– Asset Management (Swissfirst Asset Management AG, formerly Bellevue Asset Management AG) 62,914 0

Amortization 0 0

Total goodwill 160,289 0

Costs relating to the acquisition of the Bellevue Group 276,110

– less fair value of net assets excl. intangibles –51,106

– less fair value of customer base/brand (after deferred taxes) –64,715

Book value of the goodwill at the time of acquisition 160,289

Annual impairment testing is performed on the existing goodwill positions for each cash generating unit (CGU),

with the useful value determined for each CGU based on future discounted cash flows.

The budgets serve as a basis here. Subsequent years are taken into account with a perpetual yield. Projections

are based partly on empirical values and partly on the management’s view of how the markets in question are

likely to develop. It is assumed that no major organizational change will occur in any of the business groups.

A perpetual growth rate (inflation) of 1.0 % is assumed. The capital asset pricing model produces an average

capital cost of 9.7 %.


23

Consolidated financial statements

Notes

Because cash flow projections are based on monetary flows after tax, the discount rate has also been determined

taking into account the effects of taxation, whereby close approximation has been achieved to values

excluding tax effects.

The tests performed on the balance sheet date confirmed the carrying value of all the goodwill positions. In

the management’s opinion, no potential changes to the assumptions made could produce a situation where the

book values of the goodwill positions would exceed the recoverable amounts, notwithstanding exceptional

events.

8. Pledged assets

CHF 1,000

31.12.2005 31.12.2004

Amount/book Of which Amount/book

value of claim

used value of claim

Of which

used

Due from banks 46,566 26,424 13,899 3,555

Securities – financial assets 53,674 37,784 32,380 2,007

Total pledged assets 100,240 64,208 46,279 5,562

9. Other assets 31.12.2005 31.12.2004

CHF 1,000

Withholding tax 3,960 29,063

Sundry assets 1,106 169

Total other assets 5,066 29,232

10. Other liabilities 31.12.2005 31.12.2004

CHF 1,000

Withholding tax 816 2,842

Dividend 38,700 0

Sundry liabilities 4,103 2,296

Total other liabilities 43,619 5,138

The increase over the previous year is attributable to the contractually agreed dividend payment to the former

shareholders of Bellevue Holding AG, Küsnacht.


24

Consolidated financial statements

Notes

11. Debt issued

Interest rate

in % Currency Maturity

Amount

outstanding

in CHF 1,000

Total

31.12.2005

in CHF 1,000

Total

31.12.2004

in CHF 1,000

Swissfirst Bank AG

Year of issue: 2005 2.125 CHF 2008 150,000 150,000 0

12. Deferred tax liabilities 31.12.2005 31.12.2004

CHF 1,000

Valuation adjustments and provisions* 4,144 3,565

Intangible assets 14,795 0

Total Deferred tax liabilities 18,939 3,565

* Arising from temporary discrepancies due to valuation differences between IFRS accounting and statutory accounting

standards.

13. Valuation adjustments and provisions Note

CHF 1,000

Total at

31.12.2004

Specific

usage

Recoveries

Addition due

to first-time

consolidation

Reversals

credited

to P&L

New

allocations

charged to

P&L account

Total at

31.12.2005

Valuation adjustments for credit risks 4,122 –719 –397 5,537 8,543

Actuarial BVG provisions 16 5,127 261 –186 5,202

Other provisions 3,582 –1,230 1,600 11 –2,804 701 1,860

Total valuation adjustments and provisions 12,831 –1,949 1,600 272 –3,387 6,238 15,605

Valuation adjustments offset directly against

accounts “due from customers” –4,122 –8,543

Total provisions in the balance sheet 8,709 7,062

Recoveries

The recoveries concerned insurance payments for risks of litigation.

Pending legal proceedings

Specifically, the Swissfirst Group is involved in legal proceedings brought by a shareholder in connection with

the merger with the Bellevue Group. So far no lawsuit has been filed. The Swissfirst Group makes provisions

for ongoing or impending legal proceedings if its legal advisors believe there is more than a fifty percent

chance that Group companies will have to make payments or incur losses, and if it is possible to reliably estimate

the amount in question. All provisions for the risk of legal action are contained in the position Other provisions.


25

Consolidated financial statements

Notes

14. Share capital

Number

of shares

Share capital

CHF 1,000

Shares issued at 31.12.2004 5,000,000 5,000

2-for-1 share split on 17.5.2005 5,000,000 0

Par value reduction of CHF 0.40 per share on 30.9.2005 0 –4,000

Capital increase at 13.10.2005 500,000 50

Shares issued at 31.12. 2005 10,500,000 1,050

Treasury shares at 31.12.2003 172,500 173

corresponding to 3.45% 3.45%

Sale of treasury shares –172,500 –173

Purchase of treasury shares 601,888 602

Treasury shares at 31.12. 2004 601,888 602

Treasury shares at 31.12. 2004 adjusted for the split 1,203,776 301

corresponding to 12.04 % 12.04 %

Sale of treasury shares –4,814,755 –481,476

Purchase of treasury shares 3,589,255 358,926

Treasury shares at 31.12. 2005 –21,724 –2

corresponding to –0.22 % –0.22 %

The par value of each bearer share issued is CHF 0.10. All transactions in treasury shares were completed at

market prices. The share price of treasury shares as at December 31, 2005 was CHF 80.00 per share (December 31,

2004: CHF 104.00, or CHF 52.00 after adjustment for the split).


26

Consolidated financial statements

Notes

15. Related party transactions / Major shareholders

Related party transactions

CHF 1,000

Key

management

personnel*

2005 2004

Key

Associated Other related management Associated

participation parties** personnel* participation

Other related

parties**

Due from customers 19,132 873 4,560 7,605 142 4,512

Interest income 118 36 119 56 54 12

Due to customers 28,609 245 0 344 89 0

Interest expenses 0 0 0 0 0 0

Compensations

Paid to members of the Board of Directors of Swissfirst AG:

– Salaries CHF 1,000 67 68

– Number of shares 820 635

Of which to the member with the highest remuneration

– Salaries CHF 1,000 19 19

– Number of shares 228 182

Paid to members of Group Executive Board:

– Gross remuneration (without shares) CHF 1,000 2,025 1,607

– Number of shares 8,621 8,844

** Board of Directors and Executive Board

** incl. family members

Transactions with related parties also occur in the normal course of business. These transactions are executed

at customary market conditions. Receivables are covered by the customary bank guarantees (custody accounts).

No contractual redundancy payments have been agreed with any member of the Board of Directors. No departing

member has received a redundancy payment.

