UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 20–F
(Mark One)
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
OR | ||
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the fiscal year ended December 31, | ||
OR | ||
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: 1-15060
UBS AG
Switzerland
(Jurisdiction of Incorporation or Organization)
Bahnhofstrasse 45
CH-8098 Zurich, Switzerland
and
Aeschenvorstadt 1,
CH-4051 Basel, Switzerland
(Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Please see the following page.
Securities registered or to be registered pursuant to Section 12 (g) of the Act:
None.
Securities for which there is a reporting obligation pursuant to Section 15 (d) of the Act:
Please see the following page.
Indicate the number of outstanding shares of each of the issuer’s classes of
capital or common stock as of 31 December 2002:2004:
Ordinary shares, par value CHF 0.80 per share: 1,256,297,6781,126,858,177 ordinary shares
(including 97,181,094103,524,971 treasury shares)
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 þ No o
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 o Item 18 þ
2
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Name of each exchange on | ||
Title of each class | which registered | |
Ordinary Shares (par value of CHF 0.80 each) | New York Stock Exchange | |
$300,000,000 7.25% Noncumulative Trust Preferred Securities | New York Stock Exchange | |
$300,000,000 7.25% Noncumulative Company Preferred Securities | New York Stock Exchange* | |
$300,000,000 Floating Rate Noncumulative Trust Preferred Securities | New York Stock Exchange | |
$300,000,000 Floating Rate Noncumulative Company Preferred Securities | New York Stock Exchange* | |
Subordinated Guarantee of UBS AG with respect to | ||
Company Preferred Securities | New York Stock Exchange* | |
$ | ||
American Stock Exchange | ||
$4,500,000 BULs due October | American Stock Exchange | |
$46,000,000 PPNs due May | American Stock Exchange | |
$16,500,000 PPNs due June | American Stock Exchange | |
$8,129,000 PPNs due November | American Stock Exchange | |
$8,961,000 PPNs due December | American Stock Exchange | |
$31,517,000 PPNs due November | American Stock Exchange | |
$52,000,000 PPNs due November | American Stock Exchange | |
$14,500,000 PPNs due December | American Stock Exchange | |
$20,000,000 PPNs due February | American Stock Exchange | |
$16,000,000 PPNs due February | American Stock Exchange | |
$9,000,000 PPNs due April | American Stock Exchange | |
$6,900,000 PPNs due May | American Stock Exchange | |
$12,660,000 PPNs due September | American Stock Exchange | |
$17,842,000 PPNs due October | American Stock Exchange | |
$ | American Stock Exchange | |
$ | American Stock Exchange | |
$ | American Stock Exchange | |
$ | American Stock Exchange | |
$26,000,000 PPNs due August 2008 | American Stock Exchange | |
$10,000,000 PPNs due July 2010 | American Stock Exchange | |
$11,200,000 PPNs due February 2011 | American Stock Exchange | |
$7,750,000 PPNs due August 2010 | American Stock Exchange | |
$5,100,000 PPNs due September 2009 | American Stock Exchange | |
$4,500,000 PPNs due July 2009 | American Stock Exchange | |
$11,000,000 PPCNs due January 2012 | American Stock Exchange | |
$22,000,000 EASs due March | American Stock Exchange | |
$19,100,000 EASs due March 2005 | American Stock Exchange | |
$25,500,000 PPNs due January 2009 | American Stock Exchange | |
$26,000,000 EASs due April 2005 | American Stock Exchange | |
$11,500,000 CPNs due August 2009 | American Stock Exchange | |
$7,500,000 PPNs due February 2009 | American Stock Exchange |
Securities registered or to be registered pursuant to Section12(g)Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section15(d)Section 15(d)
of the Act:
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$1,500,000,000 8.622% Noncumulative Trust Preferred Securities
$1,500,000,000 8.622% Noncumulative Company Preferred Securities
$500,000,000 7.247% Noncumulative Trust Preferred Securities
$500,000,000 7.247% Noncumulative Company Preferred Securities
Subordinated Guarantee of UBS AG with respect to Company Preferred Securities
$14,000,000 Equity Linked Notes due February 1, 2007
$4,976,000 Equity Linked Notes due June 20, 2007$150,000,000 Variable Rate Credit Linked Notes due October 24, 2003$1,667,000 12.5% GOALs due June 23, 2003
Guarantees with respect to certain securities of UBS Americas Inc.
* | Not for trading, but solely in connection with the registration of the corresponding Trust Preferred Securities. |
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CONTENTS
CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as the information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. The words “anticipate”, “believe”, “expect”, “estimate”, “intend”, “plan”, “should”, “could”, “may” and other similar expressions are used in connection with forward-looking statements. In this annual report, forward-looking statements may, without limitation, relate to:
• | The implementation of strategic initiatives, such as the implementation of the European wealth management strategy and our plans to continue to expand our corporate finance business; | |||
• | The development of revenues overall and within specific business areas, including the possibility of further losses in | |||
• | The development of operating expenses; | |||
• | The anticipated level of capital expenditures and associated depreciation expense; | |||
• | The expected impact of the risks that affect UBS’s business, including the risk of loss resulting from the default of an obligor or counterparty; | |||
• | Expected credit losses based upon UBS’s credit review; and | |||
• | Other statements relating to UBS’s future business development and economic performance. |
There can be no assurance that forward-looking statements will approximate actual experience. Several important factors exist that could cause UBS’s actual results to differ materially from expected results as described in the forward-looking statements. Such factors include:
• | General economic conditions, including prevailing interest rates and performance of financial markets, which may affect demand for products and services and the value of our assets; | |||
• | Changes in UBS’s expenses associated with acquisitions and dispositions; | |||
• | General competitive factors, locally, nationally, regionally and globally; | |||
• | Industry consolidation and competition; | |||
• | Changes affecting the banking industry generally and UBS’s banking operations specifically, including asset quality; | |||
• | Developments in technology; | |||
• | Credit ratings and the financial position of obligors and counterparties; | |||
• | UBS’s ability to control risk in its businesses; | |||
• | Changes in tax laws in the countries in which UBS operates, which could adversely affect the tax advantages of certain of UBS’s products or subject it to increased taxation; | |||
• | Changes in accounting standards applicable to UBS, as more fully described below; |
• | Changes in investor confidence in the future performance of financial markets, affecting the level of transactions they |
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undertake, and hence the levels of transaction-based fees UBS earns; | ||||
• | Changes in the market value of securities held by UBS’s clients, affecting the level of asset-based fees UBS can earn on the services it provides; and | |||
• | Changes in currency exchange rates, including the exchange rate for the Swiss franc into US dollars. |
UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
The effect of future changes in accounting standards
Included in the Notes to the Financial Statements is a description of the expected effect of accounting standards that have been issued but have not yet been adopted, for both IFRS and US GAAP.
Although we believe that description includes all significant matters that have been approved by the IASB and the FASB, those standard-setting bodies have a large number of projects in process that could result in significant new accounting standards or significant changes to existing standards.
This increased level of activity includes normal ongoing development and efforts to improve the existing body of accounting standards, and also is in response to a number of perceived deficiencies in accounting standards exemplified by reported abuses by various companies.
We believe it is likely that several new accounting standards will be issued in the near future, and that those new standards could have a significant effect on our reported results of operations and financial position, but cannot predict the precise nature or amounts of any such changes.
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PART I
Item 1. Identity of Directors, Senior Management and Advisors.
Not required because this Form 20-F is filed as an annual report.
Item 2. Offer Statistics and Expected Timetable.
Not required because this Form 20-F is filed as an annual report.
Item 3. Key Information.
A—Selected Financial Data.
Please see pages 195207 to 199211 of the attached Financial Report 2002.2004 (U.S. Version), also referred to as “Financial Report 2004”.
Ratio of Earnings to Fixed Charges
Please see page 199211 of the attached Financial Report 2002,2004, and Exhibit 7 to this Form 20-F.
B—Capitalization and Indebtedness.
Not required because this Form 20-F is filed as an annual report.
C—Reasons for the Offer and Use of Proceeds.
Not required because this Form 20-F is filed as an annual report.
D—Risk Factors.
Please see pages 16 and 17 of the attached Financial Report 20022004.
Item 4. Information on the Company.
A—History and Development of the Company.
1-3 | Please see page | |
4 | Please see | |
5, 6 | ||
7 | Not applicable. |
B—Business Overview.
1, 2, 3, 5, 7 | Please see sectionThe Business Groupson pages |
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4, 6 | Not applicable. | ||
8 | Please see the sectionRegulation and Supervisionon pages |
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C—Organizational Structure.
Please see Note 3536 to the Financial Statements on pages 153162 to 156165 of the attached Financial Report 2002.2004.
D—Property, Plant and Equipment.
Please see the sectionProperty, Plant and Equipmenton page 199211 of the attached Financial Report 2002.2004.
Information Required by Industry Guide 3
Please see pages 200212 to 216227 of the attached Financial Report 2002.2004.
Item 5. Operating and Financial Review and Prospects.
A—Operating Results.
Please see sectionsPresentation of Financial Information, for Readers,GroupUBS, UBS Performance Indicators, Financial ReviewBusinesses, Industrial HoldingsandReview of Business Group PerformanceBalance Sheet and Cash Flowson pages 87 to 7472 of the attached Financial Report 2002.2004.
Please also see Note 3941 to the Financial StatementsReconciliation of International Financial Reporting Standards (IFRS) to United States Generally Accepted Accounting Principles (US GAAP)on pages 160172 to 171182 of the attached Financial Report 20022004 and theCurrency managementManagement of non-trading currency risksubsection of theGroup TreasuryFinancial Managementsection, on pages 84 to 85page 64 of the attached Handbook 2002/2003.2004/2005.
B—Liquidity and Capital Resources.
We believe that our working capital is sufficient for the company’s present requirements.
Group UBS liquidity and capital management is undertaken at UBS by Group Treasury as an integrated asset and liability management function. For a detailed discussion of Group Treasury’s functions and results, including our capital resources, please see pages 78 to 8765 and 66 of the attached Handbook 2002/2003,2004/2005, and Note 18 to the Financial StatementsDebt IssuedFinancial Liabilities designated at fair value and debt issuedon pages 114 to 119123 and 124 of the attached Financial Report 2002.2004.
For a discussion of UBS Group’sUBS’s balance sheet and cash flows, please see pages 2667 to 2872 of the attached Financial Report 2002.2004.
For a discussion of UBS’s long term credit ratings, please see theCapital Strengthsubsection of the sectionStrategy, Structure and HistoryCapital Management & the UBS Shareon pages 10 and 11page 73 of the attached Handbook 2002/2003.2004/2005.
C—Research and Development, Patents and Licenses, etc.
Not applicable.
D—Trend Information.
Please seeOutlook 20032004subsection of the sectionGroup ResultsFinancial Businesses-Resultson page 28 of the attached Financial Report 2002,2004, and pages 15,10 to 12, 20, 28, 33 and 37 42 and 49 of the attached Handbook 2002/2003,2004/2005, which contain more detailed trend information.
-4-E—Off-balance Sheet Arrangements.
Please seeOff-balance sheet arrangementssubsection of the sectionBalance Sheet and off-balance sheeton pages 69 and 70 of the attached Financial Report 2004.
F—Tabular Disclosure of Contractual Obligations.
Please seeContractual obligationssubsection of the sectionBalance Sheet and off-balance sheeton page 69 of the attached Financial Report 2004.
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Item 6. Directors, Senior Management and Employees.
A— Directors and Senior Management.
1, 2, 3 | Please see pages | |
4 and 5 | None. |
B—Compensation.
Please see theCompensation, Shareholdingsshareholdings and Loansloanssection on pages 10496 to 108103 of the attached Handbook 2002/20032004/2005 and also Notes 32 and 33 to the Financial Statements on pages 147155 to 152160 of the attached Financial Report 2002.2004.
C—Board Practices.
Please see pages 9587 to 10092 of the attached Handbook 2002/20032004/2005 and Note 33 to the Financial Statements on pages 151 to 152159 and 160 of the attached Financial Report 2002.2004.
D—Employees.
Please see page 25pages 28 and 29 of the attached Financial Report 20022004.
E—Share Ownership.
Please see the subsectionCompensation, shareholdings and loansin the chartsCorporate Governance section on page 14pages 96 to 103 of the attached Handbook 2002/2003.
E—Share Ownership.
Please see the sectionCompensation, Shareholdings and Loanson pages 104 to 108 of the attached Handbook 2002/20032004/2005 and also Notes 32 and 33 to the Financial Statements on pages 147155 to 152160 of the attached Financial Report 2002.2004.
Item 7. Major Shareholders and Related Party Transactions.
A—Major Shareholders.
Please see pages 91 to 9283 and 139 and 14084 of the attached Handbook 2002/2003.2004/2005.
B—Related Party Transactions.
For 2002The total number of shares held by members of the Board of Directors (including those nominated for election to the board of directors at the annual general meeting to be held on 21 April 2005), and 2001, pleasethe Group Executive Board and parties closely linked to them was 3,562,110 at 31 December 2004, 3,152,617 at 31 December 2003 and 2,139,371 at 31 December 2002. No member of the Board of Directors or Group Executive Board is the beneficial owner of more than 1% of the Group’s shares at 31 December 2004.
Please see Note 33 to the Financial Statements on pages 151 to 152159 and 160 of the attached Financial Report 2002.2004.
The number of long-term stock options outstanding to members of the Board of Directors, Group Executive Board and Group Managing Board from equity participation plans was 4,693,458 at 31 December 2000.
The total loans and advances receivable were CHF 36 million at 31 December 2000.
The total amounts of shares and warrants held by members of the Board of Directors, Group Executive Board and Group Managing Board were 7,583,184 and 69,504,577 as of 31 December 2000.
C—Interests of Experts and Counsel.
Not applicable because this Form 20-F is filed as an annual report.
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Item 8. Financial Information.
A—Consolidated Statements and Other Financial Information.
Please see Item 18 of this Form 20-F.
B—Significant Changes.
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UBS is not aware of any significant change that has occurred since the date of the annual financial statements included in this Form 20-F.
Item 9. The Offer and Listing.
A—Offer and Listing Details.
1, 2, 3, 5, 6, 7 | Not required because this Form 20-F is filed as an annual report. | |
4 | Please see page |
B—Plan of Distribution
Not required because this Form 20-F is filed as an annual report.
C—Markets.
UBS’s shares are traded on the virt-x, the New York Stock Exchange and the Tokyo Stock Exchange. The symbols are shown on page 13577 of the attached Handbook 2002/2003.2004/2005.
Trading on virt-x
Since July 2001, Swiss blue chip stocks have no longer been traded on the SWX Swiss Exchange. All trading in the shares of members of the Swiss Market Index (SMI) now takes place on virt-x, although these stocks remain listed on the SWX Swiss Exchange. Altogether, approximately 600270 blue-chip stocks representing around 80% of European market capitalization are traded on virt-x, in the currency of their home market.
virt-x is majoritywholly owned by the SWX Swiss Exchange. It provides an efficient and cost effective pan-European blue-chip market. It addresses the increasing requirement for equity investment to be conducted on a sectoral basis across Europe rather than being limited to national markets.
virt-x is a Recognized Investment Exchange supervised by the Financial Services Authority in the United Kingdom. It is delivered on the modern, scalable SWX trading platform.
Trading is possible on all target days, as specified by the European Central Bank. The opening hours are 06:00 to 22:00 CET and the trading hours are 09:00 to 17:30 CET. During the after-hours trading phase from 17:30 to 22:00 CET and in the pre-trading phase from 06:00 to 09:00 CET, orders can be entered or deleted. From 09:00 CET, once the opening price is set, trading begins. Orders are executed automatically according to established rules that match bid and askedask prices. Regardless of their size or origin, incoming orders are executed on a price/time priority, i.e., in the order of price (first priority) and time received (second priority). Depending on the type of transaction, the order and trade details are also transmitted to data vendors (Reuters, Bloomberg, Telekurs, etc.).
In most cases, each trade triggers an automatic settlement instruction which is routed through one of three central securities depositories (CSD); SIS SEGAINTERSETTLESegaInterSettle AG, CRESTCoCrestCo or Euroclear. Members can choose to settle from one or more account within these CSD’s and when counterparties have selected different CSD’s, settlement will be cross-border. The introduction of a central counterparty is plannedAdditionally, virt-x introduced the first pan-European Central Counterparty (CCP) for the beginning of 2003 which will allow optional netting of trades.
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cross-border trading in May 2003.
All trades executed through the order book settle on a uniform “T+3” basis, meaning that delivery and payment of exchange transactions occur three days after the trade date. The buyer is able to ask virt-x to enforce settlement if the seller has not delivered within twothree days of the intended settlement date.
Any transaction executed under the rules of virt-x must be reported to virt-x. Order book executions are automatically reported by the trading system. There are separate provisions for the delayed reporting of certain qualifying trades. Individual elements of Portfolio Trades must be reported within one hour while Block Trades and enlarged risk trades must be reported when the business is substantially (80%) complete, or by the end of order book trading that day, unless the trade is agreed one hour or less before the market close, when the Trade must be reported by the end of order book trading on the following market day. Block Trades and
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Enlarged Risk Trades are subject to minimum trade size criteria. During normal trading hours all other transactions must be reported within three minutes. The Enlarged Risk Trades provisions enable a member to protect a client’s interest while the member works a large trade on behalf of the client. The Block Trade provisions allow a member a publication delay when the member has executed a large transaction for a client; the delay gives the member time in which to offset the risk of the large trade.
In the event of extraordinary situations such as large price fluctuations and other situations likely to hamper fair and orderly trading, virt-x may take whatever measures it deems necessary to maintain fair and orderly markets. A listed security may be suspended, the opening of trading in that security may be delayed or continuous trading may be interrupted.
Trading on the New York Stock Exchange
UBS listed its shares on the New York Stock Exchange (“NYSE”) on 16 May 2000.
As of 31 December 2002,2004, the equity securities of nearly 2,800 corporations were listed on the NYSE. Non-US issuers, currently over 470nearly 460 in number with a combined market valuation exceedingof USD 47.1 trillion, are playing an increasingly important role on the NYSE.
The NYSE is open Monday through Friday, 9:30 A.M. - 4:A.M.-4:00 P.M., EST.
The NYSE is an agency auction market. Trading at the NYSE takes place by open bids and offers by Exchange members, acting as agents for institutions or individual investors. Buy and sell orders meet directly on the trading floor, and prices are determined by the interplay of supply and demand. In contrast, in the US over-the-counter market, the price is determined by a dealer who buys and sells out of inventory.
At the NYSE, each listed stock is assigned to a single post where the specialist manages the auction process. NYSE members bring all orders for NYSE-listed stocks to the Exchange floor either electronically or through a floor broker. As a result, the flow of buy and sell orders for each stock is funnelled to a single location.
This heavy stream of diverse orders is one of the great strengths of the Exchange. It provides liquidity — the ease with which securities can be bought and sold without wide price fluctuations.
When an investor’s transaction is completed, the best price will have been exposed to a wide range of potential buyers and sellers.
Every transaction made at the NYSE is under continuous surveillance during the trading day. Stock Watch, a computer system that searches for unusual trading patterns, alerts NYSE regulatory personnel to possible insider trading abuses or other prohibited trading practices. The NYSE’s other regulatory activities include the supervision of member firms to enforce compliance with financial and operational requirements, periodic checks on brokers’ sales practices, and the continuous monitoring of specialist operations.
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Trading on the Tokyo Stock Exchange
The volume of UBS shares traded on the Tokyo Stock Exchange is negligible in comparison to the volume on virt-x or on the NYSE.
D—Selling Shareholders.
Not required because this Form 20-F is filed as an annual report.
E—Dilution.
Not required because this Form 20-F is filed as an annual report.
F—Expenses of the Issue.
Not required because this Form 20-F is filed as an annual report.
Item 10. Additional Information.
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A—Share Capital.
Not required because this Form 20-F is filed as an annual report.
B—Memorandum and Articles of Association.
Please see:
a) | Item 14 of our registration statement on Form 20-F filed 9 May 2000. Please see Articles of Association of UBS AG and Organization Regulations of UBS AG filed as Exhibits 1.1 and 1.2, respectively. | |||
b) | The section | |||
c) | Pages |
C—Material Contracts.
None.
D—Exchange Controls.
There are no restrictions under UBS’s Articles of Association or Swiss law, presently in force, that limit the right of non-resident or foreign owners to hold UBS’s securities freely. There are currently no Swiss foreign exchange controls or other Swiss laws restricting the import or export of capital by UBS or its subsidiaries. In addition, there are currently no restrictions under Swiss law affecting the remittance of dividends, interest or other payments to non-resident holders of UBS securities.
E—Taxation.
This section outlines the material Swiss tax and United States federal income tax consequences of the ownership of UBS ordinary shares by a US holder (as defined below) who holds UBS ordinary shares as capital assets. It is designed to explain the major interactions between Swiss and US taxation for US persons who hold UBS shares.
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The discussion does not address the tax consequences to persons who hold UBS ordinary shares in particular circumstances, such as tax-exempt entities, banks, financial institutions, insurance companies, broker-dealers, traders in securities that elect to mark to market, holders liable for alternative minimum tax, holders that actually or constructively own 10% or more of the voting stock of UBS, holders that hold UBS ordinary shares as part of a straddle or a hedging or conversion transaction or US holders (as defined below) whose functional currency for US tax purposes is not the US dollar. This discussion also does not apply to holders who acquired their UBS ordinary shares pursuant to the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan.
The discussion is based on the tax laws of Switzerland and the United States, including the US Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations under the Internal Revenue Code, published rulings and court decisions, as in effect on the date of this document, as well as the convention between the United States of America and Switzerland, which we call the “Treaty,” all of which may be subject to change or change in interpretation, possibly with retroactive effect.
For purposes of this discussion, a “US holder” is any beneficial owner of UBS ordinary shares that is:is for US federal income tax purposes:
• | a citizen or resident of the United States, | |||
• | a domestic corporation or other entity taxable as a corporation, | |||
• | an estate, the income of which is subject to United States federal income tax without regard to its source, or |
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• | a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust. |
The discussion does not generally address any aspects of Swiss taxation other than income and capital taxation or of United States taxation other than federal income taxation. Holders of UBS shares are urged to consult their tax advisors regarding the United States federal, state and local and the Swiss and other tax consequences of owning and disposing of these shares.shares in their particular circumstances.
Ownership of UBS Ordinary Shares—SwissShares-Swiss Taxation
Dividends and Distributions
Dividends paid by UBS to a holder of UBS ordinary shares (including dividends on liquidation proceeds and stock dividends) are subject to a Swiss federal withholding tax at a rate of 35%. The withholding tax must be withheld from the gross distribution, and be paid to the Swiss Federal Tax Administration.
A US holder that qualifies for Treaty benefits may apply for a refund of the withholding tax withheld in excess of the 15% Treaty rate. The claim for refund must be filed with the Swiss Federal Tax Administration, Eigerstrasse 65, CH-3003 Berne, Switzerland no later than December 31 of the third year following the end of the calendar year in which the income subject to withholding was due. The form used for obtaining a refund is Swiss Tax Form 82 (82C for companies; 82E for other entities; 82I821 for individuals), which may be obtained from any Swiss Consulate General in the United States or from the Swiss Federal Tax Administration at the address above. The form must be filled out in triplicate with each copy duly completed and signed before a notary public in the United States. The form must be accompanied by evidence of the deduction of withholding tax withheld at the source.
Mellon Investor Services, the registrar for UBS AG shares in the US, is offering tax reclamation services for the cash dividends.
Repayment of capital in the form of a par value reduction is not subject to Swiss withholding tax.
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Transfers of UBS Ordinary Shares
The sale of UBS ordinary shares, whether by Swiss resident or non-resident holders (including US holders), may be subject to a Swiss securities transfer stamp duty of up to 0.15% calculated on the sale proceeds if it occurs through or with a bank or other securities dealer in Switzerland as defined in the Swiss Federal Stamp Tax Act. In addition to the stamp duty, the sale of UBS ordinary shares by or through a member of a recognized stock exchange may be subject to a stock exchange levy. Capital gains realized by a US holder upon the sale of UBS ordinary shares are not subject to Swiss income or gains taxes, unless such US holder holds such shares as business assets of a Swiss business operation qualifying as a permanent establishment for the purposes of the Treaty. In the latter case, gains are taxed at ordinary Swiss individual or corporate income tax rates, as the case may be, and losses are deductible for purposes of Swiss income taxes.
Ownership of UBS Ordinary Shares—UnitedShares-United States Federal Income Taxation
Dividends and Distribution
Subject to the passive foreign investment company rules discussed below, US holders will include in gross income the gross amount of any dividend paid, before reduction for Swiss withholding taxes, by UBS out of its current or accumulated earnings and profits, as determined for United States federal income tax purposes, as ordinary income when the dividend is actually or constructively received by the US holder. Dividends paid to a noncorporate US holder in taxable years beginning before January 1, 2009 that constitute qualified dividend income will be taxable to the holder at a maximum rate of 15%, provided that the holder has a holding period in the shares of more than 61 days during the 120-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. Dividends paid by UBS with respect to the shares will generally be qualified dividend income.
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For United States federal income tax purposes, a dividend will include a distribution characterized as a repayment of capital in the form of a par value reduction, if the distribution is made out of current or accumulated earnings and profits, as described above.
Dividends will be income from sources outside the United States for foreign tax credit limitation purposes, but generally will be “passive income” or “financial services income,” which are treated separately from other types of income for foreign tax credit limitation purposes. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% rate. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations.
The amount of the dividend distribution included in income of a US holder will be the US dollar value of the Swiss franc payments made, determined at the spot Swiss franc/US dollar rate on the date such dividend distribution is included in the income of the US holder, regardless of whether the payment is in fact converted into US dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend distribution is included in income to the date such dividend distribution is converted into US dollars will be treated as ordinary income or loss. Such gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a return of capital to the extent of the US holder’s basis in its UBS ordinary shares and thereafter as capital gain.
Subject to certain limitations, the Swiss tax withheld in accordance with the Treaty and paid over to Switzerland will be creditable against the US holder’s United States federal income tax liability. To the extent a refund of the tax withheld is available to a US holder under the laws of Switzerland or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against the US holder’s United States federal income tax liability, whether or not the refund is actually obtained.
Stock dividends to US holders that are made as part of a pro rata distribution to all shareholders of UBS generally will not be subject to United States federal income tax. US holders that received a stock dividend that is subject to Swiss tax but not US tax may not have enough foreign income for US tax purposes to receive the benefit of the foreign tax credit associated with that tax, unless the holder has foreign income from other sources.
Transfers of UBS Ordinary Shares
Subject to the passive foreign investment company rules discussed below, a US holder that sells or otherwise disposes of UBS ordinary shares generally will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the US dollar value of the amount realized and the tax basis,
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determined in US dollars, in the UBS ordinary shares. Capital gain of a non-corporate US holder that is recognized before January 1, 2009 is generally taxed at a maximum rate of 20%15% if the UBS ordinary shares were held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.
Passive Foreign Investment Company Rules
UBS believes that UBS ordinary shares should not be treated as stock of a passive foreign investment company for United States federal income tax purposes, but this conclusion is a factual determination made annually and thus may be subject to change. In general, UBS will be a passive foreign investment company with respect to a US holder if, for any taxable year in which the US holder held UBS ordinary shares, either (i) at least 75% of the gross income of UBS for the taxable year is passive income or (ii) at least 50% of the value, determined on the basis of a quarterly average, of UBS’s assets is attributable to assets that produce or are held for the production of passive income.income (including cash). If UBS were to be treated as a passive foreign investment company, then unless a US holder makes a mark-to-market election, gain realized on the sale or other disposition of UBS ordinary shares would in general not be treated as capital gain. Instead, a US holder would be treated as if the holder had realized such gain and certain “excess distributions” ratably over the holder’s holding period for the shares and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. In addition, dividends received from UBS would not be eligible for the preferential tax rate applicable to qualified dividend income if UBS were to be treated as a passive foreign investment company either in the taxable year of the distribution or the preceding taxable year, but would instead be taxable at rates applicable to ordinary income.
F—Dividends and Paying Agents.
15
Not required because this Form 20-F is filed as an annual report.
G—Statement by Experts.
Not required because this Form 20-F is filed as an annual report.
G—Statement by Experts.
Not required because this Form 20-F is filed as an annual report.
H—Documents on Display.
UBS files periodic reports and other information with the Securities and Exchange Commission. You may read and copy any document that UBS fileswe file with the SEC on the SEC’s website, www.sec.gov, or at the SEC’s public reference room at 450 Fifth Street N.W.,NW, Washington, D.C.DC, 20549. Please call the SEC at 1-800-SEC-0330 (in the US) or at +1 202 942 8088 (outside the US) for further information on the operation of its public reference room. You may also inspect UBS’sour SEC reports and other information at the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 and the American Stock Exchange LLC, 86 Trinity Place, New York, NY 10006. Some10005. Much of this additional information may also be found on the UBS website at www.ubs.com/investors.
I—Subsidiary Information.
Not applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
A—Quantitative Information About Market Risk.
Please see the sectionMarket Riskon pages 7158 to 7564 of the attached Handbook 2002/2003.2004/2005.
B—Qualitative Information About Market Risk.
Please see the sectionMarket Riskon pages 7158 to 7564 of the attached Handbook 2002/2003.2004/2005.
C—Interim Periods.
Not applicable.
-11-
D—Safe Harbor.
The safe harbor provided in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (“statutory safe harbors”) applies to information provided pursuant to paragraphs (a), (b) and (c) of this Item 11.
E—Small Business Issuers.
Not applicable.
Item 12. Description of Securities Other than Equity Securities.
Not required because this Form 20-F is filed as an annual report.
-12-16
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
There has been no material default in respect of any indebtedness of UBS AG or any of its significant subsidiaries or any arrearages of dividends or any other material delinquency not cured within 30 days relating to any preferred stock of UBS AG or any of its significant subsidiaries.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.
Not applicable.
Item 15. Controls and Procedures.
Please see page 116110 of the attached Handbook 2002/2003.2004/2005.
Item 16. [Reserved].16.A Audit Committee Financial Expert
See subsectionCompliance with NYSE Listing Standards on Corporate Governancein ourCorporate Governancesection on page 114 of the attached Handbook 2004/2005. Please also see page 91 of the attached Handbook 2004/2005.
Item 16.B Code of Ethics
See subsectionCompliance with NYSE Listing Standards on Corporate Governancein ourCorporate Governancesection on page 115 of the attached Handbook 2004/2005. The code is published on our website under http://www.ubs.com/about.
Item 16.C Principal Accountant Fees and Services
See subsectionAuditorsin ourCorporate Governancesection on pages 107 and 108 of the attached Handbook 2004/2005.
Item 16.D Exemptions from the Listing Standards for Audit Committee
Not applicable.
Item 16.E Purchases of Equity Securities by the Issuer and Affiliated Purchasers
See subsectionTreasury Sharesin sectionCapital Management & the UBS shareon page 75 of the attached Handbook 2004/2005.
17
PART III
Item 17. Financial Statements.
Not applicable.
Item 18. Financial Statements.
The Financial Statements included on pages 7781 to 177190 of the attached Financial Report 20022004 are incorporated by reference herein.
Item 19. Exhibits.
Exhibit | ||
Number | Description | |
1.1. | Articles of Association of UBS AG. | |
1.2. | Organization Regulations of UBS AG. | |
2(b) | Instruments defining the rights of the holders of long-term debt issued by UBS AG and its subsidiaries. We agree to furnish to the SEC upon request, copies of the instruments, including indentures, defining the rights of the holders of our long-term debt and of our subsidiaries’ long-term debt. | |
7. | Statement regarding ratio of earnings to fixed charges. | |
8. | Significant Subsidiaries of UBS AG. | |
Please see Note 36 on pages 162 to 165 of the attached Financial Report 2004. | ||
12. | The certifications required by Rule 13(a)-14(a) (17 CFR 240.13a-14(a)). | |
13. | The certifications required by Rule 13(a)-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). | |
15. | Consent of Ernst & Young Ltd. |
-13-18
SIGNATURES
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
UBS AG | |||||
/s/ Peter A. Wuffli | |||||
Name: | Peter A. Wuffli | ||||
Title: | Chief Executive | ||||
/s/ Clive Standish | |||||
-14-
CERTIFICATIONS UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter A. Wuffli, certify that:
Clive Standish | |||||||
Group Chief Financial Officer | |||||||
INDEX TO EXHIBITS
Number |
-15-
I, Hugo Schaub, certify that:
Organization Regulations of UBS AG. | ||
2(b) | Instruments defining the rights of the holders of long-term debt issued by UBS AG and its subsidiaries. We agree to furnish to the SEC upon request, copies of the instruments, including indentures, defining the rights of the holders of our long-term debt and of our subsidiaries’ long-term debt. | |
7. | Statement regarding ratio of earnings to fixed charges. | |
8. | Significant Subsidiaries of UBS AG. | |
Please see Note 36 on pages 162 to 165 of the attached Financial Report 2004. | ||
12. | The certifications required by Rule 13(a)-14(a) (17 CFR 240.13a-14(a)). | |
13. | The certifications required by Rule 13(a)-14(b) (17 CFR 240.13a-14(b)) and | |
15. | Consent of Ernst & Young Ltd. |
-16-20
Financial Report 2004 – U.S. Version
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Introduction
Introduction
TheOur Financial Report 2002 forms an essential part of our annual reporting portfolio. It includes the audited Financial Statementsfinancial statements of the UBS Group for 20022004 and 2001,2003, prepared according to International Financial Reporting Standards (IFRS) and reconciled to the United States’ Generally Accepted Accounting Principles (US GAAP), and the audited financial statements of UBS AG (the “Parent Bank”) for 2002,2004 and 2003, prepared according to Swiss Banking Law requirements. It also contains a discussion and analysis of the financial and business performance of the UBS Group and its Business Groups, and additional disclosures required under Swiss and US regulations.
The Financial Report should be read in conjunction with the other information published by UBS, described on pages 5 and 6.page 4.
We sincerely hope that you will find the information in our reporting documentsannual reports useful and informative. We believe that UBS is amongone of the leaders in corporate disclosure, butalthough we would be very interested to hear your views on how we might improve the content, information and presentation of our information portfolio.the reporting products that we publish.
Mark Branson
Chief Communication Officer
UBS AG
1
Introduction
UBS Group Financial Highlights
financial highlights
UBS Income Statement | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Net profit | 8,089 | 6,239 | 3,530 | 30 | ||||||||||||
Basic earnings per share (CHF)1 | 7.68 | 5.59 | 2.92 | 37 | ||||||||||||
Diluted earnings per share (CHF)1 | 7.47 | 5.48 | 2.87 | 36 | ||||||||||||
Return on shareholders’ equity (%)2 | 24.7 | 17.8 | 8.9 | |||||||||||||
Financial Businesses3 | ||||||||||||||||
Operating income | 37,402 | 33,790 | 34,107 | 11 | ||||||||||||
Operating expenses | 26,935 | 25,613 | 29,570 | 5 | ||||||||||||
Net profit | 8,044 | 6,239 | 3,530 | 29 | ||||||||||||
Cost/income ratio (%)4 | 72.6 | 75.6 | 86.4 | |||||||||||||
Net new money, wealth management businesses (CHF billion)5 | 59.4 | 50.8 | 36.2 | |||||||||||||
Headcount (full-time equivalents) | 67,424 | 65,929 | 69,061 | 2 | ||||||||||||
UBS balance sheet and capital management | ||||||||||||||||
As at | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Balance sheet key figures | ||||||||||||||||
Total assets | 1,734,784 | 1,550,056 | 1,346,678 | 12 | ||||||||||||
Shareholders’ equity | 34,978 | 35,310 | 38,952 | (1 | ) | |||||||||||
Market capitalization | 103,638 | 95,401 | 79,448 | 9 | ||||||||||||
BIS capital ratios | ||||||||||||||||
Tier 1 (%)6 | 11.8 | 11.8 | 11.3 | |||||||||||||
Total BIS (%) | 13.6 | 13.3 | 13.8 | |||||||||||||
Risk-weighted assets | 264,125 | 251,901 | 238,790 | 5 | ||||||||||||
Invested assets (CHF billion) | 2,250 | 2,133 | 1,959 | 5 | ||||||||||||
Long-term ratings | ||||||||||||||||
Fitch, London | AA+ | AA+ | AAA | |||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||||||
CHF million, except where indicated | % change from | ||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | |||||||||||||
Income statement key figures | |||||||||||||||||
Operating income | 34,121 | 37,114 | 36,402 | (8 | ) | ||||||||||||
Operating expenses | 29,577 | 30,396 | 26,203 | (3 | ) | ||||||||||||
Operating profit before tax | 4,544 | 6,718 | 10,199 | (32 | ) | ||||||||||||
Net profit | 3,535 | 4,973 | 7,792 | (29 | ) | ||||||||||||
Cost/income ratio (%)1 | 86.2 | 80.8 | 72.2 | ||||||||||||||
Cost/income ratio before goodwill (%)1, 2 | 79.0 | 77.3 | 70.4 | ||||||||||||||
Per share data (CHF) | |||||||||||||||||
Basic earnings per share3 | 2.92 | 3.93 | 6.44 | (26 | ) | ||||||||||||
Basic earnings per share before goodwill2, 3 | 4.73 | 4.97 | 7.00 | (5 | ) | ||||||||||||
Diluted earnings per share3 | 2.87 | 3.78 | 6.35 | (24 | ) | ||||||||||||
Diluted earnings per share before goodwill2, 3 | 4.65 | 4.81 | 6.89 | (3 | ) | ||||||||||||
Return on shareholders’ equity (%) | |||||||||||||||||
Return on shareholders’ equity4 | 8.9 | 11.7 | 21.5 | ||||||||||||||
Return on shareholders’ equity before goodwill2, 4 | 14.4 | 14.8 | 23.4 | ||||||||||||||
CHF million, except where indicated | % change from | ||||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | |||||||||||||
Balance sheet key figures | |||||||||||||||||
Total assets | 1,181,118 | 1,253,297 | 1,087,552 | (6 | ) | ||||||||||||
Shareholders’ equity | 38,991 | 43,530 | 44,833 | (10 | ) | ||||||||||||
Market capitalization | 79,448 | 105,475 | 112,666 | (25 | ) | ||||||||||||
BIS capital ratios | |||||||||||||||||
Tier 1 (%)5 | 11.3 | 11.6 | 11.7 | 7 | |||||||||||||
Total BIS (%) | 13.8 | 14.8 | 15.7 | ||||||||||||||
Risk-weighted assets | 238,790 | 253,735 | 273,290 | (6 | ) | ||||||||||||
Invested assets (CHF billion) | 2,037 | 2,448 | 2,445 | (17 | ) | ||||||||||||
Headcount (full-time equivalents) | 69,061 | 69,9856 | 71,0766 | (1 | ) | ||||||||||||
Long-term ratings7 | �� | ||||||||||||||||
Fitch, London | AAA | AAA | AAA | ||||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa1 | ||||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | ||||||||||||||
Earnings adjusted for significant financial events and pre-goodwill2, 8 | |||||||||||||||||
CHF million, except where indicated | % change from | ||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | |||||||||||||
Operating income | 33,894 | 37,114 | 36,402 | (9 | ) | ||||||||||||
Operating expenses | 27,117 | 29,073 | 25,096 | (7 | ) | ||||||||||||
Operating profit before tax | 6,777 | 8,041 | 11,306 | (16 | ) | ||||||||||||
Net profit | 5,529 | 6,296 | 8,799 | (12 | ) | ||||||||||||
Cost/income ratio (%)1 | 79.5 | 77.3 | 69.2 | ||||||||||||||
Basic earnings per share (CHF)3 | 4.57 | 4.97 | 7.28 | (8 | ) | ||||||||||||
Diluted earnings per share (CHF)3 | 4.50 | 4.81 | 7.17 | (6 | ) | ||||||||||||
Return on shareholders’ equity (%)4 | 13.9 | 14.8 | 24.3 | ||||||||||||||
From third quarter 2004 onwards, Motor-Columbus has been fully consolidated in UBS’s Financial Statements. The reporting structure is split into two components: Financial Businesses and Industrial Holdings.
2
UBS at a glance
UBS is one of the world’s leading financial firms, serving a discerning global client base. As an organization, we combineit combines financial strength with a global culture that embraces change. We are the world’s leading provider of wealth management services and one of the largest asset managers globally. In the investment banking and securities businesses, we are among the select bracket of major global houses. In Switzerland, we are the clear market leader serving corporate and retail clients. As an integrated firm, we createUBS creates added value for our clients by drawing on the combined resources and expertise of all ourits businesses.
Our first priority
Businesses
Wealth management
3
Profile
All our Business Groups are in the top echelons of their sectors globally and are committed to vigorously growing their franchises.
invested assets, UBS Wealth Management & Business Banking
Investment banking and securities services for 3.5 million individuals and 180,000 corporate clients in Switzerland as well as 5,000 financial institutions worldwide.
UBS Global Asset Management
UBS Warburg
Asset management
Swiss corporate and institutionalindividual clients
UBS PaineWebber
Corporate Center
Corporate Center
43
Introduction
Sources of Information about UBSinformation
This Financial Report contains our audited Financial Statementsfinancial statements for the year 20022004 and the related detailed analysis. You can find out more about UBS from the sources shown below.below.
Publications
Annual Review 20022004
Handbook 2002/20032004/2005
Quarterly reports
The compensation report
The making of UBS
How to order reports
Information tools for investors
Website
MessengerMessaging service
Results presentations
UBS and the environment
Form 20-F and other submissions to the US Securities and Exchange Commission
We file periodic reports and submit other information about UBS withto the US Securities and Exchange Commission (SEC). Principal among these filings is the Form 20-F,20-F; our Annual Report filed pursuant to the US Securities Exchange Act of 1934.this
5
Profile
the Handbook 2004/2005 or to parts of thethis Financial Report 2002.2004. However, there is a small amount of additional information in the Form 20-F which is not presented elsewhere, and is particularly targeted at readers in the US. You are encouraged to refer to this additional disclosure.
4
US) for further information on the operation of its public reference room. You may also
Corporate information
The legal and commercial name of the company is UBS AG. The company was formed on 29 June 1998, when Union Bank of Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872) merged to form UBS.
two registered offices and principal places of business are:
65
Introduction
Contacts
Switchboards | ||||||
Zurich | +41-44-234 1111 | |||||
London | +44-20-7568 0000 | |||||
New York | +1-212-821 3000 | |||||
Hong Kong | +852-2971 8888 | |||||
Our Investor Relations team supports institutional, professional and retail investors from our office in Zurich. | Zurich | |||||
Hotline | + | UBS AG | ||||
www.ubs.com/investors | Matthew Miller | +41-44-234 4360 | Investor Relations | |||
Patrick Zuppiger | +41-44-234 3614 | P.O. Box | ||||
Caroline Ryton | +41-44-234 2281 | CH-8098 Zurich, Switzerland | ||||
Fax | +41-44-234 3415 | sh-investorrelations@ubs.com | ||||
Media Relations | ||||||
Our Media Relations team supports global media and journalists from offices in Zurich, London, New York and Hong Kong. | Zurich | +41-44-234 8500 | mediarelations@ubs.com | |||
London | +44-20-7567 4714 | ubs-media-relations@ubs.com | ||||
www.ubs.com/media | New York | +1-212-882 5857 | mediarelations-ny@ubs.com | |||
Hong Kong | +852-2971 8200 | sh-mediarelations-ap@ubs.com | ||||
Shareholder Services | ||||||
UBS Shareholder Services, a unit of the Company Secretary, is responsible for the registration of the Global Registered Shares. | Hotline | +41-44-235 6202 | UBS AG | |||
Fax | + | Shareholder Services | ||||
P.O. Box | ||||||
CH-8098 Zurich, Switzerland | ||||||
US | ||||||
For all Global Registered Share- related queries in the US. www.melloninvestor.com | Calls from the US | +1-866-541 9689 | Mellon Investor | |||
Calls outside the US | +1-201-329 8451 | Overpeck Centre | ||||
Fax | +1-201-296 4801 | 85 Challenger Road | ||||
Ridgefield Park, NJ 07660, USA | ||||||
sh-relations@melloninvestor.com | ||||||
6
Presentation of Financial Information
UBS reporting structure
Changes to reporting structure in 2004
We implemented a new reporting structure during 2004, under which we separate the analysis of our financial businesses from the impact of our industrial holdings. We adopted this new reporting structure on assuming majority ownership of the holding company Motor-Columbus after purchasing an additional 20% stake on 1 July 2004. Motor-Columbus’s only significant asset is a 59.3% interest in the Atel Group. Atel, based in Olten, Switzerland, is an energy provider focused on domestic and international power generation, electricity transmission, energy services as well as electricity trading and marketing. Due to the increased complexity that the consolidation of this energy utility adds to our financial reporting, we have split the commentary of our results into two parts. We have provided commentary and analysis of our financial businesses – which include all our pre-existing business units – separately from the new industrial holdings unit, housing Motor-Columbus. In this way, we aim for complete continuity in the presentation and analysis of our core businesses. The new reporting structure is shown in detail in the diagram below.
Changes to accounting in 2004
At the start of 2004, we implemented the following changes in accounting:
– | early adoption of revisedIAS 32 Financial Instruments: Disclosure and Presentationand revisedIAS 39 Financial Instruments: Recognition and Measurement. |
– | change in the accounting for investment property from historical cost less accumulated depreciation to the fair value method. | |
– | change in accounting for credit losses on over-the-counter (OTC) derivatives which are now reported as incurred in net trading income and no longer charged to credit loss expense (and deferred over three years for internal management reporting and in the results discussion). | |
– | exclusion from invested assets of corporate client assets in the Business Banking Switzerland unit (except for pension fund assets). |
Other new disclosures
As part of our continuing effort to improve the transparency of our financial reporting and provide the best possible understanding of our business, we have made a number of enhancements to our disclosure.
8
Measurement and analysis of performance
UBS’s performance is reported in accordance with International Financial Reporting Standards (IFRS).
Seasonal characteristics
Our main businesses do not generally show significant seasonal patterns – except for the Investment Bank Business Group, where revenues are impacted by the seasonal characteristics of general financial market activity and deal flows in investment banking.
Performance indicators
UBS performance indicators
– | return on equity | |
– | growth in basic earnings per share (EPS) | |
– | cost/income ratio | |
– | net new money in our wealth management units (Wealth Management and Wealth Management USA |
Business Group performance indicators
externally reported value drivers, avoiding the risk of management to purely internal performance measures.
Client / invested assets reporting
– | Client assetsare all client assets managed by or deposited with UBS including custody-only assets and assets held for purely transactional purposes. | |
– | Invested assetsis a more restrictive term and includes all client assets managed by or deposited with UBS for investment purposes. |
9
Presentation of Financial Information
Performance indicators
Performance indicators | Definition | |||
Financial businesses | Cost/income ratio | Total operating expenses/total operating income before adjusted expected credit loss. | ||
Wealth and asset management businesses and Business Banking Switzerland | Invested assets | Assets managed by or deposited with UBS for investment purposes only (for further details please refer to page 11). | ||
Net new money | Inflow of invested assets from new clients | |||
– outflows due to client defection | ||||
+/– inflows/outflows from existing clients. | ||||
(for further details please refer to page 11). | ||||
Wealth and asset management businesses | Gross margin on invested assets | Operating income before adjusted expected credit loss/average invested assets. | ||
Wealth Management | Client advisors (CAs) | Expressed in full-time equivalents. | ||
Business Banking Switzerland | Non-performing loans (%) | Non-performing loans/gross loans. | ||
Impaired loans (%) | Impaired loans/gross loans. | |||
Investment Bank | Compensation ratio (%) | Personnel expenses/operating income before adjusted expected credit loss. | ||
Non-performing loans (%) | Non-performing loans/gross loans. | |||
Impaired loans (%) | Impaired loans/gross loans. | |||
Average VaR (10-day 99%) | VaR expresses the potential loss on a trading portfolio assuming a 10-day time horizon before positions can be adjusted, and measured to a 99% level of confidence. | |||
Value creation (private equity) | Value creation adds the increase in the unrealized portfolio gains/(losses) to realized gains/(losses) for the period. | |||
Investment (private equity) | Historical cost of investment made, less divestments and impairments. | |||
Portfolio fair value (private equity) | The fair value of a portfolio is the estimated amount for which the assets could be exchanged between willing buyers and willing sellers in an arm’s length transaction after an orderly sale process where the parties each act knowledgeably, prudently and without compulsion. | |||
Wealth Management USA | Recurring fees | Asset-based fees for portfolio management and fund distribution, account-based and advisory fees (as opposed to transactional fees). | ||
Financial advisor productivity | Private client revenues divided by average number of financial advisors. | |||
10
Accounting treatment and presentation of private equity investments
–full consolidation (according to IAS 27) for investments in which we have a controlling interest | ||
–equity method accounting (according to IAS 28) for investments in which we have significant influence | ||
–treatment as “Financial investments available-for-sale” for all remaining private equity investments. |
Full consolidation according to IAS 27
Equity method according to IAS 28
11
Changes in presentation
IFRS 2 Share-based payment
12
IFRS 3 Business Combinations, IAS 36 Impairment of Assets and IAS 38 Intangible Assets
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
Minority interests
13
14
UBS
Results
In 2004, UBS reported net profit of CHF 8,089 million, up 30% from CHF 6,239 million a year earlier and up 129% from CHF 3,530 million in 2002.
Dividend
The Board of Directors will recommend at the Annual General Meeting on 21 April 2005 that UBS should pay a dividend of CHF 3.00 per share for the 2004 financial year, an increase of 15% or CHF 0.40 from the CHF 2.60 dividend paid for the 2003 financial year and up 50% or CHF 1.00 from the CHF 2.00 dividend paid for the 2002 financial year.
Interest rates, equity prices, foreign exchange levels and other market fluctuations may affect earnings
16
Counterparty failure may lead to credit loss
Operational risk may increase costs and impact revenues
Legal claims may arise in the conduct of our business
Competitive forces may influence business direction
Our global presence exposes us to other risks
17
18
UBS Performance Indicators
For the year ended | ||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | ||||||||||
RoE (%)1 | 24.7 | 17.8 | 8.9 | |||||||||
Basic EPS (CHF)2 | 7.68 | 5.59 | 2.92 | |||||||||
Cost/income ratio of the financial businesses (%)3, 4 | 72.6 | 75.6 | 86.4 | |||||||||
Net new money, wealth management businesses (CHF billion)5 | ||||||||||||
Wealth Management | 42.3 | 29.7 | 17.7 | |||||||||
Wealth Management USA | 17.1 | 21.1 | 18.5 | |||||||||
Total | 59.4 | 50.8 | 36.2 | |||||||||
20
2004
We focus on four main performance indicators, which indicate how we focus on continually improving returns to our shareholders.
standing due to our continuing repurchase of shares. Amortization of goodwill and other intangible assets reduced basic earnings per share by CHF 0.92 in 2004 and by CHF 0.84 in 2003.
Invested assets
As at | % change from | |||||||||||||||
CHF billion | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
UBS | 2,250 | 2,133 | 1,959 | 5 | ||||||||||||
Wealth Management & Business Banking | ||||||||||||||||
Wealth Management | 778 | 701 | 642 | 11 | ||||||||||||
Business Banking Switzerland | 140 | 136 | 127 | 3 | ||||||||||||
Global Asset Management | ||||||||||||||||
Institutional | 344 | 313 | 274 | 10 | ||||||||||||
Wholesale intermediary | 257 | 261 | 259 | (2 | ) | |||||||||||
Investment Bank | 0 | 4 | 3 | (100 | ) | |||||||||||
Wealth Management USA | 639 | 634 | 584 | 1 | ||||||||||||
Corporate Center | ||||||||||||||||
Private Banks & GAM | 92 | 84 | 70 | 10 | ||||||||||||
Net new money1
For the year ended | ||||||||||||
CHF billion | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
UBS | 88.9 | 69.1 | 36.9 | |||||||||
Wealth Management & Business Banking | ||||||||||||
Wealth Management | 42.3 | 29.7 | 17.7 | |||||||||
Business Banking Switzerland | 2.6 | 2.5 | 3.7 | |||||||||
Global Asset Management | ||||||||||||
Institutional | 23.7 | 12.7 | (1.4 | ) | ||||||||
Wholesale intermediary | (4.5 | ) | (5.0 | ) | (6.3 | ) | ||||||
Investment Bank | 0.0 | 0.9 | 0.5 | |||||||||
Wealth Management USA | 17.1 | 21.1 | 18.5 | |||||||||
Corporate Center | ||||||||||||
Private Banks & GAM | 7.7 | 7.2 | 4.2 | |||||||||
21
UBS Performance Indicators
strong CHF 13.7 billion inflow into our European wealth management business. In our Wealth Management USA business, net new money was CHF 17.1 billion, down from CHF 21.1 billion a year earlier, reflecting a slow asset-gathering performance at the beginning of the year as well as the US dollar’s weakening against the Swiss franc.
2003
We have four main performance indicators, which indicate how we focus on continually improving returns to our shareholders.
– | Our return on equity for 2003 was 17.8%, up from 8.9% a year ago and within our target range of 15% to 20%. The increase reflects our much improved net profit combined with a lower average level of equity resulting from our continued buyback programs. In 2002, return on equity saw a 0.5 percentage point boost from the Klinik Hirslanden and Hyposwiss divestments, although the writedown of the PaineWebber brand lowered it by 2.4 percentage points. Amortization of goodwill and other intangible assets accounted for 2.7 percentage points of the ratio in 2003, compared to 5.5 percentage points of the ratio in 2002. Excluding these divestment gains and the amortization of goodwill and other intangibles, return on equity increased by 6.6 percentage points. | |
– | Basic earnings per share (EPS) were CHF 5.59, an increase of 91% from 2002, reflecting the increase in profit as well as the 8% reduction in average number of shares outstand- |
ing due to our continued share buybacks. In 2002, basic EPS was boosted by CHF 0.15 from Klinik Hirslanden and Hyposwiss divestments, but lowered by CHF 0.79 through the writedown of the PaineWebber brand. Amortization of goodwill and other intangible assets accounted for CHF 0.84 of our 2003 basic earnings per share, compared to CHF 1.80 in 2002. Excluding these divestment gains and the amortization of goodwill and other intangible assets, basic earnings per share increased by CHF 1.86. | ||
– | The cost/income ratio was 75.6% in 2003, an improvement from 86.4% in 2002. Operating expenses fell at a faster pace than income, reflecting ongoing cost management initiatives, the downward pressure on compensation ratios, and the difficult market environment in first half. In 2002, the ratio improved by 0.6 percentage points from the Klinik Hirslanden and Hyposwiss divestments, although the PaineWebber brand writedown increased the ratio by 3.6 percentage points. Amortization of goodwill and other intangible assets accounted for 2.7 percentage points of the ratio in 2003, compared to 7.2 percentage points in 2002. Excluding these divestment gains and the amortization of goodwill and other intangibles, the ratio decreased by 6.5 percentage points between 2003 and 2002. |
22
Financial Businesses
Results
Results
Income statement1
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Operating income | ||||||||||||||||
Interest income | 39,398 | 40,159 | 39,963 | (2 | ) | |||||||||||
Interest expense | (27,538 | ) | (27,860 | ) | (29,417 | ) | (1 | ) | ||||||||
Net interest income | 11,860 | 12,299 | 10,546 | (4 | ) | |||||||||||
Credit loss (expense)/recovery | 276 | (72 | ) | (115 | ) | |||||||||||
Net interest income after credit loss expense | 12,136 | 12,227 | 10,431 | (1 | ) | |||||||||||
Net fee and commission income | 19,416 | 17,345 | 18,221 | 12 | ||||||||||||
Net trading income | 4,972 | 3,756 | 5,451 | 32 | ||||||||||||
Other income | 878 | 462 | 4 | 90 | ||||||||||||
Total operating income | 37,402 | 33,790 | 34,107 | 11 | ||||||||||||
Operating expenses | ||||||||||||||||
Personnel expenses | 18,189 | 17,231 | 18,524 | 6 | ||||||||||||
General and administrative expenses | 6,577 | 6,086 | 7,072 | 8 | ||||||||||||
Depreciation of property and equipment | 1,282 | 1,353 | 1,514 | (5 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 887 | 943 | 2,460 | (6 | ) | |||||||||||
Total operating expenses | 26,935 | 25,613 | 29,570 | 5 | ||||||||||||
Operating profit before tax and minority interests | 10,467 | 8,177 | 4,537 | 28 | ||||||||||||
Tax expense | 2,086 | 1,593 | 676 | 31 | ||||||||||||
Net profit before minority interests | 8,381 | 6,584 | 3,861 | 27 | ||||||||||||
Minority interests | (337 | ) | (345 | ) | (331 | ) | (2 | ) | ||||||||
Net profit | 8,044 | 6,239 | 3,530 | 29 | ||||||||||||
Additional information | As at | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Headcount (full-time equivalents) | 67,424 | 65,929 | 69,061 | 2 | ||||||||||||
2004
Results
Our 2004 result was the best ever. The first quarter saw an all-time performance record and the year ended with our best-ever fourth quarter. Net profit in 2004 was CHF 8,044 million, up by 29% from CHF 6,239 million in 2003. Before goodwill and excluding the sale of our Correspondent Services Corporation (CSC) clearing subsidiary, completed in second quarter 2003, net profit rose by 24%. The increase was driven by higher revenues in all categories, clearly outpacing cost growth. Our asset-based revenues showed particular strength, reflecting improved market valuations as well as strong inflows of net new money into our wealth and asset management businesses. Overall, we attracted CHF 88.9 billion in net new money in 2004, up 29% from CHF 69.1 billion in 2003. As a
result, our invested asset base rose to CHF 2.25 trillion. We also saw a strong increase in brokerage, corporate finance and underwriting fees. Overall fee and commission income now contributes 52% to total operating income. Trading income also contributed to the growth, as improved market conditions boosted opportunities, particularly in the first and fourth quarters. We also saw improving results in our private equity business, which recorded positive revenues for the first time in three years on higher divestment gains and lower write-downs. We also reported record credit loss recoveries. Performance-related compensation rose in line with revenues. Higher general and administrative expenses were driven by higher legal provisions, and operational risk costs.
Operating income
24
level ever. The increase was driven by our ability to capture opportunities in increasingly active financial markets. The increase in market levels positively impacted the asset base of our wealth and asset management businesses, prompting fee-based revenues to rise. Trading and brokerage income also profited from the improved market environment that boosted institutional and private client transaction activity. Private equity made a positive contribution, reflecting lower writedowns and higher divestment gains. We also recorded higher credit loss recoveries in 2004. The overall rise in 2004’s revenues, however, was partially offset by the weakening of the US dollar against the Swiss franc.
lion compared to year-end 2003, reduced interest margin on client cash and savings accounts, as well as declining revenues from US dollar-denominated accounts.
