UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

March 23, 2012

Commission File Number 001-15244

CREDIT SUISSE GROUP AG

(Translation of registrant’s name into English)

Paradeplatz 8, CH 8001 Zurich, Switzerland (Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F      Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes      No

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CREDIT SUISSE GROUP AG

(Registrant)

Date: March 23, 2012

By:

/s/ Tobias Guldimann

Tobias Guldimann

Chief Risk Officer

By:

/s/ David R. Mathers

David R. Mathers

Chief Financial Officer

For purposes of this report, unless the context otherwise requires, the terms “Credit Suisse,” “the Group,” “we,” “us” and “our” mean Credit Suisse Group AG and its consolidated subsidiaries. The business of Credit Suisse AG, the Swiss bank subsidiary of the Group, is substantially similar to the Group, and we use these terms to refer to both when the subject is the same or substantially similar. We use the term “the Bank” when we are only referring to Credit Suisse AG, the Swiss bank subsidiary of the Group, and its consolidated subsidiaries.

In various tables, use of “–” indicates not meaningful or not applicable.

List of abbreviations
1. Introduction
2. Capital
3. Risk exposure and assessment
4. Credit risk
5. Securitization risk in the banking book
6. Market risk
7. Operational risk
8. Equity securities in the banking book
9. Interest rate risk in the banking book

List of abbreviations

A
ABS		Asset-backed securities
A-IRB		Advanced Internal Ratings-Based Approach
AMA		Advanced Measurement Approach
B
BCBS		Basel Committee on Banking Supervision
BIS		Bank for International Settlements
C
CCF		Credit Conversion Factor
CDO		Collateralized Debt Obligation
CDS		Credit Default Swap
CLO		Collateralized Loan Obligation
CMBS		Commercial mortgage-backed securities
CRM		Credit Risk Management
D
DLE		Derivative Loan Equivalent
E
EAD		Exposure at Default
F
FINMA		Swiss Financial Market Supervisory Authority FINMA
I
IAA		Internal Assessment Approach
IMA		Internal Models Approach
IRB		Internal Ratings-Based Approach
IRC		Incremental Risk Capital Charge
L
LGD		Loss Given Default
M
MDB		Multilateral Development Banks
N
NTD		Nth-to-default
O
OTC		Over-the-counter
P
PD		Probability of Default
R
RAR		Risk Analytics & Reporting
RBA		Ratings-Based Approach
RMBS		Residential mortgage-backed securities
RPSC		Risk Processes and Standards Committee
S
SA		Standardized Approach
SFA		Supervisory Formula Approach
SMM		Standardized Measurement Method
SPE		Special purpose entity
SRW		Supervisory Risk Weights Approach
U
US GAAP		Accounting principles generally accepted in the US
V
VaR		Value-at-Risk

1. Introduction

The purpose of this Pillar 3 report is to provide updated information as of December 31, 2011 on our implementation of the Basel II framework and risk assessment processes in accordance with the Pillar 3 requirements. This document should be read in conjunction with the Credit Suisse Annual Report 2011, which include important information on regulatory capital and risk management (specific references have been made herein to this document). Since January 1, 2008, Credit Suisse has operated under the international capital adequacy standards set forth by the Basel Committee on Banking Supervision (BCBS), known as Basel II, as implemented by the Swiss Financial Market Supervisory Authority (FINMA).

In addition to Pillar 3 disclosures we disclose the way we manage our risks for internal management purposes in the Annual Report.

> Refer to “Risk management” (pages 110 to 134) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2011 for further information regarding the way we manage risk.

> Refer to “Economic capital and position risk” (pages 114 to 117) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2011 for further information on economic capital, our Group-wide risk management tool.

Certain reclassifications have been made to prior periods to conform to the current period’s presentation.

The Pillar 3 report is produced and published semi-annually, in accordance with FINMA requirements.

This report was verified and approved internally in line with our Basel II Pillar 3 disclosure policy. The Pillar 3 report has not been audited by the Group’s external auditors. However, it also includes information that is contained within the audited consolidated financial statements as reported in the Credit Suisse Annual Report 2011.

Scope of application

The highest consolidated entity in the Group to which Basel II applies is Credit Suisse Group.

> Refer to “Regulation and supervision” (pages 27 to 36) in I – Information on the company and to “Treasury management” (pages 105 to 107) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2011 for further information on regulation.

Principles of consolidation

For financial reporting purposes, our consolidation principles comply with accounting principles generally accepted in the US (US GAAP). For capital adequacy reporting purposes, however, entities that are not active in banking and finance are not subject to consolidation (i.e. insurance, real estate and commercial companies). These investments, which are not material to the Group, are treated in accordance with the regulatory rules and are either subject to a risk-weighted capital requirement or a deduction from regulatory capital. FINMA has advised the Group that it may continue to include equity from special purpose entities that are deconsolidated under US GAAP as tier 1 capital. We have also received an exemption from FINMA not to consolidate private equity fund type vehicles.

> Refer to “Note 38 – Significant subsidiaries and equity method investments” (pages 341 to 343) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2011 for a list of significant subsidiaries and associated entities of Credit Suisse.

Restrictions on transfer of funds or regulatory capital

We do not believe that legal or regulatory restrictions constitute a material limitation on the ability of our subsidiaries to pay dividends or our ability to transfer funds or regulatory capital within the Group.

> Refer to “Treasury management” (pages 90 to 109) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2011 for information on our liquidity, funding and capital management and dividends and dividend policy.

Capital deficiencies

The Group’s subsidiaries which are not included in the regulatory consolidation did not report any capital deficiencies in 2011.

Remuneration

The BCBS requires the national implementation of Pillar 3 disclosure requirements for remuneration no later than January 1, 2012. We implemented these disclosure requirements as of December 31, 2011.

> Refer to “Compensation” (pages 173 to 208) in IV – Corporate Governance and Compensation in the Credit Suisse Annual Report 2011 for further information on remuneration.

2. Capital

> Refer to “Treasury management” (pages 95 to 104) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2011 for information on our capital structure, eligible capital and shareholders’ equity and capital adequacy.

Regulatory capital is calculated and managed according to Basel regulations and used to determine BIS ratios and, according to the Swiss Capital Adequacy Ordinance, the FINMA capital requirement covering ratio. In January 2011, as required by FINMA, we implemented BCBS’s “Revisions to the Basel II market risk framework” (Basel II.5), for FINMA regulatory capital purposes. The BCBS required the implementation of Basel II.5 for BIS purposes no later than December 31, 2011. The main differences between the BIS and FINMA calculations are the multipliers used for certain risk classes and additional FINMA requirements for market risk. The main impact of the multipliers is related to credit non-counterparty-related risks, for which FINMA uses a multiplier of 3.0 whereas BIS uses a multiplier of 1.0. The additional FINMA requirements for market risk are requirements for stress-test-based risk-weighted assets for hedge funds.

BIS ratios compare eligible tier 1capital and total capital with BIS risk-weighted assets whereas the FINMA capital requirement covering ratio compares total capital with FINMA required capital.

Description of regulatory approaches

The Basel II framework provides a range of options for determining the capital requirements in order to allow banks and supervisors the ability to select approaches that are most appropriate. In general, Credit Suisse has adopted the Advanced Model Approaches, which align with the way that risk is internally managed and provide the greatest risk sensitivity. Basel II and Basel II.5 focuses on credit risk, market risk, operational risk, securitization risk in the banking book and equity and interest rate risk in the banking book. The regulatory approaches for each of these risk exposures and the related disclosures under Pillar 3 are set forth below.

Credit risk

Basel II permits banks a choice between two broad methodologies in calculating their capital requirements for credit risk, the internal ratings-based (IRB) approach or the standardized approach. Off-balance-sheet items are converted into credit exposure equivalents through the use of credit conversion factors (CCF).

The majority of our credit risk is with institutional counterparties (sovereigns, other institutions, banks and corporates) and arises from lending and trading activity in the Investment Banking and Private Banking divisions. The remaining credit risk is with retail counterparties and mostly arises in the Private Banking division from residential mortgage loans and other secured lending, including loans collateralized by securities.

Advanced internal ratings-based approach

Under the IRB approach, risk weights are determined by using internal risk parameters. We have received approval from FINMA to use, and have fully implemented, the advanced internal ratings-based (A-IRB) approach whereby we provide our own estimates for probability of default (PD), loss given default (LGD) and exposure at default (EAD). We use the A-IRB approach to determine our institutional credit risk and most of our retail credit risk.

PD parameters capture the risk of a counterparty defaulting over a one-year time horizon. PD estimates are based on time-weighted averages of historical default rates by rating grade, with low-default-portfolio estimation techniques applied for higher quality rating grades. Each PD reflects the internal rating for the relevant obligor.

LGD parameters consider seniority, collateral, counterparty industry and in certain cases fair value markdowns. LGD estimates are based on an empirical analysis of historical loss rates and are calibrated to reflect time and cost of recovery as well as economic downturn conditions. For much of the Private Banking loan portfolio, the LGD is primarily dependent upon the type and amount of collateral pledged. For other retail credit risk, predominantly loans secured by financial collateral, pool LGDs differentiate between standard and higher risks, as well as domestic and foreign transactions. The credit approval and collateral monitoring process are based on loan-to-value limits. For mortgages (residential or commercial), recovery rates are differentiated by type of property.

EAD is either derived from balance sheet values or by using models. EAD for a non-defaulted facility is an estimate of the gross exposure upon default of the obligor. Estimates are derived based on a CCF approach using default-weighted averages of historical realized conversion factors on defaulted loans by facility type. Estimates are calibrated to capture negative operating environment effects.

We have received approval from FINMA to use the internal model method for measuring counterparty risk for the majority of our derivative and secured financing exposures.

Risk weights are calculated using either the PD/LGD approach or the supervisory risk weights (SRW) approach for certain types of specialized lending.

Standardized approach

Under the standardized approach, risk weights are determined either according to credit ratings provided by recognized external credit assessment institutions or, for unrated exposures, by using the applicable regulatory risk weights. Less than 10% of our credit risk is determined using this approach.

Market risk

For calculating the capital requirements for market risk, the internal models approach (IMA), the standardized measurement method (SMM) and the standardized approach (SA) are used.

Internal models approach

We have received approval from FINMA, as well as from certain other regulators of our subsidiaries, to use our VaR model to calculate trading book market risk capital requirements under the IMA. We apply the IMA to the majority of the positions in our trading book. We continue to receive regulatory approval for ongoing enhancements to the VaR methodology, and the VaR model is subject to regular reviews by regulators and auditors.

The market risk IMA framework has been extended to include an incremental risk capital charge (IRC) and stressed VaR, to meet the Basel II.5 market risk framework. The IRC is a regulatory capital charge for default and migration risk on positions in the trading books and intended to complement additional standards being applied to the VaR modelling framework, including stressed VaR. Stressed VaR replicates a VaR calculation on the Group’s current portfolio taking into account a one-year observation period relating to significant financial stress and helps reducing the pro-cyclicality of the minimum capital requirements for market risk.