The following parties had shareholdings of over 5 % in the issued share capital of Swissfirst AG, Zug:

Major shareholders

in %

% of capital

and votes

31.12.2005

% of capital

and votes

31.12.2004

Bellevue Holding AG, Küsnacht* 44.7


27

Consolidated financial statements

Notes

16. Pension institutions

Actuarial calculation of pension obligations with respect to employees

1. Balance sheet 31.12.2005 31.12.2004

CHF 1,000

Fair value of plan assets 37,374 20,762

Defined benefit obligation –39,462 –23,527

Funded status –2,088 –2,765

Unrecognized actuarial gains/losses –3,114 –2,362

Pension liabilities in the balance sheet –5,202 –5,127

2. Income statement 31.12.2005 31.12.2004

CHF 1,000

Service cost –2,060 –1,800

Interest cost –896 –771

Expected net return on plan assets 816 676

Amortization of actuarial gains/losses 0 0

Past service cost 0 0

Net periodic pension cost –2,140 –1,895

Employees’ contributions 860 717

Expense recognized in the income statement –1,280 –1,178

3. Movements in the net asset or liabilities Note 31.12.2005 31.12.2004

CHF 1,000

Pension liabilities in balance sheet at the beginning of the year –5,365 –5,104

Prepaid pension costs:

Expense recognized in the income statement –1,280 –1,178

Employer’s contributions 1,443 1,155

Total prepaid pension costs 163 –23

Pension liabilities in balance sheet at the end of the year 13 –5,202 –5,127

4. Actuarial assumptions 2005 2004

in %

Discount rate (technical interest rate) 3.50 3.50

Expected net return on plan assets 4.00 4.00

Average future salary increases 2.50 2.50

Future pension increases 0.50 0.50


28

Consolidated financial statements

Notes

Comment on the actuarial calculation of pension obligations

The Swissfirst Group maintains two employee pension plans, one for its employees in Switzerland and one for its

employees in Liechtenstein. Both are legally set up as defined contribution plans but, in accordance with IAS 19,

they are disclosed as defined benefit plans. Although IFRS calculations indicate undercoverage, there is no undercoverage

according to Swiss or Liechtenstein law. The last actuarial calculation was performed on December 31,

2004 for the former Swissfirst Group and on December 31, 2005 for the companies acquired from the Bellevue

Group.

31.12.2005 31.12.2004

17. Fair value of financial instruments Book value Fair value Deviation Book value Fair value Deviation

CHF 1,000

Assets

Cash 317,267 317,267 0 39,222 39,222 0

Due from banks 485,687 485,687 0 223,292 223,292 0

Due from customers 371,940 372,862 922 393,336 393,336 0

Securities trading portfolios 80,287 80,287 0 37,029 37,029 0

Derivative financial instruments 43,371 43,371 0 21,647 21,647 0

Financial investments 196,223 196,640 417 133,770 134,762 992

1,494,775 1,496,114 1,339 848,296 849,288 992

Liabilities

Due to banks 92,830 92,830 0 137,129 137,129 0

Due to costumers 910,779 910,585 194 435,253 435,253 0

Derivative financial instruments and other trading liabilities 189,242 189,242 0 41,663 41,663 0

Debt issued 150,000 152,354 –2,354 0 0 0

1,342,851 1,345,011 –2,160 614,045 614,045 0

Difference between Fair value/Book value –821 992

The table shows the fair values of financial instruments, based on the valuation methods and assumptions

explained below:

Short-term financial instruments

Financial instruments with a term to maturity or refinancing profile of one year or less are generally classed

as short-term instruments. Depending on their maturity, these include the balance sheet items accounts

due to/from banks/customers, debt instruments issued and cash. For short-term financial instruments, it is

assumed that the book value corresponds to the fair value.

Long-term financial instruments

These include accounts due to/from banks/customers, debt instruments issued with a term to maturity or refinancing

profile of more than one year. Their fair value is determined using the present value method.

Securities trading portfolios, financial investments and derivative financial instruments

The fair value of these financial instruments is generally the same as their market value. If no market value is

available, the fair value is determined using recognized valuation models.


29 Consolidated financial statements Notes

18. Derivative financial instruments and other trading liabilities

CHF 1,000

Fair value

assets

Fair value

liabilities

Contract

volume

Derivative financial instruments

Interest instruments

– Swaps 0 310 20,000

Total interest instruments 31.12.2005 0 310 20,000

Total interest instruments 31.12.2004 0 430 20,000

Foreign exchange

– Forward contracts 2,289 2,173 246,257

– Options (OTC) 213 213 30,086

Total foreign exchange 31.12.2005 2,502 2,386 276,343

Total foreign exchange 31.12.2004 2,901 3,523 349,882

Equities

– Forward contracts 4,871 4,827 393,960

– Futures 0 121 6,853

– Options (exchange traded) 2,831 2,549 457,454

– Options (OTC) 33,167 146,656 850,543

Total equities 31.12.2005 40,869 154,153 1,708,810

Total equities 31.12.2004 18,746 20,814 840,418

Hedging instruments

Total hedging instruments 31.12.2005 0 0 0

Total hedging instruments 31.12.2004 0 0 40,193

Total derivative financial instruments 31.12.2005 43,371 156,849 2,005,153

Total derivative financial instruments 31.12.2004 21,647 24,767 1,250,493

Other trading liabilities 31.12.2005 32,393

Other trading liabilities 31.12.2004 16,896

Total derivative financial instruments and other trading liabilities 31.12.2005 43,371 189,242

Total derivative financial instruments and other trading liabilities 31.12.2004 21,647 41,663

Foreign exchange

The reported foreign exchange derivatives mainly concern client transactions.

Equities

The forward contracts relate exclusively to end-to-end client transactions. End-to-end customer transactions,

covered written OTC call options and own holdings of warrants are reported under OTC options.

Other trading liabilities

Only certificates issued on own account are reported under Other trading liabilities. In last year’s accounts the

certificates were reported under Derivative financial instruments, as part of the Equities position.


30

Consolidated financial statements

Notes

19. Irrevocable commitments, contingent liabilities and fiduciary

transactions

CHF 1,000

Due within

3 months

Due within

3 to 12 months

Due within

1 to 5 years

Due after

5 years

Total

31.12.2005

Total

31.12.2004

Irrevocable commitments

Rental and leasing commitments 505 1,421 7,182 4,800 13,908 599

Contingent liabilities

Credit guarantees 1,129 1,053

Performance guarantees 5,998 4,918

7,127 5,971

Fiduciary transactions

Fiduciary deposits 713,055 615,925

Fiduciary loans 47,408 44,752

760,463 660,676

Fiduciary transactions include investments and loans which the banks of the Swissfirst Group make or grant in

their own name, but solely for the account and risk of the client, on the basis of a written mandate.

In order to reduce the risk of loss in the fiduciary business, business is conducted only with counterparties

with at least a Single A rating from qualified rating agencies. Exposures are limited on a per counterparty basis

through a means of limits authorized by the Board of Directors.


31

Consolidated financial statements

Notes

Information on the profit and loss account

20. Commission income from securities and investment business 2005 2004

CHF 1,000

Commission income from brokerage services and investment banking activities 57,779 49,970

Performance fees from asset management 5,504 1,263

Management fees from asset management 19,404 14,003

Miscellaneous commission income 2,735 1,606

Total commission income from securities and investment business 85,422 66,842

Performance fees are only booked when they effectively become due. The miscellaneous commissions mainly

relate to income from the fiduciary and coupon collection business.

21. Personnel expenses 2005 2004

CHF 1,000

Salary and bonus payments 20,480 20,455

Contributions to pension institutions 1,443 1,178

Other social security contributions 1,803 1,654

Other personnel expenses 309 599

Total personnel expenses 24,035 23,886

At December 31, 2005 the Group had 164.8 employees on a full-time-equivalent basis (prior year: 112.8 employees).