Net interest and trading income
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Net interest income | 11,860 | 12,299 | 10,546 | (4 | ) | |||||||||||
Net trading income | 4,972 | 3,756 | 5,451 | 32 | ||||||||||||
Total net interest and trading income | 16,832 | 16,055 | 15,997 | 5 | ||||||||||||
Breakdown by business activity | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Net income from interest margin products | 5,139 | 5,077 | 5,275 | 1 | ||||||||||||
Equities | 3,098 | 2,445 | 2,777 | 27 | ||||||||||||
Fixed income | 6,264 | 6,474 | 5,977 | (3 | ) | |||||||||||
Foreign exchange | 1,467 | 1,436 | 1,506 | 2 | ||||||||||||
Other | 273 | 326 | 245 | (16 | ) | |||||||||||
Net income from trading activities | 11,102 | 10,681 | 10,505 | 4 | ||||||||||||
Net income from treasury activities | 1,298 | 1,417 | 1,646 | (8 | ) | |||||||||||
Other1 | (707 | ) | (1,120 | ) | (1,429 | ) | 37 | |||||||||
Total net interest and trading income | 16,832 | 16,055 | 15,997 | 5 | ||||||||||||
25
Financial Businesses
Results
Credit loss (expense)/recovery
For the year ended | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Wealth Management & Business Banking | 91 | (67 | ) | (238 | ) | |||||||
Wealth Management | (1 | ) | 4 | 1 | ||||||||
Business Banking Switzerland | 92 | (71 | ) | (239 | ) | |||||||
Investment Bank | 240 | (4 | ) | 126 | ||||||||
Wealth Management USA | 3 | (3 | ) | (15 | ) | |||||||
Corporate Center | (58 | ) | 2 | 12 | ||||||||
Private Banks & GAM | (58 | ) | 2 | (3 | ) | |||||||
Corporate Functions | 0 | 0 | 15 | |||||||||
UBS | 276 | (72 | ) | (115 | ) | |||||||
Other net trading and interest incomewas negative CHF 707 million in 2004 compared to negative CHF 1,120 million a year earlier. The improvement was due to lower goodwill funding costs, as well as declining costs for funding our private equity portfolio.
exposures, please see the “Financial Management” chapter of our Handbook 2004/2005.
26
Net fee and commission income
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Equity underwriting fees | 1,430 | 1,270 | 1,166 | 13 | ||||||||||||
Bond underwriting fees | 1,114 | 1,084 | 968 | 3 | ||||||||||||
Total underwriting fees | 2,544 | 2,354 | 2,134 | 8 | ||||||||||||
Corporate finance fees | 1,078 | 761 | 848 | 42 | ||||||||||||
Brokerage fees | 5,916 | 5,608 | 5,987 | 5 | ||||||||||||
Investment fund fees | 4,588 | 3,895 | 4,033 | 18 | ||||||||||||
Fiduciary fees | 220 | 241 | 300 | (9 | ) | |||||||||||
Custodian fees | 1,261 | 1,201 | 1,302 | 5 | ||||||||||||
Portfolio and other management and advisory fees | 4,611 | 3,855 | 4,065 | 20 | ||||||||||||
Insurance-related and other fees | 342 | 355 | 417 | (4 | ) | |||||||||||
Total securities trading and investment activity fees | 20,560 | 18,270 | 19,086 | 13 | ||||||||||||
Credit-related fees and commissions | 266 | 249 | 275 | 7 | ||||||||||||
Commission income from other services | 988 | 1,087 | 1,006 | (9 | ) | |||||||||||
Total fee and commission income | 21,814 | 19,606 | 20,367 | 11 | ||||||||||||
Brokerage fees paid | 1,399 | 1,483 | 1,349 | (6 | ) | |||||||||||
Other | 999 | 778 | 797 | 28 | ||||||||||||
Total fee and commission expense | 2,398 | 2,261 | 2,146 | 6 | ||||||||||||
Net fee and commission income | 19,416 | 17,345 | 18,221 | 12 | ||||||||||||
Other incomeincreased by 90% to CHF 878 million in 2004 from CHF 462 million in 2003. The increase was driven by higher disposal gains from private equity investments (up CHF 205 million) and lower impairment charges (down CHF 318 million). This was partially offset by lower gains from the divestment of associates and subsidiaries which dropped by nearly 50% to CHF 84 million in 2004 (the major disposal being the Noga Hilton hotel in Geneva) from CHF 162 million in 2003 (the major disposal being Correspondent Services Corporation (CSC)).
Operating expenses
Tax
In 2004, we incurred a tax expense of CHF 2,086 million, reflecting an effective tax rate of 19.9% for the full year. That compares to 2003’s full-year rate of 19.5%. The 2003 tax rate was positively influenced by a favorable regional profit mix. The higher rate for 2004 was driven by an increase in profitability in higher tax jurisdictions, mainly the US. We believe that a similar underlying tax rate is a reasonable indicator for 2005.
27
Financial Businesses
Results
Indicative pre-goodwill tax rates for financial businesses
For the year ended | |||||||||||||
in % | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||
Wealth Management & Business Banking | 18 | 18 | 19 | ||||||||||
Wealth Management | 18 | 16 | 18 | ||||||||||
Business Banking Switzerland | 19 | 20 | 20 | ||||||||||
Global Asset Management | 21 | 20 | 22 | ||||||||||
Investment Bank | 30 | 32 | 38 | ||||||||||
Wealth Management USA | 37 | 38 | 37 | ||||||||||
Business Group tax rates
Headcount
Headcount in our financial businesses was 67,424 on 31 December 2004, up 1,495 from 65,929 on 31 December 2003. The increase was driven by the expansion of UBS’s wealth management and securities businesses around the globe.
Fair value disclosure of options
The fair value of options granted in 2004 was CHF 508 million (pre-tax: CHF 543 million) compared to CHF 439 million
Outlook
A record result is always challenging to beat. As every year, our investment banking and securities business will have to contend with the somewhat unpredictable rise and fall of the world’s financial markets. But 2004 showed that our wealth and asset
Headcount (in FTE)1: regional distribution
Headcount financial businesses
As at | % change from | |||||||||||||||
Full-time equivalents | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Switzerland | 25,990 | 26,662 | 27,972 | (3 | ) | |||||||||||
Rest of Europe / Africa / Middle East | 10,764 | 9,906 | 10,009 | 9 | ||||||||||||
Americas | 26,232 | 25,511 | 27,350 | 3 | ||||||||||||
Asia Pacific | 4,438 | 3,850 | 3,730 | 15 | ||||||||||||
Total | 67,424 | 65,929 | 69,061 | 2 | ||||||||||||
28
management businesses can provide both growth momentum and earnings quality, even if trading conditions fluctuate. We will continue re-investing in our growth businesses and expect 2005 to be the next exciting step on a journey we believe will be very rewarding for our long-term investors.
2003
Results
In 2003, all businesses reported stronger results compared to 2002. Our net profit in full-year 2003 was CHF 6,239 million, up from CHF 3,530 million in 2002 – an increase of 77%. In 2002, our results were negatively influenced by the CHF 953 million writedown of the value of the PaineWebber brand. At the same time, they benefited from the sale of private bank Hyposwiss, which resulted in a net gain of CHF 125 million, and the divestment of Klinik Hirslanden, a private hospital group, which contributed a net gain of CHF 60 million. Excluding these items and before the amortization of goodwill and other intangibles, net profit increased 30% between 2002 and 2003. The gain reflected our tight management of costs and ability to build market share and capture revenues as financial markets steadily recovered as the year progressed. In particular, asset-based revenues recovered from the lows posted in 2002. Our result was further helped by much improved trading opportunities, a gradual improvement in investor sentiment and significantly lower writedowns in our private equity business. At the same time, expenses remained under tight control. We recorded reductions in all cost categories compared to 2002, with non-personnel expenses falling below their level in 2000.
Operating income
29
Financial Businesses
Results
Operating expenses
30
Tax
31
Financial Businesses
Wealth Management & Business Banking
Wealth Management & Business Banking
In 2004, Wealth Management’s pre-tax profit was CHF 3,435 million, a 32% increase from 2003. Strong inflows from most markets resulted in net new money rising to CHF 42.3 billion from CHF 29.7 billion a year earlier. Business Banking Switzerland’s 2004 pre-tax profit fell 5% to CHF 2,045 million, reflecting lower interest income.
Business Group reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Income | 12,764 | 12,044 | 12,184 | 6 | ||||||||||||
Adjusted expected credit loss1 | (33 | ) | (131 | ) | (312 | ) | 75 | |||||||||
Total operating income | 12,731 | 11,913 | 11,872 | 7 | ||||||||||||
Personnel expenses | 4,473 | 4,350 | 4,338 | 3 | ||||||||||||
General and administrative expenses | 1,706 | 1,694 | 1,922 | 1 | ||||||||||||
Services to/from other business units | 862 | 870 | 837 | (1 | ) | |||||||||||
Depreciation | 135 | 170 | 198 | (21 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 75 | 75 | 97 | 0 | ||||||||||||
Total operating expenses | 7,251 | 7,159 | 7,392 | 1 | ||||||||||||
Business Group performance before tax | 5,480 | 4,754 | 4,480 | 15 | ||||||||||||
Additional information | ||||||||||||||||
Regulatory equity allocated (average) | 9,400 | 8,750 | 8,600 | 7 | ||||||||||||
Cost/income ratio (%)2 | 56.8 | 59.4 | 60.7 | |||||||||||||
Fair value of employee stock options granted3 | 127 | 64 | 92 | 98 | ||||||||||||
32
Wealth Management
Business Unit reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Income | 7,701 | 6,797 | 6,690 | 13 | ||||||||||||
Adjusted expected credit loss1 | (8 | ) | (4 | ) | (26 | ) | (100 | ) | ||||||||
Total operating income | 7,693 | 6,793 | 6,664 | 13 | ||||||||||||
Personnel expenses | 2,080 | 1,944 | 1,869 | 7 | ||||||||||||
General and administrative expenses | 642 | 604 | 617 | 6 | ||||||||||||
Services to/from other business units | 1,395 | 1,479 | 1,475 | (6 | ) | |||||||||||
Depreciation | 66 | 82 | 93 | (20 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 75 | 75 | 97 | 0 | ||||||||||||
Total operating expenses | 4,258 | 4,184 | 4,151 | 2 | ||||||||||||
Business Unit performance before tax | 3,435 | 2,609 | 2,513 | 32 | ||||||||||||
Performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 778 | 701 | 642 | 11 | ||||||||||||
Net new money (CHF billion)2 | 42.3 | 29.7 | 17.7 | |||||||||||||
Gross margin on invested assets (bps)3 | 103 | 101 | 97 | 2 | ||||||||||||
Cost/income ratio (%)4 | 55.3 | 61.6 | 62.0 | |||||||||||||
Client advisors (full-time equivalents) | 3,744 | 3,300 | 3,001 | 13 | ||||||||||||
International clients | ||||||||||||||||
Income | 5,429 | 4,734 | 4,640 | 15 | ||||||||||||
Invested assets (CHF billion) | 562 | 491 | 447 | 14 | ||||||||||||
Net new money (CHF billion)2 | 40.4 | 29.7 | 20.2 | |||||||||||||
Gross margin on invested assets (bps)3 | 102 | 101 | 98 | 1 | ||||||||||||
European wealth management (part of international clients) | ||||||||||||||||
Income | 437 | 267 | 186 | 64 | ||||||||||||
Invested assets (CHF billion) | 82 | 46 | 28 | 78 | ||||||||||||
Net new money (CHF billion)2 | 13.7 | 10.8 | 7.6 | |||||||||||||
Client advisors (full-time equivalents) | 838 | 672 | 551 | 25 | ||||||||||||
Swiss clients | ||||||||||||||||
Income | 2,272 | 2,063 | 2,050 | 10 | ||||||||||||
Invested assets (CHF billion) | 216 | 210 | 195 | 3 | ||||||||||||
Net new money (CHF billion)2 | 1.9 | 0.0 | (2.5 | ) | ||||||||||||
Gross margin on invested assets (bps)3 | 106 | 102 | 95 | 4 | ||||||||||||
Additional information | As at or for the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Client assets (CHF billion) | 972 | 884 | 788 | 10 | ||||||||||||
Regulatory equity allocated (average) | 3,150 | 2,650 | 2,900 | 19 | ||||||||||||
Fair value of employee stock options granted5 | 81 | 37 | 54 | 119 | ||||||||||||
Headcount (full-time equivalents) | 10,093 | 9,176 | 9,399 | 10 | ||||||||||||
33
Financial Businesses
Wealth Management & Business Banking
Components of operating income
Wealth Management derives its operating income principally from:
– fees for financial planning and wealth management services;
– fees for investment management services;
– transaction-related fees; and
– net interest income.
Wealth Management’s fees are based on the market value of invested assets and the level of transaction-related activity. As a result, operating income is affected by factors such as fluctuations in invested assets, changes in market conditions, investment performance and inflows and outflows of client funds.
2004
Performance indicators
In 2004, net new money inflows totaled CHF 42.3 billion, up 42% from CHF 29.7 billion in 2003, representing an annual growth rate of 6% of the underlying invested asset base at end-2003. This excellent performance was driven by gains in all geographical areas, especially from Asian clients, and a particularly strong CHF 13.7 billion inflow into our European wealth management business.
Invested assets, at CHF 778 billion on 31 December 2004, were up 11% from CHF 701 billion a year earlier, mainly reflecting the strong inflow of net new money and CHF 22.6 billion in new assets gained from acquisitions we integrated in 2004. Rising equity markets also had a positive impact on asset levels, helping to compensate for the negative effect of the US dol-
The gross margin on invested assets was 103 basis points in 2004, up 2 basis points from 101 basis points a year earlier, as revenues increased more than the average asset base. Overall, recurring income made up 76 basis points of the margin in 2004, up from 71 basis points in 2003. Non-recurring income comprised 27 basis points of the margin in 2004, against 30 basis points in 2003.
34
European wealth management
Our European wealth management business continued to make significant progress. With a particularly good performance in the UK and Germany, the inflow of net new money in 2004 was CHF 13.7 billion, up 27% from the previous year’s intake of CHF 10.8 billion. The result reflects an annual net new money in-flow rate of 30% of the underlying asset base at year-end 2003.
The level of invested assets was a record CHF 82 billion on 31 December 2004, almost double the CHF 46 billion a year earlier, with the gain reflecting healthy inflows of net new money, and the integration of acquisitions made during the year.
In 2004, income from our European wealth management business was CHF 437 million, up 64% from a year earlier, reflecting our growing asset and client base.
Results
In 2004, pre-tax profit, at CHF 3,435 million, was up 32% from 2003. This increase reflects the recovery in major financial markets that started in mid-2003, driving a 13% increase in revenues through higher asset-based fees. Rising interest income, a reflection of the expansion of our margin lending
Operating income
13% from CHF 6,793 million a year earlier. This was the highest level ever, reflecting a rise in recurring as well as in non-recurring revenues. Recurring income increased 19% on rising asset-based fees, benefiting from gains in asset levels. This was accentuated by higher interest income due to the expansion of our margin lending activities. Non-recurring income rose due to higher brokerage fees, reflecting an increase in client activity levels, which were particularly strong in the first and fourth quarters of the year. These positive effects were somewhat offset by the weakening of the US dollar against the Swiss franc as well as lower divestment gains (in 2003 we sold a stake in Deutsche Börse).
Operating expenses
35
Financial Businesses
Wealth Management & Business Banking
Headcount
Headcount, at 10,093 on 31 December 2004, increased by 917 from 31 December 2003. One of the major reasons lies in the integration of acquisitions we made last year, which added 379 employees. In 2004, the number of client advisors increased to 3,744, up 13% or 444 advisors from a year earlier.
2003
Performance indicators
In 2003, net new money inflows totaled CHF 29.7 billion, up 68% from CHF 17.7 billion in 2002. The excellent performance was due to strong inflows into our European wealth management business as well as significant inflows from clients in Asia and Eastern Europe.
European wealth management
Our European wealth management business continued to make significant progress. After three years of intense effort, the total level of invested assets in Germany, France, the UK, Spain and Italy reached CHF 46 billion.
Results
Wealth Management’s 2003 pre-tax profit, at CHF 2,609 million, increased 4% from 2002 on the financial market recovery in the second half of the year, which resulted in higher revenues.
Operating income
Operating expenses
36
Headcount
Headcount, at 9,176 on 31 December 2003, decreased by 223 from 31 December 2002. Although we continued to hire client advisors, we reduced headcount in non-client facing areas as we further streamlined processes and structures. In 2003, the number of client advisors increased to 3,300, up 10% from a year earlier.
37
Financial Businesses
Wealth Management & Business Banking
Business Banking Switzerland
Business Unit reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Interest income | 3,390 | 3,542 | 3,677 | (4 | ) | |||||||||||
Non-interest income | 1,673 | 1,705 | 1,817 | (2 | ) | |||||||||||
Income | 5,063 | 5,247 | 5,494 | (4 | ) | |||||||||||
Adjusted expected credit loss1 | (25 | ) | (127 | ) | (286 | ) | 80 | |||||||||
Total operating income | 5,038 | 5,120 | 5,208 | (2 | ) | |||||||||||
Personnel expenses | 2,393 | 2,406 | 2,469 | (1 | ) | |||||||||||
General and administrative expenses | 1,064 | 1,090 | 1,305 | (2 | ) | |||||||||||
Services to/from other business units | (533 | ) | (609 | ) | (638 | ) | 12 | |||||||||
Depreciation | 69 | 88 | 105 | (22 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 0 | 0 | 0 | |||||||||||||
Total operating expenses | 2,993 | 2,975 | 3,241 | 1 | ||||||||||||
Business Unit performance before tax | 2,045 | 2,145 | 1,967 | (5 | ) | |||||||||||
Performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 140 | 136 | 127 | 3 | ||||||||||||
Net new money (CHF billion)2 | 2.6 | 2.5 | 3.7 | |||||||||||||
Cost/income ratio (%)3 | 59.1 | 56.7 | 59.0 | |||||||||||||
Non-performing loans/gross loans (%) | 2.3 | 3.2 | 3.6 | |||||||||||||
Impaired loans/gross loans (%) | 3.0 | 4.6 | 6.0 | |||||||||||||
Additional information | As at or for the period ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Deferral (included in adjusted expected credit loss) | 411 | 383 | 240 | 7 | ||||||||||||
Client assets (CHF billion) | 655 | 622 | 494 | 5 | ||||||||||||
Regulatory equity allocated (average) | 6,250 | 6,100 | 5,700 | 2 | ||||||||||||
Fair value of employee stock options granted4 | 46 | 27 | 38 | 70 | ||||||||||||
Headcount (full-time equivalents) | 15,508 | 16,181 | 16,967 | (4 | ) | |||||||||||
Components of operating income
Business Banking Switzerland derives its operating income principally from:
– | net interest income from its loan portfolio and customer deposits; | |
– | fees for investment management services; and | |
– | transaction fees. |
As a result, operating income is affected by movements in interest rates, fluctuations in invested assets, client activity levels, investment performance, changes in market conditions and the credit environment.
38
2004
Performance indicators
Net new money was CHF 2.6 billion in 2004, slightly higher than the inflow of CHF 2.5 billion in 2003.
Business Banking Switzerland’s loan portfolio was CHF 137 billion on 31 December 2004, down CHF 2 billion from the previous year. An increase in volumes of private client mortgages was offset by lower credit demand from corporate clients and a further reduction in the recovery portfolio, which fell to CHF 4.4 billion on 31 December 2004 from CHF 6.4 billion a year earlier. This positive development was also reflected in the key credit quality ratios: the non-performing loan ratio improved to 2.3% from 3.2%, while the ratio of impaired loans to gross loans was 3.0% compared to 4.6% in 2003.
Results
Pre-tax profit in 2004 was CHF 2,045 million, only CHF 100 million or 5% lower than the record result achieved in 2003. It was achieved despite a CHF 184 million fall in income, driven mainly by lower interest income. The result shows the continued tight management of our cost base, with lower credit loss expenses reflecting the structural improvement in our loan portfolio in recent years. In 2004, personnel expenses and depreciation reached their lowest levels since the UBS-SBC merger in 1998.
Operating income
Operating expenses
39
Financial Businesses
Wealth Management & Business Banking
because of lower charge-outs for IT services. Depreciation in 2004 dropped to CHF 69 million from CHF 88 million in 2003 due to lower expenses for information technology equipment.
Headcount
Business Banking Switzerland’s headcount was 15,508 on 31 December 2004, a decline of 673 from 31 December 2003, reflecting our continued investment in technology and automation, as well as the ongoing streamlining of processes and structures.
2003
Performance indicators
Net new money was CHF 2.5 billion in 2003 compared with an inflow of CHF 3.7 billion in 2002.
to 3.2% from 3.6%, while the ratio of impaired loans to gross loans was 4.6% compared with 6.0% in 2002.
Results
Pre-tax profit in 2003 was CHF 2,145 million, up 9% from 2002. The result was achieved despite slightly lower revenues in difficult market conditions. This performance is also evidence of the continued tight management of our cost base, and lower credit loss expenses reflecting the deferred benefit of the structural improvement in our loan portfolio in recent years.
Operating income
Operating expenses
Headcount
Business Banking Switzerland’s headcount was 16,181 on 31 December 2003, a decline of 786 from 31 December 2002, reflecting our continued investment in technology and automation, as well as the ongoing streamlining of processes and structures.
40
Financial Businesses
Global Asset Management
Global Asset Management
Pre-tax profit was CHF 544 million, an increase of 64% from the 2003 pre-tax profit of CHF 332 million. The increase was driven by higher operating income, which rose 16%, reflecting strong net new money inflows, a continuing change in asset mix towards higher-margin products, and a rise in market valuations resulting in increased asset levels and revenues.
Business Group reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Institutional fees | 1,085 | 922 | 865 | 18 | ||||||||||||
Wholesale intermediary fees | 937 | 815 | 790 | 15 | ||||||||||||
Total operating income | 2,022 | 1,737 | 1,655 | 16 | ||||||||||||
Personnel expenses | 901 | 806 | 763 | 12 | ||||||||||||
General and administrative expenses | 299 | 265 | 301 | 13 | ||||||||||||
Services to/from other business units | 126 | 156 | 164 | (19 | ) | |||||||||||
Depreciation | 23 | 25 | 22 | (8 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 129 | 153 | 186 | (16 | ) | |||||||||||
Total operating expenses | 1,478 | 1,405 | 1,436 | 5 | ||||||||||||
Business Group performance before tax | 544 | 332 | 219 | 64 | ||||||||||||
Performance indicators | ||||||||||||||||
Cost/income ratio (%)1 | 73.1 | 80.9 | 86.8 | |||||||||||||
Institutional | ||||||||||||||||
Invested assets (CHF billion) | 344 | 313 | 274 | 10 | ||||||||||||
of which: money market funds | 17 | 14 | 19 | 21 | ||||||||||||
Net new money (CHF billion)2 | 23.7 | 12.7 | (1.4 | ) | ||||||||||||
of which: money market funds | (1.2 | ) | (5.0 | ) | (1.8 | ) | ||||||||||
Gross margin on invested assets (bps)3 | 32 | 32 | 29 | 0 | ||||||||||||
41
Financial Businesses
Global Asset Management
Global Asset Management (continued)
Wholesale intermediary | As at or for the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Invested assets (CHF billion) | 257 | 261 | 259 | (2 | ) | |||||||||||
of which: money market funds | 64 | 87 | 106 | (26 | ) | |||||||||||
Net new money (CHF billion)1 | (4.5 | ) | (5.0 | ) | (6.3 | ) | ||||||||||
of which: money market funds | (20.6 | ) | (23.0 | ) | (6.9 | ) | ||||||||||
Gross margin on invested assets (bps)2 | 36 | 31 | 27 | 16 | ||||||||||||
Additional information | As at or for the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Client assets (CHF billion) | 601 | 574 | 533 | 5 | ||||||||||||
Regulatory equity allocated (average) | 950 | 1,000 | 1,100 | (5 | ) | |||||||||||
Fair value of employee stock options granted3 | 43 | 41 | 43 | 5 | ||||||||||||
Headcount (full-time equivalents) | 2,665 | 2,627 | 2,668 | 1 | ||||||||||||
Components of operating income
Global Asset Management generates its revenue from the asset management and fund administration services it provides to financial intermediaries and institutional investors. Fees charged to institutional clients and wholesale intermediary clients are based on the market
value of invested assets and on successful investment performance. As a result, revenues are affected by changes in market and currency valuation levels, as well as flows of client funds, and relative investment performance.
2004
Performance indicators
For 2004, the cost/income ratio was 73.1%, a strong improvement of of 7.8 percentage points from 2003. This was a result of improving operating income combined with modest cost growth. Higher market valuations coupled with strong net new money inflows resulted in increased invested asset levels and, subsequently, higher asset-based fees. The continuing change in asset-mix towards higher-margin products increased operating income and overall profitability. Goodwill and other intangible asset amortization accounted for 6.4 per-
Institutional
42
Wholesale intermediary
Money market sweep accounts
43
Financial Businesses
Global Asset Management
We do not expect further major outflows from our money market funds into UBS Bank USA in 2005.
Investment capabilities and performance
Financial markets experienced greater volatility in 2004 than in the previous year due to rising oil prices and continued geopolitical instability. Still, equity markets made progress, with strong gains during fourth quarter. Most of our actively managed global and regional equity strategies outperformed their benchmarks, with particularly strong performances in European and US asset classes. The Global Equity composite performed marginally below benchmark (after fees) for the year.
Results
We reported a very strong full-year result in 2004. Pre-tax profit was CHF 544 million, an increase of 64% from the 2003
pre-tax profit of CHF 332 million. The increase was driven by higher operating income, which rose 16%, reflecting strong net new money inflows, a continuing change in asset mix towards higher-margin products, and a rise in market valuations resulting in increased asset levels and revenues. This was only partially offset by a slight rise in operating expenses, mainly due to higher incentive-based compensation as a result of the higher revenues.
Operating income
Operating expenses
Annualized | ||||||||||||||||||
Composite | 1 year | 3 years | 5 years | 10 years | ||||||||||||||
Global Equity Composite vs. MSCI World Equity (Free) Index | – | – | + | + | ||||||||||||||
Global Bond Composite vs. Citigroup World Government Bond Index | – | + | + | + | ||||||||||||||
Global Securities Composite vs. Global Securities Markets Index | + | + | + | + | ||||||||||||||
44
2003. This increase was mainly due to a restructuring provision in our business in the Americas booked in third quarter 2004 and the damage caused by Hurricane Ivan in the Cayman Islands. Travel and entertainment costs, IT expenses and professional fees increased year-on-year. Net charges from other business units decreased by CHF 30 million to CHF 126 million in 2004 from CHF 156 million in 2003, partly due to higher charge-outs to the wealth management businesses reflecting the increase in the distribution of alternative investment products. Over the same period, depreciation remained virtually unchanged at CHF 23 million, down by only CHF 2 million. Amortization of goodwill decreased to CHF 129 million in 2004 from CHF 153 million a year earlier, due to the full amortization of the goodwill of some businesses and the US dollar’s decline against the Swiss franc.
Headcount
Headcount was 2,665 on 31 December 2004, up by 38 from 2,627 on 31 December 2003. The increase of 1% is mainly attributable to our expansion of the European real estate business as well as our growing businesses in alternative and quantitative investments and fund services.
2003
Performance indicators
For 2003, the cost/income ratio was 80.9%, a significant improvement of 5.9 percentage points from 2002. This was a result of improving operating income and operating expenses. The recovery in equity markets experienced in the second half of 2003 resulted in higher invested asset levels and, consequently, higher asset-based revenues. Strong inflows of net new money (excluding lower fee money market funds), combined with improved investment performance, especially in the alternative and quantitative platform, helped revenues to rise. These developments were supported by ongoing cost control initiatives that drove operating expenses down by 2%. Goodwill and other intangible asset amortization accounted
for 8.8 percentage points of the ratio in 2003 and for 11.3 percentage points in 2002. Pre-goodwill, the ratio dropped by 3.4 percentage points.
Institutional
Wholesale intermediary
Results
Global Asset Management reported a pre-tax profit of CHF 332 million in 2003, an increase of 52% from 2002’s pre-tax profit of CHF 219 million. The recovery in the second half of 2003 in equity market valuations, coupled with strong inflows into alternative investments, equities and fixed income mandates, resulted in higher invested asset levels and, consequently, increased asset-based revenues. Performance-related fees, especially in the alternative and quantitative business, showed significant improvement over 2002. Ongoing cost control initiatives that systematically reduced operating expenses contributed significantly to improved profitability. Lower IT and premises costs prompted general and administrative expenses to decline. Amortization ex-
45
Financial Businesses
Global Asset Management
penses fell as the goodwill of some assets became fully amortized. These developments were partially offset by higher incentive-based compensation resulting from the increase in operating income.
Operating income
Operating expenses
Headcount
Headcount was 2,627 on 31 December 2003, down by 41 from 2,668 on 31 December 2002. The decrease of 2% primarily reflects cost-saving efforts in the traditional investments business.
46
Financial Businesses
Investment Bank
Investment Bank
In 2004, the Investment Bank’s pre-tax profit was CHF 4,540 million, up 18% from a year earlier. Results were driven by strong performances across all businesses and fueled by a pick-up in market activity.
Business Group reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Investment banking | 1,909 | 1,703 | 1,915 | 12 | ||||||||||||
Equities | 5,906 | 4,875 | 5,608 | 21 | ||||||||||||
Fixed income, rates and currencies | 7,912 | 7,490 | 6,498 | 6 | ||||||||||||
Private equity | 257 | (77 | ) | (1,602 | ) | |||||||||||
Income | 15,984 | 13,991 | 12,419 | 14 | ||||||||||||
Adjusted expected credit loss1 | (7 | ) | (55 | ) | (90 | ) | 87 | |||||||||
Total operating income | 15,977 | 13,936 | 12,329 | 15 | ||||||||||||
Personnel expenses | 8,156 | 7,303 | 7,815 | 12 | ||||||||||||
General and administrative expenses | 2,535 | 2,074 | 2,359 | 22 | ||||||||||||
Services to/from other business units | 219 | 180 | 140 | 22 | ||||||||||||
Depreciation | 239 | 246 | 320 | (3 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 288 | 278 | 364 | 4 | ||||||||||||
Total operating expenses | 11,437 | 10,081 | 10,998 | 13 | ||||||||||||
Business Group performance before tax | 4,540 | 3,855 | 1,331 | 18 | ||||||||||||
Performance indicators | ||||||||||||||||
Compensation ratio (%)2 | 51 | 52 | 63 | |||||||||||||
Cost/income ratio (%)3 | 71.6 | 72.1 | 88.6 | |||||||||||||
Non-performing loans/gross loans (%) | 0.6 | 0.8 | 1.5 | |||||||||||||
Impaired loans/gross loans (%) | 0.8 | 1.4 | 2.5 | |||||||||||||
Average VaR (10-day 99%) | 358.0 | 294.8 | 21 | |||||||||||||
47
Financial Businesses
Investment Bank
Investment Bank (continued)
Private equity | As at or for the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Value creation (CHF billion) | 0.6 | (0.3 | ) | (1.4 | ) | |||||||||||
Investment (CHF billion)1 | 1.9 | 2.3 | 3.1 | (17 | ) | |||||||||||
Portfolio fair value (CHF billion) | 2.7 | 2.9 | 3.8 | (7 | ) | |||||||||||
Additional information | As at or for the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Deferral (included in adjusted expected credit loss) | 85 | 29 | 8 | 193 | ||||||||||||
Client assets (CHF billion) | 147 | 143 | 133 | 3 | ||||||||||||
Regulatory equity allocated (average) | 14,100 | 12,700 | 13,100 | 11 | ||||||||||||
Fair value of employee stock options granted2 | 258 | 391 | 582 | (34 | ) | |||||||||||
Headcount (full-time equivalents) | 16,568 | 15,277 | 15,791 | 8 | ||||||||||||
Components of operating income
The Investment Bank generates operating income from:
– | commissions on agency transactions and spreads or markups on principal transactions; | |
– | fees from debt and equity capital markets transactions, leveraged finance, and the structuring of derivatives and complex transactions; | |
– | mergers and acquisitions and other advisory fees; | |
– | interest income on principal transactions and from the loan portfolio; and |
– | gains and losses on market making, proprietary, and arbitrage positions. |
2004
Performance indicators
The cost/income ratio improved to 71.6% in 2004 from 72.1% a year earlier. It reflected a strong revenue performance in all businesses. Goodwill and other intangible asset amortization accounted for 1.8 percentage points of the ratio in 2004 and for 2.0 percentage points in 2003. Pre-goodwill, the ratio dropped by 0.3 percentage points.
investment banking hiring program. Payout levels are driven by the revenue mix across business areas and are managed in line with market levels.
48
1.9 billion on 31 December 2004, a decline of 17% from CHF 2.3 billion on 31 December 2003, reflecting writedowns and successful divestments. Unfunded commitments fell by 47% to CHF 0.8 billion on 31 December 2004 from CHF 1.5 billion a year ago. The fair value of the portfolio on 31 December 2004 was CHF 2.7 billion, down from CHF 2.9 billion on 31 December 2003, driven by exits and revaluations.
Results
Pre-tax profit was CHF 4,540 million in 2004, up 18% from a year earlier and at its highest level since 2000. Our result was achieved despite the significant weakening of the US dollar against the Swiss franc and reflects revenue growth across all our businesses. In particular, our fixed income, rates and cur-
rencies business posted a record result, up 6% from 2003, while the equities business reported a 21% increase in revenues on the strong improvement in market conditions. Private equity also contributed to our result, recording revenues of CHF 257 million, a significant improvement. At the same time, costs increased as our businesses continued to expand, with specific operational provisions also a factor.
Operating income
Operating expenses
49
Financial Businesses
Investment Bank
enues, as well as an increase in salaries reflecting the 8% additional headcount. General and administrative expenses were CHF 2,535 million in 2004, up 22% from 2003’s CHF 2,074 million. The increase reflected higher operational provisions, rising professional fees and raised IT spending. This was partially offset by a drop in administration and occupancy expenses. Services from other business units increased to CHF 219 million in 2004 from CHF 180 million in 2003. Depreciation eased 3% to CHF 239 million in 2004 from CHF 246 million in 2003 on a decline in writeoffs. Amortization of goodwill and other intangibles, at CHF 288 million in 2004, was up 4% from CHF 278 million a year earlier, reflecting the ABN Amro acquisition.
Headcount
Headcount, at 16,568 on 31 December 2004, was up 8% from a year earlier. Staffing increases were driven by continued business expansion and included the impact of integrating personnel from the Charles Schwab Capital Markets division and the hiring of additional operational risk management and compliance staff.
2003
Performance indicators
The cost/income ratio decreased to 72.1% in 2003 from 88.6% in 2002. The fall reflects an increase in revenues, driven by our fixed income, rates and currencies business and our private equity business, set against the drop in operating expenses, which reflected our disciplined cost control. Both revenues and expenses were affected by the weakening of major currencies, mainly the US dollar, against the Swiss franc. Goodwill and other intangible asset amortization accounted for 2.0 percentage points of the ratio in 2003 and for 3.0 percentage points in 2002. Pre-goodwill, the ratio dropped by 15.5 percentage points.
50
CHF 3.8 billion a year earlier. Unfunded commitments continued to fall, totaling CHF 1.5 billion at end-2003, down from CHF 2.1 billion a year earlier.
Results
Pre-tax profit was CHF 3,855 million in full-year 2003, up 190% from a year earlier. This result was achieved despite the weakening of the US dollar against the Swiss franc and reflects strong performances in all our businesses. In particular, the private equity business showed a marked improvement of CHF 1.5 billion, reflecting lower levels of writedowns and a number of successful exits. Writedowns in 2003 totaled CHF 353 million, compared to CHF 1.7 billion in 2002. This was accentuated by a strong result in our fixed income, rates and currencies business, gaining 15% from 2002, reflecting the breadth of our capabilities and our expanding franchise. At the same time, costs were tightly controlled. Both personnel expenses and general and administrative expenses fell because of currency fluctuations. Excluding the impact of currency movements, personnel expenses rose in 2003, reflecting improved revenues, while general and administrative expenses remained largely unchanged from 2002.
Operating income
somewhat offset by negative revenues of CHF 678 million relating to Credit Default Swaps (CDSs) hedging existing credit exposure in the loan book. Private equity income for 2003 was negative CHF 77 million, compared to negative CHF 1,602 million in 2002. The significant improvement in performance was primarily driven by a sharp fall in investment writedowns.
Operating expenses
Headcount
Headcount, at 15,277 on 31 December 2003, fell 3% from a year earlier. The drop reflects ongoing, regular reviews of our cost structure and staffing needs, taking into account productivity gains and the automation of services. That was partially offset by the acquisition of ABN Amro’s prime brokerage business and continued investment in specific areas, including our US investment banking and fixed income, rates and currencies businesses.
51
Financial Businesses
Wealth Management USA
Wealth Management USA
In 2004, Wealth Management USA reported a pre-tax gain of CHF 179 million compared to a loss of CHF 5 million in 2003. In US dollar terms, operational performance excluding acquisition costs was the best since PaineWebber became part of UBS, reflecting record recurring fees and increased net interest revenue.
Business Group reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Private client revenues | 4,906 | 4,959 | 1 | 5,471 | (1 | ) | ||||||||||
Municipal finance revenues | 372 | 462 | 480 | (19 | ) | |||||||||||
Net goodwill funding | (180 | ) | (231 | ) | (390 | ) | 22 | |||||||||
Income | 5,098 | 5,190 | 5,561 | (2 | ) | |||||||||||
Adjusted expected credit loss2 | (5 | ) | (8 | ) | (13 | ) | 38 | |||||||||
Total operating income | 5,093 | 5,182 | 5,548 | (2 | ) | |||||||||||
Personnel expenses3 | 3,437 | 3,627 | 4,158 | (5 | ) | |||||||||||
General and administrative expenses | 800 | 719 | 926 | 11 | ||||||||||||
Services to/from other business units | 302 | 433 | 492 | (30 | ) | |||||||||||
Depreciation | 71 | 72 | 81 | (1 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 304 | 336 | 1,691 | 4 | (10 | ) | ||||||||||
Total operating expenses | 4,914 | 5,187 | 7,348 | (5 | ) | |||||||||||
Business Group performance before tax | 179 | (5 | ) | (1,800 | ) | |||||||||||
Additional information | For the year ended | % change from | ||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Net goodwill funding 5 | 180 | 231 | 390 | (22 | ) | |||||||||||
Retention payments | 99 | 263 | 351 | (62 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 304 | 336 | 457 | (10 | ) | |||||||||||
Total acquisition costs | 583 | 830 | 1,198 | (30 | ) | |||||||||||
52
Wealth Management USA (continued)
Performance indicators | As at or for the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Invested assets (CHF billion) | 639 | 634 | 584 | 1 | ||||||||||||
Net new money (CHF billion)1 | 17.1 | 21.1 | 18.5 | |||||||||||||
Interest and dividend income (CHF billion)2 | 16.0 | 15.8 | 17.9 | 1 | ||||||||||||
Gross margin on invested assets (bps)3 | 79 | 86 | 82 | (8 | ) | |||||||||||
Cost/income ratio (%)4 | 96.4 | 99.9 | 132.1 | |||||||||||||
Recurring fees5 | 2,057 | 1,927 | 2,199 | 7 | ||||||||||||
Financial advisor productivity (CHF thousand)6 | 655 | 597 | 639 | 13 | ||||||||||||
Additional information | As at or for the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Client assets (CHF billion) | 679 | 690 | 650 | (2 | ) | |||||||||||
Regulatory equity allocated (average) | 5,100 | 5,700 | 7,450 | (11 | ) | |||||||||||
Fair value of employee stock options granted7 | 101 | 62 | 73 | 63 | ||||||||||||
Headcount (full-time equivalents) | 17,388 | 17,435 | 19,029 | 0 | ||||||||||||
Financial advisors (full-time equivalents) | 7,519 | 7,766 | 8,857 | (3 | ) | |||||||||||
Components of operating income
Wealth Management USA principally derives its operating income from:
– fees for financial planning and wealth management services; | ||
– fees for discretionary management services; | ||
– transaction-related fees; and | ||
– interest income from client loans. |
These fees are based on the market value of invested assets, the level of transaction-related activity and the size of the loan book. As a result, operating income is affected by such factors as fluctuations in invested assets, changes in market conditions, investment performance, inflows and outflows of client funds, and investor activity levels.
53
Financial Businesses
Wealth Management USA
2004
Performance indicators
Wealth Management USA had CHF 639 billion in invested assets on 31 December 2004, up 1% from CHF 634 billion on 31 December 2003. The increase was due to inflows of net new money and the effects of market appreciation, partly offset by the weakening of the US dollar against the Swiss franc. In US dollar terms, invested assets were 10% higher on 31 December 2004 than they were on the same date in 2003.
We continue to report strong inflows of net new money compared to peers. In 2004, inflows were CHF 17.1 billion, CHF 4 billion lower than the CHF 21.1 billion reported in 2003. Including interest and dividends, net new money in 2004 was CHF 33.1 billion, lower than the CHF 36.9 billion reported in 2003. The decline in net new money mainly occurred in a slow first half-year, when investor confidence lagged.
The gross margin on invested assets was 79 basis points in 2004, down from 86 basis points in 2003. The increase in average invested asset levels outpaced the gain in revenues as higher private client revenues were mostly offset by lower municipal finance revenues. The gain from the sale of the CSC business helped the margin in 2003 by 3 basis points, whereas goodwill funding lowered the margin by 4 basis points in 2003 and by 3 basis points in 2004.
The cost/income ratio was 96.4% for 2004, compared to 99.9% in 2003. The improvement in the cost/income ratio reflects our continuous cost control as well as the excellent performance of our core private clients business. Excluding acquisition costs (net goodwill funding, retention payments, amortization of goodwill and other intangible assets) and the
sale of our CSC business in 2002, the ratio decreased by 1.7 percentage points.
54
Flows into managed account products were USD 12.4 billion in full-year 2004, comparing favorably to the USD 10.2 billion flow for full-year 2003. Recurring fees combined with the net interest income, principally from our lending business, now represent around half of our total revenues.
Productivity per advisor increased in 2004 to CHF 655,000 from CHF 597,000 in 2003 as a lower number of financial advisors were able to produce roughly the same revenues as a year earlier. The number of financial advisors decreased to 7,519 in 2004 from 7,766 a year earlier due to attrition among less productive financial advisors. In the second half of 2003, we resumed our trainee program and we continued to recruit financial advisors throughout 2004, with our focus primarily on talented and highly productive advisors. As a result, we expect renewed growth in our advisor force.
Results
In 2004, we reported a pre-tax gain of CHF 179 million compared to a loss of CHF 5 million in 2003. The 2003 results include a pre-tax gain of CHF 161 million from the sale of Correspondent Services Corporation (CSC) in second quarter. As our business is almost entirely conducted in US dollars, comparisons of 2004 and 2003 results are affected by the depreciation of the US dollar versus the Swiss franc. In US dollar terms, operational performance (excluding acquisition costs and sale of CSC) in 2004 was 24% higher than in 2003.
This represents the best result since PaineWebber became part of UBS, reflecting record recurring fees and increased net interest revenue benefiting from the first full-year impact of UBS Bank USA. In municipal finance, revenues fell due to lower transaction and underwriting volumes and reduced derivative activity. Still, aBloombergarticle reported that we became the top-ranked firm in lead-managed negotiated underwriting volume in 2004 by increasing our market share to 14.2%, up from last year’s 12.5%.
Operating income
Operating expenses
55
Financial Businesses
Wealth Management USA
charges and increased consulting fees related to key initiatives in the private client business. This was partially offset by lower depreciation due to a drop in infrastructure charges (down CHF 1 million) as well as a decline in goodwill amortization due to the sale of CSC (down CHF 32 million).
Headcount
Our headcount decreased by 47 during 2004 to 17,388 as financial advisor headcount fell 3% to 7,519, principally reflecting attrition among lower producing financial advisors. Non-financial advisor headcount increased 200 or 2% in 2004 from a year earlier due to additional personnel to support key initiatives within the private clients area.
2003
Performance indicators
Wealth Management USA had CHF 634 billion in invested assets on 31 December 2003, up 9% from CHF 584 billion on 31 December 2002. The increase was due to inflows of net new money and the effects of market appreciation. In US dollar terms, invested assets were 21% higher on 31 December 2003 than they were at the same time in 2002.
the gain was accentuated by higher recurring fees in the municipal securities business.
Results
As our business is almost entirely conducted in US dollars, comparisons of 2003 and 2002 results are affected by the depreciation of the US dollar versus the Swiss franc.
Operating income
Operating expenses
56
expenses fell 22% from CHF 926 million in 2002 to CHF 719 million in 2003. Excluding the impact of currency fluctuations, general and administrative expenses dropped 11% compared to 2002 due to the strict cost management discipline that we have exerted in the past three years. Operational provisions also fell as 2002 included the equity research settlement charge of CHF 21 million. The drop was further accentuated by the sale of the CSC business. Services rendered from other business units decreased by 12% to CHF 433 million in 2003 from CHF 492 million in 2002. Depreciation decreased CHF 9 million to CHF 72 million in 2003 from CHF 81 million in 2002. Goodwill and other intangible amortization decreased from CHF 1,691 million in 2002 to CHF
336 million in 2003. This decrease was due to the writedown of the PaineWebber brand name in 2002, and the sale of CSC. Excluding the writedown and the sale of CSC, amortization charges dropped by 26% as a result of the weakening US dollar against the Swiss franc.
Headcount
Wealth Management USA’s headcount decreased 8% during 2003 to 17,435, reflecting continued cost management initiatives, the curtailment of the trainee program, and the sale of CSC. Non-financial advisor headcount was down by 503 or 5% compared to the end of 2002.
57
Financial Businesses
Corporate Center
Corporate Center
Corporate Center reported a pre-tax loss of CHF 276 million in 2004, compared to a loss of CHF 759 million in 2003.
Business Group reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Income | 1,258 | 900 | 2,403 | 1 | 40 | |||||||||||
Credit loss (expense)/recovery2 | 321 | 122 | 300 | 163 | ||||||||||||
Total operating income | 1,579 | 1,022 | 2,703 | 55 | ||||||||||||
Personnel expenses | 1,222 | 1,145 | 1,450 | 7 | ||||||||||||
General and administrative expenses | 1,237 | 1,334 | 1,564 | (7 | ) | |||||||||||
Services to/from other business units | (1,509 | ) | (1,639 | ) | (1,633 | ) | 8 | |||||||||
Depreciation | 814 | 840 | 893 | (3 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 91 | 101 | 122 | (10 | ) | |||||||||||
Total operating expenses | 1,855 | 1,781 | 2,396 | 4 | ||||||||||||
Business Group performance before tax | (276 | ) | (759 | ) | 307 | 64 | ||||||||||
Additional information | For the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Fair value of employee stock options granted3 | 14 | 18 | 37 | (22 | ) | |||||||||||
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Private Banks & GAM
Business Unit reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Income | 1,145 | 880 | 1,038 | 1 | 30 | |||||||||||
Adjusted expected credit loss2 | (6 | ) | (2 | ) | (2 | ) | (200 | ) | ||||||||
Total operating income | 1,139 | 878 | 1,036 | 30 | ||||||||||||
Personnel expenses | 432 | 381 | 386 | 13 | ||||||||||||
General and administrative expenses | 160 | 169 | 120 | (5 | ) | |||||||||||
Services to/from other business units | 10 | 11 | 12 | (9 | ) | |||||||||||
Depreciation | 20 | 28 | 40 | (29 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 74 | 81 | 98 | (9 | ) | |||||||||||
Total operating expenses | 696 | 670 | 656 | 4 | ||||||||||||
Business Unit performance before tax | 443 | 208 | 380 | 113 | ||||||||||||
Performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 92 | 84 | 70 | 10 | ||||||||||||
Net new money (CHF billion)3 | 7.7 | 7.2 | 4.2 | |||||||||||||
Cost/income ratio (%)4 | 60.8 | 76.1 | 63.2 | |||||||||||||
Additional information | ||||||||||||||||
As at or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Regulatory equity allocated (average) | 650 | 700 | 850 | (7 | ) | |||||||||||
Headcount (full-time equivalents) | 1,649 | 1,672 | 1,702 | (1 | ) | |||||||||||
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Financial Businesses
Corporate Center
2004
Performance indicators
In 2004, Private Banks & GAM reported a record net new money inflow of CHF 7.7 billion, up from the previous record of CHF 7.2 billion in 2003. Performance was driven by GAM’s continued business strength.
Results
Pre-tax profit was a record CHF 443 million in 2004, up 113% from CHF 208 million a year earlier, reflecting improved market conditions, which produced a 10% growth in the asset base, and resulted in higher asset-based revenues. Results were helped by a 9% decline in non-personnel costs, which continued to be tightly controlled.
Headcount
Headcount was 1,649 on 31 December 2004, down 1% from 1,672 on 31 December 2003.
2003
Performance indicators
Invested assets in Private Banks & GAM totaled CHF 84 billion on 31 December 2003, up from CHF 70 billion on 31 December 2002, reflecting strong net new money inflows, and positive financial markets as well as the acquisition of Banque Notz Stucki S.A. by Ferrier Lullin & Cie S.A., which was completed in December 2003.
Results
Pre-tax profit, at CHF 208 million in 2003, dropped by 45% from CHF 380 million a year earlier.
Headcount
Headcount decreased by 30 to 1,672 on 31 December 2003 from 1,702 a year earlier, mainly due to the rationalization within the individual private banks. This was partially offset by the acquisition of Banque Notz Stucki S.A. as well as an increase in headcount at GAM due to the growth of the business.
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Corporate Functions
Business Unit reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Income | 113 | 20 | 1,365 | 1 | 465 | |||||||||||
Credit loss (expense)/recovery2 | 327 | 124 | 302 | 164 | ||||||||||||
Total operating income | 440 | 144 | 1,667 | 206 | ||||||||||||
Personnel expenses | 790 | 764 | 1,064 | 3 | ||||||||||||
General and administrative expenses | 1,077 | 1,165 | 1,444 | (8 | ) | |||||||||||
Services to/from other business units | (1,519 | ) | (1,650 | ) | (1,645 | ) | 8 | |||||||||
Depreciation | 794 | 812 | 853 | (2 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 17 | 20 | 24 | (15 | ) | |||||||||||
Total operating expenses | 1,159 | 1,111 | 1,740 | 4 | ||||||||||||
Business Unit performance before tax | (719 | ) | (967 | ) | (73 | ) | 26 | |||||||||
Additional information
As at or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Regulatory equity allocated (average) | 6,950 | 8,450 | 9,400 | (18 | ) | |||||||||||
Headcount (full-time equivalents) | 3,553 | 3,561 | 3,505 | 0 | ||||||||||||
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Financial Businesses
Corporate Center
2004
Results
Corporate Functions recorded a pre-tax loss of CHF 719 million in full-year 2004, compared to a loss of CHF 967 million a year earlier. The improvement was driven by a CHF 93 million rise in income and significantly higher credit loss recoveries (up CHF 203 million). Operating expenses increased CHF 48 million, reflecting higher personnel expenses. There were lower charges to other business units, reflecting cost savings at the Information Technology Infrastructure unit (ITI) and lower insurance premiums.
Operating income
Operating expenses
Headcount
Corporate Functions headcount outside the ITI unit was 1,199 on 31 December 2004, down by 7 from 1,206 on 31 December 2003. Over the same period, ITI headcount dropped 1 to 2,354.
2003
Results
Corporate Functions recorded a pre-tax loss of CHF 967 million in full-year 2003, against a CHF 73 million loss a year earlier.
Operating income
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Operating expenses
At CHF 20 million in 2003, amortization of goodwill and other intangibles dropped by 17% from CHF 24 million in 2002, reflecting the drop of the US dollar against the Swiss franc.
Headcount
Corporate Functions headcount was 3,561 on 31 December 2003, an increase of 56 from the 3,505 on 31 December 2002. The increase was mainly due to the first-time consolidation of Hotel Widder as well as an increase in our human resources and risk functions. This was nearly offset by a decline in the number of trainees, a transfer of some employees to the Business Groups, and lower headcount in the Chief Communication Officer area.
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64
Industrial Holdings
Industrial Holdings
Income statement1
For the year ended | ||||
CHF million, except where indicated | 31.12.04 | |||
Income3 | 3,667 | |||
Total operating income | 3,667 | |||
Personnel expenses | 326 | |||
General and administrative expenses | 126 | |||
Depreciation | 70 | |||
Amortization of goodwill and other intangible assets | 77 | |||
Goods and materials purchased | 2,861 | |||
Total operating expenses | 3,460 | |||
Operating profit before tax and minority interests | 207 | |||
Tax expense | 49 | |||
Net profit before minority interests | 158 | |||
Minority interests4 | (113 | ) | ||
Net profit | 45 | |||
Additional information | As at | |||
31.12.04 | ||||
Headcount (full-time equivalents) | 8,020 | |||
Major participations
The Industrial Holdings segment is a new segment, currently made up of UBS’s majority stake in Motor-Columbus, a financial holding company whose only significant asset is a 59.3% interest in the Atel Group (Aare-Tessin Ltd. for Electricity). Atel, based in Olten, Switzerland, is a European energy provider focused on electricity trading and marketing, domestic and international power generation, electricity transmission and energy services. Motor-Columbus also holds several other finance and property companies.
Transfer of private equity stakes
In first quarter 2005, our private equity investments, currently part of the Investment Bank, will be reported within the Industrial Holdings segment. This matches our strategy of de-emphasizing and reducing exposure to this asset class while capitalizing on orderly exit opportunities when they arise. Current management will continue to look after the portfolio.
UBS listedResults
UBS’s consolidation of Motor-Columbus into its Global Registered Sharesaccounts at the beginning of third quarter 2004 resulted in a revaluation of the latter’s assets and liabilities. These are no longer comparable with those previously published in Motor-Columbus’s separate consolidated financial statements. The comparative analysis provided here is based on unaudited proforma 2003 results.
7
Balance Sheet and Cash Flows
Balance sheet and off-balance sheet
Balance sheet and off-balance sheet
UBS’s total assets stood at CHF 1,734.8 billion on 31 December 2004, up from CHF 1,550.1 billion on 31 December 2003. The increase in total assets was the net result of growth in the trading portfolio (up CHF 67.6 billion), collateral trading assets (up CHF 43.0 billion), derivatives (up CHF 36.4 billion) and the loan book (up CHF 19.7 billion). Total liabilities rose due to higher borrowings (up CHF 80.8 billion), derivatives (up CHF 48.9 billion), trading portfolio liabilities (up CHF 27.1 billion) and collateral trading liabilities (up CHF 15.0 billion).
Motor-Columbus
Lending and borrowing
Lending
Borrowing
tially offset by early redemptions, repurchases and cancelled bonds totaling CHF 24.7 billion. We believe the maturity profile of our long-term debt portfolio balances well and matches the maturity profile of our assets. For further details, please refer to note 18 to the financial statements. The due to customers line was up CHF 29.4 billion, in connection with both prime brokerage and wealth management business growth, especially in the US (additional FDIC-insured deposits of CHF 7.7 billion), Europe and Asia.
Repo and securities borrowing/lending
Trading portfolio
Replacement values
Other assets/liabilities and minority interests
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tion of several wealth management businesses, the acquisition of the capital market business of Charles Schwab as well as the consolidation of Motor-Columbus. This was only partially offset by amortization charges of CHF 964 million during 2004.
Shareholders’ equity
Contractual obligations
The table below summarizes our contractual obligations as of 31 December 2004. All contracts, with the exception of purchase obligations (those where we are committed to purchase determined volumes of goods and services), are either recognized as liabilities on our balance sheet or, in the case of operating leases, are disclosed in note 26 to the financial statements.
Off-balance sheet arrangements
In the normal course of business, UBS enters into arrangements that, under IFRS, are not recognized on the balance
sheet and do not affect the income statement. These types of arrangements are kept off-balance sheet as long as UBS does not incur an obligation from them or become entitled to an asset itself. As soon as an obligation is incurred, it is recognized on the balance sheet, with the resulting loss recorded in the income statement. It should be noted, however, that the amount recognized on the balance sheet does not, in many instances, represent the full loss potential inherent in such arrangements.
Guarantees
Retained interests
Contractual obligations
Payment due by period | ||||||||||||||||
CHF million | Less than 1 year | 1–3 years | 3–5 years | More than 5 years | ||||||||||||
Long-term debt | 17,847 | 26,978 | 23,805 | 31,402 | ||||||||||||
Capital lease obligations | 104 | 163 | 44 | 0 | ||||||||||||
Operating leases | 886 | 1,524 | 1,231 | 4,060 | ||||||||||||
Purchase obligations | 10,580 | 5,545 | 2,075 | 9,398 | ||||||||||||
Other long term liabilities | 173 | 2 | 959 | 0 | ||||||||||||
Total | 29,590 | 34,212 | 28,114 | 44,860 | ||||||||||||
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Balance Sheet and Cash Flows
Balance sheet and off-balance sheet
beneficial interests in the form of securities. Generally, the beneficial interests are sold to third parties shortly after the securitization. We do not provide guarantees or other forms of credit support to these SPEs. Assets are no longer reported in our consolidated financial statements as soon as their risk or reward is transferred to a third party. For further discussion of our securitization activities, see note 34 to the financial statements.
Derivative instruments recorded in shareholders’ equity
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Balance Sheet and Cash Flows
Cash flows
Cash flows
At end-2004, the level of cash and cash equivalents rose to CHF 82.8 billion, up CHF 9.4 billion from 73.4 billion at end-2003.
Operating activities
Investing activities
Financing activities
2003, and because we issued CHF 21.4 billion in money market paper in 2004 after repaying CHF 14.7 billion a year earlier.
2003
In the full year to 31 December 2003, cash and cash equivalents decreased by CHF 9.0 billion, principally as a result of financing activities, which generated negative cash flows of CHF 13.3 billion. Significant cash outflows resulted from CHF 14.7 billion in repayments of money market paper, CHF 6.8 billion from movements in treasury shares and derivative activity in own equity, and CHF 2.3 billion from dividends paid. Issuance of long-term debt of CHF 23.6 billion and repayments of CHF 13.6 billion brought a net cash inflow of CHF 10.0 billion. When compared to 2002, cash outflows from financing activities fell by approximately CHF 19 billion. The main reasons for the reduced outflows were an approximate CHF 12 billion decline in repayments of money market paper and higher net inflows of roughly CHF 8 billion in both issuance and repayment of long-term debt. Increased buybacks of treasury shares in 2003, coupled with a higher average price for our shares, resulted in a higher cash outflow of approximately CHF 1.2 billion in 2003.
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Balance Sheet and Cash Flows
Cash flows
flecting a pick-up in activities in 2003 related to the rebound of the financial markets. Payments to tax authorities were CHF 1.1 billion, an increase of CHF 532 million compared to 2002.
2.3 billion while the sale of the CSC clearing business and a few smaller subsidiaries and associates generated CHF 834 million. Purchases of property and equipment amounted to CHF 1.4 billion, of which the largest portion was spent for IT, software and communication equipment. Comparative amounts in 2002 did not deviate materially from 2003.