The IRC model is required to measure the aggregate risk from the exposure to default and migration risk from positions in our trading book. The positions that contribute to IRC are bond positions where we are exposed to profit or loss on default or rating migration of the bond issuer, credit defaults swaps (CDS) positions were we are exposed to credit events affecting the reference entity, and, to a lesser extent, derivatives that reference bonds and CDSs such as bond options and CDS swaptions. Equity positions are typically not included in IRC, but some exceptions exist, such as convertible instruments. Positions excluded from IRC include securitization position and credit correlation products (such as synthetic CDOs, and nth-to-default (NTD) trades).

The IRC model assesses risk at 99.9% confidence over a one year time horizon assuming that positions are sold and replaced one or more times. At the same time upon replacement, the model considers credit quality of the old position and assesses the effect of declining or upgrading of credit quality which may lead to changes in the overall assessment of IRC.

The level of capital assigned by the IRC model to a position in the trading book depends on its liquidity horizon which represents time required to sell the positions or hedge all material risk covered by the IRC model in a stressed market. The absolute liquidity horizons are imposed by Basel II guidelines. In general, positions with shorter assigned liquidity horizons will contribute less to overall IRC.

The IRC model and liquidity horizon methodology have been validated in accordance with the firms validation umbrella policy and IRC sub-policy, with focus on the modelling framework, use of data, benchmarking and documentation.

Standardized measurement method

We use the SMM which is based on the ratings-based approach (RBA) and the supervisory formula approach (SFA) for securitization purposes (see also Securitization risk in the banking book) and the standardized approach for NTD trades.

Standardized approach

We use the standardized approach to determine our market risk for a small population of positions which represent an immaterial proportion of our overall market risk exposure.

Operational risk

We have received approval from FINMA to use the advanced measurement approach (AMA) for measuring operational risk. The economic capital/AMA methodology is based upon the identification of a number of key risk scenarios that describe the major operational risks that we face. Groups of senior staff review each scenario and discuss the likelihood of occurrence and the potential severity of loss. Internal and external loss data, along with certain business environment and internal control factors, such as self-assessment results and key risk indicators, are considered as part of this process. Based on the output from these meetings, we enter the scenario parameters into an operational risk model that generates a loss distribution from which the level of capital required to cover operational risk is determined. Insurance mitigation is included in the capital assessment where appropriate, by considering the level of insurance coverage for each scenario and incorporating haircuts as appropriate.

Securitization risk in the banking book

For securitizations, the regulatory capital requirements are calculated using IRB approaches: the RBA and the SFA, applied in accordance with the prescribed hierarchy of approaches in the Basel regulations. External ratings used in regulatory capital calculations for securitization risk exposures in the banking book are obtained from Fitch, Moody’s, Standard & Poor’s or Dominion Bond Rating Service.

Other risks

For equity type securities in the banking book, risk weights are determined using the IRB Simple approach based on the equity sub-asset type (qualifying private equity, listed equity and all other equity positions).

Regulatory fixed risk weights are applied to settlement and non-counterparty-related exposures. Settlement exposures arise from unsettled or failed transactions where cash or securities are delivered without a corresponding receipt. Non-counterparty-related exposures arise from holdings of premises and equipment, real estate and investments in real estate entities.

For other items, we received approval from FINMA to apply a simplified Institute Specific Direct Risk Weight approach to immaterial portfolios.

Risk-weighted assets
		Basel II.5						Basel II
		2011					1	2010
end of		Ad- vanced		Stan- dardized		Total		Ad- vanced		Stan- dardized		Total
Risk-weighted assets (CHF million)
Sovereigns		4,907		61		4,968		5,495		–		5,495
Other institutions		1,509		114		1,623		1,443		–		1,443
Banks		19,717		347		20,064		20,268		74		20,342
Corporates		82,108		155		82,263		87,987		–		87,987
Residential mortgage		11,193		–		11,193		11,665		–		11,665
Qualifying revolving retail		289		–		289		319		–		319
Other retail		9,307		8		9,315		7,545		300		7,845
Other exposures		–		8,054		8,054		–		5,031		5,031
Credit risk 2		129,030		8,739		137,769		134,722		5,405		140,127
Market risk 3		39,459		1,150		40,609		17,647		1,277		18,924
Operational risk		36,088		–		36,088		33,662		–		33,662
Equity type securities in the banking book		11,673		–		11,673		12,471		–		12,471
Securitization risk in the banking book		5,752		62		5,814		3,585		–		3,585
Settlement risk		–		397		397		–		922		922
Non-counterparty-related risk		–		7,819		7,819		–		7,380		7,380
Other items		–		1,584		1,584		–		1,631		1,631
Total risk-weighted assets 4		222,002		19,751		241,753		202,087		16,615		218,702
Other multipliers 5		713		16,676		17,389		788		15,542		16,330
VaR hedge fund add-on 6		1,424		–		1,424		2,436		–		2,436
Total FINMA risk-weighted assets 4		224,139		36,427		260,566		205,311		32,157		237,468
1    For BIS reporting purposes, Basel II.5 was effective as of December 31, 2011.   2    For a description of the asset classes refer to section 4 - Credit risk.   3    Impact reflects the additional risk-weighted assets, as specified by the BCBS and outlined in the "Revisions to the Basel II market risk framework" (Basel II.5).   4    Incremental Basel II.5 impact is only reflected in the 2011 numbers prospectively. Inclusion of Basel II.5 resulted in an increase in risk-weighted assets, which otherwise would have decreased over the period. Prior year numbers have not been restated and reflect Basel II.   5    Primarily related to credit non-counterparty-related risk.   6    The VaR hedge fund capital add-on is stress-test-based and was introduced by the FINMA in 2008 for hedge fund exposures in the trading book. This capital add-on is required for the FINMA calculation in addition to the VaR-based market risk capital charge already included in BIS capital. For further information, refer to section 6 – Market risk.

BIS and FINMA statistics
		Group				Bank
end of		2011 Basel II.5	1	2010 Basel II		2011 Basel II.5	1	2010 Basel II
BIS statistics
Core tier 1 capital (CHF million)		25,956		26,627		22,571		24,721
Tier 1 capital (CHF million) 2		36,844		37,725		33,459		35,310
Total eligible capital (CHF million)		48,654		47,799		46,628		47,569
Core tier 1 ratio (%)		10.7		12.3		9.8		12.0
Tier 1 ratio (%)		15.2		17.2		14.5		17.1
Total capital ratio (%)		20.1		21.9		20.2		23.1
FINMA statistics
FINMA required capital (CHF million) 3		20,845		18,997		19,813		17,856
Capital requirement covering ratio (%) 2		233.4		251.6		235.3		266.4
1    For BIS reporting purposes, Basel II.5 was effective as of December 31, 2011.   2    Tier 1 capital for 2011 includes the impact of additional Basel II.5 capital deductions of CHF 1,185 million.   3    Calculated as 8% of total risk-weighted assets.

3. Risk exposure and assessment

The Group is exposed to several key banking risks such as credit risk (refer to section 4 – Credit risk), market risk (refer to section 6 – Market risk), operational risk (refer to section 7 – Operational risk), equity risk in the banking book (refer to section 8 – Equity securities in the banking book) and interest rate risk in the banking book (refer to section 9 – Interest rate risk in the banking book.

> Refer to “Risk management” (pages 110 to 114) in III – Treasury, Risk, Balance sheet and Off-balance sheet in the Credit Suisse Annual Report 2011 for information on risk management oversight including risk governance, risk organization, risk types and risk appetite and risk limits.

4. Credit risk

General

> Refer to “Credit risk” (pages 123 to 133) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2011 for information on our credit risk management approach, ratings and risk mitigation and impaired exposures and allowances.

For regulatory purposes, we categorize our exposures into broad classes of assets with different underlying risk characteristics including type of counterparty, size of exposure and type of collateral. The asset class categorization is driven by Basel II regulatory rules. The credit asset classes under Basel II are set forth below and are grouped as either institutional or retail.

Institutional credit risk

– Sovereigns: exposures to central governments, central banks, BIS, the International Monetary Fund, the European Central Bank and eligible Multilateral Development Banks (MDB).

– Other institutions: exposures to public bodies with the right to raise taxes or whose liabilities are guaranteed by a public sector entity.

– Banks: exposures to banks, securities firms, stock exchanges and those MDB that do not qualify for sovereign treatment.

– Corporates: exposures to corporations (except small businesses) and public sector entities with no right to raise taxes and whose liabilities are not guaranteed by a public entity. The Corporate asset class also includes specialized lending, in which the lender looks primarily to a single source of revenues to cover the repayment obligations and where only the financed asset serves as security for the exposure (e.g., income producing real estate or commodities finance).

Retail credit risk

– Residential mortgages: includes exposures secured by residential real estate collateral occupied or let by the borrower.

– Qualifying revolving retail: includes credit card receivables and overdrafts.

– Other retail: includes loans collateralized by securities and small business exposures.

Other credit risk

– Other exposures: includes exposures with insufficient information to treat under the A-IRB approach or to allocate under the Standardized approach into any other asset class.

Gross credit exposures by regulatory approach and risk-weighted assets
		A-IRB						Stan- dardized		Total		Risk- weighted assets
		PD/LGD				SRW
end of		Pre- substitution	1	Post- substitution
2011 (CHF million)
Sovereigns		115,834		113,659		–		7,783		121,442		4,968
Other institutions		5,554		5,567		–		538		6,105		1,623
Banks		59,349		65,090		17		1,219		66,326		20,064
Corporates		187,801		184,222		1,401		650		186,273		82,263
Total institutional credit exposures		368,538		368,538		1,418		10,190		380,146		108,918
Residential mortgage		92,820		92,820		–		–		92,820		11,193
Qualifying revolving retail		174		174		–		–		174		289
Other retail		53,993		53,993		–		8		54,001		9,315
Total retail credit exposures		146,987		146,987		–		8		146,995		20,797
Other exposures		–		–		–		15,515		15,515		8,054
Total gross credit exposures		515,525		515,525		1,418		25,713		542,656		137,769
2010 (CHF million)
Sovereigns		68,190		68,465		–		–		68,465		5,495
Other institutions		5,115		4,972		–		–		4,972		1,443
Banks		72,081		77,168		11		370		77,549		20,342
Corporates		194,878		189,659		1,949		–		191,608		87,987
Total institutional credit exposures		340,264		340,264		1,960		370		342,594		115,267
Residential mortgage		90,939		90,939		–		–		90,939		11,665
Qualifying revolving retail		192		192		–		–		192		319
Other retail		50,833		50,833		–		591		51,424		7,845
Total retail credit exposures		141,964		141,964		–		591		142,555		19,829
Other exposures		–		–		–		9,220		9,220		5,031
Total gross credit exposures		482,228		482,228		1,960		10,181		494,369		140,127
1    Gross credit exposures are shown pre- and post-substitution as, in certain circumstances, credit risk mitigation is reflected by shifting the counterparty exposure from the underlying obligor to the protection provider.

Gross credit exposures and risk-weighted assets
		2011						2010
		End of		Monthly average		Risk- weighted assets		End of		Monthly average		Risk- weighted assets
Gross credit exposures (CHF million)
Loans, deposits with banks and other assets 1		370,027		321,075		77,948		302,088		305,385		71,565
Guarantees and commitments		59,990		66,652		23,465		72,074		76,781		27,881
Securities financing transactions		30,664		32,179		3,716		32,259		36,928		4,836
Derivatives		81,975		86,624		32,640		87,948		98,845		35,845
Total		542,656		506,530		137,769		494,369		517,939		140,127
1    Includes interest bearing deposits with banks, banking book loans, available-for-sale debt securities and other receivables.