22. Operating expenses 2005 2004

CHF 1,000

Premises 1,348 1,043

Telecommunications and IT 4,831 4,342

General administrative and business expenses 11,452 6,732

Total operating expenses 17,631 12,117

23. Depreciation Note 2005 2004

CHF 1,000

Fixed assets 5 1,405 1,324

Intangible fixed assets 6 2,142 392

Total depreciation 3,547 1,716


32

Consolidated financial statements

Notes

24. Taxes 2005 2004

CHF 1,000

Current taxes 6,922 3,144

Deferred taxes –881 1,054

Total taxes 6,041 4,198

Tax rate on pretax group profit 20.00 % 20.00 %

Tax difference arising from different local tax rates 3.02 % –5.23 %

Total taxes (effective tax rate) 23.02 % 14.77 %

The change in the effective tax rate is attributable to adjustments from previous years and to relative shifts

within the business segments, which are subject to different tax rates.

25. Earnings per share 2005 2004

Group net profit attributable to shareholders of Swissfirst AG (in CHF 1,000) 59,719 38,368

Weighted average number of outstanding shares 9,927,568 9,716,602

Earnings per share (in CHF) 6.02 3.95

2005 2004

Group net profit attributable to shareholders of Swissfirst AG (in CHF 1,000) 59,719 38,368

Weighted average number of outstanding shares 9,927,568 9,716,602

+ Adjustment for outstanding share options 61,444 262,540

Adjusted weighted average number of outstanding shares 9,989,012 9,979,142

Fully diluted earnings per share (in CHF) 5.98 3.84

To arrive at the diluted earnings per share, the average number of outstanding shares is adjusted for all

potential diluting effects.


33

Consolidated financial statements

Notes

26. Business segments Private Banking

CHF 1,000

Asset

Management

Investment

Banking

Corporate

Items

Total

1.1.–31.12.2005

Net operating income 30,963 21,105 62,514 3,521 118,103

Operating expenses –17,560 –6,580 –17,362 –164 –41,666

Gross operating profit 13,403 14,525 45,152 3,357 76,437

Depreciation, valuation adjustments, provisions and losses –4,244 –214 –2,116 12 –6,562

Taxes –838 –1,113 –2,772 –1,318 –6,041

Minority interests –2,565 –1,545 –5 0 –4,115

Profit after taxes 5,756 11,653 40,259 2,051 59,719

Total assets 474,181 76,792 1,222,560 11,221 1,784,754

Total liabilities 424,804 107,517 896,093 18,672 1,447,086

Total capital expenditure 241 87,718 153,562 0 241,521

Assets under Management 2,849 m 4,906 m 3,085 m 74 m 10,914 m

1.1.–31.12.2004

Net operating income 24,768 13,880 41,594 3,654 83,896

Operating expenses –18,737 –5,175 –11,933 –158 –36,003

Gross operating profit 6,031 8,705 29,661 3,496 47,893

Depreciation, valuation adjustments, provisions and losses –853 –1,309 –260 –20 –2,442

Taxes –921 –1,434 –1,157 –686 –4,198

Minority interests –1,369 –1,516 0 0 –2,885

Profit after taxes 2,888 4,446 28,244 2,790 38,368

Total assets 419,454 87,834 402,073 7,054 916,415

Total liabilities 323,858 72,301 257,002 1,554 654,715

Total capital expenditure 336 0 0 0 336

Assets under Management 2,036 m 1,755 m 1,039 m 64 m 4,894 m

The Group operates primarily in Switzerland and Liechtenstein. Since the geographic region in which assets

are booked is relatively unimportant to the assessment of risks or profit opportunities, the business areas are

not broken down by region.

Allocation to the individual segments is primarily based on direct allocations. Items that cannot be directly

apportioned to one particular segment will be allocated by means of secondary business management criteria

(e.g. number of staff, total square meters of floor space required, etc.). Non-apportionable items will be allocated

to the Corporate Items segment.

27. Significant consolidated group companies

Listed companies falling within the scope of consolidation:

Registered Share capital Percentage

Company office CHF 1,000 consolidated

Swissfirst AG Zug 1,050 100


34 Consolidated financial statements Notes

Unlisted companies included in the scope of consolidation:

Registered Share capital Shareholding

Company office CHF 1,000 direct in % indirect in %

Bank am Bellevue AG Küsnacht 25,000 100 0

Swissfirst Bank AG Zurich 21,600 100 0

Swissfirst Bank (Liechtenstein) AG Vaduz 20,000 52.5 0

Bellevue Asset Management AG Küsnacht 1,500 100 0

Swissfirst Derivatives AG Zug 250 100 0

Swissfirst Asset Management AG Zug 250 100 0

Swissfirst Services AG Zurich 200 100 0

On January 1, 2006, Bellevue Asset Management AG, Küsnacht, merged with Swissfirst Asset Management AG,

Zug. The new company is called Swissfirst Asset Management AG, Küsnacht. Swissfirst AG sold its 53 %

shareholding in Swissfirst Structured Bonds AG, Zug, to the management on July 1, 2005. This shareholding

was included for the last time in the consolidated accounts as at June 30, 2005. The other Group companies,

especially Swissfirst Bank AG and Swissfirst Asset Management AG, will continue to manage those business

activities previously conducted by Swissfirst Structured Bonds AG, including asset management services.

There were no discontinued operations as specified in IFRS 5.

28. Acquisitions and disposals

Acquisitions

The Swissfirst Group took over the entire operating business of Bellevue Holding on October 1, 2005. In a reciprocal

arrangement, Bellevue Holding AG, or rather its shareholders, acquired 50 % of the shares of Swissfirst AG. The acquired

Bank am Bellevue AG was integrated into the Investment Banking segment. Bellevue Asset Management was merged

with Swissfirst Asset Management AG. The merged companies were renamed Swissfirst Asset Management and were

integrated into the Asset Management segment. The total purchase for the two companies was CHF 276 million. Part of

the financing was provided by a 2.125 % bond issue worth CHF 150 million by Swissfirst Bank AG (see Note 11). The

rest was raised by issuing 500,000 bearer shares from conditional capital and through cash. The purchase price

breaks down as follows:

CHF 1,000

Note 2005

Equity of the acquired companies 51,105

Intangible assets before deduction of deferred taxes 79,796

Deferred taxes –15,081

Intangible assets after deduction of deferred taxes 64,715

Net asset value of acquired assets and liabilities 115,820

Goodwill 7 160,289

Purchase price 276,109


35

Consolidated financial statements

Notes

The individual assets and liabilities of the acquired companies were reported as follows:

CHF 1,000

Note

Bank am Bellevue Bellevue Asset Management Total

Step up to

Step up to

Book value fair value Fair value Book value fair value Fair value Fair value

Assets

Financial investments 21,542 21,542 1,293 1,293 22,835

Fixed assets 50 50 204 204 254

Client relationships 6 0 53,844 53,844 0 24,773 24,773 78,617

Brand 6 0 1,179 1,179 0 0 1,179

Goodwill 0 97,375 97,375 0 62,914 62,914 160,289

All other assets 282,948 282,948 20,495 20,495 303,443

Total assets 304,540 152,398 456,938 21,992 87,687 109,679 566,617

Liabilities and shareholders’ equity

Deferred tax liabilities 0 10,399 10,399 0 4,682 4,682 15,081

Valuation adjustments and provisions 293 293 11 11 304

Contractually agreed dividend payment to the former

shareholders of Bellevue Holding AG, Küsnacht 24,000 24,000 14,700 14,700 38,700

All other liabilities 235,686 235,686 737 737 236,423

Total liabilities 259,979 10,399 270,378 15,448 4,682 20,130 290,508

Equity 44,561 44,561 6,544 6,544 51,105

Excess purchase price 0 141,999 141,999 0 83,005 83,005 225,004

Total liabilities and shareholders’ equity 304,540 152,398 456,938 21,992 87,687 109,679 566,617

The transferred assets and liabilities are all stated at fair value, with the exception of the intangible assets

which were recapitalized on the basis of the multi-period excess earnings method (client base) or the relief

from royalty rate method (brand).