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Accounting Standards and Policies
Accounting principles
Accounting principles
The discussion and analysis in the Group Financial Review and Review of Business Group Performance should be read in conjunction with the UBS Group Financial Statements and the related notes, which are shown in pages 77 to 177 of this document.
Pages 179 to 190 contain the financial statements for the UBS AG Parent Bank — the Swiss company, including branches worldwide, which owns all the UBS Group companies, directly or indirectly. Except in those pages, or where otherwise explicitly stated, all references to “UBS” refer to the UBS Group and not to the Parent Bank.
The UBS Group Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS). As a US listed company, UBS Group provideswe also provide a description in Note 39note 41 to the UBS Group Financial Statementsfinancial statements of the significant differences which would arise were our accounts to be presented under the United States Generally Accepted Accounting Principles (US GAAP), and a detailed reconciliation of IFRS shareholders’ equity and net profit to US GAAP. Major differences between Swiss Federal Banking Law requirements and IFRS are described in Note 38 to the UBS Group Financial Statements.
Group and the Parent Bank for each of these periods have been audited by Ernst & Young Ltd., as described
Standards for management accounting
Our management reporting systems and policies determine the revenues and expenses directly attributable to each business unit. Internal charges and transfer pricing adjustments are reflected in the performance of each business unit.
Inter-business unit revenues and expenses.Revenue-sharing agreements are used to allocate external customer revenues to business units on a reasonable basis. Transactions between business units are conducted at arm’s length. Inter-business unit charges are reported in the line “Services to/from other business units” for both business units concerned. Corporate Functions expenses are allocated to the operating business units to the extent that it is appropriate.
adjusted expected credit loss charged to the Business Groups. Expected credit loss reflects the average annual costs that are expected to arise over time from positions in the current portfolio that become impaired. The segment reporting shown in Note 2 to UBS Group Financial Statements has been restated to reflect the reorganization of the Group in 2002. See the “Review ofadjusted expected credit loss reported for each Business Group Performance”is the expected credit loss on page 35its portfolio plus the difference between credit loss expense and expected credit loss, amortized over a three-year period (shown as ‘deferral’ in the table). The difference between these adjusted expected credit loss figures and credit loss expenses recorded at Group level for details of changes sincefinancial reporting purposes is booked in Corporate Functions.
Except where otherwise stated, all 2000 figures for UBS Group throughout this report include the impact of the merger with Paine Webber Group, Inc., which was completed on 3 November 2000. Under purchase accounting rules, the results for 2000 reflect PaineWebber’s income and expenses for two months only, from 3 November 2000 until 31 December 2000.
After the merger of Swiss Bank Corporation and Union Bank of Switzerland was completed on 29 June 1998, we began integrating the operations of the two predecessor banks. This process included streamlining operations, eliminating duplicate information technology infrastructure, and consolidating banking premises. We established a restructuring provision of CHF 7 billion to cover UBS’s expected costs associated with the integration process. In December 1999, we recognized an additional pre-tax restructuring charge of CHF 300 million because of the merger.
Wealth | ||||||||||||||||||||||||
Wealth Management & | Investment | Management | Corporate | |||||||||||||||||||||
Business Banking | Bank | USA | Center | |||||||||||||||||||||
CHF million | Wealth | Business | Private Banks | |||||||||||||||||||||
For the year ended 31.12.04 | Management | Banking CH | & GAM | Total | ||||||||||||||||||||
Expected credit loss | (45 | ) | (436 | ) | (92 | ) | (8 | ) | (2 | ) | (583 | ) | ||||||||||||
Deferral | 37 | 411 | 85 | 3 | (4 | ) | 532 | ) | ||||||||||||||||
Adjusted expected credit loss | (8 | ) | (25 | ) | (7 | ) | (5 | ) | (6 | ) | (51 | ) | ||||||||||||
Credit loss (expense)/recovery | (1 | ) | 92 | 240 | 3 | (58 | ) | 276 | ||||||||||||||||
Balancing item charged as credit loss (expense)/recovery in Corporate Functions | 327 | |||||||||||||||||||||||
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8
additional buffer of 10% above the individually determined business unit regulatory equity requirement. The remaining equity, which mainly covers real estate, and any other unallocated equity, remains reported in the Corporate Functions unit.
hours normally worked by permanent full-time staff and is used to track the number of individuals employed by UBS. FTE cannot exceed 1.0 for any particular individual. Head-count includes all staff and trainees other than short-term temporary workers (hired for less than 90 calendar days) and contractors.
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Critical accounting policies
Basis of preparation and selection of policies
We prepare our Financial Statementsfinancial statements in accordance with IFRS, and provide a reconciliation to generally accepted accounting principles in the United States (US GAAP). When feasible, we reduce the differences between our Financial Statements under the two standards by applying accounting policies that are in accordance with both setsUS GAAP. The application of standards. This approach limits (but does not completely eliminate) the range of elective accounting treatments available to us, but there are still rules under both standards which require us to apply judgement and make estimates in preparing our Financial Statements. The more significantcertain of these accounting principles requires a significant amount of judgment based upon estimates and assumptions that involve significant uncertainty at the time they are made. Changes in assumptions may have a significant impact on the financial statements in the periods where assumptions are changed. Accounting treatments where significant assumptions and estimates are used are discussed in this section, as a guide to understanding how their application affects our reported resultsresults. A broader and our disclosure. A broadermore detailed description of the accounting policies we employ is shown in Notenote 1 to the UBS Group Financial Statements.
Recognition and measurementFair value of financial instruments
Assets and measurement of financial instruments.The principal effects of the standard onliabilities in our accounts are outlined as follows.
Profit and loss impact
Changes to shareholders’ equity
Financial instruments — fair value
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Profile
For substantially allWhere no active market exists, or where quoted prices are not otherwise available, we determine fair value using a variety of our portfolios, fair values arevaluation techniques. These include present value methods, models based on quoted market prices forobservable input parameters, and models where some of the specific instrument, comparisons with other highly similar financial instruments, or the use of models. input parameters are unobservable.
derivatives and certain equity and fixed incomeunlisted securities with embedded derivatives. WhereAll valuation models are used to compute fair values, or wherevalidated before they are used in our control functionsas a basis for independent risk monitoring, they must be validatedfinancial reporting, and periodically reviewed thereafter, by qualified personnel independent of the area that created the model. Wherever possible, we compare valuations derived from models with quoted prices of similar financial instruments, and with actual values when realized, in order to further validate and calibrate our models.
Hedge accounting.IAS 39 allows a company to apply hedge accounting if it fully complies with the specified hedge criteria. One of the goals of a hedging program is to reduce volatility ofreasonably possible alternatives could have on fair values by entering intowhere model inputs are not market observable. To estimate that effect on the financial statements, we recalculated the model valuation adjustments at higher and lower confidence levels than originally applied. For all financial instruments carried at fair value which rely on assumptions for their valuation, we estimate that fair value could lie in a hedging transaction where changes in fair values of the hedging transaction offset changes inrange from CHF 579 million lower to CHF 927 million higher than the fair values ofrecognized in the hedged item. Duefinancial statements.
Fair value option
We adopted revised IAS 32 and revised IAS 39 early (at 1 January 2004). We restated the two comparative prior years. Revised IAS 39 permits an entity to cost and other considerations, a transaction may not be hedged over its entire life,designate any financial
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asset or a dynamic hedging strategy may be used whereby different transactions are designatedfinancial liability as the hedging transaction at different times. However, if the hedged item is one that would normally not be recordedheld at fair value (for instance if it is heldand to recognize fair value changes in profit and loss. We apply the fair value option primarily to compound debt instruments, which permits us to fair value the entire instrument instead of separating the embedded derivative from the host contract and carrying the host contract at cost less impairment), but the hedging instrument is of a sort that would normally be accounted foramortized cost. In addition, financial assets and financial liabilities designated at fair value there could be substantial differencesare presented in the profit and loss effect for the two items during specific accounting periods, although over the whole life of the instrument these would be expected to balance out. We believe that, in such cases, not applying hedge accounting could lead to misinterpretations of our results and financial position, since hedging transactions could have a material impact on reported net profit in a particular period.
Recognition of deferred Day 1 Profit and Loss
We have entered into transactions, some of which will mature after more than ten years, where we determine fair value using valuation models for which not all inputs are market observable prices or rates. We initially recognize a CDSfinancial instrument at the transaction price, which is the best indicator of fair value, although the value obtained from the relevant valuation model may differ. Such a difference between the transaction price and the model value is commonly referred to as “Day 1 profit and loss”. In accordance with applicable accounting literature, we do not recognize that initial difference, usually a gain, immediately in profit and loss. While applicable accounting literature prohibits immediate recognition of Day 1 profit and loss, it does not address when it is appropriate to recognize Day 1 profit in the income statement. It also does not address subsequent measurement of these instruments.
Securitizations and Special Purpose Entities
UBS sponsors the formation of Special Purpose Entities (SPEs) primarily to allow clients to hold investments, for asset securitization transactions, and for buying or selling credit protection. In accordance with IFRS we do not consolidate SPEs that we do not control. As it can sometimes be difficult to determine whether we exercise control over an SPE, we have to make judgments about risks and rewards as well as our ability to make operational decisions for the SPE. In many instances, elements are present that, considered in isolation, indicate control or lack of control over an SPE, but when considered together make it difficult to reach a clear conclusion. When assessing whether we have to consolidate an SPE we evaluate a range of factors, including whether (a) we will obtain the majority of the benefits of the activities of an SPE, (b) we retain the majority of the residual ownership risks related to the assets in order to obtain the benefits from its activities, (c) we have decision-making powers to obtain the majority of the benefits, or (d) the activities of the SPE are being conducted on our behalf according to our specific business needs so that we obtain the benefits from the SPE’s operations. We consolidate an SPE if our assessment of the relevant factors indicates that we obtain the majority of the benefits of its activities.
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Accounting Standards and Policies
Critical accounting policies
undrawn commitment is expectedIn some cases UBS does retain exposure to be drawn without prospectsome of full repayment. This timing mismatch between recognizing incomethe returns from increases in the fair value of a CDS and recognizing expense for credit losses may introduce period-to-period volatility in net profit. In addition,assets sold to the positive effect of CDSs on reducing credit losses is not reflected as a reduction in reported credit loss expense.
Financial investments —– available-for-sale
UBS has classified some of its financial assets, including investments not held for trading purposes, as available-for-sale. This classification is based on our determination that these assetsavailable-for-sale, where they are not held for the purpose of generating short-term trading gains, but rather for mid-to-long-term capital appreciation. If we had originally decided that
these were trading assets, or if we were to reclassify these assets as trading assets, changesChanges in fair value would then have to beof these financial assets are reflected in incomeshareholders’ equity rather than shareholders’ equity.income. The amount of unrealized gains or losses on the balance sheet date is disclosed in the statement of changes in equity in the UBS Group Financial Statements.financial statements.
we believe that the estimates and assumptions made in determining the fair value of each investment are reasonable and supportable. Since there are no general estimates or assumptions underlying the determination of fair value, but instead fair value is determined on a case-by-case basis, it is not possible to provide any meaningful estimate of the impact on earnings of variations in assumptions and estimates.
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Profile
decline in fair value below cost extends beyond the near term, unless it is readily apparent that an investment is impaired, in which case this would result in an immediate loss recognition.
Goodwill and other intangible assets
Allowances and provisions for credit losses
Assets accounted for at amortized cost are evaluated for impairment and required allowances and provisions are estimated in accordance with IAS 39. Impairment exists if the book value of thea claim or a portfolio of claims exceeds the present value of the cash flows actually expected in future periods —periods. These cash flows include scheduled interest payments, scheduled principal repayments, or other payments due (for example on derivatives transactions or guarantees), including liquidation of collateral where available. UBS has established policies
consistent and fair basis, especially for those impaired claims for which no market estimate or benchmark for the likely recovery value is available. Future cash flows considered recoverablewhich are discountedexpected to presentbe received. In estimating these cash flows, management makes judgments about a counterparty’s financial situation and the net realizable value of any underlying collateral or guarantees in accordance with IAS 39. A provision is then recorded for the probable loss on the claim in question and charged to the income statement as credit loss expense.
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Further details on this subject are given in Note 1(l)note 1(q) to the UBS Group Financial Statementsfinancial statements and in the “Risk analysis”risk analysis section of the Handbook 2002/2003,2004 / 2005, on pages 5947 to 77.
Securitizations and Special Purpose Entities
12
is appropriate and that the SPEs and their assets and liabilities are properly recorded, if consolidated.
Principal types of SPE used by UBS
may not be held by UBS, to investors. They are primarily to allow UBS to have a single counterparty (the SPE) which sells credit protection to UBS. The SPE in turn has investors who provide it with capital and participate in the risks and rewards of the credit events that it insures. SPEs used for credit protection are generally consolidated.
Equity compensation
The IFRS doesrequirements applicable to our financial statements have not previously specifically addressaddressed the recognition and measurement of equity-based compensation plans, including employee option plans. Extensive literature onIFRS 2, Share-based Payment, addresses the accounting for options grantedshare-based employee compensation and was adopted by UBS on 1 January 2005 on a fully retrospective basis. Until the end of 2004, we recognized compensation expense for awards issued to employees exists under US GAAP, which permits a company to elect eitheras part of annual bonuses during the year of corresponding performance, aligning with the revenue produced. Subsequent changes in intrinsic value method orwere not recognized. For share awards, we recognized compensation expense in the amount of the fair value method. Underof the intrinsic value method, ifshare at the grant date. For option awards granted, the exercise price of options granted is generally set either equal
to or greaterslightly higher than the fair value of the underlying equityshare at the grant date,date. Accordingly, these options have no intrinsic value when granted, and therefore, we did not recognize compensation expense need be recorded. Under the fair value method, an amount would be computed for such options and charged to compensation expense. For IFRS, UBS records as compensation expense only the intrinsic value at grant date, if any, of options granted to employees. Subsequent changes in value are not recognized.
Deferred tax
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Profile
for book purposes but are taxable only when the valuation change is realized.
Segment reporting
We analyze UBS’s performance on a reported basis determined in accordance with IFRS. Additionally, we provide comments and analysis on an adjusted basis which excludes from the reported amounts certain items we term significant financial events (SFEs). An additional adjustment we use in our results discussion is the exclusion of the amortization of goodwill and other acquired intangible assets.
Significant financial events
14
amount of each individual significant financial event, and the net tax benefit or loss associated with all the SFEs in each period, allowing the reader to reconcile adjusted figures to the reported ones. Where tables in the Business Group reporting show adjusted figures, we also include a table showing the reported figures.
Amortization of goodwill and otherintangibles
Significant Financial Events
CHF million For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
Operating income as reported | 34,121 | 37,114 | 36,402 | |||||||||
Gain on disposal of Hyposwiss | (155 | ) | ||||||||||
Gain on disposal of Klinik Hirslanden | (72 | ) | ||||||||||
Adjusted operating income | 33,894 | 37,114 | 36,402 | |||||||||
Operating expenses as reported | 29,577 | 30,396 | 26,203 | |||||||||
Writedown of PaineWebber brand name | (1,234 | ) | ||||||||||
US Global Settlement Fund provision | (150 | ) | ||||||||||
PaineWebber integration costs | (290 | ) | ||||||||||
Adjusted operating expenses | 28,343 | 30,396 | 25,763 | |||||||||
Adjusted operating profit before tax and minority interests | 5,551 | 6,718 | 10,639 | |||||||||
Tax expense | 678 | 1,401 | 2,320 | |||||||||
Tax effect of significant financial events | 239 | 100 | ||||||||||
Adjusted tax expense | 917 | 1,401 | 2,420 | |||||||||
Minority interests | (331 | ) | (344 | ) | (87 | ) | ||||||
Adjusted net profit | 4,303 | 4,973 | 8,132 | |||||||||
Adjusted net profit before goodwill | 5,529 | 6,296 | 8,799 | |||||||||
15
As a global financial services firm, UBS’s businesses are affected by the external environment in the markets in which we operate. Different risk factors can impact our ability to effectively carry out our business strategies or can directly affect our earnings. Due to the factors described below and to other influences beyond our control, UBS’s revenues and operating profit have been and are likely to continue to be subject to a measure of variability from period to period. Therefore UBS’s revenues and operating profit for any particular period may not be indicative of sustainable results, may vary from year to year and may affect our ability to achieve UBS’s strategic objectives.
Fluctuations in interest rates, equity prices, foreign currency rates and other market variables
Counterparty risks
16
In general, we aim to avoid risk concentrations in our credit portfolio. We believe that the incurred losses are adequately covered by our allowances and provisions. Additionally, we make active use of credit protection. A detailed discussion of credit risk and our approach to managing this risk can be found in the “Risk Analysis” section of the “Risk Management and Control” chapter in the Handbook 2002/ 2003. If our risk management and control measures prove inadequate or are not effective, then credit losses could have a material adverse effect on our income and the value of our assets.
Consequential risk
losses. A detailed discussion of our approach in management and control of these risks can be found in the “Consequential risk” section of the “Risk Management and Control” chapter in the Handbook 2002/2003.
Competitive forces
Other risks arising from our globalpresence
17
18
19
UBS Group Performance Against Targets | ||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
RoE (%) | ||||||||||||
as reported | 8.9 | 11.7 | 21.5 | |||||||||
before goodwill and adjusted for significant financial events1 | 13.9 | 14.8 | 24.3 | |||||||||
Basic EPS (CHF) | ||||||||||||
as reported | 2.92 | 3.93 | 6.44 | |||||||||
before goodwill and adjusted for significant financial events1 | 4.57 | 4.97 | 7.28 | |||||||||
Cost/income ratio (%) | ||||||||||||
as reported | 86.2 | 80.8 | 72.2 | |||||||||
before goodwill and adjusted for significant financial events1 | 79.5 | 77.3 | 69.2 | |||||||||
Net new money, private client units (CHF billion)2, 3 | ||||||||||||
Private Banking | 16.6 | 24.6 | 4 | 1.2 | 4 | |||||||
UBS PaineWebber | 18.5 | 33.2 | 14.5 | 5 | ||||||||
Total | 35.1 | 57.8 | 15.7 | |||||||||
20
Invested Assets and Net New Money
Invested assets | Net new money1 | |||||||||||||||||||||||
CHF billion | 31.12.02 | 31.12.01 | 31.12.00 | 2002 | 2001 | 2000 | ||||||||||||||||||
UBS Group | 2,037 | 2,448 | 2,445 | 36.9 | 102.0 | (49.5 | ) | |||||||||||||||||
UBS Wealth Management & Business Banking2 | ||||||||||||||||||||||||
Private Banking | 688 | 791 | 798 | 16.6 | 24.6 | 3 | 1.2 | 3 | ||||||||||||||||
Business Banking Switzerland | 205 | 215 | 239 | 3.7 | 9.2 | 3 | 2.7 | 3 | ||||||||||||||||
UBS Global Asset Management | ||||||||||||||||||||||||
Institutional | 279 | 328 | 323 | (0.6 | ) | 6.2 | (70.8 | ) | ||||||||||||||||
Wholesale Intermediary | 278 | 344 | 319 | (1.8 | ) | 28.7 | 2.9 | |||||||||||||||||
UBS Warburg | 3 | 1 | 1 | 0.5 | 0.1 | |||||||||||||||||||
UBS PaineWebber | 584 | 769 | 765 | 18.5 | 33.2 | 14.5 | 4 | |||||||||||||||||
UBS made significant progress in 2002. After the successful integration of PaineWebber in 2001, we continued to expand our investment banking capabilities, especially in the US, and to build up our European wealth management business. Our achievements should be viewed in the context of last year’s environment, which was one of the most challenging seen in the financial industry during the post-war era. Extensive corrections in major global equity markets, depressed market levels, low corporate activity, and broadly subdued investor optimism reflected uncertainty about economic and political developments. However, our businesses were remarkably resilient and competitive in view of the general conditions they faced in 2002. Strict cost discipline and focus on growth across the firm helped us expand our market position in a period where many in the financial industry were forced to re-assess the basic assumptions about their business. Our clients made substantial new investments into our private client businesses, and we significantly improved our investment banking market share. Despite market developments, the relative operational performance in our core businesses remained strong and we benefited from our prudent attitude to risk and our tight management of costs.
UBS’s 2002 net profit was CHF 3,535 million, down 29% from CHF 4,973 million in 2001.
This full-year profit was impacted by several items which we call significant financial events (SFEs): the non-cash after-tax writedown of the value of the PaineWebber brand, which reduced profit by 21%, and the impact of sales of subsidiaries, which added 6% to profit. Excluding these effects, and before goodwill amortization, net profit fell by 12% between 2001 and 2002.
We focus on four key performance targets, designed to ensure that UBS delivers continually improving returns to its shareholders.
21
2
Net Interest and Trading Income
CHF million | ||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | % change from 31.12.01 | ||||||||||||
Net interest income | 10,546 | 8,041 | 8,130 | 31 | ||||||||||||
Net trading income | 5,572 | 8,802 | 9,953 | (37 | ) | |||||||||||
Total net interest and trading income | 16,118 | 16,843 | 18,083 | (4 | ) | |||||||||||
Breakdown by business activity: | ||||||||||||||||
Net income from interest margin products | 5,275 | 5,694 | 5,430 | (7 | ) | |||||||||||
Net income from trading activities | 10,605 | 11,529 | 12,642 | (8 | ) | |||||||||||
Net income from treasury activities | 1,667 | 1,424 | 762 | 17 | ||||||||||||
Other1 | (1,429 | ) | (1,804 | ) | (751 | ) | 21 | |||||||||
Total net interest and trading income | 16,118 | 16,843 | 18,083 | (4 | ) | |||||||||||
Operating income
22
IFRS Actual Credit Loss Expense/(Recovery)
CHF million | ||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | % change from 31.12.01 | ||||||||||||
UBS Wealth Management & Business Banking | 241 | 123 | (695 | ) | 96 | |||||||||||
UBS Warburg | (35 | ) | 360 | 562 | ||||||||||||
UBS PaineWebber | 15 | 15 | 3 | 0 | ||||||||||||
Corporate Center | (15 | ) | 0 | 0 | ||||||||||||
Total | 206 | 498 | (130 | ) | (59 | ) | ||||||||||
accounts, as well as mortgages because of the extremely low interest rate environment. This was accentuated by the decline of the US dollar and euro, which caused the Swiss franc equivalent of US dollar interest rate revenues to drop.
unrealized gains on derivatives used to economically hedge interest rate risk related to structured notes issued.
23
Group Financial ReviewGroup Results
80
Net Fee and Commission Income
CHF million | ||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | % change from 31.12.01 | ||||||||||||
Underwriting fees | 2,134 | 2,158 | 1,434 | (1 | ) | |||||||||||
Corporate finance fees | 848 | 1,339 | 1,772 | (37 | ) | |||||||||||
Brokerage fees | 5,987 | 6,445 | 5,742 | (7 | ) | |||||||||||
Investment fund fees | 4,033 | 4,276 | 2,821 | (6 | ) | |||||||||||
Fiduciary fees | 300 | 355 | 351 | (15 | ) | |||||||||||
Custodian fees | 1,302 | 1,356 | 1,439 | (4 | ) | |||||||||||
Portfolio and other management and advisory fees | 4,065 | 4,650 | 3,666 | (13 | ) | |||||||||||
Insurance-related and other fees | 417 | 538 | 111 | (22 | ) | |||||||||||
Total securities trading and investment activity fees | 19,086 | 21,117 | 17,336 | (10 | ) | |||||||||||
Credit-related fees and commissions | 275 | 307 | 310 | (10 | ) | |||||||||||
Commission income from other services | 1,006 | 946 | 802 | 6 | ||||||||||||
Total fee and commission income | 20,367 | 22,370 | 18,448 | (9 | ) | |||||||||||
Brokerage fees paid | 1,349 | 1,281 | 1,084 | 5 | ||||||||||||
Other | 797 | 878 | 661 | (9 | ) | |||||||||||
Total fee and commission expense | 2,146 | 2,159 | 1,745 | (1 | ) | |||||||||||
Net fee and commission income | 18,221 | 20,211 | 16,703 | (10 | ) | |||||||||||
undertaken to improve the asset quality of our domestic credit portfolio. The gradual slowdown of the Swiss economy and our success in substantially reducing our impaired portfolio have, however, resulted in a lower level of recoveries compared to previous years. This largely explains the increase of our credit loss expense in UBS Wealth Management & Business Banking to CHF 241 million, compared to CHF 123 million in 2001.
which increased by 67% compared to a year earlier. However, this was offset by a much lower result in our equity underwriting business due to the markedly lower market activity.
24
Headcount1 | |||||||||||||||||
Change in % | |||||||||||||||||
(full-time equivalents) | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | |||||||||||||
UBS Wealth Management & Business Banking | 28,930 | 29,469 | 30,272 | (2 | ) | ||||||||||||
Private Banking | 10,488 | 10,249 | 9,835 | 2 | |||||||||||||
Business Banking Switzerland | 18,442 | 19,220 | 20,437 | (4 | ) | ||||||||||||
UBS Global Asset Management | 3,346 | 3,281 | 2,860 | 2 | |||||||||||||
UBS Warburg | 16,037 | 15,690 | 15,391 | 2 | |||||||||||||
Corporate and Institutional Clients | 15,964 | 15,562 | 15,262 | 3 | |||||||||||||
UBS Capital | 73 | 128 | 129 | (43 | ) | ||||||||||||
UBS PaineWebber | 19,563 | 20,413 | 21,567 | (4 | ) | ||||||||||||
Corporate Center | 1,185 | 1,132 | 986 | 5 | |||||||||||||
Group total | 69,061 | 69,985 | 71,076 | (1 | ) | ||||||||||||
thereof: Switzerland | 27,972 | 29,163 | 30,095 | (4 | ) | ||||||||||||
age asset levels and third-party fees due to the difficult market environment.
Operating expenses
25
At CHF 1,614 million in 2001,depreciationfell by 6% to CHF 1,521 million in 2002 mainly due to lower depreciation charges for machines and equipment.
Tax
PaineWebber merger-related costs
For 2002, we plan to pay a normal dividend to our shareholders after having made use of the possibility to make a tax efficient distribution in 2000 (for the fourth quarter only) and 2001 in the form of par value reductions.
Total assets were CHF 1,181 billion on 31 December 2002, down CHF 72 billion, or 6%, from CHF 1,253 billion on 31 December 2001. The balance sheet shrank because of the weakening of the US dollar and UK sterling against the Swiss franc, falling by 17% and 8% in the period respectively.
26
market environment. The drop was partially offset by an increase in reverse repurchase agreements, due to higher volumes in our mortgage-backed securities business in the US, which benefited from the low interest rate levels for home mortgages.
mainly the strengthening of the Swiss franc against the US dollar. We believe the maturity profile of our long-term debt portfolio is well balanced to match the maturity profile of our assets.
In the twelve-month period to December 2002, cash equivalents decreased by CHF 33,915 million, principally as a result of financing activities, which generated negative cash flow of CHF 32,470 million. A cash outflow of CHF 26,206 million resulted from the repayment of money market paper, CHF 5,605 million from movements in treasury shares and derivative activity in own equity, with CHF 2,509 million resulting from a capital repayment by par value reduction. The issuance of long-term debt of CHF 17,132 million and repayments of CHF 14,911 million brought a net cash inflow of CHF 2,221 million.
27
Investing activities generated cash inflow of CHF 1,381 million. Divestments of financial investments contributed CHF 2,153 million while the sale of Hyposwiss and Klinik Hirslanden brought in CHF 984 million, both partially offset the CHF 1,763 million of cash outflow for the purchase of property and equipment.
As 2003 begins, the environment continues to be a challenging one. Uncertainty over economic developments and market direction, and rising geopolitical concerns are affecting investor sentiment and therefore transaction levels, and are holding back a significant recovery in corporate activity. Therefore, we do not expect to see an immediate pick-up in our financial performance, as depressed asset levels, low levels of investor activity and possible deterioration of the credit environment weigh on our revenues. Any recovery in the latter part of this year remains simply unpredictable.
Our net profit for the year 2001 was CHF 4,973 million, 36% less than the CHF 7,792 million achieved in 2000, reflecting the much more difficult market environment in 2001.
Before goodwill and adjusted for significant financial events:
28
Operating income
rise to the income, rather than by the type of income generated.
29
sions to a relatively low level, resulting in an actual credit loss expense of CHF 360 million in 2001, compared to CHF 562 million in 2000.
suance. However, UBS’s league table rankings improved, from seventh in international equity new issues in 2000 to second in 2001, according to Dealogic EquitywarePlus. Even excluding the contribution from UBS PaineWebber, equity underwriting revenues increased by CHF 77 million, or 7%, from 2000.
30
biggest contribution came from the deferred annuities business.
Operating expenses
31 December 2001, principally reflecting the effect of successful cost control efforts at UBS Wealth Management & Business Banking’s Business Banking Switzerland business unit and UBS PaineWebber, although that was slightly offset by the effect of acquisitions in UBS Global Asset Management and further hiring for the European wealth management initiative.
Tax
PaineWebber merger-related costs
31
periods of up to four years from the merger and the vast majority of them will be paid in the form of UBS shares. Because these payments are a regular and continuing cost of the business, they are not treated as significant financial events. Personnel expenses in 2001 include retention payments for key PaineWebber staff of USD 284 million (CHF 482 million) for the full year.
For 2001, we again made a tax-efficient distribution of capital to our shareholders rather than paying a dividend. On 10 July 2002, we made a distribution of CHF 2.00 to shareholders for the financial year 2001 which reduced the par value from CHF 2.80 to CHF 0.80. This is consistent with the total per share distribution to shareholders of CHF 2.03 in 2000.
In the twelve-month period to December 2001, cash equivalents increased by CHF 22,889 mil-
lion, principally as a result of financing activities, which generated positive cash flow of CHF 18,103 million. CHF 24,226 million from the issuance of money market paper was offset by CHF 6,038 million for treasury shares and treasury share contract activity as well as CHF 683 million for capital repayments.
32
33
34
35
Introduction
Reporting by Business Unit1
Business Banking | ||||||||||||||||
Private Banking | Switzerland | |||||||||||||||
CHF million except where indicated | ||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.02 | 31.12.01 | ||||||||||||
Income | 7,279 | 7,696 | 5,494 | 5,792 | ||||||||||||
Credit loss (expense)/recovery2 | (28 | ) | (37 | ) | (286 | ) | (567 | ) | ||||||||
Total operating income | 7,251 | 7,659 | 5,208 | 5,225 | ||||||||||||
Personnel expenses | 2,083 | 1,947 | 2,727 | 2,878 | ||||||||||||
General and administrative expenses | 2,158 | 2,038 | 159 | 396 | ||||||||||||
Depreciation | 125 | 151 | 355 | 465 | ||||||||||||
Amortization of goodwill and other intangible assets | 111 | 109 | 0 | 0 | ||||||||||||
Total operating expenses | 4,477 | 4,245 | 3,241 | 3,739 | ||||||||||||
Business Group performance before tax | 2,774 | 3,414 | 1,967 | 1,486 | ||||||||||||
Business Group performance before tax and goodwill3 | 2,885 | 3,523 | 1,967 | 1,486 | ||||||||||||
Additional information | ||||||||||||||||
Cost/income ratio before goodwill (%)3,4 | 60 | 54 | 59 | 65 | ||||||||||||
Net new money (CHF billion)5 | 16.6 | 24.66 | 3.7 | 9.26 | ||||||||||||
Invested assets (CHF billion) | 688 | 791 | 205 | 215 | ||||||||||||
Fair value of employee stock options granted7 | 58 | 38 | ||||||||||||||
Headcount (full-time equivalents) | 10,488 | 10,249 | 18,442 | 19,220 | ||||||||||||
Management accounting
relating to balance sheet products is calculated on a fully funded basis. In a second step, business units are additionally credited with the risk-free return achieved on the average regulatory equity used.
36
UBS Global | Corporate and | |||||||||||||||||||||||||||||||||||||||
Asset Management | Institutional Clients | UBS Capital | UBS PaineWebber | Corporate Center | ||||||||||||||||||||||||||||||||||||
31.12.02 | 31.12.01 | 31.12.02 | 31.12.01 | 31.12.02 | 31.12.01 | 31.12.02 | 31.12.01 | 31.12.02 | 31.12.01 | |||||||||||||||||||||||||||||||
1,953 | 2,218 | 14,100 | 15,587 | (1,602 | ) | (872 | ) | 5,561 | 6,391 | 1,315 | 800 | |||||||||||||||||||||||||||||
0 | 0 | (128 | ) | (112 | ) | 0 | 0 | (13 | ) | (18 | ) | 249 | 236 | |||||||||||||||||||||||||||
1,953 | 2,218 | 13,972 | 15,475 | (1,602 | ) | (872 | ) | 5,548 | 6,373 | 1,564 | 1,036 | |||||||||||||||||||||||||||||
946 | 1,038 | 7,784 | 8,258 | 94 | 96 | 4,245 | 5,019 | 645 | 592 | |||||||||||||||||||||||||||||||
513 | 569 | 2,314 | 2,586 | 64 | 64 | 1,263 | 1,441 | 601 | 537 | |||||||||||||||||||||||||||||||
37 | 46 | 381 | 454 | 1 | 2 | 149 | 124 | 473 | 372 | |||||||||||||||||||||||||||||||
270 | 286 | 364 | 402 | 0 | 0 | 457 | 502 | 24 | 24 | |||||||||||||||||||||||||||||||
1,766 | 1,939 | 10,843 | 11,700 | 159 | 162 | 6,114 | 7,086 | 1,743 | 1,525 | |||||||||||||||||||||||||||||||
187 | 279 | 3,129 | 3,775 | (1,761 | ) | (1,034 | ) | (566 | ) | (713 | ) | (179 | ) | (489 | ) | |||||||||||||||||||||||||
457 | 565 | 3,493 | 4,177 | (1,761 | ) | (1,034 | ) | (109 | ) | (211 | ) | (155 | ) | (465 | ) | |||||||||||||||||||||||||
77 | 75 | 74 | 72 | 102 | 103 | |||||||||||||||||||||||||||||||||||
(2.4 | ) | 34.9 | 18.5 | 33.2 | ||||||||||||||||||||||||||||||||||||
557 | 672 | 584 | 769 | |||||||||||||||||||||||||||||||||||||
44 | 567 | 15 | 73 | 32 | ||||||||||||||||||||||||||||||||||||
3,346 | 3,281 | 15,964 | 15,562 | 73 | 128 | 19,563 | 20,413 | 1,185 | 1,132 | |||||||||||||||||||||||||||||||
Business unit structure
amortization expense and net funding charges are now being charged to each business unit in proportion to the share of goodwill and intangible assets assigned.
37
Other management accounting changes
to the business units, adjusting the leverage ratio (ratio of BIS Tier 1 capital excluding hybrid capital to BIS total capital) for non-goodwill items. This change in allocation also affects the interest earned on regulatory equity.
In our management accounting, the expense for equity-based compensation plans — including employee option plans — is recorded at the intrinsic value of the instruments at grant date. To enhance transparency, for every business unit and Business Group we now disclose the additional compensation expense we would have incurred in 2002 had we recognized the fair value of stock option grants. On a Group level, this additional expense would have been CHF 827 million in 2002 (CHF 690 million after-tax).
38
Our main businesses do not show significant seasonal patterns - except for UBS Warburg’s Corporate and Institutional Clients business unit, where revenues are impacted by the seasonal characteristics of general financial market activity and deal flows in investment banking.
When reporting on client assets, we show two assets metrics: client assets and invested assets:
both the investment management unit and the distribution unit, and double counted in Group totals. For example, a mutual fund provided by UBS Global Asset Management but sold by Private Banking will be counted as invested assets in both business units, as they both provide an independent service to their respective client, add value and generate revenues. This approach is in line with our open architecture strategy and allows us to accurately reflect the actual performance of our individual businesses.
Credit loss expense represents the charges to the profit and loss account relating to amounts due to UBS from loans and advances, over-the-counter (OTC) derivatives and off-balance sheet products that are considered impaired or uncollectable (for more information, please refer to Note 11 to the UBS Group Financial Statements of this report).
39
UBS | ||||||||||||||||||||
Wealth | ||||||||||||||||||||
CHF million | Management & | UBS | UBS | Corporate | ||||||||||||||||
For the year ended 31.12.02 | Business Banking | Warburg | PaineWebber | Center | Total | |||||||||||||||
Actuarial expected loss | 569 | 126 | 13 | 708 | ||||||||||||||||
Deferred releases | (255 | ) | 2 | 0 | (253 | ) | ||||||||||||||
Credit loss expense charged to the Business Groups | 314 | 128 | 13 | 455 | ||||||||||||||||
IFRS actual credit loss expense | 241 | (35 | ) | 15 | (15 | ) | 206 | |||||||||||||
Balancing item charged as Credit loss expense in Corporate Center | (249 | ) |
longer term, the expected loss should equal the actual credit loss expense, although the latter is more erratic, in both timing and amount. Therefore, in business unit reporting, in addition to the expected loss, we also charge or refund the difference between actual credit loss expense and expected loss, amortized over a three-year period. With this deferred charging mechanism we not only make Business Groups ultimately accountable for any credit losses they suffer but also give them the incentive to align their credit decisions and risk-adjusted pricing with the medium-term risk profile of their credit transactions. The sum of this “deferral” and the expected loss makes up the Credit loss expense charged in our segment and business unit reporting.
On Group level, we focus on a consistent set of long-term financial targets defined across periods of varying market conditions and designed to ensure that UBS delivers continuously improving returns to shareholders (see pages 21 and 22 of this report). At the Business Group or business unit level, performance is measured with carefully chosen key performance indicators (KPIs). These do not carry explicit targets, but are indicators of the business units’ success in creating value for shareholders. They reflect the key drivers of each unit’s core business activities and include both financial metrics, such as the cost/income ratio, and non-financial metrics, such as invested assets or the number of client advisors.
Credit loss charge | IFRS actual credit loss expense | |||||||||||||||||||||||
CHF million | ||||||||||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||||||||||
UBS Wealth Management & Business Banking | 314 | 604 | 785 | 241 | 123 | (695 | ) | |||||||||||||||||
UBS Warburg | 128 | 112 | 243 | (35 | ) | 360 | 562 | |||||||||||||||||
UBS PaineWebber | 13 | 18 | 3 | 15 | 15 | 3 | ||||||||||||||||||
Corporate Center | 0 | 0 | 0 | (15 | ) | 0 | 0 | |||||||||||||||||
Total | 455 | 734 | 1,031 | 206 | 498 | (130 | ) | |||||||||||||||||
Balancing item in Corporate Center | (249 | ) | (236 | ) | (1,161 | ) | ||||||||||||||||||
40
Indicative Tax Rates
Indicative Business Group and business unit tax rates are calculated on an annual basis based on the results and statutory tax rates of the financial year. These rates are approximate calculations, based upon the application to the year’s adjusted earnings of statutory tax rates for the locations in which the Business Groups operated. These tax rates therefore give guidance on the tax cost to each Business Group of doing business during 2002 on a stand-alone basis, without the benefit of tax losses brought forward from earlier years.
The indicative tax rates are presented “pre-goodwill”. They give an indication of what the tax rate would have been if goodwill were not charged for accounting purposes. It is the sum of the tax expense payable on net profit before tax and goodwill in each location, divided by the total net profit before tax and goodwill. However, the tax rates post-goodwill are higher than the pre-goodwill rates, because in some jurisdictions there are limitations on the tax deductibility of amortization costs.
41
UBS Wealth Management & Business Banking
Georges GagnebinChairman UBS Wealth Management &Business Banking
Marcel RohnerCEO UBS Wealth Management & Business Banking
In 2002, Private Banking’s pre-tax profit adjusted for SFEs was CHF 2,774 million, a 19% decline from 2001. Business Banking Switzerland’s profit before tax was CHF 1,967 million, up 32% from the previous year. Private Banking continues to attract net new money with further strong inflows in our European wealth management initiative. In Business Banking Switzerland, operating expenses fell 13%, and were at their lowest level since 1999.
Business Group reporting
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Income | 12,928 | 13,488 | 14,355 | (4 | ) | |||||||||||
Credit loss expense1 | (314 | ) | (604 | ) | (785 | ) | (48 | ) | ||||||||
Total operating income | 12,614 | 12,884 | 13,570 | (2 | ) | |||||||||||
Personnel expenses | 4,810 | 4,825 | 5,151 | 0 | ||||||||||||
General and administrative expenses | 2,317 | 2,434 | 2,478 | (5 | ) | |||||||||||
Depreciation | 480 | 616 | 633 | (22 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 111 | 109 | 81 | 2 | ||||||||||||
Total operating expenses | 7,718 | 7,984 | 8,343 | (3 | ) | |||||||||||
Business Group performance before tax | 4,896 | 4,900 | 5,227 | 0 | ||||||||||||
Business Group performance before tax and goodwill2 | 5,007 | 5,009 | 5,308 | 0 | ||||||||||||
Additional information | ||||||||||||||||
Regulatory equity allocated (average) | 8,800 | 9,400 | 10,150 | (6 | ) | |||||||||||
Cost/income ratio (%)3 | 60 | 59 | 58 | |||||||||||||
Cost/income ratio before goodwill (%)2, 3 | 59 | 58 | 58 | |||||||||||||
Fair value of employee stock options granted | 96 | 4 | ||||||||||||||
Business Group reporting adjusted for Significant Financial Events
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Income | 12,773 | 5 | 13,488 | 14,355 | (5 | ) | ||||||||||
Credit loss expense1 | (314 | ) | (604 | ) | (785 | ) | (48 | ) | ||||||||
Total operating income | 12,459 | 12,884 | 13,570 | (3 | ) | |||||||||||
Personnel expenses | 4,810 | 4,825 | 5,151 | 0 | ||||||||||||
General and administrative expenses | 2,317 | 2,434 | 2,398 | 6 | (5 | ) | ||||||||||
Depreciation | 480 | 616 | 561 | 6 | (22 | ) | ||||||||||
Amortization of goodwill and other intangible assets | 111 | 109 | 81 | 2 | ||||||||||||
Total operating expenses | 7,718 | 7,984 | 8,191 | (3 | ) | |||||||||||
Business Group performance before tax | 4,741 | 4,900 | 5,379 | (3 | ) | |||||||||||
Business Group performance before tax and goodwill2 | 4,852 | 5,009 | 5,460 | (3 | ) | |||||||||||
Additional information | ||||||||||||||||
Cost/income ratio (%)3 | 60 | 59 | 57 | |||||||||||||
Cost/income ratio before goodwill (%)2,3 | 60 | 58 | 56 | |||||||||||||
42
Business unit reporting
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Income | 7,2791 | 7,696 | 8,402 | (5 | ) | |||||||||||
Credit loss expense3 | (28 | ) | (37 | ) | (35 | ) | (24 | ) | ||||||||
Total operating income | 7,251 | 7,659 | 8,367 | (5 | ) | |||||||||||
Personnel expenses | 2,083 | 1,947 | 2,030 | 7 | ||||||||||||
General and administrative expenses | 2,158 | 2,038 | 2,0192 | 6 | ||||||||||||
Depreciation | 125 | 151 | 1452 | (17 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 111 | 109 | 55 | 2 | ||||||||||||
Total operating expenses | 4,477 | 4,245 | 4,249 | 5 | ||||||||||||
Business unit performance before tax | 2,774 | 3,414 | 4,118 | (19 | ) | |||||||||||
Business unit performance before tax and goodwill4 | 2,885 | 3,523 | 4,173 | (18 | ) | |||||||||||
KPIs | ||||||||||||||||
Invested assets (CHF billion) | 688 | 791 | 798 | (13 | ) | |||||||||||
Net new money (CHF billion)5, 6 | 16.6 | 24.6 | 1.2 | |||||||||||||
Gross margin on invested assets (bps)7 | 98 | 97 | 105 | 1 | ||||||||||||
Cost/income ratio (%)8 | 62 | 55 | 51 | |||||||||||||
Cost/income ratio before goodwill (%)4, 8 | 60 | 54 | 50 | |||||||||||||
Cost/income ratio before goodwill and excluding the European wealth management initiative (%)4, 8 | 53 | 48 | ||||||||||||||
Client advisors (full-time equivalents) | 3,291 | 3,043 | 8 | |||||||||||||
Private Banking — International Clients | ||||||||||||||||
Income | 5,2291 | 5,498 | 5,890 | (5 | ) | |||||||||||
Invested assets (CHF billion) | 493 | 555 | 550 | (11 | ) | |||||||||||
Net new money (CHF billion)5 | 19.1 | 23.2 | 7.5 | |||||||||||||
Gross margin on invested assets (bps)7 | 100 | 99 | 107 | 1 | ||||||||||||
European wealth management initiative | ||||||||||||||||
(part of Private Banking — International Clients) | ||||||||||||||||
Income | 186 | 140 | 33 | |||||||||||||
Invested assets (CHF billion) | 28 | 16 | 75 | |||||||||||||
Net new money (CHF billion)5 | 7.6 | 5.6 | ||||||||||||||
Client advisors (full-time equivalents) | 551 | 370 | 49 | |||||||||||||
Private Banking — Swiss Clients | ||||||||||||||||
Income | 2,050 | 2,198 | 2,512 | (7 | ) | |||||||||||
Invested assets (CHF billion) | 195 | 236 | 248 | (17 | ) | |||||||||||
Net new money (CHF billion)5, 6 | (2.5 | ) | 1.4 | (6.3 | ) | |||||||||||
Gross margin on invested assets (bps)7 | 95 | 92 | 100 | 3 | ||||||||||||
Additional information | % change from | |||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Client assets (CHF billion) | 836 | 949 | (12 | ) | ||||||||||||
Regulatory equity allocated (average) | 3,100 | 3,550 | 2,600 | (13 | ) | |||||||||||
Fair value of employee stock options granted | 589 | |||||||||||||||
Headcount (full-time equivalents) | 10,488 | 10,249 | 9,835 | 2 | ||||||||||||
43
Significant Financial Events
For the full year, net new money inflows totaled CHF 16.6 billion, down from the 2001 result of CHF 24.6 billion. Excluding the net outflow of over CHF 8 billion related to the Italian tax amnesty, the net new money result was essentially unchanged. International clients invested net new money of CHF 19.1 billion in 2002,
down by only CHF 4.1 billion from a year earlier despite the Italian tax amnesty. This excellent underlying result in these difficult markets was due to the continued success of our European wealth management initiative as well as significant inflows from clients in Asia and the Americas.
In the year to 31 December 2002, invested assets fell 13% to CHF 688 billion, mainly due to the steep drop in global equity markets as well as the 17% drop in the US dollar against the Swiss franc. Some 38% of Private Banking’s invested assets are denominated in US dollars.
Gross margin on invested assets remained resilient and rose by 1 basis point to 98 basis
44
points. Assets as well as revenues fell in 2002 from the already depressed 2001 levels. The split of the margin remained unchanged from 2001 with 72% of the margin stemming from recurring revenue and 28% from transactional fees.
Over the full year, the pre-goodwill cost/ income ratio increased from 54% in 2001 to 60% in 2002, reflecting the ongoing investment in our European wealth management initiative as well as the strong decline in asset-based revenues. Excluding the European wealth management initiative, our cost/income ratio increased from 48% in 2001 to 53% in 2002.
European wealth management
Progress so far has been promising with net new money inflows into our domestic European network for full-year 2002 totaling CHF 7.6 billion, up 36% from last year’s intake of CHF 5.6 billion. The inflow in 2002 reflects an annual growth rate in net new money of 48%. For full-year 2002, income from our European wealth management initiative was CHF 186 million, 33% or CHF 46 million above the 2001 level, reflecting the success of our business expansion program.
We hired a total of 181 client advisors in 2002, bringing the total at 31 December 2002 to 551. We remain committed to growing our presence in our European target markets and will continue to invest in qualified advisory staff at a rate determined by the market environment and business opportunities.
45
Personnel as well as general and administrative expenses increased due to this strategic initiative.
Operating income
Operating expenses
Headcount
Net new money inflows in 2001, at CHF 24.6 billion, were CHF 23.4 billion higher than in 2000, demonstrating our success in re-energizing our asset-gathering performance, as well as our determined focus on growing our wealth management franchise.
European wealth management
Weaker markets than in 2000 and the costs of investing in the European wealth management initiative brought full-year pre-tax profits in
46
2001 down 17% from 2000 to CHF 3,414 million, despite a continued focus on controlling operating costs.
Operating income
Operating expenses
Headcount
47
Business unit reporting
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Private clients | 3,014 | 3,185 | 3,520 | (5 | ) | |||||||||||
Corporate clients | 2,148 | 2,263 | 2,217 | (5 | ) | |||||||||||
Other areas | 332 | 344 | 216 | (3 | ) | |||||||||||
Income | 5,494 | 5,792 | 5,953 | (5 | ) | |||||||||||
Credit loss expense1 | (286 | ) | (567 | ) | (750 | ) | (50 | ) | ||||||||
Total operating income | 5,208 | 5,225 | 5,203 | 0 | ||||||||||||
Personnel expenses | 2,727 | 2,878 | 3,121 | (5 | ) | |||||||||||
General and administrative expenses | 159 | 396 | 379 | (60 | ) | |||||||||||
Depreciation | 355 | 465 | 416 | (24 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 0 | 0 | 26 | |||||||||||||
Total operating expenses | 3,241 | 3,739 | 3,942 | (13 | ) | |||||||||||
Business unit performance before tax | 1,967 | 1,486 | 1,261 | 32 | ||||||||||||
Business unit performance before tax and goodwill2 | 1,967 | 1,486 | 1,287 | 32 | ||||||||||||
KPIs | ||||||||||||||||
Invested assets (CHF billion) | 205 | 215 | 239 | (5 | ) | |||||||||||
Net new money (CHF billion)3, 4 | 3.7 | 9.2 | 2.7 | |||||||||||||
Cost/income ratio (%)5 | 59 | 65 | 66 | |||||||||||||
Cost/income ratio before goodwill (%)2, 5 | 59 | 65 | 66 | |||||||||||||
Non-performing loans/gross loans outstanding (%) | 3.6 | 4.8 | 5.5 | |||||||||||||
Impaired loans/gross loans outstanding (%) | 6.0 | 7.7 | 9.4 | |||||||||||||
Additional information | % change from | |||||||||||||||
As at or for the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Deferred releases included in credit loss expense1 | 240 | 115 | 109 | |||||||||||||
Client assets (CHF billion) | 494 | 544 | (9 | ) | ||||||||||||
Regulatory equity allocated (average) | 5,700 | 5,850 | 7,550 | (3 | ) | |||||||||||
Fair value of employee stock options granted | 38 | 6 | ||||||||||||||
Headcount (full-time equivalents) | 18,442 | 19,220 | 20,437 | (4 | ) | |||||||||||
48
Significant financial events
Invested assets fell from CHF 215 billion in 2001 to CHF 205 billion in 2002 as negative market developments and the weakening of major currencies against the Swiss franc were only partially offset by positive net new money inflows. In 2002, Business Banking Switzerland attracted net new money of CHF 3.7 billion, down from CHF 9.2 billion in 2001. This drop was due to smaller inflows from large corporate client accounts — a business traditionally subject to volatile inflows and outflows.
Business Banking Switzerland’s loan portfolio decreased to CHF 139 billion at 31 December 2002 from CHF 146 billion at 31 December 2001, driven by lower volumes in the corporate clients area and the further reduction in the recovery portfolio from CHF 12 billion at 31 December 2001 to CHF 8.6 billion at 31 December 2002. This positive development was also reflected in the key credit quality ratios: the non-performing loan ratio declined to 3.6% from 4.8%, while the ratio of impaired loans to gross loans saw a further improvement, falling to 6.0% from 7.7%.
margins on savings and cash accounts as well as the fall in the US dollar, which caused the Swiss franc equivalent of US dollar interest rate revenues to drop.
In 2002, full-year pre-tax profit was a record CHF 1,967 million, up 32% from 2001, achieved despite declining revenues in difficult market conditions, due to continued tight management of our cost base and lower credit loss expenses. Personnel expenses dropped due to lower performance-related compensation as well as a drop in headcount whereas general and administrative expenses reached their lowest level since 1999.
Operating income
49
286 million in 2002, down 50% from CHF 567 million in 2001. This drop reflects the continued success in improving the quality of our loan portfolio through the implementation of risk-adjusted pricing and the deferred benefit of the prior year’s better than expected credit performance.
Operating expenses
Headcount
In 2001, Business Banking Switzerland attracted net new money of CHF 9.2 billion, a clear improvement over 2000’s CHF 2.7 billion, reflecting improved flows from both private clients and corporate clients, where flows can be larger and more volatile. Invested assets were CHF 215 billion as of 31 December 2001.
50
Business Banking Switzerland enjoyed a very strong year, despite the much more difficult market conditions, with profit before tax in 2001 up 18% compared to 2000, at CHF 1,486 million. The implementation of risk-adjusted pricing and the strength of the Swiss economy in 2000 and early 2001 led to a significant increase in credit quality, while operating expenses have remained under tight control, falling 5% compared to 2000.
Operating income
Operating expenses
Headcount
51
UBS Global Asset Management
John A. FraserChairman and CEOUBS Global Asset Management
Pre-tax profit in 2002 was CHF 187 million, down 33% from 2001. The declines in equity markets throughout 2002 resulted in lower invested asset levels and subsequently, lower asset-based revenues. This decrease was partially offset by ongoing initiatives to control costs.
Business Group reporting | ||||||||||||||||
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Institutional fees | 899 | 1,174 | 1,242 | (23 | ) | |||||||||||
Wholesale Intermediary fees | 1,054 | 1,044 | 836 | 1 | ||||||||||||
Total operating income | 1,953 | 2,218 | 2,078 | (12 | ) | |||||||||||
Personnel expenses | 946 | 1,038 | 941 | (9 | ) | |||||||||||
General and administrative expenses | 513 | 569 | 434 | (10 | ) | |||||||||||
Depreciation | 37 | 46 | 49 | (20 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 270 | 286 | 267 | (6 | ) | |||||||||||
Total operating expenses | 1,766 | 1,939 | 1,691 | (9 | ) | |||||||||||
Business Group performance before tax | 187 | 279 | 387 | (33 | ) | |||||||||||
Business Group performance before tax and goodwill1 | 457 | 565 | 654 | (19 | ) | |||||||||||
KPIs | ||||||||||||||||
Cost/income ratio (%)2 | 90 | 87 | 81 | |||||||||||||
Cost/income ratio before goodwill (%)1, 2 | 77 | 75 | 69 | |||||||||||||
Institutional | ||||||||||||||||
Invested assets (CHF billion) | 2793 | 328 | 323 | (15 | ) | |||||||||||
Net new money (CHF billion)4 | (0.6 | ) | 6.2 | (70.8 | )5 | |||||||||||
Gross margin on invested assets (bps)6 | 29 | 37 | 38 | (22 | ) | |||||||||||
Wholesale Intermediary | ||||||||||||||||
Invested assets (CHF billion) | 2783 | 344 | 319 | (19 | ) | |||||||||||
Net new money (CHF billion)4 | (1.8 | ) | 28.7 | 2.9 | 5 | |||||||||||
Gross margin on invested assets (bps)6 | 34 | 32 | 36 | 6 | ||||||||||||
Additional information | % change from | |||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Client assets (CHF billion) | 557 | 672 | (17 | ) | ||||||||||||
Regulatory equity allocated (average) | 1,750 | 1,850 | 1,550 | (5 | ) | |||||||||||
Fair value of employee stock options granted | 447 | |||||||||||||||
Headcount (full-time equivalents) | 3,346 | 3,281 | 2,860 | 2 | ||||||||||||
52
Significant financial events
For 2002, the pre-goodwill cost/income ratio was 77%, up 2 percentage points from a year earlier. The increase was primarily due to lower invested asset values, which resulted in lower asset-based revenues. Those developments, however, were partially offset by lower operating expenses prompted by ongoing initiatives to control costs.
Institutional
Full-year gross margin was 29 basis points, a decrease of 8 basis points from 2001 due to lower performance fees and a lower proportion of assets in alternative investments.
Wholesale Intermediary
53
native investments, primarily at GAM, largely offset the outflow.
Global equity markets ended the year in significantly negative territory with the US market, as measured by the S&P 500, posting its first consecutive three-year decline since the Second World War. Markets outside the US have now fallen further from peak to trough than in their most significant previous contraction in the mid-1970s. Contributing to the erosion of equity values was the investor realization that any recovery would not be as robust as hoped, both with regard to economic fundamentals and earnings.
significant margins. The UK Balanced Equity portfolio continued to perform well against theFTSE All-Share Indexfor the same periods and our US Equity Composite surpassed theWilshire 5000benchmark by more than 5 percentage points in 2002. It also remains ahead of the benchmark for 3-, and 5-year periods. Emerging equities also showed good results for the year and have also outperformed their benchmark, theMSCI Emerging Equity Markets Free Index, for each of the past 3- and 5-year periods as well.
UBS Global Asset Management reported for full-year 2002 a pre-tax profit of CHF 187 million, a decrease of 33% from 2001’s pre-tax profit of CHF 279 million. The declines in equity markets experienced throughout 2002 resulted in lower invested asset levels and subsequently, lower asset-based revenues. These developments were partially offset by ongoing initiatives to control costs. Over the year, personnel expenses decreased due to a decline in incentive compensation while general and administrative
54
expenses fell due to lower IT and premises expenditures.
Operating income
Operating expenses
Headcount
Invested assets increased 5% during the year from CHF 642 billion on 31 December 2000 to CHF 672 billion on 31 December 2001. Net new money was CHF 34.9 billion for the year, reflecting the recognition of strong relative investment performance and business development efforts. The pre-goodwill cost/income ratio rose from 69% in 2000 to 75% in 2001, principally reflecting the higher cost/income ratio of the Brinson Advisors (now rebranded UBS Global Asset Management) business transferred from UBS PaineWebber at the start of the year.
Institutional
55
ment management platform, which delivered strong relative investment performance in both 2001 and 2000.
Wholesale Intermediary
Pre-tax profit of CHF 279 million in 2001 was 28% lower than 2000. Despite market declines and lower performance fees in the O’Connor business, income increased as a result of the new investment funds pricing structure introduced in 2001, the acquisition of RT Capital and the inclusion of Brinson Advisors. This was more than offset by higher personnel expenses and general and administrative expenses driven by spending on growth initiatives, the integration of Brinson Advisors and the acquisition of RT Capital in third quarter.
Operating income
Operating expenses
Headcount
56
UBS Warburg
John P. CostasChairman and CEOUBS Warburg
Corporate and Institutional Clients net profit before tax in 2002, at CHF 3,129 million, was 17% lower than in 2001. Market conditions remained challenging, although our Fixed Income, Rates and Currencies business held up well. UBS Capital recorded a pre-tax loss of CHF 1,761 million, with challenging market conditions and a slowdown in corporate activity leading to deteriorating valuations in all markets and industries.
