**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-Q**




**x QUARTERLY
      REPORT
      PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





**For
      the quarterly period ended June 30, 2006**





**OR**





**o** **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





**For
      the transition period from
           to**





**Commission
      File Number: 1-6862**





**Credit
      Suisse (USA), Inc.**


(Exact
      name of registrant as specified in its charter)











**Delaware**
              (State
                or other jurisdiction of
              incorporation
                or organization)
              **Eleven
                Madison Avenue**
              **New
                York, New York**
              (Address
                of principal executive offices)
            **13-1898818**
              (I.R.S.
                Employer Identification No.)
              
              **10010**
              (Zip
                Code)


**(212) 325-2000**


(Registrant’s
      telephone number, including area code)





**The
      Registrant meets the conditions set forth in General
      Instruction H (1) (a) and (b) of Form 10-Q and is
      therefore filing this Form 10-Q with the reduced disclosure
      format.**





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days: Yes x No o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
      accelerated filer o Accelerated filer o Non-accelerated filer x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o No x





Because
      the registrant is an indirect wholly owned subsidiary of Credit Suisse Group,
      none of the registrant’s outstanding voting stock is held by nonaffiliates of
      the registrant. As of the date hereof, 1,100.103543 shares of the registrant’s
      Common Stock, $.10 par value, were issued and outstanding and held by Credit
      Suisse Holdings (USA), Inc.








**CREDIT
      SUISSE (USA), INC. AND SUBSIDIARIES**


**Quarterly
      Report on Form 10-Q for the Quarter Ended June 30,
      2006**





**PART
                I**
            **FINANCIAL
                INFORMATION**ITEM
                1: Financial StatementsCondensed
                Consolidated Statements of Financial Condition
              (Unaudited)
                as of June 30, 2006 and December 31, 2005
            2Condensed
                Consolidated Statements of Operations
              (Unaudited)
                for the three and six months ended June 30, 2006 and 2005
            4Condensed
                Consolidated Statements of Changes in Stockholder’s Equity
              (Unaudited)
                for the six months ended June 30, 2006 and 2005
            5Condensed
                Consolidated Statements of Cash Flows
              (Unaudited)
                for the six months ended June 30, 2006 and 2005
            6Notes
                to Condensed Consolidated Financial Statements (Unaudited)1.
            
            Summary
                of Significant Accounting Policies
            72.
            
            Related
                Party Transactions
            113.
            
            Transfers
                and Servicing of Financial Assets
            134.
            
            Private
                Equity and Other Long-Term Investments
            175.
            
            Derivatives
                Contracts
            186.
            
            Borrowings
            187.
            
            Leases
                and Commitments
            218.
            
            Guarantees
            229.
            
            Net
                Capital Requirements
            2210.
            
            Cash
                and Securities Segregated Under Federal and Other
                Regulations
            2311.
            
            Employee
                Benefit Plans
            2312.
            
            Legal
                Proceedings
            2413.
            
            Industry
                Segment and Geographic Data
            25Report
                of Independent Registered Public Accounting Firm
            28


ITEM
                2: Management’s Discussion and Analysis of Financial Condition and
                Results of Operations
            29ITEM
                3: Quantitative and Qualitative Disclosures About Market
                Risk
            60ITEM
                4: Controls and Procedures
            62**PART
                II**
            **OTHER
                INFORMATION**ITEM
                1: Legal Proceedings
            63ITEM
                1A: Risk Factors
            64ITEM
                6: Exhibits
            64Signature
            65**AVAILABLE
                INFORMATION**
              
              We
                file annual, quarterly and current reports and other information
                with the
                Securities and Exchange Commission, or SEC. Our SEC filings are available
                to the public over the internet on the SEC’s website at*www.sec.gov*.
                You may also view our annual, quarterly and current reports on our
                website
                at*www.csfb.com/about_csfb/company_information/sec/index.shtml*as
                soon as is reasonably practicable after the report is electronically
                filed
                with, or furnished to, the SEC. The information on our website is
                not
                incorporated by reference into this Quarterly
                Report.




1


**PART
      I**


**FINANCIAL
      INFORMATION**


***Item
      1: Financial Statements***





**CREDIT
      SUISSE (USA), INC. AND SUBSIDIARIES**


**Condensed
      Consolidated Statements of Financial Condition**


**(Unaudited)**


**(In
      millions)**


**ASSETS**
            
            **June
                30,**
              **2006**
            
            **December 31,**
              **2005**Cash
                and cash equivalents
            
            $
            1,521
            
            $
            884Collateralized
                short-term financings:Securities
                purchased under agreements to resell
            
            
            49,699
            
            
            54,454Securities
                borrowed
            
            
            101,042
            
            
            82,802Receivables:Customers
            
            
            2,599
            
            
            3,299Brokers,
                dealers and other
            
            
            10,646
            
            
            8,128Financial
                instruments owned (includes securities pledged as collateral of
                $94,483
              and
                $73,043, respectively):U.S.
                government and agencies
            
            
            34,823
            
            
            31,366Corporate
                debt
            
            
            20,225
            
            
            20,561Mortgage
                whole loans
            
            
            18,152
            
            
            17,817Equities
            
            
            41,029
            
            
            35,244Commercial
                paper
            
            
            3,360
            
            
            1,523Private
                equity and other long-term investments
            
            
            10,629
            
            
            3,641Derivatives
                contracts
            
            
            6,486
            
            
            5,085Other
            
            
            5,638
            
            
            3,929Net
                deferred tax asset
            
            
            927
            
            
            1,202Office
                facilities at cost (net of accumulated depreciation and amortization
                of
              $937
                and $852, respectively)
            
            
            467
            
            
            453Goodwill
            
            
            585
            
            
            562Loans
                receivable from parent and affiliates
            
            
            29,918
            
            
            25,225Other
                assets and deferred amounts (includes encumbered loans of $4,674
              as
                of June 30, 2006)
            
            
            6,973
            
            
            1,579Total
                assets
            
            $
            344,719
            
            $
            297,754





See
      accompanying notes to condensed consolidated financial statements
      (unaudited).


2


**CREDIT
      SUISSE (USA), INC. AND SUBSIDIARIES**


**Condensed
      Consolidated Statements of Financial Condition (Continued)**


**(Unaudited)**


**(In
      millions, except share data)**





**LIABILITIES
                AND STOCKHOLDER’S EQUITY**
            
            **June
                30,**
              **2006**
            
            **December 31,**
              **2005**Commercial
                paper and short-term borrowings
            
            $
            17,721
            
            $
            13,654Collateralized
                short-term financings:Securities
                sold under agreements to repurchase
            
            
            127,197
            
            
            126,323Securities
                loaned
            
            
            48,787
            
            
            45,956Payables:Customers
            
            
            8,675
            
            
            9,417Brokers,
                dealers and other
            
            
            9,547
            
            
            3,884Financial
                instruments sold not yet purchased:U.S.
                government and agencies
            
            
            27,641
            
            
            20,078Corporate
                debt
            
            
            4,204
            
            
            3,696Equities
            
            
            13,970
            
            
            12,402Derivatives
                contracts
            
            
            4,392
            
            
            2,262Other
            
            
            801
            
            
            155Obligation
                to return securities received as collateral
            
            
            7,625
            
            
            3,077Accounts
                payable and accrued expenses
            
            
            2,704
            
            
            3,152Other
                liabilities
            
            
            18,549
            
            
            7,761Long-term
                borrowings
            
            
            39,478
            
            
            33,926Total
                liabilities
            
            
            331,291
            
            
            285,743Stockholder’s
                Equity:Common
                stock ($0.10 par value; 50,000 shares authorized; 1,100 shares issued
                and
                outstanding)
            
            
            ―
            
            
            ―Paid-in
                capital
            
            
            10,146
            
            
            9,530Retained
                earnings
            
            
            3,462
            
            
            2,661Accumulated
                other comprehensive loss
            
            
            (180
            )
            
            (180
            )Total
                stockholder’s equity
            
            
            13,428
            
            
            12,011Total
                liabilities and stockholder’s equity
            
            $
            344,719
            
            $
            297,754





See
      accompanying notes to condensed consolidated financial statements
      (unaudited).


3


**CREDIT
      SUISSE (USA), INC. AND SUBSIDIARIES**


**Condensed
      Consolidated Statements of Operations**


**(Unaudited)**


**(In
      millions)**


**For
                    the Three Months Ended**
                  **June
                    30,**
                
                **For
                    the Six Months Ended**
                  **June
                    30,****2006**
                
                **2005**
                
                **2006**
                
                **2005**Revenues:Principal
                    transactions-net
                
                $
                1,054
                
                $
                194
                
                $
                2,709
                
                $
                561Investment
                    banking and advisory
                
                
                755
                
                
                407
                
                
                1,338
                
                
                728Commissions
                    and fees
                
                
                399
                
                
                309
                
                
                750
                
                
                660Other
                
                
                4
                
                
                8
                
                
                51
                
                
                252,212
                
                
                918
                
                
                4,848
                
                
                1,974Interest
                    and dividends
                
                
                4,668
                
                
                2,984
                
                
                8,750
                
                
                5,708Interest
                    expense
                
                
                4,420
                
                
                2,475
                
                
                8,208
                
                
                4,622Net
                    interest and dividends
                
                
                248
                
                
                509
                
                
                542
                
                
                1,086Total
                    net revenues
                
                
                2,460
                
                
                1,427
                
                
                5,390
                
                
                3,060Expenses:Employee
                    compensation and benefits
                
                
                1,065
                
                
                738
                
                
                2,229
                
                
                1,685Occupancy
                    and equipment rental
                
                
                136
                
                
                124
                
                
                257
                
                
                244Brokerage,
                    clearing and exchange fees
                
                
                97
                
                
                86
                
                
                182
                
                
                163Communications
                
                
                37
                
                
                37
                
                
                78
                
                
                73Professional
                    fees
                
                
                95
                
                
                73
                
                
                177
                
                
                140Other
                    operating expenses
                
                
                (334
                )
                
                749
                
                
                (294
                )
                
                744Total
                    expenses
                
                
                1,096
                
                
                1,807
                
                
                2,629
                
                
                3,049Income
                    (loss) before provision (benefit) for income taxes, minority
                    interests and
                    cumulative effect of a change in accounting principle
                
                
                1,364
                
                
                (380
                )
                
                2,761
                
                
                11Provision
                    (benefit) for income taxes
                
                
                247
                
                
                (244
                )
                
                384
                
                
                (178
                )Minority
                    interests
                
                
                633
                
                
                303
                
                
                1,576
                
                
                458Income
                    (loss) before cumulative effect of a change in accounting
                    principle
                
                
                484
                
                
                (439
                )
                
                801
                
                
                (269
                )Cumulative
                    effect of a change in accounting principle, net of income tax
                    expense of
                    $3 in 2005
                
                
                ―
                
                
                ―
                
                
                ―
                
                
                6Net
                    income (loss)
                
                $
                484
                
                $
                (439
                )
                $
                801
                
                $
                (263
                )


See
      accompanying notes to condensed consolidated financial statements
      (unaudited).


4


**CREDIT
      SUISSE (USA), INC. AND SUBSIDIARIES**


**Condensed
      Consolidated Statements of Changes in Stockholder’s
      Equity**


**For
      the Six Months Ended June 30, 2006 and 2005**


**(Unaudited)**


**(In
      millions)**




**Common**
                **Stock**
              
              **Paid-in**
                **Capital**
              
              **Retained**
                **Earnings**
              
              **Accumulated**
                **Other**
                **Comprehensive**
                **Loss**
              
              **Total**Balances
                  as of December 31, 2004
              
              $
              ―
              
              $
              8,538
              
              $
              2,534
              
              $
              (8
              )
              $
              11,064Net
                  loss
              
              
              ―
              
              
              ―
              
              
              (263
              )
              
              ―
              
              
              (263
              )Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (263
              )CSG
                  share plan activity(1)
              
              
              ―
              
              
              193
              
              
              ―
              
              
              ―
              
              
              193Balances
                  as of June 30, 2005
              
              $
              ―
              
              $
              8,731
              
              $
              2,271
              
              $
              (8
              )
              $
              10,994Balances
                  as of December 31, 2005
              
              $
              ―
              
              $
              9,530
              
              $
              2,661
              
              $
              (180
              )
              $
              12,011Net
                  income
              
              
              ―
              
              
              ―
              
              
              801
              
              
              ―
              
              
              801Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              801CSG
                  share plan activity, including tax benefit of $146
              
              
              ―
              
              
              616
              
              
              ―
              
              
              ―
              
              
              616Balances
                  as of June 30, 2006
              
              $
              ―
              
              $
              10,146
              
              $
              3,462
              
              $
              (180
              )
              $
              13,428







(1)
            For
                the six months ended June 30, 2005, there was no net tax charge or
                credit
                related to CSG share plan activity.





See
      accompanying notes to condensed consolidated financial statements
      (unaudited).


5


**CREDIT
      SUISSE (USA), INC. AND SUBSIDIARIES**


**Condensed
      Consolidated Statements of Cash Flows**


**For
      the Six Months Ended June 30, 2006 and 2005**


**(Unaudited)**


**(In
      millions)**


**2006**
            
            **2005**Cash
                flows from operating activities:Net
                income (loss)
            
            $
            801
            
            $
            (263
            )Adjustments
                to reconcile net income (loss) to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            109
            
            
            64Non-cash
                CSG share plan activity
            
            
            535
            
            
            251Tax
                benefit on CSG share plan activity
            
            
            146
            
            
            —Deferred
                taxes
            
            
            276
            
            
            (78
            )Change
                in operating assets and operating liabilities:Securities
                borrowed
            
            
            (18,240
            )
            
            (5,047
            )Receivables
                from customers
            
            
            700
            
            
            1,583Receivables
                from brokers, dealers and other
            
            
            (2,518
            )
            
            (9,213
            )Financial
                instruments owned
            
            
            (12,379
            )
            
            (11,616
            )Other
                assets and deferred amounts and Other liabilities, net
            
            
            (4,027
            )
            
            (1,410
            )Securities
                loaned
            
            
            2,831
            
            
            3,671Payables
                to customers
            
            
            (742
            )
            
            2,463Payables
                to brokers, dealers and other
            
            
            5,663
            
            
            (1,808
            )Financial
                instruments sold not yet purchased
            
            
            12,415
            
            
            18,289Obligation
                to return securities received as collateral
            
            
            4,548
            
            
            (1,725
            )Accounts
                payable and accrued expenses
            
            
            (435
            )
            
            (1,031
            )Net
                cash used in operating activities
            
            
            (10,317
            )
            
            (5,870
            )Cash
                flows from investing activities:Net
                (payments for) proceeds from:Loans
                receivable from parent and affiliates
            
            
            (4,693
            )
            
            (146
            )Office
                facilities, net
            
            
            (159
            )
            
            (88
            )Purchase
                of Guilford Holding Corporation, net of cash
            
            
            (17
            )
            
            ―Net
                cash used in investing activities
            
            
            (4,869
            )
            
            (234
            )Cash
                flows from financing activities:Net
                proceeds from (payments for):Commercial
                paper and short-term borrowings
            
            
            4,067
            
            
            (4,538
            )Securities
                sold under agreements to repurchase, net of securities purchased
                under
                agreements to resell
            
            
            5,629
            
            
            10,937Issuances
                of long-term borrowings
            
            
            7,659
            
            
            2,276Redemptions
                and maturities of long-term borrowings
            
            
            (1,467
            )
            
            (2,521
            )Dividend
                equivalents on CSG share plan activity
            
            
            (65
            )
            
            (58
            )Net
                cash provided by financing activities
            
            
            15,823
            
            
            6,096Increase
                (decrease) in cash and cash equivalents
            
            
            637
            
            
            (8
            )Cash
                and cash equivalents as of the beginning of period
            
            
            884
            
            
            727Cash
                and cash equivalents as of the end of period
            
            $
            1,521
            
            $
            719SUPPLEMENTAL
                DISCLOSURESCash
                payments for interest
            
            $
            8,061
            
            $
            4,381Cash
                payments for income taxes, net of refunds
            
            $
            25
            
            $
            14





See
      accompanying notes to condensed consolidated financial statements
      (unaudited).


6


**CREDIT
      SUISSE (USA), INC. AND SUBSIDIARIES**


**Notes
      to Condensed Consolidated Financial Statements (Unaudited)**


**June
      30, 2006**


**1.** **Summary
      of Significant Accounting Policies**





**The
      Company**





The
      condensed consolidated financial statements include Credit Suisse
      (USA), Inc. and its subsidiaries (the “Company”). The Company is an
      integrated investment bank serving institutional, corporate, government and
      high-net-worth individual clients. The Company’s products and services include
      securities underwriting, sales and trading, financial advisory services, private
      equity investments, full service brokerage services, derivatives and risk
      management products, asset management and investment research. The Company
      is a
      wholly owned subsidiary of Credit Suisse Holdings (USA), Inc. (“CS Holdings”).
      The Company is an indirect wholly owned subsidiary of Credit Suisse, a Swiss
      bank, and Credit Suisse Group (“CSG”). Effective January 16, 2006, the Company
      changed its name from Credit Suisse First Boston (USA), Inc. to Credit Suisse
      (USA), Inc.





**Basis
      of Presentation**





All
      significant intercompany balances and transactions have been eliminated.





Certain
      financial information that is normally included in annual financial statements
      prepared in accordance with accounting principles generally accepted in the
      United States but not required for interim reporting purposes has been condensed
      or omitted. These condensed consolidated financial statements reflect, in the
      opinion of management, all adjustments (consisting of normal, recurring
      accruals) that are necessary for a fair presentation of the condensed
      consolidated statements of financial condition and income for the interim
      periods presented.





The
      results of operations for interim periods are not necessarily indicative of
      results for the entire year. These condensed consolidated financial statements
      should be read in conjunction with the consolidated financial statements and
      notes thereto included in the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2005.





To
      prepare condensed consolidated financial statements in accordance with
      accounting principles generally accepted in the United States, management must
      make estimates and assumptions. The reported amounts of assets and liabilities
      and revenues and expenses are affected by these estimates and assumptions,
      the
      most significant of which are discussed in the notes to the condensed
      consolidated financial statements. Estimates, by their nature, are based on
      judgment and available information. Therefore, actual results could differ
      materially from these estimates. For a description of the Company’s significant
      accounting policies, see Note 1 of the consolidated financial statements in
      Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended
      December 31, 2005.





Effective
      January 1, 2006, CSG realigned its organizational structure to its new strategic
      orientation, which is to focus on its banking businesses. As a result of this
      realignment, CSG’s banking business consists of three reporting segments:
      Investment Banking, Private Banking and Asset Management. The Company is managed
      as a subsidiary of Credit Suisse and CSG, and its businesses are a part of
      each
      of these banking segments. Therefore, effective January 1, 2006, the Company
      began operating and managing its businesses along these same three banking
      segments.





The
      Company’s Investment Banking segment consists principally of the businesses that
      comprised its former Institutional Securities segment, with the addition of
      the
      private funds group that was formerly part of its Wealth & Asset Management
      segment. The Company’s Asset Management segment consists of the private equity
      business and the Volaris business that were formerly part of its Wealth &
Asset Management segment. The Company’s Private Banking segment consists of the
      private client services business in the United States (other than Volaris)
      that
      was formerly part of the Company’s Wealth & Asset Management
      segment.





The
      Company manages and reports its segments on a pre-tax basis and excludes
      revenues and expenses primarily from the consolidation of certain private equity
      funds, which are reported in Elimination & Other. Net income is unaffected
      by the consolidation of these private equity funds because offsetting minority
      interests are also recorded.


7
 **CREDIT
          SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)
          (Continued)**
 **June
          30, 2006**
 
 **1.
          Summary of Significant Accounting Policies
          (Continued)**


Certain
      reclassifications have been made to prior year condensed consolidated financial
      statements in this Quarterly Report to reflect the operational and management
      structure in place during 2006.





**RECENTLY
      ADOPTED ACCOUNTING STANDARDS**





**Consolidation**





In
      June
      2005, the Financial Accounting Standards Board (“FASB”) ratified Emerging Issues
      Task Force (“EITF”) Issue No. 04-5, “Determining Whether a General Partner, or
      the General Partners as a Group, Controls a Limited Partnership or Similar
      Entity When the Limited Partners Have Certain Rights” (“EITF 04-5”). EITF 04-5
      provides a framework for evaluating whether a general partner or a group of
      general partners controls a limited partnership and therefore should consolidate
      it. EITF 04-5 states that the presumption of general partner control is overcome
      only when the limited partners have substantive “kick-out rights” or
“participating rights.” These rights would allow a simple majority of the
      limited partners to dissolve or liquidate the partnership or otherwise remove
      the general partner “without cause” or effectively participate in significant
      decisions made in the ordinary course of the partnership business. EITF 04-5
      was
      effective upon ratification for all newly formed limited partnerships and for
      existing limited partnership agreements that have been modified. The guidance
      was effective for the Company with respect to existing unmodified partnerships
      as of January 1, 2006.





As
      a
      result of the ratification of EITF 04-5, EITF Issue No. 96-16, “Investor’s
      Accounting for an Investee When the Investor Has a Majority of the Voting
      Interest but the Minority Shareholder or Shareholders Have Certain Approval
      or
      Veto Rights” (“EITF 96-16”) was updated and FASB Staff Position (“FSP”) No. SOP
      78-9-1, “Interaction of AICPA Statement of Position 78-9 and EITF Issue No.
      04-5” (“FSP SOP 78-9-1”) was issued. The amendments to EITF 96-16 were effective
      on a prospective basis upon issuance, whereas, similar to EITF 04-5, FSP SOP
      78-9-1 was effective upon issuance for all new partnerships formed and for
      existing partnership agreements modified after June 29, 2005, and was effective
      for the Company with respect to existing unmodified partnerships as of January
      1, 2006.





The
      changes to EITF 96-16 and the provisions of EITF 04-5 and FSP SOP 78-9-1 in
      effect during 2005 did not have a material impact on the Company’s financial
      condition, results of operations or cash flows. As of January 1, 2006, the
      Company increased its assets and liabilities by $6.7 billion due to the
      consolidation of certain unmodified private equity partnerships that existed
      prior to June 2005.





**Share-based
      Compensation**





In
      December 2004, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R
      was effective for annual reporting periods beginning after June 15, 2005. The
      Company early adopted SFAS 123R as of January 1, 2005, applying the modified
      prospective method. The Company’s policy is to expense share-based awards over
      the requisite service period.





The
      most
      significant accounting implications of the adoption of SFAS 123R for the Company
      were as follows: (i) inclusion of forfeitures in the estimate of compensation
      expense determined at the grant date rather than as they occur. The Company
      recorded a cumulative adjustment of approximately $6 million, net of tax,
      during the first quarter of 2005 to reverse the expense previously recognized
      on
      all outstanding unvested awards expected to be forfeited. For new grants after
      January 1, 2005, forfeitures have been included in the initial estimation of
      the
      compensation expense at the grant date; (ii) recognition of compensation cost
      for all outstanding unvested awards as of January 1, 2005, that were previously
      accounted for under Accounting Principles Board (“APB”) Opinion No. 25 and for
      which no expense was previously recognized, based on the original grant-date
      fair value of each award over the remaining requisite service period of the
      respective award (the recognition of this expense was not material); and (iii)
      adoption of changes to the presentation of the statement of cash flows in
      accordance with the revised standard.


8
 **CREDIT
          SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)
          (Continued)**
 **June
          30, 2006**
 
 **1.
          Summary of Significant Accounting Policies
          (Continued)**




In
      a
      December 2005 speech, the Securities and Exchange Commission (“SEC”) staff
      provided further guidance on SFAS 123R, relating to accounting for share-based
      compensation awards subject to a non-competition provision that have scheduled
      vesting beyond an employee’s eligibility for early retirement. The SEC staff
      noted that such share-based awards should generally be expensed over the period
      from the grant date to the date an employee becomes eligible for early
      retirement, rather than over the entire vesting, or stated service, period,
      unless the non-competition provision and other factors establish an in-substance
      requisite service period that extends beyond the early retirement date. As
      a
      result of the December 2005 guidance, and based on subsequent discussions with
      the SEC staff, the Company recorded in the fourth quarter of 2005 an incremental
      expense to reflect the full-year cost of its 2005 share-based awards. This
      incremental expense reflected the attribution of the total cost of these awards
      over the period from the grant date to the date the employee becomes eligible
      for early retirement rather than over the vesting period that ranged from three
      to five years.





The
      impact of the Company’s change in accounting was to increase fourth quarter and
      full year 2005 compensation and benefits by $296 million ($12 million of
      which was charged to CSG affiliates outside of the Company and reflected as
      a
      reduction in other operating expenses), and to decrease fourth quarter and
      full
      year 2005 net income by $185 million. This non-cash charge, recorded in
      Elimination & Other for segment reporting purposes, represents the
      recognition of compensation expense for share-based awards granted in 2005
      that
      otherwise would have been recorded in the Company’s segments, principally
      Investment Banking, generally over vesting periods of three to five
      years.





The
      share-based awards granted in March 2006 provide for early retirement
      eligibility no earlier than two years after the award grant date. These awards
      will be recorded as compensation expense in the Company’s operating segments
      over the period from the grant date of March 2006 to the date an employee
      becomes eligible for early retirement if earlier than the three to five year
      vesting period.





**Accounting
      Changes**





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a
      replacement of APB Opinion No. 20, and FASB Statement No. 3” (“SFAS 154”). SFAS
      154 requires retrospective application, unless impracticable, to prior periods’
financial statements for voluntary changes in accounting principles and changes
      required by an accounting pronouncement in the unusual circumstances in which
      the pronouncement does not include specific transition provisions. The statement
      also requires that a change in depreciation, amortization or depletion method
      for long-lived, non-financial assets should be accounted for as a change in
      accounting estimate effected by a change in accounting principle ( *i.e.* ,
      as a
      retrospective application). The guidance for reporting the correction of an
      error in previously issued financial statements and the change of an accounting
      estimate does not change from APB 20. SFAS 154 was effective for the Company
      as
      of January 1, 2006. The adoption of SFAS 154 did not have a material impact
      on
      the Company’s financial condition, results of operations or cash
      flows.