The following unaudited pro-forma details show how the accounts would have looked if the acquisitions

mentioned above had been completed by January 1, 2005:

CHF m

2005

Total income 177.5

Total costs –55.0

Gross operating profit 122.5

Group net profit 104.0

attributable to: – Shareholders of Swissfirst AG 99.9

– Minority interests 4.1

– Performance fees 20.6

Disposals

On July 1, 2005, the Swissfirst Group sold its 53 % majority shareholding in Swissfirst Structured Bonds AG to the

existing management (MBO). The sale price was CHF 1.328 million.

Swissfirst Structured Bonds AG was consolidated in the accounts for the last time on June 30, 2005. At that time

the company’s contribution to the reported profit was CHF 592,000.


36

Consolidated financial statements

Notes

29. Staff participation

Bonus plan

During the financial years 2002 to 2004, Swissfirst Bank AG offered Swissfirst Group employees a choice of

drawing their bonus in the form of cash, shares or options on Swissfirst AG shares. As of the 2005 fiscal year,

staff can only choose between cash and shares. The aggregate bonus expense is charged to the profit and

loss account regardless of how the bonuses are actually drawn. Any shares drawn are purchased on the market

and any options drawn are taken into account in the derivatives trading position of Swissfirst Bank AG and

stated at market prices. These options are European-style options with a three-year term. The shares drawn

are blocked for three years. The options are not eligible for sale. A total of 12,784 shares were purchased at

market prices as part of the bonus plan 2005.

The following options were outstanding at the following terms on the balance sheet date:

Issue year

Expiry date

Exercise

price

in CHF

Exchange

ratio

(options/

shares)

Number of

options

31.12.2005

Number of

options

31.12.2004

2002 25.02.2005 163.00 1:1 0 25,966

2003 25.02.2006 64.84 0.4716:1 4,459 4,459

2004 25.02.2007 58.95 0.4716:1 40,000 41,042

The change in the number of warrants outstanding during the year under review was as follows:

Number of options, expressed in units of the underlying shares 2005 2004

Number

As at January 1 71,467 31,229

Issued 0 41,042

Exercised –25,966 0

Annulled –1,042 –804

Adjustment of terms following share split and par value reduction 49,816 0

As at December 31 94,275 71,467

Share participation plan

In 2005 employees were given the opportunity to purchase Swissfirst shares at preferential conditions. As at

December 15, 2005, employees had subscribed to a total of 165,500 shares blocked until December 31, 2009

and 4,500 shares blocked until December 31, 2007. The difference between the fair value and the preferential

price determined on the allocation date is recorded over the entire period of service (same as lock-up period)

as compensation costs under personnel expenses. The fair value is determined on the basis of the closing

price on the allocation date. The reported compensation costs amount to CHF 2.465 million. During the financial

year a total of CHF 70,000 was charged to personnel expenses.


37

Consolidated financial statements

Notes

30. Client assets 31.12.2005 31.12.2004

CHF 1,000,000

Assets in own-managed funds 45 84

Assets with management mandate 4,664 1,522

Other client assets 6,753 3,371

Total client assets (including double counting) 11,462 4,977

of which double counts –548 –83

Total client assets (excluding double counting) 10,914 4,894

Net inflow of new assets 203 317

Change due to acquisition *

Bank am Bellevue AG 2,467 0

Bellevue Asset Managment AG 3,309 0

Total Change due to acquisition 5,776 0

Total Change due to disposal ** –517 0

** On November 22, 2005 Swissfirst AG took over Bank am Bellevue AG and acquired full ownership of Bellevue Asset Management

AG with effect from October 1, 2005.

** Swissfirst AG sold its 53 % stake in the former Swissfirst Structured Bonds, Zug to the company’s management with effect from

July 1, 2005.

Client assets include all cash deposits and assets of clients available for investment with the exception of

pure “custody-only” assets. These custody-only assets include unissued shares of participation and investment

companies and the assets of certain institutional clients stemming from special transactions (e.g. share buybacks

through a second line of trading).

The inflow/outflow of client assets includes all cash deposits and withdrawals as well as inward and outward

deliveries of security without compensation. Own interest credits and debits are not included.

31. Differences IFRS / Accounting regulations for banks under Swiss law

The most important differences between IFRS and the accounting regulations for banks under Swiss law are

as follows:

Available-for-sale financial assets

Under IFRS, available-for-sale financial assets are carried at fair value. Changes in the fair value of available-forsale

financial assets are recognized in shareholders’ equity, less related deferred taxes, until the financial

asset is sold, collected or otherwise disposed of, or its value is deemed to be impaired. As soon as an availablefor-sale

financial asset is deemed to be impaired, the cumulative unrealized loss previously carried in shareholders’

equity will be recognized in the income statement for the reporting period as an impairment of availablefor-sale

financial assets. Under Swiss law, these kinds of financial assets are reported at acquisition cost or

at market value if lower (lower of cost or market method). Write-downs to market value, any reversals of previously

recognized impairment losses as well as disposal gains and losses are recognized in “Other ordinary

income”.

Extraordinary income

According to IFRS, almost all items of income and expense are allocated to ordinary operating activities. Extraordinary

items are therefore rare. In accordance with Swiss law, income and expenses are classified as extraordinary

if they are not recurring and/or not related to operational activities.

32. Events after the balance sheet date

No events have occured since the balance sheet date of December 31, 2005 that would have a material impact

on the consolidated financial statements.


38 Consolidated financial statements Notes

Scope of consolidation as at December 31, 2005

Swissfirst AG, Zug

Swissfirst Bank AG, Zurich

100 %

Bank am Bellevue, Küsnacht

100 %

BAB Management NV, Curaçao

100 %

Swissfirst Derivatives AG, Zug

100 %

Swissfirst Asset Management, Zug*

100 %

Bellevue Asset Management, Küsnacht*

100 %

Asset Management BAB NV, Curaçao

100 %

Swissfirst Financial Services Ltd., Tortola

100 %

Swissfirst Services AG, Zurich

100 %

Bracher AG, Olten

100 %

Swissfirst Bank (Liechtenstein) AG, Vaduz

52.5 %

Swissfirst (Lie) Opportunities AG, Vaduz

100 %

* On January 1, 2006, Bellevue Asset Management AG, Küsnacht, merged with Swissfirst Asset Management AG, Zug.

The new company is called Swissfirst Asset Management AG, Küsnacht.