Geographic distribution of gross credit exposures
end of		Switzerland		EMEA		Americas		Asia Pacific		Total
2011 (CHF million)
Loans, deposits with banks and other assets 1		168,961		103,947		73,285		23,834		370,027
Guarantees and commitments		13,319		17,962		27,030		1,679		59,990
Securities financing transactions		3,553		8,747		17,491		873		30,664
Derivatives		7,928		43,543		22,516		7,988		81,975
Total		193,761		174,199		140,322		34,374		542,656
2010 (CHF million)
Loans, deposits with banks and other assets 1		135,613		69,013		78,129		19,333		302,088
Guarantees and commitments		13,753		23,482		32,508		2,331		72,074
Securities financing transactions		5,199		8,769		17,088		1,203		32,259
Derivatives		6,626		45,935		26,692		8,695		87,948
Total		161,191		147,199		154,417		31,562		494,369
The geographic distribution is based on the country of incorporation or the nationality of the counterparty, shown pre-substitution.
1    Includes interest bearing deposits with banks, banking book loans, available-for-sale debt securities and other receivables.

Industry distribution of gross credit exposures
end of		Financial institutions		Commercial		Consumer		Public authorities		Total
2011 (CHF million)
Loans, deposits with banks and other assets 1		16,659		131,130		109,522		112,716		370,027
Guarantees and commitments		3,292		51,141		3,582		1,975		59,990
Securities financing transactions		9,429		17,923		32		3,280		30,664
Derivatives		31,239		37,794		1,770		11,172		81,975
Total		60,619		237,988		114,906		129,143		542,656
2010 (CHF million)
Loans, deposits with banks and other assets 1		18,714		121,004		103,847		58,523		302,088
Guarantees and commitments		1,920		65,931		1,864		2,359		72,074
Securities financing transactions		14,639		14,270		34		3,316		32,259
Derivatives		38,275		39,347		1,551		8,775		87,948
Total		73,548		240,552		107,296		72,973		494,369
Exposures are shown pre-substitution.
1    Includes interest bearing deposits with banks, banking book loans, available-for-sale debt securities and other receivables.

Remaining contractual maturity of gross credit exposures
end of		within 1 year	1	within 1-5 years		Thereafter		Total
2011 (CHF million)
Loans, deposits with banks and other assets 2		231,016		102,323		36,688		370,027
Guarantees and commitments		21,488		35,935		2,567		59,990
Securities financing transactions		30,598		57		9		30,664
Derivatives		29,837		49,475		2,663		81,975
Total		312,939		187,790		41,927		542,656
2010 (CHF million)
Loans, deposits with banks and other assets 2		181,826		86,185		34,077		302,088
Guarantees and commitments		26,751		42,242		3,081		72,074
Securities financing transactions		32,254		0		5		32,259
Derivatives		34,733		51,799		1,416		87,948
Total		275,564		180,226		38,579		494,369
1    Includes positions without agreed residual contractual maturity.   2    Includes interest bearing deposits with banks, banking book loans, available-for-sale debt securities and other receivables.

Portfolios subject to PD/LGD approach

Rating models

Rating models are based on statistical data and are subject to a thorough review before implementation. Credit rating models are developed by Risk Analytics & Reporting (RAR) or Credit Risk Management (CRM) and independently validated by Risk Model Validation prior to use within the Basel II regulatory capital calculation, and thereafter on a regular basis. To ensure that ratings are consistent and comparable across all businesses, we have used an internal rating scale which is benchmarked to an external rating agency using the historical PD associated with external ratings.

At the time of initial credit approval and review, relevant quantitative data (such as financial statements and financial projections) and qualitative factors relating to the counterparty are used by CRM in the models and result in the assignment of a credit rating or PD, which measures the counterparty’s risk of default over a one-year period.

New or materially changed rating models are submitted for approval to the Risk Processes and Standards Committee (RPSC) prior to implementation. RPSC reviews the continued use of existing models on an annual basis.

CRM is an independent function with responsibility for approving credit ratings and limits, monitoring and managing individual exposures and assessing and managing the quality of the segment and business area’s credit portfolios. RAR is an independent function with responsibility for risk analytics, reporting, systems implementation and policies. CRM and RAR report to the Chief Risk Officer.

Descriptions of the rating processes

For the purposes of internal ratings, we have developed a set of credit rating models tailored for different internal client segments in both Investment Banking and Private Banking (e.g., international corporates, financial institutions, asset finance, small and medium-sized entities, commodity traders, residential mortgages, etc.) and transaction types.

Counterparty and transaction rating process – Corporates (excluding corporates managed on the Swiss platform), banks and sovereigns (primarily in the Investment Banking division)

Internal ratings are based on the analysis and evaluation of both quantitative and qualitative factors. The specific factors analyzed are dependent on the type of counterparty. The analysis emphasizes a forward looking approach, concentrating on economic trends and financial fundamentals. Credit officers make use of peer analysis, industry comparisons, external ratings and research and the judgment of credit experts.

For structured and asset finance deals, the approach is more quantitative. The focus is on the performance of the underlying assets, which represent the collateral of the deal. The ultimate rating is dependent upon the expected performance of the underlying assets and the level of credit enhancement of the specific transaction. Additionally, a review of the originator and/or servicer is performed. External ratings and research (rating agency and/or fixed income and equity), where available, are incorporated into the rating justification, as is any available market information (e.g., bond spreads, equity performance).

Transaction ratings are based on the analysis and evaluation of both quantitative and qualitative factors. The specific factors analyzed include seniority, industry and collateral. The analysis emphasizes a forward looking approach.

Counterparty and transaction rating process – Corporates managed on the Swiss platform, mortgages and other retail (primarily in the Private Banking division)

For corporates managed on the Swiss platform and mortgage lending, the statistically derived rating models, which are based internally compiled data comprising both quantitative factors (primarily loan-to-value ratio and the borrower’s income level for mortgage lending and balance sheet information for corporates) and qualitative factors (e.g., credit histories from credit reporting bureaus). Collateral loans, which form the largest part of “other retail”, are treated according to Basel II rules with pool PD and pool LGD based on historical loss experience. Most of the collateral loans are loans collateralized by securities.

As a rule, the allocation of exposures to institutional or retail as outlined in the following tables is based on the rating models segment split, but also takes into account further explicit regulatory rules.

Relationship between PD bands and counterparty ratings
		PD bands (%)			1
		2011		2010
Counterparty ratings
AAA		0.000-0.022		0.000-0.022
AA		0.022-0.044		0.022-0.045
A		0.044-0.097		0.045-0.099
BBB		0.097-0.487		0.099-0.501
BB		0.487-2.478		0.501-2.528
B or lower		2.478-99.999		2.528-99.999
Default (net of specific provisions)		–		–
1    PD bands are subject to slight changes over time as a result of routine recalibrations of PD parameters, which are generally updated on an annual basis.

Institutional credit exposures by counterparty rating under PD/LGD approach
end of 2011		Total exposure (CHF m)		Exposure- weighted average LGD (%)		Exposure- weighted average risk weight (%)	1	Undrawn commit- ments (CHF m)
Sovereigns
AAA		65,664		9.35		1.71		4
AA		40,624		5.63		1.04		–
A		3,752		51.55		34.76		15
BBB		2,542		56.16		32.13		–
BB		829		20.64		44.11		–
B or lower		247		46.08		241.96		–
Default (net of specific provisions)		1		–		–		–
Total credit exposure		113,659		–		–		19
Exposure-weighted average CCF (%) 2		99.81		–		–		–
Other institutions
AAA		–		–		–		–
AA		3,541		51.00		16.85		189
A		986		53.36		33.54		164
BBB		867		45.44		34.61		241
BB		88		34.64		70.37		8
B or lower		85		43.75		158.28		–
Default (net of specific provisions)		–		–		–		–
Total credit exposure		5,567		–		–		602
Exposure-weighted average CCF (%) 2		81.01		–		–		–
Banks
AAA		–		–		–		1
AA		18,224		53.79		15.19		26
A		32,133		54.14		21.26		134
BBB		9,256		44.92		39.42		7
BB		3,933		52.21		97.02		39
B or lower		1,281		27.65		99.10		11
Default (net of specific provisions)		263		–		–		–
Total credit exposure		65,090		–		–		218
Exposure-weighted average CCF (%) 2		95.58		–		–		–
Corporates
AAA		–		–		–		–
AA		39,909		42.50		12.22		9,206
A		41,577		47.58		19.81		12,385
BBB		45,307		41.95		39.35		9,845
BB		43,593		37.41		69.84		5,576
B or lower		11,740		34.05		116.56		3,199
Default (net of specific provisions)		2,096		–		–		10
Total credit exposure		184,222		–		–		40,221
Exposure-weighted average CCF (%) 2		78.67		–		–		–
Total institutional credit exposure		368,538		–		–		41,060
1    The exposure-weighted average risk weights in percentage terms is the multiplier applied to regulatory exposures to derive risk-weighted assets, and may exceed 100%.   2    Calculated before credit risk mitigation.

Institutional credit exposures by counterparty rating under PD/LGD approach (continued)
end of 2010		Total exposure (CHF m)		Exposure- weighted average LGD (%)		Exposure- weighted average risk weight (%)	1	Undrawn commit- ments (CHF m)
Sovereigns
AAA		55,195		10.41		1.91		5
AA		8,852		49.89		19.77		–
A		949		48.51		26.43		20
BBB		2,830		55.76		44.88		–
BB		323		44.64		108.09		–
B or lower		314		48.68		161.74		–
Default (net of specific provisions)		2		–		–		–
Total credit exposure		68,465		–		–		25
Exposure-weighted average CCF (%) 2		99.87		–		–		–
Other institutions
AAA		–		–		–		–
AA		3,227		54.21		18.57		231
A		670		53.69		32.94		162
BBB		902		45.72		36.86		357
BB		110		46.48		91.78		8
B or lower		63		47.16		170.55		–
Default (net of specific provisions)		–		–		–		–
Total credit exposure		4,972		–		–		758
Exposure-weighted average CCF (%) 2		81.72		–		–		–
Banks
AAA		–		–		–		–
AA		23,751		53.64		14.25		27
A		40,383		53.89		17.91		146
BBB		8,738		53.52		49.26		365
BB		3,320		51.20		87.75		14
B or lower		777		39.47		138.67		7
Default (net of specific provisions)		199		–		–		–
Total credit exposure		77,168		–		–		559
Exposure-weighted average CCF (%) 2		96.28		–		–		–
Corporates
AAA		–		–		–		–
AA		38,866		44.66		13.65		12,223
A		50,136		50.37		23.80		15,028
BBB		44,773		41.46		38.92		11,115
BB		40,539		39.27		74.38		5,222
B or lower		13,543		32.83		116.03		3,282
Default (net of specific provisions)		1,802		–		–		56
Total credit exposure		189,659		–		–		46,926
Exposure-weighted average CCF (%) 2		83.28		–		–		–
Total institutional credit exposure		340,264		–		–		48,268
1    The exposure-weighted average risk weights in percentage terms is the multiplier applied to regulatory exposures to derive risk-weighted assets, and may exceed 100%.   2    Calculated before credit risk mitigation.