**Hybrids**





In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments” (“SFAS 155”), which amended SFAS
      No. 133, “Accounting for Derivative Instruments and Hedging Activities” as
      amended (“SFAS 133”) and
      SFAS
      No. 140, “Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities” (“SFAS 140”). Under SFAS 155, hybrid financial
      instruments that contain embedded derivatives that would otherwise require
      bifurcation may be accounted for at fair value, with changes in fair value
      recognized in the condensed consolidated statements of operations. The fair
      value designation may be applied on an instrument-by-instrument basis; however,
      the election to apply fair value accounting is irrevocable. SFAS 155 will be
      effective for those instruments acquired or issued on or after an entity’s
      fiscal year beginning after September 15, 2006, but early adoption is permitted
      as of the beginning of a fiscal year for which an entity has not previously
      issued interim financial statements. SFAS 155 allows limited retrospective
      application for existing bifurcated hybrid financial instruments. The Company
      elected to early adopt SFAS 155 as of January 1, 2006. The adoption of SFAS
      155
      did not have a material impact on the Company’s financial condition, results of
      operations or cash flows.


9
 **CREDIT
          SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)
          (Continued)**
 **June
          30, 2006**
 
 **1.
          Summary of Significant Accounting Policies
          (Continued)**




**Servicing**





In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets - an Amendment of FASB Statement No. 140” (“SFAS 156”), which amended
      SFAS 140. SFAS 156 requires that all separately recognized servicing rights
      after the effective date be initially measured at fair value, and permits
      separately recognized servicing rights to be accounted for at fair value in
      subsequent periods, with changes in fair value recognized in the condensed
      consolidated statements of operations. SFAS 156 permits an irrevocable election
      to apply fair value accounting for classes of servicing rights based on the
      different valuation and risk characteristics of the underlying assets and the
      way the economic risks are managed. SFAS 156 will be effective on a prospective
      basis for fiscal years beginning after September 15, 2006; however, early
      adoption is permitted as of the beginning of a fiscal year for which an entity
      has not previously issued interim financial statements. SFAS 156 also allows
      limited retrospective application for existing separately recognized servicing
      rights. The Company elected to early adopt SFAS 156 as of January 1, 2006.
      The
      adoption of SFAS 156 did not have an impact on the Company’s financial
      condition, results of operations or cash flows.





**Insurance**




In
      March
      2006, the FASB issued FASB Staff Position (“FSP”) No. FTB 85-4-1, “Accounting
      for Life Settlement Contracts by Third Party Investors” (“FSP FTB 85-4-1”). FSP
      FTB 85-4-1 provides a contract-by-contract election to account for life
      settlement contracts on either a fair value basis, with changes in fair value
      recognized in the condensed consolidated statements of operations, or through
      use of the investment method. Under the investment method, the initial
      investment and continuing costs are capitalized; however, no income is
      recognized until death of the insured party. The guidance of FSP FTB 85-4-1
      will
      be effective for fiscal years beginning after June 15, 2006 and will permit
      early adoption; however, upon adoption, limited retrospective application of
      the
      measurement guidance is required. The Company elected to early adopt FSP FTB
      85-4-1 as of January 1, 2006. The adoption of FSP FTB 85-4-1 did not have an
      impact on the Company’s financial condition, results of operations or cash
      flows.





**STANDARDS
      TO BE ADOPTED IN FUTURE PERIODS**





**FSP
      FIN 46(R)-6**




In
      April
      2006, the FASB issued FSP No. FIN 46(R)-6, “Determining the Variability to Be
      Considered in Applying FASB Interpretation No. 46(R)” (“FSP FIN 46(R)-6”). FSP
      FIN 46(R)-6 provides guidance regarding how contracts or arrangements that
      create or reduce variability should be considered when determining whether
      entities qualify as variable interest entities (“VIEs”) and when assessing the
      need for consolidation of VIEs. FSP FIN 46(R)-6 requires that evaluations of
      the
      variability created or absorbed in an entity from its contracts or arrangements
      be based on an analysis of the entity’s design. In evaluating the design of an
      entity, an analysis must be performed as to the potential risks to which the
      entity is exposed as well as the risks that the entity was designed to create
      and pass along to its interest holders based on the purpose for which the entity
      was formed. The guidance of FSP FIN 46(R)-6 must be applied on a prospective
      basis in reporting periods beginning after June 15, 2006, but need not be
      applied to existing entities unless a reconsideration event occurs. Given the
      prospective nature of the guidance, FSP FIN 46R-6 will not have a material
      impact on the Company’s financial condition as of the date of adoption; however,
      the future impact of FSP FIN 46(R)-6 will depend on the design of the particular
      VIEs with which the Company is and may become involved as well as the nature
      and
      extent of the Company’s involvement, and therefore the impact from this guidance
      in future periods cannot be reasonably estimated.


10
 **CREDIT
          SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)
          (Continued)**
 **June
          30, 2006**
 
 **1.
          Summary of Significant Accounting Policies
          (Continued)**


**FIN
      48**




In
      July
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
      addresses the accounting for uncertainty in income taxes by prescribing a
      consistent recognition threshold and measurement attribute for tax positions
      taken or expected to be taken in a tax return. FIN 48 also provides guidance
      on
      the derecognition, classification and disclosure of tax positions.




FIN
      48
      requires a two-step process in evaluating tax positions. In the first step,
      an
      enterprise determines whether it is more likely than not that a tax position
      will be sustained upon examination, including resolution of any related appeals
      or litigation processes, based on the technical merits of the position. Tax
      positions meeting the more-likely-than-not recognition threshold are then
      measured to determine the amount of benefit eligible for recognition in the
      financial statements. Each tax position is measured at the largest amount of
      benefit that is greater than 50% likely of being realized upon ultimate
      settlement.




The
      provisions of FIN 48 are effective for fiscal years beginning after December
      15,
      2006. The Company is currently evaluating the impact of adopting FIN
      48.


**2.** **Related
      Party Trans****actions**





CSG,
      through CS Holdings, owns all of the Company’s outstanding voting common stock.
      The Company is involved in significant financing and other transactions, and
      has
      significant related party balances, with CSG affiliates, primarily Credit
      Suisse, and certain of its subsidiaries and affiliates. The Company generally
      enters into these transactions in the ordinary course of business and believes
      that these transactions are generally on market terms that could be obtained
      from unrelated third parties.





The
      following table sets forth the Company’s related party assets and liabilities as
      of June 30, 2006 and December 31, 2005:




**June
                30,**
              **2006**
            
            **December
                31,**
              **2005****ASSETS**
            
            **(In
                millions)**Securities
                purchased under agreements to resell
            
            $
            4,732
            
            $
            5,163Securities
                borrowed
            
            
            5,802
            
            
            4,323Receivables
                from brokers, dealers and other
            
            
            4,443
            
            
            2,247Derivatives
                contracts
            
            
            2,032
            
            
            842Net
                deferred tax asset
            
            
            927
            
            
            1,202Loans
                receivable from parent and affiliates
            
            
            29,918
            
            
            25,225Total
                assets
            
            $
            47,854
            
            $
            39,002**LIABILITIES**Short-term
                borrowings
            
            $
            15,712
            
            $
            12,093Securities
                sold under agreements to repurchase
            
            
            27,319
            
            
            25,634Securities
                loaned
            
            
            38,103
            
            
            33,976Payables
                to customers
            
            
            3,444
            
            
            2,853Payables
                to brokers, dealers and other
            
            
            3,557
            
            
            2,036Derivatives
                contracts
            
            
            2,107
            
            
            489Obligation
                to return securities received as collateral
            
            
            2,554
            
            
            1,242Taxes
                payable (included in Other liabilities)
            
            
            355
            
            
            350Intercompany
                payables (included in Other liabilities)
            
            
            866
            
            
            626Total
                liabilities
            
            $
            94,017
            
            $
            79,299




11
 **CREDIT
          SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)
          (Continued)**
 **June
          30, 2006**
 
 **2.
          Related Party Transactions (Continued)**


Included
      in the condensed consolidated statements of operations are revenues and expenses
      resulting from various securities trading and financing activities with certain
      affiliates, as well as fees for administrative services performed by the Company
      under the terms of various agreements. The Company earns commission revenues
      and
      incurs commission expenses during the normal course of business for securities
      transactions conducted with affiliates. Other operating expenses include
      affiliate service fees that are treated as a reduction in other operating
      expenses in the condensed consolidated statements of operations. These fees
      include compensation and benefits expense relating to business activities
      conducted by Company employees on behalf of CSG affiliates outside the
      Company.





The
      following table sets forth the Company’s related party revenues and expenses for
      the three and six months ended June 30, 2006 and 2005:


**For
                  the Three Months Ended**
                **June
                  30,**
              
              **For
                  the Six Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(In
                  millions)**Principal
                  transactions-net (derivatives contracts)
              
              $
              800
              
              $
              (368
              )
              $
              1,052
              
              $
              (58
              )Commissions
                  and fees
              
              
              (21
              )
              
              (13
              )
              
              (43
              )
              
              (20
              )Interest
                  and dividend revenues
              
              
              579
              
              
              196
              
              
              1,037
              
              
              498Interest
                  expense
              
              
              (947
              )
              
              (459
              )
              
              (1,700
              )
              
              (957
              )Total
                  net revenues
              
              $
              411
              
              $
              (644
              )
              $
              346
              
              $
              (537
              )Other
                  operating expenses (credits)
              
              $
              (57
              )
              $
              (69
              )
              $
              (108
              )
              $
              (153
              )Total
                  expenses
              
              $
              (57
              )
              $
              (69
              )
              $
              (108
              )
              $
              (153
              )




From
      time
      to time, the Company sells at cost to CS Holdings the right, title and interest
      in certain assets. Once the assets are sold, the Company continues to service
      these assets on behalf of CS Holdings. For the three and six months ended June
      30, 2006, the value of the assets sold, net of collections applied, was not
      material.





The
      Company manages certain private equity funds of funds, hedge funds of funds
      and
      VIEs that issue collateralized debt obligations (“CDOs”) of CS Alternative
      Capital, Inc., an indirect wholly owned subsidiary of CS Holdings. As of June
      30, 2006, the aggregate assets under management in these funds and VIEs were
      approximately $21.4 billion. CS Alternative Capital, Inc. reimburses the Company
      for all expenses incurred by the Company in connection with managing these
      assets. The Company treats these reimbursements as a reduction in other
      operating expenses in the condensed consolidated statements of
      operations.





The
      Credit Suisse Group International Share Plan provides for the grant of
      equity-based awards to Company employees based on CSG shares pursuant to which
      employees of the Company may be granted, as compensation, shares or other
      equity-based awards as compensation for services performed. CS Holdings
      purchases shares from CSG to satisfy these awards, but CS Holdings does not
      require reimbursement from the Company; therefore, amounts associated with
      these
      awards are considered a capital contribution to the Company and credited to
      paid-in-capital. Amounts contributed by CS Holdings relating to compensation
      expense for the three months ended June 30, 2006 and 2005 were $302 million
      and
      $75 million, including tax effects, respectively, and for the six months ended
      June 30, 2006 and 2005 were $616 million and $193 million, including tax
      effects, respectively. See Note 1 for further information on the Company’s
      share-based compensation.


12
 **CREDIT
          SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)
          (Continued)**
 **June
          30, 2006**
 
 **2.
          Related Party Transactions (Continued)**





Certain
      of the Company’s directors, officers and employees and those of its affiliates
      and their subsidiaries maintain margin accounts with the Company’s principal
      broker-dealer subsidiary, Credit Suisse Securities (USA) LLC (“CS Securities”)
      and other affiliated broker-dealers in the ordinary course of business. In
      addition, certain of such directors, officers and employees have investments
      or
      commitments to invest in various private equity funds. The Company makes loans
      to directors and executive officers on the same terms as are generally available
      to third parties or otherwise pursuant to widely available employee benefit
      plans. CS Securities and other affiliated broker-dealers, from time to time
      and
      in the ordinary course of business, enter into, as principal, transactions
      involving the purchase or sale of securities from or to such directors, officers
      and employees and members of their immediate families.





The
      Company issues guarantees to customers with respect to certain obligations
      of
      its affiliates in the ordinary course of business, including, but not limited
      to, certain derivatives transactions. Failure to perform by an affiliate would
      require the Company to perform under the guarantee. See Note 8 for more
      information.





The
      Company is included in the consolidated federal income tax return and certain
      state and local income tax returns filed by CS Holdings.




**3.** **Transfers
      and Servicing****of
      Financial Assets**





As
      part
      of the Company’s financing and securities settlement activities, the Company
      uses securities as collateral to support various secured financing sources.
      If
      the counterparty does not meet its contractual obligation to return securities
      used as collateral, the Company may be exposed to the risk of reacquiring the
      securities at prevailing market prices to satisfy its obligations. The Company
      controls this risk by monitoring the market value of financial instruments
      pledged each day and by requiring collateral levels to be adjusted in the event
      of excess market exposure.





As
      of
      June 30, 2006 and December 31, 2005, the fair value of assets that the Company
      pledged to counterparties was $235.0 billion and $212.5 billion,
      respectively, of which $94.5 billion and $73.0 billion, respectively,
      was included in financial instruments owned in the condensed consolidated
      statements of financial condition.





The
      Company has also received similar assets as collateral that the Company has
      the
      right to re-pledge or sell. The Company routinely re-pledges or sells these
      assets to third parties. As of June 30, 2006 and December 31, 2005, the fair
      value of the assets pledged to the Company was $207.2 billion and
      $184.6 billion, respectively, of which $203.7 billion and
      $178.1 billion, respectively, was re-pledged or sold.





**Securitization
      Activities**





The
      Company originates and purchases residential mortgages and originates commercial
      loans for the purpose of securitization. The Company sells these mortgage loans
      to qualified special purpose entities (“QSPEs”). The QSPEs issue securities that
      are backed by the assets transferred to the QSPEs and pay a return based on
      the
      returns on those assets. Investors in these mortgage-backed securities typically
      have recourse to the assets in the QSPE. The investors and the QSPEs have no
      recourse to the Company’s assets. CS Securities is an underwriter of, and makes
      a market in, these securities.





As
      of
      June 30, 2006, the Company held encumbered mortgage loans totaling $4.7 billion
      related to securitization transactions that did not qualify for sale accounting
      treatment under paragraph 40b of SFAS 140. Prior to securitization, such
      encumbered loans were accounted for in financial instruments owned; however,
      due
      to the transfer of legal title in the form of a pledge in the securitization,
      these loans have been reclassified to Other assets and deferred amounts in
      the
      condensed consolidated statements of financial condition. Cash amounts received
      in payment upon transfer for such loans are accounted for as secured borrowings
      and are recorded in Other liabilities in the condensed consolidated statements
      of financial condition.


13
 **CREDIT
          SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)
          (Continued)**
 **June
          30, 2006**
 
 **3.
          Transfers and Servicing of Financial Assets
          (Continued)**


The
      following table presents the proceeds and gains related to the securitization
      of
      commercial mortgage loans, residential mortgage loans and other asset-backed
      loans for the six months ended June 30, 2006 and 2005. The gain on
      securitizations includes underwriting revenues, deferred origination fees and
      expenses, gains or losses on the sale of the collateral to the QSPE or VIE
      and
      gains or losses on the sale of the newly issued securities to third parties
      but
      excludes net interest revenues earned on assets prior to securitization.




**Commercial**
              **mortgage**
              **loans****(1)**
            
            **Residential**
              **mortgage**
              **loans(2)**
            
            **Other**
              **asset-backed**
              **loans****(2)(3)****(In millions)****For
                the Six Months Ended********June
                30, 200****6**Proceeds
                from securitizations
            
            $
            6,838
            
            $
            12,382
            
            $
            1,220Gain
                on securitizations
            
            $
            157
            
            $
            15
            
            $
            16**For
                the Six Months Ended****June
                30, 2005**Proceeds
                from securitizations
            
            $
            5,907
            
            $
            23,000
            
            $
            4,770Gain
                on securitizations
            
            $
            210
            
            $
            19
            
            $
            27





(1)
            The
                gains or losses on the sale of the collateral to the QSPE is the
                difference between the carrying value on the day prior to the
                securitization date (the lower of amortized cost or fair value) and
                the
                selling price of the mortgage whole loans to the QSPE on the
                securitization pricing date.





(2)
            The
                gains or losses on the sale of the collateral to the QSPE is the
                difference between the fair value on the day prior to securitization
                pricing date and the selling price of the mortgage whole loans to
                the QSPE
                on the securitization pricing date.





(3)
            Includes
                home equity loans and other securities collateralized by residential
                mortgage loans.





The
      Company may retain interests in these securitized assets in connection with
      its
      underwriting and market-making activities. The Company’s primary exposure in its
      securitization activities is limited to its retained interests. Retained
      interests in securitized financial assets are included at fair value in
      corporate debt in financial instruments owned in the condensed consolidated
      statements of financial condition. Any changes in the fair value of these
      retained interests are recognized in the condensed consolidated statements
      of
      operations. The fair values of retained interests are determined using market
      quotes where available or the present value of estimated future cash flows
      valuation techniques that incorporate assumptions that marketplace participants
      customarily use in their estimates of values. As of June 30, 2006 and December
      31, 2005, the fair value of the interests retained by the Company was
      $4.0 billion and $5.1 billion, respectively.


14
 **CREDIT
          SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)
          (Continued)**
 **June
          30, 2006**
 
 **3.
          Transfers and Servicing of Financial Assets
          (Continued)**


Key
      economic assumptions used at the date of securitization in measuring the fair
      value of the retained interests resulting from securitizations completed during
      the six months ended June 30, 2006 were as follows:





**For
                the Six Months Ended June 30, 2006****Commercial**
              **mortgage**
              **loans
                (1)**
            
            **Residential**
              **mortgage**
              **loans**
            
            **Other**
              **asset-backed
                loans**Weighted-average
                life (in years)
            
            N/A
            
            5.1
            
            8.9Prepayment
                rate (in rate per annum)(2)
            
            N/A
            
            0.5%-50.0%
            
            25.0%Cash
                flow discount rate (in rate per annum)(3)
            
            N/A
            
            0.1%-39.7%
            
            N/AExpected
                credit losses (in rate per annum)
            
            N/A
            
            0.0%-29.7%
            
            N/A







(1)
            To
                deter prepayment, commercial mortgage loans typically have prepayment
                protection in the form of prepayment lockouts and yield
                maintenances.





(2)
            The
                Company utilizes the constant prepayment rate
                assumptions.





(3)
            The
                rate is based on the weighted average yield on the retained
                interest.





The
      following table sets forth the fair value of retained interests from
      securitizations as of June 30, 2006, key economic assumptions used to determine
      the fair value and the sensitivity of the fair value to immediate adverse
      changes in those assumptions:


**As
                  of June 30, 2006****Commercial**
                **mortgage**
                **loans
                  (1)**
              
              **Residential**
                **mortgage**
                **loans**
              
              **Other**
                **asset-backed****(Dollars
                  in millions)**Fair
                  value of retained interests
              
              $
              16
              
              
              3,910
              
              $
              87Weighted-average
                  life (in years)
              
              
              N/A
              
              
              4.7
              
              
              4.5Prepayment
                  rate (in rate per annum)(2)
              
              
              N/A
              
              
              0.1%-86.4
              %
              
              25.0%-42.5
              %Impact
                  on fair value of 10% adverse change
              
              $
              ―
              
              $
              (21
              )
              $
              ―Impact
                  on fair value of 20% adverse change
              
              $
              ―
              
              $
              (43
              )
              $
              ―Cash
                  flow discount rate (in rate per annum)(3)
              
              
              N/A
              
              
              7.5
              %
              
              N/AImpact
                  on fair value of 10% adverse change
              
              $
              ―
              
              $
              (61
              )
              $
              ―Impact
                  on fair value of 20% adverse change
              
              $
              ―
              
              $
              (121
              )
              $
              ―Expected
                  credit losses (in rate per annum)
              
              
              N/A
              
              
              0.6
              %
              
              N/AImpact
                  on fair value of 10% adverse change
              
              $
              ―
              
              $
              (6
              )
              $
              ―Impact
                  on fair value of 20% adverse change
              
              $
              ―
              
              $
              (12
              )
              $
              ―







(1)
            To
                deter prepayment, commercial mortgage loans typically have prepayment
                protection in the form of prepayment lockouts and yield
                maintenances.





(2)
            The
                Company utilizes the constant prepayment rate
                assumptions.





(3)
            The
                rate is based on the weighted average yield on the retained
                interest.





These
      sensitivities are hypothetical and do not reflect the benefits of hedging
      activities. Changes in fair value based on a 10% or 20% variation in assumptions
      generally cannot be extrapolated because the relationship of the change in
      assumption to the change in fair value may not be linear. Also, the effect
      of a
      variation in a particular assumption on the fair value of the retained interests
      is calculated without changing any other assumption. In practice, changes in
      one
      assumption may result in changes in other assumptions (for example, increases
      in
      market interest rates may result in lower prepayments and increased credit
      losses), which may magnify or counteract the sensitivities.





15
 **CREDIT
            SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
            to Condensed Consolidated Financial Statements (Unaudited)
            (Continued)**
 **June
            30, 2006**
 
 **3.
            Transfers and Servicing of Financial Assets (Continued)**


**Variable
      Interest Entities**





The
      Company has variable interests in several CDO VIEs. As described under
“—Securitization Activities,” in the normal course of its business, the Company
      purchases loans and other debt obligations from and on behalf of clients
      primarily for the purpose of securitization. These assets are sold to and
      warehoused by affiliates and, at the end of a warehousing period, the assets
      are
      sold to CDO VIEs or QSPEs for securitization. The Company engages in these
      transactions to meet the needs of clients, to earn fees and to sell financial
      assets. The purpose of these CDO VIEs and QSPEs is to provide investors a return
      based on the underlying debt instruments of the CDO VIEs and QSPEs. In
      connection with its underwriting and market-making activities, the Company
      may
      retain interests in the CDO VIEs and QSPEs. The CDO entities may have actively
      managed (“open”) portfolios or static or unmanaged (“closed”) portfolios. The
      closed CDO transactions are typically structured to use QSPEs, which are not
      consolidated in the Company’s financial statements.





The
      Company has consolidated all CDO VIEs and other VIEs for which it is the primary
      beneficiary. As of June 30, 2006 and December 31, 2005, the Company recorded
      $1.0 billion and $673 million, respectively, representing the carrying
      amount of the consolidated assets of these CDO VIEs and other VIEs that are
      collateral for the VIE obligations. The beneficial interests of these
      consolidated CDO VIEs and other VIEs are payable solely from the cash flows
      of
      the related collateral, and the creditors of these CDO VIEs do not have recourse
      to the Company in the event of default.





The
      Company holds significant debt and equity interests in CDO VIEs that are not
      consolidated because the Company is not the primary beneficiary. The total
      assets in these CDO VIEs as of June 30, 2006 and December 31, 2005 were
      $5.5 billion and $5.4 billion, respectively. The Company’s maximum
      exposure to loss on significant debt and equity interests in CDO VIEs as of
      June
      30, 2006 and December 31, 2005 was $161 million and $127 million,
      respectively, which was the amount carried at fair value in financial
      instruments owned.





In
      the
      normal course of its private equity activities, the Company is typically the
      general partner and investment adviser to private equity funds. Limited partners
      of these funds typically have recourse to the fund’s assets but have no recourse
      to the Company’s assets. The Company consolidates certain private equity funds
      that are managed by the Company. A portion of these private equity funds are
      not
      VIEs but are consolidated based on the Company’s control of the voting interest
      of the fund. See Note 1 for more information. The following table presents
      the
      impact on the condensed consolidated statements of financial condition of the
      Company as of June 30, 2006 and December 31, 2005 as a result of consolidating
      certain private equity funds:





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005****(In
                millions)**Private
                equity and other long-term investments
            
            $
            9,457
            
            $
            2,562All
                other assets, net
            
            
            520
            
            177Total
                assets
            
            $
            9,977
            
            $
            2,739Minority
                interests (included in other liabilities)
            
            $
            9,413
            
            $
            2,549All
                other liabilities, net (excluding minority interests)
            
            
            564
            
            
            190Total
                liabilities
            
            $
            9,977
            
            $
            2,739


16
 **CREDIT
            SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
            to Condensed Consolidated Financial Statements (Unaudited)
            (Continued)**
 **June
            30, 2006**
 
 **3.
            Transfers and Servicing of Financial Assets
            (Continued)**


The
      following table presents the impact on the condensed consolidated statements
      of
      income of the Company for the three and six months ended June 30, 2006 and
      2005
      as a result of consolidating certain private equity funds:




**For
                the Three Months**
              **Ended
                June 30,**
            
            
            **For
                the Six Months**
              **Ended
                June 30,****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005****(In
                millions)**Net
                revenues
            
            $
            641
            
            $
            304
            
            $
            1,589
            
            $
            461Expenses
            
            
            8
            
            
            1
            
            
            13
            
            
            3Minority
                interests
            
            $
            633
            
            $
            303
            
            $
            1,576
            
            $
            458





In
      May
      2006, the Company completed its acquisition of Guilford Holding Corporation,
      a
      tax credit syndication firm based in Montgomery, Alabama. Guilford engages
      in
      the purchase, packaging and sale of tax credits to corporate investors. The
      Company has consolidated certain tax credit funds in which it is the general
      partner resulting in an increase in assets and liabilities of $321 million
      as of
      June 30, 2006. The consolidation of these tax credit funds did not have an
      impact on the condensed consolidated statement of operations.




**4.** **Private
      Equity and Other Lon****g-Term
      Investments**





Private
      equity and other long-term investments include direct investments and
      investments in partnerships that make private equity and related investments
      in
      various portfolio companies and funds. The Company categorizes its private
      equity and other long-term investments into three categories: Credit
      Suisse-managed funds, which include consolidated funds, funds managed by third
      parties and direct investments. These investments generally have no readily
      available market or may be otherwise restricted as to resale under the
      Securities Act of 1933 (“Securities Act”); therefore, these investments are
      carried at management’s best estimate of fair value.