Business Group reporting | ||||||||||||||||
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Income | 12,498 | 14,715 | 18,240 | (15 | ) | |||||||||||
Credit loss expense1 | (128 | ) | (112 | ) | (243 | ) | 14 | |||||||||
Total operating income | 12,370 | 14,603 | 17,997 | (15 | ) | |||||||||||
Personnel expenses | 7,878 | 8,354 | 9,451 | (6 | ) | |||||||||||
General and administrative expenses | 2,378 | 2,650 | 2,755 | (10 | ) | |||||||||||
Depreciation | 382 | 456 | 564 | (16 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 364 | 402 | 192 | (9 | ) | |||||||||||
Total operating expenses | 11,002 | 11,862 | 12,962 | (7 | ) | |||||||||||
Business Group performance before tax | 1,368 | 2,741 | 5,035 | (50 | ) | |||||||||||
Business Group performance before tax and goodwill2 | 1,732 | 3,143 | 5,227 | (45 | ) | |||||||||||
Additional information | ||||||||||||||||
Cost/income ratio (%)3 | 88 | 81 | 71 | |||||||||||||
Cost/income ratio before goodwill (%)2, 3 | 85 | 78 | 70 | |||||||||||||
Net new money (CHF billion)4 | 0.5 | 0.1 | ||||||||||||||
Invested assets (CHF billion) | 3 | 1 | 1 | 200 | ||||||||||||
Client assets (CHF billion) | 133 | 109 | 22 | |||||||||||||
Regulatory equity allocated (average) | 13,100 | 14,300 | 10,800 | (8 | ) | |||||||||||
Fair value of employee stock options granted | 5825 | |||||||||||||||
Business Group reporting adjusted for Significant Financial Events | ||||||||||||||||
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Income | 12,498 | 14,715 | 18,240 | (15 | ) | |||||||||||
Credit loss expense1 | (128 | ) | (112 | ) | (243 | ) | 14 | |||||||||
Total operating income | 12,370 | 14,603 | 17,997 | (15 | ) | |||||||||||
Personnel expenses | 7,878 | 8,354 | 9,365 | 6 | (6 | ) | ||||||||||
General and administrative expenses | 2,378 | 2,650 | 2,742 | 6 | (10 | ) | ||||||||||
Depreciation | 382 | 456 | 557 | 6 | (16 | ) | ||||||||||
Amortization of goodwill and other intangible assets | 364 | 402 | 192 | (9 | ) | |||||||||||
Total operating expenses | 11,002 | 11,862 | 12,856 | (7 | ) | |||||||||||
Business Group performance before tax | 1,368 | 2,741 | 5,141 | (50 | ) | |||||||||||
Business Group performance before tax and goodwill2 | 1,732 | 3,143 | 5,333 | (45 | ) | |||||||||||
Additional information | ||||||||||||||||
Cost/income ratio (%)3 | 88 | 81 | 70 | |||||||||||||
Cost/income ratio before goodwill (%)2, 3 | 85 | 78 | 69 | |||||||||||||
57
Business Unit reporting | ||||||||||||||||
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Investment Banking1 | 1,915 | 2,541 | 2,700 | (25 | ) | |||||||||||
Equities | 5,625 | 6,422 | 10,300 | (12 | ) | |||||||||||
Fixed Income, Rates and Currencies2 | 6,490 | 6,350 | 4,590 | 2 | ||||||||||||
Non-core business | 70 | 274 | 280 | (74 | ) | |||||||||||
Income | 14,100 | 15,587 | 17,870 | (10 | ) | |||||||||||
Credit loss expense3 | (128 | ) | (112 | ) | (243 | ) | 14 | |||||||||
Total operating income | 13,972 | 15,475 | 17,627 | (10 | ) | |||||||||||
Personnel expenses4 | 7,784 | 8,258 | 9,223 | 5 | (6 | ) | ||||||||||
General and administrative expenses | 2,314 | 2,586 | 2,695 | 5 | (11 | ) | ||||||||||
Depreciation | 381 | 454 | 555 | 5 | (16 | ) | ||||||||||
Amortization of goodwill and other intangible assets | 364 | 402 | 190 | (9 | ) | |||||||||||
Total operating expenses | 10,843 | 11,700 | 12,663 | (7 | ) | |||||||||||
Business unit performance before tax | 3,129 | 3,775 | 4,964 | (17 | ) | |||||||||||
Business unit performance before tax and goodwill6 | 3,493 | 4,177 | 5,154 | (16 | ) | |||||||||||
KPIs | ||||||||||||||||
Compensation ratio (%)7 | 55 | 53 | 52 | |||||||||||||
Cost/income ratio (%)8 | 77 | 75 | 71 | |||||||||||||
Cost/income ratio before goodwill (%)6, 8 | 74 | 72 | 70 | |||||||||||||
Non-performing loans/gross loans outstanding (%) | 1.6 | 2.6 | 2.8 | |||||||||||||
Impaired loans/gross loans outstanding (%) | 3.2 | 5.4 | 5.6 | |||||||||||||
Average VaR (10-day 99%) | 275 | 252 | 242 | 9 | ||||||||||||
Additional information | % change from | |||||||||||||||
As at or for the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Deferred releases included in credit loss expense3 | (2 | ) | 38 | 36 | ||||||||||||
Regulatory equity allocated (average) | 12,550 | 13,600 | 10,250 | (8 | ) | |||||||||||
Fair value of employee stock options granted | 5679 | |||||||||||||||
Headcount (full-time equivalents) | 15,964 | 15,562 | 15,262 | 3 | ||||||||||||
58
Significant financial events
Our performance in 2002 reflects the worldwide downturn in market conditions. However, as a result of our strong client franchise and continuing efforts to manage costs, results have proven relatively resilient.
Our compensation ratio in 2002 was 55%, a slight increase on the 53% recorded in 2001, reflecting the relatively strong performance of many of our businesses compared to competitors and to market conditions.
Average Value at Risk (VaR) for Corporate and Institutional Clients increased from CHF 252 million in 2001 to CHF 275 million in 2002, remaining within the normal ranges.
Total loans increased by 2% from CHF 61 billion on 31 December 2001 to CHF 62 billion on 31 December 2002, due to an increase in short-term money market deposits although this was partially offset by repayments from European multi-
59
nationals, reflecting the continued reduction of our non-core commercial lending activities as well as the drop in the US dollar against the Swiss franc.
UBS Warburg’s Corporate and Institutional Clients business unit reported 2002 pre-tax profit of CHF 3,129 million, a decrease of 17% from 2001, reflecting difficult economic conditions, particularly for the investment banking and equities businesses. This was partially offset by the strong result of our fixed income, rates and currencies business. Over the full year, overall expenses dropped by 7% reflecting lower personnel expenses driven by a reduction in incentive compensation as well as the success of our continued cost containment initiatives.
Operating income
Investment Bankingrevenues for the full-year dropped by 25% from CHF 2,541 million to CHF 1,915 million in 2002, due to much lower corporate activity, which translated into a 22% drop in the global fee pool compared to 2001.
Operating expenses
60
underlying reduction of 9% from last year’s expense levels reflects the continuing success of our cost containment initiatives accentuated by the drop of the US dollar against the Swiss franc.
Headcount
Corporate and Institutional Clients measures its expense base primarily in terms of percentage of
revenues, looking at both personnel costs and non-personnel costs on this basis.
We recorded a strong performance in 2001, relative to the much weaker markets this year. Pre-tax profit in 2001 was CHF 3,775 million, a decline of 24% over 2000, our best year ever. Equities and Investment Banking both suffered from the economic downturn and the consequent weakness in their global markets, while the Fixed Income, Rates and Currencies business delivered record results, driven by interest rate reductions and increased volatility, and supported by the expansion of businesses acquired from Paine-Webber. Investment Banking continued to outperform 2000 in terms of market share, with full-year analysis showing us with a 4.4% share of fees, compared to 3.6% in 2000.
61
Operating income
Operating expenses
Headcount
62
Business unit reporting | ||||||||||||||||
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Total operating income | (1,602 | ) | (872 | ) | 370 | (84 | ) | |||||||||
Personnel expenses | 94 | 96 | 142 | (2 | ) | |||||||||||
General and administrative expenses | 64 | 64 | 47 | 0 | ||||||||||||
Depreciation | 1 | 2 | 2 | (50 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 0 | 0 | 2 | |||||||||||||
Total operating expenses | 159 | 162 | 193 | (2 | ) | |||||||||||
Business unit performance before tax | (1,761 | ) | (1,034 | ) | 177 | (70 | ) | |||||||||
Business unit performance before tax and goodwill1 | (1,761 | ) | (1,034 | ) | 179 | (70 | ) | |||||||||
KPIs | ||||||||||||||||
Value creation (CHF billion) | (1.4 | ) | (1.4 | ) | 0.6 | 0 | ||||||||||
% change from | ||||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Investment (CHF billion)2 | 3.1 | 5.0 | 5.5 | (38 | ) | |||||||||||
Additional information | % change from | |||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Portfolio fair value (CHF billion) | 3.8 | 5.6 | 6.9 | (32 | ) | |||||||||||
Regulatory equity allocated (average) | 550 | 700 | 550 | (21 | ) | |||||||||||
Fair value of employee stock options granted | 153 | |||||||||||||||
Headcount (full-time equivalents) | 73 | 128 | 129 | (43 | ) | |||||||||||
63
Significant financial events
The level of our private equity investments was CHF 3.1 billion on 31 December 2002, a decline of 38% from CHF 5.0 billion on 31 December 2001. This reduction reflects writedowns made on direct investments and third party funds, as well as successfully executed exits. In full-year 2002, write-downs included in operating income totaled CHF 1.7 billion, up from CHF 1.1 billion a year earlier.
The fair value of the portfolio on 31 December 2002 was CHF 3.8 billion, down from CHF 5.6 billion on 31 December 2001, reflecting divestments in the portfolio and value reductions for existing investments. The level of net unrealized gains was CHF 0.8 billion on 31 December 2002, up from CHF 0.6 billion on 31 December 2001.
Full-year results for UBS Capital reflect continued tough economic conditions, impacting private equity valuations across a range of sectors, a factor that was compounded by the prolonged downturn suffered by all major equity markets. The challenging economic environment has adversely affected many of the companies in the portfolio while the continued hostile climate for divestments has restricted capital gains from exit opportunities. Against this background, UBS Capital posted a pre-tax loss in 2002 of CHF 1,761 million, CHF 727 million worse than in 2001.
64
UBS Capital’s private equity investments decreased to CHF 5.0 billion on 31 December 2001 from CHF 5.5 billion at the end of 2000, with the decline due to writedowns on the book value of investments, as well as a small number of divestments during the year, which more than offset drawdowns of previously committed investments and the low level of other new investments during the year.
UBS Capital recorded an operating loss of CHF 872 million in 2001, compared to operating income of CHF 370 million in 2000. Challenging markets and the continued slowdown in corporate activity meant that there were few opportunities for significant divestments in 2001, while weak economic conditions led to deteriorating valuations across a range of industry sectors, resulting in a high level of writedowns of investments in the portfolio.
65
UBS PaineWebber
Joseph J. Grano, Jr.Chairman and CEO, UBS PaineWebber
Mark B. SuttonPresident and Chief Operating OfficerUBS PaineWebber
UBS PaineWebber’s pre-tax loss adjusted for SFEs in 2002 was CHF 566 million, with the depreciation of the US dollar against the Swiss franc weighing on results. Excluding acquisition costs, operating pre-tax profit was CHF 632 million compared to CHF 693 million a year earlier.
Business Group reporting1 | ||||||||||||||||
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Income | 5,561 | 6,391 | 1,214 | (13 | ) | |||||||||||
Credit loss expense2 | (13 | ) | (18 | ) | (3 | ) | (28 | ) | ||||||||
Total operating income | 5,548 | 6,373 | 1,211 | (13 | ) | |||||||||||
Personnel expenses3 | 4,245 | 5,019 | 1,098 | (15 | ) | |||||||||||
General and administrative expenses | 1,263 | 1,441 | 344 | (12 | ) | |||||||||||
Depreciation | 149 | 124 | 42 | 20 | ||||||||||||
Amortization of goodwill and other intangible assets | 1,691 | 502 | 84 | 237 | ||||||||||||
Total operating expenses | 7,348 | 7,086 | 1,568 | 4 | ||||||||||||
Business Group performance before tax | (1,800 | ) | (713 | ) | (357 | ) | 152 | |||||||||
Business Group performance before tax and goodwill4 | (109 | ) | (211 | ) | (273 | ) | (48 | ) | ||||||||
Business Group performance before tax and acquisition costs12 | 632 | 693 | (72 | ) | (9 | ) | ||||||||||
KPIs | ||||||||||||||||
Invested assets (CHF billion) | 584 | 769 | 765 | (24 | ) | |||||||||||
Net new money (CHF billion)5 | 18.5 | 33.2 | 14.5 | 6 | ||||||||||||
Interest and dividend income (CHF billion)7 | 17.9 | 21.5 | (17 | ) | ||||||||||||
Cost/income ratio (%)8 | 132 | 111 | 129 | |||||||||||||
Cost/income ratio before goodwill (%)4, 8 | 102 | 103 | 122 | |||||||||||||
Recurring fees9 | 2,199 | 2,366 | 434 | (7 | ) | |||||||||||
Financial advisors (full-time equivalents) | 8,857 | 8,718 | 8,731 | 2 | ||||||||||||
Additional information | % change from | |||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Client assets (CHF billion) | 650 | 841 | (23 | ) | ||||||||||||
Regulatory equity allocated (average) | 7,450 | 8,550 | 9,200 | (13 | ) | |||||||||||
Fair value of employee stock options granted | 7310 | |||||||||||||||
Headcount (full-time equivalents) | 19,563 | 20,413 | 21,567 | (4 | ) | |||||||||||
66
Business Group reporting adjusted for Significant Financial Events | ||||||||||||||||
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Income | 5,561 | 6,391 | 1,214 | (13 | ) | |||||||||||
Credit loss expense2 | (13 | ) | (18 | ) | (3 | ) | (28 | ) | ||||||||
Total operating income | 5,548 | 6,373 | 1,211 | (13 | ) | |||||||||||
Personnel expenses3 | 4,245 | 5,019 | 1,098 | (15 | ) | |||||||||||
General and administrative expenses | 1,263 | 1,441 | 344 | (12 | ) | |||||||||||
Depreciation | 149 | 124 | 42 | 20 | ||||||||||||
Amortization of goodwill and other intangible assets | 457 | 11 | 502 | 84 | (9 | ) | ||||||||||
Total operating expenses | 6,114 | 7,086 | 1,568 | (14 | ) | |||||||||||
Business Group performance before tax | (566 | ) | (713 | ) | (357 | ) | (21 | ) | ||||||||
Business Group performance before tax and goodwill4 | (109) | (211 | ) | (273 | ) | (48 | ) | |||||||||
Business Group performance before tax and acquisition costs12 | 632 | 693 | (72 | ) | (9 | ) | ||||||||||
KPIs | ||||||||||||||||
Gross margin on invested assets (bps)13 | 82 | 84 | 67 | (2 | ) | |||||||||||
Gross margin on invested assets before acquisition costs (bps)12, 13 | 88 | 90 | 71 | (2 | ) | |||||||||||
Cost/income ratio (%)8 | 110 | 111 | 129 | |||||||||||||
Cost/income ratio before goodwill (%)4, 8 | 102 | 103 | 122 | |||||||||||||
Cost/income ratio before acquisition costs (%)8, 12 | 89 | 90 | 105 | |||||||||||||
67
Significant financial events
UBS PaineWebber became part of UBS following the merger between UBS and Paine Webber Group, Inc., which was completed on 3 November 2000. At the merger, it became a business unit of UBS Warburg. On 1 January 2002, UBS PaineWebber became a separate Business Group within UBS.
Key performance indicators
US dollar’s weakening against the Swiss franc. Excluding the impact of currency fluctuations, invested assets fell 8% during the year, mainly due to US equity market declines although that was partially offset by net new money inflows.
The gross margin on invested assets was 82 basis points for full-year 2002, down from 84 basis points in 2001. The gross margin on invested assets before acquisition costs (goodwill, net funding costs and retention payments) was 88 basis points, down from 90 basis points in 2001. Revenues declined more than invested assets due to lower customer activity levels. This was partially offset by higher revenues from our municipal securities business which had a record result in 2002.
68
is a direct result of cost management initiatives implemented in 2002, among them reductions in non-financial advisor headcount, professional fees, advertising and office-related costs.
We continue to invest in our distribution channels and advisory personnel. In 2002, the number of financial advisors rose by 139 from 8,718 to 8,857 with recruiting and retention success partially offset by higher attrition rates among less experienced and less productive financial advisors.
Results
69
Operating income
Operating expenses
Depreciation increased CHF 25 million to CHF 149 million in 2002 from CHF 124 million in 2001. Excluding currency movements, the increase in depreciation of 32% was due to higher technology equipment charges. Goodwill and other intangible amortization dropped from CHF 502 million in 2001 to CHF 457 million in 2002 as a result of the weakening US dollar against the Swiss franc.
Headcount
Comparisons of full-year 2001 results to full-year 2000 reflect the very different scale of this Business Group prior to the acquisition of Paine-Webber in November 2000.
Key performance indicators
70
Webber. UBS PaineWebber’s ability to continue to generate high levels of net new money despite the uncertain markets in 2001 reflects the strength of its client franchise amongst high net worth individuals in the US.
Results
Operating income
Operating expenses
Headcount
71
Corporate Center
Business Group reporting | ||||||||||||||||
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Income | 1,387 | 800 | 385 | 73 | ||||||||||||
Credit loss recovery1 | 249 | 236 | 1,161 | 6 | ||||||||||||
Total operating income | 1,636 | 1,036 | 1,546 | 58 | ||||||||||||
Personnel expenses | 645 | 592 | 522 | 9 | ||||||||||||
General and administrative expenses | 601 | 537 | 754 | 12 | ||||||||||||
Depreciation | 473 | 372 | 320 | 27 | ||||||||||||
Amortization of goodwill and other intangible assets | 24 | 24 | 43 | 0 | ||||||||||||
Total operating expenses | 1,743 | 1,525 | 1,639 | 14 | ||||||||||||
Business Group performance before tax | (107 | ) | (489 | ) | (93 | ) | (78 | ) | ||||||||
Business Group performance before tax and goodwill2 | (83 | ) | (465 | ) | (50 | ) | (82 | ) | ||||||||
Additional information | % change from | |||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Regulatory equity allocated (average) | 9,400 | 8,250 | 12,300 | 14 | ||||||||||||
Fair value of employee stock options granted | 32 | 3 | ||||||||||||||
Headcount (full-time equivalents) | 1,185 | 1,132 | 986 | 5 | ||||||||||||
Business Group reporting adjusted for Significant Financial Events | ||||||||||||||||
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Income | 1,315 | 4 | 800 | 385 | 64 | |||||||||||
Credit loss recovery1 | 249 | 236 | 1,161 | 6 | ||||||||||||
Total operating income | 1,564 | 1,036 | 1,546 | 51 | ||||||||||||
Personnel expenses | 645 | 592 | 490 | 5 | 9 | |||||||||||
General and administrative expenses | 601 | 537 | 604 | 5 | 12 | |||||||||||
Depreciation | 473 | 372 | 320 | 27 | ||||||||||||
Amortization of goodwill and other intangible assets | 24 | 24 | 43 | 0 | ||||||||||||
Total operating expenses | 1,743 | 1,525 | 1,457 | 14 | ||||||||||||
Business Group performance before tax | (179 | ) | (489 | ) | 89 | (63 | ) | |||||||||
Business Group performance before tax and goodwill2 | (155 | ) | (465 | ) | 132 | (67 | ) | |||||||||
72
Significant financial events
Corporate Center recorded a pre-tax loss of CHF 179 million in 2002, compared to the pre-tax loss of CHF 489 million in 2001.
Operating income
Operating expenses
Headcount
Results
Corporate Center recorded a pre-tax loss of CHF 489 million in 2001, compared to a pre-tax profit of CHF 89 million in 2000, adjusted for significant financial events.
Operating income
73
Operating income decreased by CHF 510 million from 2000 to CHF 1,036 million in 2001, principally reflecting the swing in the credit loss results, offset by higher income from treasury activities.
Operating expenses
than in 2000. This was due to lower corporate real estate costs and lower professional fees connected to the US Global Settlement of World War II-related claims, offset by higher IT costs and one-off charges relating to the bankruptcy of SAir Group.
Headcount
74
75
76
77
UBS Group Financial StatementsTable of Contents
Financial StatementsTable of Contents
Financial Statements | 80 | |||
UBS Group Income Statement | 80 | |||
UBS Group Balance Sheet | 81 | |||
UBS Group Statement of Changes in Equity | 82 | |||
UBS Group Statement of Cash Flows | 84 | |||
Notes to the Financial Statements | 86 | |||
1 | Summary of Significant Accounting Policies | 86 | ||
2a | Segment Reporting by Business Group | 96 | ||
2b | Segment Reporting by Geographic Location | 99 | ||
Income Statement | 100 | |||
3 | Net Interest and Trading Income | 100 | ||
4 | Net Fee and Commission Income | 101 | ||
5 | Other Income | 101 | ||
6 | Personnel Expenses | 102 | ||
7 | General and Administrative Expenses | 102 | ||
8 | Earnings per Share (EPS) and Shares Outstanding | 103 | ||
Balance Sheet: Assets | 104 | |||
9a | Due from Banks and Loans | 104 | ||
9b | Allowances and Provisions for Credit Losses | 105 | ||
9c | Impaired Loans | 105 | ||
9d | Non-Performing Loans | 106 | ||
10 | Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements | 107 | ||
11 | Trading Portfolio | 108 | ||
12 | Financial Investments | 109 | ||
13 | Investments in Associates | 110 | ||
14 | Property and Equipment | 111 | ||
15 | Goodwill and Other Intangible Assets | 111 | ||
16 | Other Assets | 113 | ||
Balance Sheet: Liabilities | 114 | |||
17 | Due to Banks and Customers | 114 | ||
18 | Debt Issued | 114 | ||
19 | Other Liabilities | 120 | ||
20 | Provisions | 120 | ||
21 | Income Taxes | 120 | ||
22 | Minority Interests | 122 | ||
23 | Derivative Instruments | 122 |
78
Off-Balance Sheet Information | 127 | |||||||
24 | Fiduciary Transactions | 127 | ||||||
25 | Commitments and Contingent Liabilities | 127 | ||||||
26 | Operating Lease Commitments | 129 | ||||||
Additional Information | 130 | |||||||
27 | Pledged Assets | 130 | ||||||
28 | Litigation | 130 | ||||||
29 | Financial Instruments Risk Position | 130 | ||||||
a) | Market Risk | 131 | ||||||
(a)(i) | Overview | 131 | ||||||
(a)(ii) | Interest Rate Risk | 131 | ||||||
(a)(iii) | Currency Risk | 133 | ||||||
(a)(iv) | Equity Risk | 135 | ||||||
(a)(v) | Issuer Risk | 135 | ||||||
b) | Credit Risk | 135 | ||||||
c) | Liquidity Risk | 138 | ||||||
d) | Capital Adequacy | 139 | ||||||
30 | Fair Value of Financial Instruments | 141 | ||||||
31 | Retirement Benefit Plans and Other Employee Benefits | 143 | ||||||
32 | Equity Participation Plans | 147 | ||||||
a) | Equity Participation Plans Offered | 147 | ||||||
b) | UBS Share Awards | 148 | ||||||
c) | UBS Option Awards | 149 | ||||||
d) | Compensation Expense | 150 | ||||||
e) | Pro-Forma Net Income | 150 | ||||||
33 | Related Parties | 151 | ||||||
34 | Post-Balance Sheet Events | 153 | ||||||
35 | Significant Subsidiaries and Associates | 153 | ||||||
36 | Acquisition of Paine Webber Group, Inc. | 157 | ||||||
37 | Currency Translation Rates | 157 | ||||||
38 | Swiss Banking Law Requirements | 157 | ||||||
39 | Reconciliation to US GAAP | 160 | ||||||
40 | Additional Disclosures Required under US GAAP and SEC Rules | 172 | ||||||
Report of the Group Auditors | 177 |
79
UBS Group Financial StatementsFinancial Statements
Financial Statements
UBS Group Income Statement
CHF million, except per share data | % change from | |||||||||||||||||||
For the year ended | Note | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 3 | 39,963 | 52,277 | 51,745 | (24 | ) | ||||||||||||||
Interest expense | 3 | (29,417 | ) | (44,236 | ) | (43,615 | ) | (33 | ) | |||||||||||
Net interest income | 10,546 | 8,041 | 8,130 | 31 | ||||||||||||||||
Credit loss (expense)/recovery | (206 | ) | (498 | ) | 130 | (59 | ) | |||||||||||||
Net interest income after credit loss expense | 10,340 | 7,543 | 8,260 | 37 | ||||||||||||||||
Net fee and commission income | 4 | 18,221 | 20,211 | 16,703 | (10 | ) | ||||||||||||||
Net trading income | 3 | 5,572 | 8,802 | 9,953 | (37 | ) | ||||||||||||||
Other income | 5 | (12 | ) | 558 | 1,486 | |||||||||||||||
Total operating income | 34,121 | 37,114 | 36,402 | (8 | ) | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 6 | 18,524 | 19,828 | 17,163 | (7 | ) | ||||||||||||||
General and administrative expenses | 7 | 7,072 | 7,631 | 6,765 | (7 | ) | ||||||||||||||
Depreciation of property and equipment | 14 | 1,521 | 1,614 | 1,608 | (6 | ) | ||||||||||||||
Amortization of goodwill and other intangible assets | 15 | 2,460 | 1,323 | 667 | 86 | |||||||||||||||
Total operating expenses | 29,577 | 30,396 | 26,203 | (3 | ) | |||||||||||||||
Operating profit before tax and minority interests | 4,544 | 6,718 | 10,199 | (32 | ) | |||||||||||||||
Tax expense | 21 | 678 | 1,401 | 2,320 | (52 | ) | ||||||||||||||
Net profit before minority interests | 3,866 | 5,317 | 7,879 | (27 | ) | |||||||||||||||
Minority interests | 22 | (331 | ) | (344 | ) | (87 | ) | (4 | ) | |||||||||||
Net profit | 3,535 | 4,973 | 7,792 | (29 | ) | |||||||||||||||
Basic earnings per share (CHF) | 8 | 2.92 | 3.93 | 6.44 | (26 | ) | ||||||||||||||
Basic earnings per share before goodwill (CHF)1 | 8 | 4.73 | 4.97 | 7.00 | (5 | ) | ||||||||||||||
Diluted earnings per share (CHF) | 8 | 2.87 | 3.78 | 6.35 | (24 | ) | ||||||||||||||
Diluted earnings per share before goodwill (CHF)1 | 8 | 4.65 | 4.81 | 6.89 | (3 | ) | ||||||||||||||
80
UBS Group Balance Sheet
% change from | ||||||||||||||||
CHF million | Note | 31.12.02 | 31.12.01 | 31.12.01 | ||||||||||||
Assets | ||||||||||||||||
Cash and balances with central banks | 4,271 | 20,990 | (80 | ) | ||||||||||||
Due from banks | 9 | 32,468 | 27,526 | 18 | ||||||||||||
Cash collateral on securities borrowed | 10 | 139,052 | 162,938 | (15 | ) | |||||||||||
Reverse repurchase agreements | 10 | 294,086 | 269,256 | 9 | ||||||||||||
Trading portfolio assets | 11 | 371,436 | 397,886 | (7 | ) | |||||||||||
Positive replacement values | 23 | 82,092 | 73,447 | 12 | ||||||||||||
Loans | 9 | 211,647 | 226,545 | (7 | ) | |||||||||||
Financial investments | 12 | 8,391 | 28,803 | (71 | ) | |||||||||||
Accrued income and prepaid expenses | 6,453 | 7,554 | (15 | ) | ||||||||||||
Investments in associates | 13 | 705 | 697 | 1 | ||||||||||||
Property and equipment | 14 | 7,869 | 8,695 | (9 | ) | |||||||||||
Goodwill and other intangible assets | 15 | 13,696 | 19,085 | (28 | ) | |||||||||||
Other assets | 16, 21 | 8,952 | 9,875 | (9 | ) | |||||||||||
Total assets | 1,181,118 | 1,253,297 | (6 | ) | ||||||||||||
Total subordinated assets1 | 3,652 | 2,732 | 34 | |||||||||||||
Liabilities | ||||||||||||||||
Due to banks | 17 | 83,178 | 106,531 | (22 | ) | |||||||||||
Cash collateral on securities lent | 10 | 36,870 | 30,317 | 22 | ||||||||||||
Repurchase agreements | 10 | 366,858 | 368,620 | 0 | ||||||||||||
Trading portfolio liabilities | 11 | 106,453 | 105,798 | 1 | ||||||||||||
Negative replacement values | 23 | 81,282 | 71,443 | 14 | ||||||||||||
Due to customers | 17 | 306,876 | 333,781 | (8 | ) | |||||||||||
Accrued expenses and deferred income | 15,331 | 17,289 | (11 | ) | ||||||||||||
Debt issued | 18 | 129,411 | 156,218 | (17 | ) | |||||||||||
Other liabilities | 19, 20, 21 | 12,339 | 15,658 | (21 | ) | |||||||||||
Total liabilities | 1,138,598 | 1,205,655 | (6 | ) | ||||||||||||
Minority interests | 22 | 3,529 | 4,112 | (14 | ) | |||||||||||
Shareholders’ equity | ||||||||||||||||
Share capital | 1,005 | 3,589 | (72 | ) | ||||||||||||
Share premium account | 12,638 | 14,408 | (12 | ) | ||||||||||||
Net gains/(losses) not recognized in the income statement, net of tax | (159 | ) | (193 | ) | 18 | |||||||||||
Retained earnings | 32,638 | 29,103 | 12 | |||||||||||||
Treasury shares | (7,131 | ) | (3,377 | ) | (111 | ) | ||||||||||
Total shareholders’ equity | 38,991 | 43,530 | (10 | ) | ||||||||||||
Total liabilities, minority interests and shareholders’ equity | 1,181,118 | 1,253,297 | (6 | ) | ||||||||||||
Total subordinated liabilities | 10,102 | 13,818 | (27 | ) | ||||||||||||
81
UBS Group Financial Statements
Table of Contents
Financial Statements
Table of Contents
83 | ||||||
84 | ||||||
84 | ||||||
85 | ||||||
86 | ||||||
88 | ||||||
90 | ||||||
1 | Summary of Significant Accounting Policies | 90 | ||||
2a | Segment Reporting by Business Group | 101 | ||||
2b | Segment Reporting by Geographic Location | 108 | ||||
109 | ||||||
3 | Net Interest and Trading Income | 109 | ||||
4 | Net Fee and Commission Income | 110 | ||||
5 | Other Income | 111 | ||||
6 | Personnel Expenses | 111 | ||||
7 | General and Administrative Expenses | 111 | ||||
8 | Earnings per Share (EPS) and Shares Outstanding | 112 | ||||
113 | ||||||
9a | Due from Banks and Loans | 113 | ||||
9b | Allowances and Provisions for Credit Losses | 114 | ||||
9c | Impaired Due from Banks and Loans | 114 | ||||
9d | Non-Performing Due from Banks and Loans | 115 | ||||
10 | Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements | 116 | ||||
11 | Trading Portfolio | 117 | ||||
12 | Financial Investments(available-for-sale) | 118 | ||||
13 | Investments in Associates | 120 | ||||
14 | Property and Equipment | 120 | ||||
15 | Goodwill and Other Intangible Assets | 121 | ||||
16 | Other Assets | 122 | ||||
123 | ||||||
17 | Due to Banks and Customers | 123 | ||||
18 | Financial liabilities designated at fair value and debt issued | 123 | ||||
19 | Other Liabilities | 125 | ||||
20 | Provisions | 125 |
82
Financial Statements
Financial Statements
UBS Group Income Statement For the year ended % change from Note 31.12.04 31.12.03 31.12.02 31.12.03 Interest income 3 39,398 40,159 39,963 (2 ) Interest expense 3 (27,538 ) (27,860 ) (29,417 ) (1 ) Net interest income 11,860 12,299 10,546 (4 ) Credit loss (expense)/recovery 276 (72 ) (115 ) Net interest income after credit loss expense 12,136 12,227 10,431 (1 ) Net fee and commission income 4 19,416 17,345 18,221 12 Net trading income 3 4,972 3,756 5,451 32 Other income 5 897 462 4 94 Income from industrial holdings 3,648 Total operating income 41,069 33,790 34,107 22 Personnel expenses 6 18,515 17,231 18,524 7 General and administrative expenses 7 6,703 6,086 7,072 10 Depreciation of property and equipment 14 1,352 1,353 1,514 0 Amortization of goodwill and other intangible assets 15 964 943 2,460 2 Goods and materials purchased 2,861 Total operating expenses 30,395 25,613 29,570 19 10,674 8,177 4,537 31 Tax expense 21 2,135 1,593 676 34 8,539 6,584 3,861 30 Minority interests 22 (450 ) (345 ) (331 ) 30 8,089 6,239 3,530 30 Basic earnings per share (CHF) 8 7.68 5.59 2.92 37 Diluted earnings per share (CHF) 8 7.47 5.48 2.87 36
84
Balance Sheet
% change from | ||||||||||||||||
CHF million | Note | 31.12.04 | 31.12.03 | 31.12.03 | ||||||||||||
Assets | ||||||||||||||||
Cash and balances with central banks | 6,036 | 3,584 | 68 | |||||||||||||
Due from banks | 9 | 35,264 | 31,740 | 11 | ||||||||||||
Cash collateral on securities borrowed | 10 | 220,242 | 213,932 | 3 | ||||||||||||
Reverse repurchase agreements | 10 | 357,164 | 320,499 | 11 | ||||||||||||
Trading portfolio assets | 11 | 370,259 | 341,013 | 9 | ||||||||||||
Trading portfolio assets pledged as collateral | 11 | 159,115 | 120,759 | 32 | ||||||||||||
Positive replacement values | 23 | 284,577 | 248,206 | 15 | ||||||||||||
Financial assets designated at fair value | 653 | 0 | ||||||||||||||
Loans | 9 | 232,387 | 212,679 | 9 | ||||||||||||
Financial investments | 12 | 5,049 | 5,139 | (2 | ) | |||||||||||
Accrued income and prepaid expenses | 5,876 | 6,218 | (6 | ) | ||||||||||||
Investments in associates | 13 | 2,427 | 1,616 | 50 | ||||||||||||
Property and equipment | 14 | 8,736 | 7,683 | 14 | ||||||||||||
Goodwill and other intangible assets | 15 | 12,149 | 11,529 | 5 | ||||||||||||
Other assets | 16,21 | 34,850 | 25,459 | 37 | ||||||||||||
Total assets | 1,734,784 | 1,550,056 | 12 | |||||||||||||
Liabilities | ||||||||||||||||
Due to banks | 17 | 118,901 | 127,012 | (6 | ) | |||||||||||
Cash collateral on securities lent | 10 | 61,545 | 53,278 | 16 | ||||||||||||
Repurchase agreements | 10 | 422,587 | 415,863 | 2 | ||||||||||||
Trading portfolio liabilities | 11 | 171,033 | 143,957 | 19 | ||||||||||||
Negative replacement values | 23 | 303,712 | 254,768 | 19 | ||||||||||||
Financial liabilities designated at fair value | 18 | 65,756 | 35,286 | 86 | ||||||||||||
Due to customers | 17 | 376,083 | 346,633 | 8 | ||||||||||||
Accrued expenses and deferred income | 14,685 | 13,673 | 7 | |||||||||||||
Debt issued | 18 | 117,828 | 88,843 | 33 | ||||||||||||
Other liabilities | 19,20,21 | 42,342 | 31,360 | 35 | ||||||||||||
Total liabilities | 1,694,472 | 1,510,673 | 12 | |||||||||||||
Minority interests | 22 | 5,334 | 4,073 | 31 | ||||||||||||
Shareholders’ equity | ||||||||||||||||
Share capital | 901 | 946 | (5 | ) | ||||||||||||
Share premium account | 7,348 | 6,935 | 6 | |||||||||||||
Net gains/(losses) not recognized in the income statement, net of tax | (1,644 | ) | (983 | ) | (67 | ) | ||||||||||
Revaluation reserve from step acquisitions | 90 | 0 | ||||||||||||||
Retained earnings | 37,455 | 36,641 | 2 | |||||||||||||
Equity classified as obligation to purchase own shares | (96 | ) | (49 | ) | (96 | ) | ||||||||||
Treasury shares | (9,076 | ) | (8,180 | ) | (11 | ) | ||||||||||
Total shareholders’ equity | 34,978 | 35,310 | (1 | ) | ||||||||||||
Total liabilities, minority interests and shareholders’ equity | 1,734,784 | 1,550,056 | 12 | |||||||||||||
85
Financial Statements
Statement of Changes in Equity
For the year ended | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Issued and paid up share capital | ||||||||||||
Balance at the beginning of the year | 946 | 1,005 | 3,589 | |||||||||
Issue of share capital | 2 | 2 | 6 | |||||||||
Capital repayment by par value reduction1 | (2,509 | ) | ||||||||||
Cancellation of second trading line treasury shares (2001 program) | (81 | ) | ||||||||||
Cancellation of second trading line treasury shares (2002 program) | (61 | ) | ||||||||||
Cancellation of second trading line treasury shares (2003 program) | (47 | ) | ||||||||||
Balance at the end of the year | 901 | 946 | 1,005 | |||||||||
Share premium | ||||||||||||
Balance at the beginning of the year, restated | 6,935 | 12,641 | 14,408 | |||||||||
Premium on shares issued and warrants exercised | 379 | 92 | 157 | |||||||||
Net premium/(discount) on treasury share and own equity derivative activity | 26 | (330 | ) | 285 | ||||||||
Employee stock option plan | 8 | |||||||||||
Cancellation of second trading line treasury shares (2001 program) | (2,209 | ) | ||||||||||
Cancellation of second trading line treasury shares (2002 program) | (5,468 | ) | ||||||||||
Balance at the end of the year | 7,348 | 6,935 | 12,641 | |||||||||
Net gains/(losses) not recognized in the income statement, net of taxes | ||||||||||||
Foreign currency translation | ||||||||||||
Balance at the beginning of the year | (1,644 | ) | (849 | ) | (769 | ) | ||||||
Movements during the year | (818 | ) | (795 | ) | (80 | ) | ||||||
Subtotal – balance at the end of the year | (2,462 | ) | (1,644 | ) | (849 | ) | ||||||
Net unrealized gains/(losses) on available-for-sale investments, net of taxes | ||||||||||||
Balance at the beginning of the year | 805 | 946 | 1,035 | |||||||||
Net unrealized gains/(losses) on available-for-sale investments | 474 | (108 | ) | (144 | ) | |||||||
Impairment charges reclassified to the income statement | 192 | 285 | 635 | |||||||||
Realized gains reclassified to the income statement | (353 | ) | (340 | ) | (600 | ) | ||||||
Realized losses reclassified to the income statement | 22 | 22 | 20 | |||||||||
Subtotal – balance at the end of the year | 1,140 | 805 | 946 | |||||||||
Change in fair value of derivative instruments designated as cash flow hedges, net of taxes | ||||||||||||
Balance at the beginning of the year | (144 | ) | (256 | ) | (459 | ) | ||||||
Net unrealized gains/(losses) on the revaluation of cash flow hedges | (223 | ) | 116 | (11 | ) | |||||||
Net realized (gains)/losses reclassified to the income statement | 45 | (4 | ) | 214 | ||||||||
Subtotal – balance at the end of the year | (322 | ) | (144 | ) | (256 | ) | ||||||
Balance at the end of the year | (1,644 | ) | (983 | ) | (159 | ) | ||||||
Revaluation reserve from step acquisitions, net of taxes | ||||||||||||
New acquisitions | 90 | |||||||||||
Balance at the end of the year | 90 | |||||||||||
Retained earnings | ||||||||||||
Balance at the beginning of the year, restated | 36,641 | 32,700 | 29,103 | |||||||||
Net profit for the year | 8,089 | 6,239 | 3,597 | |||||||||
Dividends paid1 | (2,806 | ) | (2,298 | ) | ||||||||
Cancellation of second trading line treasury shares (2003 program)2 | (4,469 | ) | ||||||||||
Balance at the end of the year | 37,455 | 36,641 | 32,700 | |||||||||
Equity classified as obligation to purchase own shares | ||||||||||||
Balance at the beginning of the year, restated | (49 | ) | (104 | ) | ||||||||
Net movements | (47 | ) | 55 | (104 | ) | |||||||
Balance at the end of the year | (96 | ) | (49 | ) | (104 | ) | ||||||
CHF million | ||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
Issued and paid up share capital | ||||||||||||
Balance at the beginning of the year | 3,589 | 4,444 | 4,309 | |||||||||
Issue of share capital | 6 | 12 | 135 | |||||||||
Capital repayment by par value reduction1 | (2,509 | ) | (683 | ) | ||||||||
Cancellation of second trading line treasury shares (2000 Program) | (184 | ) | ||||||||||
Cancellation of second trading line treasury shares (2001 Program) | (81 | ) | ||||||||||
Balance at the end of the year | 1,005 | 3,589 | 4,444 | |||||||||
Share premium | ||||||||||||
Balance at the beginning of the year | 14,408 | 20,885 | 14,437 | |||||||||
Premium on shares issued and warrants exercised | 157 | 80 | 139 | |||||||||
Net premium/(discount) on treasury share and own equity derivative activity | 282 | (239 | ) | (391 | ) | |||||||
Share premium increase due to PaineWebber acquisition | 4,198 | |||||||||||
Borrow of own shares to be delivered | 5,895 | |||||||||||
Settlement of own shares to be delivered | (2,502 | ) | (3,393 | ) | ||||||||
Cancellation of second trading line treasury shares (2000 Program) | (3,816 | ) | ||||||||||
Cancellation of second trading line treasury shares (2001 Program) | (2,209 | ) | ||||||||||
Balance at the end of the year | 12,638 | 14,408 | 20,885 | |||||||||
Net gains/(losses) not recognized in the income statement, net of taxes | ||||||||||||
Foreign currency translation | ||||||||||||
Balance at the beginning of the year | (769 | ) | (687 | ) | (442 | ) | ||||||
Movements during the year2 | (80 | ) | (82 | ) | (245 | ) | ||||||
Subtotal — balance at the end of the year | (849 | ) | (769 | ) | (687 | ) | ||||||
Net unrealized gains/(losses) on available for sale investments, net of taxes | ||||||||||||
Balance at the beginning of the year | 1,035 | 0 | ||||||||||
Change in accounting policy | 1,577 | 3 | ||||||||||
Net unrealized gains/(losses) on available for sale investments | (144 | ) | (139 | ) | ||||||||
Impairment charges reclassified to the income statement | 635 | 47 | ||||||||||
Gains reclassified to the income statement | (600 | ) | (461 | ) | ||||||||
Losses reclassified to the income statement | 20 | 11 | ||||||||||
Subtotal — balance at the end of the year | 946 | 1,035 | ||||||||||
Change in fair value of derivative instruments designated as cash flow hedges, net of taxes | ||||||||||||
Balance at the beginning of the year | (459 | ) | 0 | |||||||||
Change in accounting policy | (380 | )3 | ||||||||||
Net unrealized gains/(losses) on the revaluation of cash flow hedges | (11 | ) | (316 | ) | ||||||||
Net (gains)/losses reclassified to the income statement | 214 | 237 | ||||||||||
Subtotal — balance at the end of the year | (256 | ) | (459 | ) | ||||||||
Balance at the end of the year | (159 | ) | (193 | ) | (687 | ) | ||||||
Retained earnings | ||||||||||||
Balance at the beginning of the year | 29,103 | 24,191 | 20,327 | |||||||||
Change in accounting policy | (61 | )3 | ||||||||||
Balance at the beginning of the year (restated) | 29,103 | 24,130 | 20,327 | |||||||||
Net profit for the year | 3,535 | 4,973 | 7,792 | |||||||||
Dividends paid1, 4 | (3,928 | ) | ||||||||||
Balance at the end of the year | 32,638 | 29,103 | 24,191 | |||||||||
Treasury shares, at cost | ||||||||||||
Balance at the beginning of the year | (3,377 | ) | (4,000 | ) | (8,023 | ) | ||||||
Acquisitions | (8,313 | ) | (13,506 | ) | (16,330 | ) | ||||||
Disposals | 2,269 | 10,129 | 20,353 | |||||||||
Cancellation of second trading line treasury shares (2000 Program) | 4,000 | |||||||||||
Cancellation of second trading line treasury shares (2001 Program) | 2,290 | |||||||||||
Balance at the end of the year | (7,131 | ) | (3,377 | ) | (4,000 | ) | ||||||
Total shareholders’ equity | 38,991 | 43,530 | 44,833 | |||||||||
86
82
UBS Group Statement of Changes in Equity (continued)
Shares issued
Number of shares | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Balance at the beginning of the year | 1,281,717,499 | 1,333,139,187 | 1,292,679,486 | (4 | ) | |||||||||||
Issue of share capital | 3,398,869 | 3,843,661 | 4,459,701 | (12 | ) | |||||||||||
Issue of share capital due to PaineWebber acquisition | 36,000,000 | |||||||||||||||
Cancellation of second trading line treasury shares (2000 Program) | (55,265,349 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2001 Program) | (28,818,690 | ) | ||||||||||||||
Balance at the end of the year | 1,256,297,678 | 1,281,717,499 | 1,333,139,187 | (2 | ) | |||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Treasury shares, at cost | ||||||||||||
Balance at the beginning of the year | (8,180 | ) | (7,131 | ) | (3,377 | ) | ||||||
Acquisitions | (8,813 | ) | (8,424 | ) | (8,313 | ) | ||||||
Disposals | 3,401 | ) | 1,846 | 2,269 | ||||||||
Cancellation of second trading line treasury shares (2001 program) | 2,290 | |||||||||||
Cancellation of second trading line treasury shares (2002 program) | 5,529 | |||||||||||
Cancellation of second trading line treasury shares (2003 program) | 4,516 | |||||||||||
Balance at the end of the year | (9,076 | ) | (8,180 | ) | (7,131 | ) | ||||||
Total shareholders’ equity | 34,978 | 35,310 | 38,952 | |||||||||
Shares issued | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
Number of shares | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Balance at the beginning of the year | 1,183,046,764 | 1,256,297,678 | 1,281,717,499 | (6 | ) | |||||||||||
Issue of share capital | 3,293,413 | 2,719,166 | 3,398,869 | 21 | ||||||||||||
Cancellation of second trading line treasury shares (2001 program) | (28,818,690 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2002 program) | (75,970,080 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2003 program) | (59,482,000 | ) | ||||||||||||||
Balance at the end of the year | 1,126,858,177 | ) | 1,183,046,764 | 1,256,297,678 | (5 | ) | ||||||||||
Treasury shares | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
Number of shares | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Balance at the beginning of the year | 111,360,692 | 97,181,094 | 41,254,951 | 15 | ||||||||||||
Acquisitions | 96,139,004 | 116,080,976 | 110,710,741 | (17 | ) | |||||||||||
Disposals | (44,492,725 | ) | (25,931,298 | ) | (25,965,908 | ) | (72 | ) | ||||||||
Cancellation of second trading line treasury shares (2001 program) | (28,818,690 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2002 program) | (75,970,080 | ) | 100 | |||||||||||||
Cancellation of second trading line treasury shares (2003 program) | (59,482,000 | ) | ||||||||||||||
Balance at the end of the year | 103,524,971 | 111,360,692 | 97,181,094 | (7 | ) | |||||||||||
Treasury shares
Number of shares | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Balance at the beginning of the year | 41,254,951 | 55,265,349 | 110,621,142 | (25 | ) | |||||||||||
Acquisitions | 110,710,741 | 162,818,045 | 257,121,477 | 1 | (32 | ) | ||||||||||
Disposals | (25,965,908 | ) | (121,563,094 | ) | (312,477,270 | )1 | (79 | ) | ||||||||
Cancellation of second trading line treasury shares (2000 Program) | (55,265,349 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2001 Program) | (28,818,690 | ) | ||||||||||||||
Balance at the end of the year | 97,181,094 | 41,254,951 | 55,265,349 | 136 | ||||||||||||
During the year a total of 28,818,69059,482,000 shares acquired under the second trading line buyback program 20012003 were cancelled. AtOn 31 December 2002,2004, a maximum of 9,590,9183,533,012 shares can be issued against the exercise of options from former PaineWebber employee option plans. These shares are shown as conditional share capital in the UBS AG (Parent Bank) disclosure. Out of the total number of 97,181,094103,524,971 treasury
shares, 74,035,08039,935,094 shares (CHF 5,4163,543 million) were acquired under the second trading line buyback program 2002 and are earmarkedhave been repurchased for cancellation. The Board of Directors will propose to the Annual General Meeting on 1621 April 20032005 to reduce the issuedoutstanding number of shares and the share capital by the number of shares purchased for cancellation. All issued shares are fully paid.
8387
UBS Group Financial StatementsFinancial Statements
Statement of Cash Flows | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Cash flow from/(used in) operating activities | ||||||||||||
Net profit | 8,089 | 6,239 | 3,530 | |||||||||
Adjustments to reconcile net profit to cash flow from/(used in) operating activities | ||||||||||||
Non-cash items included in net profit and other adjustments: | ||||||||||||
Depreciation of property and equipment | 1,352 | 1,353 | 1,514 | |||||||||
Amortization of goodwill and other intangible assets | 964 | 943 | 2,460 | |||||||||
Credit loss expense/(recovery) | (276 | ) | 72 | 115 | ||||||||
Equity in income of associates | (65 | ) | (123 | ) | (7 | ) | ||||||
Deferred tax expense/(benefit) | 3 | 489 | (511 | ) | ||||||||
Net loss/(gain) from investing activities | (475 | ) | (63 | ) | 986 | |||||||
Net loss/(gain) from financing activities | 1,203 | 115 | (446 | ) | ||||||||
Net (increase)/decrease in operating assets: | ||||||||||||
Net due from/to banks | (11,679 | ) | 42,921 | (22,382 | ) | |||||||
Reverse repurchase agreements and cash collateral on securities borrowed | (42,975 | ) | (101,381 | ) | (944 | ) | ||||||
Trading portfolio and net replacement values | (19,834 | ) | (52,197 | ) | 22,427 | |||||||
Loans/due to customers | 10,035 | 38,638 | (11,446 | ) | ||||||||
Accrued income, prepaid expenses and other assets | (6,927 | ) | (16,100 | ) | 2,875 | |||||||
Net increase/(decrease) in operating liabilities: | ||||||||||||
Repurchase agreements and cash collateral on securities lent | 14,991 | 65,413 | 4,791 | |||||||||
Accrued expenses and other liabilities | 19,032 | 18,188 | (4,754 | ) | ||||||||
Income taxes paid | (1,336 | ) | (1,104 | ) | (572 | ) | ||||||
Net cash flow from/(used in) operating activities | (27,898 | ) | 3,403 | (2,364 | ) | |||||||
Cash flow from/(used in) investing activities | ||||||||||||
Investments in subsidiaries and associates | (2,511 | ) | (428 | ) | (60 | ) | ||||||
Disposal of subsidiaries and associates | 800 | 834 | 984 | |||||||||
Purchase of property and equipment | (1,149 | ) | (1,376 | ) | (1,763 | ) | ||||||
Disposal of property and equipment | 704 | 123 | 67 | |||||||||
Net (investment in)/divestment of financial investments | 686 | 2,317 | 2,153 | |||||||||
Net cash flow from/(used in) investing activities | (1,470 | ) | 1,470 | 1,381 | ||||||||
UBS Group Statement of Cash Flows88
CHF million | |||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||||||
Cash flow from/(used in) operating activities | |||||||||||||||||
Net profit | 3,535 | 4,973 | 7,792 | ||||||||||||||
Adjustments to reconcile net profit to cash flow from/(used in) operating activities | |||||||||||||||||
Non-cash items included in net profit and other adjustments: | |||||||||||||||||
Depreciation of property and equipment | 1,521 | 1,614 | 1,608 | ||||||||||||||
Amortization of goodwill and other intangible assets | 2,460 | 1,323 | 667 | ||||||||||||||
Credit loss expense/(recovery) | 206 | 498 | (130 | ) | |||||||||||||
Equity in income of associates | (7 | ) | (72 | ) | (58 | ) | |||||||||||
Deferred tax expense/(benefit) | (509 | ) | 292 | 544 | |||||||||||||
Net loss/(gain) from investing activities | 986 | 513 | (730 | ) | |||||||||||||
Net (increase)/decrease in operating assets: | |||||||||||||||||
Net due from/to banks | (22,382 | ) | 27,306 | (915 | ) | ||||||||||||
Reverse repurchase agreements and cash collateral on securities borrowed | (944 | ) | (60,536 | ) | (81,054 | ) | |||||||||||
Trading portfolio and net replacement values | 21,967 | (78,456 | ) | 11,553 | |||||||||||||
Loans/due to customers | (11,537 | ) | 42,813 | 12,381 | |||||||||||||
Accrued income, prepaid expenses and other assets | 2,875 | (424 | ) | 6,923 | |||||||||||||
Net increase/(decrease) in operating liabilities: | |||||||||||||||||
Repurchase agreements, cash collateral on securities lent | 4,791 | 80,006 | 50,762 | ||||||||||||||
Accrued expenses and other liabilities | (4,754 | ) | (5,235 | ) | 3,313 | ||||||||||||
Income taxes paid | (572 | ) | (1,742 | ) | (959 | ) | |||||||||||
Net cash flow from/(used in) operating activities | (2,364 | ) | 12,873 | 11,697 | |||||||||||||
Cash flow from/(used in) investing activities | |||||||||||||||||
Investments in subsidiaries and associates | (60 | ) | (467 | ) | (9,729 | ) | |||||||||||
Disposal of subsidiaries and associates | 984 | 95 | 669 | ||||||||||||||
Purchase of property and equipment | (1,763 | ) | (2,021 | ) | (1,640 | ) | |||||||||||
Disposal of property and equipment | 67 | 380 | 335 | ||||||||||||||
Net (investment in)/divestment of financial investments | 2,153 | (5,770 | ) | (8,770 | ) | ||||||||||||
Net cash flow from/(used in) investing activities | 1,381 | (7,783 | ) | (19,135 | ) | ||||||||||||
Cash flow from/(used in) financing activities | |||||||||||||||||
Net money market paper issued/(repaid) | (26,206 | ) | 24,226 | 10,125 | |||||||||||||
Net movements in treasury shares and own equity derivative activity | (5,605 | ) | (6,038 | ) | (647 | ) | |||||||||||
Capital issuance | 6 | 12 | 15 | ||||||||||||||
Capital repayment by par value reduction | (2,509 | ) | (683 | ) | |||||||||||||
Dividends paid | (3,928 | ) | |||||||||||||||
Issuance of long-term debt | 17,132 | 18,233 | 14,884 | ||||||||||||||
Repayment of long-term debt | (14,911 | ) | (18,477 | ) | (24,640 | ) | |||||||||||
Increase in minority interests | 0 | 1,291 | 2,683 | ||||||||||||||
Dividend payments to/and purchase from minority interests | (377 | ) | (461 | ) | (73 | ) | |||||||||||
Net cash flow from/(used in) financing activities | (32,470 | ) | 18,103 | (1,581 | ) | ||||||||||||
Effects of exchange rate differences | (462 | ) | (304 | ) | 112 | ||||||||||||
Net increase/(decrease) in cash equivalents | (33,915 | ) | 22,889 | (8,907 | ) | ||||||||||||
Cash and cash equivalents, beginning of the year | 116,259 | 93,370 | 102,277 | ||||||||||||||
Cash and cash equivalents, end of the year | 82,344 | 116,259 | 93,370 | ||||||||||||||
Cash and cash equivalents comprise: | |||||||||||||||||
Cash and balances with central banks | 4,271 | 20,990 | 2,979 | ||||||||||||||
Money market paper1 | 46,183 | 69,938 | 66,454 | ||||||||||||||
Due from banks maturing in less than three months | 31,890 | 25,331 | 23,937 | ||||||||||||||
Total | 82,344 | 116,259 | 93,370 | ||||||||||||||
Statement of Cash Flows (continued) | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Cash flow from/(used in) financing activities | ||||||||||||
Net money market paper issued/(repaid) | 21,379 | (14,737 | ) | (26,206 | ) | |||||||
Net movements in treasury shares and own equity derivative activity | (4,999 | ) | (6,810 | ) | (5,605 | ) | ||||||
Capital issuance | 2 | 2 | 6 | |||||||||
Capital repayment by par value reduction | (2,509 | ) | ||||||||||
Dividends paid | (2,806 | ) | (2,298 | ) | ||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 51,211 | 23,644 | 17,132 | |||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (24,717 | ) | (13,615 | ) | (14,911 | ) | ||||||
Increase in minority interests1 | 102 | 755 | ||||||||||
Dividend payments to/purchase from minority interests | (332 | ) | (278 | ) | (377 | ) | ||||||
Net cash flow from/(used in) financing activities | 39,840 | (13,337 | ) | (32,470 | ) | |||||||
Effects of exchange rate differences | (1,052 | ) | (524 | ) | (462 | ) | ||||||
Net increase/(decrease) in cash equivalents | 9,420 | (8,988 | ) | (33,915 | ) | |||||||
Cash and cash equivalents, beginning of the year | 73,356 | 82,344 | 116,259 | |||||||||
Cash and cash equivalents, end of the year | 82,776 | 73,356 | 82,344 | |||||||||
Cash and cash equivalents comprise: | ||||||||||||
Cash and balances with central banks | 6,036 | 3,584 | 4,271 | |||||||||
Money market paper2 | 45,409 | 40,599 | 46,183 | |||||||||
Due from banks maturing in less than three months | 31,331 | 29,173 | 31,890 | |||||||||
Total | 82,776 | 73,356 | 82,344 | |||||||||
Significant non-cash investing and financing activities | ||||||||||||
Hyposwiss, Zurich, deconsolidation | ||||||||||||
Financial investments | 53 | |||||||||||
Property and equipment | 18 | |||||||||||
Debt issued | 63 | |||||||||||
Hirslanden Holding AG, Zurich, deconsolidation | ||||||||||||
Financial investments | 3 | |||||||||||
Property and equipment | 718 | |||||||||||
Goodwill and other intangible assets | 15 | |||||||||||
Consolidation of special purpose entities | ||||||||||||
Debt issued | 2,322 | |||||||||||
Provisions for reinstatement costs | ||||||||||||
Property and equipment | 137 | |||||||||||
Motor-Columbus, Baden, from valuation at equity to full consolidation | ||||||||||||
Financial investments | 644 | |||||||||||
Investments in associates | 261 | |||||||||||
Property and equipment | 2,083 | |||||||||||
Goodwill and other intangible assets | 1,194 | |||||||||||
Debt issued | 727 | |||||||||||
Minority interests | 1,742 | |||||||||||
Investment funds transferred to other liabilities according to IAS 32 | ||||||||||||
Minority interests | 336 | |||||||||||
Cash paid for interest during 2004 was CHF 18,614 million.