Retail credit exposures by expected loss band under PD/LGD approach
end of 2011		Total exposure (CHF m)		Exposure- weighted average LGD (%)		Exposure- weighted average risk weight (%)	1	Undrawn commit- ments (CHF m)
Residential mortgages
0.00%-0.15%		82,228		16.56		7.94		1,155
0.15%-0.30%		6,122		24.89		26.66		206
0.30%-1.00%		3,913		28.96		47.58		235
1.00% and above		287		28.85		94.05		1
Defaulted (net of specific provisions)		270		–		–		3
Total credit exposure		92,820		–		–		1,600
Exposure-weighted average CCF (%) 2		97.34		–		–		–
Qualifying revolving retail
0.00%-0.15%		–		–		–		–
0.15%-0.30%		–		–		–		–
0.30%-1.00%		–		–		–		–
1.00% and above		173		60.00		157.31		–
Defaulted (net of specific provisions)		1		–		–		–
Total credit exposure		174		–		–		–
Exposure-weighted average CCF (%) 2		99.84		–		–		–
Other retail
0.00%-0.15%		47,765		47.66		14.35		467
0.15%-0.30%		1,095		50.29		31.33		99
0.30%-1.00%		2,589		43.14		33.53		145
1.00% and above		2,353		21.62		32.55		29
Defaulted (net of specific provisions)		191		–		–		3
Total credit exposure		53,993		–		–		743
Exposure-weighted average CCF (%) 2		95.58		–		–		–
Total retail credit exposure		146,987		–		–		2,343
1    The exposure-weighted average risk weights in percentage terms is the multiplier applied to regulatory exposures to derive risk-weighted assets, and may exceed 100%.   2    Calculated before credit risk mitigation.

Retail credit exposures by expected loss band under PD/LGD approach (continued)
end of 2010		Total exposure (CHF m)		Exposure- weighted average LGD (%)		Exposure- weighted average risk weight (%)	1	Undrawn commit- ments (CHF m)
Residential mortgages
0.00%-0.15%		79,372		16.69		8.38		365
0.15%-0.30%		6,801		23.43		26.39		59
0.30%-1.00%		4,151		28.19		47.23		33
1.00% and above		312		28.29		94.06		–
Defaulted (net of specific provisions)		303		–		–		1
Total credit exposure		90,939		–		–		458
Exposure-weighted average CCF (%) 2		99.23		–		–		–
Qualifying revolving retail
0.00%-0.15%		–		–		–		–
0.15%-0.30%		–		–		–		–
0.30%-1.00%		–		–		–		–
1.00% and above		191		60.00		157.31		–
Defaulted (net of specific provisions)		1		–		–		–
Total credit exposure		192		–		–		–
Exposure-weighted average CCF (%) 2		99.65		–		–		–
Other retail
0.00%-0.15%		45,754		53.37		9.73		923
0.15%-0.30%		923		50.23		31.61		144
0.30%-1.00%		1,661		35.71		43.07		165
1.00% and above		2,239		42.38		61.12		21
Defaulted (net of specific provisions)		256		–		–		3
Total credit exposure		50,833		–		–		1,256
Exposure-weighted average CCF (%) 2		95.24		–		–		–
Total retail credit exposure		141,964		–		–		1,714
1    The exposure-weighted average risk weights in percentage terms is the multiplier applied to regulatory exposures to derive risk-weighted assets, and may exceed 100%.   2    Calculated before credit risk mitigation.

Loss analysis – regulatory expected loss vs. cumulative actual loss

The following table shows the regulatory expected loss as of the beginning of the years compared with the cumulative actual loss incurred during the year ended December 31, 2011 and 2010, respectively, for those portfolios where credit risk is calculated using the IRB approach.

Analysis of expected loss vs. cumulative actual loss
		2011				2010
		Expected loss (beginning of year)		Cumulative actual loss		Expected loss (beginning of year)		Cumulative actual loss
Losses (CHF million)
Sovereigns		27		8		62		8
Banks		408		342		443		364
Other institutions		3		0		2		1
Corporates 1		959		805		1,159		673
Residential mortgages		160		84		183		116
Other retail (including qualifying revolving retail)		289		313		329		320
Total losses		1,846		1,552		2,178		1,482
1    Excludes specialized lending portfolios that are not subject to the PD/LGD approach. Prior period balances have been restated in order to show comparable numbers.

Regulatory expected loss

Regulatory expected loss is a Basel II measure based on Pillar 1 metrics which is an input to the capital adequacy calculation. Regulatory expected loss can be seen as an expectation of average future loss as derived from our IRB models, and is not a prediction of future impairment. For non-defaulted assets, regulatory expected loss is calculated using PD and downturn LGD estimates. For the calculation of regulatory expected loss for defaulted accrual accounted assets, PD is 100% and LGD is based on an estimate of likely recovery levels for each asset.

Cumulative actual loss

Cumulative actual loss comprises two parts: the opening impairment balance and the net specific impairment losses for loans held at amortized cost and actual value charges providing an equivalent impairment measure for both fair value loans and counterparty exposures as if these were loans held at amortized cost (excluding any realized credit default swap gains). The actual value charges may not necessarily be the same as the fair value movements recorded through the consolidated statements of operations.

Cumulative actual loss can also include charges against assets that were originated during the year and were therefore outside of the scope of the regulatory expected loss calculated at the beginning of the year. Cumulative actual loss does not include the effects on the impairment balance of amounts written off during the year.

The average cumulative actual loss over the last two years is below the expected loss estimates reflecting a level of conservatism in the corporate and residential mortgage rating models. Other retail models were recalibrated upwards in 2011 resulting in a higher expected loss.

The following table presents the components of the cumulative actual loss.

Cumulative actual loss
		2011								2010
		Opening impairment balance		Specific impairment losses		Actual value charges		Total actual loss		Opening impairment balance		Specific impairment losses		Actual value charges		Total actual loss
CHF million
Sovereigns		8		0		0		8		8		0		0		8
Banks		339		3		0		342		364		0		0		364
Other institutions		0		0		0		0		1		0		0		1
Corporates 1		407		73		325		805		557		(68)		184		673
Residential mortgages		82		2		0		84		107		9		0		116
Other retail		201		112		0		313		240		80		0		320
Total		1,037		190		325		1,552		1,277		21		184		1,482
1    Excludes specialized lending portfolios that are not subject to the PD/LGD approach. Prior period balances have been restated in order to show comparable numbers.

Credit Model Performance – estimated vs. actual

The following tables present the forecast and actual PD, LGD and EAD CCF for assets under the IRB approach. Estimated values of PD, LGD and CCF reflect probable long-run average values, allowing for possible good and bad outcomes in different years. Because they represent long-run averages, PD, LGD and CCF shown are not intended to predict outcomes in any particular year, and cannot be regarded as predictions of the corresponding actual reported results.

Analysis of expected credit model performance vs. actual results – Private Banking
		PD of total portfolio (%)				LGD of defaulted assets (%)
		Estimated		Actual		Estimated		Actual
Corporates		0.74		0.41		44		13
Residential mortgages		0.50		0.19		22		7
Other retail		0.35		0.47		51		41
CCF of defaulted assets only disclosed on a total Private Banking basis. Estimated CCF: 26%; actual CCF:21%.

Private Banking

Estimated PD, LGD and CCF for Private Banking are derived from a counterparty-weighted average from each model, and then mapped to the regulatory asset class directly or mapped using an exposure-weighted (model to asset class) average.

In the table above, the comparison between actual and estimated parameters for Private Banking is derived from the latest available internal portfolio reviews used within the model performance and validation framework and where possible, multi-year analysis is applied.

Actual PDs for Corporate and Residential mortgage asset classes are below the estimate as the through-the-cycle-model-calibration includes a margin of conservatism, whereas the PD results for Other Retail portfolios are higher than the estimate, leading to the requirement for a re-calibration of the model.

Actual LGDs results for Residential mortgage clients are materially below estimated LGD, reflecting a relatively cautious model calibration.

Analysis of expected credit model performance vs. actual results – Investment Banking
		PD of total portfolio (%)				LGD of defaulted assets (%)				CCF of defaulted assets (%)
		Estimated		Actual		Estimated		Actual		Estimated		Actual
Sovereigns		1.02		0.00		–		–		–		–
Banks		0.95		0.20		55		43		65		47
Corporates and other institutions		1.29		0.46		40		33		65		46

Investment Banking

Estimated and actual PD, LGD and CCF for Investment Banking are counterparty-weighted averages in the year of default, and then for the multi-year based disclosure, we use a simple average PD, whereas for the calculation of LGD and CCF a counterparty-weighted average across all years is used.

The table above shows that realized LGD, CCF levels and default rates are below model estimates. This is a reflection of conservatism within parameter settings, together with year-on-year variation in realized values of these parameters.

There were no sovereign defaults in the period under review.

Portfolios subject to the standardized and supervisory risk weights approaches

Standardized approach

Under the standardized approach, risk weights are determined either according to credit ratings provided by recognized external credit assessment institutions or, for unrated exposures, by using the applicable regulatory risk weights. Less than 10% of our credit risk is determined using this approach.

Supervisory risk weights approach

For specialized lending exposures, internal rating grades are mapped to one of five supervisory categories, associated with a specific risk weight under the SRW approach.

Equity IRB Simple approach

For equity type securities in the banking book, risk weights are determined using the IRB Simple approach, which differentiates by equity sub-asset types (qualifying private equity, listed equity and all other equity positions).

Standardized and supervisory risk weighted exposures after risk mitigation by risk weighting bands
end of		Standardized approach	1	SRW		Equity IRB Simple		Total
2011 (CHF million)
0%		13,857		1,087		0		14,944
1%-50%		4,704		19		0		4,723
51%-100%		7,152		249		0		7,401
101%-200%		0		58		2,733		2,791
201%-400%		0		5		1,757		1,762
Total		25,713		1,418		4,490		31,621
2010 (CHF million)
0%		3,332		1,158		0		4,490
1%-50%		2,565		316		0		2,881
51%-100%		4,284		354		0		4,638
101%-200%		0		45		3,264		3,309
201%-400%		0		87		1,701		1,788
Total		10,181		1,960		4,965		17,106
1    Movements primarily reflect the reclassification of treasury liquidity positions from trading book to banking book with calculation under standardized approach.

Credit risk mitigation used for A-IRB and standardized approaches

Credit risk mitigation processes used under the A-IRB and standardized approaches include on- and off-balance sheet netting and utilizing eligible collateral as defined under the IRB approach.

Netting

> Refer to “Derivative instruments” (pages 132 to 133) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management and to “Note 1 – Summary of significant accounting policies” (page 223) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2011 for information on policies and procedures for on- and off-balance sheet netting.

Collateral valuation and management

The policies and processes for collateral valuation and management are driven by:

– a legal document framework that is bilaterally agreed with our clients; and

– a collateral management risk framework enforcing transparency through self-assessment and management reporting.