As
      of
      June 30, 2006 and December 31, 2005, the Company had investments in private
      equity and other long-term investments of $10.6 billion and
      $3.6 billion, respectively, including $9.5 billion and $2.6 billion,
      respectively, in private equity investments the Company is required to
      consolidate. Changes in net unrealized appreciation/depreciation arising from
      changes in fair value and the gain or loss realized upon sale are reflected
      in
      principal transactions-net in the condensed consolidated statements of
      operations. See Notes 1 and 3 for more information. The original cost of these
      investments, excluding the consolidated private equity investments, was $1.5
      billion as of June 30, 2006 and $1.4 billion as of December 31, 2005. As of
      June
      30, 2006 the Company had commitments to invest up to an additional $477 million
      in non-consolidated private equity funds and $1.1 billion in consolidated
      private equity funds. See Note 7 for more information.





The
      Company’s subsidiaries manage many private equity partnerships (the “Funds”).
      When the investment performance on Credit Suisse-managed Funds exceeds specific
      thresholds, the Company and certain other partners,
      most of which are current and former employees of the Company (collectively the
      “GPs”), may be entitled to receive a carried interest distribution under the
      governing documents of the Funds. Carried interest distributions are based
      on
      the cumulative investment performance of each Fund at the time the distribution
      is made. As a result, the Company may be obligated to return to investors in
      the
      Funds all or a portion of the carried interest distributed to the GPs. The
      amount of such contingent obligations is based upon the performance of the
      Funds
      but cannot exceed the amount of carried interest received by the GPs. As of
      June
      30, 2006 and December 31, 2005, the maximum amount of such contingent
      obligations was $542 million and $620 million, respectively, assuming
      the Funds’ remaining investments were worthless. Assuming the Funds’ remaining
      investments were sold at their current carrying values as of June 30, 2006
      and
      December 31, 2005, the contingent obligations would have been
      $11 million and $18 million, respectively. As of June 30, 2006 and
      December 31, 2005, the Company withheld cash from prior distributions to
      the GPs and recorded corresponding liabilities of $131 million and
      $126 million, respectively, in connection with the Company’s guarantee to
      return prior carried interest distributions to third party investors in the
      Funds.


17
 **CREDIT
          SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)
          (Continued)**
 **June
          30, 2006**
 
 **4.
          Private Equity and Other Long-Term Investments
          (Continued)**


In
      addition, pursuant to certain contractual arrangements, the Company is obligated
      to make cash payments to certain investors in certain Funds if specified
      performance thresholds are not met. As of June 30, 2006 and December 31,
      2005, the maximum amount of such contingent obligations was $43 million and
      $45 million, respectively, assuming the Funds’ remaining investments were
      worthless. Assuming the Funds’ remaining investments were sold at their current
      carrying values as of June 30, 2006 and December 31, 2005, there would have
      been
      no contingent obligation.




**5.** **Derivatives
      C****ontracts**





The
      Company uses derivatives contracts for trading and hedging purposes and to
      provide products for clients. These derivatives include options, forwards,
      futures and swaps. For more information on the Company’s derivatives, see Note 6
      of the consolidated financial statements in Part II, Item 8 in the Annual Report
      on Form 10-K for the year ended December 31, 2005.





**Quantitative
      Disclosures for All Derivatives**





The
      fair
      values of all derivatives contracts outstanding as of June 30, 2006 and December
      31, 2005 were as follows:





**June
                30, 2006**
            
            **December
                31, 2005****Assets**
            
            **Liabilities**
            
            **Assets**
            
            **Liabilities****(In
                millions)**Options
            
            $
            1,101
            
            $
            1,142
            
            $
            1,167
            
            $
            728Forward
                contracts
            
            3,306
            
            1,077
            
            3,049
            
            1,076Swaps
            
            2,079
            
            2,173
            
            869
            
            458Total
            
            $
            6,486
            
            $
            4,392
            
            $
            5,085
            
            $
            2,262





These
      assets and liabilities are included as derivatives contracts in financial
      instruments owned and sold not yet purchased, respectively, in the condensed
      consolidated statements of financial condition. Assets and liabilities related
      to futures contracts are included in receivables from brokers, dealers and
      other
      and payables to brokers, dealers and other, respectively, in the condensed
      consolidated statements of financial condition.




**6.** **Borrow****ings**





Short-term
      borrowings are generally demand obligations with interest approximating the
      Federal Funds rate, the London Interbank Offered Rate (“LIBOR”) or other money
      market indices. Such borrowings are generally used to facilitate the securities
      settlement process, finance financial instruments owned and finance securities
      purchased by customers on margin. As of June 30, 2006 and December 31, 2005,
      there were no short-term borrowings secured by Company-owned
      securities.


18
 **CREDIT
          SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)
          (Continued)**
 **June
          30, 2006**
 
 **6.
          Borrowings (Continued)**


The
      following table sets forth the Company’s short-term borrowings and their
      weighted average interest rates:


**Short-term
                  borrowings**
              
              **Weighted
                  average interest rates****As
                  of**
                **June
                  30,**
                **2006**
              
              **As
                  of**
                **December
                  31,**
                **2005**
              
              **As
                  of**
                **June
                  30,**
                **2006**
              
              **As
                  of**
                **December
                  31,**
                **2005****(In
                  millions)**Bank
                  loans, including loans from affiliates(1)
              
              $
              16,487
              
              $
              12,356
              
              
              5.67
              %
              
              4.32
              %Commercial
                  paper
              
              
              1,234
              
              
              1,298
              
              
              5.03
              %
              
              4.19
              %Total
                  short-term borrowings
              
              $
              17,721
              
              $
              13,654







(1)
            Includes
                $15.7 billion and $12.1 billion in loans from affiliates as of
                June 30, 2006 and December 31, 2005,
                respectively.





The
      Company has a commercial paper program exempt from registration under the
      Securities Act that allows the Company to issue up to $5.0 billion in
      commercial paper. As of June 30, 2006 and December 31, 2005, $1.2 billion
      and $1.3 billion, respectively, of commercial paper was outstanding under
      this program.




In
      February 2006, the Company filed with the SEC an automatic shelf registration
      statement that allows the Company to issue from time to time senior and
      subordinated debt securities, and warrants to purchase such securities.





In
      July
      2001, the Company established a Euro medium-term note program, that allows
      the
      Company to issue up to $5.0 billion of notes. Under this program, the
      Company had, as of August 7, 2006 approximately $1.2 billion available for
      issuance.





The
      following table sets forth the Company’s long-term borrowings as of June 30,
      2006 and December 31, 2005:





**June
                30, 2006**
            
            **December
                31, 2005****(In millions)**Senior
                notes 3.9%-7.1%, due various dates through 2032
            
            $
            35,999
            
            $
            29,214Medium-term
                notes 3.4%-8.8%, due various dates through 2032
            
            2,869
            
            4,223Structured
                borrowings 4.9%-16.1%, due various dates through 2015
            
            610
            
            489Total
                long-term borrowings
            
            $
            39,478
            
            $
            33,926Current
                maturities of long-term borrowings
            
            $
            5,012
            
            $
            3,692





As
      of
      June 30, 2006 and December 31, 2005, long-term borrowings included downward
      fair
      value adjustments of approximately $605 million and upward fair value
      adjustments of approximately $52 million, respectively, associated with
      fair value hedges under SFAS 133. As of June 30, 2006 and December 31, 2005,
      the
      Company had entered into interest rate swaps, with a notional amount of
      $25.6 billion and $23.6 billion, respectively, on the Company’s
      long-term borrowings for hedging purposes. Substantially all of these swaps
      were
      designated as qualifying fair value hedges under SFAS 133. See Note 5
      for more information.


19
 **CREDIT
          SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)
          (Continued)**
 **June
          30, 2006**
 
 **6.
          Borrowings (Continued)**


The
      following table sets forth scheduled maturities of all long-term borrowings
      as
      of June 30, 2006:


**Twelve
                  Months Ended**
                **June
                  30,****(In
                  millions)**2007
              
              $
              5,0122008
              
              
              6,2562009
              
              
              7,8812010
              
              
              1,4682011
              
              
              4,2182012-2032
              
              
              14,643Total
              
              $
              39,478
 
 The
        following table sets forth scheduled maturities of the current portion of
        long-term borrowings as of June 30, 2006:
 
 **Three
                  Months Ended****(In
                  millions)**September
                  30, 2006
              
              $
              2,244December
                  31, 2006
              
              
              ―March
                  31, 2007
              
              
              369June
                  30, 2007
              
              
              2,399Total
              
              $
              5,012


As
      of
      June 30, 2006, CS Securities maintained with third parties five 364-day
      committed secured revolving credit facilities totaling $2.2 billion, with
      one facility for $200 million maturing in August 2006, one facility for $500
      million maturing in November 2006, one facility for $500 million maturing
      in February 2007, one facility for $500 million maturing in March 2007 and
      one
      facility for $500 million maturing in July 2007. The Company expects to renew
      these facilities as they mature. These facilities require CS Securities to
      pledge unencumbered marketable securities to secure any borrowings. Borrowings
      under each facility would bear interest at short-term rates related to either
      the Federal Funds rate or LIBOR and can be used for general corporate purposes.
      The facilities contain customary covenants that the Company believes will not
      impair its ability to obtain funding. As of June 30, 2006, no borrowings were
      outstanding under any of the facilities.





**2006
      Financings**





During
      the six months ended June 30, 2006, the Company issued $7.5 billion of
      senior notes, $82 million in medium-term notes and $79 million in
      structured notes and repaid approximately $1.5 billion of medium-term notes
      and $17 million of structured notes.





20


**CREDIT
        SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
        to Condensed Consolidated Financial Statements (Unaudited)
        (Continued)**
 **June
        30, 2006**


**7.
      Leases and Commitments**





The
      following table sets forth the Company’s minimum operating lease commitments as
      of June 30, 2006:


**Twelve
                    Months Ending June 30,****(In
                    millions)**2007
                
                $
                1552008
                
                
                1482009
                
                
                1442010
                
                
                1402011
                
                
                1352012-2025
                
                
                933Total(1)
                
                $
                1,655








(1)
            Excludes
                sublease revenue of $294 million and executorycosts
                such as insurance, maintenance and taxes of $536 million.





The
      following table sets forth the Company’s commitments, including the current
      portion, as of June 30, 2006:





**Commitment
                Expiration Per Period****Less
                than 1**
              **year**
            
            **1-3**
              **years**
            
            **4-5**
              **years**
            
            **Over**
              **5
                years**
            
            **Total**
              **commitments****(In
                millions)**Standby
                resale agreements(1)
            
            $
            50
            
            $
            100
            
            $
            ―
            
            $
            ―
            
            $
            150Private
                equity(2)
            
            19
            
            37
            
            21
            
            400
            
            477Forward
                agreements(3)
            
            5,094
            
            ―
            
            ―
            
            ―
            
            5,094Unfunded
                lending commitments(4)
            
            
            711
            
            
            190
            
            
            125
            
            
            360
            
            
            1,386Unfunded
                warehousing commitments(5)
            
            
            1,081
            
            
            ―
            
            
            ―
            
            
            ―
            
            
            1,081Total
                commitments
            
            $
            6,955
            
            $
            327
            
            $
            146
            
            $
            760
            
            $
            8,188








(1)
            In
                the ordinary course of business, the Company maintains certain standby
                resale agreement facilities that commit the Company to enter into
                securities purchased under agreements to resell with customers at
                current
                market rates.





(2)
            As
                of June 30, 2006, the Company also had commitments to invest up to
                an
                additional $1.1 billion in consolidated private equity
                funds.





(3)
            Represents
                commitments to enter into securities purchased under agreements to
                resell
                and agreements to borrow securities.





(4)
            The
                Company enters into commitments to extend credit in connection with
                certain premium finance, leveraged finance and other
                activities.





(5)
            The
                Company enters into commitments to warehouse commercial mortgage
                whole
                loans.





Excluded
      from the table above are certain commitments to originate and purchase mortgage
      whole loans that qualify as derivatives. These commitments are reflected in
      derivatives contracts in the condensed consolidated statements of financial
      condition. For more information on the Company’s derivatives contracts, see Note
      5.





As
      of
      June 30, 2006, the Company used $332 million in outstanding standby letters
      of credit to satisfy counterparty collateral requirements.





The
      Company had no material capital lease obligations as of June 30, 2006. For
      information about certain of the Company’s additional commitments, see Notes 4
      and 8.




21


**CREDIT
      SUISSE (USA), INC. AND SUBSIDIARIES**


**Notes
      to Condensed Consolidated Financial Statements (Unaudited)
      (Continued)**


**June
      30, 2006**




**8.** **Guaran****tees**





In
      the
      ordinary course of business, the Company enters into guarantee contracts as
      guarantor. FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for
      Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”),
      requires disclosure by a guarantor of its maximum potential payment obligations
      under certain of its guarantees to the extent that it is possible to estimate
      them. FIN 45 also requires a guarantor to recognize, at the inception of a
      guarantee, a liability for the fair value of the obligations undertaken in
      issuing such guarantee, including its ongoing obligation to stand ready to
      perform over the term of the guarantee in the event that certain events or
      conditions occur. With certain exceptions, these liability recognition
      requirements apply to any guarantees entered into or modified after
      December 31, 2002.





The
      guarantees covered by FIN 45 may require the Company to make payments to the
      guaranteed party based on changes related to an asset, a liability or an equity
      security of the guaranteed party. The Company may also be contingently required
      to make payments to the guaranteed party based on another entity’s failure to
      perform under an agreement, or the Company may have an indirect guarantee of
      the
      indebtedness of others, even though the payment to the guaranteed party may
      not
      be based on changes related to an asset, liability or equity security of the
      guaranteed party.





In
      addition, FIN 45 covers certain indemnification agreements that contingently
      require the Company to make payments to the indemnified party based on changes
      related to an asset, liability or equity security of the indemnified party,
      such
      as an adverse judgment in a lawsuit or the imposition of additional taxes due
      to
      either a change in the tax law or an adverse interpretation of the tax
      law.





The
      following table sets forth the maximum quantifiable contingent liabilities
      and
      carrying amounts associated with guarantees covered by FIN 45 as of June 30,
      2006 by maturity.





**Amount
                of Guarantee**
              **Expiration
                Per Period****Less
                than 1**
              **year**
            
            **1-3**
              **years**
            
            **4-5**
              **years**
            
            **Over
                5**
              **years**
            
            **Total**
              **guarantees**
            
            **Carrying
                amounts****(In
                millions)**Credit
                guarantees
            
            $
            3
            
            $
            25
            
            $
            48
            
            $
            433
            
            $
            509
            
            $
            14Performance
                guarantees
            
            63
            
            456
            
            ―
            
            ―
            
            519
            
            8Derivatives
            
            2,619
            
            3,414
            
            4,008
            
            7,303
            
            17,344
            
            451Related
                party guarantees
            
            ―
            
            6
            
            ―
            
            1
            
            7
            
            ―Total
                guarantees
            
            $
            2,685
            
            $
            3,901
            
            $
            4,056
            
            $
            7,737
            
            $
            18,379
            
            $
            473





For
      more
      information on the Company’s guarantees, including guarantees for which the
      maximum contingent liability cannot be quantified, see Note 10 of the
      consolidated financial statements in Part II, Item 8 in the Annual Report on
      Form 10-K for the year ended December 31, 2005.




**9.** **Net
      Capita****l
      Requirements**





The
      Company’s principal wholly owned subsidiary, CS Securities, is a registered
      broker-dealer, registered futures commission merchant and member firm of the
      New
      York Stock Exchange, Inc. Accordingly, the Company is subject to the minimum
      net
      capital requirements of the SEC and the Commodities Futures Trading Commission
      (“CFTC”). Under the alternative method permitted by Rule 15c3-1 under the
      Securities Exchange Act of 1934 (the “Exchange Act”), the required net capital
      may not be less than the greater of 2% of aggregate debit balances arising
      from
      customer transactions or 4% of the funds required to be segregated pursuant
      to
      the Commodity Exchange Act less the market value of certain commodity options,
      all as defined. Under CFTC Regulation 1.17, the required minimum net capital
      requirement is 8% of the total risk margin requirement (as defined) for all
      positions carried in customer accounts plus 4% of the total risk margin
      requirement (as defined) for all positions carried in non-customer accounts.
      As
      of June 30, 2006, CS Securities’ net capital of approximately
      $5.2 billion was 77.3% of aggregate debit balances and in excess of the
      CFTC’s minimum requirement by approximately $5.0 billion.


22
 **CREDIT
          SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)
          (Continued)**
 **June
          30, 2006**
 
 **9.
          Net Capital Requirements (Continued)**




The
      Company’s over-the-counter (“OTC”) derivatives dealer subsidiary, Credit Suisse
      Capital LLC (“CS Capital”) is also subject to the uniform net capital rule, but
      computes its net capital based on value at risk under Appendix F of Rule
      15c3-1 under the Exchange Act. As of  June
      30,
      2006, CS Capital’s net capital of $525 million, after allowing for market
      and credit risk exposure of $61 million and $143 million,
      respectively, was in excess of the minimum net capital requirement by
      $505 million. CS Capital is in compliance with the exemptive provisions of
      Rule 15c3-3 under the Exchange Act because the Company does not carry securities
      accounts for customers or perform custodial functions relating to customer
      securities.





As
      of
      June 30, 2006, the Company and its subsidiaries complied with all applicable
      regulatory capital adequacy requirements.




**10.** **Cash
      and Securities Segregated Under Federa****l
      and Other Regulations**





In
      compliance with the Commodity Exchange Act, CS Securities segregates funds
      deposited by customers and funds accruing to customers as a result of trades
      or
      contracts. As of both June 30, 2006 and December 31, 2005, cash and securities
      aggregating $2.7 billion were segregated or secured by CS Securities in
      separate accounts exclusively for the benefit of customers.





In
      accordance with the SEC’s no-action letter dated November 3, 1998, CS
      Securities computed a reserve requirement for the proprietary accounts of
      introducing broker-dealers. As of June 30, 2006 and December 31, 2005, CS
      Securities segregated U.S. Treasury securities aggregating $6.9 billion and
      $1.9 billion, respectively, on behalf of introducing
      broker-dealers.





In
      addition, CS Securities segregated U.S. Treasury securities with a market value
      of $5.5 billion and $3.3 billion as of June 30, 2006 and December 31,
      2005, respectively, in a special reserve bank account exclusively for the
      benefit of customers as required by Rule 15c3-3 of the Exchange
      Act.




**11.
      Employee Benefit Plans**





The
      Company provides retirement and postretirement benefits to its U.S. and certain
      non-U.S. employees through participation in defined benefit pension plans,
      a
      defined contribution savings and retirement plan and other post-retirement
      plans. The
      Company’s measurement date is September 30 for its pension and other plans. For
      more information on the Company’s employee benefit plans, see Note 16 of the
      consolidated financial statements in Part II, Item 8 in the Annual Report on
      Form 10-K for the year ended December 31, 2005.


23
 **CREDIT
          SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)
          (Continued)**
 **June
          30, 2006**
 
 **11.
          Employee Benefit Plans (Continued)**


The
      following table presents the pension expense by component for the Company’s defined
      benefit pension plans and
      other
      post-retirement plans for the three and six months ended June 30, 2006 and
      2005:





**For
                the Three Months**
              **Ended
                June 30, 2006**
            
            **For
                the Six Months**
              **Ended
                June 30, 2006****2006**
            
            
            **2005**
            
            **2006**
            
            **2005****(In
                millions)****Components
                of Net Periodic Benefit Cost:**Service
                cost
            
            $
            6
            
            $
            7
            
            $
            13
            
            $
            13Interest
                cost
            
            
            13
            
            
            11
            
            25
            
            22Expected
                return on plan assets
            
            
            (13
            )
            
            (14
            )
            (26
            )
            (28
            )Amortization
                of loss
            
            
            11
            
            
            5
            
            21
            
            10Net
                periodic benefit cost
            
            $
            17
            
            $
            9
            
            $
            33
            
            $
            17





The
      Company did not make payments to the qualified pension plan during the three
      and
      six months ended June 30, 2006 and does not expect to make any payments during
      the remainder of the year ending December 31, 2006. The Company made payments
      of
      $4 million to the supplemental plan and the other post-retirement plans during
      the three and six months ended June 30, 2006 and expects to pay a total of
      $4
      million during the remainder of the year ending December 31, 2006.




**12.** **Legal
      Proceed****ings**





The
      Company has provided reserves for litigation, claims and proceedings involving
      the Company in accordance with SFAS No. 5, “Accounting for Contingencies.” The
      Company recorded in the second quarter of 2005 a $750 million litigation charge
      to increase the reserve for private litigation involving Enron, certain initial
      public offering allocation practices, research analyst independence and other
      related litigation. This charge, coupled with the charge recorded in 2002,
      brings the Company’s reserves for these private litigation matters to $1.0
      billion after the application of settlements entered into through June 30,
      2006.





The
      Company is involved in a number of judicial, regulatory and arbitration
      proceedings concerning matters arising in connection with the conduct of its
      businesses. The Company believes, based on currently available information
      and
      advice of counsel, that the results of such proceedings, in the aggregate,
      will
      not have a material adverse effect on its financial condition but might be
      material to operating results for any particular period, depending, in part,
      upon the operating results for such period. The Company intends to defend itself
      vigorously in these matters, litigating or settling when determined by
      management to be in the best interests of the Company.





It
      is
      inherently difficult to predict the outcome of many of these matters. In
      presenting the condensed consolidated financial statements, management makes
      estimates regarding the outcome of these matters and records a reserve and
      takes
      a charge to income when losses with respect to such matters are probable and
      can
      be reasonably estimated. Estimates, by their nature, are based on judgment
      and
      currently available information and involve a variety of factors, including,
      but
      not limited to, the type and nature of the litigation, claim or proceeding,
      the
      progress of the matter, the advice of legal counsel, the Company’s defenses and
      its experience in similar cases or proceedings as well as its assessment of
      matters, including settlements, involving other defendants in similar or related
      cases or proceedings. Further litigation charges or releases of litigation
      reserves may be necessary in the future as developments in such cases or
      proceedings warrant.


24
 **CREDIT
            SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
            to Condensed Consolidated Financial Statements (Unaudited)
            (Continued)**
 **June
            30, 2006**


**13.** **Industry
      Segment and G****eographic
      Data**




The
      Company operates and manages its businesses through three operating segments:
      the Investment Banking segment, consisting primarily of investment banking,
      trading and certain separately managed private equity and distressed assets;
      the
      Asset Management segment, consisting primarily of the private equity business;
      and Private Banking, consisting of the private client services business in
      the
      United States. For additional information, see Note 1.




The
      Company’s segments are managed based on types of products and services offered
      and their related client bases. The Company evaluates the performance of its
      segments based primarily on income (loss) before provision (benefit) for income
      taxes and cumulative effect of a change in accounting principle but excluding
      minority interests. Minority interest-related revenues and expenses resulting
      from the consolidation of certain private equity funds are reported in
      Elimination & Other. Net income is unaffected by the consolidation of these
      private equity funds because offsetting minority interests are also recorded.





The
      Investment Banking segment consists of:





·
            investment
                banking, which serves a broad range of users and suppliers of capital
                and
                provides financial advisory and securities underwriting and placement
                services; and





·
            trading,
                which trades and distributes equity and equity-related products,
                including
                listed and OTC derivatives, fixed income financial instruments and
                derivatives and risk management products, and engages in securities
                lending and borrowing.





The
      Investment Banking segment also includes the results from certain separately
      managed private equity and distressed assets.





The
      Asset
      Management segment consists primarily of the private equity business. The
      private equity business makes privately negotiated investments and acts as
      an
      investment advisor for private equity funds.





The
      Private Banking segment consists of the private client services business in
      the
      United States. Private client services is a financial advisory business serving
      high-net-worth individuals and corporate investors with a wide range of Credit
      Suisse and third-party investment management products and services.





The
      Company allocates to its segments a *pro
      rata* share of
      certain centrally managed costs. Leased facilities and equipment costs, employee
      benefits and certain general overhead expenses are allocated based upon
      specified amounts, usage criteria or agreed rates. Interest expense is allocated
      based upon the particular type of asset. The allocation of some costs, such
      as
      incentive bonuses, has been estimated. The
      timing and magnitude of changes in the Company’s incentive bonus accrual can
      have a significant effect on the Company’s operating results for a given period. Any
      revenues and expenses not allocated to the Company’s segments appear in
      Elimination & Other in the table below. For additional information, see Note
      1.


25
 **CREDIT
          SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)
          (Continued)**
 **June
          30, 2006**
 
 **13.
          Industry Segment and Geographic Data
          (Continued)**


The
      following table sets forth selected financial information for the Company’s
      segments.