89
84
UBS Group Statement of Cash Flows (continued)
Significant non-cash investing and financing activities | |||||||||||||
CHF million | |||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||
Paine Webber Group, Inc. acquisition | |||||||||||||
Value of shares issued (121,741,710 shares issued) | 0 | 0 | 10,246 | ||||||||||
Value of options issued (18,975,810 options issued) | 0 | 0 | 992 | ||||||||||
Solothurner Bank SOBA, Solothurn, deconsolidation | |||||||||||||
Investments in associates | 0 | 0 | 1 | ||||||||||
Property and equipment | 0 | 0 | 77 | ||||||||||
Debt issued | 0 | 0 | 493 | ||||||||||
Hyposwiss, Zurich, deconsolidation | |||||||||||||
Financial investments | 53 | 0 | 0 | ||||||||||
Property and equipment | 18 | 0 | 0 | ||||||||||
Debt issued | 63 | 0 | 0 | ||||||||||
Hirslanden Holding AG, Zurich, deconsolidation | |||||||||||||
Financial investments | 3 | 0 | 0 | ||||||||||
Property and equipment | 718 | 0 | 0 | ||||||||||
Goodwill and other intangible assets | 15 | 0 | 0 | ||||||||||
Consolidation of special purpose entities | |||||||||||||
Debt issued | 2,322 | 0 | 0 | ||||||||||
85
UBS Group Financial Statements
Notes to the Financial Statements
Notes to the Financial Statements
Note 1 Summary of Significant Accounting Policies
a) Basis of accounting
b) Use of estimates in the preparation of Financial Statements
c) Consolidation
UBS owns 20% or more of a company’s voting rights. Investments in associates are initially recorded at cost and the carrying amount is increased or decreased to recognize the Group’s share of the investee’s profits or losses after the date of acquisition. Investments in associates for which significant influence is intended to be temporary because the investments are acquired and held exclusively with a view to their subsequent disposal, are recorded as Financial investments.
86
tiesentities meet the criteria for derecognition of financial assets. Derecognition of a financial asset takes place when the Group loses control of the contractual rights that comprise the financial asset.assets, see section d) below. These transactions do not affect the consolidation status of an entity.
d) Derecognition
90
In certain transactions, UBS retains rights to service a transferred financial asset for a fee. The transferred asset is derecognized in its entirety, if it meets the derecognition criteria. An asset or liability is recognized for the servicing rights, depending on whether the servicing fee is more than adequate to cover servicing expenses (asset) or is less than adequate for performing the servicing (liability).
e) Securitizations
f) Securities borrowing and lending
g) Repurchase and reverse repurchase transactions
curities is obtained or relinquished. UBS monitors the market value of the securities received or delivered on a daily basis and provides or requests additional collateral in accordance with the underlying agreements.
h) Segment reporting
i) Foreign currency translation
e) Business and geographical segments91
Financial Statements
Notes to the Corporate Center. This organizational structure is the basis upon which the Group reports its primary segment information.
f)j) Cash and cash equivalents
g)k) Fee income
l) Determination of fair value
h) Securities borrowing and lending
i) Repurchase and reverse repurchase transactions
87
UBS Group Financial StatementsNotes to the Financial Statements
j)m) Trading portfolio
n) Financial instruments designated as held at fair value through profit and loss
k) Loans originated by the Group
88
l) Allowance and provision for credit losses
m) Securitizations
89
UBS Group Financial StatementsNotes to the Financial Statements
n) Financial investments
o) Property and equipment
9092
Property formerly bank-occupied or leased to third parties under an operating lease, which the Group has decided to dispose of and foreclosed property are defined as Properties held for resale and disclosed in Other assets. They are carried at the lower of cost or recoverable value.
p) Goodwill and other intangible assets
q) Income taxes
r) Debt issued
91
UBS Group Financial StatementsNotes to the Financial Statements
s) Treasury shares
t) Retirement benefits
The unrecognized actuarial gains and losses exceeding the greater of the two values are recognized in the income statement over the expected average remaining working lives of the employees participating in the plans.
u) Equity participation plans
92
v)o) Derivative instruments and hedging
93
UBS Group Financial StatementsNotes to the Financial Statements
p) Loans
93
Financial Statements
Notes to the Financial Statements
q) Allowance and provision for credit losses
r) Financial investments
94
s) Property and equipment
Properties, excluding land | Not exceeding 50 years | |
Leasehold improvements | Residual lease term, | |
but not exceeding 10 years | ||
Other machines and equipment | Not exceeding 10 years | |
IT, software and communication | Not exceeding 5 years | |
Plant and manufacturing equipment: | ||
- Power plants | 25 to 80 years | |
- Transmission grids and equipment | 15 to 40 years | |
Property formerly own-used or leased to third parties under an operating lease, which the Group has decided to dispose of, and foreclosed property are defined as Properties held for resale and recorded in Other assets. They are carried at the lower of cost or recoverable value.
t) Goodwill and other intangible assets
95
Financial Statements
Notes to the Financial Statements
With the introduction ofIFRS 3 Business Combinationsgoodwill acquired in business combinations entered into after 31 March 2004 is not amortized, but tested annually for impairment. The impairment test is conducted at the segment level as reported in Note 2. The segment has been determined as the cash generating unit for impairment testing purposes as this is the level at which the performance of an investment is reviewed and assessed by management. During 2004, UBS recorded goodwill of CHF 631 million from business combinations entered into after 31 March 2004.
u) Income taxes
v) Debt issued
96
w) Treasury shares and contracts on UBS shares
x) Retirement benefits
a) | 10% of present value of the defined benefit obligation at that date (before deducting plan assets); and | |
b) | 10% of the fair value of any plan assets at that date. | |
The unrecognized actuarial gains and losses exceeding the greater of these two values are recognized in the income statement over the expected average remaining working lives of the employees participating in the plans.
If an excess of the fair value of the plan assets over the present value of the defined benefit obligation cannot be recovered fully through refunds or reductions in future contributions, no gain is recognized solely as a result of deferral of an actuarial loss or past service cost in the current period or no loss is recognized solely as a result of deferral of an actuarial gain in the current period.
y) Equity participation plans
z) Earnings per Shareshare (EPS)
x) Comparabilityaa) Changes in accounting policies and comparability
97
Financial Statements
Notes to the Financial Statements
Revised IAS 32 provides that netting is permitted only if, in addition to all other netting conditions, normal settlement is intended to take place on a net basis. In general, that condition is not met for derivative instruments and therefore replacement values are now reported on a gross basis. In the 31 December 2003 balance sheet, replacement values of CHF 165,050 million that were previously offset are now reported gross.
Investment properties
Credit losses incurred on OTC derivatives
Segment reporting
Business combinations
98
Amended IAS 19, Employee Benefits
IFRIC Interpretations
ab) International Financial Reporting Interpretations Committee (IFRIC) becameStandards to be adopted in 2005
Segment Reporting
IAS 39, Recognition and Measurement of Financial Instruments
9499
95
UBS Group Financial Statements
Notes to the Financial Statements
In 2005, these entities, along with all other investments made by the Private Equity business unit, will be reclassified from the Investment Bank segment to the Industrial Holdings segment. In addition, seven of the newly consolidated investments held at 1 January 2003 were sold during 2003 and 2004 and will be presented as discontinued operations in the restated comparative prior periods in accordance with IFRS 5 which is discussed below. Gain on sale in the amount of CHF 90 million and CHF 194 million have been reported related to private equity investments sold in 2004 and 2003, respectively. On a restated basis, the net profit from discontinued operations related to these entities will be CHF 145 million and CHF 186 million in 2004 and 2003, respectively.
IFRS 2 Share-based Payment
IFRS 3 Business Combinations, IAS 36 Impairment of Assets and IAS 38 Intangible Assets
100
IFRS 4 Insurance Contracts
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
Note 2a Segment Reporting by Business Group
BasedUBS’s financial businesses are organized on our integrated business model, UBS is organizeda worldwide basis into the four Business Groups: UBSGroups and the Corporate Center. Wealth Management & Business Banking UBS Global Asset Management, UBS Warburg and UBS PaineWebber, and our Corporate Center.
UBSis segregated into two segments, Wealth Management &
and Business Banking
Wealth Management & Business Banking
UBS Global Asset Management
UBS WarburgInvestment Bank
UBS PaineWebberWealth Management USA
Corporate Center
Industrial Holdings
96101
Financial Statements
Notes to the Financial Statements
Note 2a Segment Reporting by Business Group (continued)
The Business Group results are presented on a management reporting basis. For the year ended 31 December 2004
CHF million
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue sharingRevenue-sharing agreements are used to allocate external customer revenues to a Business Group on a reasonable basis. Transactions between Business Groups are conducted at arm’s length. The segment
Income2 | ||
Credit loss (expense)/recovery | ||
Total operating income | ||
Personnel expenses | ||
General and administrative expenses | ||
Services to/from other business units | ||
Depreciation | ||
Amortization of goodwill and other intangible assets3 | ||
Goods and materials purchased | ||
Total operating expenses | ||
Business Group performance before tax | ||
Tax expense | ||
Net profit before minority interests | ||
Minority interests | ||
Net profit | ||
Additional information4 | ||
Total assets | ||
Total liabilities and minority interests | ||
Capital expenditure |
Management reporting for all periodsbased on expected credit loss
For internal management reporting purposes, we measure credit loss using an expected loss concept. This table shows Business Group performance consistent with the way in which our businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the changesaverage annual costs that are expected to arise from positions in the structure implemented during 2002. Priorcurrent portfolio that become impaired. The Adjusted expected credit loss reported for each Business Group is the expected credit loss on its portfolio plus the difference between Credit loss expense and expected credit loss, amortized over a three year amounts have been restatedperiod. The difference between these Adjusted expected credit loss figures and the Credit loss expense recorded at Group level for reporting purposes is reported in Corporate Functions.
Income2 | ||
Adjusted expected credit loss | ||
Total operating income | ||
Personnel expenses | ||
General and administrative expenses | ||
Services to/from other business units | ||
Depreciation | ||
Amortization of goodwill and other intangible assets3 | ||
Goods and materials purchased | ||
Total operating expenses | ||
Business Group performance before tax | ||
Tax expense | ||
Net profit before minority interests | ||
Minority interests | ||
Net profit |
102
Industrial | ||||||||||||||||||||||||||||||||||||
Financial Businesses | Holdings1 | UBS | ||||||||||||||||||||||||||||||||||
Wealth Management & | ||||||||||||||||||||||||||||||||||||
Business Banking | Corporate Center | |||||||||||||||||||||||||||||||||||
Business Banking | Global Asset | Wealth | Private | Corporate | ||||||||||||||||||||||||||||||||
Wealth Management | Switzerland | Management | Investment Bank | Management USA | Banks & GAM | Functions | ||||||||||||||||||||||||||||||
7,701 | 5,063 | 2,022 | 15,984 | 5,098 | 1,145 | 113 | 3,667 | 40,793 | ||||||||||||||||||||||||||||
(1 | ) | 92 | 0 | 240 | 3 | (58 | ) | 0 | 0 | 276 | ||||||||||||||||||||||||||
7,700 | 5,155 | 2,022 | 16,224 | 5,101 | 1,087 | 113 | 3,667 | 41,069 | ||||||||||||||||||||||||||||
2,080 | 2,393 | 901 | 8,156 | 3,437 | 432 | 790 | 326 | 18,515 | ||||||||||||||||||||||||||||
642 | 1,064 | 299 | 2,535 | 800 | 160 | 1,077 | 126 | 6,703 | ||||||||||||||||||||||||||||
1,395 | (533 | ) | 126 | 219 | 302 | 10 | (1,519 | ) | 0 | |||||||||||||||||||||||||||
66 | 69 | 23 | 239 | 71 | 20 | 794 | 70 | 1,352 | ||||||||||||||||||||||||||||
75 | 0 | 129 | 288 | 304 | 74 | 17 | 77 | 964 | ||||||||||||||||||||||||||||
2,861 | 2,861 | |||||||||||||||||||||||||||||||||||
4,258 | 2,993 | 1,478 | 11,437 | 4,914 | 696 | 1,159 | 3,460 | 30,395 | ||||||||||||||||||||||||||||
3,442 | 2,162 | 544 | 4,787 | 187 | 391 | (1,046 | ) | 207 | 10,674 | |||||||||||||||||||||||||||
2,135 | ||||||||||||||||||||||||||||||||||||
8,539 | ||||||||||||||||||||||||||||||||||||
(450 | ) | |||||||||||||||||||||||||||||||||||
8,089 | ||||||||||||||||||||||||||||||||||||
164,720 | 210,133 | 29,334 | 1,473,726 | 51,850 | 8,043 | (210,909 | ) | 7,887 | 1,734,784 | |||||||||||||||||||||||||||
161,046 | 204,479 | 28,501 | 1,459,757 | 47,259 | 7,480 | (216,342 | ) | 7,626 | 1,699,806 | |||||||||||||||||||||||||||
304 | 212 | 8 | 322 | 50 | 19 | 599 | 50 | 1,564 | ||||||||||||||||||||||||||||
7,701 | 5,063 | 2,022 | 15,984 | 5,098 | 1,145 | 113 | 3,667 | 40,793 | ||||||||||||||||||||||||||||
(8 | ) | (25 | ) | 0 | (7 | ) | (5 | ) | (6 | ) | 327 | 276 | ||||||||||||||||||||||||
7,693 | 5,038 | 2,022 | 15,977 | 5,093 | 1,139 | 440 | 3,667 | 41,069 | ||||||||||||||||||||||||||||
2,080 | 2,393 | 901 | 8,156 | 3,437 | 432 | 790 | 326 | 18,515 | ||||||||||||||||||||||||||||
642 | 1,064 | 299 | 2,535 | 800 | 160 | 1,077 | 126 | 6,703 | ||||||||||||||||||||||||||||
1,395 | (533 | ) | 126 | 219 | 302 | 10 | (1,519 | ) | 0 | |||||||||||||||||||||||||||
66 | 69 | 23 | 239 | 71 | 20 | 794 | 70 | 1,352 | ||||||||||||||||||||||||||||
75 | 0 | 129 | 288 | 304 | 74 | 17 | 77 | 964 | ||||||||||||||||||||||||||||
2,861 | 2,861 | |||||||||||||||||||||||||||||||||||
4,258 | 2,993 | 1,478 | 11,437 | 4,914 | 696 | 1,159 | 3,460 | 30,395 | ||||||||||||||||||||||||||||
3,435 | 2,045 | 544 | 4,540 | 179 | 443 | (719 | ) | 207 | 10,674 | |||||||||||||||||||||||||||
2,135 | ||||||||||||||||||||||||||||||||||||
8,539 | ||||||||||||||||||||||||||||||||||||
(450 | ) | |||||||||||||||||||||||||||||||||||
8,089 | ||||||||||||||||||||||||||||||||||||
103
Financial Statements
Notes to conformthe Financial Statements
Note 2a Reporting by Business Group (continued)
For the year ended 31 December 2003
CHF million
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue-sharing agreements are used to allocate external customer revenues to a Business Group on a reasonable basis. Transactions between Business Groups are conducted at arm’s length.
Income1 | ||||
Credit loss (expense)/recovery | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services to/from other business units | ||||
Depreciation | ||||
Amortization of goodwill and other intangible assets2 | ||||
Total operating expenses | ||||
Business Group performance before tax | ||||
Tax expense | ||||
Net profit before minority interests | ||||
Minority interests | ||||
Net profit | ||||
Additional information3 | ||||
Total assets | ||||
Total liabilities and minority interests | ||||
Capital expenditure |
Management reporting based on expected credit loss
For internal management reporting purposes, we measure credit loss using an expected loss concept. This table shows Business Group performance consistent with the way in which our businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the average annual costs that are expected to arise from positions in the current portfolio that become impaired. The Adjusted expected credit loss reported for each Business Group is the expected credit loss on its portfolio plus the difference between Credit loss expense and expected credit loss, amortized over a three year presentation.period. The difference between these Adjusted expected credit loss figures and the Credit loss expense recorded at Group level for reporting purposes is reported in Corporate Functions.
Income1 | ||
Adjusted expected credit loss | ||
Total operating income | ||
Personnel expenses | ||
General and administrative expenses | ||
Services to/from other business units | ||
Depreciation | ||
Amortization of goodwill and other intangible assets2 | ||
Total operating expenses | ||
Business Group performance before tax | ||
Tax expense | ||
Net profit before minority interests | ||
Minority interests | ||
Net profit |
104
Wealth Management & | ||||||||||||||||||||||||||||||||
Business Banking | Corporate Center | |||||||||||||||||||||||||||||||
Business Banking | Global Asset | Wealth | Private | Corporate | ||||||||||||||||||||||||||||
Wealth Management | Switzerland | Management | Investment Bank | Management USA | Banks & GAM | Functions | UBS | |||||||||||||||||||||||||
6,797 | 5,247 | 1,737 | 13,991 | 5,190 | 880 | 20 | 33,862 | |||||||||||||||||||||||||
4 | (71 | ) | 0 | (4 | ) | (3 | ) | 2 | 0 | (72 | ) | |||||||||||||||||||||
6,801 | 5,176 | 1,737 | 13,987 | 5,187 | 882 | 20 | 33,790 | |||||||||||||||||||||||||
1,944 | 2,406 | 806 | 7,303 | 3,627 | 381 | 764 | 17,231 | |||||||||||||||||||||||||
604 | 1,090 | 265 | 2,074 | 719 | 169 | 1,165 | 6,086 | |||||||||||||||||||||||||
1,479 | (609 | ) | 156 | 180 | 433 | 11 | (1,650 | ) | 0 | |||||||||||||||||||||||
82 | 88 | 25 | 246 | 72 | 28 | 812 | 1,353 | |||||||||||||||||||||||||
75 | 0 | 153 | 278 | 336 | 81 | 20 | 943 | |||||||||||||||||||||||||
4,184 | 2,975 | 1,405 | 10,081 | 5,187 | 670 | 1,111 | 25,613 | |||||||||||||||||||||||||
2,617 | 2,201 | 332 | 3,906 | 0 | 212 | (1,091 | ) | 8,177 | ||||||||||||||||||||||||
1,593 | ||||||||||||||||||||||||||||||||
6,584 | ||||||||||||||||||||||||||||||||
(345 | ) | |||||||||||||||||||||||||||||||
6,239 | ||||||||||||||||||||||||||||||||
150,285 | 192,517 | 21,929 | 1,316,897 | 46,837 | 9,084 | (187,493 | ) | 1,550,056 | ||||||||||||||||||||||||
147,479 | 186,185 | 20,917 | 1,303,281 | 41,732 | 8,406 | (193,254 | ) | 1,514,746 | ||||||||||||||||||||||||
167 | 261 | 17 | 518 | 68 | 17 | 427 | 1,475 | |||||||||||||||||||||||||
6,797 | 5,247 | 1,737 | 13,991 | 5,190 | 880 | 20 | 33,862 | |||||||||||||||||||||||||
(4 | ) | (127 | ) | 0 | (55 | ) | (8 | ) | (2 | ) | 124 | (72 | ) | |||||||||||||||||||
6,793 | 5,120 | 1,737 | 13,936 | 5,182 | 878 | 144 | 33,790 | |||||||||||||||||||||||||
1,944 | 2,406 | 806 | 7,303 | 3,627 | 381 | 764 | 17,231 | |||||||||||||||||||||||||
604 | 1,090 | 265 | 2,074 | 719 | 169 | 1,165 | 6,086 | |||||||||||||||||||||||||
1,479 | (609 | ) | 156 | 180 | 433 | 11 | (1,650 | ) | 0 | |||||||||||||||||||||||
82 | 88 | 25 | 246 | 72 | 28 | 812 | 1,353 | |||||||||||||||||||||||||
75 | 0 | 153 | 278 | 336 | 81 | 20 | 943 | |||||||||||||||||||||||||
4,184 | 2,975 | 1,405 | 10,081 | 5,187 | 670 | 1,111 | 25,613 | |||||||||||||||||||||||||
2,609 | 2,145 | 332 | 3,855 | (5 | ) | 208 | (967 | ) | 8,177 | |||||||||||||||||||||||
1,593 | ||||||||||||||||||||||||||||||||
6,584 | ||||||||||||||||||||||||||||||||
(345 | ) | |||||||||||||||||||||||||||||||
6,239 | ||||||||||||||||||||||||||||||||
1 Impairments on private equity and other financial investments for the year ended 31 December 2003 were as follows: Wealth Management & Business Banking CHF 18 million; Global Asset Management CHF 2 million; Investment Bank CHF 371 million; Wealth Management USA CHF 1 million; Corporate Center CHF 149 million.2 For further information regarding goodwill and other intangible assets by Business Group, please see Note 15: Goodwil and Other Intangible Assets.3 The funding surplus or requirement is reflected in each Business Group and adjusted in Corporate Center.
105
Financial Statements
Notes to the Financial Statements
Note 2a Reporting by Business Group (continued)
For the year ended 31 December 2002
UBS Wealth | UBS | |||||||||||||||||||||||
Management & | Global Asset | UBS | UBS | Corporate | ||||||||||||||||||||
CHF million | Business Banking | Management | Warburg | PaineWebber | Center | UBS Group | ||||||||||||||||||
Income1 | 12,928 | 1,953 | 12,498 | 5,561 | 1,387 | 34,327 | ||||||||||||||||||
Credit loss expense2 | (314 | ) | 0 | (128 | ) | (13 | ) | 249 | (206 | ) | ||||||||||||||
Total operating income | 12,614 | 1,953 | 12,370 | 5,548 | 1,636 | 34,121 | ||||||||||||||||||
Personnel expenses | 4,810 | 946 | 7,878 | 4,245 | 645 | 18,524 | ||||||||||||||||||
General and administrative expenses | 2,317 | 513 | 2,378 | 1,263 | 601 | 7,072 | ||||||||||||||||||
Depreciation | 480 | 37 | 382 | 149 | 473 | 1,521 | ||||||||||||||||||
Amortization of goodwill and other intangible assets3 | 111 | 270 | 364 | 1,691 | 24 | 2,460 | ||||||||||||||||||
Total operating expenses | 7,718 | 1,766 | 11,002 | 7,348 | 1,743 | 29,577 | ||||||||||||||||||
Business Group performance before tax | 4,896 | 187 | 1,368 | (1,800 | ) | (107 | ) | 4,544 | ||||||||||||||||
Tax expense | 678 | |||||||||||||||||||||||
Net profit before minority interests | 3,866 | |||||||||||||||||||||||
Minority interests | (331 | ) | ||||||||||||||||||||||
Net profit | 3,535 | |||||||||||||||||||||||
Other information as at 31 December 20024 | ||||||||||||||||||||||||
Total assets | 310,722 | 4,428 | 933,962 | 39,610 | (107,604 | ) | 1,181,118 | |||||||||||||||||
Total liabilities and minority interests | 302,272 | 2,937 | 921,446 | 33,225 | (117,753 | ) | 1,142,127 | |||||||||||||||||
Capital expenditure | 380 | 20 | 473 | 185 | 705 | 1,763 | ||||||||||||||||||
CHF million
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue-sharing agreements are used to allocate external customer revenues to a Business Group on a reasonable basis. Transactions between Business Groups are conducted at arm’s length.
Income1 | ||||
Credit loss (expense)/recovery | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services to/from other business units | ||||
Depreciation | ||||
Amortization of goodwill and other intangible assets2 | ||||
Total operating expenses | ||||
Business Group performance before tax | ||||
Tax expense | ||||
Net profit before minority interests | ||||
Minority interests | ||||
Net profit | ||||
Additional information3 | ||||
Total assets | ||||
Total liabilities and minority interests | ||||
Capital expenditure |
Management reporting based on expected credit loss
For internal management reporting purposes, we measure credit loss using an expected loss concept. This table shows Business Group performance consistent with the way in which our businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the average annual costs that are expected to arise from positions in the current portfolio that become impaired. The Adjusted expected credit loss reported for each Business Group is the expected credit loss on its portfolio plus the difference between Credit loss expense and expected credit loss, amortized over a three year period. The difference between these Adjusted expected credit loss figures and the Credit loss expense recorded at Group level for reporting purposes is reported in Corporate Functions.
Income1 | ||||
Adjusted expected credit loss | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services to/from other business units | ||||
Depreciation | ||||
Amortization of goodwill and other intangible assets2 | ||||
Total operating expenses | ||||
Business Group performance before tax | ||||
Tax expense | ||||
Net profit before minority interests | ||||
Minority interests | ||||
Net profit |
106
Wealth Management & | ||||||||||||||||||||||||||||||||
Business Banking | Corporate Center | |||||||||||||||||||||||||||||||
Business Banking | Global Asset | Wealth | Private | Corporate | ||||||||||||||||||||||||||||
Wealth Management | Switzerland | Management | Investment Bank | Management USA | Banks & GAM | Functions | UBS | |||||||||||||||||||||||||
6,690 | 5,494 | 1,655 | 12,419 | 5,561 | 1,038 | 1,365 | 34,222 | |||||||||||||||||||||||||
1 | (239 | ) | 0 | 126 | (15 | ) | (3 | ) | 15 | (115 | ) | |||||||||||||||||||||
6,691 | 5,255 | 1,655 | 12,545 | 5,546 | 1,035 | 1,380 | 34,107 | |||||||||||||||||||||||||
1,869 | 2,469 | 763 | 7,815 | 4,158 | 386 | 1,064 | 18,524 | |||||||||||||||||||||||||
617 | 1,305 | 301 | 2,359 | 926 | 120 | 1,444 | 7,072 | |||||||||||||||||||||||||
1,475 | (638 | ) | 164 | 140 | 492 | 12 | (1,645 | ) | 0 | |||||||||||||||||||||||
93 | 105 | 22 | 320 | 81 | 40 | 853 | 1,514 | |||||||||||||||||||||||||
97 | 186 | 364 | 1,691 | 98 | 24 | 2,460 | ||||||||||||||||||||||||||
4,151 | 3,241 | 1,436 | 10,998 | 7,348 | 656 | 1,740 | 29,570 | |||||||||||||||||||||||||
2,540 | 2,014 | 219 | 1,547 | (1,802 | ) | 379 | (360 | ) | 4,537 | |||||||||||||||||||||||
676 | ||||||||||||||||||||||||||||||||
3,861 | ||||||||||||||||||||||||||||||||
(331 | ) | |||||||||||||||||||||||||||||||
3,530 | ||||||||||||||||||||||||||||||||
189,061 | 121,661 | 4,428 | 1,099,410 | 39,610 | 7,004 | (114,496 | ) | 1,346,678 | ||||||||||||||||||||||||
186,346 | 115,926 | 2,937 | 1,087,019 | 33,225 | 6,270 | (123,997 | ) | 1,307,726 | ||||||||||||||||||||||||
156 | 224 | 20 | 473 | 466 | 37 | 668 | 2,044 | |||||||||||||||||||||||||
6,690 | 5,494 | 1,655 | 12,419 | 5,561 | 1,038 | 1,365 | 34,222 | |||||||||||||||||||||||||
(26 | ) | (286 | ) | (90 | ) | (13 | ) | (2 | ) | 302 | (115 | ) | ||||||||||||||||||||
6,664 | 5,208 | 1,655 | 12,329 | 5,548 | 1,036 | 1,667 | 34,107 | |||||||||||||||||||||||||
1,869 | 2,469 | 763 | 7,815 | 4,158 | 386 | 1,064 | 18,524 | |||||||||||||||||||||||||
617 | 1,305 | 301 | 2,359 | 926 | 120 | 1,444 | 7,072 | |||||||||||||||||||||||||
1,475 | (638 | ) | 164 | 140 | 492 | 12 | (1,645 | ) | 0 | |||||||||||||||||||||||
93 | 105 | 22 | 320 | 81 | 40 | 853 | 1,514 | |||||||||||||||||||||||||
97 | 186 | 364 | 1,691 | 98 | 24 | 2,460 | ||||||||||||||||||||||||||
4,151 | 3,241 | 1,436 | 10,998 | 7,348 | 656 | 1,740 | 29,570 | |||||||||||||||||||||||||
2,513 | 1,967 | 219 | 1,331 | (1,800 | ) | 380 | (73 | ) | 4,537 | |||||||||||||||||||||||
676 | ||||||||||||||||||||||||||||||||
3,861 | ||||||||||||||||||||||||||||||||
(331 | ) | |||||||||||||||||||||||||||||||
3,530 | ||||||||||||||||||||||||||||||||
1Impairments on private equity and other financial investments for the year ended 31 December 2002 were as follows: UBS Wealth Management & Business Banking CHF 32 million; UBS Global Asset Management CHF 1 million; UBS WarburgInvestment Bank CHF 1,703 million; Corporate Center CHF 208 million. 2In order to show the relevant Business Group performance over time, adjusted expected loss figures rather than the IFRS actual net credit loss expense are reported for each Business Group. The adjusted expected loss is the statistically derived actuarial expected loss which reflects the inherent counterparty and country risks in the respective portfolios, plus the deferred releases representing the amortized historical differences between actual credit losses and actuarial expected loss. The difference between the adjusted expected loss figures and the IFRS actual net credit loss expense recorded at Group level for financial reporting purposes is reported in the Corporate Center. The Business Group breakdown of the net credit loss expense for financial reporting purposes of CHF 206 million for the year ended 31 December 2002 is as follows: UBS Wealth Management & Business Banking CHF 241 million expense, UBS Warburg CHF 35 million recovery, UBS PaineWebber CHF 15 million expense and Corporate Center CHF 15 million recovery. 3For further information aboutregarding goodwill and other intangible assets by Business Group, please see Note 15: Goodwill and Other Intangible Assets. 43The funding surplus or requirement is reflected in each Business Group and adjusted in Corporate Center.
107
97
UBS Group Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2001
UBS Wealth | UBS | |||||||||||||||||||||||
Management & | Global Asset | UBS | UBS | Corporate | ||||||||||||||||||||
CHF million | Business Banking | Management | Warburg | PaineWebber | Center | UBS Group | ||||||||||||||||||
Income1 | 13,488 | 2,218 | 14,715 | 6,391 | 800 | 37,612 | ||||||||||||||||||
Credit loss expense2 | (604 | ) | 0 | (112 | ) | (18 | ) | 236 | (498 | ) | ||||||||||||||
Total operating income | 12,884 | 2,218 | 14,603 | 6,373 | 1,036 | 37,114 | ||||||||||||||||||
Personnel expenses | 4,825 | 1,038 | 8,354 | 5,019 | 592 | 19,828 | ||||||||||||||||||
General and administrative expenses | 2,434 | 569 | 2,650 | 1,441 | 537 | 7,631 | ||||||||||||||||||
Depreciation | 616 | 46 | 456 | 124 | 372 | 1,614 | ||||||||||||||||||
Amortization of goodwill and other intangible assets | 109 | 286 | 402 | 502 | 24 | 1,323 | ||||||||||||||||||
Total operating expenses | 7,984 | 1,939 | 11,862 | 7,086 | 1,525 | 30,396 | ||||||||||||||||||
Business Group performance before tax | 4,900 | 279 | 2,741 | (713 | ) | (489 | ) | 6,718 | ||||||||||||||||
Tax expense | 1,401 | |||||||||||||||||||||||
Net profit before minority interests | 5,317 | |||||||||||||||||||||||
Minority interests | (344 | ) | ||||||||||||||||||||||
Net profit | 4,973 | |||||||||||||||||||||||
Other information as at 31 December 20013 | ||||||||||||||||||||||||
Total assets | 313,800 | 6,335 | 1,005,397 | 39,747 | (111,982 | ) | 1,253,297 | |||||||||||||||||
Total liabilities and minority interests | 304,988 | 4,367 | 992,272 | 31,556 | (123,416 | ) | 1,209,767 | |||||||||||||||||
Capital expenditure | 540 | 37 | 337 | 296 | 811 | 2,021 | ||||||||||||||||||
For the year ended 31 December 2000
UBS Wealth | UBS | |||||||||||||||||||||||
Management & | Global Asset | UBS | UBS | Corporate | ||||||||||||||||||||
CHF million | Business Banking | Management | Warburg | PaineWebber | Center | UBS Group | ||||||||||||||||||
Income1 | 14,355 | 2,078 | 18,240 | 1,214 | 385 | 36,272 | ||||||||||||||||||
Credit loss expense/recovery2 | (785 | ) | 0 | (243 | ) | (3 | ) | 1,161 | 130 | |||||||||||||||
Total operating income | 13,570 | 2,078 | 17,997 | 1,211 | 1,546 | 36,402 | ||||||||||||||||||
Personnel expenses | 5,151 | 941 | 9,451 | 1,098 | 522 | 17,163 | ||||||||||||||||||
General and administrative expenses | 2,478 | 434 | 2,755 | 344 | 754 | 6,765 | ||||||||||||||||||
Depreciation | 633 | 49 | 564 | 42 | 320 | 1,608 | ||||||||||||||||||
Amortization of goodwill and other intangible assets | 81 | 267 | 192 | 84 | 43 | 667 | ||||||||||||||||||
Total operating expenses | 8,343 | 1,691 | 12,962 | 1,568 | 1,639 | 26,203 | ||||||||||||||||||
Business Group performance before tax | 5,227 | 387 | 5,035 | (357 | ) | (93 | ) | 10,199 | ||||||||||||||||
Tax expense | 2,320 | |||||||||||||||||||||||
Net profit before minority interests | 7,879 | |||||||||||||||||||||||
Minority interests | (87 | ) | ||||||||||||||||||||||
Net profit | 7,792 | |||||||||||||||||||||||
Other information as at 31 December 20003 | ||||||||||||||||||||||||
Total assets | 281,984 | 7,558 | 817,264 | 50,691 | (69,945 | ) | 1,087,552 | |||||||||||||||||
Total liabilities and minority interests | 272,173 | 5,787 | 803,159 | 41,826 | (80,226 | ) | 1,042,719 | |||||||||||||||||
98
Note 2b Segment Reporting by Geographic Location
The geographic analysis of total assets is based on customer domicile whereas operating income and capital expenditure is based on the location of the office in which the transactions and assets are recorded. Because of the global nature of financial markets the Group’s business is managed on an integrated basis worldwide, with a view to profitability by product line.
The geographical analysis of operating income, total assets, and capital expenditure is provided in order to comply with IFRS, and does not reflect the way the Group is managed. Management believes that analysis by Business Group, as shown in Note 2a to these Financial Statements, is a more meaningful representation of the way in which the Group is managed.
For the year ended 31 December 2002
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||||||||||||||||||||||||||
For the year ended 31 December 2004 | For the year ended 31 December 2004 | |||||||||||||||||||||||||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||||||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||||||||||||||||||||
Switzerland | 14,307 | 42 | 174,878 | 15 | 885 | 51 | 14,949 | 37 | 189,019 | 11 | 799 | 51 | ||||||||||||||||||||||||||||||||||||
Rest of Europe | 6,837 | 20 | 256,110 | 22 | 199 | 11 | ||||||||||||||||||||||||||||||||||||||||||
Rest of Europe / Africa / Middle East | 10,379 | 25 | 564,336 | 32 | 388 | 25 | ||||||||||||||||||||||||||||||||||||||||||
Americas | 11,055 | 32 | 669,823 | 56 | 635 | 36 | 13,615 | 33 | 829,845 | 48 | 293 | 19 | ||||||||||||||||||||||||||||||||||||
Asia/Pacific | 1,909 | 6 | 78,270 | 7 | 44 | 2 | ||||||||||||||||||||||||||||||||||||||||||
Africa/Middle East | 13 | 0 | 2,037 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 2,126 | 5 | 151,584 | 9 | 84 | 5 | ||||||||||||||||||||||||||||||||||||||||||
Total | 34,121 | 100 | 1,181,118 | 100 | 1,763 | 100 | 41,069 | 100 | 1,734,784 | 100 | 1,564 | 100 | ||||||||||||||||||||||||||||||||||||
For the year ended 31 December 2003 | ||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 13,176 | 39 | 182,280 | 12 | 689 | 47 | ||||||||||||||||||
Rest of Europe / Africa / Middle East | 5,977 | 18 | 535,501 | 34 | 242 | 16 | ||||||||||||||||||
Americas | 12,923 | 38 | 738,189 | 48 | 510 | 35 | ||||||||||||||||||
Asia Pacific | 1,714 | 5 | 94,086 | 6 | 34 | 2 | ||||||||||||||||||
Total | 33,790 | 100 | 1,550,056 | 100 | 1,475 | 100 | ||||||||||||||||||
For the year ended 31 December 2002 | ||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 14,327 | 42 | 176,544 | 13 | 885 | 43 | ||||||||||||||||||
Rest of Europe / Africa / Middle East | 6,816 | 20 | 363,706 | 27 | 199 | 10 | ||||||||||||||||||
Americas | 11,055 | 32 | 719,703 | 54 | 916 | 45 | ||||||||||||||||||
Asia Pacific | 1,909 | 6 | 86,725 | 6 | 44 | 2 | ||||||||||||||||||
Total | 34,107 | 100 | 1,346,678 | 100 | 2,044 | 100 | ||||||||||||||||||
For the year ended 31 December 2001
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 14,223 | 38 | 195,321 | 16 | 1,039 | 52 | ||||||||||||||||||
Rest of Europe | 7,411 | 20 | 236,775 | 19 | 303 | 15 | ||||||||||||||||||
Americas | 13,587 | 37 | 691,157 | 55 | 630 | 31 | ||||||||||||||||||
Asia/Pacific | 1,859 | 5 | 126,725 | 10 | 48 | 2 | ||||||||||||||||||
Africa/Middle East | 34 | 0 | 3,319 | 0 | 1 | 0 | ||||||||||||||||||
Total | 37,114 | 100 | 1,253,297 | 100 | 2,021 | 100 | ||||||||||||||||||
For the year ended 31 December 2000
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 15,836 | 44 | 211,851 | 19 | 1,135 | 43 | ||||||||||||||||||
Rest of Europe | 10,907 | 30 | 305,342 | 28 | 311 | 12 | ||||||||||||||||||
Americas | 6,976 | 19 | 474,617 | 44 | 1,169 | 44 | ||||||||||||||||||
Asia/Pacific | 2,626 | 7 | 87,831 | 8 | 36 | 1 | ||||||||||||||||||
Africa/Middle East | 57 | 0 | 7,911 | 1 | 8 | 0 | ||||||||||||||||||
Total | 36,402 | 100 | 1,087,552 | 100 | 2,659 | 100 | ||||||||||||||||||
99
Income Statement
Note 3 Net Interest and Trading Income
Accounting standards require separate disclosure of net interest income and net trading income (see the second and the third table). This required disclosure, however, does not take into account that net interest and trading income are generated by a range of different business activities. In many cases, a particular business activity can generate both net interest and trading income. Fixed income trading activity, for example, generates both trading profits and coupon income. UBS management therefore analyzes net interest and trading income ac-
cording to the business activity generating it. The first table below (labeled Net interest and trading income) provides information that corresponds to this management view. For example, net income from trading activities is further broken down into the four sub-components of Equities, Fixed income, Foreign exchange and Other. These activities generate both types of income (interest and trading revenue) and therefore this analysis is not comparable to the breakdown provided in the third table on the next page (Net trading income only).
Net interest and trading income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Net interest income | 11,860 | 12,299 | 10,546 | (4 | ) | |||||||||||
Net trading income | 4,972 | 3,756 | 5,451 | 32 | ||||||||||||
Total net interest and trading income | 16,832 | 16,055 | 15,997 | 5 | ||||||||||||
Breakdown by business activity | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Net income from interest margin products | 5,139 | 5,077 | 5,275 | 1 | ||||||||||||
Equities | 3,098 | 2,445 | 2,777 | 27 | ||||||||||||
Fixed income | 6,264 | 6,474 | 5,977 | (3 | ) | |||||||||||
Foreign exchange | 1,467 | 1,436 | 1,506 | 2 | ||||||||||||
Other | 273 | 326 | 245 | (16 | ) | |||||||||||
Net income from trading activities | 11,102 | 10,681 | 10,505 | 4 | ||||||||||||
Net income from treasury activities | 1,298 | 1,417 | 1,646 | (8 | ) | |||||||||||
Other1 | (707 | ) | (1,120 | ) | (1,429 | ) | 37 | |||||||||
Total net interest and trading income | 16,832 | 16,055 | 15,997 | 5 | ||||||||||||
Net interest income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Interest income | ||||||||||||||||
Interest earned on loans and advances | 9,021 | 10,542 | 11,600 | (14 | ) | |||||||||||
Interest earned on securities borrowed and reverse repurchase agreements | 11,006 | 11,148 | 11,184 | (1 | ) | |||||||||||
Interest and dividend income from financial investments | 93 | 75 | 165 | 24 | ||||||||||||
Interest and dividend income from trading portfolio | 19,278 | 18,394 | 17,014 | 5 | ||||||||||||
Total | 39,398 | 40,159 | 39,963 | (2 | ) | |||||||||||
Interest expense | ||||||||||||||||
Interest on amounts due to banks and customers | 5,529 | 5,072 | 6,383 | 9 | ||||||||||||
Interest on securities lent and repurchase agreements | 10,014 | 9,623 | 10,081 | 4 | ||||||||||||
Interest and dividend expense from trading portfolio | 7,993 | 9,925 | 8,226 | (19 | ) | |||||||||||
Interest on financial liabilities designated at fair value | 1,168 | 751 | 341 | 56 | ||||||||||||
Interest on debt issued | 2,834 | 2,489 | 4,386 | 14 | ||||||||||||
Total | 27,538 | 27,860 | 29,417 | (1 | ) | |||||||||||
Net interest income | 11,860 | 12,299 | 10,546 | (4 | ) | |||||||||||
109
Financial Statements
Notes to the Financial Statements
Income Statement
Note 3 Net Interest and Trading Income
Net interest Income (continued)
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Interest income | ||||||||||||||||
Interest earned on loans and advances | 11,600 | 16,955 | 20,413 | (32 | ) | |||||||||||
Interest earned on securities borrowed and reverse repurchase agreements | 11,184 | 18,337 | 19,088 | (39 | ) | |||||||||||
Interest and dividend income from financial investments | 165 | 453 | 402 | (64 | ) | |||||||||||
Interest and dividend income from trading portfolio | 17,014 | 16,532 | 11,842 | 3 | ||||||||||||
Total | 39,963 | 52,277 | 51,745 | (24 | ) | |||||||||||
Interest expense | ||||||||||||||||
Interest on amounts due to banks and customers | 6,383 | 14,088 | 15,660 | (55 | ) | |||||||||||
Interest on securities lent and repurchase agreements | 10,081 | 14,517 | 14,915 | (31 | ) | |||||||||||
Interest and dividend expense from trading portfolio | 8,366 | 7,815 | 5,309 | 7 | ||||||||||||
Interest on debt issued | 4,587 | 7,816 | 7,731 | (41 | ) | |||||||||||
Total | 29,417 | 44,236 | 43,615 | (33 | ) | |||||||||||
Net interest income | 10,546 | 8,041 | 8,130 | 31 | ||||||||||||
Net trading income
Net trading income1 | Net trading income1 | |||||||||||||||||||||||||||||||
For the year ended | % change from | |||||||||||||||||||||||||||||||
CHF million | % change from | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||||||||||||||||||
Equities | 2,638 | 4,026 | 7,754 | (34 | ) | 2,254 | 1,660 | 2,621 | 36 | |||||||||||||||||||||||
Fixed income1 | 1,061 | 2,731 | 912 | (61 | ) | |||||||||||||||||||||||||||
Fixed income2 | 131 | 396 | 997 | (67 | ) | |||||||||||||||||||||||||||
Foreign exchange and other | 1,873 | 2,045 | 1,287 | (8 | ) | 2,587 | 1,700 | 1,833 | 52 | |||||||||||||||||||||||
Net trading income | 5,572 | 8,802 | 9,953 | (37 | ) | 4,972 | 3,756 | 5,451 | 32 | |||||||||||||||||||||||
Included in the Net interest and trading income CHF million % change from For the year ended 31.12.02 31.12.01 31.12.00 31.12.01 Net interest income 10,546 8,041 8,130 31 Net trading income 5,572 8,802 9,953 (37 ) 16,118 16,843 18,083 (4 ) Breakdown by business activity: Net income from interest margin products 5,275 5,694 5,430 (7 ) Net income from trading activities 10,605 11,529 12,642 (8 ) Net income from treasury activities 1,667 1,424 762 17 (1,429 ) (1,804 ) (751 ) 21 16,118 16,843 18,083 (4 ) 1 Principally external funding costs table are fair value changes of CHF (1,203) million for the year ended 31 December 2004, CHF (115) million for the year ended 31 December 2003, and CHF 446 million for the year ended 31 December 2002 related to financial liabilities designated as held at fair value through profit and loss. For 2004, CHF (801) million of the Paine Webber Group, Inc. acquisition.
100
total fair value change was attributable to changes in fair value
of embedded derivatives, while CHF (402) million was attributable to changes in LIBOR. The exposure from embedded derivatives is economically hedged with derivatives whose change in fair value is also reported in Net trading income, offsetting the fair value changes related to financial liabilities designated as held at fair value.
Note 4 Net Fee and Commission Income For the year ended % change from 31.12.04 31.12.03 31.12.02 31.12.03 Equity underwriting fees 1,430 1,270 1,166 13 Bond underwriting fees 1,114 1,084 968 3 Total underwriting fees 2,544 2,354 2,134 8 Corporate finance fees 1,078 761 848 42 Brokerage fees 5,916 5,608 5,987 5 Investment fund fees 4,588 3,895 4,033 18 Fiduciary fees 220 241 300 (9 ) Custodian fees 1,261 1,201 1,302 5 Portfolio and other management and advisory fees 4,611 3,855 4,065 20 Insurance-related and other fees 342 355 417 (4 ) Total securities trading and investment activity fees 20,560 18,270 19,086 13 Credit-related fees and commissions 266 249 275 7 Commission income from other services 988 1,087 1,006 (9 ) Total fee and commission income 21,814 19,606 20,367 11 Brokerage fees paid 1,399 1,483 1,349 (6 ) Other 999 778 797 28 Total fee and commission expense 2,398 2,261 2,146 6 19,416 17,345 18,221 12
110
Note 5 Other Income
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Gains/(losses) from disposal of associates and subsidiaries | ||||||||||||||||
Net gain from disposal of: | ||||||||||||||||
Consolidated subsidiaries | 83 | 160 | 228 | (48 | ) | |||||||||||
Investments in associates | 1 | 2 | 0 | (50 | ) | |||||||||||
Total | 84 | 162 | 228 | (48 | ) | |||||||||||
Financial investments available-for-sale | ||||||||||||||||
Net gain from disposal of: | ||||||||||||||||
Private equity investments | 557 | 352 | 273 | 58 | ||||||||||||
Other financial investments | 46 | 90 | 457 | (49 | ) | |||||||||||
Impairment charges on private equity investments and other financial investments | (223 | ) | (541 | ) | (1,944 | ) | 59 | |||||||||
Total | 380 | (99 | ) | (1,214 | ) | |||||||||||
Net income from investments in property1 | 65 | 75 | 90 | (13 | ) | |||||||||||
Equity in income of associates | 65 | 123 | 7 | (47 | ) | |||||||||||
Gains/(losses) from investment properties2 | 11 | (42 | ) | 17 | ||||||||||||
Other | 292 | 243 | 876 | 20 | ||||||||||||
Total other income | 897 | 462 | 4 | 94 | ||||||||||||
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Underwriting fees | 2,134 | 2,158 | 1,434 | (1 | ) | |||||||||||
Corporate finance fees | 848 | 1,339 | 1,772 | (37 | ) | |||||||||||
Brokerage fees | 5,987 | 6,445 | 5,742 | (7 | ) | |||||||||||
Investment fund fees | 4,033 | 4,276 | 2,821 | (6 | ) | |||||||||||
Fiduciary fees | 300 | 355 | 351 | (15 | ) | |||||||||||
Custodian fees | 1,302 | 1,356 | 1,439 | (4 | ) | |||||||||||
Portfolio and other management and advisory fees | 4,065 | 4,650 | 3,666 | (13 | ) | |||||||||||
Insurance-related and other fees | 417 | 538 | 111 | (22 | ) | |||||||||||
Total securities trading and investment activity fees | 19,086 | 21,117 | 17,336 | (10 | ) | |||||||||||
Credit-related fees and commissions | 275 | 307 | 310 | (10 | ) | |||||||||||
Commission income from other services | 1,006 | 946 | 802 | 6 | ||||||||||||
Total fee and commission income | 20,367 | 22,370 | 18,448 | (9 | ) | |||||||||||
Brokerage fees paid | 1,349 | 1,281 | 1,084 | 5 | ||||||||||||
Other | 797 | 878 | 661 | (9 | ) | |||||||||||
Total fee and commission expense | 2,146 | 2,159 | 1,745 | (1 | ) | |||||||||||
Net fee and commission income | 18,221 | 20,211 | 16,703 | �� | (10 | ) | ||||||||||
Note 5 Other Income6 Personnel Expenses
CHF million | % change from | ||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | |||||||||||||
Gains/losses from disposal of associates and subsidiaries | |||||||||||||||||
Net gain from disposal of: | |||||||||||||||||
Consolidated subsidiaries | 228 | 3 | 57 | ||||||||||||||
Investments in associates | 0 | 0 | 26 | ||||||||||||||
Total | 228 | 3 | 83 | ||||||||||||||
Financial investments available for sale | |||||||||||||||||
Net gain from disposal of: | |||||||||||||||||
Private equity investments | 273 | 454 | 919 | (40 | ) | ||||||||||||
Other financial investments | 457 | 256 | 162 | 79 | |||||||||||||
Impairment charges on private equity investments and other financial investments | (1,944 | ) | (1,294 | ) | (507 | ) | (50 | ) | |||||||||
Total | (1,214 | ) | (584 | ) | 574 | (108 | ) | ||||||||||
Net income from investments in property | 90 | 68 | 96 | 32 | |||||||||||||
Equity in income of associates | 7 | 72 | 58 | (90 | ) | ||||||||||||
Other | 877 | 999 | 675 | (12 | ) | ||||||||||||
Total other income | (12 | ) | 558 | 1,486 | |||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Salaries and bonuses | 14,835 | 13,478 | 14,219 | 10 | ||||||||||||
Contractors | 572 | 539 | 579 | 6 | ||||||||||||
Insurance and social contributions | 1,093 | 923 | 939 | 18 | ||||||||||||
Contribution to retirement plans | 707 | 721 | 676 | (2 | ) | |||||||||||
Other personnel expenses | 1,308 | 1,570 | 2,111 | (17 | ) | |||||||||||
Total personnel expenses | 18,515 | 17,231 | 18,524 | 7 | ||||||||||||
Note 7 General and Administrative Expenses
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Occupancy | 1,274 | 1,304 | 1,354 | (2 | ) | |||||||||||
Rent and maintenance of machines and equipment | 686 | 708 | 665 | (3 | ) | |||||||||||
Telecommunications and postage | 835 | 864 | 1,019 | (3 | ) | |||||||||||
Administration | 660 | 599 | 819 | 10 | ||||||||||||
Marketing and public relations | 442 | 398 | 453 | 11 | ||||||||||||
Travel and entertainment | 634 | 526 | 600 | 21 | ||||||||||||
Professional fees | 705 | 589 | 568 | 20 | ||||||||||||
IT and other outsourcing | 953 | 844 | 1,036 | 13 | ||||||||||||
Other | 514 | 254 | 558 | 102 | ||||||||||||
Total general and administrative expenses | 6,703 | 6,086 | 7,072 | 10 | ||||||||||||
101111
UBS Group Financial Statements
Notes to the Financial Statements
Note 6 Personnel Expenses
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Salaries and bonuses | 14,219 | 15,238 | 13,523 | (7 | ) | |||||||||||
Contractors | 579 | 729 | 725 | (21 | ) | |||||||||||
Insurance and social contributions | 939 | 984 | 959 | (5 | ) | |||||||||||
Retirement benefit expenses | 676 | 603 | 475 | 12 | ||||||||||||
Other personnel expenses | 2,111 | 2,274 | 1,481 | (7 | ) | |||||||||||
Total personnel expenses | 18,524 | 19,828 | 17,163 | (7 | ) | |||||||||||
Note 7 General and Administrative Expenses
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Occupancy | 1,354 | 1,314 | 979 | 3 | ||||||||||||
Rent and maintenance of machines and equipment | 665 | 632 | 520 | 5 | ||||||||||||
Telecommunications and postage | 1,019 | 1,213 | 914 | (16 | ) | |||||||||||
Administration | 819 | 906 | 750 | (10 | ) | |||||||||||
Marketing and public relations | 453 | 574 | 480 | (21 | ) | |||||||||||
Travel and entertainment | 600 | 700 | 656 | (14 | ) | |||||||||||
Professional fees | 568 | 667 | 660 | (15 | ) | |||||||||||
IT and other outsourcing | 1,036 | 1,224 | 1,246 | (15 | ) | |||||||||||
Other | 558 | 401 | 560 | 39 | ||||||||||||
Total general and administrative expenses | 7,072 | 7,631 | 6,765 | (7 | ) | |||||||||||
102
Note 8 Earnings per Share (EPS) and Shares Outstanding
% change from | ||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Basic Earnings (CHF million) | ||||||||||||||||
Net profit | 3,535 | 4,973 | 7,792 | (29 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 2,179 | 2 | 1,323 | 667 | 65 | |||||||||||
Net profit before goodwill amortization1 | 5,714 | 6,296 | 8,459 | (9 | ) | |||||||||||
Diluted Earnings (CHF million) | ||||||||||||||||
Net profit | 3,535 | 4,973 | 7,792 | (29 | ) | |||||||||||
Less: profit on own equity derivative contracts deemed dilutive | (20 | ) | (99 | ) | (14 | ) | 80 | |||||||||
Net profit for diluted EPS | 3,515 | 4,874 | 7,778 | (28 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 2,179 | 2 | 1,323 | 667 | 65 | |||||||||||
Net profit for diluted EPS before goodwill amortization1 | 5,694 | 6,197 | 8,445 | (8 | ) | |||||||||||
Weighted average shares outstanding | ||||||||||||||||
Weighted average shares outstanding | 1,208,586,678 | 1,266,038,193 | 1,209,087,927 | (5 | ) | |||||||||||
Potentially dilutive ordinary shares resulting from options and warrants outstanding3 | 14,796,264 | 22,539,745 | 16,489,773 | (34 | ) | |||||||||||
Weighted average shares outstanding for diluted EPS | 1,223,382,942 | 1,288,577,938 | 1,225,577,700 | (5 | ) | |||||||||||
Earnings per share (CHF) | ||||||||||||||||
Basic EPS | 2.92 | 3.93 | 6.44 | (26 | ) | |||||||||||
Basic EPS before goodwill amortization1 | 4.73 | 4.97 | 7.00 | (5 | ) | |||||||||||
Diluted EPS | 2.87 | 3.78 | 6.35 | (24 | ) | |||||||||||
Diluted EPS before goodwill amortization1 | 4.65 | 4.81 | 6.89 | (3 | ) | |||||||||||
For the year ended | % change from | |||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Basic earnings (CHF million) | ||||||||||||||||
Net profit | 8,089 | 6,239 | 3,530 | 30 | ||||||||||||
Diluted earnings (CHF million) | ||||||||||||||||
Net profit | 8,089 | 6,239 | 3,530 | 30 | ||||||||||||
Less: Profit on equity derivative contracts | (5 | ) | 1 | (20 | ) | |||||||||||
Net profit for diluted EPS | 8,084 | 6,240 | 3,510 | 30 | ||||||||||||
Weighted average shares outstanding | ||||||||||||||||
Weighted average shares outstanding | 1,052,914,417 | 1,116,953,623 | 1,208,586,678 | (6 | ) | |||||||||||
Potentially dilutive ordinary shares resulting from options and warrants outstanding1 | 29,046,943 | 21,847,002 | 14,796,264 | 33 | ||||||||||||
Weighted average shares outstanding for diluted EPS | 1,081,961,360 | 1,138,800,625 | 1,223,382,942 | (5 | ) | |||||||||||
Earnings per share (CHF) | ||||||||||||||||
Basic | 7.68 | 5.59 | 2.92 | 37 | ||||||||||||
Diluted | 7.47 | 5.48 | 2.87 | 36 | ||||||||||||
Shares outstanding | % change from | ||||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | |||||||||||||
Total ordinary shares issued | 1,256,297,678 | 1,281,717,499 | 1,333,139,187 | (2 | ) | ||||||||||||
Own shares to be delivered | 28,444,788 | ||||||||||||||||
Second trading line treasury shares | |||||||||||||||||
2000 program | 55,265,349 | ||||||||||||||||
2001 program | 23,064,356 | ||||||||||||||||
2002 first program | 67,700,000 | ||||||||||||||||
2002 second program | 6,335,080 | ||||||||||||||||
Other treasury shares | 23,146,014 | 18,190,595 | 0 | 27 | |||||||||||||
Total treasury shares | 97,181,094 | 41,254,951 | 55,265,349 | 136 | |||||||||||||
Shares outstanding | 1,159,116,584 | 1,240,462,548 | 1,306,318,626 | (7 | ) | ||||||||||||
Shares outstanding
As at | % change from | |||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Total ordinary shares issued | 1,126,858,177 | 1,183,046,764 | 1,256,297,678 | (5 | ) | |||||||||||
Second trading line treasury shares | ||||||||||||||||
2002 first program | 67,700,000 | |||||||||||||||
2002 second program | 6,335,080 | |||||||||||||||
2003 program | 56,707,000 | |||||||||||||||
2004 program | 39,935,094 | |||||||||||||||
Other treasury shares | 63,589,877 | 54,653,692 | 23,146,014 | 16 | ||||||||||||
Total treasury shares | 103,524,971 | 111,360,692 | 97,181,094 | (7 | ) | |||||||||||
Shares outstanding | 1,023,333,206 | 1,071,686,072 | 1,159,116,584 | (5 | ) | |||||||||||
103112
Balance Sheet: Assets
Note 9a Due from Banks and Loans
By type of exposure | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Banks1 | 35,520 | 32,024 | ||||||
Allowance for credit losses | (256 | ) | (284 | ) | ||||
Net due from banks | 35,264 | 31,740 | ||||||
Loans | ||||||||
Residential mortgages | 117,731 | 109,980 | ||||||
Commercial mortgages | 18,950 | 19,162 | ||||||
Other Loans | 98,081 | 86,829 | ||||||
Subtotal | 234,762 | 215,971 | ||||||
Allowance for credit losses | (2,375 | ) | (3,292 | ) | ||||
Net loans | 232,387 | 212,679 | ||||||
Net due from banks and loans | 267,651 | 244,419 | ||||||
By geographic region (based on the location of the borrower) | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Switzerland | 152,433 | 152,358 | ||||||
Rest of Europe/Africa/Middle East | 45,712 | 43,842 | ||||||
Americas | 61,751 | 42,653 | ||||||
Asia Pacific | 10,386 | 9,142 | ||||||
Subtotal | 270,282 | 247,995 | ||||||
Allowance for credit losses | (2,631 | ) | (3,576 | ) | ||||
Net due from banks and loans | 267,651 | 244,419 | ||||||
By type of collateral | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Secured by real estate | 138,692 | 130,740 | ||||||
Collateralized by securities | 38,872 | 28,062 | ||||||
Guarantees and other collateral | 18,973 | 18,295 | ||||||
Unsecured | 73,745 | 70,898 | ||||||
Subtotal | 270,282 | 247,995 | ||||||
Allowance for credit losses | (2,631 | ) | (3,576 | ) | ||||
Net due from banks and loans | 267,651 | 244,419 | ||||||
113
UBS Group Financial Statements
Notes to the Financial Statements
Balance Sheet: Assets
Note 9a Due from Banks and Loans
By type of exposure
CHF million | 31.12.02 | 31.12.01 | |||||||
Banks | 32,911 | 28,261 | |||||||
Allowance for credit losses | (443 | ) | (735 | ) | |||||
Net due from banks | 32,468 | 27,526 | |||||||
Loans | |||||||||
Mortgages | 127,869 | 126,211 | |||||||
Other loans | 88,590 | 107,512 | |||||||
Subtotal | 216,459 | 233,723 | |||||||
Allowance for credit losses | (4,812 | ) | (7,178 | ) | |||||
Net loans | 211,647 | 226,545 | |||||||
Net due from banks and loans | 244,115 | 254,071 | |||||||
thereof subordinated | 115 | 249 | |||||||
By geographical region(based on the location of the borrower)
CHF million | 31.12.02 | 31.12.01 | ||||||
Switzerland | 151,604 | 158,996 | ||||||
Rest of Europe | 38,131 | 42,279 | ||||||
Americas | 48,412 | 42,809 | ||||||
Asia/Pacific | 10,002 | 15,986 | ||||||
Africa/Middle East | 1,221 | 1,914 | ||||||
Subtotal | 249,370 | 261,984 | ||||||
Allowance for credit losses | (5,255 | ) | (7,913 | ) | ||||
Net due from banks and loans | 244,115 | 254,071 | ||||||
By type of collateral
CHF million | 31.12.02 | 31.12.01 | ||||||
Secured by real estate | 129,525 | 128,259 | ||||||
Collateralized by securities | 26,769 | 30,635 | ||||||
Guarantees and other collateral | 12,398 | 20,217 | ||||||
Unsecured | 80,678 | 82,873 | ||||||
Subtotal | 249,370 | 261,984 | ||||||
Allowance for credit losses | (5,255 | ) | (7,913 | ) | ||||
Net due from banks and loans | 244,115 | 254,071 | ||||||
104
Note 9b Allowances and Provisions for Credit Losses Note 9c Impaired Due from Banks and Loans Specific allowances Collective loan Total Total CHF million and provisions loss provision 31.12.04 31.12.03 2 3,692 262 3,954 5,232 Write-offs (854 ) (3 ) (857 ) (1,436 ) Recoveries 59 59 87 Increase / (decrease) in credit loss allowance and provision (251 ) (25 ) (276 ) 72 Foreign currency translation and other adjustments 30 (27 ) 3 (1 ) 2,676 207 2,883 3,954 CHF million 31.12.04 31.12.03 As a reduction of Due from banks 256 284 As a reduction of Loans 2,375 3,292 As a reduction of other balance sheet positions 41 88 Subtotal 2,672 3,664 Included in other liabilities related to commitments and contingent liabilities 211 290 2,883 3,954 Includes country provisions of CHF 183 million and CHF 262 million at 31 December 2004 and 31 December 2003 respectively. 2 Restated to reflect transfers of allowances and provisions for OTC derivatives to the trading portfolio as a reduction of fair value, following the revised treatment of OTC derivatives credit losses. Specific Country risk allowances and allowances and Total Total CHF million provisions provisions 31.12.02 31.12.01 Balance at the beginning of the year 7,212 1,006 8,218 10,581 Write-offs (2,508 ) (28 ) (2,536 ) (3,008 ) Recoveries 63 7 70 81 Increase/(decrease) in credit loss allowance and provision 365 (159 ) 206 498 Foreign currency translation and other adjustments (247 ) (90 ) (337 ) 66 Balance at the end of the year 4,885 736 5,621 8,218 CHF million 31.12.02 31.12.01 As a reduction of Due from banks 443 735 As a reduction of Loans 4,812 7,178 Subtotal 5,255 7,913 Included in other liabilities related to commitments and contingent liabilities 366 305 Total allowances and provisions for credit losses 5,621 8,218 CHF million 31.12.02 31.12.01 Impaired loans1, 2 10,365 14,629 Amount of allowance for credit losses related to impaired loans 4,892 7,294 Average impaired loans3 12,623 16,555 CHF million 31.12.04 31.12.03 4,861 7,209 Allowance for impaired due from banks 239 245 Allowance for impaired loans 2,266 3,213 Total allowances for credit losses related to impaired due from banks and loans 2,505 3,458 6,038 8,594 428172 million for 20022004 and CHF 504279 million for 2001. 2003. 3 Average balances were calculated from quarterly data. CHF million 31.12.04 31.12.03 Total gross impaired due from banks and loans 4,861 7,209 Estimated liquidation proceeds of collateral 1,758 2,465 Net impaired due from banks and loans 3,103 4,744 Specific allowances and provisions 2,505 3,458
114105
Note 9d Non-Performing Due from Banks and Loans
A loan (included in due from banks or loans) is classified as non-performing: 1) when the payment of interest, principal or fees is overdue by more than 90 days and there is no firm evidence that they will be made good by later payments or
the liquidation of collateral; 2) when insolvency proceedings have commenced; or 3) when obligations have been restructured on concessionary terms.