For collateralized portfolio by marketable securities, the valuation is performed daily. Exceptions are governed by the calculation frequency described in the legal documentation. The mark-to-market prices used for valuing collateral are a combination of firm and market prices sourced from trading platforms and service providers, where appropriate. The management of collateral is standardized and centralized to ensure complete coverage of traded products.

For the Private Banking mortgage lending portfolio, real estate property is valued at the time of credit approval and periodically afterwards, according to our internal directives and controls, depending on the type of loan (e.g., residential, commercial) and loan-to-value ratio.

Primary types of collateral

The primary types of collateral are described below.

Collateral securing foreign exchange transactions and over-the-counter (OTC) trading activities primarily includes:

– Cash and US Treasury instruments;

– G-10 government securities; and

– Gold or other precious metals.

Collateral securing loan transactions primarily includes:

– Financial collateral pledged against loans collateralized by securities of Private Banking clients (primarily cash and marketable securities);

– Real estate property for mortgages, mainly residential, but also multi-family buildings, offices and commercial properties; and

– Other types of lending collateral, such as accounts receivable, inventory, plant and equipment.

Concentrations within risk mitigation

Our Investment Banking division is an active participant in the credit derivatives market and trades with a variety of market participants, principally commercial banks and broker dealers. Credit derivatives are primarily used to mitigate investment grade counterparty exposures.

Concentrations in our Private Banking lending portfolio arise due to a significant volume of mortgages in Switzerland. The financial collateral used to secure loans collateralized by securities worldwide is generally diversified and the portfolio is regularly analyzed to identify any underlying concentrations, which may result in lower loan-to-value ratios.

> Refer to “Credit risk” (pages 123 to 133) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2011 for further information on risk mitigation.

Credit risk mitigation used for A-IRB and standardized approaches
end of		Eligible financial collateral		Other eligible IRB collateral		Eligible guarantees /credit derivatives
2011 (CHF million)
Sovereigns		570		0		2,617
Other institutions		116		136		462
Banks		3,724		0		1,439
Corporates		9,365		26,196		22,594
Residential mortgages		3,321		70,496		25
Other retail		45,434		1,007		74
Total		62,530		97,835		27,211
2010 (CHF million)
Sovereigns		99		0		1,066
Other institutions		92		91		230
Banks		1,922		0		1,412
Corporates		8,371		21,606		22,758
Residential mortgages		3,141		69,106		45
Other retail		40,736		1,126		154
Total		54,361		91,929		25,665
Excludes collateral used to adjust EAD (e.g. as applied under the internal models method).

Counterparty credit risk

Counterparty exposure

Counterparty credit risk arises from OTC derivatives, repurchase agreements, securities lending and borrowing and other similar products and activities. The subsequent credit risk exposures depend on the value of underlying market factors (e.g., interest rates and foreign exchange rates), which can be volatile and uncertain in nature.

We have received approval from FINMA to use the internal model method for measuring counterparty risk for the majority of our derivative and secured financing exposures.

Credit limits

All credit exposure is approved, either by approval of an individual transaction/facility (e.g., lending facilities), or under a system of credit limits (e.g., OTC derivatives). Credit exposure is monitored daily to ensure it does not exceed the approved credit limit. These credit limits are set either on a potential exposure basis or on a notional exposure basis. Secondary debt inventory positions are subject to separate limits that are set at the issuer level.

> Refer to “Credit risk” (pages 123 to 133) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2011 for further information on counterparty credit risk, including and transaction rating, credit approval process and provisioning.

Wrong-way exposures

Correlation risk arises when we enter into a financial transaction where market rates are correlated to the financial health of the counterparty. In a wrong-way trading situation, our exposure to the counterparty increases while the counterparty’s financial health and its ability to pay on the transaction diminishes.

Capturing wrong-way risk requires the establishment of basic assumptions regarding correlations for a given trading product. We have multiple processes that allow us to capture and estimate wrong-way risk.

Credit approval and reviews

A primary responsibility of CRM is to monitor counterparty exposure and the creditworthiness of a counterparty, both at the initiation of the relationship and on an ongoing basis. Part of the review and approval process is an analysis and discussion to understand the motivation of the client and to identify the directional nature of the trading in which the client is engaged. Credit limits are agreed in line with the Group’s risk appetite framework taking into account the strategy of the counterparty, the level of disclosure of financial information and the amount of risk mitigation that is present in the trading relationship (e.g., level of collateral).

Exposure adjusted risk calculation

Material trades that feature specific wrong-way risk have higher risk weighting built into the exposure calculation process compared to “right-way” trades.

– Purchased credit default swaps, equity puts and other derivatives – Specific wrong-way risk exists where the counterparty and the underlying reference asset belong to the same group. In these cases, exposure is calculated assuming counterparty default and applying the recovery value of the underlying reference asset.

– Equity finance – If there is a high relatedness between the counterparty and the underlying equity, exposure is calculated as full notional (i.e., zero equity recovery).

– Reverse repurchase agreements – Specific wrong-way risk exists where the underlying issuer and the counterparty are affiliated. In these cases, collateral used as an offset in the exposure calculation process is lowered to its recovery value.

Wrong-way risk monitoring

Wrong-way risk at both the individual trade and portfolio level is regularly reported to allow corrective action to be taken by CRM in the case of heightened concern.

– Country exposure reporting – Exposure is reported against country limits established for emerging market countries. As part of the exposure reporting process, wrong-way risk exposures are given a higher risk weighting versus non-correlated transactions.

– Counterparty exposure reporting – Transactions that contain specific wrong-way risk (e.g., repurchase agreements, equity finance) are risk-weighted as part of the daily exposure calculation process and utilize more of the credit limit.

– Correlated repurchase and foreign exchange reports – Monthly reports produced by CRM capture correlated finance and foreign exchange positions for information and review by credit officers.

– Scenario analysis – In order to capture wrong-way risk at the industry level, a set of defined scenarios are run on the credit portfolio each month. The scenarios are determined by CRM and involve stressing the underlying risk drivers to determine where portfolios are sensitive to these stressed parameters.

– Scenario reporting also covers client groups, particularly hedge funds, which are exposed to particular risk sensitivities and also may have collateral concentrations due to the direction and strategy of the fund.

Effect of a credit rating downgrade

On a daily basis, we monitor the level of incremental collateral that would be required by derivative counterparties in the event of a Credit Suisse ratings downgrade. Collateral triggers are maintained by our collateral management department and vary by counterparty.

> Refer to “Liquidity and funding management” (pages 94 to 95) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Treasury management in the Credit Suisse Annual Report 2011 for further information on the effect of a one, two or three notch downgrade as of December 31, 2011.

The impact of downgrades in the Bank’s long-term debt ratings are considered in the stress assumptions used to determine the conservative funding profile of our balance sheet and would not be material to our liquidity and funding needs.

> Refer to “Liquidity and funding management” (pages 90 to 95) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Treasury management in the Credit Suisse Annual Report 2011 for further information on liquidity and funding management.

Credit exposures on derivative instruments

We enter into derivative contracts in the normal course of business for market making, positioning and arbitrage purposes, as well as for our own risk management needs, including mitigation of interest rate, foreign currency and credit risk. Derivative exposure also includes economic hedges, where the Group enters into derivative contracts for its own risk management purposes but where the contracts do not qualify for hedge accounting under US GAAP. Derivative exposures are calculated according to regulatory methods, using either the current exposures method or approved internal models method. These regulatory methods take into account potential future movements and as a result generate risk exposures that are greater than the net replacement values disclosed for US GAAP.

As of the end of 2011, no credit derivatives were utilized that qualify for hedge accounting under US GAAP.

> Refer to “Credit risk” (pages 132 to 133) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management and “Note 30 – Derivatives and hedging activities” (pages 285 to 293) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2011 for further information on derivative instruments.

Derivative exposure at default after netting
end of		2011		2010
Derivative exposure at default (CHF million)
Internal models method		49,255		51,719
Current exposure method		32,720		36,229
Total derivative exposure		81,975		87,948

Collateral used for risk mitigation
end of		2011		2010
Collateral used for risk mitigation for the internal models method (CHF million)
Financial collateral - cash / securities		44,623		32,367
Other eligible IRB collateral		668		591
Total collateral used for the internal models method		45,291		32,958
Collateral used for risk mitigation for the current exposure method (CHF million)
Financial collateral - cash / securities		5,193		4,323
Other eligible IRB collateral		43		7
Total collateral used for the current exposure method		5,236		4,330

Credit derivatives that create exposures to counterparty credit risk (notional value)
		2011				2010
end of		Protection bought		Protection sold		Protection bought		Protection sold
Credit derivatives that create exposures to counterparty credit risk (CHF billion)
Credit default swaps		1,024.4		985.9		1,003.3		961.6
Total return swaps		3.8		1.0		5.5		1.2
First-to-default swaps		0.3		0.0		0.3		0.0
Other credit derivatives		15.2		12.1		3.1		14.6
Total		1,043.7		999.0		1,012.2		977.4

Allowances and impaired loans

The following tables provide additional information on allowances and impaired loans by geographic distribution and changes in the allowances for impaired loans.

Geographic distribution of allowances and impaired loans
end of		Specific allowances		Inherent credit loss allowances		Total allowances		Loans with specific allowances		Loans with inherent credit loss allowances		Total impaired loans
2011 (CHF million)
Switzerland		529		199		728		1,253		154		1,407
EMEA		54		17		71		111		4		115
Americas		39		26		65		122		13		135
Asia Pacific		28		18		46		61		0		61
Total		650		260		910		1,547		171		1,718
2010 (CHF million)
Switzerland		563		199		762		1,118		182		1,300
EMEA		68		21		89		257		10		267
Americas		55		21		76		184		3		187
Asia Pacific		63		27		90		92		17		109
Total		749		268		1,017		1,651		212		1,863
The geographic distribution of impaired loans is based on the location of the office recording the transaction. This presentation does not reflect the way the Group is managed.

Changes in the allowances for impaired loans
		2011						2010
in		Specific allowances		Inherent credit loss allowances		Total		Specific allowances		Inherent credit loss allowances		Total
Changes in the allowances for impaired loans (CHF million)
Balance at beginning of period		749		268		1,017		984		411		1,395
Net additions/(releases) charged to income statement		147		(6)		141		23		(116)		(93)
Gross write-offs		(299)		0		(299)		(294)		0		(294)
Recoveries		41		0		41		63		0		63
Net write-offs		(258)		0		(258)		(231)		0		(231)
Provisions for interest		14		0		14		2		0		2
Foreign currency translation impact and other adjustments, net		(2)		(2)		(4)		(29)		(27)		(56)
Balance at end of period		650		260		910		749		268		1,017

> Refer to “Note 18 – Loans, allowance for loan losses and credit quality” (pages 244 to 252) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2011 for further information on allowances and impaired loans by industry distribution and the industry distribution of charges and write-offs.

5. Securitization risk in the banking book

The following disclosures, which also considers the “Industry good practice guidelines on Pillar 3 disclosure requirements for securitization”, refer to traditional and synthetic securitizations held in the banking book and regulatory capital on these exposures calculated according to the Basel II IRB approach to securitization exposures. As of January 1, 2011, Basel II.5 amended and expanded the disclosure requirements on banking book securitization exposures but did not require retrospective application.