**Investment**
                
                **Asset**
                
                **Private**
                
                **Elimination****Banking**
                
                **Management**
                
                **Banking**
                
                **&
                    Other****(1)**
                
                **Total****(In
                    millions)****For
                    the three months ended June 30, 2006:**Net
                    revenues excluding net interest
                
                $
                1,456
                
                $
                70
                
                $
                67
                
                $
                619
                
                $
                2,212Net
                    interest and dividends revenue
                
                
                250
                
                
                1
                
                
                (2
                )
                
                (1
                )
                
                248Total
                    net revenues(2)
                
                
                1,706
                
                
                71
                
                
                65
                
                
                618
                
                
                2,460Total
                    expenses
                
                
                956
                
                
                51
                
                
                81
                
                
                8
                
                
                1,096(Loss)
                    income(3)
                
                
                750
                
                
                20
                
                
                (16
                )
                
                610
                
                
                1,364Minority
                    interests
                
                
                ―
                
                
                ―
                
                
                ―
                
                
                633
                
                
                633Income
                    (loss) after minority interests(4)
                
                $
                750
                
                $
                20
                
                $
                (16
                )
                $
                (23
                )
                $
                731**For
                    the three months ended June 30, 2005:**Net
                    revenues excluding net interest
                
                $
                372
                
                $
                188
                
                $
                53
                
                $
                305
                
                $
                918Net
                    interest and dividends revenue
                
                
                510
                
                
                (1
                )
                
                1
                
                
                (1
                )
                
                509Total
                    net revenues(2)
                
                
                882
                
                
                187
                
                
                54
                
                
                304
                
                
                1,427Total
                    expenses
                
                
                1,653
                
                
                88
                
                
                65
                
                
                1
                
                
                1,807Income
                    (loss)(3)
                
                
                (771
                )
                
                99
                
                
                (11
                )
                
                303
                
                
                (380
                )Minority
                    interests
                
                
                ―
                
                
                ―
                
                
                ―
                
                
                303
                
                
                303(Loss)
                    income after minority interests(4)
                
                **$**
                (771
                )
                $
                99
                
                $
                (11
                )
                **$**
                **―**
                
                $
                (683
                )
  **Investment
                  Banking**
              
              **Asset**
                **Management**
              
              **Private**
                **Banking**
              
              **Elimination**
                **&
                  Other**
              
              **Total****(In
                  millions)****For
                  the six months ended June 30, 2006:**Net
                  revenues excluding net interest
              
              $
              3,008
              
              $
              161
              
              $
              132
              
              $
              1,547
              
              $
              4,848Net
                  interest and dividends revenue
              
              
              536
              
              
              1
              
              
              ―
              
              
              5
              
              
              542Total
                  net revenues(2)
              
              
              3,544
              
              
              162
              
              
              132
              
              
              1,552
              
              
              5,390Total
                  expenses
              
              
              2,348
              
              
              112
              
              
              156
              
              
              13
              
              
              2,629Income
                  (loss)(3)
              
              
              1,196
              
              
              50
              
              
              (24
              )
              
              1,539
              
              
              2,761Minority
                  interests
              
              
              ―
              
              
              ―
              
              
              ―
              
              
              1,576
              
              
              1,576Income
                  (loss) after minority interests(4)
              
              **$**
              1,196
              
              $
              50
              
              $
              (24
              )
              $
              (37
              )
              $
              1,185**For
                  the six months ended June 30, 2005:**Net
                  revenues excluding net interest
              
              $
              1,101
              
              $
              308
              
              $
              110
              
              $
              455
              
              $
              1,974Net
                  interest and dividends revenue
              
              
              1,079
              
              
              (1
              )
              
              2
              
              
              6
              
              
              1,086Total
                  net revenues(2)
              
              
              2,180
              
              
              307
              
              
              112
              
              
              461
              
              
              3,060Total
                  expenses
              
              
              2,779
              
              
              139
              
              
              128
              
              
              3
              
              
              3,049Income
                  (loss)(3)
              
              
              (599
              )
              
              168
              
              
              (16
              )
              
              458
              
              
              11Minority
                  interests
              
              
              ―
              
              
              ―
              
              
              ―
              
              
              458
              
              
              458(Loss)
                  income after minority interests(4)
              
              $
              (599
              )
              $
              168
              
              $
              (16
              )
              $
              **―**
              
              $
              (447
              )**Segment
                    assets as of **June 30, 2006****
              
              $
              332,737
              
              $
              1,718
              
              $
              287
              
              $
              9,977
              
              $
              344,719**Segment
                    assets as of **December
                    31, 2005****
              
              $
              293,278
              
              $
              1,512
              
              $
              225
              
              $
              2,739
              
              $
              297,754








(1)
            Related
                primarily to the Company’s consolidation of certain private equity funds.
                See Notes 1 and 3 for more information. Also includes a limited amount
                of
                treasury costs not allocated to the Company’s
                segments.





(2)
            Interest
                income and expense is accrued at the stated coupon rate for coupon-bearing
                financial instruments, and for non-coupon-bearing financial instruments,
                interest income is recognized by accreting the discount over the
                life of
                the instrument. For coupon-bearing financial instruments purchased
                at a
                discount or premium, the difference between interest income and expense
                accrued at the stated coupon rate and interest income and expense
                determined on an effective yield basis, which could be significant,
                is
                included in principal transactions-net instead of interest and dividends,
                net, in the Company’s condensed consolidated statements of operations and
                in net revenues excluding net
                interest.





26
 **CREDIT
            SUISSE (USA), INC. AND SUBSIDIARIES**
 **Notes
            to Condensed Consolidated Financial Statements (Unaudited)
            (Continued)**
 **June
            30, 2006**
 
 **13.
            Industry Segment and Geographic Data
            (Continued)**


(3)
            Income
                (loss) before provision (benefit) for income taxes, minority interests
                and
                cumulative effect of a change in accounting
                principle.





(4)
            Income
                (loss) before provision (benefit) for income taxes and cumulative
                effect
                of a change in accounting principle.





27




**Report
      of Independent Registered Public Accounting Firm**





The
      Board
      of Directors and Stockholder


Credit
      Suisse (USA), Inc.





We
      have
      reviewed the condensed consolidated statement of financial condition of Credit
      Suisse (USA), Inc. and subsidiaries (the “Company”) as of June 30, 2006, the
      related condensed consolidated statements of operations for the three and
      six-month periods ended June 30, 2006 and 2005, and the related condensed
      consolidated statements of changes in stockholder’s equity and cash flows for
      the six-month periods ended June 30, 2006 and 2005. These condensed consolidated
      financial statements are the responsibility of the Company’s
      management.





We
      conducted our reviews in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). A review of interim financial
      information consists principally of applying analytical procedures and making
      inquiries of persons responsible for financial and accounting matters. It is
      substantially less in scope than an audit conducted in accordance with the
      standards of the Public Company Accounting Oversight Board (United States),
      the
      objective of which is the expression of an opinion regarding the financial
      statements taken as a whole. Accordingly, we do not express such an
      opinion.





Based
      on
      our reviews, we are not aware of any material modifications that should be
      made
      to the condensed consolidated financial statements referred to above for them
      to
      be in conformity with U.S. generally accepted accounting
      principles.





We
      have
      previously audited, in accordance with the standards of the Public Company
      Accounting Oversight Board (United States), the consolidated statement of
      financial condition of Credit Suisse (USA), Inc. and subsidiaries as of December
      31, 2005, and the related consolidated statements of income, changes in
      stockholder’s equity, and cash flows for the year then ended (not presented
      herein); and in our report dated March 20, 2006, we expressed an unqualified
      opinion on those consolidated financial statements. In our opinion, the
      information set forth in the accompanying condensed consolidated statement
      of
      financial condition as of December 31, 2005 is fairly stated, in all material
      respects, in relation to the consolidated statement of financial condition
      from
      which it has been derived.








/s/
      KPMG
      LLP


New
      York,
      New York


August
      8,
      2006


28


***Item
      2: Management’s Discussion and Analysis of Financial Condition and Results of
      Operations***





We
      serve
      institutional, corporate, government and high-net-worth individual clients. Our
      businesses include securities underwriting, sales and trading, financial
      advisory services, private equity investments, full-service brokerage services,
      derivatives and risk management products, asset management and investment
      research. We are part of three segments, Investment Banking, Asset Management
      and Private Banking, of Credit Suisse Group, or CSG, and our results do not
      reflect the overall performance of these segments or CSG.





When
      we
      use the terms “we,” “our,” “us” and the “Company,” we mean Credit Suisse
      (USA), Inc., a Delaware corporation, and its consolidated subsidiaries.





The
      Company’s principal operations are located in the United States. The Company’s
      foreign revenues are not significant.





**BUSINESS
      ENVIRONMENT**





Our
      principal business activities, investment banking, securities underwriting
      and
      sales, trading and asset management are, by their nature, highly competitive
      and
      subject to general market conditions that include volatile trading markets,
      fluctuations in the volume of new
      issues, mergers and acquisitions activities and the value of financial
      instruments .
      Consequently, our results have been, and are likely to continue to be, subject
      to wide fluctuations reflecting the impact of many factors beyond our control,
      including securities market conditions, the level and volatility of interest
      rates and credit spreads, competitive conditions, the size and timing of
      transactions and the geopolitical environment.





The
      U.S.
      economy experienced solid growth during the three and six months ended June
      30,
      2006 as gross domestic product growth was strong and unemployment rates
      declined. The Federal Reserve Board continued to raise short-term interest
      rates
      at a measured pace and remained concerned about inflation.





The
      major
      U.S. stock market indices were mixed for the three and six months ended June
      30,
      2006, reflecting concerns over inflation, high energy prices and rising interest
      rates. For the three months ended June 30, 2006, the Dow Jones Industrial
      Average increased less than 1% while the Standard & Poor’s 500 stock index
      and the NASDAQ composite index decreased 2% and 7%, respectively. For the six
      months ended June 30, 2006, the Dow Jones Industrial Average and the Standard
      & Poor’s 500 stock index increased 4% and 2%, respectively, while the NASDAQ
      composite index decreased 2%.





During
      the three and six months ended June 30, 2006, short-term interest rates
      continued to rise. The federal funds rate was 5.25% as of June 30, 2006 compared
      to 4.75% as of March 31, 2006 and 4.25% as of December 31, 2005 as the Federal
      Reserve Board increased the federal funds rate twice during the three months
      ended June 30, 2006 and four times during the six months ended June 30, 2006.
      The yield on 10-year U.S. Treasury notes increased from 4.39% as of December
      31,
      2005 and 4.86% as of March 31, 2006 to 5.15% as of June 30, 2006.





The
      dollar value of U.S. equity and equity-related underwriting increased for the
      three and six months ended June 30, 2006 compared to the three and six months
      ended June 30, 2005, reflecting increases in convertible securities issuances,
      secondary common stock issuances and initial public offerings. The new equity
      issue market became more difficult toward the end of the second quarter of
      2006
      amid turbulence in the global equity markets. The dollar value of U.S. debt
      underwriting increased for the three and six months ended June 30, 2006 compared
      to the three and six months ended June 30, 2005, primarily as a result of an
      increase in investment grade, mortgage-backed and non-investment grade
      securities underwritings. Mergers and acquisitions activity was robust as the
      dollar value of both announced and completed U.S. mergers and acquisitions
      for
      the three and six months ended June 30, 2006 increased compared to the three
      and
      six months ended June 30, 2005.


29


**MANAGEMENT
      OVERVIEW**





During
      the first half of 2006, the Company operated in a climate of solid economic
      growth, rising interest rates and mixed results for fixed income and equity
      markets in the United States. The Company recorded net income of $484 million
      in
      the second quarter of 2006 compared to a net loss of $439 million in the second
      quarter of 2005, and net income of $801 million in the first half of 2006
      compared to a net loss of $263 million in the first half of 2005. Our results
      in
      the second quarter and the first half of 2006 reflected an increase in revenues
      and a decrease in expenses.





The
      Company’s total net revenues for the second quarter of 2006 increased by $1.0
      billion, or 72%, compared to the second quarter of 2005. Net revenues for the
      second quarter of 2006 include $641 million from the consolidation of certain
      private equity funds and other entities, compared to $304 million in the second
      quarter of 2005. Net income was unaffected by this consolidation as we recorded
      offsetting minority interests and related operating expenses. The increase
      in
      net revenues reflected higher revenues across all of our Investment Banking
      businesses, including fixed income and equity trading, underwriting and advisory
      and other fees. In particular, our structured products and interest rate
      products trading businesses performed well, and our convertibles trading
      business improved in the second quarter of 2006 compared to the second quarter
      of 2005. Net revenues for the second quarter of 2006 also include underwriting
      revenues from certain syndicated loan activities that were conducted by a branch
      of Credit Suisse outside of our consolidated group during 2005. These increases
      were offset in part by lower private equity investment-related gains.





Our
      total
      expenses for the second quarter of 2006 decreased by $711 million, or 39%,
      compared to the second quarter of 2005. Total expenses for the second quarter
      of
      2006 included insurance settlements for litigation and related costs totaling
      $390 million, which reduced other operating expenses. Total expenses for the
      second quarter of 2005 included a $750 million charge to increase the reserve
      for certain private litigation. Excluding the insurance settlements and the
      litigation charge, expenses increased $429 million, or 41%, primarily due to
      higher employee compensation and benefits expenses.





The
      Company’s total net revenues for the first half of 2006 increased by $2.3
      billion, or 76%, compared to the first half of 2005. Net revenues for the first
      half of 2006 include $1.6 billion from the consolidation of certain private
      equity funds and other entities, compared to $461 million in the first half
      of
      2005. Net income was unaffected by this consolidation as we recorded offsetting
      minority interests and related operating expenses. The increase in net revenues
      reflected higher revenues across all of our Investment Banking businesses,
      including fixed income and equity trading, underwriting and advisory and other
      fees. Our interest rate products and equity proprietary trading businesses
      and
      our mergers and acquisitions advisory business performed particularly well,
      and
      our convertible trading business improved in the first half of 2006 compared
      to
      the first half of 2005. Net revenues for the first half of 2006 also include
      underwriting revenues from certain syndicated loan activities that were
      conducted by a branch of Credit Suisse outside of our consolidated group during
      2005. These increases were offset in part by lower private equity
      investment-related gains.





Our
      total
      expenses for the first half of 2006 decreased by $420 million, or 14%, compared
      to the first half of 2005. Total expenses for the first half of 2006 included
      insurance settlements for litigation and related costs totaling $390 million,
      which reduced other operating expenses. Total expenses for the first half of
      2005 included a $750 million charge to increase the reserve for certain private
      litigation. Excluding the insurance settlements and the litigation charge,
      expenses increased $720 million, or 31%, primarily due to higher employee
      compensation and benefits expenses.





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





In
      order
      to prepare the condensed consolidated financial statements in accordance with
      accounting principles generally accepted in the United States of America, we
      must make estimates and assumptions based on judgment and available information.
      The reported amounts of assets and liabilities and revenues and expenses are
      affected by these estimates and assumptions. Actual results could differ from
      these estimates, and the differences could be material.


30




Our
      significant accounting policies and a discussion of new accounting
      pronouncements are disclosed in Note 1 of the consolidated financial
      statements in Part II, Item 8 of our Annual Report on Form 10-K for the
      year ended December 31, 2005. We believe that the critical accounting policies
      discussed below involve the most complex judgments. We believe that the
      estimates and assumptions used in the preparation of the condensed consolidated
      financial statements are reasonable and consistently applied.





**Fair
      Value**





The
      fair
      value of the majority of our financial instruments is based on quoted market
      prices in active markets or observable market parameters, or is derived from
      such prices or parameters. These instruments include government and agency
      securities, commercial paper, most investment-grade corporate debt securities,
      most high-yield debt securities, exchange traded and certain over-the-counter,
      or OTC, derivative instruments, most collateralized debt obligations, or CDOs,
      most mortgage-backed and asset-backed securities, certain residential mortgage
      whole loans and listed equities.





In
      addition, we hold financial instruments that are thinly traded or for which
      no
      market prices are available, and which have reduced or no price transparency.
      For these instruments the determination of fair value requires subjective
      assessment and varying degrees of judgment depending on liquidity,
      concentration, pricing assumptions and the risks affecting the specific
      instrument. In such circumstances, valuation is determined based on management’s
      best estimate of fair value. These instruments include certain investment-grade
      corporate debt securities, high-yield debt securities, distressed debt
      securities, certain mortgage-backed and asset-backed securities, certain CDOs,
      certain residential mortgage whole loans, certain OTC derivatives, non-traded
      equity securities and private equity and other long-term investments. Valuation
      techniques for certain of these instruments are described more fully
      below.





***Controls
      over the fair valuation process***





Control
      processes are applied to ensure that the fair value of the financial instruments
      reported in our condensed consolidated financial statements, including those
      derived from pricing models, are appropriate and determined on a reliable basis.
      The Company determines fair value using observable market prices or market-based
      parameters whenever possible. In the absence of observable market prices or
      market-based parameters in an active market, observable prices or market-based
      parameters of comparable market transactions, or other observable data
      supporting an estimation of fair value using a valuation model at the inception
      of a contract, fair value is based on the transaction price. Control processes
      are designed to assure that the valuation approach utilized is appropriate
      and
      the assumptions are reasonable.





These
      control processes include the review and approval of new instruments, review
      of
      profit and loss, risk monitoring and review, price verification procedures
      and
      reviews of models used to estimate the fair value of financial instruments
      by
      senior management and personnel with relevant expertise who are independent
      of
      the trading and investment functions.





The
      Company also has agreements with certain counterparties to exchange collateral
      based on the fair value of derivatives contracts. Through this process, one
      or
      both parties provide the other party with the fair value of these derivatives
      contracts in order to determine the amount of collateral required. This exchange
      of information provides additional support for valuation of certain derivatives
      contracts. As a participant in the OTC derivatives market, the Company and
      other
      participants provide pricing information to aggregation services that compile
      this data and provide this information to subscribers. This information is
      considered in the determination of fair value for certain OTC
      derivatives.





For
      further discussion of the Company’s risk management policies and procedures,
      refer to “Quantitative and Qualitative Disclosures About Market Risk” in Part I,
      Item 3.


31


***Price
      transparency of financial instruments recorded at fair
      value***





Financial
      instruments which are recorded on the Company’s condensed consolidated
      statements of financial condition at fair value have been categorized based
      upon
      the transparency of the pricing information available.





The
      categories of pricing transparency have been broadly segregated as
      follows:





·
            *Quoted
                market prices or observable market parameters.*These financial instruments are valued based upon directly observable
                market prices or through the use of valuation models and techniques
                for
                which the required parameters are directly observable.





·
            *Reduced
                or no observable market parameters.*These financial instruments are priced by using management’s best estimate
                of fair value using valuation techniques that are based on significant
                judgment since observable, market-based data is generally not available.





The
      following table sets forth a summary of the price transparency of the Company’s
      financial instruments that are carried at fair value as of June 30, 2006 and
      December 31, 2005:




**As
                  of June 30, 2006**
              
              **As
                  of December 31, 2005****Quoted
                  market prices or observable market parameters**
              
              **Reduced
                  or no observable market parameters**
              
              **Quoted
                  market prices or observable market parameters**
              
              **Reduced
                  or no observable market parameters****(In
                  millions)**
              
              **(In
                  millions)****Financial
                  instruments owned**Cash
                  products(1)
              
              $
              113,040
              
              $
              2,672
              
              $
              101,211
              
              $
              3,394Derivatives(2)
              
              
              15,659
              
              
              1,839
              
              
              7,658
              
              
              1,841Private
                  equity and other long-term investments
              
              
              1,841
              
              
              8,788
              
              
              315
              
              
              3,326Total
              
              $
              130,540
              
              $
              13,299
              
              $
              109,184
              
              $
              8,561**Financial
                  instruments sold not yet purchased**Cash
                  products
              
              $
              46,616
              
              $
              ―
              
              $
              36,304
              
              $
              27Derivatives(2)
              
              
              14,938
              
              
              466
              
              
              6,155
              
              
              521Total
              
              $
              61,554
              
              $
              466
              
              $
              42,459
              
              $
              548





(1)
            Excluded
                from the table above are $7,515 million and $5,835 million as of
                June 30,
                2006 and December 31, 2005, respectively, in cash products which
                are
                carried at the lower of cost or fair value primarily consisting of
                commercial mortgage whole loans and originated residential mortgage
                whole
                loans.





(2)
            Based
                on gross mark-to-market valuations of the Company’s derivatives prior to
                netting of $11,012 million and $4,414 million as of June 30, 2006 and
                December 31, 2005, respectively, under Financial Accounting Standards
                Board, or FASB, Interpretation No. 39, “Offsetting of Amounts Related to
                Certain Contracts (An Interpretation of Accounting Principles Board
                Opinion No. 10 and FASB Statement No.
                105).”





***Financial
      Instruments***





*Cash
      products*





The
      Company’s cash products consist of interest-bearing securities, purchased
      residential mortgage whole loans, equity securities and certain variable prepaid
      forwards. Interest-bearing securities include debt securities, residential
      and
      commercial mortgage-backed and other asset-backed securities and CDOs. Equity
      securities include common equity shares, preferred stock and convertible
      bonds.


32




For
      debt
      securities for which market prices are not available, valuations are based
      on
      yields reflecting the perceived risk of the issuer and the maturity of the
      security, recent disposals in the market or other modeling techniques, which
      involve judgment.





Values
      of
      residential and commercial mortgage-backed securities and other asset-backed
      securities are generally available through quoted market prices, which are
      often
      based on market information of the prices at which similarly structured and
      collateralized securities trade between dealers and to and from customers.
      Values of residential and commercial mortgage-backed securities and other
      asset-backed securities for which there are no significant observable market
      parameters are valued using valuation models incorporating prepayment scenarios
      and Monte Carlo simulations.





Collateralized
      debt, bond and loan obligations are split into various structured tranches,
      and
      each tranche is valued based upon its individual rating and the underlying
      collateral supporting the structure. Values are
      determined using present value of estimated future cash flows valuation
      techniques that incorporate assumptions that market participants customarily use
      in their estimates of values including payment speeds, credit losses and
      discount rates.





Purchased
      residential mortgage whole loans are valued using pricing factors specific
      to
      loan level attributes, such as loan-to-value ratios, current balances and liens.





The
      majority of our positions in equities are traded on public stock exchanges,
      for
      which daily quoted market prices are available. Fair values of preferred shares
      are determined by their yield and the subordination relative to the issuer’s
      other credit obligations. Convertible bonds are generally valued using direct
      pricing sources; for a small number of convertible bonds no direct prices are
      available and valuation is determined using internal and external models, for
      which the key input parameters include stock price, dividend rates, credit
      spreads, prepayment rates and equity market volatility.





*Derivatives*





Positions
      in derivatives held for trading purposes include both OTC and exchange-traded
      derivatives. The fair values of exchange-traded derivatives are typically
      derived from observable exchange prices and/or observable market parameters.
      Fair values for OTC derivatives are determined on the basis of internally
      developed proprietary models using various input parameters. The input
      parameters include those characteristics of the derivative that have a bearing
      on the economics of the instrument and market parameters.





The
      determination of the fair value of many derivatives involves only a limited
      degree of subjectivity because the required input parameters are observable
      in
      the marketplace. The pricing of these instruments is referred to as “direct.”
For other more complex derivatives, subjectivity relating to the determination
      of input parameters reduces price transparency. The pricing of these instruments
      is referred to as “indirect.” Specific areas of subjectivity include estimating
      long-dated volatility assumptions on OTC option transactions and recovery rate
      assumptions for credit derivative transactions. Uncertainty of pricing
      assumptions and liquidity are also considered as part of the valuation process.
      In accordance with Emerging Issues Task Force Issue No. 02-3, “Issues Involved
      in Accounting for Derivatives Contracts Held for Trading Purposes and Contracts
      Involved in Energy Trading and Risk Management Activities,” or EITF 02-3, we do
      not recognize a dealer profit or loss (unrealized gain or loss at inception
      of a
      derivative transaction), or day one profit/loss, unless the valuation underlying
      the unrealized gain or loss is evidenced by (a) quoted market prices in an
      active market, (b) observable prices of other current market transactions or
      (c)
      other observable data supporting a valuation technique. The deferred profit
      or
      loss is amortized over either the life of the derivative or the period until
      which observable data is available.





For
      further information on the fair value of derivatives as of June 30, 2006 and
      December 31, 2005, see Note 5 of the condensed consolidated financial statements
      in Part I, Item 1.


33




Private
      equity and other long-term
      investments




Private
      equity and other long-term investments include direct investments and
      investments in partnerships that make private equity and related investments
      in
      various portfolio companies and funds. Private equity investments and other
      long-term investments consist of both publicly traded securities and private
      securities. Publicly traded investments are valued based upon readily available
      market quotes with appropriate adjustments for liquidity as a result of holding
      large blocks and/or having trading restrictions. Private securities, which
      generally have no readily available market or may be otherwise restricted as
      to
      resale, are valued taking into account a number of factors, such as the most
      recent round of financing involving unrelated new investors, earnings multiple
      analyses using comparable companies or discounted cash flow analysis.





The
      following table sets forth the fair value of our private equity and other
      long-term investments by category as of June 30, 2006 and December 31,
      2005:


**As
                  of**
                **June
                  30, 2006**
              
              **As
                  of**
                **December
                  31, 2005****Fair
                  value**
              
              **Percent**
                **of
                  total**
              
              **Fair
                  value**
              
              **Percent**
                **of
                  total****(In
                  millions)**
              
              
              
              **(In
                  millions)**CS-managed
                  funds (which includes $9,457 and $2,562 related to funds
                  consolidated(1)as
                  of June 30, 2006 and December 31, 2005, respectively)
              
              $
              10,141
              
              
              95
              %
              $
              3,256
              
              
              89
              %Funds
                  managed by third parties
              
              
              453
              
              
              4
              
              
              359
              
              
              10Direct
                  investments
              
              
              35
              
              
              1
              
              
              26
              
              
              1Total
              
              $
              10,629
              
              
              100
              %
              $
              3,641
              
              
              100
              %







(1)
            For
                more information on the consolidated funds as of June 30, 2006 and
                December 31, 2005, see Notes 3 and 4 of the condensed consolidated
                financial statements in Part I, Item
                1.





CS-managed
      funds include partnerships and related direct investments for which the Company
      acts as the fund’s advisor and makes investment decisions. CS-managed funds
      principally invest in private securities and, to a lesser extent, publicly
      traded securities and fund of fund partnerships. The fair value of investments
      in CS-managed fund of funds partnerships is based on the valuation received
      from
      the underlying fund manager, is reviewed by us and reflected in “Reduced or no
      observable market parameters” in the table above. The fair value of investments
      in other CS-managed funds is based on the Company’s valuation. Balances reported
      in CS-managed funds also include amounts relating primarily to the consolidation
      of private equity funds, which are described in further detail in Notes 3 and
      4
      of the condensed consolidated financial statements in Part I, Item 1. A
      substantial portion of the private equity funds consolidated are also reflected
      in “Reduced or no observable market parameters” in the table above. Funds
      managed by third parties include investments in funds managed by an external
      fund manager. The fair value of these funds is based on the valuation received
      from the general partner of the fund, is reviewed by us and reflected in
“Reduced or no observable market parameters” in the table above.