39

Consolidated financial statements

Report of the group auditors

Report of the group auditors

Report of the group auditors to the general meeting of

Swissfirst AG, Zug

As auditors of the group, we have audited the consolidated financial

statements (balance sheet, income statement, statement of cash flows,

statement of changes in equity and notes/pages 7 to 37) of Swissfirst AG

for the year ended December 31, 2005.

These consolidated financial statements are the responsibility of the

board of directors. Our responsibility is to express an opinion on these

consolidated financial statements based on our audit. We confirm that

we meet the legal requirements concerning professional qualification

and independence.

Our audit was conducted in accordance with Swiss Auditing Standards

and with the International Standards on Auditing, which require that

an audit be planned and performed to obtain reasonable assurance about

whether the consolidated financial statements are free from material

misstatement. We have examined on a test basis evidence supporting the

amounts and disclosures in the consolidated financial statements. We

have also assessed the accounting principles used, significant estimates

made and the overall consolidated financial statement presentation. We

believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements give a true and fair

view of the financial position, the results of operations and the cash

flows in accordance with the International Financial Reporting Standards

(IFRS) and comply with Swiss law.

We recommend that the consolidated financial statements submitted to

you be approved.

PricewaterhouseCoopers AG

Albert Schönenberger

Silvio Fischer

Zurich, March 27, 2006


40

Annual Report 2005

Corporate governance

Information on corporate governance

1. Group structure

The Group structure is illustrated on page 38 of the Annual Report. The

shares of the holding company Swissfirst AG, Zug, are listed on the

main board of the SWX Swiss Exchange under the security number 337681

(ISIN: CH0003376818). The Company’s market capitalization as at

December 31, 2005 amounted to CHF 840.0 million (December 30, 2004:

CHF 520.0 million). No other listed companies are included in the consolidated

accounts. The other Group companies are not listed. There are

no cross-shareholding arrangements.

Significant shareholders of Swissfirst AG are listed in Note 15 (page 26)

of the consolidated financial statements.

Swissfirst AG is not party to, nor does it have any knowledge of, any

significant shareholder pooling agreements.

Swissfirst Group has not outsourced any significant management tasks.

2. Capital structure

The share capital of Swissfirst AG amounts to CHF 1.5 million (prior year

CHF 5.0 million), divided into 10,500,000 bearer shares (prior year

5,000,000 bearer shares) with a par value of CHF 0.10 each. The conditional

share capital of CHF 0.05 million, corresponding to 500,000

bearer shares, was exercised on October 7, 2005 in favor of the new

Swissfirst employees transferring from the Bellevue Group. There

was no more conditional capital as at December 31, 2005. There is no

authorized capital.

There are no privileged or preferential share categories and no restrictions

regarding registration in the Company’s share register. There are

no limitations on the transferability of the bearer shares nor are there

any restrictions on voting rights.

Swissfirst AG has not issued any participation certificates or non-voting

equity certificates.

level of CHF 1.5 million. The statement of shareholders’ equity can be

found on page 9 of the Annual Report.

Information on employee options issued by Swissfirst AG can be found

in Note 29 (page 36) of the consolidated financial statements. No new

options were issued in the 2005 financial year.

There are no outstanding warrant or convertible bonds.

3. Board of Directors

The Board of Directors comprised the following persons as at December

31, 2005:

Dr. Roland Oswald, Chairman,

Swiss citizen (board member since 1999)

– Business and economics degrees, University of St. Gallen and Neuchâtel

– Member of the Executive Board of Zuger Kantonalbank until 1999

Hans E. Buck, Vice Chairman,

Swiss citizen (board member since 1999)

– Business and economics degree, University of Zurich (lic. oec.)

– Member of the Executive Board of ABN AMRO Bank (Schweiz) AG until

2001

Karl Ludwig Göldner,

German citizen (board member since 2003)

Banking education; 1989–2000 Chief Executive of Deutsche Bank

(Suisse) AG

– Managing Partner, Private Partners AG, Zurich, since 2000

Hans Kaufmann,

Swiss citizen (board member since 1999)

– Business and economics degree, University of Zurich (lic. oec.)

– Chief economist at Julius Bär & Co. AG until 1999, currently an

independent entrepreneur and member of the National Council

Alex Wassmer,

Swiss citizen (board member since 2004)

– Degree in law, University of Bern (lic. iur.)

– Delegate and CEO of KIBAG Holding, Zurich since 2000 (various mandates

within the KIBAG Group)

The General Meeting is entitled to convert bearer shares into registered

shares or registered shares into bearer shares at any time by amending

the Articles of Association.

The directors do not sit on the boards of any other listed companies.

None of the directors are engaged in any other significant duties nor do

they have any other significant commitments.

The number of treasury shares is given in Note 4 (page 48) of the holding

company’s statutory financial statements.

During the last three financial years there have been two reductions in

share capital. In 2003 the nominal share capital was reduced from

CHF 5.1 million to CHF 5.0 million. In 2005 it was reduced again from

CHF 5.0 million to CHF 1.0 million before the conditional capital was

exercised, which resulted in an increase in share capital to its current

All directors are impartial and do not perform any executive functions

within Swissfirst. None of the directors have ever sat on the Executive

Board of Swissfirst AG or any of the Group subsidiaries. None of the

directors have a material business relationship with the Swissfirst Group.

Only persons who are shareholders of Swissfirst are eligible to stand

for election to the Board of Directors. Directors are elected for a term of

one year and may be re-elected. There are no age limitations.


41

Annual Report 2005

Corporate governance

If the Board of Directors consists of more than one director, it shall

constitute itself and elect a Chairman, a Vice Chairman and a Secretary.

The Secretary need not be a member of the Board of Directors.

The Board of Directors meets at the invitation of the Chairman or when

requested by one of its members. It shall meet at least twice a year.

Four meetings of the Board of Directors were convened in 2005.

Resolutions are passed by a majority of the votes cast. In the event of

a tie vote, the Chairman has the casting vote. No quorums are specified.

Circular resolutions are permitted as long as no member requests oral

deliberation.

The Board of Directors may take decisions on all matters that are not

conferred upon another corporate body by law or by the Articles of Association.

In particular, the Board of Directors is responsible for:

– the strategic direction and management of the Company; issuing

guidelines and directives necessary for the conduct of business;

as well as for defining the Company’s organization;

– laying down the principles governing the accounting, financial controlling

and financial planning activities, to the extent required for the

management of the Company;

– appointing and dismissing the persons entrusted with executive

management and representation of the Company;

– supervision of the persons entrusted with executive management,

in particular with respect to compliance with the law, the Articles of

Association, organizational rules and directives;

– preparation of the annual report and organization of the General Meeting

and ensuring execution of the resolutions approved by the General

Meeting;

– informing judicial authorities in the event of excessive indebtedness;

decisions regarding the subsequent payments for shares that are not

fully paid up;

– decisions ascertaining capital increases and the corresponding

amendments to the Articles of Association;

– appointing the persons authorized to represent the Company.