> Refer to Note “32 – Transfers of financial assets and variable interest entities” (pages 299 to 310) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2011 for further information on securitization, the various roles, the use of SPEs, the involvement of the Group in consolidated and non-consolidated SPEs and the accounting policies for securitization activities.

> Refer to “Securitization risk in the banking book” in section 2 – Capital – Description of regulatory approaches for further information.

A traditional securitization is a structure where an underlying pool of assets is sold to a special purpose entity (SPE) which in return issues tranched securities that are collateralized by, and which pay a return based on the return on, the underlying asset pool. A synthetic securitization is a tranched structure where the credit risk of an underlying pool of exposures is transferred, in whole or in part, through the use of credit derivatives or guarantees that serve to hedge the credit risk of the portfolio. Many synthetic securitizations are not accounted for as securitizations under US GAAP. In both traditional and synthetic securitizations, risk is dependent on the seniority of the retained interest and the performance of the underlying asset pool.

The Group has both securitization and re-securitization transactions in the banking book referencing different types of underlying assets including real estate loans (commercial and residential), commercial loans and credit card loans. The key risks retained are related to the performance of the underlying assets. These risks are summarized in the securitization pool level attributes: PDs of underlying loans (default rate), severity of loss (LGD) and prepayment speeds. The transactions may also be exposed to general market risk, credit spread and counterparty credit risk.

The Group classifies securities within the transactions by the nature of the collateral (prime, sub-prime, Alt-A, commercial, etc.) and the seniority each security has in the capital structure (i.e. seniors, mezzanine, subordinate etc.), which in turn will be reflected in the transaction rating. The Group’s internal risk methodology is designed such that risk charges are based on the place the particular security holds in the capital structure, the less senior the bond the higher the risk charges.

For re-securitization risk, the Group’s risk management models take a 'look through' approach where the behavior of the underlying securities or constituent counterparties are modeled based on their own particular collateral positions. These are then transmitted to the re-securitized position. No additional risk factors are considered within the re-securitization portfolios in addition to those identified and measured within securitization risk.

The Group is active in various roles in connection with securitization, including originator, investor and sponsor. As originator, the Group creates or purchases financial assets (e.g., residential mortgages or corporate loans) and then securitizes them in a traditional or synthetic transaction that achieves significant risk transfer to third party investors. The Group acts as liquidity provider to Alpine Securitization Corp. (Alpine), a multi-seller commercial paper conduit administered by Credit Suisse.

In addition, the Group invests in securitization-related products created by third parties and provides interest rate and currency swaps to SPEs involved in securitization activity.

Retained banking book exposures for mortgage, ABS and CDO transactions are risk managed on the same basis as similar trading book transactions. Other transactions will be managed in line with their individual structural or parameter requirements. The Group has also put in place a set of key risk limits for the purpose of managing the Group's risk appetite framework in relation to securitizations and re-securitizations. Re-securitization transactions are put through the same risk management process as securitizations but with the focus on the risk of the underlying securities. The internal risk capital measurement is both consistent with securitization transactions and with similar structures in the trading book.

There are no instances where we have applied credit risk mitigation approaches where the underlying exposures are banking book securitizations or re-securitizations.

In the normal course of business it is possible for the Group’s managed separate account portfolios and the Group’s controlled investment entities, such as mutual funds, fund of funds, private equity funds and other fund linked products to invest in the securities issued by other vehicles sponsored by the Group engaged in securitization and re-securitization activities. To address potential conflicts, standards governing investments in affiliated products and funds have been adopted.

Securitization exposures purchased or retained – banking book
		On-balance sheet				Off-balance sheet
end of 2011		Traditional		Synthetic		Traditional		Synthetic		Total
CHF million
Commercial mortgage loans		2,348		0		0		0		2,348
Residential mortgage loans		124		0		794		0		918
CDO		1,409		8,335		0		0		9,744
Other ABS		1,048		1		10,928		0		11,977
Total		4,929		8,336		11,722		0		24,987
of which subject to capital requirements										24,603
of which subject to deductions										384

Securitization exposures purchased or retained – banking book (continued)
		Traditional				Synthetic
end of 2010		Sponsor		Other role		Other role		Total
CHF million
Commercial mortgage loans		0		2,712		0		2,712
Residential mortgage loans		0		2,836		0		2,836
CDO		0		1,958		5,448		7,406
Other ABS		6,124		1,499		15		7,638
Total		6,124		9,005		5,463		20,592
of which subject to capital requirements								19,948
of which subject to deductions								644

Synthetic structures predominantly represent structures where the Group has mitigated its risk by selling the mezzanine tranche of a reference portfolio. Amounts disclosed, however, are the gross exposures securitized including retained senior notes.

The following table represents the total amounts of banking book loans securitized by the Group that fall within the Basel II Securitization Framework and where the Group continues to retain at least some interests. As of the end of December 31, 2011 and December 31, 2010, the Group's economic interests in these securitizations were CHF 21.0 billion and CHF 17.8 billion, respectively.

Exposures securitized by Credit Suisse Group in which the Group has retained interests – banking book
		Traditional				Synthetic
		Sponsor		Other role		Other role		Total
2011 (CHF million)
Commercial mortgage loans		0		4,632		0		4,632
Residential mortgage loans		0		1,178		0		1,178
CDO		0		2,075		12,001		14,076
Other ABS		10,580		1,105		0		11,685
Total		10,580		8,990		12,001		31,571
of which retained interests								21,029

Exposures securitized by Credit Suisse Group in which the Group has retained interests – banking book (continued)
		Traditional				Synthetic
		Sponsor		Other role		Other role		Total
2010 (CHF million)
Commercial mortgage loans		0		5,271		0		5,271
Residential mortgage loans		0		2,833		0		2,833
CDO		0		4,018		9,980		13,998
Other ABS		6,124		1,077		0		7,201
Total		6,124		13,199		9,980		29,303
of which retained interests								17,815

Losses related to securitizations recognized during the period – banking book
		Traditional				Synthetic
end of		Sponsor		Other role		Other role		Total
2011 (CHF million)
Commercial mortgage loans		0		74		0		74
CDO		0		0		35		35
Total		0		74		35		109
2010 (CHF million)
CDO		0		3		99		102
Total		0		3		99		102

Impaired or past due assets securitized – banking book
		2011						2010
		Other role						Other role
end of		Traditional		Synthetic		Total		Traditional		Synthetic		Total
CHF million
Residential mortgage loans		28		0		28		0		0		0
CDO		0		426		426		0		392		392
Other ABS		0		0		0		75		0		75
Total		28		426		454		75		392		467

Securitization and re-securitization exposures by regulatory capital approach – banking book
		Securitization exposure				Re-securitization exposure				Total
end of 2011		EAD purchased/ retained		Risk- weighted assets		EAD purchased/ retained		Risk- weighted assets		EAD purchased/ retained		Risk- weighted assets
CHF million
Ratings-based approach (RBA)		6,057		717		11,477		3,035		17,534		3,752
Supervisory formula approach (SFA)		4,180		659		2,889		1,403		7,069		2,062
Total		10,237		1,376		14,366		4,438		24,603		5,814

Securitization and re-securitization exposures by regulatory capital approach – banking book (continued)
		Total
end of 2010		EAD purchased/ retained		Risk- weighted assets
CHF million
Ratings-based approach (RBA)		15,116		2,245
Supervisory formula approach (SFA)		4,832		1,340
Total		19,948		3,585

Securitization and re-securitization exposures under RBA by rating grade – banking book
		Securitization exposure				Re-securitization exposure				Total
end of 2011		EAD purchased/ retained		Risk- weighted assets		EAD purchased/ retained		Risk- weighted assets		EAD purchased/ retained		Risk- weighted assets
CHF million
AAA		4,911		405		10,915		2,182		15,826		2,587
AA		466		41		276		53		742		94
A		597		109		58		32		655		141
BBB		59		48		135		217		194		265
BB		24		114		93		551		117		665
Total		6,057		717		11,477		3,035		17,534		3,752

Securitization and re-securitization exposures under RBA by rating grade – banking book (continued)
		Total
end of 2010		EAD purchased/ retained		Risk- weighted assets
CHF million
AAA		14,096		1,507
AA		442		47
A		210		37
BBB		212		143
BB		156		511
Total		15,116		2,245

Securitization and re-securitization exposures under SFA by risk weight band – banking book
		Securitization exposure				Re-securitization exposure				Total
end of 2011		EAD purchased/ retained		Risk- weighted assets		EAD purchased/ retained		Risk- weighted assets		EAD purchased/ retained		Risk- weighted assets
CHF million
0%-10%		3,573		250		0		0		3,573		250
11%-50%		485		138		2,338		731		2,823		869
51%-100%		0		0		0		0		0		0
101%-650%		119		228		369		672		488		900
651%-1250%		3		43		182		0		185		43
Total		4,180		659		2,889		1,403		7,069		2,062

Securitization and re-securitization exposures under SFA by risk weight band – banking book (continued)
		Total
end of 2010		EAD purchased/ retained		Risk- weighted assets
CHF million
0%-10%		2,157		137
11%-50%		1,231		138
51%-100%		40		31
101%-650%		1,404		1,034
651%-1250%		0		0
Total		4,832		1,340

Deductions from eligible capital related to securitization and re-securitization exposures – banking book
		2011						2010
end of		Credit enhancing interest only strips		Other exposures		Total		Credit enhancing interest only strips		Other exposures		Total
CHF million
Residential mortgage loans		0		0		0		0		4		4
CDO		0		99		99		0		209		209
Other ABS		0		285		285		0		431		431
Total		0		384		384		0		644		644

Securitization activity – banking book
		2011				2010
in		Amount of loans securitized		Recognized gain/(loss) on sale		Amount of loans securitized		Recognized gain/(loss) on sale
CHF million
Commercial mortgage loans - traditional		0		0		2,395		0
Residential mortgage loans - traditional		385		0		0		0
CDO - synthetic		4,639		0		0		0
Total		5,024		0		2,395		0

The Group intends to securitize CHF 14.1 billion of counterparty exposures (to be categorized as CDO) in connection with its 2011 Partner Asset Facility in 1Q12. There is no difference in the valuation of positions intended to be securitized.

6. Market risk

Market risk is managed under the IMA approach and under the approved securitization methodologies.

> Refer to “Market risk” (pages 117 to 123) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2011 for further information on market risk, including information on risk measurement and VaR.

> Refer to “Market risk” in section 2 – Capital – Description of regulatory approaches for further information on the incremental risk capital charge, stressed VaR and securitization risk in the trading book.

The following table shows risk-weighted assets for all market risk measures including the standardized approach.

Risk-weighted assets for market risk
end of		2011		2010
Risk-weighted assets for market risk (CHF million)
Total internal models approach		35,271		17,647
of which incremental risk capital charge		13,391		–
of which stressed VaR		15,053		–
of which regulatory VaR		6,827		17,647
Total standardized measurement method		4,188		–
of which ratings-based approach		3,636		–
of which standardized approach		380		–
of which supervisory formula approach		172		–
Total standardized		1,150		1,277
Total risk-weighted assets for market risk		40,609		18,924

Regulatory VaR, stressed VaR and incremental risk capital charge
in / end of		Regulatory VaR	1	Stressed VaR	1	IRC	2
2011 (CHF million)
Average		54		120		798
Minimum		37		82		363
Maximum		80		175		1,254
End of period		65		174		792
1    For regulatory and stressed VaR, one-day VaR based on a 99% confidence level is presented, which is a ten-day VaR adjusted to a one-day holding period.   2    Based on daily calculations.