**Income
      Taxes**





***Deferred
      Tax Assets***





We
      recognize deferred tax assets and liabilities for the estimated future tax
      effects of operating loss carry-forwards and temporary differences between
      the
      carrying amounts of existing assets and liabilities and their respective tax
      basis as of the date of the statement of financial condition.





The
      realization of deferred tax assets on temporary differences is dependent upon
      the generation of taxable income during the periods in which those temporary
      differences become deductible. The realization of deferred tax assets on net
      operating losses is dependent upon the generation of taxable income during
      the
      periods prior to their expiration. Periodically, management evaluates whether
      deferred tax assets can be realized. If management considers it more likely
      than
      not that all or a portion of a deferred tax asset will not be realized, a
      corresponding valuation allowance is established. In evaluating whether deferred
      tax assets can be realized, management considers projected future taxable
      income, the scheduled reversal of deferred tax liabilities and tax planning
      strategies.


34




This
      evaluation requires significant management judgment, primarily with respect
      to
      projected taxable income. The estimate of future taxable income can never be
      predicted with certainty. It is derived from budgets and strategic business
      plans but is dependent on numerous factors, some of which are beyond our
      control. Substantial variance of actual results from estimated future taxable
      profits, or changes in our estimate of future taxable profits, could lead to
      changes in deferred tax assets being realizable or considered realizable, and
      would require a corresponding adjustment to the valuation allowance.





As
      of
      June 30, 2006 and December 31, 2005, we had deferred tax assets resulting from
      temporary differences that could reduce taxable income in future periods. The
      condensed consolidated statements of financial condition as of June 30, 2006
      and
      December 31, 2005 include deferred tax assets of $1.6 billion and
      $1.8 billion, respectively, and deferred tax liabilities of
      $648 million and $602 million, respectively. Due to uncertainty
      concerning our ability to generate the necessary amount and mix of state and
      local taxable income in future periods, we maintained a valuation allowance
      against our deferred state and local tax assets in the amount of
      $26 million and $35 million as of June 30, 2006 and December 31, 2005,
      respectively.





***Tax
      Contingencies***





Significant
      judgment is required in determining the effective tax rate and in evaluating
      certain of our tax positions. We accrue for tax contingencies when, despite
      our
      belief that our tax return positions are fully supportable, certain positions
      could be challenged and our positions may not be fully sustained. Once
      established, tax contingency accruals are adjusted due to changing facts and
      circumstances, such as case law, progress of audits or when an event occurs
      requiring a change to the tax contingency accruals. We regularly assess the
      likelihood of adverse outcomes to determine the appropriateness of our provision
      (benefit) for income taxes. Although the outcome of any dispute is uncertain,
      management believes that it has appropriately accrued for any unfavorable
      outcome.





**Litigation
      Contingencies**





We
      are
      involved in a variety of legal, regulatory and arbitration matters in connection
      with the conduct of our business. It is inherently difficult to predict the
      outcome of many of these matters, particularly those cases in which the matters
      are brought on behalf of various classes of claimants, seek damages of
      unspecified or indeterminate amounts or involve novel legal claims. In
      presenting our condensed consolidated financial statements, management makes
      estimates regarding the outcome of these matters and records a reserve and
      takes
      a charge to income when losses with respect to such matters are probable and
      can
      be reasonably estimated. Charges, other than those taken periodically for cost
      of defense, are not established for matters when losses cannot be reasonably
      estimated. Estimates, by their nature, are based on judgment and currently
      available information and involve a variety of factors, including, but not
      limited to, the type and nature of the litigation, claim or proceeding, the
      progress of the matter, the advice of legal counsel and other advisors, our
      defenses and our experience in similar cases or proceedings as
      well
      as our assessment of matters, including settlements, involving other defendants
      in similar or related cases or proceedings . For
      a
      discussion of legal proceedings, see “Legal Proceedings” in Part II, Item
      1.





**RECENT
      DEVELOPMENTS**





In
      May
      2006, we completed our acquisition of Guilford Holding Corporation, a tax credit
      syndication firm based in Montgomery, Alabama. Guilford engages in the purchase,
      packaging and sale of tax credits to corporate investors. Through the
      acquisition of Guilford, we expect to accelerate our efforts to develop a tax
      credit group to complement our commercial mortgage franchise.





Consistent
      with its strategy to focus on its banking businesses, CSG announced in June
      2006
      a definitive agreement to sell Winterthur Swiss Insurance Company, its insurance
      business, to AXA. The transaction is expected to close by year-end 2006.
      Winterthur is not within the Company’s consolidated group.


35


As
      part
      of a strategy to develop untapped opportunities in the alternative investment
      markets, in the second quarter of 2006, Credit Suisse and General Electric
      announced their intention to form a joint venture to invest in global
      infrastructure assets. In July 2006, each of Credit Suisse (through a subsidiary
      of the Company) and General Electric agreed to commit, subject to certain
      conditions, approximately $500 million to the joint venture, which intends
      to
      invest in energy and transportation infrastructure worldwide. A portion of
      this
      commitment is expected to be funded by the Company or its
      subsidiaries.





**RESULTS
      OF OPERATIONS**





The
      following table sets forth a summary of our financial results:


**For
                  the Three Months Ended**
                **June
                  30, 2006**
              
              **For
                  the Six Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(In
                  millions)**Total
                  net revenues
              
              $
              2,460
              
              $
              1,427
              
              $
              5,390
              
              $
              3,060Total
                  expenses
              
              
              1,096
              
              
              1,807
              
              
              2,629
              
              
              3,049Income
                  (loss) before provision (benefit) for income taxes, minority interests
                  and
                  cumulative effect of a change in accounting principle
              
              
              1,364
              
              
              (380
              )
              
              2,761
              
              
              11Provision
                  (benefit) for income taxes
              
              
              247
              
              
              (244
              )
              
              384
              
              
              (178
              )Minority
                  interests
              
              
              633
              
              
              303
              
              
              1,576
              
              
              458Income
                  (loss) before cumulative effect of a change in accounting
                  principle
              
              
              484
              
              
              (439
              )
              
              801
              
              
              (269
              )Cumulative
                  effect of a change in accounting principle, net of income tax expense
                  of
                  $3 in 2005
              
              
              ―
              
              
              ―
              
              
              ―
              
              
              6Net
                  income (loss)
              
              $
              484
              
              $
              (439
              )
              $
              801
              
              $
              (263
              )




A
      substantial portion of our financial instruments are marked to market daily
      and,
      therefore, the value of such financial instruments and our net revenues are
      subject to fluctuations based on market movements. In addition, net revenues
      derived from our less liquid assets may fluctuate significantly depending on
      the
      revaluation or sale of these investments in any given period. We also regularly
      enter into large transactions as part of our proprietary and other trading
      businesses, and the number and size of such transactions may subject our net
      revenues to volatility from period to period.





Interest
      income and expense is accrued at the stated coupon rate for coupon-bearing
      financial instruments, and for non-coupon-bearing financial instruments,
      interest income is recognized by accreting the discount over the life of the
      instrument. For coupon-bearing financial instruments purchased at a discount
      or
      premium, the net difference between interest income and expense accrued at
      the
      stated coupon rate and interest income and expense determined on an effective
      yield basis, which could be significant, is included in principal
      transactions-net instead of net interest and dividends in the condensed
      consolidated statements of operations.





We
      use
      derivatives and cash instruments to economically hedge the interest rate
      exposure associated with commercial mortgage whole loans, originated residential
      mortgage whole loans, resale and repurchase agreements and long-term borrowings.
      These derivatives and cash instruments are carried at fair value, while the
      commercial mortgage whole loans and originated residential mortgage whole loans
      are carried at the lower of cost or fair value and the resale and repurchase
      agreements are carried at contract amounts. In addition, we have certain
      derivatives that economically hedge our long-term borrowings that were
      not
      designated for hedge accounting treatment under SFAS 133 “Accounting for
      Derivatives Interest and Hedging Activities,” or SFAS 133. As
      a
      result, decreases in the value of the derivatives and cash instruments, if
      any,
      are not offset by increases in the value of the commercial mortgage whole loans
      and originated residential whole loans until the loans are sold and increases
      and decreases in the value of the derivatives and cash instruments, if any,
      are
      not offset by decreases and increases in the value of the resale and repurchase
      agreements until the securities are sold or repurchased. Increases and decreases
      in the value of the derivatives that economically hedge our long-term borrowings
      are not offset by decreases and increases in our long-term borrowings.
      Commercial mortgage whole loans, originated residential mortgage whole loans,
      resale and repurchase agreements and economically hedged long-term borrowings
      can be a significant part of our statement of financial condition. Therefore,
      our net revenues are subject to volatility from period to period.


36




Our
      businesses are materially affected by conditions in the financial markets and
      economic conditions generally, including geopolitical events. Unpredictable
      or
      adverse market and economic conditions have adversely affected our past results
      and may in the future adversely affect our results of operations. See “Risk
      Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended
      December 31, 2005.





**Three
      Months Ended June 30, 2006 Compared to** **Three
      Months Ended June 30, 2005**





The
      Company recorded net income of $484 million for the three months ended June
      30, 2006 compared to a net loss of $439 million for the three months ended
      June
      30, 2005, reflecting a significant increase in net revenues and a significant
      decrease in expenses.





Total
      net
      revenues increased $1.0 billion, or 72%, to $2.5 billion for
      the three
      months ended June 30, 2006, compared to the three
      months ended June 30 , 2005,
      resulting from significant increases in principal transactions-net and
      investment banking and advisory revenues and an increase in commissions and
      fees
      partially offset by a decrease in net interest and dividend revenues. The
      increase in principal transactions-net was primarily due to improved results
      in
      trading and higher revenues from the consolidation of certain private equity
      funds partially offset by decreases in revenues from our private equity business
      and certain separately managed private equity and distressed assets and losses
      on swaps that economically hedged our long-term borrowings that were not
      designated for hedge accounting treatment under SFAS 133. Investment banking
      and
      advisory revenues increased due to higher debt and equity underwriting and
      advisory fees. Commissions and fees were higher reflecting growth in our
      advanced execution services business, higher servicing fees from residential
      mortgages as a result of our acquisition of SPS Holding Corp., higher management
      fees from our private equity business and higher commissions from our private
      client services business. Net interest and dividend revenues decreased primarily
      due to higher short-term borrowing costs associated with our trading
      business.





The
      Company allocates most revenues and expenses to its segments. Any revenues
      and
      expenses not allocated appear in Elimination & Other in Note 13 to the
      condensed consolidated financial statements in Part I, Item 1. For the three
      months ended June 30, 2006 and 2005, Elimination & Other primarily included
      revenues and expenses that result from the consolidation of certain private
      equity funds. Elimination & Other also included a
      limited
      amount of treasury costs not allocated to the Company’s segments. The Company’s
      consolidation of certain private equity funds resulted in an increase in net
      revenues of $641 million and $304 million, respectively, and an increase in
      total expenses of $8 million and $1 million, respectively, for the three
      months ended June 30, 2006 and 2005. Excluding the increases attributable to
      the
      consolidation of certain private equity funds, total net revenues increased
      62%.
      As of June 30, 2006, the Company’s condensed consolidated statement of financial
      condition reflected assets and liabilities of $10.0 billion due to the
      consolidation of certain private equity funds, including $6.7 billion as
      required by a recent accounting pronouncement as described in Notes 1, 3 and
      13
      of the condensed consolidated financial statements in Part I, Item
      1.





Total
      expenses decreased $711 million, or 39%, to $1.1 billion for
      the
      three months ended June 30, 2006 compared
      to the
      three
      months ended June 30 ,
      2005.
      Total expenses for the three months ended June 30, 2006 included insurance
      settlements for litigation and related costs totaling $390 million, which
      reduced other operating expenses. Total expenses for the three months ended
      June
      30, 2005 included a $750 million charge to increase the reserve for certain
      private litigation. Excluding the insurance settlements and the litigation
      charge, total expenses increased $429 million, or 41%, to $1.5 billion primarily
      due to higher employee compensation and benefits expenses. Employee compensation
      and benefits expenses increased $327 million, or 44%, to $1.1 billion for the
      three months ended June 30, 2006 compared to the three months ended June 30,
      2005, reflecting higher incentive compensation, share-based compensation, base
      salaries and head count partially offset by lower severance expenses . Included
      in employee compensation expense is $32 million and $45 million for the three
      months ended June 30, 2006 and 2005, respectively, related to business
      activities conducted by Company employees on behalf of CSG affiliates outside
      of
      the Company. These
      expenses were charged to these affiliates and are reflected as a reduction
      in
      our other operating expenses. Other expenses decreased $1.0 billion for the
      three months ended June 30, 2006 compared to the three months ended June 30,
      2005. Excluding
      the insurance settlements and the litigation charge, other expenses increased
      $102 million, or 32%, to $421 million primarily
      as a result of increases in other operating expenses, professional fees,
      occupancy and equipment rental and brokerage, clearing and exchange fees. See
      “ —Segment Expenses.”


37




**Six
      Months Ended June 30, 2006 Compared to Six Months Ended June 30,
      2005**





The
      Company recorded net income of $801 million for the six months ended June
      30, 2006 compared to a net loss of $263 million for the six months ended June
      30, 2005, reflecting a significant increase in net revenues and a decrease
      in
      expenses.





Total
      net
      revenues increased $2.3 billion, or 76%, to $5.4 billion for
      the
      six months
      ended June 30, 2006, compared to the
      six months
      ended June 30 , 2005,
      resulting from significant increases in principal transactions-net and
      investment banking and advisory revenues and an increase in commissions and
      fees
      partially offset by a significant decrease in net interest and dividend
      revenues. The increase in principal transactions-net was primarily due to
      improved results in trading and higher revenues from the consolidation of
      certain private equity funds partially offset by decreases in revenues from
      our
      private equity business and certain separately managed private equity and real
      estate assets and losses from certain separately managed distressed assets
      and
      swaps that economically hedged our long-term borrowings that were not designated
      for hedge accounting treatment under SFAS 133. Investment banking and advisory
      revenues increased due to higher debt and equity underwriting and advisory
      fees.
      Commissions and fees were higher reflecting growth in our advanced execution
      services business, higher servicing fees from residential mortgages as a result
      of our acquisition of SPS Holding Corp., higher management fees from our private
      equity business and higher commissions from our private client services
      business. Net interest and dividend revenues decreased primarily due to higher
      short-term borrowing costs associated with our trading business.





For
      the
      six months ended June 30, 2006 and 2005, Elimination & Other primarily
      included revenues and expenses that result from the consolidation of certain
      private equity funds. Elimination & Other also included a
      limited
      amount of treasury costs not allocated to the Company’s segments. The Company’s
      consolidation of certain private equity funds resulted in an increase in net
      revenues of $1.6 billion and $461 million, respectively, and an increase in
      total expenses of $13 million and $3 million, respectively, for the six
      months ended June 30, 2006 and 2005. Excluding the increases attributable to
      the
      consolidation of certain private equity funds, total net revenues increased
      46%.
      As of June 30, 2006, the Company’s condensed consolidated statement of financial
      condition reflected assets and liabilities of $10.0 billion due to the
      consolidation of certain private equity funds, including $6.7 billion as
      required by a recent accounting pronouncement as described in Notes 1, 3 and
      13
      of the condensed consolidated financial statements in Part I, Item
      1.





Total
      expenses decreased $420 million, or 14%, to $2.6 billion for
      the
      six months ended June 30, 2006 compared
      to the
      six
      months ended June 30 ,
      2005.
      Total expenses for the six months ended June 30, 2006 included insurance
      settlements for litigation and related costs totaling $390 million, which
      reduced other operating expenses. Total expenses for the six months ended June
      30, 2005 included a $750 million charge to increase the reserve for certain
      private litigation. Excluding the insurance settlements and the litigation
      charge, expenses increased $720 million, or 31%, to $3.0 billion primarily
      due
      to higher employee compensation and benefits expenses. Employee compensation
      and
      benefits expenses increased by $544 million, or 32%, to $2.2 billion for the
      six
      months ended June 30, 2006 compared to the six months ended June 30, 2005,
      reflecting higher incentive compensation, share-based compensation, base
      salaries and head count partially offset by lower severance expenses . Included
      in employee compensation expense is $59 million and $105 million for the six
      months ended June 30, 2006 and 2005, respectively, related to business
      activities conducted by Company employees on behalf of CSG affiliates outside
      of
      the Company. These
      expenses were charged to these affiliates and are reflected as a reduction
      in
      our other operating expenses. Other expenses decreased $964 million, or
      71%, for the six months ended June 30, 2006 compared to the six months ended
      June 30, 2005. Excluding
      the insurance settlements and the litigation charge, other expenses increased
      $176 million, or 29%, to $790 million primarily
      as a result of increases in other operating expenses, professional fees,
      brokerage, clearing and exchange fees and occupancy and equipment rental
      expenses. See “ —Segment Expenses.”


38





**Results
      by Segment**





Effective
      January 1, 2006, CSG realigned its organizational structure to its new strategic
      orientation, which is to focus on its banking businesses. As a result of this
      realignment, CSG’s banking business consists of three reporting segments:
      Investment Banking, Private Banking and Asset Management. We are managed as
      a
      subsidiary of Credit Suisse and CSG, and our businesses are a part of each
      of
      these banking segments. Therefore, effective January 1, 2006, we began operating
      and managing our businesses along these same three banking
      segments.





Our
      Investment Banking segment consists principally of the businesses that comprised
      our former Institutional Securities segment, with the addition of the private
      funds group that was formerly part of our Wealth & Asset Management segment.
      Our Asset Management segment consists of the private equity business and the
      Volaris business that were formerly part of our Wealth & Asset Management
      segment. Our Private Banking segment consists of the private client services
      business in the United States (other than Volaris) that was formerly part of
      our
      Wealth & Asset Management segment.





The
      operations of the Investment Banking segment consist of investment banking,
      which includes debt and equity underwriting and financial advisory services,
      and
      trading, which includes our debt and equity sales and trading and other related
      activities . The
      Investment Banking segment also includes the results from certain separately
      managed private equity and distressed assets. The operations of the Asset
      Management segment primarily consist of the private equity business. The
      operations of the Private Banking segment consist of the private client services
      business in the United States.





Our
      segments are managed based on types of products and services offered and their
      related client bases. We evaluate the performance of our segments based
      primarily on income (loss) before provision (benefit) for income taxes, minority
      interests and cumulative effect of a change in accounting
      principle.





Revenues
      are evaluated in the aggregate, including an assessment of trading gains and
      losses and the related interest income and expense attributable to financing
      and
      hedging positions. Therefore, individual revenue categories may not be
      indicative of the performance of the segment results.





The
      cost
      structure of each of our segments is similar and, consequently, the discussion
      of expenses is presented on an aggregated basis for our segments. The Company
      allocates to its segments a *pro
      rata* share of
      certain centrally managed costs. Leased facilities and equipment costs, employee
      benefits and certain general overhead expenses are allocated based upon
      specified amounts, usage criteria or agreed rates. Interest expense is allocated
      based upon the particular type of asset. The allocation of some costs, such
      as
      incentive bonuses, has been estimated. The
      timing and magnitude of changes in our incentive bonus accrual can have a
      significant effect on our operating results for a given period.





The
      Global Treasury department allocates to the Company’s segments gains and losses
      related to certain corporate treasury funding transactions based upon the
      estimated funding requirements of the segments.





We
      manage
      and report our segments on a pre-tax basis and exclude revenues and expenses
      primarily related to the consolidation of certain private equity funds, which
      are reported in Elimination & Other. Net income is unaffected by the
      consolidation of these private equity funds because offsetting minority
      interests are also recorded in Elimination & Other.





Certain
      reclassifications have been made to our prior year condensed consolidated
      financial statements in this Quarterly Report to reflect the operational and
      management structure in place during 2006.





***Investment
      Banking***





The
      Investment Banking segment includes the trading and investment banking
      businesses and the results from certain separately managed private equity and
      distressed assets. Trading consists of sales and trading in equity securities,
      equity-related derivatives, fixed income financial instruments, fixed
      income-related derivatives and other related activities. Investment banking
      raises capital and provides financial advice to companies throughout the United
      States and abroad. Through investment banking, we manage and underwrite
      offerings of securities, arrange private placements and provide financial
      advisory and other services.


39




The
      following table sets forth certain financial information of the Company’s
      Investment Banking segment:


**For
                  the Three Months Ended**
                **June
                  30,**
              
              **For
                  the Six Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(In
                  millions)**Revenues:Principal
                  transactions-net
              
              $
              380
              
              $
              (286
              )
              $
              1,043
              
              $
              (153
              )Investment
                  banking and advisory
              
              
              750
              
              
              404
              
              
              1,328
              
              
              723Commissions
              
              
              310
              
              
              245
              
              
              590
              
              
              510Interest
                  and dividends, net of interest expense
              
              
              250
              
              
              510
              
              
              536
              
              
              1,079Other
              
              
              16
              
              
              9
              
              
              47
              
              
              21Total
                  net revenues
              
              
              1,706
              
              
              882
              
              
              3,544
              
              
              2,180Total
                  expenses
              
              
              956
              
              
              1,653
              
              
              2,348
              
              
              2,779Income
                  (loss)(1)
              
              $
              750
              
              $
              (771
              )
              $
              1,196
              
              $
              (599
              )







(1)
            Income
                (loss) before provision (benefit) for income taxes, minority interests
                and
                cumulative effect of a change in accounting
                principle.





*Three
      Months Ended June 30, 2006 Compared to Three Months Ended June 30,
      2005*





The
      Investment Banking segment recorded income before provision for income taxes,
      minority interests and the cumulative effect of a change in accounting principle
      of $750 million for
      the
      three months ended June 30, 2006 compared
      to a loss before benefit for income taxes, minority interests and cumulative
      effect of a change in accounting principle of $771 million for the three months
      ended June 30, 2005, reflecting a significant increase in net revenues and
      a
      significant decrease in expenses. Total net revenues increased
      $824 million, or 93%, to $1.7 billion for
      the
      three months ended June 30, 2006 compared
      to the three months ended June 30, 2005, reflecting higher revenues from trading
      and investment banking partially offset by lower other investment banking
      revenues. Total expenses for Investment Banking for the three months ended
      June
      30, 2006 included insurance settlements for litigation and related costs
      totaling $390 million, which reduced expenses. Total expenses for
      Investment Banking for the three months ended June 30, 2005 included a $750
      million charge to increase the reserve for certain private litigation. See
      “―Segment Expenses.”





*Six
      Months Ended June 30, 2006 Compared to Six* *Months Ended June 30, 2005*





The
      Investment Banking segment recorded income before provision for income taxes,
      minority interests and the cumulative effect of a change in accounting principle
      of $1.2 billion for
      the
      six months ended June 30, 2006 compared
      to a loss before benefit for income taxes, minority interests and cumulative
      effect of a change in accounting principle of $599 million for the six months
      ended June 30, 2005, reflecting a significant increase in net revenues and
      a
      decrease in expenses. Total net revenues increased $1.4 billion, or 63%, to
      $3.5 billion for
      the
      six months ended June 30, 2006 compared
      to the six months ended June 30, 2005, reflecting higher revenues from trading
      and investment banking partially offset by lower other investment banking
      revenues. Total expenses for Investment Banking for the six months ended June
      30, 2006 included insurance settlements for litigation and related costs of
      $390
      million, which reduced expenses. Total expenses for Investment Banking for
      the
      six months ended June 30, 2005 included a $750 million charge to increase the
      reserve for certain private litigation. See
      “―Segment Expenses.”





Trading





In
      evaluating the performance of its trading activities, the Company aggregates
      principal transactions-net, commissions and net interest and dividends revenue
      as net trading revenues. Changes in the composition of trading inventories
      and
      hedge positions can cause principal transactions and net interest income to
      vary
      from period to period.


40




The
      following table sets forth net trading revenues o f the
      Investment Banking segment:


**For
                  the Three Months Ended**
                **June
                  30,**
              
              **For
                  the Six Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(In
                  millions)**Equity
              
              $
              326
              
              $
              271
              
              $
              885
              
              $
              534Fixed
                  Income
              
              
              744
              
              
              234
              
              
              1,543
              
              
              965Total
                  Trading(1)
              
              $
              1,070
              
              $
              505
              
              $
              2,428
              
              $
              1,499





(1)
            Revenues
                reflect the allocation of certain net revenues and interest expense
                from
                the Global Treasury department to trading. For the three months ended
                June
                30, 2006 and 2005, the amount was $140 million and $82 million of
                income,
                respectively. For the six months ended June 30, 2006 and 2005, the
                amount
                was $279 million and $79 million of income, respectively.See
                “―Results by Segment” above.





*Three
      Months Ended June 30, 2006 Compared to* *Three
      Months Ended June 30, 2005*





Total
      net
      trading revenues for the Investment Banking segment increased $565 million
      to
      $1.1 billion for
      the
      three months ended June 30, 2006 compared
      to the
      three
      months ended June 30, 2005,
      due to a significant increase in fixed income net trading revenues and an
      increase in equity net trading revenues.





Equity
      net trading revenues increased 20% to $326 million reflecting higher revenues
      from convertibles, which had losses during the three months ended June 30,
      2005
      due to reduced liquidity and low volatility. Revenues from prime services were
      higher as this business continues to grow. These increases were partially offset
      by lower revenues from our cash business and losses on our restricted shares
      of
      the New York Stock Exchange which we received during the three months ended
      March 31, 2006 in exchange for our New York Stock Exchange seats.