The Board of Directors is informed about the course of business on a

regular basis, in particular through the following means:

– quarterly figures

– budget comparisons

– key figures on risk (credit risks, market risks and liquidity risks)

– notifications of concentrations of risk

Three of the five members of Swissfirst AG’s Board of Directors also sit

on the Board of Directors of Swissfirst Bank AG (as at December 31,

2005), to which the internal auditors directly report. KPMG act as internal

auditors to Swissfirst Bank AG.

Dr. Roland Oswald and Hans Buck constitute the Committee of the Board

of Directors. This Committee is appointed by the Board in its entirety.

The Committee of the Board of Directors does not constitute an additional

tier of authority between the Group Executive Board and the Board

of Directors. It acts as a consultative body to the Executive Board in all

strategic and operational matters of special importance prior to their

submission to the Board of Directors. In urgent cases, the Committee of

the Board of Directors may take decisions normally reserved to the

Board of Directors, provided it can reasonably assume that the Board

would be in agreement. The Committee of the Board of Directors exercises

the function of Audit Committee.

The Committee of the Board of Directors convenes as often as deemed

necessary; there were two meetings in the 2005 business year. In addition,

members of the Committee of the Board of Directors participate

in selected meetings on special bank matters.

4. Group Executive Board

The Group Executive Board comprised the following persons as at

December 31, 2005:

Thomas Matter, CEO (since company establishment, 1994)

– High school in Switzerland (Wirtschaftsgymnasium) and in Middleburg,

Florida

Banking education at UBS Basle, equity and derivatives trader at UBS

– Various brokerage and trading positions at Merrill Lynch until 1993

Dr. Werner Erismann,

General Counsel (1.1.2000–31.12.2005)

– Degree in law, University of Zurich (Dr. iur.)

– Attorney at law

– General Counsel at ABN AMRO Bank (Schweiz) AG until 1999

Daniel Hefti, CFO (since joining on May 1, 2000)

– Business and economics degree, University of St. Gallen (lic. oec. HSG)

– Swiss Certified Accountant

– At PricewaterhouseCoopers until 2000

Mirko Sangiorgio, CIO (1.1.2003–31.12.2005)

– Business high school (Wirtschaftsgymnasium)

– Degree in business administration (School of Economics and Business

Administration in Bern)

– Various executive positions at Swiss private banks, last at Pictet & Cie.,

Geneva, until 2001

Urs Kaufmann, Head of Private Banking (1.7.2004–31.12.2005)

Banking education at Swiss Bank Corporation, Basle

– IMD Lausanne; Swiss Banking Advance Executive Program AEP

– Head of Private Banking UBS Basle until 2003

Following the merger with the Bellevue Group, Dr. Werner Erismann,

Mirko Sangiorgio and Urs Kaufmann resigned from the Group Executive

Board on January 1, 2006, but retain responsibility for their divisions.


42 Annual Report 2005 Corporate governance

No member of the Group Executive Board is engaged in any other significant

activities or functions in management or supervisory bodies nor

do they have any other significant commitments with the Company.

All members of the Group Executive Board are Swiss citizens.

The directors received no other remuneration.

The members of the Group Executive Board received the following gross

remuneration (salaries plus bonuses before deduction of social contributions

and taxes) for services rendered in the 2005 business year:

5. Remuneration, shareholdings, and loans

The Board of Directors decides on compensation, share ownership programs

and loans granted to the directors and members of the Executive

Board based on proposals made by the Group Executive Board.

Swissfirst Bank AG is authorized within the scope of its normal business

activities to grant loans to corporate bodies. Loans to directors, unsecured

personal loans in excess of CHF 100,000 and collateralized loans

in excess of CHF 10 million must be authorized by the Board of Directors.

Within these limits, the Bank’s Executive Board may provide the necessary

loan authorization. Loans to corporate bodies are granted at standard

market terms. The terms of the loans must not exceed one year,

although the loan-granting authority may grant an extension. As a rule,

interest is based on 3-month LIBOR rates plus a risk-related margin.

The loans granted to corporate bodies are listed in Note 15 (page 26) of

the consolidated financial statements.

At December 31, 2005 the members of the Board of Directors held a total

of 18,404 shares (prior year 11,645) of Swissfirst AG and the members

of the Group Executive Board held a total of 2,076,076 shares (prior

year 1,099,416 [2-for-1 split on May 17, 2005]).

The members of the Board of Directors do not own any options on

Swissfirst shares. As at December 31, 2005, one member of the Group

Executive Board held 250,000 options to purchase Swissfirst shares.

The directors of Swissfirst AG and Swissfirst Bank AG received the following

remuneration for the 2005 financial year:

Dr. Roland Oswald CHF 18,250 and 230 shares in Swissfirst AG

Hans E. Buck

CHF 18,700 and 228 shares in Swissfirst AG

Karl Ludwig Göldner CHF 10,750 and 131 shares in Swissfirst AG

Hans Kaufmann CHF 10,750 and 131 shares in Swissfirst AG

Alex Wassmer

CHF 8,250 and 100 shares in Swissfirst AG

Total

CHF 66,700 and 820 shares in Swissfirst AG

The directors of the other fully consolidated Swissfirst companies

(excl. the Bellevue Group) received remuneration totaling CHF 120,000.

The highest remuneration paid to a director of Swissfirst AG was

CHF 36,940 (CHF 18,700 and 228 shares of Swissfirst AG). None of the

directors received any options.

Thomas Matter CHF 239,520 and 3,907 shares in Swissfirst AG

Dr. Werner Erismann CHF 412,780

Daniel Hefti

CHF 397,940 and 2,539 shares in Swissfirst AG

Mirko Sangiorgio CHF 487,300

Urs Kaufmann CHF 487,800 and 2,175 shares in Swissfirst AG

No contractually agreed severance packages have been arranged with

any Swissfirst Group employees. Remuneration of executive management

and Board members is decided by the Board of Directors.

None of the members of the Board of Directors or Executive Board who

gave up their functions received a severance package.

6. Rights of shareholders

The participatory rights of shareholders comply with the provisions of the

Swiss Code of Obligations. Entitlement to vote at a General Meeting is

based on proof of share ownership. Each bearer share is entitled to one

vote at the General Meeting. There are no shares with preferential voting

rights. A shareholder can only be represented by proxy by another shareholder.

According to the Articles of Association, the General Meeting

conducts elections and passes resolutions by an absolute majority of

votes cast by shareholders present or represented by proxy, unless the

law or the Articles of Association stipulate a qualified majority. At present,

the Articles of Association do not stipulate a qualified majority in any

instances other than those prescribed by law. General Meetings shall be

called by the Board of Directors or the corporate bodies and persons

designated by law at least twenty days prior to the date on which the

Meeting is to be held. Invitations are published in the Swiss Commercial

Gazette (Schweizerisches Handelsamtsblatt). Items placed on the agenda

are subject to the provisions of the law.

7. Dividend policy

In the proposal to the General Meeting regarding the appropriation of

profit for 2002, the first-time payment of a dividend was approved. The

gross dividend amounted to CHF 0.50 per share (adjusted for the split).

The gross dividend for the 2003 business year amounted to CHF 0.60

per share (adjusted for the split). For the 2004 business year a gross

dividend of CHF 5.00 per share was paid plus – to mark the occasion of

the Bank’s 10-year anniversary – a reduction in nominal share capital

of CHF 0.40 per share. Swissfirst AG intends to distribute profits on a

continuous basis in the future.