CHF million | 31.12.04 | 31.12.03 | ||||||
Total gross non-performing due from banks and loans | 3,696 | 4,901 | ||||||
Total allowances for credit losses related to non-performing due from banks and loans | 2,264 | 2,764 | ||||||
Average total gross non-performing due from banks and loans1 | 4,338 | 5,410 | ||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Non-performing due from banks and loans at the beginning of the year | 4,901 | 6,000 | ||||||
Net additions/(reductions) | (496 | ) | 317 | |||||
Write-offs and disposals | (709 | ) | (1,416 | ) | ||||
Non-performing due from banks and loans at the end of the year | 3,696 | 4,901 | ||||||
By type of exposure | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Banks | 242 | 253 | ||||||
Loans | ||||||||
Mortgages | 1,011 | 1,470 | ||||||
Other | 2,443 | 3,178 | ||||||
Total loans | 3,454 | 4,648 | ||||||
Total non-performing due from banks and loans | 3,696 | 4,901 | ||||||
By geographic region (based on the location of borrower) | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Switzerland | 2,772 | 4,012 | ||||||
Rest of Europe/Africa/Middle East | 607 | 488 | ||||||
Americas | 220 | 366 | ||||||
Asia Pacific | 97 | 35 | ||||||
Total non-performing due from banks and loans | 3,696 | 4,901 | ||||||
115
Financial Statements
Notes to the Financial Statements
Note 9d Non-Performing Loans
An impaired loan is classified as non-performing when the contractual payments of principal and/or interest are in arrears for 90 days or more.
CHF million | 31.12.02 | 31.12.01 | ||||||
Non-performing loans | 6,029 | 8,639 | ||||||
Amount of allowance for credit losses related to non-performing loans | 3,485 | 5,374 | ||||||
Average non-performing loans1 | 7,361 | 9,648 | ||||||
CHF million | 31.12.02 | 31.12.01 | ||||||
Non-performing loans at beginning of the year | 8,639 | 10,452 | ||||||
Net additions/(reductions) | (509 | ) | 1,111 | |||||
Write-offs and disposals | (2,101 | ) | (2,924 | ) | ||||
Non-performing loans at the end of the year | 6,029 | 8,639 | ||||||
By type of exposure
CHF million | 31.12.02 | 31.12.01 | |||||||
Banks | 311 | 386 | |||||||
Loans | |||||||||
Mortgages | 1,972 | 2,659 | |||||||
Other | 3,746 | 5,594 | |||||||
Total loans | 5,718 | 8,253 | |||||||
Total non-performing loans | 6,029 | 8,639 | |||||||
By geographical region(based on the location of the borrower)
CHF million | 31.12.02 | 31.12.01 | ||||||
Switzerland | 4,609 | 6,531 | ||||||
Rest of Europe | 379 | 466 | ||||||
Americas | 499 | 737 | ||||||
Asia/Pacific | 300 | 653 | ||||||
Africa/Middle East | 242 | 252 | ||||||
Total non-performing loans | 6,029 | 8,639 | ||||||
106
Note 10 Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements
The Group enters into collateralized reverse repurchase and repurchase agreements and securities borrowing and securities lending transactions that may result in credit exposure in the event that the counterparty to the transaction is unable to fulfill its contractual obligations. The Group controls creditcred-
it risk associated with these activities by monitoring counterpartycounter-party credit exposure and collateral values on a daily basis and requiring additional collateral to be deposited with or returned to the Group when deemed necessary.
Balance sheet assets
Cash collateral | Reverse | Cash collateral | Reverse | |||||||||||||||||||||||||||||
Balance sheet assets | Balance sheet assets | |||||||||||||||||||||||||||||||
on securities | Repurchase | on securities | Repurchase | Cash collateral on | Reverse repurchase | Cash collateral on | Reverse repurchase | |||||||||||||||||||||||||
borrowed | agreements | borrowed | agreements | securities borrowed | agreements | securities borrowed | agreements | |||||||||||||||||||||||||
CHF million | 31.12.02 | 31.12.02 | 31.12.01 | 31.12.01 | 31.12.04 | 31.12.04 | 31.12.03 | 31.12.03 | ||||||||||||||||||||||||
By counterparty: | ||||||||||||||||||||||||||||||||
By counterparty | ||||||||||||||||||||||||||||||||
Banks | 122,764 | 201,269 | 155,214 | 197,902 | 167,567 | 243,890 | 172,783 | 237,148 | ||||||||||||||||||||||||
Customers | 16,288 | 92,817 | 7,724 | 71,354 | 52,675 | 113,274 | 41,149 | 83,351 | ||||||||||||||||||||||||
Total | 139,052 | 294,086 | 162,938 | 269,256 | 220,242 | 357,164 | 213,932 | 320,499 | ||||||||||||||||||||||||
Balance sheet liabilities | ||||||||||||||||
Cash collateral on | Repurchase | Cash collateral on | Repurchase | |||||||||||||
securities lent | agreements | securities lent | agreements | |||||||||||||
CHF million | 31.12.04 | 31.12.04 | 31.12.03 | 31.12.03 | ||||||||||||
By counterparty | ||||||||||||||||
Banks | 40,580 | 252,151 | 39,587 | 263,905 | ||||||||||||
Customers | 20,965 | 170,436 | 13,691 | 151,958 | ||||||||||||
Total | 61,545 | 422,587 | 53,278 | 415,863 | ||||||||||||
Balance sheet liabilities
Cash collateral | Cash collateral | |||||||||||||||
on securities | Repurchase | on securities | Repurchase | |||||||||||||
lent | agreements | lent | agreements | |||||||||||||
CHF million | 31.12.02 | 31.12.02 | 31.12.01 | 31.12.01 | ||||||||||||
By counterparty: | ||||||||||||||||
Banks | 29,748 | 200,904 | 27,640 | 213,942 | ||||||||||||
Customers | 7,122 | 165,954 | 2,677 | 154,678 | ||||||||||||
Total | 36,870 | 366,858 | 30,317 | 368,620 | ||||||||||||
Under reverse repurchase and securities borrowing arrangements, the Group obtains securities on terms which permit it to repledge or resell the securities to others. Amounts on such terms as at 31 December 20022004 and 31 December 20012003 were as follows:
CHF million | 31.12.02 | 31.12.01 | ||||||
Securities received under reverse repurchase and/or securities borrowing arrangements which can be repledged or resold | 641,341 | 592,903 | ||||||
thereof repledged/transferred to others in connection with financing activities or to satisfy commitments under short sale transactions | 530,188 | 474,963 | ||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Securities received under reverse repurchase and / or securities borrowing arrangements which can be repledged or resold | 949,570 | 827,602 | ||||||
thereof repledged / transferred to others in connection with financing activities or to satisfy commitments under short sale transactions | 639,865 | 593,049 | ||||||
116
107
UBS Group Financial StatementsNotes to the Financial Statements
Note 11 Trading Portfolio
The Group trades in debt instruments (including money market paper vides a description of the various classes of derivatives together with the related notional amounts, debt,and tradeable loans), equity instruments, precious metals, foreign currencycommodities and derivatives to meet the financial needs of its customers and to generate revenue through its trading activities.revenue. Note 23 providespro-whereaswhile Note 10 provides further details about cash collateral on securities borrowed and lent and repurchase and reverse repurchase agreements. CHF million 31.12.04 31.12.03 44,842 40,003 4,706 6,208 12,580 0 Swiss government and government agencies 776 1,011 US Treasury and government agencies 92,330 92,250 Other government agencies 79,340 69,755 Corporate listed 140,500 152,413 Other unlisted 35,646 8,457 348,592 323,886 147,525 130,093 120,317 104,402 Listed 90,594 64,116 Unlisted 18,119 10,507 108,713 74,623 27,140 16,426 26,218 16,357 16,077 12,650 11,150 10,610 529,374 461,772 Swiss government and government agencies 511 586 US Treasury and government agencies 54,848 52,377 Other government agencies 49,512 38,369 Corporate listed 27,413 13,537 Other unlisted 2,600 10,851 134,884 115,720 36,149 28,237 171,033 143,957 CHF million 31.12.02 31.12.01 Trading portfolio assets Money market paper 45,310 63,164 thereof pledged as collateral with central banks 10,475 29,895 Debt instruments Swiss government and government agencies 1,140 1,246 US Treasury and government agencies 71,884 95,203 Other government agencies 50,296 18,811 Corporate listed 73,268 108,114 Other unlisted 39,613 26,642 Total 236,201 250,016 thereof pledged as collateral 132,221 153,464 thereof can be repledged or resold by the counterparty 92,460 101,517 Equity instruments Listed 66,150 67,772 Unlisted 4,841 6,367 Total 70,991 74,139 thereof pledged as collateral 18,614 21,264 thereof can be repledged or resold by the counterparty 17,905 19,939 Traded loans 11,533 6,139 Precious metals 7,401 4,428 Total trading portfolio assets 371,436 397,886 Trading portfolio liabilities Debt instruments Swiss government and government agencies 1,807 565 US Treasury and government agencies 38,327 25,117 Other government agencies 19,722 12,187 Corporate listed 14,177 10,868 Other unlisted 8,296 30,793 Total 82,329 79,530 Equity instruments 24,124 26,268 Total trading portfolio liabilities 106,453 105,798
117
108
Financial Statements
Notes to the Financial Statements
Note 12 Financial Investments (available for sale)(available-for-sale)
CHF million | 31.12.02 | 31.12.01 | 31.12.04 | 31.12.03 | ||||||||||||
Money market paper | 873 | 6,774 | 567 | 596 | ||||||||||||
Other debt instruments | ||||||||||||||||
Listed | 290 | 1,194 | 261 | 189 | ||||||||||||
Unlisted | 885 | 10,348 | 21 | 72 | ||||||||||||
Total | 1,175 | 11,542 | 282 | 261 | ||||||||||||
Equity investments | ||||||||||||||||
Equity instruments | ||||||||||||||||
Listed | 596 | 1,949 | 504 | 387 | ||||||||||||
Unlisted | 1,443 | 1,819 | 687 | 630 | ||||||||||||
Total | 2,039 | 3,768 | 1,191 | 1,017 | ||||||||||||
Private equity investments | 4,304 | 6,719 | 3,009 | 3,265 | ||||||||||||
Total financial investments | 8,391 | 28,803 | 5,049 | 5,139 | ||||||||||||
thereof eligible for discount at central banks | 261 | 10,370 | 86 | 196 | ||||||||||||
The following tables show the unrealized gains and losses not recognized in the income statement for the years ended 20022004 and 2001.2003:
Unrealized gains/losses not recognized in the income statement | ||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized gains / losses not recognized in the income statement | ||||||||||||||||||||||||||||||||||||||||||||||||
CHF million | Fair value | Gross gains | Gross losses | Net, before tax | Tax effect | Net, after tax | Fair value | Gross gains | Gross losses | Net, before tax | Tax effect | Net, after tax | ||||||||||||||||||||||||||||||||||||
31 December 2002 | ||||||||||||||||||||||||||||||||||||||||||||||||
31 December 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||
Money market paper | 873 | 0 | 0 | 0 | 0 | 0 | 567 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Debt securities issued by the Swiss national government and agencies | 16 | 1 | 0 | 1 | 0 | 1 | ||||||||||||||||||||||||||||||||||||||||||
Debt securities issued by Swiss national government and agencies | 10 | 1 | 0 | 1 | 0 | 1 | ||||||||||||||||||||||||||||||||||||||||||
Debt securities issued by Swiss local governments | 42 | 2 | 0 | 2 | 0 | 2 | 20 | 1 | 0 | 1 | 0 | 1 | ||||||||||||||||||||||||||||||||||||
Debt securities issued by US Treasury and agencies | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Debt securities issued by foreign governments and official institutions | 81 | 1 | 0 | 1 | 0 | 1 | 40 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Corporate debt securities | 964 | 7 | 0 | 7 | 1 | 6 | 140 | 7 | (4 | ) | 3 | 0 | 3 | |||||||||||||||||||||||||||||||||||
Mortgage-backed securities | 23 | 1 | 0 | 1 | 0 | 1 | 72 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Other debt securities | 49 | 1 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Equity securities | 2,039 | 335 | 31 | 304 | 82 | 222 | 1,191 | 455 | (5 | ) | 450 | (83 | ) | 367 | ||||||||||||||||||||||||||||||||||
Private equity investments | 4,304 | 966 | 223 | 743 | 30 | 713 | 3,009 | 979 | (44 | ) | 935 | (89 | ) | 846 | ||||||||||||||||||||||||||||||||||
Total | 8,391 | 1,314 | 255 | 1,059 | 113 | 946 | 5,049 | 1,443 | (53 | ) | 1,390 | (172 | ) | 1,218 | ||||||||||||||||||||||||||||||||||
Unrealized gains/losses not recognized in the income statement | ||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized gains / losses not recognized in the income statement | ||||||||||||||||||||||||||||||||||||||||||||||||
CHF million | Fair value | Gross gains | Gross losses | Net, before tax | Tax effect | Net, after tax | Fair value | Gross gains | Gross losses | Net, before tax | Tax effect | Net, after tax | ||||||||||||||||||||||||||||||||||||
31 December 2001 | ||||||||||||||||||||||||||||||||||||||||||||||||
31 December 2003 | ||||||||||||||||||||||||||||||||||||||||||||||||
Money market paper | 6,774 | 1 | 0 | 1 | 0 | 1 | 596 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Debt securities issued by the Swiss national government and agencies | 36 | 1 | 0 | 1 | 0 | 1 | ||||||||||||||||||||||||||||||||||||||||||
Debt securities issued by Swiss national government and agencies | 14 | 2 | 0 | 2 | 0 | 2 | ||||||||||||||||||||||||||||||||||||||||||
Debt securities issued by Swiss local governments | 45 | 1 | 0 | 1 | 0 | 1 | 25 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Debt securities issued by US Treasury and agencies | 32 | 2 | 0 | 2 | 1 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Debt securities issued by foreign governments and official institutions | 10,089 | 31 | 1 | 30 | 11 | 19 | 54 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Corporate debt securities | 1,218 | 4 | 2 | 2 | 0 | 2 | 156 | 3 | (8 | ) | (5 | ) | (1 | ) | (6 | ) | ||||||||||||||||||||||||||||||||
Mortgage-backed securities | 5 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Other debt securities | 117 | 0 | 0 | 0 | 0 | 0 | 12 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Equity securities | 3,768 | 627 | 65 | 562 | 187 | 375 | 1,017 | 296 | (7 | ) | 289 | (58 | ) | 231 | ||||||||||||||||||||||||||||||||||
Private equity investments | 6,719 | 1,189 | 539 | 650 | 15 | 635 | 3,265 | 781 | (216 | ) | 565 | 0 | 565 | |||||||||||||||||||||||||||||||||||
Total | 28,803 | 1,856 | 607 | 1,249 | 214 | 1,035 | 5,139 | 1,082 | (231 | ) | 851 | (59 | ) | 792 | ||||||||||||||||||||||||||||||||||
109118
UBS Group Financial StatementsNotes to the Financial Statements
Note 12 Financial Investments (available(available-for-sale) (continued)
The unrealized losses not recognized in the income statement are considered to be temporary on the basis that the investments are intended to be held for sale) (continued)
Contractual maturitiesa period of time sufficient to recover their cost, and UBS believes that the evidence indicating that the cost of the investments should be recoverable within a reasonable period of time outweighs the evidence to the contrary. This includes the nature of the
investments, valuations and research undertaken by UBS, the current outlook for each investment, offers under negotiation at favourable prices and the duration of the unrealized losses.
Within 1 year | 1-5 years | 5-10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 2002 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 0 | 0.00 | 7 | 4.88 | 8 | 3.86 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 8 | 4.02 | 30 | 3.94 | 4 | 3.59 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 35 | 4.63 | 45 | 3.13 | 1 | 6.12 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 675 | 2.23 | 249 | 2.64 | 19 | 3.41 | 21 | 8.02 | ||||||||||||||||||||||||
Mortgage-backed securities | 4 | 2.25 | 15 | 3.97 | 4 | 4.03 | 0 | 0.00 | ||||||||||||||||||||||||
Other debt securities | 1 | 4.77 | 48 | 2.65 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 723 | 394 | 36 | 22 | ||||||||||||||||||||||||||||
Fair Value | Unrealized Losses | |||||||||||||||||||||||
Investments | Investments | Investments | Investments | |||||||||||||||||||||
with unrealized | with unrealized | with unrealized | with unrealized | |||||||||||||||||||||
loss less than | loss more than | loss less than | loss more than | |||||||||||||||||||||
CHF million | 12 months | 12 months | Total | 12 months | 12 months | Total | ||||||||||||||||||
31 December 2004 | ||||||||||||||||||||||||
Money market paper | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by the Swiss national government and agencies | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by Swiss local governments | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by US Treasury and agencies | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by foreign governments and official institutions | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Corporate debt securities | 0 | 0 | 0 | 0 | (4 | ) | (4 | ) | ||||||||||||||||
Mortgage-backed securities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Other debt securities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Equity securities | 1 | 24 | 25 | (1 | ) | (4 | ) | (5 | ) | |||||||||||||||
Private equity investments | 424 | 82 | 506 | (5 | ) | (39 | ) | (44 | ) | |||||||||||||||
Total | 425 | 106 | 531 | (6 | ) | (47 | ) | (53 | ) | |||||||||||||||
Contractual maturities of the investments in debt instruments1 | ||||||||||||||||||||||||||||||||
Within 1 year | 1–5 years | 5–10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 2004 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 1 | 5.50 | 2 | 4.29 | 6 | 3.80 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 10 | 3.97 | 10 | 4.14 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Foreign governments and official institutions | 36 | 2.13 | 4 | 1.25 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Corporate debt securities | 57 | 2.74 | 50 | 2.92 | 0 | 0 | 33 | 0 | ||||||||||||||||||||||||
Mortgage-backed securities | 3 | 2.50 | 0 | 0 | 5 | 3.21 | 64 | 4.36 | ||||||||||||||||||||||||
Other debt securities | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total fair value | 107 | 66 | 11 | 98 | ||||||||||||||||||||||||||||
Proceeds from sales and maturities of investment securities available for sale,available-for-sale, excluding private equity, were as follows:
CHF million | 31.12.02 | 31.12.01 | 31.12.04 | 31.12.03 | ||||||||||||
Proceeds | 1,820 | 27,910 | 277 | 1,379 | ||||||||||||
Gross realized gains | 479 | 223 | 49 | 112 | ||||||||||||
Gross realized losses | (21 | ) | (28 | ) | (4 | ) | (23 | ) | ||||||||
119
Financial Statements
Notes to the Financial Statements
Note 13 Investments in Associates
CHF million | 31.12.02 | 31.12.01 | 31.12.04 | 31.12.03 | ||||||||||||
Carrying amount at the beginning of the year | 697 | 880 | 1,616 | 705 | ||||||||||||
Additions | 51 | 11 | 1,896 | 1 | 88 | |||||||||||
Disposals | (1 | ) | (216 | )1 | (684 | ) | (142 | ) | ||||||||
Transfers | (378 | ) | 1,001 | |||||||||||||
Income | 24 | 74 | 65 | 123 | ||||||||||||
Write-offs | (17 | ) | (2 | ) | ||||||||||||
Dividend paid | (44 | ) | (48 | ) | (32 | ) | (30 | ) | ||||||||
Foreign currency translation | (5 | ) | (2 | ) | (56 | ) | (129 | ) | ||||||||
Carrying amount at the end of the year | 705 | 697 | 2,427 | 1,616 | ||||||||||||
110
Note 14 Property and Equipment
IT, soft- | Other | Other | Plant and | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bank- | ware and | machines | Leasehold | IT, software | machines | manu- | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
occupied | Investment | communi- | and | Own used | Investment | improve- | and com- | and | facturing | Projects in | ||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million | properties | properties1 | cation | equipment | 31.12.02 | 31.12.01 | properties | properties | ments | munication | equipment | equipment | progress | 31.12.04 | 31.12.03 | |||||||||||||||||||||||||||||||||||||||||||||
Historical cost | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 9,297 | 893 | 5,146 | 4,143 | 19,479 | 18,631 | 9,408 | 2,545 | 4,241 | 1,425 | 0 | 266 | 17,885 | 17,390 | ||||||||||||||||||||||||||||||||||||||||||||||
Additions | 147 | 366 | 811 | 439 | 1,763 | 2,021 | 232 | 235 | 460 | 123 | 29 | 149 | 1,228 | 1,352 | ||||||||||||||||||||||||||||||||||||||||||||||
Disposals/write-offs2 | (62 | ) | (747 | ) | (1,330 | ) | (449 | ) | (2,588 | ) | (715 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Additions from acquired companies | 179 | 0 | 0 | 0 | 1,880 | 34 | 2,093 | 24 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Disposals / write-offs1 | (436 | ) | (175 | ) | (619 | ) | (46 | ) | (11 | ) | (52 | ) | (1,339 | ) | (1,030 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Reclassifications | (34 | ) | 50 | 51 | (53 | ) | 14 | (482 | ) | (60 | ) | 85 | 5 | (63 | ) | 0 | (153 | ) | (186 | ) | 457 | |||||||||||||||||||||||||||||||||||||||
Foreign currency translation | (41 | ) | (2 | ) | (339 | ) | (336 | ) | (718 | ) | 24 | 6 | (100 | ) | (107 | ) | (40 | ) | 38 | (2 | ) | (205 | ) | (308 | ) | |||||||||||||||||||||||||||||||||||
Balance at the end of the year | 9,307 | 560 | 4,339 | 4 | 3,744 | 17,950 | 19,479 | 9,329 | 2,590 | 3,980 | 1,399 | 1,936 | 242 | 19,476 | 17,885 | |||||||||||||||||||||||||||||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 4,039 | 239 | 3,932 | 2,574 | 10,784 | 9,721 | 4,365 | 1,570 | 3,334 | 1,165 | 0 | 4 | 10,438 | 9,870 | ||||||||||||||||||||||||||||||||||||||||||||||
Depreciation | 224 | 28 | 926 | 343 | 1,521 | 1,654 | 247 | 201 | 775 | 68 | 61 | 1,352 | 1,353 | |||||||||||||||||||||||||||||||||||||||||||||||
Disposals/write-offs2 | (34 | ) | (100 | ) | (1,316 | ) | (336 | ) | (1,786 | ) | (403 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Disposals / write-offs1 | (7 | ) | (53 | ) | (636 | ) | (43 | ) | (10 | ) | 0 | (749 | ) | (936 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Reclassifications | (10 | ) | 44 | (2 | ) | 3 | 35 | (189 | ) | (42 | ) | 2 | 0 | 1 | 0 | (4 | ) | (43 | ) | 330 | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | (9 | ) | 0 | (300 | ) | (164 | ) | (473 | ) | 1 | 0 | (61 | ) | (98 | ) | (21 | ) | 2 | 0 | (178 | ) | (179 | ) | |||||||||||||||||||||||||||||||||||||
Balance at the end of the year | 4,210 | 211 | 3,240 | 2,420 | 10,081 | 10,784 | 4,563 | 1,659 | 3,375 | 1,170 | 53 | 0 | 10,820 | 10,438 | ||||||||||||||||||||||||||||||||||||||||||||||
Net book value at the end of the year3 | 5,097 | 349 | 1,099 | 1,324 | 7,869 | 8,695 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value | 41 | 39 | 80 | 236 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net book value at the end of the year2 | 4,766 | 41 | 931 | 605 | 229 | 1,883 | 281 | 8,736 | 7,683 | |||||||||||||||||||||||||||||||||||||||||||||||||||
120
Note 15 Goodwill and Other Intangible Assets
Goodwill | Other intangible assets | Goodwill | Other intangible assets | |||||||||||||||||||||||||||||||||||||||||||||||||
Customer | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Customer | relationships, | |||||||||||||||||||||||||||||||||||||||||||||||||||
Brand- | Infra- | lists | contractual | |||||||||||||||||||||||||||||||||||||||||||||||||
CHF million | Total | name | structure | and other | Total | 31.12.02 | 31.12.01 | Total | Infrastructure | rights and other | Total | 31.12.04 | 31.12.03 | |||||||||||||||||||||||||||||||||||||||
Historical cost | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 16,819 | 1,293 | 1,293 | 2,387 | 4,973 | 21,792 | 21,166 | 12,032 | 958 | 1,915 | 2,873 | 14,905 | 17,022 | |||||||||||||||||||||||||||||||||||||||
Additions and reallocations | 9 | 281 | 0 | 0 | 281 | 290 | 456 | 960 | 0 | 1,531 | 1,531 | 2,491 | 340 | |||||||||||||||||||||||||||||||||||||||
Disposals and other reductions | (98 | ) | 0 | 0 | (17 | ) | (17 | ) | (115 | ) | 0 | (62 | ) | 0 | 14 | 14 | (48 | ) | (371 | ) | ||||||||||||||||||||||||||||||||
Write-offs1 | 0 | (1,350 | ) | 0 | 0 | (1,350 | ) | (1,350 | ) | (247 | ) | (105 | ) | 0 | (1 | ) | (1 | ) | (106 | ) | (508 | ) | ||||||||||||||||||||||||||||||
Foreign currency translation | (2,773 | ) | (224 | ) | (224 | ) | (374 | ) | (822 | ) | (3,595 | ) | 417 | (966 | ) | (78 | ) | (154 | ) | (232 | ) | (1,198 | ) | (1,578 | ) | |||||||||||||||||||||||||||
Balance at the end of the year | 13,957 | 0 | 1,069 | 1,996 | 3,065 | 17,022 | 21,792 | 11,859 | 880 | 3,305 | 4,185 | 16,044 | 14,905 | |||||||||||||||||||||||||||||||||||||||
Accumulated amortization | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 2,241 | 76 | 76 | 314 | 466 | 2,707 | 1,629 | 2,684 | 152 | 540 | 692 | 3,376 | 3,326 | |||||||||||||||||||||||||||||||||||||||
Amortization | 930 | 1,306 | 54 | 170 | 1,530 | 2,460 | 1,323 | 713 | 53 | 198 | 251 | 964 | 943 | |||||||||||||||||||||||||||||||||||||||
Disposals | (13 | ) | 0 | 0 | (15 | ) | (15 | ) | (28 | ) | 0 | (9 | ) | 0 | 0 | 0 | (9 | ) | (70 | ) | ||||||||||||||||||||||||||||||||
Write-offs1 | 0 | (1,350 | ) | 0 | 0 | (1,350 | ) | (1,350 | ) | (247 | ) | (105 | ) | 0 | (1 | ) | (1 | ) | (106 | ) | (508 | ) | ||||||||||||||||||||||||||||||
Foreign currency translation | (382 | ) | (32 | ) | (14 | ) | (35 | ) | (81 | ) | (463 | ) | 2 | (271 | ) | (21 | ) | (38 | ) | (59 | ) | (330 | ) | (315 | ) | |||||||||||||||||||||||||||
Balance at the end of the year | 2,776 | 0 | 116 | 434 | 550 | 3,326 | 2,707 | 3,012 | 184 | 699 | 883 | 3,895 | 3,376 | |||||||||||||||||||||||||||||||||||||||
Net book value at the end of the year | 11,181 | 0 | 953 | 1,562 | 2,515 | 13,696 | 19,085 | 8,847 | 696 | 2,606 | 3,302 | 12,149 | 11,529 | |||||||||||||||||||||||||||||||||||||||
111
UBS Group Financial StatementsNotes to the Financial Statements
Note 15 Goodwill and Other Intangible Assets (continued)
The following table presents the disclosure of goodwill and other intangible assets by Business Groupbusiness unit for the year ended 31 December 2002.2004.
Balance | Additions | Disposals | ||||||||||||||||||||||
at the | and | and | Foreign | Balance | ||||||||||||||||||||
beginning | reallo- | other | currency | at the end | ||||||||||||||||||||
CHF million | of the year | cations | reductions | Amortization | translation | of the year | ||||||||||||||||||
Goodwill | ||||||||||||||||||||||||
UBS Wealth Management & Business Banking | 1,305 | 0 | (8 | ) | (81 | ) | (213 | ) | 1,003 | |||||||||||||||
UBS Global Asset Management | 2,926 | 0 | (5 | ) | (269 | ) | (467 | ) | 2,185 | |||||||||||||||
UBS Warburg | 4,950 | 0 | (25 | ) | (315 | ) | (817 | ) | 3,793 | |||||||||||||||
UBS PaineWebber | 5,390 | 0 | (33 | ) | (264 | ) | (894 | ) | 4,199 | |||||||||||||||
Corporate Center | 7 | 9 | (14 | ) | (1 | ) | 0 | 1 | ||||||||||||||||
UBS Group | 14,578 | 9 | (85 | ) | (930 | ) | (2,391 | ) | 11,181 | |||||||||||||||
Other Intangible Assets | ||||||||||||||||||||||||
UBS Wealth Management & Business Banking | 65 | 0 | (2 | ) | (30 | ) | 0 | 33 | ||||||||||||||||
UBS Global Asset Management | 2 | 0 | 0 | (1 | ) | 0 | 1 | |||||||||||||||||
UBS Warburg | 390 | 0 | 0 | (49 | ) | (63 | ) | 278 | ||||||||||||||||
UBS PaineWebber | 3,942 | 281 | 0 | (1,427 | ) | (662 | ) | 2,134 | ||||||||||||||||
Corporate Center | 108 | 0 | 0 | (23 | ) | (16 | ) | 69 | ||||||||||||||||
UBS Group | 4,507 | 281 | (2 | ) | (1,530 | ) | (741 | ) | 2,515 | |||||||||||||||
Balance at | Balance at | |||||||||||||||||||||||
the beginning | Additions and | Disposals and | Foreign currency | the end | ||||||||||||||||||||
CHF million | of the year | reallocations | other reductions | Amortization | translation | of the year | ||||||||||||||||||
Goodwill | ||||||||||||||||||||||||
Wealth Management | 837 | 486 | (5 | ) | (67 | ) | (75 | ) | 1,176 | |||||||||||||||
Business Banking Switzerland | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Global Asset Management | 1,401 | 2 | (1 | ) | (129 | ) | (84 | ) | 1,189 | |||||||||||||||
Investment Bank | 3,372 | 352 | (16 | ) | (252 | ) | (257 | ) | 3,199 | |||||||||||||||
Wealth Management USA | 3,315 | 0 | (16 | ) | (197 | ) | (250 | ) | 2,852 | |||||||||||||||
Private Banks & GAM | 421 | 0 | (15 | ) | (68 | ) | (27 | ) | 311 | |||||||||||||||
Corporate Functions | 2 | 0 | 0 | 0 | (2 | ) | 0 | |||||||||||||||||
Industrial Holdings | 0 | 120 | 0 | 0 | 0 | 120 | ||||||||||||||||||
UBS | 9,348 | 960 | (53 | ) | (713 | ) | (695 | ) | 8,847 | |||||||||||||||
Other intangible assets | ||||||||||||||||||||||||
Wealth Management | 4 | 169 | 0 | (8 | ) | (6 | ) | 159 | ||||||||||||||||
Business Banking Switzerland | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Global Asset Management | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Investment Bank | 324 | 158 | 0 | (36 | ) | (28 | ) | 418 | ||||||||||||||||
Wealth Management USA | 1,805 | 0 | 0 | (107 | ) | (138 | ) | 1,560 | ||||||||||||||||
Private Banks & GAM | 4 | 0 | 15 | (6 | ) | 1 | 14 | |||||||||||||||||
Corporate Functions | 44 | 0 | 0 | (17 | ) | (3 | ) | 24 | ||||||||||||||||
Industrial Holdings | 0 | 1,204 | (1 | ) | (77 | ) | 1 | 1,127 | ||||||||||||||||
UBS | 2,181 | 1,531 | 14 | (251 | ) | (173 | ) | 3,302 | ||||||||||||||||
Until 31 December 2001, goodwill and other intangible assets relating to the merger of UBS and PaineWebber were reported in the UBS Warburg Business Group. With the separation of UBS PaineWebber from UBS Warburg at 1 January 2002, goodwill and other intangible assets have been allocated to the Business Groups that have benefited from the merger with PaineWebber. For further information about disclosure by Business Group, including the amortization of goodwill and other intangible assets of previous years, please see Note 2a: Segment Reporting by Business Group.
The estimated, aggregated amortization expenses for Goodwill and Other intangible assets are as follows:
Other | ||||||||||||
CHF million | Goodwill | intangible assets | Total | |||||||||
Estimated, aggregated amortization expenses for: | ||||||||||||
2003 | 817 | 189 | 1,006 | |||||||||
2004 | 769 | 170 | 939 | |||||||||
2005 | 738 | 166 | 904 | |||||||||
2006 | 702 | 153 | 855 | |||||||||
2007 | 646 | 144 | 790 | |||||||||
2008 and thereafter | 7,509 | 1,693 | 9,202 | |||||||||
Total | 11,181 | 2,515 | 13,696 | |||||||||
112
Note 16 Other Assets
CHF million | Note | 31.12.02 | 31.12.01 | |||||||||
Deferred tax assets | 21 | 2,800 | 3,449 | |||||||||
Settlement and clearing accounts | 1,449 | 1,431 | ||||||||||
VAT and other tax receivables | 436 | 452 | ||||||||||
Prepaid pension costs | 250 | 567 | ||||||||||
Properties held for resale | 1,071 | 844 | ||||||||||
Other receivables | 2,946 | 3,132 | ||||||||||
Total other assets | 8,952 | 9,875 | ||||||||||
113
UBS Group Financial Statements
Notes to the Financial Statements
The estimated, aggregated amortization expenses for other intangible assets are as follows:
CHF million | Other intangible assets | |||
Estimated, aggregated amortization expenses for: | ||||
2005 | 284 | |||
2006 | 273 | |||
2007 | 264 | |||
2008 | 252 | |||
2009 | 219 | |||
2010 and thereafter | 1,000 | |||
Total | 2,292 | |||
Due to the issuance ofIFRS 3 Business Combinations,goodwill amortization will cease from 1 January 2005. In addition, certain intangible assets will be reclassified to goodwill at 1 January 2005 and have been excluded for the purpose of
calculating estimated (aggregated) amortization expenses for Other intangible assets. See Notes 1aa) and 1ab) for further details.
Balance Sheet: LiabilitiesNote 16 Other Assets
CHF million | Note | 31.12.04 | 31.12.03 | |||||||||
Deferred tax assets | 21 | 2,663 | 2,276 | |||||||||
Settlement and clearing accounts | 4,747 | 2,874 | ||||||||||
VAT and other tax receivables | 326 | 338 | ||||||||||
Prepaid pension costs | 804 | 862 | ||||||||||
Properties held for resale | 534 | 754 | ||||||||||
Life insurance assets | 19,224 | 13,544 | ||||||||||
Other receivables | 6,486 | 4,811 | ||||||||||
Accounts receivable trade | 66 | 0 | ||||||||||
Total other assets | 34,850 | 25,459 | ||||||||||
122
Note 17 Due to Banks and CustomersBalance Sheet: Liabilities
CHF million | 31.12.02 | 31.12.01 | ||||||
Due to banks | 83,178 | 106,531 | ||||||
Due to customers in savings and investment accounts | 76,884 | 67,782 | ||||||
Other amounts due to customers | 229,992 | 265,999 | ||||||
Total due to customers | 306,876 | 333,781 | ||||||
Total due to banks and customers | 390,054 | 440,312 | ||||||
Note 17 Due to Banks and Customers | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Due to banks | 118,901 | 127,012 | ||||||
Due to customers in savings and investment accounts | 101,081 | 94,914 | ||||||
Other amounts due to customers | 275,002 | 251,719 | ||||||
Total due to customers | 376,083 | 346,633 | ||||||
Total due to banks and customers | 494,984 | 473,645 | ||||||
Note 18 Debt Issued
The Group issues both CHF and non-CHF denominated fixed and floating rate debt. Floating rate debt generally pays interest based on the three-month or six-month London Interbank Offered Rate (LIBOR).
most of these debt instruments have been designated as held at fair value through profit and loss and are presented in a separate line in the balance sheet. For compound debt instruments not designated as held at fair value, derivatives embedded in these instrumentsin-
114123
Financial Statements
Notes to the Financial Statements
Note 18 Financial Liabilities Designated at Fair Value and Debt Issued (continued)
Financial liabilities designated at fair value | ||||||||||||||||
CHF million | 31.12.02 | 31.12.01 | 31.12.04 | 31.12.03 | ||||||||||||
Money market paper issued | 72,800 | 99,006 | ||||||||||||||
Bonds issued | 51,872 | 51,061 | ||||||||||||||
Unsecuritized compound debt instruments | 4,110 | 0 | ||||||||||||||
Bonds and compound debt instruments | 61,646 | 35,286 | ||||||||||||||
Total | 65,756 | 35,286 | ||||||||||||||
Debt issued (held at amortized cost) | ||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||||||||||
Short-term debt: Money market paper issued | 79,442 | 58,115 | ||||||||||||||
Long-term debt: | ||||||||||||||||
Bonds | ||||||||||||||||
Senior | 28,035 | 19,883 | ||||||||||||||
Subordinated | 8,605 | 8,061 | ||||||||||||||
Shares in bond issues of the Swiss Regional or Cantonal Banks’ Central Bond Institutions | 517 | 934 | 60 | 210 | ||||||||||||
Medium-term notes | 4,222 | 5,217 | 1,686 | 2,574 | ||||||||||||
Total debt issued | 129,411 | 156,218 | ||||||||||||||
Subtotal long-term debt | 38,386 | 30,728 | ||||||||||||||
Total | 117,828 | 88,843 | ||||||||||||||
The following table shows the split between fixed and floating rate debt issues based on the contractual terms. However it should be noted that the Group uses interest rate
swaps to hedge many of the fixed rate debt issues, which changes their re-pricing characteristics into thosethat of floating rate debt.
Contractual maturity date
UBS AG (Parent Bank) | Subsidiaries | |||||||||||||||||||
Fixed | Floating | Fixed | Floating | Total | ||||||||||||||||
CHF million | rate | rate | rate | rate | 31.12.02 | |||||||||||||||
2003 | 24,010 | 244 | 52,095 | 70 | 76,419 | |||||||||||||||
2004 | 4,965 | 609 | 1,432 | 574 | 7,580 | |||||||||||||||
2005 | 4,998 | 726 | 907 | 382 | 7,013 | |||||||||||||||
2006 | 3,359 | 790 | 8,000 | 439 | 12,588 | |||||||||||||||
2007 | 3,166 | 1,564 | 1,105 | 70 | 5,905 | |||||||||||||||
2008-2010 | 1,714 | 1,048 | 2,476 | 1,949 | 7,187 | |||||||||||||||
Thereafter | 2,726 | 6,672 | 269 | 3,052 | 12,719 | |||||||||||||||
Total | 44,938 | 11,653 | 66,284 | 6,536 | 129,411 | |||||||||||||||
Contractual maturity dates | ||||||||||||||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 2005 | 2006 | 2007 | 2008 | 2009 | 2010-2014 | Thereafter | 31.12.04 | 31.12.03 | |||||||||||||||||||||||||||
UBS AG Parent Bank | ||||||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 35,193 | 7,220 | 8,879 | 4,367 | 5,239 | 7,405 | 1,110 | 69,413 | 52,174 | |||||||||||||||||||||||||||
Interest rates (range in %) | 0–19 | 0–16.5 | 0–11 | 0–20 | 0–13.5 | 0–15 | 0–10 | |||||||||||||||||||||||||||||
Floating rate | 6,662 | 1,369 | 1,047 | 527 | 1,622 | 2,435 | 8,923 | 22,585 | 12,542 | |||||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 1,488 | 1,573 | 1,379 | 0 | 524 | 1,902 | 1,381 | 8,247 | 7,514 | |||||||||||||||||||||||||||
Interest rates (range in %) | 4–8.75 | 4.25–7.25 | 5.75–8 | 5.88 | 3.13–4.5 | 7–8.75 | ||||||||||||||||||||||||||||||
Floating rate | 0 | 0 | 0 | 0 | 0 | 0 | 342 | 342 | 506 | |||||||||||||||||||||||||||
Subtotal | 43,343 | 10,162 | 11,305 | 4,894 | 7,385 | 11,742 | 11,756 | 100,587 | 72,736 | |||||||||||||||||||||||||||
Subsidiaries | ||||||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 53,099 | 3,632 | 1,418 | 5,628 | 4,671 | 1,532 | 1,010 | 70,990 | 43,579 | |||||||||||||||||||||||||||
Interest rates (range in %) | 0–10 | 0–10 | 0–10 | 0–10 | 0–18.5 | 0–35 | 0–35 | |||||||||||||||||||||||||||||
Floating rate | 718 | 265 | 314 | 810 | 426 | 2,121 | 3,227 | 7,881 | 7,773 | |||||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 0 | 0 | 0 | 0 | 0 | 0 | 16 | 16 | 41 | |||||||||||||||||||||||||||
Interest rates (range in %) | 9 | |||||||||||||||||||||||||||||||||||
Floating rate | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Subtotal | 53,817 | 3,897 | 1,732 | 6,438 | 5,097 | 3,653 | 4,253 | 78,887 | 51,393 | |||||||||||||||||||||||||||
Total | 97,160 | 14,059 | 13,037 | 11,332 | 12,482 | 15,395 | 16,009 | 179,474 | 124,129 | |||||||||||||||||||||||||||
Publicly placed bond issues of UBS AG (Parent Bank) outstanding as at 31.12.20021
Notional | ||||||||||||||||||||||||
amounts | ||||||||||||||||||||||||
Early | in millions | |||||||||||||||||||||||
Year of | Interest | redemption | in local | |||||||||||||||||||||
issue | rate in % | Remarks | Maturity | option | Currency | currency | ||||||||||||||||||
2001 | 16.000 | GOAL on Siemens | 17.01.2003 | EUR | 55 | |||||||||||||||||||
2002 | 0.000 | CLN Linked to GECC | 18.02.2003 | EUR | 50 | |||||||||||||||||||
2001 | 8.000 | GOAL on UBS | 26.02.2003 | CHF | 220 | |||||||||||||||||||
2002 | 11.250 | GOAL on Royal Dutch Petroleum | 28.02.2003 | EUR | 95 | |||||||||||||||||||
1993 | 4.875 | subordinated | 03.03.2003 | CHF | 200 | |||||||||||||||||||
2001 | 8.750 | GOAL on General Electric | 07.03.2003 | USD | 125 | |||||||||||||||||||
2001 | 13.500 | GOAL on Nokia Oyj | 10.03.2003 | EUR | 45 | |||||||||||||||||||
2002 | 0.000 | Linked to 30yr OAT | 11.03.2003 | GBP | 50 | |||||||||||||||||||
2002 | FRN | CLN Linked to GECC | 14.03.2003 | USD | 100 | |||||||||||||||||||
1997 | 1.500 | Indexed to UBS Currency Portfolio | 14.03.2003 | EUR | 51 | |||||||||||||||||||
Convertible into | ||||||||||||||||||||||||
1998 | FRN | UBS Dutch Corporate Basket | 20.03.2003 | EUR | 57 | |||||||||||||||||||
1993 | 3.500 | subordinated | 31.03.2003 | CHF | 200 | |||||||||||||||||||
1993 | 4.000 | subordinated | 31.03.2003 | CHF | 200 | |||||||||||||||||||
115124
UBS Group Financial StatementsNotes to the Financial Statements
Note 18 Debt Issued (continued)
Publicly placed bond issues of UBS AG (Parent Bank) outstanding as at 31.12.20021
Notional | ||||||||||||||||||||||||
amounts | ||||||||||||||||||||||||
Early | in millions | |||||||||||||||||||||||
Year of | Interest | redemption | in local | |||||||||||||||||||||
issue | rate in % | Remarks | Maturity | option | Currency | currency | ||||||||||||||||||
2001 | 0.000 | BULS on technology stock basket | 10.04.2003 | USD | 78 | |||||||||||||||||||
2001 | 0.000 | BULS on Celestica and others | 28.04.2003 | USD | 40 | |||||||||||||||||||
2002 | 9.500 | GOAL on UBS | 22.05.2003 | CHF | 110 | |||||||||||||||||||
2001 | 10.250 | GOAL on Deutsche Bank | 30.05.2003 | EUR | 40 | |||||||||||||||||||
2002 | 9.500 | GOAL on DJ Euro Stoxx 50 index | 02.06.2003 | EUR | 50 | |||||||||||||||||||
2001 | 7.250 | GOAL on Aventis | 05.06.2003 | EUR | 75 | |||||||||||||||||||
2001 | 6.000 | GOAL on Total SA | 11.06.2003 | EUR | 45 | |||||||||||||||||||
2001 | 7.750 | GOAL on E.ON AG | 17.06.2003 | EUR | 40 | |||||||||||||||||||
1995 | 5.250 | subordinated | 20.06.2003 | CHF | 200 | |||||||||||||||||||
2001 | 8.250 | GOAL on Pfizer | 16.07.2003 | USD | 70 | |||||||||||||||||||
2002 | 9.500 | GOAL on SUEZ SA (Suez) | 04.09.2003 | EUR | 35 | |||||||||||||||||||
2002 | 13.000 | GOAL on Royal Dutch Petroleum | 06.10.2003 | EUR | 35 | |||||||||||||||||||
2002 | FRN | CLN Linked to Allianz AG | 24.10.2003 | USD | 150 | |||||||||||||||||||
1993 | 3.000 | 26.11.2003 | CHF | 200 | ||||||||||||||||||||
2002 | 0.000 | Linked to Basket of Common Stock | 02.12.2003 | USD | 63 | |||||||||||||||||||
1994 | 6.250 | subordinated | 06.01.2004 | USD | 300 | |||||||||||||||||||
2002 | 7.750 | GOAL on Novartis | 28.01.2004 | CHF | 100 | |||||||||||||||||||
2002 | 5.125 | GOAL on General Electric Company | 30.01.2004 | USD | 75 | |||||||||||||||||||
2002 | 6.000 | GOAL on Unilever NV | 06.02.2004 | EUR | 40 | |||||||||||||||||||
2002 | 6.250 | GOAL on Nestlé AG | 14.05.2004 | CHF | 100 | |||||||||||||||||||
2001 | 0.000 | Cliquet GROI on NASDAQ 100 Index | 27.05.2004 | USD | 42 | |||||||||||||||||||
1991 | 4.250 | subordinated | 25.06.2004 | CHF | 300 | |||||||||||||||||||
1999 | 3.500 | 01.07.2004 | EUR | 250 | ||||||||||||||||||||
2001 | 1.750 | Exchangeable bonds on Yukos | 31.08.2004 | USD | 310 | |||||||||||||||||||
1997 | 7.380 | subordinated | 26.11.2004 | GBP | 250 | |||||||||||||||||||
1995 | 4.000 | subordinated | 07.02.2005 | CHF | 150 | |||||||||||||||||||
1995 | 5.500 | Convertible into Nasdaq 100 Index | 10.02.2005 | CHF | 150 | |||||||||||||||||||
2002 | 0.000 | Equity GROI | 07.03.2005 | AUD | 233 | |||||||||||||||||||
2002 | 0.500 | Convertible into STOXX 50 Index | 21.03.2005 | EUR | 75 | |||||||||||||||||||
1995 | 5.625 | subordinated | 13.04.2005 | CHF | 150 | |||||||||||||||||||
2002 | 0.000 | GROI on FTSE 100 Index | 25.04.2005 | GBP | 46 | |||||||||||||||||||
Principal Protected Note Linked | ||||||||||||||||||||||||
2002 | 0.000 | to NASDAQ 100-Index | 04.05.2005 | USD | 46 | |||||||||||||||||||
2002 | 0.000 | Exchangeable Bonds on Yukos | 19.06.2005 | USD | 120 | |||||||||||||||||||
1995 | 8.750 | subordinated | 20.06.2005 | GBP | 249 | |||||||||||||||||||
GROI - Australian | ||||||||||||||||||||||||
2002 | 0.000 | Growth Guaranteed Fund II | 21.06.2005 | AUD | 67 | |||||||||||||||||||
1998 | 6.750 | subordinated | 15.07.2005 | USD | 200 | |||||||||||||||||||
1995 | 5.250 | subordinated | 18.07.2005 | CHF | 200 | |||||||||||||||||||
2002 | 0.000 | Cliquet GROI - Units on SMI Index | 25.07.2005 | CHF | 53 | |||||||||||||||||||
1995 | 5.000 | subordinated | 24.08.2005 | CHF | 250 | |||||||||||||||||||
2002 | 0.125 | Exchangeable Bonds on Yukos | 19.09.2005 | USD | 120 | |||||||||||||||||||
1995 | 4.500 | 21.11.2005 | CHF | 300 | ||||||||||||||||||||
2002 | 0.250 | Exchangeable Bonds on Yukos | 19.12.2005 | USD | 160 | |||||||||||||||||||
1999 | 3.500 | Straight Bond | 26.01.2006 | EUR | 650 | |||||||||||||||||||
Equity Exchangeables into | ||||||||||||||||||||||||
2001 | 1.000 | Euro. Insurance Basket | 01.02.2006 | 01.02.2004 | EUR | 100 | ||||||||||||||||||
1996 | 4.250 | subordinated | 06.02.2006 | CHF | 250 | |||||||||||||||||||
1996 | 4.000 | 14.02.2006 | CHF | 200 | ||||||||||||||||||||
2000 | 2.500 | Straight Bond | 29.03.2006 | CHF | 250 | |||||||||||||||||||
1996 | 7.250 | subordinated | 17.07.2006 | USD | 500 | |||||||||||||||||||
2001 | 0.000 | BULS on S&P 500 | 01.09.2006 | USD | 54 | |||||||||||||||||||
116
Note 18 Debt Issued (continued)
Publicly placed bond issues of UBS AG (Parent Bank) outstanding as at 31.12.20021
Notional | ||||||||||||||||||||||||
amounts | ||||||||||||||||||||||||
Early | in millions | |||||||||||||||||||||||
Year of | Interest | redemption | in local | |||||||||||||||||||||
issue | rate in % | Remarks | Maturity | option | Currency | currency | ||||||||||||||||||
1996 | 7.250 | subordinated | 01.09.2006 | USD | 150 | |||||||||||||||||||
2001 | 5.500 | GOAL on UBS | 02.10.2006 | CHF | 106 | |||||||||||||||||||
Cliquet GROI-Units | ||||||||||||||||||||||||
2001 | 0.000 | on Nasdaq 100-Index | 19.10.2006 | USD | 39 | |||||||||||||||||||
2002 | FRN | Callable Daily Range Accrual Note | 07.11.2006 | 07.02.2003 | USD | 56 | ||||||||||||||||||
1995 | 5.000 | subordinated | 07.11.2006 | CHF | 250 | |||||||||||||||||||
2002 | FRN | Callable Daily Range Accrual Note | 13.11.2006 | 12.02.2003 | USD | 40 | ||||||||||||||||||
1996 | 6.250 | subordinated | 06.12.2006 | EUR | 254 | |||||||||||||||||||
2001 | 0.000 | Zero-rate Note O'Connor Fund | 29.12.2006 | EUR | 40 | |||||||||||||||||||
1997 | 8.000 | subordinated | 08.01.2007 | GBP | 242 | |||||||||||||||||||
1997 | 8.000 | subordinated | 08.01.2007 | GBP | 302 | |||||||||||||||||||
1997 | 5.750 | subordinated | 12.03.2007 | EUR | 204 | |||||||||||||||||||
Step-Up Callable | ||||||||||||||||||||||||
2002 | FRN | Daily Range Accrual Note | 15.07.2007 | 15.01.2003 | USD | 67 | ||||||||||||||||||
2002 | 1.000 | Exchangeable on DJ Euro Stoxx 50E | 23.07.2007 | EUR | 50 | |||||||||||||||||||
2002 | FRN | CLN | 01.09.2007 | USD | 50 | |||||||||||||||||||
Exchangeable Bond | ||||||||||||||||||||||||
2002 | 0.500 | on the S&P 500 Index | 05.09.2007 | USD | 40 | |||||||||||||||||||
Exchangeable Bond | ||||||||||||||||||||||||
2002 | 0.500 | on the DJ Euro STOXX 50 | 05.09.2007 | EUR | 35 | |||||||||||||||||||
2002 | 0.250 | Exchangeable Bond on the SMI | 05.09.2007 | CHF | 75 | |||||||||||||||||||
2002 | FRN | Callable Daily Range Accrual Note | 02.10.2007 | 02.01.2003 | USD | 61 | ||||||||||||||||||
Exchangeable bond | ||||||||||||||||||||||||
2002 | 0.500 | on Royal Dutch Petroleum | 30.10.2007 | EUR | 100 | |||||||||||||||||||
Principal Protected Notes Linked | ||||||||||||||||||||||||
2002 | 0.000 | to the S&P 500 Index | 07.11.2007 | USD | 52 | |||||||||||||||||||
2002 | 7.250 | GOAL on Royal Dutch Petroleum | 14.11.2007 | EUR | 150 | |||||||||||||||||||
2002 | 1.250 | Linked to Nikkei 225 Index | 28.11.2007 | JPY | 7,742 | |||||||||||||||||||
2002 | 5.000 | Linked to Nikkei 225 Index | 19.12.2007 | JPY | 5,537 | |||||||||||||||||||
1998 | 3.500 | 27.08.2008 | CHF | 300 | ||||||||||||||||||||
1997 | 5.875 | subordinated | 18.08.2009 | EUR | 305 | |||||||||||||||||||
2002 | FRN | Callable Daily Range Accrual Note | 23.10.2012 | 23.01.2003 | USD | 64 | ||||||||||||||||||
1995 | 7.375 | subordinated | 15.07.2015 | USD | 150 | |||||||||||||||||||
1995 | 7.000 | subordinated | 15.10.2015 | USD | 300 | |||||||||||||||||||
1997 | 7.375 | subordinated | 15.06.2017 | USD | 300 | |||||||||||||||||||
1995 | 7.500 | subordinated | 15.07.2025 | USD | 350 | |||||||||||||||||||
1995 | 8.750 | subordinated | 18.12.2025 | GBP | 149 | |||||||||||||||||||
1996 | 7.750 | subordinated | 01.09.2026 | USD | 300 | |||||||||||||||||||
117
UBS Group Financial StatementsNotes to the Financial Statements
Note 18 Debt Issued (continued)
Publicly placed bond issues of UBS subsidiaries outstanding as at 31.12.20021
Notional | ||||||||||||||||||||||||
amounts | ||||||||||||||||||||||||
Early | in millions | |||||||||||||||||||||||
Year of | Interest | redemption | in local | |||||||||||||||||||||
issue | rate in % | Remarks | Maturity | option | Currency | currency | ||||||||||||||||||
Brooklands Euro Referenced Linked Notes 2001-1 Ltd | ||||||||||||||||||||||||
2002 | 2.594 | 15.12.2012 | EUR | 100 | ||||||||||||||||||||
2002 | 3.480 | 15.12.2012 | EUR | 75 | ||||||||||||||||||||
2002 | 3.293 | 23.12.2012 | EUR | 75 | ||||||||||||||||||||
2002 | 3.893 | 23.12.2012 | EUR | 35 | ||||||||||||||||||||
2001 | FRN | 20.12.2013 | EUR | 50 | ||||||||||||||||||||
2001 | FRN | 20.12.2013 | EUR | 50 | ||||||||||||||||||||
Alpine Partners L.P. | ||||||||||||||||||||||||
2000 | FRN | 08.10.2009 | 08.01.2003 | USD | 445 | |||||||||||||||||||
North Street | ||||||||||||||||||||||||
2000 | FRN | 28.04.2011 | USD | 40 | ||||||||||||||||||||
2002 | FRN | 28.04.2011 | USD | 100 | ||||||||||||||||||||
2002 | FRN | 28.04.2011 | USD | 50 | ||||||||||||||||||||
2000 | 20.000 | 28.04.2011 | USD | 43 | ||||||||||||||||||||
2000 | FRN | 30.10.2011 | USD | 61 | ||||||||||||||||||||
2000 | 18.000 | 30.10.2011 | USD | 43 | ||||||||||||||||||||
2002 | FRN | 30.01.2016 | USD | 40 | ||||||||||||||||||||
2002 | 20.000 | 30.01.2016 | USD | 49 | ||||||||||||||||||||
2002 | FRN | 30.01.2016 | USD | 46 | ||||||||||||||||||||
2002 | 5.160 | 30.01.2016 | USD | 61 | ||||||||||||||||||||
2002 | FRN | 30.01.2016 | USD | 353 | ||||||||||||||||||||
2002 | FRN | 20.08.2030 | 20.08.2003 | USD | 100 | |||||||||||||||||||
2001 | FRN | 30.04.2031 | USD | 60 | ||||||||||||||||||||
2001 | FRN | 30.04.2031 | USD | 100 | ||||||||||||||||||||
2001 | FRN | 30.07.2031 | USD | 100 | ||||||||||||||||||||
2001 | FRN | 30.07.2031 | USD | 60 | ||||||||||||||||||||
UBS Americas Inc. (former PaineWebber) | ||||||||||||||||||||||||
1993 | 7.875 | 17.02.2003 | USD | 100 | ||||||||||||||||||||
2000 | 1.270 | 13.03.2003 | JPY | 9,000 | ||||||||||||||||||||
1998 | 6.320 | 18.03.2003 | USD | 45 | ||||||||||||||||||||
1998 | 6.450 | 01.12.2003 | USD | 340 | ||||||||||||||||||||
1999 | FRN | 11.05.2004 | USD | 45 | ||||||||||||||||||||
1999 | 6.375 | 17.05.2004 | USD | 525 | ||||||||||||||||||||
1995 | 8.875 | 15.03.2005 | USD | 125 | ||||||||||||||||||||
1999 | 2.210 | 15.03.2005 | USD | 45 | ||||||||||||||||||||
1993 | 6.500 | 01.11.2005 | USD | 200 | ||||||||||||||||||||
1996 | 6.750 | 01.02.2006 | USD | 100 | ||||||||||||||||||||
1998 | 6.720 | 01.04.2008 | USD | 35 | ||||||||||||||||||||
1998 | 6.730 | 03.04.2008 | USD | 43 | ||||||||||||||||||||
1998 | 6.550 | 15.04.2008 | USD | 250 | ||||||||||||||||||||
1996 | 7.625 | 15.10.2008 | USD | 150 | ||||||||||||||||||||
1999 | 7.625 | 01.12.2009 | USD | 275 | ||||||||||||||||||||
1994 | 7.625 | 17.02.2014 | USD | 200 | ||||||||||||||||||||
Eisberg Finance Ltd. | ||||||||||||||||||||||||
1998 | FRN | 15.06.2004 | 10.10.2003 | USD | 83 | |||||||||||||||||||
1998 | FRN | 15.06.2004 | 10.10.2003 | USD | 65 | |||||||||||||||||||
1998 | FRN | 15.06.2004 | 10.10.2003 | USD | 41 | |||||||||||||||||||
118
Note 18 Debt Issued (continued)
Publicly placed bond issues of UBS subsidiaries outstanding as at 31.12.20021
Notional | ||||||||||||||||||||||||
amounts | ||||||||||||||||||||||||
Early | in millions | |||||||||||||||||||||||
Year of | Interest | redemption | in local | |||||||||||||||||||||
issue | rate in % | Remarks | Maturity | option | Currency | currency | ||||||||||||||||||
UBS Finance N.V., Curaçao | ||||||||||||||||||||||||
1997 | 0.000 | Zero Coupons | 29.01.2027 | EUR | 226 | |||||||||||||||||||
1998 | 0.000 | Zero Coupons | 03.03.2028 | 03.03.2003 | EUR | 81 | ||||||||||||||||||
UBS Australia Holdings Ltd. | ||||||||||||||||||||||||
1999 | 5.000 | European commercial paper | 25.02.2004 | AUD | 104 | |||||||||||||||||||
UBS Warburg AG | ||||||||||||||||||||||||
1998 | 0.000 | 19.12.2005 | EUR | 56 | ||||||||||||||||||||
2001 | 0.000 | 30.06.2006 | 30.06.2003 | EUR | 505 | |||||||||||||||||||
2001 | 0.000 | 30.06.2006 | 30.06.2003 | USD | 202 | |||||||||||||||||||
2001 | 0.000 | 31.07.2006 | 30.06.2003 | EUR | 500 | |||||||||||||||||||
2001 | 0.000 | 08.08.2006 | EUR | 77 | ||||||||||||||||||||
2001 | 0.000 | 30.09.2006 | 30.06.2003 | USD | 200 | |||||||||||||||||||
2001 | 0.000 | 30.09.2006 | 30.06.2003 | CHF | 200 | |||||||||||||||||||
2002 | 0.000 | 31.12.2006 | 30.06.2003 | USD | 350 | |||||||||||||||||||
2002 | 0.000 | 31.12.2006 | 30.06.2003 | EUR | 300 | |||||||||||||||||||
2002 | 0.000 | 31.12.2006 | 30.06.2003 | USD | 350 | |||||||||||||||||||
2002 | 0.000 | 31.12.2006 | 30.06.2003 | EUR | 450 | |||||||||||||||||||
2002 | 0.000 | 31.12.2006 | 30.06.2003 | EUR | 300 | |||||||||||||||||||
2002 | 0.000 | 31.12.2006 | 30.06.2003 | EUR | 450 | |||||||||||||||||||
2002 | 0.000 | 31.12.2006 | 30.06.2003 | USD | 250 | |||||||||||||||||||
2002 | 0.000 | 31.12.2006 | 30.06.2003 | EUR | 250 | |||||||||||||||||||
2002 | 0.000 | 31.12.2006 | 30.06.2003 | CHF | 250 | |||||||||||||||||||
2002 | 0.000 | 31.12.2006 | 30.06.2003 | USD | 250 | |||||||||||||||||||
2002 | 0.000 | 31.12.2006 | 30.06.2003 | USD | 250 | |||||||||||||||||||
2001 | 0.000 | 02.01.2007 | 30.06.2003 | EUR | 100 | |||||||||||||||||||
2001 | 0.000 | 02.01.2007 | 30.06.2003 | EUR | 100 | |||||||||||||||||||
2001 | 0.000 | 02.01.2007 | 30.06.2003 | EUR | 100 | |||||||||||||||||||
2002 | 0.000 | 30.03.2007 | 30.06.2003 | EUR | 60 | |||||||||||||||||||
2002 | 0.000 | 31.12.2007 | 30.06.2003 | EUR | 50 | |||||||||||||||||||
2001 | 0.000 | 30.09.2011 | 31.03.2003 | EUR | 50 | |||||||||||||||||||
2001 | 0.000 | 31.12.2011 | 30.06.2003 | EUR | 150 | |||||||||||||||||||
2002 | 0.000 | 28.09.2012 | 30.06.2003 | EUR | 50 | |||||||||||||||||||
119
UBS Group Financial StatementsNotes to the Financial Statements
Note 19 Other Liabilities
Note 19 Other Liabilities | ||||||||||||||||||||||||
CHF million | Note | 31.12.02 | 31.12.01 | Note | 31.12.04 | 31.12.03 | ||||||||||||||||||
Provisions | 20 | 1,375 | 1,748 | 20 | 1,947 | 1,361 | ||||||||||||||||||
Provision for commitments and contingent liabilities | 9b | 366 | 305 | 9b | 211 | 290 | ||||||||||||||||||
Current tax liabilities | 2,079 | 1,799 | 2,298 | 1,754 | ||||||||||||||||||||
Deferred tax liabilities | 21 | 2,239 | 2,827 | 21 | 2,984 | 2,208 | ||||||||||||||||||
VAT and other tax payables | 613 | 622 | 520 | 544 | ||||||||||||||||||||
Settlement and clearing accounts | 1,354 | 4,473 | 2,185 | 2,608 | ||||||||||||||||||||
Obligations under life insurance policies | 22,057 | 13,544 | ||||||||||||||||||||||
Accounts payable | 1,241 | 0 | ||||||||||||||||||||||
Other payables | 4,313 | 3,884 | 8,899 | 9,051 | ||||||||||||||||||||
Total other liabilities | 12,339 | 15,658 | 42,342 | 31,360 | ||||||||||||||||||||
Note 20 Provisions | ||||||||||||||||
Total | Total | |||||||||||||||
CHF million | Operational/Other1 | Litigation | 31.12.04 | 31.12.03 | ||||||||||||
Balance at the beginning of the year | 855 | 506 | 1,361 | 1,375 | ||||||||||||
Additions from acquired companies | 698 | 0 | 698 | 0 | ||||||||||||
New provisions charged to income | 127 | 414 | 541 | 330 | ||||||||||||
Capitalized reinstatement costs | 66 | 0 | 66 | 155 | ||||||||||||
Recoveries | 14 | 26 | 40 | 40 | ||||||||||||
Provisions applied | (270 | ) | (415 | ) | (685 | ) | (452 | ) | ||||||||
Foreign currency translation | (37 | ) | (37 | ) | (74 | ) | (87 | ) | ||||||||
Balance at the end of the year | 1,453 | 494 | 1,947 | 1,361 | ||||||||||||
Total | Total | |||||||||||||||
CHF million | Operational | Litigation | 31.12.02 | 31.12.01 | ||||||||||||
Balance at the beginning of the year | 1,036 | 712 | 1,748 | 2,294 | ||||||||||||
New provisions charged to income | 210 | 478 | 688 | 384 | ||||||||||||
Recoveries | 16 | 9 | 25 | 95 | ||||||||||||
Provisions applied | (439 | ) | (463 | ) | (902 | ) | (1,115 | ) | ||||||||
Reclassifications | (9 | ) | 9 | 0 | 64 | |||||||||||
Foreign currency translation | (93 | ) | (91 | ) | (184 | ) | 26 | |||||||||
Balance at the end of the year | 721 | 654 | 1,375 | 1,748 | ||||||||||||
Note 21 Income Taxes
CHF million For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||||||||||
Note 21 Income Taxes | ||||||||||||||||||||||||||
For the year ended | ||||||||||||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||||||||||
Domestic | Domestic | |||||||||||||||||||||||||
Current | Current | 938 | 563 | 1,325 | 1,336 | 810 | 938 | |||||||||||||||||||
Deferred | Deferred | (32 | ) | 231 | 233 | 37 | 118 | (34 | ) | |||||||||||||||||
Foreign | Foreign | |||||||||||||||||||||||||
Current | Current | 249 | 546 | 451 | 796 | 294 | 249 | |||||||||||||||||||
Deferred | Deferred | (477 | ) | 61 | 311 | (34 | ) | 371 | (477 | ) | ||||||||||||||||
Total income tax expense | Total income tax expense | 678 | 1,401 | 2,320 | 2,135 | 1,593 | 676 | |||||||||||||||||||
The Group made net tax payments, including domestic and foreign taxes, of CHF 5721,336 million, CHF 1,7421,104 million and CHF 959572 million for the full years of 2004, 2003 and 2002, 2001 and 2000, respectively.