Fixed
      income net trading revenues increased $510 million to $744 million, reflecting
      increases in revenues from structured products, interest rate products,
      commodities and credit products. The increase in structured products net trading
      revenues was due to higher revenues from commercial and residential
      mortgage-backed products partially offset by lower revenues from asset-backed
      products. The increase in revenues from interest rate products primarily
      reflected gains on derivatives that hedged certain resale and repurchase
      agreements. Commodities contributed to the growth in revenues as we continue
      to
      expand this business. Credit products revenues were higher primarily due to
      improved results from leveraged finance products. Included in fixed income
      trading revenues are commercial and residential mortgage-backed underwriting
      revenues.





*Six
      Months Ended June 30, 2006 Compared to* *Six
      Months Ended June 30, 2005*





Total
      net
      trading revenues for the Investment Banking segment increased $929 million,
      or
      62%, to $2.4 billion for
      the
      six months ended June 30, 2006 compared
      to the
      six
      months ended June 30, 2005,
      due to increases in fixed income and equity net trading revenues.





Equity
      net trading revenues increased 66% to $885 million reflecting higher revenues
      from convertibles, which had losses during the six months ended June 30, 2005
      due to reduced liquidity and low volatility, and higher revenues from
      proprietary trading. Revenues from prime services were also higher as this
      business continues to grow. These increases were partially offset by slightly
      lower revenues from our cash business.





Fixed
      income net trading revenues increased 60% to $1.5 billion, reflecting increases
      in revenues from interest rate products, commodities, structured products,
      proprietary trading and credit products. The increase in revenues from interest
      rate products primarily reflected gains on derivatives that hedged certain
      resale and repurchase agreements as well as higher revenues from OTC and listed
      derivatives and money markets. Commodities contributed to the growth in revenues
      as we continue to expand this business. The increase in structured products
      net
      trading revenues was due to higher revenues from commercial and residential
      mortgage-backed products partially offset by lower revenues from asset-backed
      products. Credit products revenues were higher primarily due to improved results
      from leveraged finance products and high grade preferred securities.


41




Investment
      Banking





The
      following table sets forth the investment banking revenues for the
      Investment Banking segment:




**For
                  the Three Months Ended**
                **June
                  30,**
              
              **For
                  the Six Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(In
                  millions)**Debt
                  underwriting
              
              $
              326
              
              $
              85
              
              $
              587
              
              $
              180Equity
                  underwriting
              
              
              119
              
              
              72
              
              
              207
              
              
              149Total
                  underwriting
              
              
              445
              
              
              157
              
              
              794
              
              
              329Advisory
                  and other fees
              
              
              239
              
              
              198
              
              
              413
              
              
              307Total
                  investment banking
              
              $
              684
              
              $
              355
              
              $
              1,207
              
              $
              636




*Three
      Months Ended June 30, 2006 Compared to* *Three
      Months Ended June 30, 2005*





Investment
      banking revenues increased 93% to $684 million, reflecting increases in debt
      and
      equity underwriting and advisory and other fees. For the three months ended
      June
      30, 2006, debt underwriting revenues increased $241 million compared to the
      three months ended June 30, 2005 to $326 million, primarily due to an
      increase in underwriting revenues from syndicated loans reflecting the fact
      that
      on January 1, 2006, we began to conduct certain syndicated loan activities
      that
      were previously conducted by a branch of Credit Suisse outside of our
      consolidated group. Debt underwriting revenues were also higher reflecting
      industry-wide increases in high-yield underwritings and higher asset-backed
      underwriting revenues. Equity underwriting revenues increased 65% to
      $119 million reflecting an increase in common stock new issuance volumes.
      Advisory and other fees increased 21% to $239 million reflecting higher
      industry-wide mergers and acquisitions activity and higher revenues from our
      private funds group.





*Six
      Months Ended June 30, 2006 Compared to* *Six
      Months Ended June 30, 2005*





Investment
      banking revenues increased 90% to $1.2 billion, reflecting increases in debt
      and
      equity underwriting and advisory and other fees. For the six months ended June
      30, 2006, debt underwriting revenues increased $407 million compared to the
      six months ended June 30, 2005 to $587 million, primarily due to an
      increase in underwriting revenues from syndicated loans reflecting the fact
      that
      on January 1, 2006, we began to conduct certain syndicated loan activities
      that
      were previously conducted by a branch of Credit Suisse outside of our
      consolidated group. Debt underwriting revenues were also higher reflecting
      higher asset-backed underwriting revenues. Equity underwriting revenues
      increased 39% to $207 million reflecting an increase in common stock new
      issuance volumes. Advisory and other fees increased 35% to $413 million
      reflecting higher industry-wide mergers and acquisitions activity and higher
      revenues from our private funds group.





Other
      Investment Banking





Other
      investment banking revenues primarily consist of the
      results for certain separately managed private equity, distressed and real
      estate assets and gains and losses on swaps that economically hedge our
      long-term borrowings that were not designated for hedge accounting treatment
      under SFAS 133.


42


The
      following table sets forth other investment banking ** revenues:


**For
                  the Three Months Ended**
                **June
                  30,**
              
              **For
                  the Six Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(In
                  millions)**Separately
                  managed private equity and distressed assets
              
              $
              4
              
              $
              35
              
              $
              (3
              )
              $
              53Other
              
              
              (52
              )
              
              (13
              )
              
              (88
              )
              
              (8
              )Total
                  other investment banking
              
              $
              (48
              )
              $
              22
              
              $
              (91
              )
              $
              45




*Three
      Months Ended June 30, 2006 Compared to* *Three
      Months Ended June 30, 2005*





Other investment
      banking had negative net revenues of $48 million
      for the three months ended June 30, 2006 compared to net revenues of $22 million
      for the three months ended June 30, 2005, reflecting losses on swaps that
      economically hedge our long-term borrowings that were not designated for hedge
      accounting treatment under SFAS 133, lower revenues from certain separately
      managed private equity assets and losses from certain separately managed
      distressed assets.





*Six
      Months Ended June 30, 2006 Compared to* *Six
      Months Ended June 30, 2005*





Other investment
      banking had negative net revenues of $91 million
      for the six months ended June 30, 2006 compared to net revenues of $45 million
      for the six months ended June 30, 2005, reflecting losses on swaps that
      economically hedge our long-term borrowings that were not designated for hedge
      accounting treatment under SFAS 133, losses from certain separately managed
      distressed assets and lower revenues from certain separately managed private
      equity and real estate assets.





***Asset
      Management***





The
      Asset
      Management segment primarily consists of the private equity business. The
      private equity business makes privately negotiated investments and acts as
      an
      investment manager for private equity funds.





The
      following table sets forth certain financial information of the Company’s Asset
      Management segment:


**For
                  the Three Months Ended**
                **June
                  30,**
              
              **For
                  the Six Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(In
                  millions)**Revenues:Principal
                  transactions-net
              
              $
              25
              
              $
              157
              
              $
              74
              
              $
              230Asset
                  management and other fees
              
              
              45
              
              
              30
              
              
              85
              
              
              74Interest
                  and dividends, net of interest expense
              
              
              1
              
              
              (1
              )
              
              1
              
              
              (1
              )Other
              
              
              ―
              
              
              1
              
              
              2
              
              
              4Total
                  net revenues
              
              
              71
              
              
              187
              
              
              162
              
              
              307Total
                  expenses
              
              
              51
              
              
              88
              
              
              112
              
              
              139Income(1)
              
              $
              20
              
              $
              99
              
              $
              50
              
              $
              168







(1)
            Income
                before provision for income taxes, minority interests and cumulative
                effect of a change in accounting principle.





*Three
      Months Ended June 30, 2006 Compared to* *Three
      Months Ended June 30, 2005*





Revenues
      for Asset Management primarily consist of management fees, net investment gains
      and losses, which include realized and unrealized gains and losses, including
      carried interest, net interest and other revenues from the private equity
      business. The Asset Management segment recorded income before provision for
      income taxes, minority interests and cumulative effect of a change in accounting
      principle of $20 million for the three months ended June 30, 2006 compared
      to
      $99 million for the three months ended June 30, 2005. Total net revenues
      decreased $116 million, or 62%, to $71 million, primarily due to significantly
      lower principal transactions-net from our private equity business, which had
      significant gains during the three months ended June 30, 2005, partially offset
      by higher management fees due to new private equity funds managed by the
      Company.


43




*Six
      Months Ended June 30, 2006 Compared to* *Six
      Months Ended June 30, 2005*





The
      Asset
      Management segment recorded income before provision for income taxes, minority
      interests and cumulative effect of a change in accounting principle of $50
      million for the six months ended June 30, 2006 compared to $168 million for
      the
      six months ended June 30, 2005. Total net revenues decreased $145 million,
      or
      47%, to $162 million, primarily due to significantly lower principal
      transactions-net from our private equity business, which had significant gains
      during the six months ended June 30, 2005, partially offset by higher management
      fees due to new private equity funds managed by the Company.





***Private
      Banking***





The
      Private Banking segment consists of the private client services business in
      the
      United States.  Private
      client services is a financial advisory business serving high-net-worth
      individuals and corporate investors with a wide range of Credit Suisse and
      third-party investment management products and services.





The
      following table sets forth certain financial information of the Company’s
      Private Banking segment:


**For
                  the Three Months Ended**
                **June
                  30,**
              
              **For
                  the Six Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(In
                  millions)**Revenues:Principal
                  transactions-net
              
              $
              11
              
              $
              11
              
              $
              23
              
              $
              22Investment
                  banking and advisory
              
              
              5
              
              
              2
              
              
              10
              
              
              5Asset
                  management and other fees
              
              
              51
              
              
              40
              
              
              99
              
              
              83Interest
                  and dividends, net of interest expense
              
              
              (2
              )
              
              1
              
              
              ―
              
              
              2Total
                  net revenues
              
              
              65
              
              
              54
              
              
              132
              
              
              112Total
                  expenses
              
              
              81
              
              
              65
              
              
              156
              
              
              128Loss(1)
              
              $
              (16
              )
              $
              (11
              )
              $
              (24
              )
              $
              (16
              )







(1)
            Loss
                before benefit for income taxes, minority interests and cumulative
                effect
                of a change in accounting principle.





*Three
      Months Ended June 30, 2006 Compared to* *Three
      Months Ended June 30, 2005*





The
      Private Banking segment reported a loss before benefit for income taxes,
      minority interests and cumulative effect of a change in accounting principle
      of
      $16 million for the three months ended June 30, 2006 compared to a loss of
      $11
      million for the three months ended June 30, 2005, reflecting an increase in
      expenses that exceeded the increase in net revenues. Net revenues for Private
      Banking increased 20% to $65 million, primarily due to higher commissions.





*Six
      Months Ended June 30, 2006 Compared to* *Six
      Months Ended June 30, 2005*





The
      Private Banking segment reported a loss before benefit for income taxes,
      minority interests and cumulative effect of a change in accounting principle
      of
      $24 million for the six months ended June 30, 2006 compared to a loss of $16
      million for the six months ended June 30, 2005, reflecting an increase in total
      expenses that exceeded the increase in net revenues. Net revenues for Private
      Banking increased 18% to $132 million, primarily due to higher commissions
      and
      investment banking revenues.





44




**Segment
      Expenses**





The
      normal operating cost structure of each of our segments is similar and,
      consequently, the discussion of expenses is presented on an aggregate basis
      for
      our segments. For information on expenses that are not allocated to the
      Company’s segments, see “ ― Results
      of Operations” and Note 13 of the condensed consolidated financial statements in
      Part I, Item 1.




The
      following table sets forth employee compensation and benefits expenses, other
      expenses and total expenses of the Company’s segments and does not include
      expenses not allocated to the segments:


**For
                  the Three Months Ended**
                **June
                  30,**
              
              **For
                  the Six Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(In
                  millions)**Employee
                  compensation and benefits
              
              $
              1,065
              
              $
              738
              
              $
              2,229
              
              $
              1,685Other
                  expenses
              
              
              23
              
              
              1,068
              
              
              387
              
              
              1,361Total
                  expenses
              
              $
              1,088
              
              $
              1,806
              
              $
              2,616
              
              $
              3,046




*Three
      Months Ended June 30, 2006 Compared to* *Three
      Months Ended June 30, 2005*





Total
      expenses decreased $718 million, or 40%, to $1.1 billion for
      the
      three months ended June 30, 2006 compared
      to the
      three
      months ended June 30 ,
      2005.
      Total expenses for the three months ended June 30, 2006 included insurance
      settlements for litigation and related costs totaling $390 million. Total
      expenses for the three months ended June 30, 2005 included a $750 million charge
      to increase the reserve for private litigation involving Enron, certain initial
      public offering allocation practices, research analyst independence and other
      related litigation. Excluding the insurance settlements and the litigation
      charge, total expenses increased $422 million, or 40%, to $1.5 billion
      primarily due to higher employee compensation and benefits expenses reflecting
      higher incentive compensation, share-based compensation, base salaries and
      head
      count. Employee compensation and benefits expense increased $327 million,
      or 44% to $1.1 billion. Included in employee compensation and benefits
      expense is $32 million and $45 million for the three months ended June 30,
      2006
      and 2005, respectively, related to business activities conducted by Company
      employees on behalf of CSG affiliates outside of the Company. These
      expenses were charged to these affiliates and are reflected as a reduction
      in
      our other operating expenses.





Other
      expenses consist principally of occupancy and equipment rental; brokerage,
      clearing and exchange fees; communications; professional fees; and all other
      operating expenses. Other expenses decreased $1.0 billion for the three
      months ended June 30, 2006 compared to the three months ended June 30, 2005.
      Other expenses
      for the three months ended June 30, 2006 included insurance settlements for
      litigation and related costs totaling $390 million, which reduced other
      operating expenses. Other expenses for the three months ended June 30, 2005
      included a $750 million charge to increase the reserve for certain private
      litigation. Excluding the insurance settlements and the litigation charge,
      other
      expenses increased $95 million, or 30%, to $413 million primarily
      as a result of increases in other operating expenses, professional fees,
      occupancy and equipment rental and brokerage, clearing and exchange fees. The
      increase in other operating expenses reflected higher legal fees and a reduction
      in the expenses charged to affiliates that are reflected as a reduction in
      our
      other operating expenses. The
      decrease in expenses charged to affiliates reflected our commencement of certain
      syndicated loan activities that were previously conducted by a branch of Credit
      Suisse outside of our consolidated group. Professional fees and b rokerage,
      clearing and exchange fees increased due to increased levels of business
      activity. The increase in occupancy and equipment rental reflected higher
      depreciation and amortization as a result of our acquisition of SPS Holdings
      Corp. Excluding the charge to affiliates for compensation expense, the insurance
      settlements and the litigation charge, other operating expenses increased
      23%.


45




*Six
      Months Ended June 30, 2006 Compared to S* *ix
      Months Ended June 30, 2005*





Total
      expenses decreased $430 million, or 14%, to $2.6 billion for
      the
      six months ended June 30, 2006 compared
      to the
      six
      months ended June 30 ,
      2005.
      Total expenses for the six months ended June 30, 2006 included insurance
      settlements for litigation and related costs totaling $390 million. Total
      expenses for the six months ended June 30, 2005 included a $750 million charge
      to increase the reserve for certain private litigation. Excluding the insurance
      settlements and the litigation charge, total expenses increased
      $710 million, or 31%, to $3.0 billion primarily due to higher employee
      compensation and benefits expenses reflecting higher incentive compensation,
      share-based compensation, base salaries and head count partially offset by
      lower
      severance expenses. Employee compensation and benefits expense increased $544
      million, or 32%, to $2.2 billion. Included in employee compensation and benefits
      expense is $59 million and $105 million for the six months ended June 30, 2006
      and 2005, respectively, related to business activities conducted by Company
      employees on behalf of CSG affiliates outside of the Company. These
      expenses were charged to these affiliates and are reflected as a reduction
      in
      our other operating expenses.





Other
      expenses consist principally of occupancy and equipment rental; brokerage,
      clearing and exchange fees; communications; professional fees; and all other
      operating expenses. Other expenses decreased $974 million, or 72%, for the
      six months ended June 30, 2006 compared to the six months ended June 30, 2005.
      Other expenses
      for the six months ended June 30, 2006 included insurance settlements for
      litigation and related costs totaling $390 million, which reduced other
      operating expenses. Other expenses for the six months ended June 30, 2005
      included a $750 million charge to increase the reserve for certain private
      litigation. Excluding the insurance settlements and the litigation charge,
      other
      expenses increased $166 million, or 27%, to $777 million primarily
      as a result of increases in other operating expenses, professional fees,
      brokerage, clearing and exchange fees and occupancy and equipment rental
      expenses. The increase in other operating expenses reflected higher legal fees
      and a reduction in the expenses charged to affiliates that are reflected as
      a
      reduction in our other operating expenses. The
      decrease in expenses charged to affiliates reflected our commencement of certain
      syndicated loan activities that were previously conducted by a branch of Credit
      Suisse outside of our consolidated group. Professional
      fees and brokerage, clearing and exchange fees increased due to higher levels
      of
      business activity. The increase in occupancy and equipment rental reflected
      higher depreciation and amortization as a result of our acquisition of SPS
      Holdings Corp. Excluding the charge to affiliates for compensation expense,
      the
      insurance settlements and the litigation charge, other operating expenses
      increased 17%.





**Provision
      for Taxes**





*Six
      Months Ended June 30, 2006 Compared to Six Months Ended June 30,
      2005*





The
      provision for income taxes for the six months ended June 30, 2006 was
      $384 million compared to a benefit of $178 million for the six months
      ended June 30, 2005. Excluded
      from the provision for income taxes for the six months ended June 30, 2005
      was
      an income tax expense of $3 million related to our adoption of Statement of
      Financial Accounting Standards, or SFAS, No. 123, “Accounting for Stock-Based
      Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based
      Compensation—Transition and Disclosure,” and SFAS No. 123 (Revised 2004),
“Share-Based Payment,” or SFAS 123R.





The
      effective tax rate for the six months ended June 30, 2006 and 2005 was a
      provision of 13.9% and a benefit of 1615.6%, respectively, which is not
      meaningful because of the significant non-taxable revenues from certain private
      equity funds we consolidate. The effective tax rate excluding the non-taxable
      revenues from certain private equity funds we consolidate for the six months
      ended June 30, 2006 and 2005 was a provision of 32.4% and a benefit of 39.6%
      respectively. The change in the effective tax rate was due to the pre-tax net
      income in the six months ended June 30, 2006 as compared to the pre-tax net
      loss
      in the six months ended June 30, 2005.





**Share-based
      Compensation**





We
      adopted SFAS 123R as of January 1, 2005, using the modified prospective method.
      We had previously adopted the recognition provisions of SFAS 123 effective
      January 1, 2003. See Note 1 of the condensed consolidated financial statements
      in Part I, Item 1 for more information.





In
      connection with our adoption of SFAS 123R, we recorded an after-tax gain of
      $6
      million in the condensed consolidated statement of operations as a cumulative
      effect of a change in accounting principle to reverse the expense for awards
      previously recognized on all outstanding unvested awards that are expected
      to be
      forfeited. For new grants after January 1, 2005, forfeitures are included in
      the
      initial estimate of compensation expense at the grant date.


46




**LIQUIDITY
      AND CAPITAL RESOURCES**





**Liquidity
      Management Oversight**





We
      believe that maintaining access to liquidity is fundamental for firms operating
      in the financial services industry. We have therefore established a
      comprehensive process for the management and oversight of our capital, liquidity
      and funding strategies. Credit Suisse’s Asset
      and Risk Management Committee, or CARMC **,** has
      primary oversight responsibility for these functional disciplines. This
      committee, which meets on a quarterly basis, includes the Chief Executive
      Officers of CSG and of its divisions, the Chief Financial Officer, the Chief
      Risk Officer and the Treasurer. CARMC reviews capital and balance sheet
      development, current and prospective funding, and adherence to internal Treasury
      risk limits and capital and liquidity targets. The tactical implementation
      of
      this strategy is subsequently refined and updated through regular monthly
      sessions with the Chief Risk Officer, the Chief Financial Officer and the
      Treasurer and other senior management.





The
      Global Treasury department is responsible for the day-to-day management of
      capital, liquidity and funding, as well as relationships with creditor banks
      and
      fixed income investors. It also maintains regular contact with rating agencies
      and regulators on these and other issues. See “Liquidity Risk” in “Risk Factors”
in Part I, Item 1A of our Annual Report on Form 10-K for the year ended
      December 31, 2005 for more information.





**Liquidity
      Management Organization**





We
      are an
      indirect subsidiary of Credit Suisse, a Swiss bank. Consequ ently,
      our liquidity management structure operates at two levels, the “Non-Bank
      Franchise” and the “Bank Franchise.” See “―Balance Sheet and
      Funding.”





First,
      at
      the holding company level, the “Non-Bank Franchise,” where access to parent bank
      funding is limited, we aim to maintain sufficient liquidity so that in the
      event
      that we are unable to access the unsecured capital markets, we have cash and
      liquid assets sufficient to repay maturing liabilities for a minimum period
      of
      one year. When assessing the amount of cash and liquid assets, we take account
      of the regulatory restrictions that limit the amount of cash that could be
      distributed upstream by our principal broker-dealer subsidiaries, Credit Suisse
      Securities (USA) LLC, or CS Securities, and Credit Suisse Capital LLC, or CS
      Capital, which hold over approximately 82% of our consolidated
      assets.





Second,
      our regulated subsidiaries have access to unsecured funding from Credit Suisse,
      the “Bank Franchise,” as well as secured funding via the repurchase and
      securities lending markets. Historically, Credit Suisse’s bank deposit base has
      proven extremely stable and is comprised of a diversified customer base,
      including retail deposits, as well as wholesale and institutional deposits.
      In a
      stressed liquidity environment, our broker-dealers would directly access the
      secured funding markets to replace unsecured borrowings from Credit
      Suisse.





**Balance
      Sheet and Funding**





The
      majority of our assets are held in our broker-dealer subsidiaries and comprise
      a
      substantial portion of the Bank Franchise. These assets - principally trading
      inventories in our Investment Banking business - are funded by a combination
      of
      collateralized short-term borrowings, which include securities sold under
      agreements to repurchase and securities loaned, as well as unsecured loans
      from
      Credit Suisse, the central funding entity of the Bank Franchise. Significant
      portions of our assets held in the Bank Franchise are highly liquid, with the
      majority consisting of securities inventories and collateralized receivables,
      which fluctuate depending on the levels of proprietary trading and customer
      business. Collateralized receivables consist primarily of securities purchased
      under agreements to resell and securities borrowed, both of which are primarily
      secured by U.S. government and agency securities and marketable corporate debt
      and equity securities. In addition, we have significant receivables from
      customers, brokers, dealers and others, which turn over frequently. To meet
      client needs as a securities dealer, we carry significant levels of trading
      inventories.


47




Unsecured
      funding for the Bank Franchise originates largely from Credit Suisse’s
      borrowings in the wholesale and institutional deposit markets as well as access
      to retail deposits. The retail and private bank funding base is primarily
      comprised of time deposits and deposits callable on demand. While the
      contractual maturity of these deposits is typically under three months, they
      have historically shown remarkable stability even under extreme market
      conditions. Additional funding is also sourced via short-term intercompany
      borrowings from other CSG entities on both a secured and unsecured
      basis.





Assets
      not funded by the Bank Franchise include less liquid assets such as certain
      mortgage whole loans, distressed securities, high-yield debt securities,
      asset-backed securities and private equity and other long-term investments.
      These less liquid assets are principally held in the Non-Bank Franchise. These
      assets may be relatively illiquid at times, especially during periods of market
      stress. Mortgage whole loans, distressed securities, high-yield debt and
      asset-backed securities are generally financed with a combination of short-term
      unsecured financing or repurchase agreements, long-term borrowings and
      stockholder’s equity. We typically fund a significant portion of less liquid
      assets, such as private equity investments, with long-term borrowings that
      we
      issue directly to the market, and stockholder’s equity.





Short-term
      funding is generally obtained at rates related to the Federal Funds rate, the
      London Interbank Offered rate, or LIBOR, or other money market indices, while
      long-term funding is generally obtained at fixed and floating rates related
      to
      U.S. Treasury securities or LIBOR, depending upon prevailing market conditions.
      We continually aim to broaden our funding base by geography, investor and
      funding instrument.





We
      lend
      funds as needed to our operating subsidiaries and affiliates on both a senior
      and subordinated basis, the latter typically to meet capital requirements of
      regulated subsidiaries. We generally try to ensure that loans to our operating
      subsidiaries and affiliates have maturities equal to or shorter than the
      maturities of our market borrowings. As such, senior funding to operating
      subsidiaries and affiliates is typically extended on a demand basis.
      Alternatively, subordinated financing to regulated subsidiaries is extended
      on a
      term basis and we structure our long-term market borrowings with maturities
      that
      extend beyond those of our subordinated advances to subsidiaries and
      affiliates.





Because
      of changes relating to customer needs, economic and market conditions and
      proprietary trading and other strategies, our total assets, or the individual
      components of total assets, may vary significantly from period to period. As
      of
      June 30, 2006 and December 31, 2005, our total assets were $344.7 billion
      and $297.8 billion, respectively.





Included
      below is a discussion of our long-term contractual obligations, off-balance
      sheet arrangements and less liquid assets.





**Liquidity
      Measurement and Planning**





The
      principal measure we use to monitor our liquidity position at each funding
      franchise is the “liquidity barometer,” which estimates the time period over
      which the adjusted market value of unencumbered assets (including cash) exceeds
      the aggregate value of our maturing unsecured liabilities plus a conservative
      forecast of anticipated contingent commitments. Our objective, as mandated
      by
      CARMC, is to ensure that the liquidity barometer for each of the funding
      franchises is maintained at a sufficient level so as to ensure that, in the
      event we are unable to access unsecured funding, we will have sufficient
      liquidity for an extended period. We believe this will enable us to carry out
      our business plans during extended periods of market stress, while minimizing,
      to the extent possible, disruptions to our business.