43

Annual Report 2005

Corporate governance

8. Change of control and defense measures

The purchaser or acquirer of shares of Swissfirst AG is not required to

issue a public offer as stipulated by Art. 32 and 52 of the Federal Act

on Stock Exchanges and Securities Trading (“opting out” as per Art. 22

para. 2 SESTA).

Swissfirst Group complies with the ad-hoc disclosure rules of SWX.

Information and communications duties are primarily performed by the

Investor Relations Office. All press releases can be downloaded from the

Internet (www.swissfirst.ch).

In compliance with the provisions of Art. 29 SESTA, the Board of Directors

will publish a notification if a public bid for all Swissfirst shares

has been received. As prescribed by law, no significant legal transactions

will be effected from the moment a public offer has been received.

Contact addresses are listed on the final page of the Annual Report.

11. Material events after the balance sheet date

There have been no material events since the balance sheet date.

The period of notice for employees in Switzerland is always two months.

In Liechtenstein the maximum period is six months.

9. Auditors

The auditors of Swissfirst Group are appointed for a term of one year.

With the exception of Swissfirst Bank (Liechtenstein) AG (“SFL”) all

companies are audited by PricewaterhouseCoopers (“PwC”). PwC has

been the Group auditor since 1999 and prior to that it served as the

auditor for the former ZFP Financial Products AG since the latter’s establishment

in 1994. SFL has been audited by Deloitte AG (“Deloitte”)

ever since its establishment in 1998.

The auditor in charge of the Swissfirst AG, Swissfirst Bank AG and

Bank am Bellevue AG, Küsnacht, audit is Albert Schönenberger and he

has exercised this function as of the 2004 business year.

Auditing fees paid to PwC in the 2005 business year amounted to a total

of CHF 365,011. PwC billed CHF 236,803 for additional services rendered

(Corporate Finance and Tax).

The auditing fees paid to Deloitte amounted to CHF 126,096 in the 2005

business year. Deloitte billed CHF 88,393 for additional services rendered

(Corporate Finance).

Each year, a detailed report is drawn up in accordance with banking law

for both Swissfirst Bank AG, Zurich, Bank am Bellevue AG, Küsnacht,

and Swissfirst Bank (Liechtenstein) AG, Vaduz, and submitted to the responsible

regulatory authorities in Switzerland and Liechtenstein. The

Board of Directors is bound by law to review these reports at its meetings.

10. Information policy

Swissfirst AG publishes quarterly figures on a quarterly basis in compliance

with IFRS accounting standards. These can be accessed at the

website www.swissfirst.ch

The quarterly reports (3) and the annual report are also available to all

interested parties in printed form.


Holding

Company


45

Financial statements Holding

Balance sheet

Balance sheet at December 31

in CHF

2005 2004

Assets

Current assets

Due from banks 0 62,625,171

Due from customers 3,588,227 0

Securities 111,621,936 63,340,599

Prepaid expenses and accrued income 0 12,314

Other assets 267,515 2,686,391

Total Current assets 115,477,678 128,664,475

Non-current assets

Due from banks 25,000,000 0

Participating interests 318,990,181 45,330,181

Total Non-current assets 343,990,181 45,330,181

Total assets 459,467,859 173,994,656

Due from group companies 25,000,000 62,612,806

Liabilities and shareholders’ equity

Liabilities

Short-term liabilities

Due to banks 64,482,890 0

Derivate financial instruments 6,275,000 0

Deferred income 487,149 106,000

Other liabilities 116,672 368,574

Valuation adjustments and provisions 6,095 180,433

71,367,806 655,007

Long-term liabilities

Due to banks 150,000,000 0

Derivative financial instruments 79,849,437 0

229,849,437 0

Total Liabilities 301,217,243 655,007

Shareholders’ equity

Share capital 1,050,000 5,000,000

Legal reserves

– General reserve 66,226,933 38,976,933

– Reserve for treasury shares 0 77,296,817

Other reserves 2,000,000 0

Disposable profit

– Retained earnings brought forward 77,400,716 24,730,795

– Profit for the year 11,572,967 27,335,104

Total shareholders’ equity 158,250,616 173,339,649

Total liabilities and shareholders’ equity 459,467,859 173,994,656

Due to group companies 214,482,890 0


46 Financial statements Holding Profit and loss account

Profit and loss account

for the year ending December 31

in CHF

2005 2004

Net interest income

Interest and dividend income 2,444,051 7,694,605

Interest expenses –771,573 –115,403

1,672,478 7,579,202

Net income from commissions business

Commissions income 623,727 463,746

Commissions expenses –1,900 –789

621,827 462,957

Net income from securities business

Income from securities 1,376,155 331,340

Other operating income

Net income from sale of financial investements 30,900,605 –2,202,814

Income from participating interests 14,525,000 21,734,257

45,425,605 19,531,443

Operating expenses

Personnel expenses –83,600 –70,000

Other operating expenses –1,624,424 –181,123

–1,708,024 –251,123

Gross operating profit 47,388,041 27,653,819

Extraordinary expense –35,795,074 –18,715

Taxes –20,000 –300,000

Profit for the year 11,572,967 27,335,104


47

Financial statements Holding

Notes

Notes to the financial statements

Information required by Article 663b/c of the Swiss Code of Obligations

1. Assets pledged to meet own obligations 31.12.2005 31.12.2004

in CHF

Securities 107,399,714 0

Participating interests 318,990,181 0

Total 426,389,895 0

The assets are pledged in favor of Swissfirst Bank AG as collateral for a loan worth CHF 214,482,890.

2. Significant participating interests: percentage of nominal value (NV) held 31.12.2005 31.12.2004

in CHF

Company

100 % Bank am Bellevue, Küsnacht, of CHF 25,000,000 nom. 25,000,000 0

100 % Swissfirst Bank AG, Zurich, of CHF 21,600,000 nom. 21,600,000 21,600,000

100 % Bellevue Asset Management, Küsnacht, of CHF 1,500,000 nom. 1,500,000 0

100 % Swissfirst Asset Manangement AG, Zug, of CHF 250,000 nom. 250,000 250,000

100 % Swissfirst Derivatives AG, Zug, of CHF 250,000 nom. 250,000 250,000

100 % Swissfirst Services AG, Zurich, of CHF 200,000 nom. 200,000 0

52.5 % Swissfirst Bank (Liechtenstein) AG, Vaduz, of CHF 20,000,000 nom. 10,500,000 10,500,000

0 % Swissfirst Structured Bonds AG, Zug, of CHF 5,000,000 nom. 0 2,650,000

On January 1, 2006, Bellevue Asset Management AG, Küsnacht, merged with Swissfirst Asset Management AG, Zug.

The new company is called Swissfirst Asset Management AG, Küsnacht.