125
120
Financial Statements
Notes to the Financial Statements
Note 21 Income Taxes (continued)
The components of operating profit before tax, and the differences between income tax expense reflected in the financial statementsFinancial Statements and the amounts calculated at the Swiss statutory rate of 25% are as follows:
For the year ended | ||||||||||||||||||||||||||
CHF million | CHF million | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||||||||||
Operating profit before tax | Operating profit before tax | 4,544 | 6,718 | 10,199 | 10,674 | 8,177 | 4,537 | |||||||||||||||||||
Domestic | 6,510 | 5,565 | 7,079 | |||||||||||||||||||||||
Domestic | 6,219 | 5,384 | 6,542 | |||||||||||||||||||||||
Foreign | 4,455 | 2,793 | (2,005 | ) | ||||||||||||||||||||||
Income taxes at Swiss Statutory rate of 24% in 2004, 24% in 2003 and 25% in 2002, respectively | 2,561 | 1,962 | 1,134 | |||||||||||||||||||||||
Foreign | (1,966 | ) | 1,153 | 3,120 | ||||||||||||||||||||||
Income taxes at Swiss statutory rate of 25% | 1,136 | 1,680 | 2,550 | |||||||||||||||||||||||
Increase/(decrease) resulting from: | ||||||||||||||||||||||||||
Increase / (decrease) resulting from: | ||||||||||||||||||||||||||
Applicable tax rates differing from Swiss statutory rate | Applicable tax rates differing from Swiss statutory rate | (341 | ) | (239 | ) | (336 | ) | 139 | (233 | ) | (341 | ) | ||||||||||||||
Tax losses not recognized | Tax losses not recognized | 51 | 77 | 164 | 103 | 42 | 51 | |||||||||||||||||||
Previously unrecorded tax losses now recognized | Previously unrecorded tax losses now recognized | (349 | ) | (630 | ) | (655 | ) | (249 | ) | (291 | ) | (349 | ) | |||||||||||||
Lower taxed income | Lower taxed income | (378 | ) | (499 | ) | (401 | ) | (660 | ) | (366 | ) | (378 | ) | |||||||||||||
Non-deductible goodwill amortization | Non-deductible goodwill amortization | 291 | 429 | 159 | 262 | 386 | 291 | |||||||||||||||||||
Other non-deductible expenses | Other non-deductible expenses | 301 | 134 | 432 | 219 | 186 | 301 | |||||||||||||||||||
Adjustments related to prior years and other | Adjustments related to prior years and other | (122 | ) | 371 | 245 | (296 | ) | (191 | ) | (122 | ) | |||||||||||||||
Change in deferred tax valuation allowance | Change in deferred tax valuation allowance | 89 | 78 | 162 | 56 | 98 | 89 | |||||||||||||||||||
Income tax expense | Income tax expense | 678 | 1,401 | 2,320 | 2,135 | 1,593 | 676 | |||||||||||||||||||
Significant components of the Group’s gross deferred income tax assets and liabilities are as follows:
CHF million | 31.12.02 | 31.12.01 | 31.12.04 | 31.12.03 | ||||||||||||
Deferred tax assets | ||||||||||||||||
Compensation and benefits | 1,559 | 1,778 | 1,716 | 1,538 | ||||||||||||
Allowance for credit losses | 84 | 122 | 12 | 4 | ||||||||||||
Net operating loss carry forwards | 2,883 | 2,902 | 2,246 | 2,626 | ||||||||||||
Trading assets | 330 | 259 | 483 | 306 | ||||||||||||
Other | 779 | 1,365 | 874 | 685 | ||||||||||||
Total | 5,635 | 6,426 | 5,331 | 5,159 | ||||||||||||
Valuation allowance | (2,835 | ) | (2,977 | ) | (2,668 | ) | (2,883 | ) | ||||||||
Net deferred tax assets | 2,800 | 3,449 | 2,663 | 2,276 | ||||||||||||
Deferred tax liabilities | ||||||||||||||||
Property and equipment | 412 | 449 | 773 | 307 | ||||||||||||
Investments | 430 | 464 | 343 | 390 | ||||||||||||
Other provisions | 470 | 571 | 313 | 401 | ||||||||||||
Trading assets | 182 | 298 | 408 | 348 | ||||||||||||
Other | 745 | 1,045 | 1,147 | 762 | ||||||||||||
Total deferred tax liabilities | 2,239 | 2,827 | 2,984 | 2,208 | ||||||||||||
The change in the balance of net deferred tax assets and deferred tax liabilities does not equal the deferred tax expense in those years. This is mainly due to the impact of the acqui- sition of Motor-Columbus, as well as the effect of foreign currency rate changes on tax assets and liabilities denominated in currencies other than CHF.
126
Note 21 Income Taxes (continued)
Certain foreign branches and subsidiaries of the Group have deferred tax assets related to net operating loss carry forwards and other items. Due to realization of these assets being uncertain, the Group has established valuation allowances of CHF 2,8352,668 million (CHF 2,9772,883 million at 31 December 2001)2003). For companies that suffered tax losses in either the current or preceding year an amount of CHF 947431 million (CHF 965542 million at 31 December 2001)2003) has been recognized as deferred tax assets based on expectations that sufficient taxable income will be generated in future years to utilize the tax loss carry forwards.
121
UBS Group Financial StatementsNotes to the Financial Statements
Note 21 Income Taxes (continued)
At 31 December 20022004 net operating loss carry forwards totaling CHF 6,5725,832 million (not recognized as a deferred tax asset) are available to reduce future taxable income of certain branches and subsidiaries.
The carry forwards expire as follows: | ||||||||
Within 1 year | ||||||||
From 2 to 4 years | ||||||||
After 4 years | ||||||||
Total | 5,832 | |||||||
Note 22 Minority Interests | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Balance at the beginning of the year | 4,073 | 3,529 | ||||||
Issuance of trust preferred securities | 0 | 372 | ||||||
Other increases | 1,922 | 1 | 573 | |||||
Decreases and dividend payments | (668 | ) | (357 | ) | ||||
Foreign currency translation | (443 | ) | (389 | ) | ||||
Minority interest in net profit | 450 | 345 | ||||||
Balance at the end of the year | 5,334 | 4,073 | ||||||
CHF million | 31.12.02 | 31.12.01 | ||||||
Balance at the beginning of the year | 4,112 | 2,885 | ||||||
Issuance of trust preferred securities | 0 | 1,291 | ||||||
Other increases | 172 | 0 | ||||||
Decreases and dividend payments | (377 | ) | (461 | ) | ||||
Foreign currency translation | (709 | ) | 53 | |||||
Minority interest in net profit | 331 | 344 | ||||||
Balance at the end of the year | 3,529 | 4,112 | ||||||
Note 23 Derivative Instruments
127
Financial Statements
Notes to the Financial Statements
Types of derivative instrumentsTypederivativesderivative instruments are recognized in trading income unless they qualify as hedges for accounting purposes, as explained in Note 1 Summary of Significant Accounting Policies, section o) Derivative instruments and hedging.Swapsare transactions in which two parties exchange cash flows on a specified notional amount for a predetermined period. The major types of swap transaction undertaken by the Group are as follows:–Interest rate swap contracts generally entail the contractual exchange of fixed and floating rate interest payments in a single currency, based on a notional amount and an interest reference rate.–Cross currency swaps involve the exchange of interest payments based on two different currency principal balances and interest reference rates and generally also entail exchange of principal amounts at the start and/or end of the contract.–Credit default swaps (CDS) are the most common form of credit derivative, under which the party buying protection makes one or more payments to the party selling protection during
122
– Interest rate swap contracts generally entail the contractual exchange of fixed and floating rate interest payments in a single currency, based on a notional amount and a reference interest rate, e. g. LIBOR. – Cross currency swaps involve the exchange of interest payments based on two different currency principal balances and reference interest rates and generally also entail exchange of principal amounts at the start and / or end of the contract. – Credit default swaps (CDSs) are the most common form of credit derivative, under which the party buying protection makes one or more payments to the party selling protection in exchange for an undertaking by the seller to make a payment to the buyer following a credit event (as defined in the contract) with respect to a third party. Settlement following a credit event may be a net cash amount, or cash in return for physical delivery of one or more obligations of the credit entity (as defined in the contract) and is made regardless of whether the protection buyer has actually suffered a loss. After a credit event and settlement, the contract is terminated. – Total rate of return swaps give the total return receiver exposure to all of the cash flows and economic benefits and risks of an underlying asset, without having to own the asset, in exchange for a series of payments, often based on a reference interest rate, e. g. LIBOR. The total return payer has an equal and opposite position. amountquantity of a financial instrument or commodity at a predetermined price. The seller receivespurchaser pays a premium fromto the purchaserseller for this right. Options involving more complex payment structures are also transacted. Options may be traded OTC or on a regulated exchange.exchange, and may be traded in the form of a security (warrant).
Derivatives transacted for trading purposes
Derivatives transacted for hedging purposes
Derivatives designated and accounted foras hedging instruments
Fair value hedges
Cash flow hedges of individual variablerate assets and liabilities
Cash flow hedges of forecast transactions
128
123
UBS Group Financial StatementsNotes to the Financial Statements
ingnon-trading interest rate risk of the Group, which is hedged with interest rate swaps, the maximum maturity of which extend over a twenty-four-year period.
The schedule of forecast principal balances on which the expected interest cash flows arise as at 31 December 20022004 is as follows:
CHF billion | < 1 year | 1-3 years | 3-5 years | 5-10 years | over 10 years | |||||||||||||||
Cash inflows (Assets) | 135 | 255 | 180 | 153 | 8 | |||||||||||||||
Cash outflows (Liabilities) | 88 | 142 | 87 | 91 | 72 | |||||||||||||||
Net cash flows | 47 | 113 | 93 | 62 | (64 | ) | ||||||||||||||
CHF billion | < 1 year | 1-3 years | 3-5 years | 5-10 years | over 10 years | |||||||||||||||
Cash inflows (Assets) | 119 | 202 | 124 | 128 | 8 | |||||||||||||||
Cash outflows (Liabilities) | 159 | 247 | 193 | 324 | 237 | |||||||||||||||
Net cash flows | (40 | ) | (45 | ) | (69 | ) | (196 | ) | (229 | ) | ||||||||||
Gains and losses on the effective portions of derivatives designated as cash flow hedges of forecast transactions are initially recorded in Shareholders’ equity as “Gains/Gains/losses not recognized in the income statement”statement and are transferred to current period earnings when the forecast cash flows occur. affect net profit or loss. The gains and losses on ineffective portions of such derivatives are recognized immediately in the income statement. In 2004, a gain of CHF 13 million was recognized due to hedge ineffectiveness, whereas in 2003 and 2002 no gains or losses from hedge ineffectiveness arose.
Notionala CHF 304 million net gain in 2004 and a CHF 7 million net gain in 2003. These amounts were recorded in net interest income.
Risks of derivative instruments
value is the cost to the Group’s counterparties of replacing all their transactions with the Group where the fair value is in their favor if the Group were to default. The total positive and negative replacement values shown under Balance sheet assets are includedlower than those shown in the balance sheet separately. For internal credit risk measurement the potential evolution of the value of the portfolio of trades with each counterparty is also modelled over its life (potential future exposure), taking into account legally enforceable close out netting agreements where applicable (see below).
Credit mitigation
124129
Note 23 Derivative Instruments (continued)
As at 31 December 2002 | Term to maturity | Total | |||||||||||||||||||||||||||||||||||||||||||
notional | |||||||||||||||||||||||||||||||||||||||||||||
Within 3 months | 3-12 months | 1-5 years | over 5 years | Total | Total | amount | |||||||||||||||||||||||||||||||||||||||
CHF million | PRV1 | NRV2 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | NRV | CHF bn | ||||||||||||||||||||||||||||||||||
Interest rate contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 3,785 | 4,127 | 93 | 121 | 141 | 333 | 33 | 8 | 4,052 | 4,589 | 1,517.3 | ||||||||||||||||||||||||||||||||||
Swaps | 2,862 | 3,778 | 9,451 | 8,127 | 78,413 | 76,244 | 55,377 | 51,917 | 146,103 | 140,066 | 5,753.0 | ||||||||||||||||||||||||||||||||||
Options | 338 | 706 | 1,143 | 1,488 | 4,216 | 5,484 | 3,905 | 4,464 | 9,602 | 12,142 | 663.2 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 0 | 0 | 40.3 | ||||||||||||||||||||||||||||||||||||||||||
Options | 4 | 16 | 1 | 4 | 17 | 101.1 | |||||||||||||||||||||||||||||||||||||||
Total | 6,989 | 8,627 | 10,687 | 9,737 | 82,770 | 82,061 | 59,315 | 56,389 | 159,761 | 156,814 | 8,074.9 | ||||||||||||||||||||||||||||||||||
Credit derivative contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 2 | 7 | 95 | 504 | 1,636 | 2,740 | 2,852 | 958 | 4,585 | 4,209 | 164.6 | ||||||||||||||||||||||||||||||||||
Total rate of return swaps | 15 | 21 | 194 | 782 | 2,308 | 1,726 | 162 | 35 | 2,679 | 2,564 | 14.5 | ||||||||||||||||||||||||||||||||||
Total | 17 | 28 | 289 | 1,286 | 3,944 | 4,466 | 3,014 | 993 | 7,264 | 6,773 | 179.1 | ||||||||||||||||||||||||||||||||||
Foreign exchange contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2,406 | 3,100 | 1,005 | 1,732 | 232 | 270 | 11 | 1 | 3,654 | 5,103 | 252.0 | ||||||||||||||||||||||||||||||||||
Interest and currency swaps | 21,561 | 20,641 | 8,962 | 10,292 | 8,627 | 8,907 | 3,360 | 3,990 | 42,510 | 43,830 | 1,843.1 | ||||||||||||||||||||||||||||||||||
Options | 2,223 | 2,219 | 1,681 | 1,636 | 361 | 312 | 7 | 4,272 | 4,167 | 500.8 | |||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 0 | 0 | 0.0 | ||||||||||||||||||||||||||||||||||||||||||
Options | 1 | 1 | 1 | 1 | 0.1 | ||||||||||||||||||||||||||||||||||||||||
Total | 26,190 | 25,961 | 11,649 | 13,660 | 9,220 | 9,489 | 3,378 | 3,991 | 50,437 | 53,101 | 2,596.0 | ||||||||||||||||||||||||||||||||||
Precious metals contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 329 | 231 | 235 | 257 | 150 | 121 | 9 | 8 | 723 | 617 | 18.0 | ||||||||||||||||||||||||||||||||||
Options | 205 | 217 | 325 | 289 | 407 | 373 | 86 | 63 | 1,023 | 942 | 38.6 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 0.0 | ||||||||||||||||||||||||||||||||||||||||||||
Options | 1 | 1 | 4 | 0 | 6 | 0.2 | |||||||||||||||||||||||||||||||||||||||
Total | 534 | 449 | 560 | 547 | 557 | 498 | 95 | 71 | 1,746 | 1,565 | 56.8 | ||||||||||||||||||||||||||||||||||
Equity/Index contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 5,393 | 1,406 | 583 | 512 | 917 | 205 | 124 | 219 | 7,017 | 2,342 | 33.2 | ||||||||||||||||||||||||||||||||||
Options | 8,676 | 12,441 | 2,515 | 3,496 | 6,650 | 7,125 | 403 | 794 | 18,244 | 23,856 | 99.3 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 0 | 0 | 7.4 | ||||||||||||||||||||||||||||||||||||||||||
Options | 861 | 246 | 316 | 247 | 443 | 338 | 1,620 | 831 | 7.5 | ||||||||||||||||||||||||||||||||||||
Total | 14,930 | 14,093 | 3,414 | 4,255 | 8,010 | 7,668 | 527 | 1,013 | 26,881 | 27,029 | 147.4 | ||||||||||||||||||||||||||||||||||
Commodity contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 5 | 3 | 2,629 | 2,670 | 346 | 304 | 2,980 | 2,977 | 24.9 | ||||||||||||||||||||||||||||||||||||
Options | 0 | 0 | 0.0 | ||||||||||||||||||||||||||||||||||||||||||
Total | 5 | 3 | 2,629 | 2,670 | 346 | 304 | 0 | 0 | 2,980 | 2,977 | 24.9 | ||||||||||||||||||||||||||||||||||
Total derivative instruments | 48,665 | 49,161 | 29,228 | 32,155 | 104,847 | 104,486 | 66,329 | 62,457 | 249,069 | 248,259 | |||||||||||||||||||||||||||||||||||
Replacement value netting | 166,977 | 166,977 | |||||||||||||||||||||||||||||||||||||||||||
Replacement values after netting | 82,092 | 81,282 | |||||||||||||||||||||||||||||||||||||||||||
125
UBS Group Financial Statements
Notes to the Financial Statements
Note 23 Derivative Instruments (continued)
As at 31 December 2001 | Term to maturity | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 23 Derivative Instruments (continued) | Note 23 Derivative Instruments (continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2004 | Term to maturity | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
notional | notional | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Within 3 months | 3-12 months | 1-5 years | over 5 years | Total | Total | amount | Within 3 months | 3-12 months | 1-5 years | Over 5 years | Total | Total | amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million | CHF million | PRV1 | NRV2 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | NRV | CHF bn | PRV1 | NRV2 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | NRV | CHF bn | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate contracts | Interest rate contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2,844 | 3,260 | 114 | 530 | 108 | 245 | 48 | 134 | 3,114 | 4,169 | 1,768.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 440 | 495 | 112 | 144 | 58 | 34 | 90 | 166 | 700 | 839 | 843.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Swaps | 2,807 | 4,322 | 5,724 | 6,393 | 49,043 | 45,029 | 25,232 | 22,866 | 82,806 | 78,610 | 4,552.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Swaps | 4,305 | 4,002 | 11,015 | 11,921 | 65,419 | 64,487 | 76,470 | 75,287 | 157,209 | 155,697 | 9,871.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 388 | 950 | 670 | 2,095 | 3,037 | 4,048 | 2,830 | 3,336 | 6,925 | 10,429 | 784.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 806 | 722 | 1,845 | 2,239 | 6,553 | 8,292 | 5,942 | 6,479 | 15,146 | 17,732 | 1,181.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 0 | 0 | 83.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 2,073.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 3 | 24 | 3 | 24 | 63.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 86 | 87 | 133 | 103 | 5 | 5 | 224 | 195 | 817.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | Total | 6,042 | 8,532 | 6,508 | 9,042 | 52,188 | 49,322 | 28,110 | 26,336 | 92,848 | 93,232 | 7,252.8 | 5,637 | 5,306 | 13,105 | 14,407 | 72,035 | 72,818 | 82,502 | 81,932 | 173,279 | 174,463 | 14,786.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit derivative contracts | Credit derivative contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 6 | 18 | 707 | 1,104 | 1,020 | 1,490 | 773 | 1,184 | 2,506 | 3,796 | 75.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 7 | 10 | 51 | 99 | 3,819 | 5,409 | 2,401 | 1,501 | 6,278 | 7,019 | 639.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total rate of return swaps | 84 | 621 | 636 | 12 | 0 | 96 | 1,257 | 3.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total rate of return swaps | 31 | 15 | 57 | 69 | 433 | 1,076 | 376 | 272 | 897 | 1,432 | 27.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | Total | 6 | 18 | 791 | 1,725 | 1,020 | 2,126 | 785 | 1,184 | 2,602 | 5,053 | 79.3 | 38 | 25 | 108 | 168 | 4,252 | 6,485 | 2,777 | 1,773 | 7,175 | 8,451 | 666.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | Foreign exchange contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 3,615 | 3,163 | 1,639 | 1,899 | 755 | 428 | 20 | 6,029 | 5,490 | 279.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 3,496 | 4,585 | 807 | 1,316 | 186 | 449 | 68 | 240 | 4,557 | 6,590 | 355.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest and currency swaps | 19,344 | 11,224 | 8,991 | 7,763 | 7,463 | 7,673 | 3,465 | 2,312 | 39,263 | 28,972 | 1,699.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest and currency swaps | 27,587 | 28,094 | 15,101 | 14,907 | 20,897 | 15,484 | 7,189 | 7,240 | 70,774 | 65,725 | 2,811.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 2,138 | 1,942 | 2,148 | 1,888 | 445 | 433 | 23 | 1 | 4,754 | 4,264 | 1,033.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 2,224 | 2,202 | 2,809 | 2,553 | 508 | 503 | 4 | 4 | 5,545 | 5,262 | 559.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 0 | 0 | 0.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 2.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 1 | 2 | 1 | 2 | 0.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 9 | 9 | 81 | 79 | 11 | 10 | 101 | 98 | 5.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | Total | 25,097 | 16,329 | 12,779 | 11,552 | 8,663 | 8,534 | 3,508 | 2,313 | 50,047 | 38,728 | 3,013.5 | 33,316 | 34,890 | 18,798 | 18,855 | 21,602 | 16,446 | 7,261 | 7,484 | 80,977 | 77,675 | 3,735.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Precious metals contracts | Precious metals contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 242 | 223 | 210 | 198 | 195 | 179 | 6 | 653 | 600 | 17.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 130 | 113 | 150 | 201 | 447 | 192 | 9 | 24 | 736 | 530 | 13.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 177 | 164 | 535 | 507 | 740 | 805 | 90 | 81 | 1,542 | 1,557 | 54.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 156 | 115 | 281 | 251 | 683 | 615 | 34 | 28 | 1,154 | 1,009 | 43.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 0.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 0.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 2 | 3 | 1 | 3 | 3 | 0.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 215 | 237 | 195 | 259 | 18 | 33 | 428 | 529 | 2.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | Total | 419 | 389 | 748 | 706 | 935 | 984 | 96 | 81 | 2,198 | 2,160 | 72.0 | 501 | 465 | 626 | 711 | 1,148 | 840 | 43 | 52 | 2,318 | 2,068 | 60.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity/Index contracts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity/index contracts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 1,402 | 1,422 | 445 | 1,713 | 1,461 | 1,464 | 111 | 85 | 3,419 | 4,684 | 35.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 795 | 506 | 572 | 419 | 1,912 | 928 | 129 | 24 | 3,408 | 1,877 | 103.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 6,140 | 6,222 | 4,294 | 5,105 | 4,076 | 6,991 | 1,087 | 2,844 | 15,597 | 21,162 | 238.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 2,017 | 7,807 | 2,057 | 7,245 | 7,367 | 16,290 | 455 | 2,144 | 11,896 | 33,486 | 223.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 0 | 0 | 12.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 8.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 1,497 | 1,080 | 1,187 | 1,431 | 601 | 463 | 21 | 14 | 3,306 | 2,988 | 440.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 1,212 | 1,040 | 947 | 1,142 | 1,711 | 1,979 | 98 | 109 | 3,968 | 4,270 | 401.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | Total | 9,039 | 8,724 | 5,926 | 8,249 | 6,138 | 8,918 | 1,219 | 2,943 | 22,322 | 28,834 | 726.0 | 4,024 | 9,353 | 3,576 | 8,806 | 10,990 | 19,197 | 682 | 2,277 | 19,272 | 39,633 | 736.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commodity contracts | Commodity contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 8 | 14 | 1 | 1 | 9 | 15 | 6.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 338 | 343 | 519 | 491 | 420 | 379 | 1,277 | 1,213 | 35.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 0 | 0 | 0.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 76 | 73 | 85 | 79 | 118 | 57 | 279 | 209 | 4.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | Total | 8 | 14 | 1 | 1 | 0 | 0 | 0 | 0 | 9 | 15 | 6.4 | 414 | 416 | 604 | 570 | 538 | 436 | 0 | 0 | 1,556 | 1,422 | 40.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total derivative instruments | Total derivative instruments | 40,611 | 34,006 | 26,753 | 31,275 | 68,944 | 69,884 | 33,718 | 32,857 | 170,026 | 168,022 | 43,930 | 50,455 | 36,817 | 43,517 | 110,565 | 116,222 | 93,265 | 93,518 | 284,577 | 303,712 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Replacement value netting | 96,579 | 96,579 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Replacement values after netting | 73,447 | 71,443 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
126130
Note 23 Derivative Instruments (continued) | |||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2004 | Term to maturity | Total | |||||||||||||||||||||||||||||||||||||||||||
notional | |||||||||||||||||||||||||||||||||||||||||||||
Within 3 months | 3-12 months | 1-5 years | Over 5 years | Total | Total | amount | |||||||||||||||||||||||||||||||||||||||
CHF million | PRV1 | NRV2 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | NRV | CHF bn | ||||||||||||||||||||||||||||||||||
Interest rate contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 424 | 586 | 258 | 312 | 71 | 130 | 5 | 4 | 758 | 1,032 | 1,128.4 | ||||||||||||||||||||||||||||||||||
Swaps | 3,831 | 4,388 | 8,698 | 5,991 | 64,216 | 65,075 | 52,019 | 50,517 | 128,764 | 125,971 | 8,065.4 | ||||||||||||||||||||||||||||||||||
Options | 464 | 978 | 868 | 992 | 4,686 | 5,967 | 4,223 | 5,334 | 10,241 | 13,271 | 815.4 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 243.7 | ||||||||||||||||||||||||||||||||||||||||||||
Options | 7 | 9 | 2 | 8 | 9 | 17 | 63.4 | ||||||||||||||||||||||||||||||||||||||
Total | 4,726 | 5,961 | 9,826 | 7,303 | 68,973 | 71,172 | 56,247 | 55,855 | 139,772 | 140,291 | 10,316.3 | ||||||||||||||||||||||||||||||||||
Credit derivative contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 109 | 102 | 39 | 61 | 3,443 | 3,536 | 1,928 | 1,880 | 5,519 | 5,579 | 289.3 | ||||||||||||||||||||||||||||||||||
Total rate of return swaps | 27 | 2 | 29 | 576 | 197 | 470 | 112 | 305 | 365 | 1,353 | 12.0 | ||||||||||||||||||||||||||||||||||
Total | 136 | 104 | 68 | 637 | 3,640 | 4,006 | 2,040 | 2,185 | 5,884 | 6,932 | 301.3 | ||||||||||||||||||||||||||||||||||
Foreign exchange contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 3,045 | 3,879 | 1,978 | 2,573 | 161 | 317 | 15 | 12 | 5,199 | 6,781 | 298.4 | ||||||||||||||||||||||||||||||||||
Interest and currency swaps | 24,929 | 25,242 | 14,258 | 12,428 | 17,780 | 14,394 | 6,002 | 5,250 | 62,969 | 57,314 | 2,254.4 | ||||||||||||||||||||||||||||||||||
Options | 3,232 | 3,348 | 3,211 | 2,550 | 513 | 356 | 9 | 1 | 6,965 | 6,255 | 576.8 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 5.0 | ||||||||||||||||||||||||||||||||||||||||||||
Options | 3 | 3 | 119 | 116 | 122 | 119 | 13.2 | ||||||||||||||||||||||||||||||||||||||
Total | 31,209 | 32,472 | 19,566 | 17,667 | 18,454 | 15,067 | 6,026 | 5,263 | 75,255 | 70,469 | 3,147.8 | ||||||||||||||||||||||||||||||||||
Precious metals contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 246 | 247 | 377 | 305 | 333 | 270 | 18 | 23 | 974 | 845 | 15.9 | ||||||||||||||||||||||||||||||||||
Options | 304 | 193 | 308 | 386 | 668 | 629 | 116 | 54 | 1,396 | 1,262 | 35.1 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 1.1 | ||||||||||||||||||||||||||||||||||||||||||||
Options | 9 | 40 | 21 | 63 | 3 | 4 | 33 | 107 | 2.3 | ||||||||||||||||||||||||||||||||||||
Total | 559 | 480 | 706 | 754 | 1,004 | 903 | 134 | 77 | 2,403 | 2,214 | 54.4 | ||||||||||||||||||||||||||||||||||
Equity/index contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 509 | 529 | 763 | 583 | 917 | 449 | 1,408 | 501 | 3,597 | 2,062 | 57.9 | ||||||||||||||||||||||||||||||||||
Options | 1,841 | 2,788 | 3,482 | 7,847 | 11,111 | 13,646 | 1,328 | 4,560 | 17,762 | 28,841 | 213.8 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 8.6 | ||||||||||||||||||||||||||||||||||||||||||||
Options | 708 | 858 | 892 | 1,363 | 883 | 768 | 54 | 117 | 2,537 | 3,106 | 62.6 | ||||||||||||||||||||||||||||||||||
Total | 3,058 | 4,175 | 5,137 | 9,793 | 12,911 | 14,863 | 2,790 | 5,178 | 23,896 | 34,009 | 342.9 | ||||||||||||||||||||||||||||||||||
Commodity contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 206 | 181 | 456 | 424 | 93 | 42 | 755 | 647 | 10.6 | ||||||||||||||||||||||||||||||||||||
Options | 168 | 153 | 73 | 53 | 241 | 206 | 1.6 | ||||||||||||||||||||||||||||||||||||||
Total | 374 | 334 | 529 | 477 | 93 | 42 | 0 | 0 | 996 | 853 | 12.2 | ||||||||||||||||||||||||||||||||||
Total derivative instruments | 40,062 | 43,526 | 35,832 | 36,631 | 105,075 | 106,053 | 67,237 | 68,558 | 248,206 | 254,768 | |||||||||||||||||||||||||||||||||||
131
Financial Statements
Notes to the Financial Statements
Off-Balance Sheet Information |
Note 24 Fiduciary Transactions
Fiduciary placement represents funds which customers have instructed the Group to place in foreign banks. The Group is not liable to the customer for any default by the foreign bank nor do creditors of the Group have a claim on the assets placed.
CHF million | 31.12.02 | 31.12.01 | 31.12.04 | 31.12.03 | ||||||||||||
Placements with third parties | 43,440 | 58,466 | 39,588 | 37,851 | ||||||||||||
Fiduciary credits and other fiduciary financial transactions | 774 | 1,136 | 57 | 74 | ||||||||||||
Total fiduciary transactions | 44,214 | 59,602 | 39,645 | 37,925 | ||||||||||||
The Group also acts in its own name as trustee or in fiduciary capacities for the account of third parties. The assets managed in such capacities are not reported on the balance sheet unless they are invested with UBS. UBS earns commission and fee income from such transactions and assets. These activities potentially expose UBS to liability risks in cases of gross negligence with regard to non-compliance ofwith its fiduciary and contractual duties. The risks associated with this business are covered by the standard UBS risk framework.
Note 25 Commitments and Contingent Liabilities
The Group utilizes various lending-related financial instruments in order to meet the financial needs of its customers. The Group issues commitments to extend credit, standby and other letters of credit, guarantees, commitments to enter into repurchase agreements, note issuance facilities and revolving underwriting facilities. Guarantees represent irrevocable assurances, subject to the satisfaction of certain conditions, that the Group will make payment in the event that the customer fails to fulfill its obligation to third parties. The Group also enters into commitments to extend credit in the form of credit lines which are available to secure the liquidity needs of our customers, but not yet drawn upon by them, the majority of which range in maturity from 1 month to 5 years.
127132
UBS Group Financial StatementsNotes to the Financial Statements
Note 25 Commitments and Contingent Liabilities (continued)
Note 25 Commitments and Contingent Liabilities (continued) | Note 25 Commitments and Contingent Liabilities (continued) | |||||||||||||||
CHF million | 31.12.02 | 31.12.01 | 31.12.04 | 31.12.03 | ||||||||||||
Contingent liabilities | ||||||||||||||||
Credit guarantees and similar instruments1 | 11,522 | 18,566 | 10,252 | 10,832 | ||||||||||||
Sub-participations | (650 | ) | (4,944 | ) | (621 | ) | (765 | ) | ||||||||
Total | 10,872 | 13,622 | 9,631 | 10,067 | ||||||||||||
Performance guarantees and similar instruments2 | 3,216 | 4,865 | 2,536 | 2,760 | ||||||||||||
Sub-participations | (348 | ) | (4 | ) | (415 | ) | (276 | ) | ||||||||
Total | 2,868 | 4,861 | 2,121 | 2,484 | ||||||||||||
Irrevocable commitments under documentary credits | 1,856 | 2,056 | ||||||||||||||
Irrevocable commitments and documentary credits | 2,106 | 1,971 | ||||||||||||||
Sub-participations | (259 | ) | 0 | (272 | ) | (373 | ) | |||||||||
Total | 1,597 | 2,056 | 1,834 | 1,598 | ||||||||||||
Gross contingent liabilities | 16,594 | 25,487 | 14,894 | 15,563 | ||||||||||||
Sub-participations | (1,257 | ) | (4,948 | ) | (1,308 | ) | (1,414 | ) | ||||||||
Net contingent liabilities | 15,337 | 20,539 | 13,586 | 14,149 | ||||||||||||
Irrevocable commitments | ||||||||||||||||
Undrawn irrevocable credit facilities | 39,306 | 50,608 | 53,168 | 46,623 | ||||||||||||
Sub-participations | (446 | ) | (532 | ) | (7 | ) | (235 | ) | ||||||||
Total | 38,860 | 50,076 | 53,161 | 46,388 | ||||||||||||
Liabilities for calls on shares and other equities | 21 | 98 | 19 | 337 | ||||||||||||
Gross irrevocable commitments | 39,327 | 50,706 | 53,187 | 46,960 | ||||||||||||
Sub-participations | (446 | ) | (532 | ) | (7 | ) | (235 | ) | ||||||||
Net irrevocable commitments | 38,881 | 50,174 | 53,180 | 46,725 | ||||||||||||
Gross commitments and contingent liabilities | 55,921 | 76,193 | 68,081 | 62,523 | ||||||||||||
Sub-participations | (1,703 | ) | (5,480 | ) | (1,315 | ) | (1,649 | ) | ||||||||
Net commitments and contingent liabilities | 54,218 | 70,713 | 66,766 | 60,874 | ||||||||||||
Market value guarantees in form of written put options | 352,509 | 218,638 | ||||||||||||||
Mortgage | Other | |||||||||||||||
CHF million | collateral | collateral | Unsecured | Total | ||||||||||||
Overview of collateral | ||||||||||||||||
Gross contingent liabilities | 275 | 8,254 | 8,065 | 16,594 | ||||||||||||
Gross irrevocable commitments | 1,084 | 14,956 | 23,266 | 39,306 | ||||||||||||
Liabilities for calls on shares and other equities | 21 | 21 | ||||||||||||||
Total 31.12.2002 | 1,359 | 23,210 | 31,352 | 55,921 | ||||||||||||
Total 31.12.2001 | 1,711 | 25,625 | 48,857 | 76,193 | ||||||||||||
133
Financial Statements
Notes to the Financial Statements
Note 25 Commitments and Contingent Liabilities (continued)
CHF million | Mortgage collateral | Other collateral | Unsecured | Total | ||||||||||||
Overview of collateral | ||||||||||||||||
Gross contingent liabilities | 347 | 7,661 | 6,886 | 14,894 | ||||||||||||
Gross irrevocable commitments | 3,252 | 22,384 | 27,532 | 53,168 | ||||||||||||
Liabilities for calls on shares and other equities | 0 | 0 | 19 | 19 | ||||||||||||
Total 31.12.04 | 3,599 | 30,045 | 34,437 | 68,081 | ||||||||||||
Total 31.12.03 | 2,637 | 30,870 | 29,016 | 62,523 | ||||||||||||
Other commitments
128
Note 26 Operating Lease Commitments
At 31 December 2002,2004, UBS was obligated under a number of non-cancellable operating leases for premises and equipment used primarily for banking purposes. The significant premises leases usually include renewal options and escalation clauses in line with general office rental market conditions as well as rent adjustments based on price indices. However, the lease agreements do not contain contingent rent payment clauses and purchase options. The leases also do not impose any restrictions on UBS’s ability to pay dividends, engage in debt financing transactions or enter into further lease agreements.
CHF million | 31.12.02 | 31.12.04 | ||||||
Operating leases due | ||||||||
2003 | 1,038 | |||||||
2004 | 913 | |||||||
2005 | 777 | 886 | ||||||
2006 | 663 | 805 | ||||||
2007 | 623 | 719 | ||||||
2008 and thereafter | 5,082 | |||||||
Total commitments for minimum payments under operating leases | 9,096 | |||||||
2008 | 647 | |||||||
2009 | 584 | |||||||
2010 and thereafter | 4,060 | |||||||
Subtotal commitments for minimum payments under operating leases | 7,701 | |||||||
Less: Sublease rentals under non-cancellable leases | 547 | |||||||
Net commitments for minimum payments under operating leases | 7,154 | |||||||
Operating expenses include CHF 1,193 million, CHF 1,0921,214 million and CHF 8161,233 million in respect of gross operating lease rentals which were reduced by CHF 43 million and CHF 43 million of sublease income for the years ended 31 December 2004 and 31 December 2003, respectively. Operating expenses for the year ended 31 December 2002 31 December 2001 and 31 December 2000, respectively.include CHF 1,193 million in respect of operating lease rentals.
134
129
UBS Group Financial StatementsNotes to the Financial Statements
Additional Information
Note 27 Pledged Assets
Assets are pledged as collateral for collateralized credit lines with central banks, loans from central mortgage institutions, deposit guarantees for savings banks, security deposits relating to stock exchange membership and mortgages on the Group’s property. No financial assets are pledged for contingent liabilities. The following table shows additional information about assets pledged or assigned as security for liabilities and assets subject to reservation of title for the years ended 31 December 20022004 and 31 December 2001. The securities presented in the table below include securities pledged in respect of securities lending and repurchase agreements.2003.
Carrying | Related | Carrying | Related | |||||||||||||||||||||||||||||
amount | liability | amount | liability | Carrying amount | Related liability | Carrying amount | Related liability | |||||||||||||||||||||||||
CHF million | 31.12.02 | 31.12.02 | 31.12.01 | 31.12.01 | 31.12.04 | 31.12.04 | 31.12.03 | 31.12.03 | ||||||||||||||||||||||||
Mortgage loans | 808 | 506 | 1,311 | 873 | 175 | 60 | 428 | 209 | ||||||||||||||||||||||||
Securities | 50,945 | 37,038 | 204,623 | 163,134 | 193,028 | 131,462 | 157,639 | 121,984 | ||||||||||||||||||||||||
Property and equipment | 129 | 33 | 160 | 89 | 320 | 0 | 0 | 0 | ||||||||||||||||||||||||
Other | 2 | 0 | 2 | 0 | ||||||||||||||||||||||||||||
Total pledged assets | 51,884 | 37,577 | 206,096 | 164,096 | 193,523 | 131,522 | 158,067 | 122,193 | ||||||||||||||||||||||||
Note 28 Litigation
Due to the nature of their business, the bank and other companies within the UBS Group are involved in various claims, disputes and legal proceedings, arising in the ordinary course of business. The Group makes provisions for such matters when, in the opinion of management and its professional advisors, it is probable that a payment will be made by the Group, and the amount can be reasonably estimated (see Note 20).
Note 29 Financial Instruments Risk Position
This section presents information about the Group’sUBS’s exposure to and its management and control of risks, in particular the primary risks associated with its use of financial instruments:
– | market risk (part a) is exposure to |
– | credit risk (part b) is the risk of loss resulting from client or counterparty default and arises on |
credit exposure in all forms, including settlement risk |
– | liquidity and funding risk (part c) is the risk that |
130135
Financial Statements
Notes to the Financial Statements
(a)(i) Overview
exchange rates, and limits on positions in the securities of individual issuers. These controls are set at levels which reflect variations in price volatility and market depth and liquidity.issuers (‘issuer risk’).
(a)(ii) Interest Rate Risk
131136
UBS Group Financial StatementsNotes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
a) Market Risk (continued)
Interest rate sensitivity position1
Interest rate sensitivity by time bands at 31.12.2002 | ||||||||||||||||||||||||||||
CHF thousand | Within 1 | 1 to 3 | 3 to 12 | 1 to 5 | Over 5 | |||||||||||||||||||||||
per basis point increase | month | months | months | years | years | Total | ||||||||||||||||||||||
CHF | Trading | (10 | ) | 211 | (287 | ) | (47 | ) | (18 | ) | (151 | ) | ||||||||||||||||
Non-trading | (42 | ) | (153 | ) | (365 | ) | (6,504 | ) | (5,119 | ) | (12,183 | ) | ||||||||||||||||
USD | Trading | (93 | ) | (256 | ) | (1,021 | ) | (2,668 | ) | 2,445 | (1,593 | ) | ||||||||||||||||
Non-trading | 26 | (82 | ) | (72 | ) | (927 | ) | (230 | ) | (1,285 | ) | |||||||||||||||||
EUR | Trading | 114 | 33 | 12 | (1,387 | ) | 728 | (500 | ) | |||||||||||||||||||
Non-trading | (1 | ) | 10 | (2 | ) | (86 | ) | (193 | ) | (272 | ) | |||||||||||||||||
GBP | Trading | (78 | ) | 200 | (227 | ) | (453 | ) | (269 | ) | (827 | ) | ||||||||||||||||
Non-trading | (1 | ) | (6 | ) | (39 | ) | 92 | 587 | 633 | |||||||||||||||||||
JPY | Trading | 21 | 12 | (502 | ) | (249 | ) | (204 | ) | (922 | ) | |||||||||||||||||
Non-trading | 0 | 1 | 0 | 18 | (24 | ) | (5 | ) | ||||||||||||||||||||
Others | Trading | (46 | ) | (61 | ) | 500 | (54 | ) | (286 | ) | 53 | |||||||||||||||||
Non-trading | 0 | 0 | (4 | ) | (1 | ) | (3 | ) | (8 | ) | ||||||||||||||||||
Interest rate sensitivity by time bands at 31.12.2001 | Interest rate sensitivity by time bands at 31.12.04 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Within 1 | 1 to 3 | 3 to 12 | 1 to 5 | Over 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||
CHF thousand | Within 1 | 1 to 3 | 3 to 12 | 1 to 5 | Over 5 | |||||||||||||||||||||||||||||||||||||||||||||||||
per basis point increase | month | months | months | years | years | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
CHF thousand gain / (loss) per basis point increase | CHF thousand gain / (loss) per basis point increase | month | months | months | years | years | Total | |||||||||||||||||||||||||||||||||||||||||||||||
CHF | CHF | Trading | 22 | (121 | ) | (35 | ) | (297 | ) | (314 | ) | (745 | ) | Trading | 65 | 69 | (83 | ) | 24 | 120 | 195 | |||||||||||||||||||||||||||||||||
Non-trading | 3 | (24 | ) | (366 | ) | (7,656 | ) | (6,030 | ) | (14,073 | ) | Non-trading | (203 | ) | (13 | ) | (313 | ) | (3,575 | ) | (2,641 | ) | (6,745 | ) | ||||||||||||||||||||||||||||||
USD | USD | Trading | (299 | ) | 35 | 96 | (960 | ) | (2,115 | ) | (3,243 | ) | Trading | 49 | (236 | ) | (1,184 | ) | 886 | 127 | (358 | ) | ||||||||||||||||||||||||||||||||
Non-trading | 35 | (113 | ) | (157 | ) | (274 | ) | (15 | ) | (524 | ) | |||||||||||||||||||||||||||||||||||||||||||
Non-trading | 30 | (158 | ) | (121 | ) | (2,010 | ) | (2,472 | ) | (4,731 | ) | |||||||||||||||||||||||||||||||||||||||||||
EUR | EUR | Trading | (129 | ) | 73 | (269 | ) | (308 | ) | (806 | ) | (1,439 | ) | Trading | 192 | (276 | ) | 342 | (366 | ) | (814 | ) | (922 | ) | ||||||||||||||||||||||||||||||
Non-trading | (2 | ) | (6 | ) | (38 | ) | 182 | 0 | 136 | Non-trading | (8 | ) | 1 | (22 | ) | (180 | ) | (200 | ) | (409 | ) | |||||||||||||||||||||||||||||||||
GBP | GBP | Trading | (89 | ) | 27 | (520 | ) | 65 | 172 | (345 | ) | Trading | (19 | ) | 52 | 60 | (380 | ) | (32 | ) | (319 | ) | ||||||||||||||||||||||||||||||||
Non-trading | 0 | (7 | ) | (57 | ) | 175 | 624 | 735 | ||||||||||||||||||||||||||||||||||||||||||||||
Non-trading | (1 | ) | (7 | ) | (34 | ) | (290 | ) | 270 | (62 | ) | |||||||||||||||||||||||||||||||||||||||||||
JPY | JPY | Trading | 175 | 695 | (98 | ) | (1,386 | ) | 246 | (368 | ) | Trading | (17 | ) | 630 | (562 | ) | (1,804 | ) | 781 | (972 | ) | ||||||||||||||||||||||||||||||||
Non-trading | 1 | 0 | (3 | ) | 1 | (4 | ) | (5 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Non-trading | (1 | ) | 1 | (1 | ) | (4 | ) | (1 | ) | (6 | ) | |||||||||||||||||||||||||||||||||||||||||||
Others | Trading | (51 | ) | 167 | 126 | (404 | ) | 369 | 207 | |||||||||||||||||||||||||||||||||||||||||||||
Other | Trading | 75 | (121 | ) | (8 | ) | 5 | 145 | 96 | |||||||||||||||||||||||||||||||||||||||||||||
Non-trading | 0 | (1 | ) | 0 | (1 | ) | (4 | ) | (6 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Non-trading | (1 | ) | 1 | 1 | (1 | ) | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Interest rate sensitivity by time bands at 31.12.03 | ||||||||||||||||||||||||||
Within 1 | 1 to 3 | 3 to 12 | 1 to 5 | Over 5 | ||||||||||||||||||||||
CHF thousand gain / (loss) per basis point increase | month | months | months | years | years | Total | ||||||||||||||||||||
CHF | Trading | 19 | (185 | ) | (6 | ) | 311 | (91 | ) | 48 | ||||||||||||||||
Non-trading | (38 | ) | (99 | ) | (359 | ) | (4,288 | ) | (3,587 | ) | (8,371 | ) | ||||||||||||||
USD | Trading | (17 | ) | (690 | ) | (638 | ) | (941 | ) | 1,190 | (1,096 | ) | ||||||||||||||
Non-trading | 50 | (55 | ) | (92 | ) | (2,213 | ) | (1,702 | ) | (4,012 | ) | |||||||||||||||
EUR | Trading | (84 | ) | (206 | ) | 398 | (1,018 | ) | 649 | (261 | ) | |||||||||||||||
Non-trading | 4 | 6 | (21 | ) | (131 | ) | (196 | ) | (338 | ) | ||||||||||||||||
GBP | Trading | 24 | 31 | 131 | (736 | ) | 536 | (14 | ) | |||||||||||||||||
Non-trading | 0 | (10 | ) | (55 | ) | (40 | ) | 481 | 376 | |||||||||||||||||
JPY | Trading | 59 | (326 | ) | (34 | ) | 410 | (273 | ) | (164 | ) | |||||||||||||||
Non-trading | (4 | ) | 3 | (1 | ) | (5 | ) | (2 | ) | (9 | ) | |||||||||||||||
Other | Trading | (43 | ) | 22 | 80 | (464 | ) | 335 | (70 | ) | ||||||||||||||||
Non-trading | (1 | ) | 0 | (6 | ) | (1 | ) | (3 | ) | (11 | ) | |||||||||||||||
forward foreign exchange contracts.