For
      the
      Non-Bank Franchise, our objective is to ensure that the liquidity barometer
      equals or exceeds a time horizon of one year. For the Bank Franchise, our
      objective is to ensure the liquidity barometer equals or exceeds 120 days.
      The
      different time horizons reflect the relative stability of the unsecured funding
      base of each franchise. In the Non-Bank Franchise, liabilities are measured
      at
      their contractual maturities because historically, investors in publicly issued
      debt securities and commercial paper are highly sensitive to liquidity events
      such that we believe access to these markets could be quickly diminished.
      Conversely, the Bank Franchise’s retail and institutional deposit base is
      measured using contractual maturities that have been adjusted to reflect
      behavioral stability. Historically, this core deposit base has proven extremely
      stable, even in stressed markets. The conservative parameters we use in
      establishing the time horizons in the funding franchises assume that assets
      will
      not be sold to generate cash, no new unsecured debt can be issued, and funds
      that are assumed to be trapped because of regulatory restrictions are not
      available to be distributed upstream in a stressed liquidity environment. For
      liquidity purposes, the adjusted market value of unencumbered assets includes
      a
      conservative reduction from market value, or “haircut,” reflecting the amount
      that could be realized by pledging an asset as collateral to a third-party
      lender in a secured funding transaction.


48




In
      the
      case of the Non-Bank Franchise, contingent commitments include such items as
      commitments to invest in private equity funds. Certain contingent obligations
      do
      not materially impact the liquidity planning at the Company or Non-Bank
      Franchise, as these are incurred by other affiliated operating entities that
      are
      not consolidated by the Company. These items, which are taken into account
      in
      our liquidity planning for the Bank Franchise, include:





·
            credit
                rating-related collateralization requirements (Credit
                Suisse’s derivatives business is primarily conducted in Credit Suisse
                International, a wholly-owned subsidiary of
                CSG);





·
            back-up
                liquidity lines provided to asset-backed commercial paper conduits
                (back-up liquidity lines are provided by Credit Suisse);
                and





·
            committed
                undrawn credit facilities to clients (substantially all ofCredit
                Suisse’scorporate
                lending business is conducted in Credit
                Suisse).




The
      Bank
      Franchise maintains two large secondary sources of liquidity. The first is
      via a
      large portfolio of liquid fixed income securities, which is segregated and
      managed to provide for emergency liquidity needs only. This liquidity portfolio
      is maintained at a level well beyond regulatory requirements and could provide
      a
      significant source of liquidity for an extended period in the event of stressed
      market conditions. In addition to these assets held directly in Credit Suisse,
      the Bank Franchise maintains another large source of secondary liquidity through
      Credit Suisse’s principal broker-dealers and other regulated operating entities.
      The Bank Franchise has historically been able to access significant liquidity
      through the secured funding markets (securities sold under agreements to
      repurchase, securities loaned and other collateralized financing arrangements),
      even in periods of market stress. We continually monitor overall liquidity
      by
      tracking the extent to which unencumbered marketable assets and alternative
      unsecured funding sources exceed both contractual obligations and anticipated
      contingent commitments.





As
      of
      June 30, 2006, we estimate that the Non-Bank Franchise held cash, other
      liquidity reserves and marginable assets, net of haircuts, of approximately
      $8.3
      billion versus estimated maturing obligations and commitments out to one year
      of
      $6.9 billion. Also, as of June 30, 2006, we estimate that the Bank Franchise
      held cash, other liquidity reserves and marginable assets, net of haircuts,
      of
      approximately $120.7 billion versus estimated maturing obligations, commitments
      and contingent funding requirements out to 120 days of $109.1
      billion.





Our
      liquidity planning and management focuses on maintaining a liquidity cushion
      so
      that we may continue to conduct business for an extended period in the event
      of
      a crisis. Our liquidity contingency plan focuses on the specific actions that
      we
      would take in the event of a crisis, including a detailed communication plan
      for
      creditors, investors and customers. The plan, which is regularly updated, sets
      out a three-stage process of the specific actions we would take:





·
            Stage
                I –
                Market disruption


·
            Stage
                II – Unsecured markets partially
                inaccessible


·
            Stage
                III – Unsecured markets fully
                inaccessible





In
      the
      event of a liquidity crisis, a meeting of the Liquidity Crisis Committee would
      be convened by Global Treasury to activate the contingency plan. The Liquidity
      Crisis Committee’s membership includes senior business line, Global Treasury and
      finance department management. This committee would meet frequently throughout
      the crisis to ensure our plans are executed.


49


**Cash
      Capital**





We
      measure cash capital (long-term funding sources) against long-term unsecured
      funding requirements on an ongoing basis, and seek to maintain a surplus at
      all
      times. Sources of cash capital include the non-current component of the
      Company’s long-term borrowings and stockholder’s equity. Uses of cash capital
      include illiquid assets such as related party receivables (except where the
      receivable is the short-term investment of our excess cash with Credit Suisse),
      property, goodwill and intangibles, deferred tax assets, private equity and
      other long-term investments.





Our
      cash
      capital as of June 30, 2006 totaled $47.8 billion compared with $42.2 billion
      as
      of December 31, 2005. The increase in cash capital of $5.6 billion was primarily
      due to an increase in long-term debt. As of June 30, 2006, cash capital was
      substantially in excess of our cash capital requirements.





**Contractual
      Obligations and Commitments**





The
      following table sets forth future cash payments on our contractual obligations
      pursuant to long-term borrowings, operating leases and purchase obligations
      as
      of June 30, 2006:





**Contractual
                Obligations**
              **Expiration
                Per Period****Less
                than**
              **1
                year**
            
            **1-3**
              **years**
            
            **4-5**
              **years**
            
            **Over**
              **5
                years**
            
            **Total****(In
                millions)**Long-term
                borrowings
            
            $
            5,012
            
            $
            14,137
            
            $
            5,686
            
            $
            14,643
            
            $
            39,478Operating
                leases
            
            155
            
            292
            
            275
            
            933
            
            1,655Purchase
                obligations(1)
            
            52
            
            60
            
            38
            
            13
            
            163Total
                contractual obligations
            
            $
            5,219
            
            $
            14,489
            
            $
            5,999
            
            $
            15,589
            
            $
            41,296





(1)
            Purchase
                obligations for goods and services include payments for, among other
                things, benefits consulting, corporate services outsourcing and computer
                and telecommunications maintenance agreements. Purchase obligations
                reflect the minimum contractual obligation under legally enforceable
                contracts through the termination dates specified in the respective
                agreements, even if the contract is renewable. Purchase obligations
                do not
                reflect termination fees payable upon the Company’s termination of the
                respective contracts.





Our
      long-term borrowings are unsecured. As of June 30, 2006, the weighted average
      maturity of our long-term borrowings was approximately 4.7 years. Our lease
      obligations are primarily for our principal offices in New York City and other
      locations. The operating lease obligations in the table above do not reflect
      $294 million in sublease revenue and $536 million of executory costs
      such as insurance, maintenance and taxes. We had no material capital lease
      obligations as of June 30, 2006.


50


We
      have
      commitments under a variety of arrangements that are not recorded as liabilities
      in our condensed consolidated statements of financial condition. These
      commitments are in addition to guara ntees
      and
      other arrangements discussed in “―Off-Balance Sheet Arrangements.” The
      following table sets forth certain of our commitments, including the current
      portion as of June
      30,
      2006 :





**Commitment
                Expiration Per Period****Less
                than 1**
              **year**
            
            **1-3**
              **years**
            
            **4-5**
              **years**
            
            **Over**
              **5
                years**
            
            **Total**
              **commitments****(In
                millions)**Standby
                resale agreements(1)
            
            $
            50
            
            $
            100
            
            $
            ―
            
            $
            ―
            
            $
            150Private
                equity(2)
            
            19
            
            37
            
            21
            
            400
            
            477Forward
                agreements(3)
            
            5,094
            
            ―
            
            ―
            
            ―
            
            5,094Unfunded
                lending commitments(4)
            
            
            711
            
            
            190
            
            
            125
            
            
            360
            
            
            1,386Unfunded
                warehousing commitments(5)
            
            
            1,081
            
            
            ―
            
            
            ―
            
            
            ―
            
            
            1,081Total
                commitments
            
            $
            6,955
            
            $
            327
            
            $
            146
            
            $
            760
            
            $
            8,188







(1)
            In
                the ordinary course of business, we maintain certain standby resale
                agreement facilities that commit us to enter into securities purchased
                under agreements to resell with customers at current market
                rates.





(2)
            As
                of June 30, 2006 we had commitments to invest up to an additional
                $1.1 billion in consolidated private equity
                funds.





(3)
            Represents
                commitments to enter into securities purchased under agreements to
                resell
                and agreements to borrow securities.





(4)
            We
                enter into commitments to extend credit in connection with certain
                premium
                finance, leveraged finance and other
                activities.




(5)
              We
                    enter into commitments to warehouse commercial mortgage whole
                    loans.


For
      information on these and other material commitments, see Notes 4, 6, 7 and
      8 of
      the condensed consolidated financial statements in Part I, Item 1. For
      information on commitments under our pension arrangements, see Note 11 of the
      condensed consolidated financial statements in Part I, Item 1.





Excluded
      from the table above are certain commitments to originate and purchase mortgage
      whole loans that qualify as derivatives. These commitments are reflected in
      derivatives contracts in the condensed consolidated statements of financial
      condition. For more information on our derivatives contracts, see Note 5 of
      the
      condensed consolidated financial statements in Part I, Item 1.





The
      following table sets forth our commercial paper and other short-term unsecured
      borrowings:





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005****(In
                millions)**Bank
                loans
            
            $
            775
            
            $
            263Commercial
                paper
            
            1,234
            
            1,298Loans
                from affiliates(1)
            
            15,712
            
            12,093Total
            
            $
            17,721
            
            $
            13,654







(1)
            We
                have significant financing transactions with Credit Suisse and certain
                of
                its subsidiaries and affiliates. See “―Related Party Transactions” and
                Note 2 of the condensed consolidated financial statements in Part
                I, Item
                1.





**Credit
      Facilities**





As
      of
      June 30, 2006, CS Securities maintained with third parties five 364-day
      committed secured revolving credit facilities totaling $2.2 billion, with
      one facility for $200 million maturing in August 2006, one facility for $500
      million maturing in November 2006, one facility for $500 million maturing
      in February 2007, one facility for $500 million maturing in March 2007 and
      one
      facility for $500 million maturing in July 2007. We expect to renew these
      facilities as they mature. These facilities require CS Securities to pledge
      unencumbered marketable securities to secure any borrowings. Borrowings under
      each facility would bear interest at short-term rates related to either the
      Federal Funds rate or LIBOR and can be used for general corporate purposes.
      The
      facilities contain customary covenants that we believe will not impair our
      ability to obtain funding. As of June 30, 2006, no borrowings were outstanding
      under any of the facilities. We may from time to time enter into additional
      secured revolving credit facilities as part of our liquidity
      management.


51




**Long-term
      Funding**





We
      issue
      long-term debt through U.S. and Euromarket medium-term note programs, as well
      as
      syndicated and privately placed offerings around the world.





Our
      currently effective automatic shelf registration statement on file with the
      Securities and Exchange Commission, or SEC, which was established in February
      2006, allows us to issue from time to time senior and subordinated debt
      securities and warrants to purchase such securities.





Under
      our
      $5.0 billion Euro medium-term note program, which was established in July
      2001 and allows us to issue notes from time to time, we had as of August 7,
      2006
      $1.2 billion available for issuance.





For
      the
      six months ended June 30, 2006, we issued $7.5 billion in senior notes, $82
      million in medium-term notes and $79 million in structured notes and we
      repaid approximately $1.5 billion of medium-term notes and $17 million of
      structured notes.





**Credit
      Ratings**





Our
      access to the debt capital markets and our borrowing costs depend significantly
      on our credit ratings. Credit ratings are important to us when competing in
      certain markets and when seeking to engage in longer-term transactions,
      including OTC derivatives. Rating agencies take many factors into consideration
      in determining a company’s rating and may raise, lower or withdraw their ratings
      or publicly announce an intention to raise or lower their ratings at any time.
      Such factors include earnings performance, business mix, market position,
      financial strategy, level of capital, risk management policies and practices
      and
      management team, and our affiliation with Credit Suisse and CSG, in addition
      to
      the broader outlook for the financial services industry.





A
      reduction in our credit ratings could limit our access to capital markets,
      increase our borrowing costs, require us to provide additional collateral in
      connection with OTC derivatives contracts, and allow counterparties to terminate
      transactions under certain of our trading and collateralized financing
      contracts. This, in turn, could reduce our liquidity and negatively impact
      our
      operating results and financial position. Our liquidity planning takes into
      consideration those contingent events associated with a reduction in our credit
      ratings.





Because
      a
      significant portion of our OTC derivatives arrangements are with affiliates,
      the
      amount of collateral that we would have been required to post pursuant to such
      contracts in the event of a one-notch downgrade of our senior long-term debt
      credit rating was not material as of June 30, 2006.





As
      of
      August 7, 2006, our ratings and ratings outlooks were as follows:





**Long-Term
                Debt**
            
            **Commercial
                Paper**
            
            **Outlook**Fitch
                Ratings
            
            AA-
            
            F-1+
            
            StableMoody’s
                Investors Service
            
            Aa3
            
            P-1
            
            StableStandard
                & Poor’s(1)
            
            AA-
            
            A-1+
            
            Stable








(1)
            On
                July 14, 2006, Standard & Poor’s upgraded our long-term debt rating to
                AA- from A+ and our commercial paper rating to A-1+ from A-1. Our
                outlook
                was revised to stable.****




52


**Capital
      Resources**





Certain
      of our businesses are capital intensive. In addition to normal operating
      requirements, capital is required to cover financing and regulatory capital
      charges on various asset classes, including but not limited to, securities
      inventories, private equity investments and investments in fixed assets. Our
      overall capital needs are regularly reviewed to ensure that our capital base
      can
      appropriately support the anticipated needs of our business and the regulatory
      and other capital requirements of our subsidiaries. Based upon these analyses,
      we believe that our capitalization is adequate for current operating levels.





***Regulated
      Subsidiaries***





Our
      principal wholly owned subsidiary, CS Securities, is a registered broker-dealer,
      registered futures commission merchant and member firm of the New York Stock
      Exchange. Accordingly, CS Securities is subject to the minimum net capital
      requirements of the SEC and the Commodities Futures Trading Commission, or
      CFTC.
      Under the alternative method permitted by SEC Rule 15c3-1, the required net
      capital may not be less than the greater of 2% of aggregate debit balances
      arising from customer transactions or 4% of the funds required to be segregated
      pursuant to the Commodity Exchange Act less the market value of certain
      commodity options, all as defined. Under CFTC Regulation 1.17, the required
      minimum net capital requirement is 8% of the total risk margin requirement
      (as
      defined) for all positions carried in customer accounts plus 4% of the total
      risk margin requirement (as defined) for all positions carried in non-customer
      accounts. As of June 30, 2006, CS Securities’ net capital of approximately
      $5.2 billion was 77.3% of aggregate debit balances and in excess of the
      minimum requirement by approximately $5.0 billion.





Our
      OTC
      derivatives dealer subsidiary, CS Capital, is also subject to the uniform net
      capital rule, but computes its net capital requirements based on value at risk
      pursuant to Appendix F of Rule 15c3-1. As of  June
      30,
      2006, CS Capital’s  net
      capital of $525 million, after allowing for market and credit risk exposure
      of $61 million and $143 million, respectively, was in excess of the
      minimum net capital requirement by $505 million. CS Capital operates
      pursuant to the (k)(2)(ii) exemptive provisions of Rule 15c3-3 of the Exchange
      Act and accordingly, all customer transactions are cleared through CS Securities
      on a fully disclosed basis.





As
      of June
      30,
      2006 ,
      our
      subsidiaries complied with all applicable regulatory capital adequacy
      requirements.





**Cash
      Flows**





Our
      conden sed
      consolidated statements of cash flows classify cash flows into three broad
      categories: cash flows from operating activities, investing activities and
      financing activities. These statements should be read in conjunction with
“―Related Party Transactions ”
as
      well
      as Note 2 of the condensed consolidated financial statements in Part I,
      Item 1.





Our
      cash
      flows are complex and frequently bear little relation to our net income and
      net
      assets, particularly because the Company is an indirect wholly owned subsidiary
      of CSG, a global financial institution that may choose to allocate cash among
      its subsidiaries for reasons independent of the Company’s activities. As a
      result, we believe that traditional cash flow analysis is not a particularly
      useful method to evaluate our liquidity position as discussed above. Cash flow
      analysis may, however, assist in highlighting certain macro trends and strategic
      initiatives in our business.





***For
      the Six Months Ended June 30, 2006***





Cash
      and
      cash equivalents increased $637 million to $1.5 billion as of June 30,
      2006. Cash used in operating activities was $10.3 billion. The change in
      cash used in operating activities reflected a net increase in operating assets
      relative to operating liabilities of $12.2 billion, which occurred in the
      normal course of operations as a result of changes in customer needs, market
      conditions and proprietary trading and other strategies.


53




Cash
      of
      $4.9 billion was used in investing activities. The Company provided funding
      to
      affiliates, resulting in increases in receivables from parent and affiliates
      of
      $4.7 billion.





Cash
      provided by financing activities was $15.8 billion. The changes are due to
      increases in long-term borrowings of $7.7 billion, $5.6 billion in net
      collateralized financing arrangements and $4.1 billion in short-term borrowings
      used primarily to fund normal operating activities, provide funding to
      affiliates as part of the Company’s investing activities and repay $1.5 billion
      in long-term borrowings.





***For
      the Six Months Ended June 30, 2005***





Cash
      and
      cash equivalents decreased $8 million to $719 million as of June 30,
      2005. Cash used in operating activities was $5.9 billion and reflected a
      net increase in operating assets and operating liabilities of $5.8 billion,
      which occurred in the normal course of operations as a result of changes in
      customer needs, market conditions and proprietary trading and other
      strategies.





Cash
      of
      $234 million was used in investing activities primarily reflecting an increase
      in funding to affiliates.





Cash
      provided by financing activities was $6.1 billion. This was due to increases
      in
      net collateralized financing arrangements of $10.9 billion, decreases of $4.5
      billion in commercial paper and short-term borrowings and increases of
      $2.3 billion in long-term borrowings used primarily to fund normal
      operating activities, provide funding to affiliates as part of the Company’s
      investing activities and repay $2.5 billion in long-term
      borrowings.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





We
      enter
      into off-balance sheet arrangements in the ordinary course of business.
      Off-balance sheet arrangements are transactions, agreements or other contractual
      arrangements with, or for the benefit of, an entity that is not consolidated
      with an issuer, and which include guarantees and similar arrangements, retained
      or contingent interests in assets transferred to an unconsolidated entity,
      and
      obligations and liabilities (including contingent obligations and liabilities)
      for the purpose of providing financing, liquidity, market risk or credit risk
      support.





We
      have
      not entered into any derivatives contracts indexed or linked to the stock of
      CSG.





**Guarantees**





In
      the
      ordinary course of our business, we provide guarantees and indemnifications
      that
      contingently obligate us to make payments to the guaranteed or indemnified
      party
      based on changes in an asset, liability or equity security of the guaranteed
      or
      indemnified party. We may also be contingently obligated to make payments to
      a
      guaranteed party based on another entity’s failure to perform, or an indirect
      guarantee of the indebtedness of others. Guarantees we provide include customary
      indemnifications to purchasers in conjunction with the sale of assets or
      businesses; to investors in private equity funds sponsored by the firm regarding
      potential obligations of the Company to return amounts previously paid as
      carried interest to the Company and certain other partners, most of which are
      current and former employees of the Company; and to investors in our securities
      and other arrangements to provide “gross up” payments if there is a withholding
      or deduction because of a tax assessment or other governmental charge. From
      time
      to time, we also guarantee the obligations of subsidiaries of CSG that are
      not
      our consolidated subsidiaries, and these guarantees are included in the scope
      of
      the disclosure requirements of FIN No. 45, “Guarantor’s Accounting and
      Disclosure Requirements for Guarantees, Including Indirect Guarantees of
      Indebtedness of Others,” or FIN 45.





FIN
      45
      requires disclosure of our maximum potential payment obligations under certain
      guarantees to the extent that it is possible to estimate them and requires
      recognition of a liability at inception for the fair value of guaranteed
      obligations for guarantees issued or amended after December 31, 2002. The
      recognition of these liabilities did not have a material effect on our financial
      condition or results of operations. For disclosure of our estimable maximum
      payment obligations under certain guarantees and related information, see
      Note 8 of the condensed consolidated financial statements in Part I,
      Item 1.


54





**Retained
      or Contingent Interests in Assets Transferred to Unconsolidated
      Entities**





We
      originate commercial mortgages and originate and purchase residential mortgages
      and purchase other debt obligations such as automobile loans and student loans
      and sell these assets directly or through affiliates to special purpose entities
      that are, in most cases, qualified special purpose entities, or QSPEs. These
      QSPEs issue securities that are backed by the assets transferred to the QSPEs
      and pay a return based on the returns on those assets. Investors in these
      mortgage-backed and asset-backed securities typically have recourse to the
      assets in the QSPE. The investors and the QSPEs have no recourse to our assets.





These
      QSPEs are generally sponsored by our subsidiaries. Our principal broker-dealer
      subsidiary, CS Securities, underwrites and makes markets in these
      mortgage-backed and asset-backed securities. Under SFAS No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
      of Liabilities, a replacement of FASB Statement No. 125,” or SFAS 140, a
      QSPE is not required to be consolidated with the transferor if all the SFAS
      140
      sale criteria are met. Our mortgage-backed and asset-backed securitization
      activities are generally structured to use QSPEs, and the assets and liabilities
      transferred to QSPEs are not included in our financial statements except to
      the
      extent other SFAS 140 criteria are not met.





As
      of
      June 30, 2006, we held encumbered mortgage loans totaling $4.7 billion related
      to securitization transactions that did not qualify for sale accounting
      treatment under paragraph 40b of SFAS 140. Prior to securitization, such
      encumbered loans were accounted for in financial instruments owned; however,
      due
      to the transfer of legal title in the form of a pledge in the securitization,
      these loans have been reclassified to Other assets and deferred amounts in
      the
      condensed consolidated statements of financial condition. Cash amounts received
      in payment upon transfer for such loans are accounted for as secured borrowings
      and are recorded in Other liabilities in the condensed consolidated statements
      of financial condition.





We
      may
      retain interests in these securitized assets if CS Securities holds the assets
      in connection with its underwriting or market-making activities. Retained
      interests in securitized financial assets are included at fair value in the
      condensed consolidated statements of financial condition. Any changes in the
      fair value of these retained interests are recognized in the condensed
      consolidated statements of operations. We engage in these securitization
      activities to meet the needs of clients as part of our fixed income activities,
      to earn fees and to sell financial assets. These securitization activities
      do
      not provide a material source of our liquidity, capital resources or credit
      risk
      or market risk support. See Note 3 of the condensed consolidated financial
      statements in Part I, Item 1, which includes quantitative information on
      our securitization activities and retained interests.





**Variable
      Interest Entities**





We
      are
      involved with various entities in the normal course of business that may be
      deemed to be variable interest entities, or VIEs, including VIEs that issue
      CDOs.




We
      purchase loans and other debt obligations from and on behalf of clients
      primarily for the purpose of securitization. The loans and other debt
      obligations are sold by us to affiliates for warehousing prior to being
      transferred by affiliates, to VIEs that issue CDOs. CDOs
      are
      securities backed by the assets transferred to the VIE and pay a return based
      on
      the returns on those assets. Investors typically have recourse to the assets
      in
      the CDO VIE. The investors and the CDO VIE have no recourse to the Company’s
      assets. CS
      Securities structures, underwrites and makes a market in these CDOs, and we
      may
      have retained interests in these CDOs in connection with CS Securities’
underwriting and market-making activities. We engage in these CDO transactions
      to meet the needs of clients, to earn fees and to sell financial assets. These
      CDO transactions do not provide a material source of our liquidity, capital
      resources or credit risk or market risk support.





Financial
      Accounting Standards Board Interpretation, or FIN, No. 46, “Consolidation of
      Variable Interest Entities,” or FIN 46,  requires
      us to consolidate all VIEs for which we are the primary beneficiary, which
      is
      defined as the entity that will absorb a majority of expected losses, receive
      a
      majority of the expected residual returns, or both. In December 2003, the FASB
      modified FIN 46, through the issuance of FIN 46R, to address various
      implementation issues that had arisen since the issuance of FIN 46 and to
      provide companies the option to defer the adoption of FIN 46 for certain VIEs
      to
      periods ending after March 15, 2004. As of June 30, 2006 and December 31, 2005,
      we consolidated CDO VIEs for which we are the primary beneficiary. We also
      have
      interests in CDO VIEs that are not required to be consolidated because we are
      not the primary beneficiary. ****


55




We
      consolidate certain private equity funds that are managed by us. See
      Notes 1 and 3 of the condensed consolidated financial statements in
      Part I, Item 1.





In
      connection with our acquisition of Guilford Holding Corporation in May 2006,
      we
      have consolidated certain tax credit funds resulting in an increase in assets
      and liabilities of $321 million as of June 30, 2006. The consolidation of these
      tax credit funds did not have an impact on the condensed consolidated statement
      of operations.





**RELATED
      PARTY TRANSACTIONS**





CSG,
      through Credit Suisse Holdings (USA), Inc. owns all of our outstanding voting
      common stock. We are involved in significant financing and other transactions,
      and have significant related party balances, with Credit Suisse and certain
      affiliates. We generally enter into these transactions in the ordinary course
      of
      business and believe that these transactions are on market terms that could
      be
      obtained from unrelated third parties. See “ — Derivatives”
      and Notes 2 and 5 of the condensed consolidated financial statements in
      Part I, Item 1 for more information.





Certain
      of our directors, officers and employees and those of our affiliates and their
      subsidiaries maintain margin accounts with CS Securities and other affiliated
      broker-dealers in the ordinary course of business. In addition, certain of
      such
      directors, officers and employees have investments or commitments to invest
      in
      various private equity funds. We make loans to directors and executive officers
      on the same terms as are generally available to third parties or otherwise
      pursuant to widely available employee benefit plans. CS Securities and other
      affiliated broker-dealers, from time to time and in the ordinary course of
      business, enter into, as principal, transactions involving the purchase or
      sale
      of securities from or to such directors, officers and employees and members
      of
      their immediate families.