3. Insurance value 31.12.2005 31.12.2004

in CHF

Fire insurance value 0 0


48

Financial statements Holding

Notes

4. Treasury shares Numbers

Price

(before split)

CHF

Swissfirst AG

At 1.1.2004 (3.45 % of total) 172,500 125.00 21,562,500

Sale –172,500 130.50 –22,511,250

Adjustment of book value 948,750

At 31.12.2004 (0.00 % of total) 0 0

No transactions in 2005

At 31.12.2005 (0.00 % of total) 0 0

Number

Average price

Transactions in subsidiaries

At 1.1.2005 (12.04 % of total) 601,888 104.00

At 1.1.2005 (12.04 % of total) after split 1,203,776 52.00

Purchase 3,589,255 61.56

Sale –4,814,755 55.55

At 31.12.2005 (–0.21 % of total) –21,724 80.00

In connection with the merger with the Bellevue Group, Swissfirst took on valuation losses of CHF 36,424,184

resulting from a short position in treasury shares. The purchase price for Bank am Bellevue and Bellevue Asset

Management AG was reduced by this amount.


49

Financial statements Holding

Notes

5. Information on capital increases

The General Meeting of 9 August 1999 authorized the Board of Directors to increase the share capital by a

maximum of CHF 50,000 (adjusted for the par value reduction and split) through the issue of 500,000 fully

paid-up bearer shares with a nominal value of CHF 0.10 each (conditional capital). The existing shareholders

voted unanimously to waive their subscription rights. The shares are earmarked for distribution to the staff.

During the reporting period the option of a CHF 50,000 increase in conditional was used by issuing 500,000

fully paid-up bearer shares with a nominal value of CHF 0.10 each. The issue price was CHF 54.60 per share.

There was no conditional capital as at December 31, 2005.

The General Meeting of Shareholders of May 7, 2005, also decided on a 2-for-1 share split and a reduction in

par value from CHF 0.50 to CHF 0.10.

Share capital

General

reserves

Total

31.12.2004 5,000,000 38,976,933 43,976,933

Par value reduction –4,000,000 0 –4,000,000

Capital increase 50,000 27,250,000 27,300,000

31.12.2005 1,050,000 66,226,933 67,276,933

6. Major shareholders

Participating

interest

in %

Numbers of

shares

At 31.12.2005, the following major shareholders were known to Swissfirst AG:

Bellevue Holding AG, Küsnacht 45 4,693,500

Thomas Matter, Zug 17 1,800,000

Rumen Hranov, Zollikon*


50

Financial statements Holding

Notes

Allocation of retained earnings

in CHF

2005 2004

Profit carried over from the previous financial year 52,065,899 65,696,667

Dividend on eligible capital –49,962,000 –5,994,055

Allocation to free reserves –2,000,000 –20,000,000

Subtotal of earnings to be carried forward 103,899 39,702,612

Release of reserves for treasury shares 77,296,817 22,325,000

Total 77,400,716 62,027,612

Release of free reserves 0 40,000,000

Creation of reserves for treasury shares 0 –77,296,817

Profit carried forward to the new financial year 77,400,716 24,730,795

Profit for the year 11,572,967 27,335,104

Amount available for allocation 88,973,683 52,065,899

The Board of Directors proposes to the Ordinary Shareholders’ Meeting the following allocation of the disposable

profit:

in CHF

Proposed allocation of retained earnings: 88,973,683 52,065,899

Dividend on eligible capital –21,000,000 –49,962,000

Allocation to free reserves –2,000,000 –2,000,000

Earnings to be carried forward 65,973,683 103,899


51

Financial statements Holding

Report of the statutory auditors

Report of the statutory auditors

Report of the statutory auditors to the general meeting of

Swissfirst AG, Zug

As statutory auditors, we have audited the accounting records and the

financial statements (balance sheet, income statement and notes/pages

45 to 50) of Swissfirst AG for the year ended December 31, 2005.

These financial statements are the responsibility of the board of directors.

Our responsibility is to express an opinion on these financial statements

based on our audit. We confirm that we meet the legal requirements

concerning professional qualification and independence.

Our audit was conducted in accordance with Swiss Auditing Standards,

which require that an audit be planned and performed to obtain reasonable

assurance about whether the financial statements are free from

material misstatement. We have examined on a test basis evidence supporting

the amounts and disclosures in the financial statements. We

have also assessed the accounting principles used, significant estimates

made and the overall financial statement presentation. We believe that

our audit provides a reasonable basis for our opinion.

In our opinion, the accounting records and financial statements and the

appropriation of available earnings proposed by the board of directors

comply with Swiss law and the company’s articles of incorporation.

We recommend that the financial statements submitted to you be

approved.

PricewaterhouseCoopers AG

Albert Schönenberger

Silvio Fischer

Zurich, March 27, 2006


52 Annual Report 2005 Addresses

Addresses

Swissfirst AG

Bahnhofstrasse 11

P.O. Box

CH-6301 Zug

Phone +41 (0)41 727 06 00

Fax +41 (0)41 727 06 08

info@swissfirst.ch

www.swissfirst.ch

Bank am Bellevue AG

Seestrasse 16

CH-8700 Küsnacht

Phone +41 (0)44 267 67 67

Fax +41 (0)44 267 67 50

info@bellevue.ch

www.swissfirst.ch

Swissfirst Bank (Liechtenstein) AG

Austrasse 61

FL-9490 Vaduz

Phone +423 239 33 33

Fax +423 239 33 00

swissfirst@swissfirst.li

www.swissfirst.li

Swissfirst Bank AG

Bellariastrasse 23

P.O. Box

CH-8027 Zurich

Phone +41 (0)44 204 80 00

Fax +41 (0)44 204 80 80

info@swissfirst.ch

www.swissfirst.ch

Swissfirst Bank AG

Bahnhofstrasse 11

P.O. Box

CH-6301 Zug

Phone +41 (0)41 560 72 00

Fax +41 (0)41 560 72 01

info@swissfirst.ch

www.swissfirst.ch

Swissfirst Bank AG

Elisabethenstrasse 2

CH-4010 Basel

Phone +41 (0)61 205 31 10

Fax +41 (0)61 205 31 11

privatebanking@swissfirst.ch

www.swissfirst.ch

Swissfirst Asset Management AG

Seestrasse 16

CH-8700 Küsnacht

Phone +41 (0)44 267 67 00

Fax +41 (0)44 267 67 01

info@bellevue.ch

www.swissfirst.ch

Swissfirst Services AG

Bellariastrasse 27

P.O. Box

CH-8027 Zurich

Phone +41 (0)44 204 80 00

Fax +41 (0)44 204 80 80

info@swissfirst.ch

www.swissfirst.ch

Swissfirst Derivatives AG

Bahnhofstrasse 11

P.O. Box

CH-6301 Zug

Phone +41 (0)41 727 06 07

Fax +41 (0)41 727 06 08

derivatives@swissfirst.ch

www.swissfirst.ch

Swissfirst (Lie) Opportunities

Anlagegesellschaft

Aktiengesellschaft mit

veränderlichem Kapital

Meierhofstrasse 5

P.O. Box 1617

FL-9490 Vaduz

Phone +423 239 33 33

Fax +423 239 33 00

Swissfirst Bank AG

Münzgasse 6

CH-6003 Lucerne

Phone +41 (0)41 227 86 00

Fax +41 (0)41 227 86 01

privatebanking@swissfirst.ch

www.swissfirst.ch


Swissfirst AG

Bahnhofstrasse 11

P.O. Box

CH-6301 Zug

Phone +41 (0)41 727 06 00

Fax +41 (0)41 727 06 08

info@swissfirst.ch

www.swissfirst.ch

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