Securitization risk in the trading book

The following disclosures on trading book securitization exposures were adopted prospectively as of January 1, 2011 in connection with the implementation of Basel II.5.

> Refer to Note “32 – Transfers of financial assets and variable interest entities” (pages 299 to 310) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2011 for further information on securitization, the various roles, the use of SPEs, the involvement of the Group in consolidated and non-consolidated SPEs, the accounting policies for securitization activities and gains/losses relating to RMBS and CMBS securitization activity in 2011.

> Refer to “Market risk” in section 2 – Capital – Description of regulatory approaches for further information.

Roles in connection with trading book securitization

Within our mortgage business there are four key roles that we undertake within securitization markets: issuer, underwriter, market maker and financing counterparty and the Group is actively involved in all four activities. The Group holds one of the top trading franchises in market making in all major securitized product types and are a top issuer and underwriter in the re-securitization market in the US as well as being one of the top underwriters in ABS securitization in the US. In addition the Group also has a relatively small correlation trading portfolio, having recently decided to exit the correlation trading market.

Securitization and re-securitization activities

The Group’s key objective in relation to trading book securitization is to meet client's investment needs and making markets in securitized products. We are active in securitization and re-securitization activities (issuance and underwriting of new securities), trading of existing securitized products (market making in all major types of securitized products across various collateral types, including residential mortgage, commercial mortgage and corporate loans, and financing of clients' securitized product positions.

The Group purchases residential mortgages for the purpose of securitization and sells these mortgage loans to sponsored SPEs which in turn issue the various securities. The Group also transacts in re-securitizations of previously issued RMBS securities. Typically, certificates issued out of an existing securitization vehicle are sold into a newly created and separate securitization vehicle. Often, these re-securitizations are initiated in order to repackage an existing security to give the investor a higher rated tranche.

Risks assumed and retained

Key risks retained are related to the performance of the underlying assets (real estate loans, commercial loans, credit card loans, etc.). These risks are summarized in the securitization pool level attributes: PD of underlying loans (default rate), the severity of loss and prepayment speeds. The Group maintains models for both government-guaranteed and private label products. These models project the above risk drivers based on market interest rates and volatility as well as macro-economic variables such as housing price index, projected GDP and inflation, unemployment etc.

In its role as a market maker, the Group actively trades in and out of positions. Both Front Office and Risk Management continuously monitor liquidity risk as reflected in trading spreads and trading volumes. To address liquidity concerns a specific set of aging limits are in place for the securitized positions we hold.

The Group classifies securities by the nature of the collateral (prime, sub-prime, Alt-A, commercial, etc.) and the seniority each security has in the capital structure (i.e. seniors, mezzanine, subordinate etc.), which in turn will be reflected in the transaction rating. Risk Management monitors portfolio composition by capital structure on a daily basis with subordinate exposure subject to a separate risk limit. In addition, the internal risk methodology is designed such that risk charges are based on the place the particular security holds in the capital structure, the less senior the bond the higher the risk charges.

For re-securitization risk, the Groups risk management models take a 'look through' approach where they model the behavior of the underlying securities based on their own collateral and then transmit that to the re-securitized position. No additional risk factors are considered within the re-securitization portfolios in addition to those identified and measured within securitization risk.

Within the credit business and with respect to both the wind-down correlation trading portfolio and the on-going transactions the key risks that need to be managed includes default risk, counterparty credit risk, correlation risk and cross effects between spread and correlation. The impacts of liquidity risk for securitization products is embedded within the firm’s historical simulation model through the incorporation of market data from stressed periods, and in the scenario framework through the calibration of price shocks to the same period.

Both correlation and first-to-default trades including any re-securitized transactions are valued using a correlation model which uses the market implied correlation and detailed market data such as constituent spread term structure and constituent recovery. The risks embedded in securitization and re-securitizations are similar and include spread risk, recovery risk, default risk and correlation risk. The risks for different seniority of tranches will be reflected in the tranche price sensitivities to each constituent in the pools. The complexity of the correlation portfolio’s risk lies in the level of convexity and cross risk inherent, for example, the risks to large spread moves and the risks to spread and correlation moving together. The risk limit framework is carefully designed to address the key risks for the correlation trading portfolio.

Monitoring of changes in credit and market risk of securitization exposures

The Group has in place a comprehensive risk management process whereby the front office and Risk Management work together to monitor positions and position changes, portfolio structure and trading activity and calculate a set of risk measures on a daily basis using risk sensitivities and loss modeling methodologies.

For the mortgage business the Group also uses monthly remittance reports (available from public sources) to get up to date information on collateral performance (delinquencies, defaults, pre-payment etc.).

The Group has recently implemented a Comprehensive Risk Measure model for its correlation and first-to-default trading positions which incorporates a number of risk factors including hazard rate, default, migration and recovery rates, and correlation measures. This is used for internal purposes only.

The Group has also put in place a set of limits for the purpose of managing the Group's risk appetite framework in relation to securitizations and re-securitizations. These limits will cover exposure measures, risk sensitivities, VaR and capital measures with the majority monitored on a daily basis. In addition within the Group’s risk management framework an extensive scenario analysis framework is in place whereby all underlying risk factors are stressed to determine portfolio sensitivity.

Re-securitized products in both the mortgage and credit businesses go through the same risk management process but looking through the structures with the focus on the risk of the underlying securities or constituent names.

Risk mitigation

In addition to the strict exposure limits noted above, the Group uses a number of different risk mitigation approaches to manage risk appetite for its securitization and re-securitization exposures. Where true counterparty credit risk exposure is identified for a particular transaction, there is a requirement for it to be approved through normal credit risk management processes with collateral taken as required. The Group uses various proxies including corporate single name and index hedges to mitigate the price and spread risks to which it is exposed. Hedging decisions are made by the trading desk based on current market conditions with any key hedging decision are made in consultation with Risk Management and requiring approval under the Group’s new Product Approval governance process. International investment banks are the main counterparties to the hedges that are used across these business areas.

In the normal course of business, we may hold tranches which have a monoline guarantee. No benefit from these guarantees is currently included in the calculation of regulatory capital. There are no further instances where we have applied credit risk mitigation approaches where the underlying exposures are securitizations or re-securitizations positions.

Affiliated entities

In the normal course of business it is possible for the Group’s managed separate account portfolios and the Group’s controlled investment entities, such as mutual funds, fund of funds, private equity funds and other fund linked products to invest in the securities issued by other vehicles sponsored by the Group engaged in securitization and re-securitization activities. To address potential conflicts, standards governing investments in affiliated products and funds have been adopted.

Securitization exposures purchased or retained – trading book
		On-balance sheet								Off-balance sheet
		Traditional				Synthetic				Synthetic
end of 2011		Long		Short		Long		Short		Long		Short
CHF million
Commercial mortgage loans		2,355		485		0		0		511		1,887
Residential mortgage loans		5,873		108		0		0		104		393
CDO		803		0		44		2		97		1,263
Nth-to-default		0		0		0		0		144		785
Other ABS		884		163		0		0		9		0
Total		9,915		756		44		2		865		4,328

Outstanding exposures securitized by the Group - trading book
		Traditional				Synthetic				Total
end of 2011		Sponsor	1	Originator	1	Sponsor	1	Originator	1
CHF million
Commercial mortgage loans		6,047		4,568		0		0		10,615
Residential mortgage loans		3,141		71,933		0		0		75,074
CDO		0		0		0		0		0
Other ABS		0		0		0		0		0
Total		9,188		76,501		0		0		85,689
Amounts disclosed from January 1, 2010 onwards following the publication of the Pillar 3 requirements in 2009.
1    Where the Group is both the sponsor and sole originator, amount will only be shown under originator. Originator is defined as the entity that transfers collateral into an SPE, including third party collateral transferred into the SPE via the entity's balance sheet.

Outstanding exposures securitized in which the Group has retained interests - trading book
		Exposures securitized				Total
end of 2011		Traditional		Synthetic
CHF million
Commercial mortgage loans		48,069		0		48,069
Residential mortgage loans		89,366		0		89,366
CDO		12,263		0		12,263
Other ABS		194		0		194
Total		149,892		0		149,892
of which subject to capital requirements (refer to table "Exposures under standardized measurement method - trading book")						8,454
of which subject to deductions (refer to table "Deductions from eligible capital related to securitization exposures - trading book")						2,370

Exposures under standardized measurement method – trading book
		Securitization exposure				Re-securitization exposure				Total
end of 2011		EAD purchased/ retained		Risk- weighted assets		EAD purchased/ retained		Risk- weighted assets		EAD purchased/ retained		Risk- weighted assets
CHF million
Ratings-based approach (RBA)
Commercial mortgage loans		2,306		1,628		108		71		2,414		1,699
Residential mortgage loans		4,387		670		310		178		4,697		848
CDO		181		352		232		410		413		762
Other ABS		745		323		6		4		751		327
Total RBA		7,619		2,973		656		663		8,275		3,636
Standardized approach
Nth-to-default		144		380		0		0		144		380
Total standardized approach		144		380		0		0		144		380
Supervisory formula approach (SFA)
CDO		35		172		0		0		35		172
Total SFA		35		172		0		0		35		172
Total		7,798		3,525		656		663		8,454		4,188

Securitization and re-securitization exposures under RBA by rating grade – trading book
		Securitization exposure				Re-securitization exposure				Total
end of 2011		EAD purchased/ retained		Risk- weighted assets		EAD purchased/ retained		Risk- weighted assets		EAD purchased/ retained		Risk- weighted assets
CHF million
AAA		5,551		404		233		54		5,784		458
AA		396		46		152		57		548		103
A		549		114		147		89		696		203
BBB		637		468		74		149		711		617
BB		486		1,941		50		314		536		2,255
Total		7,619		2,973		656		663		8,275		3,636

Nth-to-default exposures under standardized approach by risk weight band – trading book
		Securitization exposure
end of 2011		EAD purchased/ retained		Risk- weighted assets
CHF million
0%-100%		19		2
100%-200%		25		34
200%-300%		49		120
300%-400%		9		29
400%-500%		23		100
500%-600%		19		95
Total		144		380

Securitization exposures under SFA by risk weight band – trading book
		Securitization exposure
end of 2011		EAD purchased/ retained		Risk- weighted assets
CHF million
0%-10%		8		0
11%-50%		2		0
51%-100%		1		1
101%-650%		7		27
651%-1250%		17		144
Total		35		172

Deductions from eligible capital related to securitization exposures – trading book
		2011
end of		Credit enhancing interest only strips		Other exposures		Total
CHF million
Commercial mortgage loans		0		451		451
Residential mortgage loans		0		1,280		1,280
CDO		0		497		497
Other ABS		0		142		142
Total		0		2,370		2,370

Securitization activity – trading book
		Original amount of exposures securitized				Recognized gain/(loss) on sale
in 2011		Traditional		Synthetic		Traditional		Synthetic
CHF million
Commercial mortgage loans		7,812		0		6		0
Residential mortgage loans		36,272		0		65		0
Total		44,084		0		71		0

Other information

As of December 31, 2011 the Group intends to securitize the following positions: agency CMBS in value of USD 4.0 billion, agency RMBS in value of USD 3.0 billion and residential whole loans in value of USD 0.1 billion. There is no difference in the valuation of positions intended to be securitized. Effective December 31, 2011, we transferred CHF 0.9 billion of low-rated residential mortgage securitization positions from the trading book to the banking book. These positions were comprised of assets transferred to the extended 2008 Partner Asset Facility structure announced in 4Q11 and a newly launched fund invested in mortgage securitization positions. There is no difference in the valuation of positions intended to be securitized.