**LESS
      LIQUID ASSETS**





Certain
      of our assets, including private equity and other long-term investments,
      distressed securities, high-yield debt, mortgage whole loans and other
      non-investment-grade debt, are not highly liquid or trade in markets that have
      periods of volatility and illiquidity. The
      values of most of the more illiquid assets are reported at fair value, and
      the
      determination of fair value is based on management’s best estimate and depends
      on varying factors. See “—Critical Accounting Policies and Estimates—Fair Value”
for further information on the determination of fair value of these less liquid
      assets.





**Private
      Equity Activities**





Our
      private equity and other long-term investment activities include direct
      investments and investments in partnerships that make private equity and related
      investments in various portfolio companies and funds. These investments are
      primarily in unlisted or illiquid equity or equity-related securities and are
      carried at fair value based on a number of factors. As of June 30, 2006 and
      December 31, 2005, we had investments in private equity and other long-term
      investments of $10.6 billion and $3.6 billion, respectively. As of
      June 30, 2006, we had commitments to invest up to an additional
      $477 million in
      non-consolidated private equity funds and $1.1 billion in consolidated private
      equity funds .
      The increase
      in private equity and other long-term investments reflects our consolidation
      of
      certain private equity funds. See
      “ — Critical
      Accounting Policies and Estimates — Fair
      Value” and Notes 1 and 4 of the condensed consolidated financial statements in
      Part I, Item 1 for more information.


56




**Corporate
      Debt, Mortgage Whole Loans and Other Non-Investment-Grade Financial
      Instruments**





We
      underwrite, trade and hold non-investment-grade financial instruments, which
      include corporate debt, commercial and residential mortgage whole loans, loan
      participations, derivatives contracts and certain separately managed distressed
      financial instruments. Corporate debt includes high-yield debt, distressed
      debt,
      commercial and residential mortgage-backed securities, other asset-backed
      securities and CDOs. Due to credit considerations, liquidity of secondary
      trading markets and vulnerability to general economic conditions, these
      financial instruments and loans generally involve greater risk than
      investment-grade financial instruments. We record corporate debt, derivatives
      contracts and certain separately managed distressed financial instruments at
      fair value. We record commercial mortgage whole loans, certain residential
      mortgage whole loans and loan participations that are held for sale at the
      lower
      of cost or fair value. Timing of the securitization of our mortgage whole loan
      inventory will affect the size of our positions at any given time. The following
      table sets forth our positions in these instruments as of June
      30,
      2006 and December
      31, 2005:


**June
                  30, 2006**
              
              **December
                  31, 2005****Assets**
              
              **Liabilities**
              
              **Assets**
              
              **Liabilities****(In
                  millions)**Corporate
                  debt
              
              $
              5,255
              
              $
              1,123
              
              $
              3,286
              
              $
              917Mortgage
                  whole loans
              
              
              18,152
              
              
              ―
              
              
              17,817
              
              
              —Loan
                  participations
              
              
              40
              
              
              ―
              
              
              9
              
              
              —Derivatives
                  contracts
              
              
              303
              
              
              ―
              
              
              321
              
              
              —Distressed
                  financial instruments
              
              
              79
              
              
              ―
              
              
              113
              
              
              —Total
              
              $
              23,829
              
              $
              1,123
              
              $
              21,546
              
              $
              917




**DERIVATIVES**





We
      enter
      into various transactions involving derivatives. We use derivatives contracts
      for both trading and hedging purposes and to provide products for our clients.
      These derivatives include options, forwards, futures and swaps. In general,
      derivatives are contractual agreements that derive their values from the
      performance of underlying assets, interest or currency exchange rates or a
      variety of indices. Most of our derivatives transactions are considered trading
      positions. See Note 5 of the condensed consolidated financial statements in
      Part I, Item 1 for more information.





**Sources
      and Maturities of OTC Derivatives**





The
      following table sets forth the distributions, by maturity, of our exposure
      with
      respect to OTC derivatives as of June 30, 2006. Fair values were determined
      on
      the basis of pricing models and other valuation methods. See “ — Critical
      Accounting Policies and Estimates — Fair
      Value” in Part I, Item 2 and Notes 5 and 8 of the condensed consolidated
      financial statements in Part I, Item 1 for more information.





**Assets**
              **Maturity
                Distribution as of June 30, 2006****Less
                than**
              **1
                year**
            
            **1-3
                years**
            
            **4-5
                years**
            
            **Over
                5 years**
            
            **Total
                fair**
              **value****(In
                millions)**Interest
                rate and credit spread risk
            
            $
            1,304
            
            $
            579
            
            $
            240
            
            $
            999
            
            $
            3,122Foreign
                exchange risk
            
            33
            
            8
            
            ―
            
            ―
            
            41Equity
                price risk
            
            334
            
            1,384
            
            199
            
            544
            
            2,461Commodity
                risk
            
            66
            
            62
            
            133
            
            23
            
            284Total
            
            $
            1,737
            
            $
            2,033
            
            $
            572
            
            $
            1,566
            
            $
            5,908**Liabilities**
              **Maturity
                Distribution as of June 30, 2006****Less
                than**
              **1
                year**
            
            **1-3
                years**
            
            **4-5
                years**
            
            **Over
                5 years**
            
            **Total
                fair**
              **value****(In
                millions)**Interest
                rate and credit spread risk
            
            $
            1,157
            
            $
            440
            
            $
            240
            
            $
            1,013
            
            $
            2,850Foreign
                exchange risk
            
            224
            
            4
            
            ―
            
            ―
            
            228Equity
                price risk
            
            287
            
            57
            
            1
            
            9
            
            354Commodity
                risk
            
            103
            
            109
            
            96
            
            13
            
            321Total
            
            $
            1,771
            
            $
            610
            
            $
            337
            
            $
            1,035
            
            $
            3,753





57


The
      following table sets forth as of June 30, 2006 substantially all of our exposure
      with respect to OTC derivatives, by counterparty credit rating and with
      affiliates.





**Credit
                Rating****(1)**
            
            
            **June
                30,**
              **2006****(In
                millions)**AA+/AA
            
            $
            11AA-
            
            3,367A+/A/A-
            
            127BBB+/BBB/BBB-
            
            68BB+ 
                or lower
            
            208Unrated
            
            95Derivatives
                with affiliates
            
            2,032Total
            
            $
            5,908





(1)
            Credit
                ratings are determined by external rating agencies or by our credit
                risk
                management department.





**Derivatives
      With Related Parties**





We
      enter
      into a substantial number of derivatives transactions with related parties.
      The
      following table sets forth derivatives transactions with related parties
      consisting primarily of interest rate swaps, credit default swaps, foreign
      exchange forward contracts, equity forward contracts and total return swaps
      on
      equities. The fair values of derivatives contracts outstanding with related
      parties as of June 30, 2006 and December 31, 2005 were as follows.





**June
                30, 2006**
            
            **December
                31, 2005****Assets**
            
            **Liabilities**
            
            **Assets**
            
            **Liabilities****(In
                millions)**Interest
                rate and credit spread risk
            
            $
            1,887
            
            $
            2,022
            
            $
            738
            
            $
            443Foreign
                exchange risk
            
            9
            
            22
            
            20
            
            5Equity
                price risk
            
            73
            
            62
            
            64
            
            41Commodity
                risk
            
            63
            
            1
            
            20
            
            ―Total
            
            $
            2,032
            
            $
            2,107
            
            $
            842
            
            $
            489





See
      Notes
      2 and 5 of the condensed consolidated financial statements in Part I, Item
      1 for
      more information.





**DIRECTORS
      AND EXECUTIVE OFFICERS**





Effective
      August 15, 2006, Paul J. O’Keefe will replace David C. Fisher as Chief Financial
      and Accounting Officer of the Company. Mr. O’Keefe is a Managing
      Director of Credit Suisse and Americas Regional Head of Financial Accounting.
      Mr. O'Keefe joined Credit Suisse in November 2000 from Donaldson, Lufkin &
Jenrette where he was a Senior Vice President in Institutional Equities. Prior
      to that, Mr. O'Keefe worked for 12 years at both Salomon Brothers and ING where
      he held a number of controller positions.


58




**FORWARD
      LOOKING STATEMENTS**





We
      have
      made in this Quarterly Report on Form 10-Q, including, without limitation,
      in “Legal Proceedings” in Part II, Item 1, and in “Management’s Discussion
      and Analysis of Financial Condition and Results of Operations” in Part I,
      Item 2, and from time to time may otherwise make in our public filings and
      press
      releases, forward-looking statements concerning our operations, economic
      performance and financial condition, as well as our future plans and strategic
      objectives. Such forward-looking statements are subject to various risks and
      uncertainties, and we claim the protection afforded by the safe harbor for
      forward-looking statements contained in the Private Securities Litigation Reform
      Act of 1995. Actual results could differ materially from those anticipated
      herein or in any such other filings, releases or statements because of a number
      of factors, including without limitation, those detailed in “Risk Factors” in
      Part I, Item 1A of our Annual Report on Form 10-K for the year ended
      December 31, 2005, those discussed elsewhere herein, and in other public filings
      and press releases. These forward-looking statements are not historical facts
      but instead represent only our belief regarding future events, many of which,
      by
      their nature, are inherently uncertain and beyond our control. Forward-looking
      statements are typically identified by the use of future or conditional verbs
      such as “will,” “should,” “would” or “could,” and by words or phrases such as
“believe,” “expect,” “intend,” “estimate” and similar expressions. By
      identifying these statements for you in this manner, we are alerting you to
      the
      possibility that our actual results may differ, possibly materially, from the
      results indicated in these forward-looking statements. We undertake no
      obligation to update or revise any forward-looking statements except as
      otherwise required by applicable law.




59




***Item
      3: Quantitative and Qualitative Disclosures About Market
      Risk***





**RISK
      MANAGEMENT AND VALUE AT RISK**





For
      a
      description of the Company’s risk management policies and procedures and
      value-at-risk, or VAR, model, including such model’s assumptions and
      limitations, see “Quantitative and Qualitative Disclosure About Market Risk” in
      Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended
      December 31, 2005.





**Market
      Risk Exposure**





We
      measure market risk exposure by using complementary risk measurement techniques,
      including VAR and sensitivity analysis. VAR is used for our trading portfolio,
      which includes those financial instruments treated as part of our “trading book”
for Bank for International Settlements regulatory capital purposes. Sensitivity
      analysis is used for our non-trading portfolio, which primarily includes certain
      mortgage products, private equity investments, the Company’s long-term
      borrowings and their derivatives hedges and certain commodity positions. This
      classification of assets as trading and non-trading is done for purposes of
      analyzing our market risk exposure, not for financial statement purposes.





***Trading
      Portfolios***





The
      Company-wide trading portfolio VAR was approximately $25 million, $39 million
      and $32 million as of June 30, 2006, December 31, 2005 and June 30, 2005,
      respectively. The reduction in VAR as of June 30, 2006 compared to December
      31,
      2005 was primarily due to a decrease in interest rate and credit spread VAR
      and
      equity VAR. The decrease in interest rate and credit spread VAR was primarily
      caused by the implementation of a revised VAR methodology for certain
      residential mortgage products in early 2006. The decrease in equity VAR was
      primarily caused by a decrease in equity exposures.





Due
      to
      the benefit of diversification, the Company-wide VAR is less than the sum of
      the
      individual components. The four main components of market risk, expressed in
      terms of theoretical fair values, had the following VAR:


**Company’s
                  Market Risk Exposures in Trading Portfolios****As
                  of**
                **June
                  30, 2006**
              
              **As
                  of**
                **December
                  31, 2005**
              
              **As
                  of**
                **June
                  30, 2005****(In
                  millions)**99%,
                  one-day VARInterest
                  rate and credit spread
              
              $
              20
              
              $
              34
              
              $
              20Equity
              
              
              16
              
              
              20
              
              
              21Foreign
                  exchange rate
              
              
              ―
              
              
              ―
              
              
              ―Commodity
              
              
              5
              
              
              6
              
              
              5Diversification
                  benefit
              
              
              (16
              )
              
              (21
              )
              
              (14
              )Total
              
              $
              25
              
              $
              39
              (1)
              $
              32
              (1)





(1)
            In
                early 2006, the Company introduced a revised VAR methodology for
                certain
                mortgage products. If the revised methodology had been in place during
                2005, the Company’s total VAR would have been approximately $37 million
                and $40 million as of December 31, 2005 and June 30, 2005,
                respectively.


60


The
      table
      below presents minimum, maximum and average VAR by market risk component. The
      decrease in average interest rate and credit spread VAR for the three months
      and
      six months ended June 30, 2006 compared with the three months ended June 30,
      2005 was primarily caused by the implementation of a revised VAR methodology
      for
      certain residential mortgage products in early 2006 and a reduction in the
      volatility of the market data used to calculate VAR, as data from 2003 was
      replaced by less volatile data from 2005. Minimum, maximum and average VAR
      for
      the three and six months ended June 30, 2005 do not reflect the revised VAR
      methodology for certain residential mortgage products introduced in early 2006.





**Company’s
                Market Risk Exposures in Trading Portfolios****Three
                Months Ended**
              **June
                30, 2006**
            
            **Three
                Months Ended**
              **June
                30, 2005****Minimum**
            
            **Maximum**
            
            **Average**
            
            **Minimum**
            
            **Maximum**
            
            **Average****(In
                millions)**99%,
                one-day VARInterest
                rate and credit spread
            
            $
            17
            
            $
            26
            
            $
            21
            
            $
            20
            
            $
            41
            
            $
            33Equity
            
            16
            
            26
            
            20
            
            17
            
            23
            
            20Foreign
                exchange rate
            
            ―
            
            2
            
            1
            
            ―
            
            1
            
            ―Commodity
            
            3
            
            9
            
            6
            
            1
            
            5
            
            2Diversification
                benefit
            
            ―
            (1)
            ―
            (1)
            (20
            )
            ―
            (1)
            ―
            (1)
            (15
            )Total
            
            $
            22
            
            $
            34
            
            $
            28
            
            $
            32
            
            $
            47
            
            $
            40





**Company’s
                Market Risk Exposures in Trading Portfolios****Six
                Months Ended**
              **June
                30, 2006**
            
            **Six
                Months Ended**
              **June
                30, 2005****Minimum**
            
            **Maximum**
            
            **Average**
            
            **Minimum**
            
            **Maximum**
            
            **Average****(In
                millions)**99%,
                one-day VARInterest
                rate and credit spread
            
            $
            17
            
            $
            35
            
            $
            22
            
            $
            20
            
            $
            52
            
            $
            37Equity
            
            16
            
            26
            
            20
            
            13
            
            23
            
            19Foreign
                exchange rate
            
            ―
            
            2
            
            1
            
            ―
            
            4
            
            1Commodity
            
            3
            
            11
            
            6
            
            ―
            
            5
            
            1Diversification
                benefit
            
            ―
            (1)
            ―
            (1)
            (20
            )
            ―
            (1)
            ―
            (1)
            (16
            )Total
            
            $
            22
            
            $
            42
            
            $
            29
            
            $
            32
            
            $
            55
            
            $
            42










(1)
            As
                the minimum and maximum occur on different days for different risk
                types,
                it is not meaningful to calculate a portfolio diversification
                benefit.





The
      Company uses backtesting to assess the accuracy of the VAR model. Daily
      backtesting profit and loss is compared with VAR calculated using a one-day
      holding period. Backtesting profit and loss is a subset of actual trading
      revenue and includes only the profit and loss effects due to movements in
      financial market variables such as interest rates, equity prices and foreign
      exchange rates on the previous night’s positions. The Company had five
      backtesting exceptions during the second quarter of 2006 after a period of
      more
      than two years with no exceptions. These exceptions were primarily driven by
      equity and foreign exchange market volatility during the second quarter of
      2006,
      which was significantly greater than the volatility within the trailing two
      year
      period of historic data used in the VAR model at that point in time. The recent
      market volatility is now included in the historic data used in the VAR model
      and
      the VAR model is subject to continuous assessment and evaluation to ensure
      it
      remains accurate given current market conditions and
      positions.


61


The
      average, maximum and minimum daily trading revenue for the three and six months
      ended June 30, 2006 and 2005 are shown below:


**Three
                  Months Ended**
                **June
                  30,**
                **2006**
              
              **Three
                  Months Ended**
                **June
                  30,**
                **2005**
              
              **Six
                  Months Ended**
                **June
                  30,**
                **2006**
              
              **Six
                  Months Ended**
                **June
                  30,**
                **2005****(In
                  Millions)**Daily
                  trading revenueAverage
              
              $
              15
              
              $
              11
              
              $
              18
              
              $
              13Maximum
              
              $
              66
              
              $
              48
              
              $
              66
              
              $
              64Minimum
              
              $
              (45
              )
              $
              (15
              )
              $
              (45
              )
              $
              (15
              )




For
      details of the Company’s average, maximum and minimum daily trading revenue for
      2005, see “Quantitative and Qualitative Disclosure About Market Risk” in Part
      II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended
      December 31, 2005.





***Non-trading
      Portfolios***





The
      equity risk on non-trading positions, which is primarily comprised of private
      equity investments, is measured using sensitivity analysis that estimates the
      potential change in the recorded value of the investments resulting from a
      10%
      decline in the equity markets of developed nations and a 20% decline in the
      equity markets of emerging market nations. The
      estimated impact of equity risk on our non-trading financial instruments
      portfolio would be a decrease in the value of the non-trading portfolio of
      approximately $118 million and $108
      million as of June 30, 2006 and December 31, 2005, respectively. The estimated
      impact of equity risk is net of the minority interests in certain consolidated
      private equity funds.





The
      interest rate risk on non-trading positions, which is primarily comprised of
      certain mortgage products, the Company’s long-term borrowings and their
      derivatives hedges, is measured using sensitivity analysis that estimates the
      potential change in the value of the non-trading portfolio resulting from a
      50
      basis point decline in the interest rates
      of
      developed nations and a 200 basis point decline in the interest rates of
      emerging market nations. The estimated impact of interest rate risk on the
      value
      of the non-trading portfolio would be a decrease of approximately $27 million
      and $21 million as of June 30, 2006 and December 31, 2005, respectively.
      The losses under this interest rate scenario arise primarily from losses in the
      Company’s long-term borrowings and related hedges partially offset by gains from
      its portfolio of mortgage products.





We
      do not
      have material foreign exchange risk or commodity price risk in our non-trading
      portfolio.





***Item
      4: Controls and Procedures***





Pursuant
      to Rule 13a-15(b) under the Securities Exchange Act of 1934, or Exchange Act,
      as
      of the end of the period covered by this report, an evaluation was carried
      out
      under the supervision and with the participation of our management, including
      our Chief Executive Officer and Chief Financial and Accounting Officer, of
      the
      effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in Rule 13a-15(e) under the Exchange Act). There are
      inherent limitations to the effectiveness of any system of disclosure controls
      and procedures, including the possibility of human error and the circumvention
      or overriding of the controls and procedures. Accordingly, even effective
      disclosure controls and procedures can only provide reasonable assurance of
      achieving their control objectives. Based upon and as of the date of the
      evaluation, our Chief Executive Officer and Chief Financial and Accounting
      Officer concluded that the design and operation of these disclosure controls
      and
      procedures were effective in all material respects to provide reasonable
      assurance that information required to be disclosed in the reports we file
      and
      submit under the Exchange Act is recorded, processed, summarized and reported
      as
      and when required. There were no changes in our internal control over financial
      reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred
      during the quarter ended June 30, 2006 that materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.


62


**PART
      II**


**OTHER
      INFORMATION**





***Item
      1: Legal Proceedings***





Certain
      significant legal proceedings and matters have been previously disclosed in
      the
      Company’s Annual Report on Form 10-K for the year ended December 31, 2005 and
      the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
      2006. The following is an update of such proceedings.





**In
      re Issuer Plaintiff Initial Public Offering Fee Antitrust Litigation**





On
      May 1,
      2006, the plaintiffs in the *In
      re
      Issuer Plaintiff Initial Public Offering Fee Antitrust Litigation* petitioned
      the U.S. Court of Appeals for the Second Circuit to review the U.S. District
      Court’s decision,
      dated April 18, 2006, denying the plaintiff’s motion for class certification.





**Litigation
      Relating to IPO Allocation**





On
      June
      6, 2006, in the *In
      re
      Initial Public Offering Securities Litigation* ,
      the
      U.S. Court of Appeals for the Second Circuit heard oral argument on defendants’
appeal of the U.S. District Court’s class certification order.





**Adelphia
      Communications Corporation Litigation**





On
      June
      15, 2006, the U.S. District Court for the Southern District of New York
      preliminarily approved a settlement between the plaintiffs and the underwriter
      and bank defendants in the federal securities class action litigation. The
      district court scheduled a fairness hearing for November 10, 2006. The
      settlement is covered by existing reserves.





**Short
      Selling Litigation**





In
      April
      2006, two putative class action complaints were filed in the U.S. District
      Court
      for the Southern District of New York against numerous investment banks,
      including CS Securities, alleging that the bank defendants charged their prime
      brokerage customers fees, commissions, and/or interest payments for covering
      short positions when, in fact, the defendants did not cover them and
      also
      conspired not to effect buy-ins on delivery failures relating to short
      sales **.** The complaint includes claims for violation of antitrust law, breach of
      fiduciary duty and breach of contract.





In
      June
      2006, numerous alleged shareholders of Novastar Financial, Inc. filed a
      complaint against the same bank defendants in the Superior Court of California
      for San Francisco County alleging that the defendants participated in a market
      manipulation scheme in which they intentionally failed to deliver shares of
      Novastar **** on
      short
      sales, thus allegedly giving
      rise to liability under California's state securities laws and unfair business
      practice statute.





**Enron-related
      Litigation and Inquiries**





On
      June
      26, 2006, CS Securities filed a motion for summary judgment in the U.S. District
      Court for the Southern District of Texas to dismiss the putative class action
      filed by purchasers of Enron securities alleging violations of the federal
      securities laws (the *Newby* action).
 The district court certified a class in that action on July 5, 2006. On
      July 18, 2006, CS Securities and other defendants petitioned for leave to appeal
      the class certification ruling to the United States Court of Appeals for the
      Fifth Circuit.





**Refco-related
      Litigation**




On
      July
      10, 2006, in the *In
      re
      Refco, Inc. Securities Litigation,* certain
      underwriter defendants, including CS Securities, filed a motion in
      the U.S. District Court for the Southern District of New York to dismiss
      plaintiffs' claims related to the private placement, and subsequent exchange
      offer, of Refco bonds in 2004.


63


**Other**





The
      Company has provided reserves for litigation, claims and proceedings involving
      the Company in accordance with SFAS No. 5, “Accounting for Contingencies.” The
      Company recorded in the second quarter of 2005 a $750 million litigation charge
      to increase the reserve for private litigation involving Enron, certain IPO
      allocation practices, research analyst independence and other related
      litigation. This charge, coupled with the charge recorded in 2002, brings the
      Company’s reserves for these private litigation matters to $1.0 billion after
      the application of settlements as of June 30, 2006.





We
      are
      involved in a number of judicial, regulatory and arbitration proceedings
      (including those described above) concerning matters arising in connection
      with
      the conduct of our businesses. Some of these actions have been brought on behalf
      of various classes of claimants and seek damages of material and/or
      indeterminate amounts. We believe, based on currently available information
      and
      advice of counsel, that the results of such proceedings, in the aggregate,
      will
      not have a material adverse effect on our financial condition but might be
      material to operating results for any particular period, depending, in part,
      upon the operating results for such period. The Company intends to defend itself
      vigorously in these matters, litigating or settling when determined by
      management to be in the best interests of the Company.





It
      is
      inherently difficult to predict the outcome of many of these matters. In
      presenting the condensed consolidated financial statements, management makes
      estimates regarding the outcome of these matters and records a reserve and
      takes
      a charge to income when losses with respect to such matters are probable and
      can
      be reasonably estimated. Estimates, by their nature, are based on judgment
      and
      currently available information and involve a variety of factors, including,
      but
      not limited to, the type and nature of the litigation, claim or proceeding,
      the
      progress of the matter, the advice of legal counsel, the Company’s defenses and
      its experience in similar cases or proceedings as well as its assessment of
      matters, including settlements, involving other defendants in similar or related
      cases or proceedings. Further litigation charges or releases of litigation
      reserves may be necessary in the future as developments in such cases or
      proceedings warrant.





***Item
      1A: Risk Factors***





There
      are
      no material changes from the risk factors set forth in Part I, Item 1A, in
      the
      Company’s Annual Report on Form 10-K for the year ended December 31,
      2005.





***Items
      2, 3 and 4:***





Pursuant
      to General Instruction H of Form 10-Q, the information required by Items 2,
      3 and 4 is omitted.





***Item
      6: Exhibits***





(a)
            Exhibits





12
            
            Statement
                re computation of ratio of earnings to fixed charges15
            
            Letter
                re unaudited interim financial information31.1
            
            Rule
                13a-14(a) certification of Chief Executive Officer31.2
            
            Rule
                13a-14(a) certification of Chief Financial and Accounting
                Officer32
            
            Section
                1350 certifications




64


**SIGNATURE**





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 (USA), Inc.August
                8, 2006
            By:
            /s/David
                C. FisherChief
                Financial and Accounting Officer
              (On
                behalf of the Registrant and as Principal Financial
                Officer)




65


**INDEX
      TO EXHIBITS**





**Exhibit
                Number**
            
            **Description**12
            
            Computation
                of ratio of earnings to fixed charges15
            
            Letter
                re unaudited interim financial information31.1
            
            Rule
                13a-14(a) certification of Chief Executive Officer31.2
            
            Rule
                13a-14(a) certification of Chief Financial and Accounting
                Officer32
            
            Section
                1350 certifications


66