Valuation process

The Basel II capital adequacy framework and FINMA circular 2008/20 provide guidance for systems and controls, valuation methodologies and valuation adjustments and reserves to provide prudent and reliable valuation estimates.

Financial instruments in the trading book are carried at fair value. The fair value of the majority of these financial instruments is marked to market based on quoted prices in active markets or observable inputs. Additionally, the Group holds financial instruments which are marked to models where the determination of fair values requires subjective assessment and varying degrees of judgment depending on liquidity, concentration, pricing assumptions and the risks affecting the specific instrument.

Control processes are applied to ensure that the reported fair values of the financial instruments, including those derived from pricing models, are appropriate and determined on a reasonable basis. These control processes include approval of new instruments, timely review of profit and loss, risk monitoring, price verification procedures and validation of models used to estimate the fair value. These functions are managed by senior management and personnel with relevant expertise, independent of the trading and investment functions.

In particular, the price verification function is performed by Product Control, independent from the trading and investment functions, reporting directly to the Chief Financial Officer, a member of the Executive Board.

The valuation process is governed by separate policies and procedures. To arrive at fair values, the following type of valuation adjustments are typically considered and regularly assessed for appropriateness: model, parameter, credit and exit-risk-related adjustments.

Management believes it complies with the relevant valuation guidance and that the estimates and assumptions used in valuation of financial instruments are prudent, reasonable and consistently applied.

> Refer to “Fair valuations” (pages 53 to 54) in II – Operating and financial review – Core Results, to “Fair value” (page 83) in II – Operating and financial review – Critical accounting estimates and to “Note 33 – Financial instruments” (pages 311 to 330) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2011 for further information on fair value.

Hedge funds

In 2008, FINMA introduced a stress-test-based capital add-on for hedge fund positions for Swiss banks using the IMA for trading book market risk. The capital add-on is based on the outcome of a series of stress tests taking into account the degree of diversification in the portfolio. These positions are also included in our VaR model, and the overall FINMA capital charge is the sum of the stress test add-on and the VaR.

Risk-weighted assets for market risk under the standardized approach
end of		2011		2010
Risk-weighted assets for market risk under the standardized approach (CHF million)
Interest rate risk		471		321
Equity position risk		181		301
Foreign exchange risk		397		597
Precious metals risk		10		11
Commodity risk		91		47
Total		1,150		1,277

7. Operational risk

> Refer to “Operational risk” (page 134) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2011 for information on operational risk.

8. Equity securities in the banking book

Overview

The classification of our equity securities into trading book and banking book is made for regulatory reporting purposes. The banking book includes all items that are not classified in the trading book.

Most of our equity securities in the banking book are classified as investment securities whereas the remaining part is classified as trading assets.

For equity type securities in the banking book, risk weights are determined using the IRB Simple approach based on the equity sub-asset type.

The numbers below present the balance sheet value of banking book equity investments and the regulatory exposures to which capital is applied. The main differences are the scope of consolidation (deconsolidation of private equity investments for capital adequacy purposes as we do not have a significant economic interest) and regulatory approaches such as the net-long calculation and the look-through approach on certain equity securities.

Risk measurement and management

Our banking book equity portfolio includes positions in hedge funds, private equity and other instruments that may not be strongly correlated with general equity markets. Equity risk on banking book positions is measured using sensitivity analysis that estimates the potential change in value resulting from a 10% decline in the equity markets of developed nations and a 20% decline in the equity markets of emerging market nations.

> Refer to “Market risk” (pages 117 to 123) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2011 for further information on risk measurement and management of our banking portfolios.

Valuation and accounting policies of equity holdings in the banking book

> Refer to “Note 1 – Summary of significant accounting policies” (pages 222 to 224) in V – Consolidated financial statements – Credit Suisse Group in the Credit Suisse Annual Report 2011 for information on valuation and accounting policies of investment securities and trading assets.

Equity securities in the banking book
end of / in		2011		2010
Equity securities in the banking book (CHF million)
Balance sheet value of investments at fair value		11,484		15,891
Regulatory exposures 1		4,490		4,965
Fair value of regulatory exposures		4,499		4,977
Realized gains/(losses) 2		314		143
Cumulative unrealized gains/(losses) 2		(825)		(965)
Cumulative unrealized gains/(losses) included in tier 1 capital 2		(834)		(978)
1    Primarily privately held.   2    Gains/(losses) are reported gross of tax.

9. Interest rate risk in the banking book

Overview

We have systems and controls in place to manage interest rate risk in the banking book. Risk sensitivity figures are provided for the impact of a one basis point change in interest rates, which is one of the primary ways in which these risks are assessed for internal risk management purposes. In addition, we confirm that the economic impacts of an adverse parallel shift in interest rates of 200 basis points and a statistical 1 year, 99% confidence adverse change in yield curves are significantly below the threshold of 20% of eligible regulatory capital used by regulators to identify banks that potentially run excessive levels of non-trading interest rate risk. Given our low levels of interest rate risk in the banking book, we do not have any regulatory requirement to hold capital against this risk, nor do we expect that the regulators will apply such a requirement in the future.

Management strategy and process

The interest rate risk exposures in our non-trading portfolios arise from a number of sources, including funding maturity mismatches, money market activities, long-term debt issuance, liquidity holdings, equity investment strategy and exposures to credit spreads.

Most material non-trading interest rate risk arises from the financial intermediation activities of the Private Banking division, resulting in non-trading directional interest rate risk embedded in the balance sheet. Those risks are transferred from the originating businesses to Treasury. Treasury then manages the risk position centrally within approved limits using hedging instruments such as interest rate swaps.

While the risks associated with fixed maturity transactions are transferred to Treasury by individual back-to-back transactions, certain products such as variable rate mortgages or savings deposits cannot be transferred in this way as those products do not have direct market-linked interest rates or contractual maturities. The interest rate risk associated with these products, referred to as non-maturing products, is estimated using the methodology of replicating portfolios and transferred to Treasury on a pooled basis. Based on the past behavior of interest rates and volume changes, this methodology assigns the position balance associated with a non-maturing banking product to several time bands. The methodology is based, where possible, on the principle of finding a stable relationship between the changes of client rates of the non-maturing product and an underlying investment portfolio. Where this is not possible, the maturity of the product is assessed based on volume stability only. These schedules can then be used to evaluate the product's interest rate sensitivity. The structure and parameters of the replicating portfolios are reviewed periodically to ensure continued relevance of the portfolios in light of changing market conditions and client behavior. The methodology, maximum tenor and allocation of tranches in the replicating portfolios are ratified by the RPSC.

Interest rate risk also arises from the foreign exchange and interest rate positioning strategy with respect to our equity balance. The respective allocation strategy is defined by the Capital Allocation & Risk Management Committee and implemented by Treasury.

While the majority of our non-trading interest rate risk resides with Treasury or arises in conjunction with the interest rate positioning of our equity balance, some branches, subsidiaries and businesses also take on non-trading interest rate risk, which is managed within approved limits.

Risk measurement

The risks associated with the non-trading interest rate-sensitive portfolios are measured, monitored and limited using a range of tools, including the following key measures:

– Interest rate sensitivity (DV01): Expresses the impact of a one basis point (0.01%) parallel shift in yield curves on a portfolio's fair value. DV01 represents a transparent and intuitive (non-statistical) indicator of outright directional interest rate risk.

– Value-at-risk (VaR): Statistical indicator of the potential fair value loss, taking into account the probability of interest rate movements and observed correlations across yield curve tenors and currencies. In addition, VaR takes into account yield curve risk, spread and basis risks, as well as foreign exchange and equity risk. VaR is based on a one-day holding period with a 98% confidence level for risk management and a ten-day holding period with a 99% confidence level for regulatory capital purposes. For risk management VaR and regulatory VaR, we disclose one-day 98% and one-day 99% VaR, respectively, where ten-day VaR is adjusted to a one-day holding period based on the specific confidence level.

– Economic capital: Similar to VaR, economic capital represents a statistical risk indicator, taking into account market risks and other sources of risk, including counterparty exposure. Economic capital is calibrated to a 1-year holding period with a 99% confidence level for risk management purposes.

– Economic value scenario analysis: Expresses the impact of a severe instantaneous change in interest rates on a portfolio's fair value. In particular, we assess compliance with regulatory requirements regarding appropriate levels of non-trading interest rate risk by estimating the economic impact of adverse 200 basis point parallel shifts in yield curves and adverse interest rate shifts calibrated to a 1-year holding period with a 99% confidence level and then relating those impacts to the total eligible regulatory capital. This analysis is performed for the Group and our major legal entities, including the Bank, on a monthly basis.

The measures listed above focus on the loss potential on a fair value basis taking into account the present value of all future cash flows associated with the current positions. Since non-trading books are not marked-to-market through earnings, the related accrual accounting impacts generally differ from the fair value impacts. In order to assess the risk profile in a manner consistent with the accounting basis, we periodically perform risk calculations of net interest income.

Risk profile

> Refer to “Market risk” (pages 122 to 123) in III – Treasury, Risk, Balance sheet and Off-balance sheet – Risk management in the Credit Suisse Annual Report 2011 for information on the impact of a one basis point parallel increase of the yield curves and an adverse 200 basis point move in yield curves on the fair value of interest rate-sensitive banking book positions.

Cautionary statement regarding forward-looking information

This report contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, in the future we, and others on our behalf, may make statements that constitute forward-looking statements. Such forward-looking statements may include, without limitation, statements relating to the following:

– our plans, objectives or goals;

– our future economic performance or prospects;

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

– assumptions underlying any such statements.

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

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

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

– market and interest rate fluctuations and interest rate levels;

– the strength of the global economy in general and the strength of the economies of the countries in which we conduct our operations, in particular the risk of continued slow economic recovery or downturn in the US or other developed countries in 2012 and beyond;

– the direct and indirect impacts of continuing deterioration or slow recovery in residential and commercial real estate markets;

– adverse rating actions by credit rating agencies in respect of sovereign issuers, structured credit products or other credit-related exposures;

– the ability to achieve our strategic objectives, including improved performance, reduced risks, lower costs and more efficient use of capital;

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

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

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

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

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

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

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

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

– the ability to retain and recruit qualified personnel;

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

– the ability to increase market share and control expenses;

– technological changes;

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

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

– the adverse resolution of litigation and other contingencies;

– the ability to achieve our cost efficiency goals and cost targets; and

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

We caution you that the foregoing list of important factors is not exclusive. When evaluating forward-looking statements, you should carefully consider the foregoing factors and other uncertainties and events, as well as the information set forth in our Annual Report 2011 – Appendix – Risk Factors.