Trading
132
Note 29 Financial Instruments Risk Position (continued)
a) Market Risk (continued)
Non-trading
137
Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
a) Market Risk (continued)
in the market risk limits described in (a)(i). The margin risks embedded in retail products remain with, and are subject to additional analysis and control withinby, the originating business units.
(a)(iii) Currency Risk
Trading
Non-tradingNon-Trading
133
UBS Group Financial StatementsNotes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
a) Market Risk (continued)
Group Executive Board GEB and subject to its VaR limit. Economic hedging strategies employed include a cost-efficient option strategy, providing a safety net against unfavorable currency fluctuations while preserving upside potential.
Breakdown of assetsUSD (short USD 723 million), EUR (long EUR 71 million) and liabilities by currencies
31.12.02 | 31.12.01 | |||||||||||||||||||||||||||||||
CHF billion | CHF | USD | EUR | Other | CHF | USD | EUR | Other | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and balances with central banks | 2.4 | 0.1 | 0.6 | 1.2 | 3.0 | 0.3 | 0.6 | 17.1 | ||||||||||||||||||||||||
Due from banks | 5.2 | 11.4 | 7.4 | 8.5 | 5.0 | 8.6 | 5.2 | 8.7 | ||||||||||||||||||||||||
Cash collateral on securities borrowed | 0.1 | 126.7 | 2.7 | 9.5 | 0.1 | 156.4 | 2.5 | 3.9 | ||||||||||||||||||||||||
Reverse repurchase agreements | 1.9 | 164.6 | 61.0 | 66.5 | 5.1 | 142.9 | 40.2 | 81.1 | ||||||||||||||||||||||||
Trading portfolio assets | 6.1 | 247.6 | 51.7 | 66.0 | 9.6 | 265.2 | 47.2 | 75.9 | ||||||||||||||||||||||||
Positive replacement values | 10.4 | 8.1 | 0.8 | 62.8 | 30.6 | 11.4 | 1.2 | 30.2 | ||||||||||||||||||||||||
Loans | 147.8 | 39.5 | 11.5 | 12.8 | 151.4 | 43.1 | 11.9 | 20.1 | ||||||||||||||||||||||||
Financial investments | 1.1 | 5.0 | 1.5 | 0.8 | 2.9 | 7.4 | 1.5 | 17.0 | ||||||||||||||||||||||||
Accrued income and prepaid expenses | 0.5 | 4.0 | 0.3 | 1.7 | 0.7 | 4.9 | 0.8 | 1.2 | ||||||||||||||||||||||||
Investments in associates | 0.7 | 0.0 | 0.0 | 0.0 | 0.7 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||||||||
Property and equipment | 5.6 | 1.3 | 0.1 | 0.9 | 6.3 | 1.5 | 0.1 | 0.8 | ||||||||||||||||||||||||
Goodwill and other intangible assets | 0.7 | 12.7 | 0.0 | 0.3 | 0.2 | 18.5 | 0.0 | 0.4 | ||||||||||||||||||||||||
Other assets | 1.4 | 5.0 | 1.0 | 1.6 | 2.1 | 5.6 | 0.8 | 1.4 | ||||||||||||||||||||||||
Total assets | 183.9 | 626.0 | 138.6 | 232.6 | 217.7 | 665.8 | 112.0 | 257.8 | ||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Due to banks | 7.6 | 48.0 | 13.8 | 13.8 | 8.0 | 68.6 | 12.9 | 17.0 | ||||||||||||||||||||||||
Cash collateral on securities lent | 0.0 | 21.6 | 5.2 | 10.1 | 0.0 | 24.3 | 3.2 | 2.8 | ||||||||||||||||||||||||
Repurchase agreements | 17.8 | 260.8 | 51.9 | 36.4 | 12.8 | 271.1 | 30.7 | 54.0 | ||||||||||||||||||||||||
Trading portfolio liabilities | 3.7 | 68.6 | 11.3 | 22.9 | 2.8 | 65.2 | 12.5 | 25.3 | ||||||||||||||||||||||||
Negative replacement values | 10.1 | 7.1 | 0.7 | 63.5 | 25.7 | 6.5 | 1.6 | 37.7 | ||||||||||||||||||||||||
Due to customers | 123.5 | 111.5 | 43.6 | 28.2 | 123.3 | 138.8 | 41.5 | 30.2 | ||||||||||||||||||||||||
Accrued expenses and deferred income | 1.9 | 8.1 | 0.9 | 4.3 | 2.4 | 10.0 | 0.9 | 4.0 | ||||||||||||||||||||||||
Debt issued | 11.4 | 96.1 | 14.3 | 7.6 | 15.7 | 120.0 | 8.8 | 11.7 | ||||||||||||||||||||||||
Other liabilities | 5.4 | 4.1 | 0.9 | 1.9 | 7.2 | 6.1 | 0.9 | 1.5 | ||||||||||||||||||||||||
Minority interests | 0.0 | 3.4 | 0.0 | 0.1 | 0.1 | 3.9 | 0.0 | 0.1 | ||||||||||||||||||||||||
Shareholders’ equity | 39.0 | 0.0 | 0.0 | 0.0 | 43.5 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||||||||
Total liabilities, minority interests and shareholders’ equity | 220.4 | 629.3 | 142.6 | 188.8 | 241.5 | 714.5 | 113.0 | 184.3 | ||||||||||||||||||||||||
134
Note 29 Financial Instruments Risk Position (continued)
a) Market Risk (continued)
(a)(iv) Equity Risk
(a)(v) Issuer Risk
138
Note 29 Financial Instruments Risk Position (continued)
b) Credit Risk
Amounts for each product type are shown gross before allowances and provisions.—– loans, commitments to lend and other contingent liabilities, such as letters of credit —– and in foreign exchange and derivativestraded products – derivative contracts such as forwards, swaps and options, (“and repo and securities borrowing and lending transactions. Some of these products are accounted for on an amortized cost basis while others are recorded in the financial statements at fair value. Banking products are generally carried at amortized cost, but loans which have been originated by the Group for subsequent syndication or distribution through the cash markets, are carried at fair value. Within traded products”). To ensure a consistentproducts, OTC derivatives are carried at fair value, while repos and unified approach, with appropriate checkssecurities borrowing and balances,lending transactions are accounted for on an amortized cost basis. Regardless of the accounting treatment, all banking and traded products are controlled under the same credit risk framework.wheretaking material credit risk is taken have independent credit risk control (CRC) functions within whichheaded by Chief Credit Officers (CCOs) reporting functionally to the Group CCO. They are responsible for the independent control of credit approvalrisk including counterparty ratings and credit risk assessment. Credit risk authority, including authority to establish allowances and provisions and credit valuation adjustments for impaired claims, is exercised by authorized credit officers. CRC has authority over counterparty rating, credit risk assessment and approval,the Chairman’s Office and the establishment of allowancesGEB and provisions.is further delegated on an ad personam basis to the Group CCO and to Credit Officers within the Business Groups. The Group restricts itsFor credit control purposes, credit exposure to both individual counterparties and counterparty groups by credit limits. The size of limit depends on the assessment of their financial strength, particularly the sustainable free cash flow to service obligations, and on the economic environment, industry position, and qualitative factors such as management strength. Exposure against limits is measured on a continuous basis and is subject to standard exception reporting. Exposure against limits for banking products is measured atas the face value.value amount. For loans, this is shown on the balance sheet and detailed in Note 9a), and for commitments detailed in Note 25. Both are included in the table below. For all traded products, credit exposure is measured for internal risk control purposes based on not onlyas the current replacement value of contracts but alsoplus potential future changes in replacementreplace- Theincluded inrepresented on the balance sheet by positive and innegative replacement values, which are netted only if the table below. For further information about derivativescash flows will actually be settled net, which is not generally the case – for details see Note 23. Securities borrowing and lending transactions are represented on the balance sheet by the gross values of cash collateral placed with or received from counterparties while repo/repos / reverse repo transactionsrepos are represented by the gross amounts of the forward commitments —– for details see Note 10. The10 – the credit exposure is generally being only a small percentage of thethese balance sheet amounts. The amounts shown in the table below represent the mark to market values of these transactions, i.e. the difference in value between the cash or securities lent or given as collateral by UBS and the value of cash or securities borrowed or taken as collateral by UBS.135UBS Group Financial StatementsNotes to the Financial StatementsNote 29 Financial Instruments Risk Position (continued)b) Credit Risk (continued)
Breakdown of credit exposure
1 CHF million 31.12.02 31.12.01 Banking products Loans and due from banks1 249,370 261,984 Contingent liabilities (gross — before participations)2 16,594 25,487 Undrawn irrevocable commitments (gross — before participations)2 39,306 50,608 Traded products3 Derivatives positive replacement values (before collateral but after netting)4 82,092 73,447 Securities borrowing and lending, repos and reverse repos5, 6 20,120 14,074 Allowances and provisions7 (5,621 ) (8,218 ) Total credit exposure net of allowances and provisions8 401,861 417,382 CHF million 31.12.04 31.12.03 269,518 247,995 14,894 15,563 53,168 46,623 78,317 84,334 24,768 30,833 (2,883 ) (3,954 ) 437,782 421,394 —– Due from Banks and Loans and the section about the Information Required by Industry Guide 3 in the Additional Disclosures Required under SEC Regulations for further information.23See Note 25 —– Commitments and Contingent Liabilities for further information.34Does not include potential future potential credit exposure arising from changes in value of products with variable value, i.e. traded products.value. Potential future credit exposure is, however, included in internal measures of credit exposure for risk management and control purposes.45 Replacement values are shown net where netting is permitted for regulatory capital purposes. See also Note 23 —– Derivative Instruments: Positive Replacement ValuesInstruments for further information.56This figure represents the difference in value between the cash or securities lent or given as collateral to counterparties, and the value of cash or securities borrowed or taken as collateral from the same counterparties under stock borrow/borrow / lend and repo/repo / reverse repo transactions.67See Note 10 —– Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements for further information forabout these types of transactions.78See Note 9b —– Allowances and Provisions for Credit Losses for further information.8The values of bonds, equities and other tradable obligations in the Group’s trading business area are also affected by credit events and default. They are not included in this table — exposure is controlled under the market risk control structure described in Note 29 — Financial Instruments Risk Position, section a).
139136
Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
b) Credit Risk (continued)
Impaired claims
137140
UBS Group Financial StatementsNotes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
c) Liquidity Risk
The Group’sUBS’s approach to liquidity management is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without compromising its ability to respond quickly to strategic market opportunities. The Group’sA centralized approach is adopted, based on an integrated framework incorporating the assessment of expected cash flows and the availability of high-grade collateral which could be used to secure additional funding if required. The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors. Scenarios en-
encompass bothandbut also stressed conditions, including both UBS-specific and general market crises. The impact on both trading and client businesses is considered, taking account of potential collateral with which funds might be raised, and the possibility that customers might seek to withdraw funds or draw down unutilized committed credit lines.20022004 is shown in the table below.
Maturity analysis of assets and liabilities
Maturity analysis of assets and liabilities | Maturity analysis of assets and liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Due | Due | Due | Due | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Due | between | between | Due | Due | between | between | ||||||||||||||||||||||||||||||||||||||||||||||||||
On | Subject | within | 3 and | 1 and | after | On | Subject | within | 3 and | 1 and | Due after | |||||||||||||||||||||||||||||||||||||||||||||
CHF billion | demand | to notice1 | 3 mths | 12 mths | 5 years | 5 years | Total | demand | to notice | 1 | 3 months | 12 months | 5 years | 5 years | Total | |||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and balances with central banks | 4.3 | 4.3 | 6.0 | 6.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Due from banks | 10.5 | 0.0 | 20.5 | 0.8 | 0.5 | 0.2 | 32.5 | 20.0 | 0.4 | 10.5 | 1.1 | 2.1 | 1.2 | 35.3 | ||||||||||||||||||||||||||||||||||||||||||
Cash collateral on securities borrowed | 0.0 | 0.0 | 138.7 | 0.0 | 0.4 | 0.0 | 139.1 | 0.0 | 186.0 | 32.0 | 2.1 | 0.1 | 0.0 | 220.2 | ||||||||||||||||||||||||||||||||||||||||||
Reverse repurchase agreements | 0.0 | 2.7 | 230.8 | 55.3 | 3.7 | 1.5 | 294.0 | 0.0 | 49.6 | 255.0 | 46.0 | 5.5 | 1.1 | 357.2 | ||||||||||||||||||||||||||||||||||||||||||
Trading portfolio assets | 371.4 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 371.4 | |||||||||||||||||||||||||||||||||||||||||||||||||
Positive replacement values | 82.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 82.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
Trading portfolio assets2 | 370.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 370.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
Trading portfolio assets pledged as collateral | 159.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 159.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
Positive replacement values2 | 284.6 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 284.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
Financial assets designated at fair value | 0.7 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.7 | |||||||||||||||||||||||||||||||||||||||||||||||||
Loans | 0.0 | 21.0 | 86.6 | 34.4 | 64.6 | 4.9 | 211.5 | 23.1 | 35.8 | 47.3 | 30.2 | 79.6 | 16.4 | 232.4 | ||||||||||||||||||||||||||||||||||||||||||
Financial investments | 5.9 | 0.0 | 1.5 | 0.2 | 0.5 | 0.3 | 8.4 | 4.1 | 0.0 | 0.6 | 0.1 | 0.2 | 0.1 | 5.1 | ||||||||||||||||||||||||||||||||||||||||||
Accrued income and prepaid expenses | 6.5 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 6.5 | 5.9 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 5.9 | ||||||||||||||||||||||||||||||||||||||||||
Investments in associates | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.7 | 0.7 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 2.4 | 2.4 | ||||||||||||||||||||||||||||||||||||||||||
Property and equipment | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 7.9 | 7.9 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 8.7 | 8.7 | ||||||||||||||||||||||||||||||||||||||||||
Goodwill and other intangible assets | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 13.7 | 13.7 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 12.1 | 12.1 | ||||||||||||||||||||||||||||||||||||||||||
Other assets | 9.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 9.0 | 15.6 | 19.2 | 0.0 | 0.0 | 0.0 | 0.0 | 34.8 | ||||||||||||||||||||||||||||||||||||||||||
Total 31.12.2002 | 489.7 | 23.7 | 478.1 | 90.7 | 69.7 | 29.2 | 1,181.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total 31.12.04 | 889.4 | 291.0 | 345.4 | 79.5 | 87.5 | 42.0 | 1,734.8 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total 31.12.2001 | 529.7 | 30.0 | 513.4 | 74.2 | 63.6 | 42.4 | 1,253.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total 31.12.03 | 832.4 | 260.6 | 271.2 | 82.6 | 72.2 | 31.1 | 1,550.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Due to banks | 10.7 | 2.9 | 64.7 | 2.5 | 2.2 | 0.1 | 83.1 | 30.8 | 6.5 | 77.8 | 1.5 | 1.9 | 0.4 | 118.9 | ||||||||||||||||||||||||||||||||||||||||||
Cash collateral on securities lent | 0.0 | 0.0 | 36.8 | 0.0 | 0.0 | 0.0 | 36.8 | 0.0 | 51.7 | 9.8 | 0.0 | 0.0 | 0.0 | 61.5 | ||||||||||||||||||||||||||||||||||||||||||
Repurchase agreements | 0.0 | 0.3 | 329.5 | 36.9 | 0.1 | 0.1 | 366.9 | 0.0 | 20.2 | 363.2 | 37.8 | 1.2 | 0.2 | 422.6 | ||||||||||||||||||||||||||||||||||||||||||
Trading portfolio liabilities | 106.5 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 106.5 | |||||||||||||||||||||||||||||||||||||||||||||||||
Negative replacement values | 81.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 81.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
Trading portfolio liabilities2 | 171.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 171.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
Negative replacement values2 | 303.7 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 303.7 | |||||||||||||||||||||||||||||||||||||||||||||||||
Financial liabilities designated at fair value | 0.0 | 0.0 | 2.3 | 9.0 | 46.4 | 8.1 | 65.8 | |||||||||||||||||||||||||||||||||||||||||||||||||
Due to customers | 147.3 | 2.2 | 150.2 | 5.1 | 1.3 | 0.9 | 307.0 | 119.1 | 112.0 | 135.4 | 5.2 | 1.5 | 2.9 | 376.1 | ||||||||||||||||||||||||||||||||||||||||||
Accrued expenses and deferred income | 15.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 15.3 | 14.7 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 14.7 | ||||||||||||||||||||||||||||||||||||||||||
Debt issued | 0.0 | 0.0 | 54.8 | 21.6 | 33.1 | 19.9 | 129.4 | 0.0 | 0.0 | 74.9 | 12.1 | 5.0 | 25.8 | 117.8 | ||||||||||||||||||||||||||||||||||||||||||
Other liabilities | 12.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 12.3 | 20.3 | 22.1 | 0.0 | 0.0 | 0.0 | 0.0 | 42.4 | ||||||||||||||||||||||||||||||||||||||||||
Total 31.12.2002 | 373.4 | 5.4 | 636.0 | 66.1 | 36.7 | 21.0 | 1,138.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total 31.12.04 | 659.6 | 212.5 | 663.4 | 65.6 | 56.0 | 37.4 | 1,694.5 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total 31.12.2001 | 362.8 | 6.4 | 700.0 | 93.9 | 29.3 | 13.3 | 1,205.7 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total 31.12.03 | 795.0 | 188.0 | 338.5 | 130.4 | 36.5 | 22.3 | 1,510.7 | |||||||||||||||||||||||||||||||||||||||||||||||||
141
138
Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
d) Capital Adequacy
The Group monitors the adequacy of itsUBS’s capital is monitored using, among other measures, the rules and ratios established by the Basel Committee on Banking Supervision (“BIS rules/rules / ratios”). The BIS ratios compare the amount of the Group’s eligible capital (in total and Tier 1) with the total of its risk weightedrisk-weighted assets (RWAs).
BIS Eligible capital
BIS Risk-Weighted Assets (RWAs)
private customers, are weighted at 100%, meaning that 8% capital support is required.
139142
UBS Group Financial StatementsNotes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
d) Capital Adequacy (continued)
Risk-weighted assets (BIS)
Balance | Balance | |||||||||||||||
sheet/ | Risk- | sheet/ | Risk- | |||||||||||||
notional | weighted | notional | weighted | |||||||||||||
amount | amount | amount | amount | |||||||||||||
CHF million | 31.12.02 | 31.12.02 | 31.12.01 | 31.12.01 | ||||||||||||
Balance sheet assets | ||||||||||||||||
Due from banks and other collateralized lendings1 | 356,501 | 8,877 | 380,641 | 7,640 | ||||||||||||
Net positions in securities2 | 9,096 | 8,193 | 29,500 | 10,992 | ||||||||||||
Positive replacement values3 | 82,092 | 21,680 | 73,447 | 19,556 | ||||||||||||
Loans and other collateralized lendings1 | 320,752 | 147,703 | 305,624 | 154,908 | ||||||||||||
Accrued income and prepaid expenses | 6,453 | 3,025 | 7,554 | 3,679 | ||||||||||||
Property and equipment | 10,384 | 10,149 | 13,202 | 13,202 | ||||||||||||
Other assets | 8,952 | 5,774 | 9,875 | 4,504 | ||||||||||||
Off-balance sheet and other positions | ||||||||||||||||
Contingent liabilities | 16,594 | 8,224 | 25,487 | 9,868 | ||||||||||||
Irrevocable commitments | 39,327 | 4,622 | 50,705 | 5,034 | ||||||||||||
Forward and swap contracts4 | 9,455,928 | 4,253 | 8,362,374 | 9,256 | ||||||||||||
Purchased options4 | 298,800 | 1,023 | 365,100 | 1,777 | ||||||||||||
Market risk positions5 | 15,267 | 13,319 | ||||||||||||||
Total risk-weighted assets | 238,790 | 253,735 | ||||||||||||||
Risk-weighted assets (BIS) | ||||||||||||||||
Risk-weighted | Risk-weighted | |||||||||||||||
Exposure | amount | Exposure | 1 | amount | ||||||||||||
CHF million | 31.12.04 | 31.12.04 | 31.12.03 | 31.12.03 | ||||||||||||
Balance sheet exposures | ||||||||||||||||
Due from banks and other collateralized lendings2 | 556,947 | 7,820 | 531,098 | 8,565 | ||||||||||||
Net positions in securities3, 4 | 8,227 | 6,914 | 7,277 | 6,182 | ||||||||||||
Positive replacement values5 | 78,317 | 17,121 | 84,334 | 22,324 | ||||||||||||
Loans, net of allowances for credit losses and other collateralized lendings2 | 429,186 | 164,620 | 359,154 | 153,537 | ||||||||||||
Accrued income and prepaid expenses | 5,790 | 3,573 | 6,218 | 4,284 | ||||||||||||
Property and equipment | 8,772 | 8,772 | 9,611 | 9,611 | ||||||||||||
Other assets | 32,725 | 8,949 | 24,918 | 7,673 | ||||||||||||
Off-balance sheet exposures | ||||||||||||||||
Contingent liabilities | 14,894 | 7,569 | 15,563 | 8,167 | ||||||||||||
Irrevocable commitments | 53,187 | 11,764 | 46,960 | 6,863 | ||||||||||||
Forward and swap contracts6 | 14,419,106 | 8,486 | 11,746,880 | 4,710 | ||||||||||||
Purchased options6 | 2,306,605 | 386 | 1,183,708 | 1,716 | ||||||||||||
Market risk positions7 | 18,151 | 18,269 | ||||||||||||||
Total risk-weighted assets | 264,125 | 251,901 | ||||||||||||||
BIS capital ratios
BIS capital ratios | BIS capital ratios | |||||||||||||||||||||||||||||||
Capital | Ratio | Capital | Ratio | Capital | Ratio | Capital | Ratio | |||||||||||||||||||||||||
CHF million | % | CHF million | % | CHF million | % | CHF million | % | |||||||||||||||||||||||||
31.12.02 | 31.12.02 | 31.12.01 | 31.12.01 | 31.12.04 | 31.12.04 | 31.12.03 | 31.12.03 | |||||||||||||||||||||||||
Tier 1 | 27,047 | 11.3 | 29,322 | 11.6 | 31,051 | 11.8 | 29,765 | 11.8 | ||||||||||||||||||||||||
of which hybrid Tier 1 | 3,182 | 1.3 | 3,848 | 1.5 | 2,963 | 1.1 | 3,224 | 1.3 | ||||||||||||||||||||||||
Tier 2 | 5,962 | 2.5 | 8,149 | 3.2 | 4,815 | 1.8 | 3,816 | 1.5 | ||||||||||||||||||||||||
Total BIS | 33,009 | 13.8 | 37,471 | 14.8 | 35,866 | 13.6 | 33,581 | 13.3 | ||||||||||||||||||||||||
The Tier 1 capital includes CHF 3,1822,963 million (USD 2,3002,600 million) in trust preferred securities at 31 December 20022004 and CHF 3,8483,224 million (USD 2,3002,600 million) at 31 December 2001.2003.
143
140
Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
e) Financial Instruments Risk Position in Motor-Columbus
The Atel Group, the operating arm of Motor-Columbus, is exposed to electricity price risk, interest rate risk, currency risk, credit risk, and other business risks.
Energy price risk
Interest rate risk
Currency risks
Credit risk
144
Note 30 Fair Value of Financial Instruments
The following table presents the fair value of financial instruments, based on the following valuation methods and assumptions. It is presented becauseincluding those not all financial instruments are reflected in the financial statements at fair value. It is accompanied by a discussion of the methods used to determine fair value for financial instruments.
Carrying | Fair | Unrealized | Carrying | Fair | Unrealized | ||||||||||||||||||||
value | value | gain / (loss) | value | value | gain / (loss) | ||||||||||||||||||||
CHF billion | 31.12.04 | 31.12.04 | 31.12.04 | 31.12.03 | 31.12.03 | 31.12.03 | |||||||||||||||||||
Assets | |||||||||||||||||||||||||
Cash and balances with central banks | 6.0 | 6.0 | 0.0 | 3.6 | 3.6 | 0.0 | |||||||||||||||||||
Due from banks | 35.3 | 35.3 | 0.0 | 31.7 | 31.7 | 0.0 | |||||||||||||||||||
Cash collateral on securities borrowed | 220.2 | 220.2 | 0.0 | 213.9 | 213.9 | 0.0 | |||||||||||||||||||
Reverse repurchase agreements | 357.1 | 357.1 | 0.0 | 320.5 | 320.5 | 0.0 | |||||||||||||||||||
Trading portfolio assets | 370.3 | 370.3 | 0.0 | 341.0 | 341.0 | 0.0 | |||||||||||||||||||
Trading portfolio assets pledged as collateral | 159.1 | 159.1 | 0.0 | 120.8 | 120.8 | 0.0 | |||||||||||||||||||
Positive replacement values | 284.6 | 284.6 | 0.0 | 248.2 | 248.2 | 0.0 | |||||||||||||||||||
Financial assets designated at fair value | 0.7 | 0.7 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||||||||||||
Loans | 232.4 | 233.8 | 1.4 | 212.7 | 214.0 | 1.3 | |||||||||||||||||||
Financial investments | 5.0 | 5.0 | 0.0 | 5.1 | 5.1 | 0.0 | |||||||||||||||||||
Liabilities | |||||||||||||||||||||||||
Due to banks | 118.9 | 118.9 | 0.0 | 127.0 | 127.0 | 0.0 | |||||||||||||||||||
Cash collateral on securities lent | 61.5 | 61.5 | 0.0 | 53.3 | 53.3 | 0.0 | |||||||||||||||||||
Repurchase agreements | 422.6 | 422.6 | 0.0 | 415.9 | 415.9 | 0.0 | |||||||||||||||||||
Trading portfolio liabilities | 171.0 | 171.0 | 0.0 | 144.0 | 144.0 | 0.0 | |||||||||||||||||||
Negative replacement values | 303.7 | 303.7 | 0.0 | 254.8 | 254.8 | 0.0 | |||||||||||||||||||
Financial liabilities designated at fair value | 65.8 | 65.8 | 0.0 | 35.3 | 35.3 | 0.0 | |||||||||||||||||||
Due to customers | 376.1 | 376.1 | 0.0 | 346.6 | 346.6 | 0.0 | |||||||||||||||||||
Debt issued | 117.8 | 118.9 | (1.1 | ) | 88.8 | 90.0 | (1.2 | ) | |||||||||||||||||
Subtotal | 0.3 | 0.1 | |||||||||||||||||||||||
Unrealized gains and losses recorded in Shareholders’ equity before tax on: | |||||||||||||||||||||||||
Financial investments | 1.4 | 0.8 | |||||||||||||||||||||||
Derivative instruments designated as cash flow hedges | (0.4 | ) | (0.2 | ) | |||||||||||||||||||||
Net unrealized gains and losses not recognized in the income statement | 1.3 | 0.7 | |||||||||||||||||||||||
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s-lengtharm’s length transaction. MarketFor financial instruments carried at fair value, market prices or rates are used to determine fair value where an active market exists (such as a recognized stock exchange) exists,, as it is the best evidence of the fair value of a financial instrument.
(a) | trading portfolio assets and liabilities, trading portfolio assets pledged as collateral, financial assets and liabilities designated at fair value, derivatives, and other transactions |
145
Financial Statements
Notes to the Financial Statements
Note 30 Fair Value of Financial Instruments (continued)
30a Fair Value of Financial Instruments (continued)
undertaken for trading purposes are measured at fair value by reference to quoted market prices when available. If quoted market prices are not available, then fair values are estimated on the basis of pricing models, or |
(b) | financial investments classified as |
(c) | the carrying amount of liquid assets and other assets maturing within 12 months is assumed to approximate their fair value. This assumption is applied to liquid assets and the |
(d) | the fair value of demand deposits and savings accounts with no specific maturity is assumed to be the amount payable on demand at the balance sheet date; |
(e) | the fair value of variable rate financial instruments is assumed to be approximated by their carrying amounts and, in the case of loans, does not, therefore, reflect changes in their credit quality, as the impact of credit risk is recognized separately by deducting the amount of the allowance for credit losses from both |
(f) | the fair value of fixed rate loans and mortgages carried at amortized cost is estimated by comparing market interest rates when the loans were granted with current market rates offered on similar loans. Changes in the credit quality of loans within the portfolio are not taken into account in determining gross fair values, as the impact of credit risk is recognized separately by deducting the amount of the allowance for credit losses from both |
141
UBS Group Financial StatementsNotes to the Financial Statements
Note 30 Fair Value of Financial Instruments (continued)
Carrying | Fair | Unrealized | Carrying | Fair | Unrealized | ||||||||||||||||||||
value | value | gain/(loss) | value | value | gain/(loss) | ||||||||||||||||||||
CHF billion | 31.12.02 | 31.12.02 | 31.12.02 | 31.12.01 | 31.12.01 | 31.12.01 | |||||||||||||||||||
Assets | |||||||||||||||||||||||||
Cash and balances with central banks | 4.3 | 4.3 | 0.0 | 21.0 | 21.0 | 0.0 | |||||||||||||||||||
Due from banks | 32.5 | 32.5 | 0.0 | 27.7 | 27.7 | 0.0 | |||||||||||||||||||
Cash collateral on securities borrowed | 139.1 | 139.1 | 0.0 | 162.9 | 162.9 | 0.0 | |||||||||||||||||||
Reverse repurchase agreements | 294.1 | 294.1 | 0.0 | 269.3 | 269.3 | 0.0 | |||||||||||||||||||
Trading portfolio assets | 371.4 | 371.4 | 0.0 | 397.9 | 397.9 | 0.0 | |||||||||||||||||||
Positive replacement values | 82.1 | 82.1 | 0.0 | 73.4 | 73.4 | 0.0 | |||||||||||||||||||
Loans | 211.8 | 214.1 | 2.3 | 226.7 | 227.0 | 0.3 | |||||||||||||||||||
Financial investments | 8.4 | 8.4 | 0.0 | 28.8 | 28.8 | 0.0 | |||||||||||||||||||
Liabilities | |||||||||||||||||||||||||
Due to banks | 83.4 | 83.4 | 0.0 | 107.2 | 107.2 | 0.0 | |||||||||||||||||||
Cash collateral on securities lent | 36.9 | 36.9 | 0.0 | 30.3 | 30.3 | 0.0 | |||||||||||||||||||
Repurchase agreements | 366.9 | 366.9 | 0.0 | 368.6 | 368.6 | 0.0 | |||||||||||||||||||
Trading portfolio liabilities | 106.5 | 106.5 | 0.0 | 105.8 | 105.8 | 0.0 | |||||||||||||||||||
Negative replacement values | 81.3 | 81.3 | 0.0 | 71.4 | 71.4 | 0.0 | |||||||||||||||||||
Due to customers | 307.4 | 307.5 | (0.1 | ) | 334.0 | 334.0 | 0.0 | ||||||||||||||||||
Debt issued | 129.8 | 131.7 | (1.9 | ) | 157.5 | 158.6 | (1.1 | ) | |||||||||||||||||
Subtotal | 0.3 | (0.8 | ) | ||||||||||||||||||||||
Unrealized gains and losses recorded in shareholders’ equity before tax on: | |||||||||||||||||||||||||
Financial investments | 1.1 | 1.2 | |||||||||||||||||||||||
Derivative instruments designated as cash flow hedges | (0.3 | ) | (0.6 | ) | |||||||||||||||||||||
Net unrealized gains and losses not recognized in the income statement | 1.1 | (0.2 | ) | ||||||||||||||||||||||
The table does not reflect the fair values of non-financial assets and liabilities such as property, equipment, goodwill, prepayments and non-interest accruals. Where applicable, the interest accrued to date on financial instruments is included, for purposes of the above fair value disclosure, in the carrying value of the financial instruments.
included in the Positive or Negative replacement values in the above table. When the interest rate risk on a fixed rate financial instrument is hedged with a derivative in a fair value hedge, the fixed rate financial instrument (or hedged portion thereof) is reflected in the above table at fair value only in relation to the interest rate risk, not the credit risk, as explained in (f) above.. Fair value changes are recorded in net profit. The treatment of derivatives designated as cash flow hedges is explained in Note 1v)1o). The amount shown in the table as “derivative“Derivative instruments designated as cash flow hedges” is the net change in fair values on such derivatives that is recorded in Shareholders’ equity and not yet transferred to income or expense.
146
Note 30 Fair Value of Financial Instruments (continued)
30b Determination of Fair Values from Quoted Market Prices or Valuation Techniques
Valuation technique – | Valuation technique – non- | |||||||||||||||
CHF billion | Quoted market price | market observable inputs | market observable inputs | Total | ||||||||||||
Trading portfolio assets | 209.6 | 159.7 | 1.0 | 370.3 | ||||||||||||
Trading portfolio assets pledged as collateral | 156.0 | 3.1 | 0.0 | 159.1 | ||||||||||||
Positive replacement values | 6.2 | 265.2 | 13.2 | 284.6 | ||||||||||||
Financial assets designated at fair value | 0.7 | 0.0 | 0.0 | 0.7 | ||||||||||||
Financial investments | 1.1 | 0.4 | 3.5 | 5.0 | ||||||||||||
Total assets | 373.6 | 428.4 | 17.7 | 819.7 | ||||||||||||
Trading portfolio liabilities | 161.3 | 9.7 | 0.0 | 171.0 | ||||||||||||
Negative replacement values | 9.8 | 270.1 | 23.8 | 303.7 | ||||||||||||
Financial liabilities designated at fair value | 0.0 | 65.8 | 0.0 | 65.8 | ||||||||||||
Total liabilities | 171.1 | 345.6 | 23.8 | 540.5 | ||||||||||||
30c Sensitivity of Fair Values to Changing Significant Assumptions to Reasonably Possible Alternatives
Included in the Net unrealized gainsfair value of financial instruments carried at fair value on the balance sheet are those estimated in full or in part using valuation techniques based on assumptions that are not supported by observable market prices or rates. Models used in these situations undergo an internal validation process before they are certified for use. Any related model valuation uncertainty is quantified, and losses during 2002deducted from the fair values produced by the models. Based on the controls and procedural safeguards we employ, management believes the resulting estimated fair values recorded in the balance sheet and the changes in fair values recorded in the income statement are reasonable, and are the most appropriate at the balance sheet date.
147
Financial Statements
Notes to the changeFinancial Statements
Note 30 Fair Value of Financial Instruments (continued)
30d Changes in Fair Value Recognized in Profit or Loss during the Period which were Estimated using Valuation Techniques
other risk management techniques, which may result in different portions of the transaction being priced using different methods.
148
Note 30 Fair Value of Financial Instruments (continued)
30e Continuing Involvement in Assets that have been Transferred
The following table presents details of assets which have increased by CHF 2.0 billionbeen sold or otherwise transferred, but which continue to be recognized, either in full or to the extent of UBS’s continuing involvement:
Continued asset recognition in full | ||||||||
CHF billion | Total assets | Associated liability | ||||||
Nature of transaction | ||||||||
Securities lending agreements | 37.3 | 13.8 | ||||||
Repurchase agreements | 121.8 | 117.6 | ||||||
Other collateralized securities trading | 2.9 | 2.1 | ||||||
Total 31.12.04 | 162.0 | 133.5 | ||||||
142149
Financial Statements
Notes to the Financial Statements
Note 31 Pension and Other Post-Retirement Benefit Plans
Note 31 Retirement Benefit Plans and Other Employee Benefits
a) Defined benefit plans
Swiss pension planplans
Foreign pension plans
The retirement plans provide benefits in the event of retirement, death, disability or employment termination. The plans’ retirement benefits depend on age, contributions and level of compensation. The principal plans are financed in full by the Group. The employer contributions expected to be made in 2005 to these pension plans are CHF 55 million. The funding policy for these plans is consistent with local government and tax requirements.
150
Note 31 Pension and Other Post-Retirement Benefit Plans (continued)
a) Defined benefit plans | ||||||||||||||||||||||||
Swiss | Foreign | |||||||||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||
Defined benefit obligation at the beginning of the year | (18,216 | ) | (19,204 | ) | (17,879 | ) | (3,663 | ) | (3,436 | ) | (3,553 | ) | ||||||||||||
Service cost | (548 | ) | (564 | ) | (554 | ) | (83 | ) | (91 | ) | (108 | ) | ||||||||||||
Interest cost | (672 | ) | (703 | ) | (699 | ) | (212 | ) | (197 | ) | (210 | ) | ||||||||||||
Special termination benefits | (35 | ) | (70 | ) | (209 | ) | ||||||||||||||||||
Actuarial gain / (loss) | (1,392 | ) | 1,395 | (681 | ) | (296 | ) | (201 | ) | (177 | ) | |||||||||||||
Benefits paid | 910 | 930 | 818 | 125 | 124 | 111 | ||||||||||||||||||
Curtailment / settlement | 74 | |||||||||||||||||||||||
Acquisitions | (272 | ) | (159 | ) | ||||||||||||||||||||
Foreign currency translation | 146 | 138 | 427 | |||||||||||||||||||||
Defined benefit obligation at the end of the year | (20,225 | ) | (18,216 | ) | (19,204 | ) | (4,142 | ) | (3,663 | ) | (3,436 | ) | ||||||||||||
Fair value of plan assets at the beginning of the year | 17,619 | 16,566 | 18,289 | 3,402 | 2,382 | 2,887 | ||||||||||||||||||
Actual return on plan assets | 980 | 1,411 | (1,350 | ) | 370 | 429 | (240 | ) | ||||||||||||||||
Employer contributions | 411 | 370 | 236 | 65 | 831 | 164 | ||||||||||||||||||
Plan participant contributions | 203 | 202 | 209 | |||||||||||||||||||||
Benefits paid | (910 | ) | (930 | ) | (818 | ) | (125 | ) | (124 | ) | (111 | ) | ||||||||||||
Acquisitions | 272 | |||||||||||||||||||||||
Foreign currency translation | (132 | ) | (116 | ) | (318 | ) | ||||||||||||||||||
Fair value of plan assets at the end of the year | 18,575 | 17,619 | 16,566 | 3,580 | 3,402 | 2,382 | ||||||||||||||||||
Funded status | (1,650 | ) | (597 | ) | (2,638 | ) | (562 | ) | (261 | ) | (1,054 | ) | ||||||||||||
Unrecognized net actuarial (gains) / losses | 3,006 | 1,716 | 3,892 | 1,046 | 970 | 1,126 | ||||||||||||||||||
Unrecognized prior service cost | 1 | 1 | 1 | |||||||||||||||||||||
Unrecognized asset | (1,356 | ) | (1,119 | ) | (1,221 | ) | ||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 33 | 485 | 710 | 73 | ||||||||||||||||||
Movement in the net (liability) or asset | ||||||||||||||||||||||||
(Accrued) / prepaid pension cost at the beginning of the year | 0 | 33 | 356 | 710 | 73 | 9 | ||||||||||||||||||
Net periodic pension cost | (411 | ) | (403 | ) | (559 | ) | (105 | ) | (168 | ) | (83 | ) | ||||||||||||
Employer contributions | 411 | 370 | 236 | 65 | 831 | 164 | ||||||||||||||||||
Acquisitions | (159 | ) | ||||||||||||||||||||||
Foreign currency translation | (26 | ) | (26 | ) | (17 | ) | ||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 33 | 485 | 710 | 73 | ||||||||||||||||||
Amounts recognized in the Balance Sheet | ||||||||||||||||||||||||
Prepaid pension cost | 33 | 805 | 862 | 220 | ||||||||||||||||||||
Accrued pension liability | (320 | ) | (152 | ) | (147 | ) | ||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 33 | 485 | 710 | 73 | ||||||||||||||||||
151
Financial Statements
Notes to the Financial Statements
Note 31 Pension and Other Post-Retirement Benefit Plans (continued)
a) Defined benefit plans (continued) | ||||||||||||||||||||||||
CHF million | Swiss | Foreign | ||||||||||||||||||||||
for the year ended | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||
Components of net periodic pension cost | ||||||||||||||||||||||||
Service cost | 548 | 564 | 554 | 83 | 91 | 108 | ||||||||||||||||||
Interest cost | 672 | 703 | 699 | 212 | 197 | 210 | ||||||||||||||||||
Expected return on plan assets | (878 | ) | (818 | ) | (900 | ) | (248 | ) | (178 | ) | (199 | ) | ||||||||||||
Increase / (decrease) of unrecognized assets | 237 | (102 | ) | 206 | ||||||||||||||||||||
Special termination benefits | 35 | 70 | 209 | |||||||||||||||||||||
Amortization of unrecognized prior service cost | 1 | |||||||||||||||||||||||
Amortization of unrecognized net (gains) / losses | 188 | 58 | 58 | 22 | ||||||||||||||||||||
Curtailment / settlement | (59 | ) | ||||||||||||||||||||||
Employee contributions | (203 | ) | (202 | ) | (209 | ) | ||||||||||||||||||
Net periodic pension cost | 411 | 403 | 559 | 105 | 168 | 83 | ||||||||||||||||||
Principal weighted average actuarial assumptions used (%) | ||||||||||||||||||||||||
Assumptions used to determine defined benefit obligations at the end of the year | ||||||||||||||||||||||||
Discount rate | 3.3 | 3.8 | 3.8 | 5.5 | 5.7 | 5.8 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.4 | 4.6 | 4.4 | ||||||||||||||||||
Rate of pension increase | 1.0 | 1.0 | 1.5 | 1.9 | 1.9 | 1.5 | ||||||||||||||||||
Assumptions used to determine net periodic pension cost for the year ended | ||||||||||||||||||||||||
Discount rate | 3.8 | 3.8 | 4.0 | 5.7 | 5.8 | 6.2 | ||||||||||||||||||
Expected rate of return on plan assets | 5.0 | 5.0 | 5.0 | 7.2 | 7.1 | 7.3 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.6 | 4.4 | 4.4 | ||||||||||||||||||
Rate of pension increase | 1.0 | 1.5 | 1.5 | 1.9 | 1.5 | 1.5 | ||||||||||||||||||
CHF million | ||||||||||||||||||||||||
Expected future benefit payments | ||||||||||||||||||||||||
2005 | 935 | 116 | ||||||||||||||||||||||
2006 | 951 | 112 | ||||||||||||||||||||||
2007 | 967 | 121 | ||||||||||||||||||||||
2008 | 990 | 131 | ||||||||||||||||||||||
2009 | 1,015 | 140 | ||||||||||||||||||||||
2010–2014 | 5,252 | 864 | ||||||||||||||||||||||
Plan assets | ||||||||||||||||||||||||
Actual plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 43 | 39 | 35 | 54 | 52 | 57 | ||||||||||||||||||
Debt instruments | 41 | 43 | 47 | 41 | 30 | 36 | ||||||||||||||||||
Real estate | 12 | 12 | 13 | 2 | 1 | 1 | ||||||||||||||||||
Other | 4 | 6 | 5 | 3 | 17 | 6 | ||||||||||||||||||
Total | 100 | 100 | 100 | 100 | 100 | 100 | ||||||||||||||||||
152
Note 31 Pension and Other Post-Retirement Benefit Plans (continued)
a) Defined benefit plans (continued) | ||||||||||||||||||||||||
Swiss | Foreign | |||||||||||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||||||
Long-term target plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 34–49 | 49–55 | ||||||||||||||||||||||
Debt instruments | 30–53 | 44–47 | ||||||||||||||||||||||
Real estate | 12–19 | 1–2 | ||||||||||||||||||||||
Other | 0 | 0–6 | ||||||||||||||||||||||
Actual return on plan assets (%) | 5.5 | 8.6 | (7.5 | ) | 10.8 | 17.8 | (8.7 | ) | ||||||||||||||||
CHF million | ||||||||||||||||||||||||
Additional details to fair value of plan assets | ||||||||||||||||||||||||
UBS financial instruments and UBS bank accounts | 1,239 | 1,005 | 814 | |||||||||||||||||||||
UBS AG shares1 | 238 | 246 | 206 | |||||||||||||||||||||
Securities lent to UBS included in plan assets | 3,778 | 2,930 | 2,645 | |||||||||||||||||||||
Other assets used by UBS included in plan assets | 73 | 84 | 90 | |||||||||||||||||||||
b) Post-retirement medical and life plans164166 million as of 31 December 2004 (2003 CHF 179 million, 2002 (2001 CHF 142 million, 2000 CHF 111164 million) and the total accrued post-retirement cost to CHF 130136 million as of 31 December 2004 (2003 CHF 137 million, 2002 (2001 CHF 130 million, 2000 CHF 108
million). The net periodic post-retirement costs for the years ended 31 December 2002,2004, 31 December 20012003 and 31 December 20002002 were CHF 16 million, CHF 22 million and CHF 25 million, respectively.247 million. The expected future benefit payments are CHF 7 million for each of the years 2005, 2006 and 2007, CHF 8 million for each of the years 2008 and 2009 and CHF 2246 million respectively.Defined contribution plansThe Group also sponsors a number of defined contribution plans primarily in the UK and the US. Certain plans permit employees to make contributions and earn matching or other contributions from the Group. The contributions to these plans recognized as expensetotal for the years ended 31 December 2002, 31 December 2001 and 31 December 2000 were CHF 133 million, CHF 117 million and CHF 66 million, respectively.2010–2014.
143153
UBS Group Financial Statements
Notes to the Financial Statements
Note 31 Retirement Benefit Plans and Other Employee Benefits (continued)
Defined benefit plans
Swiss | Foreign | |||||||||||||||||||||||
CHF million | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||||||||||
Defined benefit obligation at the beginning of the year | (17,879 | ) | (17,712 | ) | (17,011 | ) | (3,553 | ) | (3,406 | ) | (2,444 | ) | ||||||||||||
Service cost | (554 | ) | (541 | ) | (545 | ) | (108 | ) | (121 | ) | (165 | ) | ||||||||||||
Interest cost | (699 | ) | (674 | ) | (666 | ) | (210 | ) | (204 | ) | (162 | ) | ||||||||||||
Plan amendments | (1 | ) | ||||||||||||||||||||||
Special termination benefits | (209 | ) | (262 | ) | (211 | ) | (3 | ) | ||||||||||||||||
Actuarial gain/(loss) | (681 | ) | 421 | (177 | ) | (345 | ) | (99 | ) | |||||||||||||||
Benefits paid | 818 | 889 | 721 | 111 | 107 | 84 | ||||||||||||||||||
Curtailment/settlement | 74 | |||||||||||||||||||||||
Acquisition of PaineWebber | (740 | ) | ||||||||||||||||||||||
Foreign currency translation | 427 | (12 | ) | 123 | ||||||||||||||||||||
Other | 429 | |||||||||||||||||||||||
Defined benefit obligation at the end of the year | (19,204 | ) | (17,879 | ) | (17,712 | ) | (3,436 | ) | (3,553 | ) | (3,406 | ) | ||||||||||||
Fair value of plan assets at the beginning of the year | 18,289 | 19,074 | 18,565 | 2,887 | 3,378 | 2,880 | ||||||||||||||||||
Actual return on plan assets | (1,350 | ) | (765 | ) | 535 | (240 | ) | (220 | ) | |||||||||||||||
Employer contributions | 236 | 656 | 490 | 164 | 258 | 13 | ||||||||||||||||||
Plan participant contributions | 209 | 213 | 205 | 23 | ||||||||||||||||||||
Benefits paid | (818 | ) | (889 | ) | (721 | ) | (111 | ) | (107 | ) | (84 | ) | ||||||||||||
Acquisition of PaineWebber | 676 | |||||||||||||||||||||||
Foreign currency translation | (318 | ) | 7 | (130 | ) | |||||||||||||||||||
Other | (429 | ) | ||||||||||||||||||||||
Fair value of plan assets at the end of the year | 16,566 | 18,289 | 19,074 | 2,382 | 2,887 | 3,378 | ||||||||||||||||||
Funded status | (2,638 | ) | 410 | 1,362 | (1,054 | ) | (666 | ) | (28 | ) | ||||||||||||||
Unrecognized net actuarial (gains)/losses | 3,892 | 961 | (331 | ) | 1,126 | 673 | (81 | ) | ||||||||||||||||
Unrecognized transition amount | 1 | |||||||||||||||||||||||
Unrecognized prior service cost | 1 | 2 | 2 | |||||||||||||||||||||
Unrecognized asset | (1,221 | ) | (1,015 | ) | (675 | ) | (47 | ) | ||||||||||||||||
(Accrued)/prepaid pension cost | 33 | 356 | 356 | 73 | 9 | (153 | ) | |||||||||||||||||
Movement in the net (liability) or asset | ||||||||||||||||||||||||
(Accrued)/prepaid pension cost at the beginning of the year | 356 | 356 | 456 | 9 | (153 | ) | (63 | ) | ||||||||||||||||
Net periodic pension cost | (559 | ) | (656 | ) | (590 | ) | (83 | ) | (97 | ) | (55 | ) | ||||||||||||
Employer contributions | 236 | 656 | 490 | 164 | 258 | 13 | ||||||||||||||||||
Acquisition of PaineWebber | (63 | ) | ||||||||||||||||||||||
Foreign currency translation | (17 | ) | 1 | 15 | ||||||||||||||||||||
(Accrued)/prepaid pension cost | 33 | 356 | 356 | 73 | 9 | (153 | ) | |||||||||||||||||
Amounts recognized in the Balance Sheet | ||||||||||||||||||||||||
Prepaid pension cost | 33 | 356 | 356 | 220 | 185 | 53 | ||||||||||||||||||
Accrued pension liability | (147 | ) | (176 | ) | (206 | ) | ||||||||||||||||||
(Accrued)/prepaid pension cost | 33 | 356 | 356 | 73 | 9 | (153 | ) | |||||||||||||||||
144
Note 31 RetirementPension and Other Post-Retirement Benefit Plans and Other Employee Benefits
(continued)
Defined benefit plans (continued)
Swiss | Foreign | |||||||||||||||||||||||
CHF million | ||||||||||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||||||||||
Components of net periodic pension cost | ||||||||||||||||||||||||
Current service cost | 554 | 541 | 545 | 108 | 121 | 165 | ||||||||||||||||||
Interest cost | 699 | 674 | 666 | 210 | 204 | 162 | ||||||||||||||||||
Expected return on plan assets | (900 | ) | (947 | ) | (927 | ) | (199 | ) | (228 | ) | (243 | ) | ||||||||||||
Adjustment to limit prepaid pension cost | 206 | 339 | 300 | |||||||||||||||||||||
Amortization of unrecognized prior service cost | 209 | 262 | 211 | 1 | 3 | |||||||||||||||||||
Amortization of unrecognized net (gains)/losses | 22 | (9 | ) | |||||||||||||||||||||
Curtailment/settlement | (59 | ) | ||||||||||||||||||||||
Employee contributions | (209 | ) | (213 | ) | (205 | ) | (23 | ) | ||||||||||||||||
Net periodic pension cost | 559 | 656 | 590 | 83 | 97 | 55 | ||||||||||||||||||
Actual return on plan assets (%) | (7.5 | ) | (4.0 | ) | 2.9 | (8.7 | ) | (7.3 | ) | (0.9 | ) | |||||||||||||
Principal actuarial assumptions used (%) | ||||||||||||||||||||||||
Discount rate | 3.8 | 4.0 | 4.0 | 5.8 | 6.2 | 6.3 | ||||||||||||||||||
Expected rate of return on plan assets | 5.0 | 5.0 | 5.0 | 7.3 | 7.9 | 8.1 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.4 | 4.4 | 4.4 | ||||||||||||||||||
Rate of pension increase | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 | 1.6 | ||||||||||||||||||
Swiss | ||||||||||||||||||||||||
Additional details to fair value of plan assets | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||||||||
UBS financial instruments and UBS bank accounts | 814 | 476 | 920 | |||||||||||||||||||||
UBS AG shares1 | 206 | 305 | 291 | |||||||||||||||||||||
Securities lent to UBS included in plan assets | 2,645 | 824 | 3,432 | |||||||||||||||||||||
Other assets used by UBS included in plan assets | 90 | 104 | 179 | |||||||||||||||||||||
b) Post-retirement medical and life plans | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Post-retirement benefit obligation at the beginning of the year | (179 | ) | (166 | ) | (145 | ) | ||||||
Service cost | (6 | ) | (11 | ) | (8 | ) | ||||||
Interest cost | (9 | ) | (10 | ) | (9 | ) | ||||||
Plan amendments | (3 | ) | ||||||||||
Actuarial gain / (loss) | 8 | (14 | ) | (31 | ) | |||||||
Benefits paid | 8 | 6 | 4 | |||||||||
Foreign currency translation | 12 | 16 | 26 | |||||||||
Post-retirement benefit obligation at the end of the year | (166 | ) | (179 | ) | (166 | ) | ||||||
Fair value of plan assets at the beginning of the year | 0 | 2 | 3 | |||||||||
Actual return on plan assets | 0 | 0 | 0 | |||||||||
Employer contributions | 8 | 4 | 3 | |||||||||
Benefits paid | (8 | ) | (6 | ) | (4 | ) | ||||||
Fair value of plan assets at the end of the year | 0 | 0 | 2 | |||||||||
145
UBS Group Financial StatementsNotes to the Financial Statements
Note 31 Retirement Benefit Plans and Other Employee Benefits(continued)
Post-retirement medical and life plans
CHF million | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
Post-retirement benefit obligation at the beginning of the year | (145 | ) | (115 | ) | (117 | ) | ||||||
Service cost | (8 | ) | (7 | ) | (6 | ) | ||||||
Interest cost | (9 | ) | (9 | ) | (8 | ) | ||||||
Plan amendments | (3 | ) | (10 | ) | (7 | ) | ||||||
Actuarial gain/(loss) | (31 | ) | (6 | ) | 27 | |||||||
Benefits paid | 4 | 4 | 5 | |||||||||
Acquisition of PaineWebber | (9 | ) | ||||||||||
Foreign currency translation | 26 | (2 | ) | 0 | ||||||||
Post-retirement benefit obligation at the end of the year | (166 | ) | (145 | ) | (115 | ) | ||||||
Fair value of plan assets at the beginning of the year | 3 | 4 | 4 | |||||||||
Actual return on plan assets | 0 | 0 | 0 | |||||||||
Employer contributions | 3 | 3 | 4 | |||||||||
Benefits paid | (4 | ) | (4 | ) | (4 | ) | ||||||
Fair value of plan assets at the end of the year | 2 | 3 | 4 | |||||||||
The assumed average health care cost trend ratesrate used in determining post-retirement benefit expense is assumed to be 10.4%11% for 20022004 and to decrease to an ultimate trend rate of 5% in 2008.2011. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in the assumed health care cost trend rates would change the US post-retirement benefit obligation and the service and interest cost components of the net periodic post-retirement benefit costs as follows:
CHF million | 1% increase | 1% decrease | 1% increase | 1% decrease | ||||||||||||
Effect on total service and interest cost | 4 | (3 | ) | 3 | (3 | ) | ||||||||||
Effect on the post-retirement benefit obligation | 17 | (13 | ) | 22 | (18 | ) | ||||||||||
c) Defined contribution plans
146154
Note 32 Equity Participation Plans
UBS has established several equity participation plans to further align the long-term interests of executives, managers, staff and shareholders. The plans are offered to eligible employees in approximately 50 countries and are designed to meet the complex legal, tax and regulatory requirements of each country in which they are offered. The explanations below describe the most significant plans in general, but specific plan rules and investment offerings may vary by country.
pensation in UBS shares or optionsnotional UBS shares instead of cash, on a mandatory basis. Up to and are also awarded a matching contribution in the form of UBS options. Participantsincluding 2004, participants in certain countries arewere eligible to receive a portion of their award in UBS shares with a matching contribution in UBS options or in Alternative Investment Vehicles (AIVs). These are generally (generally money market funds,
UBS and non-UBS mutual funds and other UBS sponsored funds.funds). In 2002 and 2003, certain employees received UBS options instead of UBS shares for a portion of their EOP award. In 2005, AIVs and options will no longer be granted as part of EOP. EOP awards normally vest in one-third increments over a three-year vesting period. Under certain conditions, these awards are fully forfeitable by the employee.
147155
UBS Group Financial Statements
Notes to the Financial Statements
Note 32 Equity Participation Plans (continued)
b) UBS share awardsShare Awards
i) Stock compensation plans
ii) Stock purchase plansShares the various equity participation plans mentioned on the previous page are as follows: Stock bonus plans 31.12.02 31.12.01 31.12.00 Unvested shares outstanding, at the beginning of the year 52,299,332 47,458,928 14,418,646 Shares awarded during the year 13,511,655 16,850,859 1 39,188,528 1 Vested during the year (16,333,832 ) (10,740,466 )1 (5,215,503 )1 Forfeited during the year (1,340,594 ) (1,269,989 ) (932,743 ) Unvested shares outstanding, at the end of the year 48,136,561 52,299,332 47,458,928 Weighted-average fair market value of shares awarded (in CHF) 71 90 76 Fair market value of outstanding shares at the end of the year (CHF billion) 3.2 4.4 4.2 1 Restated for shares granted and fully vested at grant date. Stock compensation plans 31.12.04 31.12.03 31.12.02 Unvested shares outstanding, at the beginning of the year 31,383,890 48,136,561 52,299,332 Shares awarded during the year 11,713,406 11,023,553 13,511,655 Vested during the year (17,996,498 ) (26,915,860 ) (16,333,832 ) Forfeited during the year (463,979 ) (860,364 ) (1,340,594 ) Unvested shares outstanding, at the end of the year 24,636,819 31,383,890 48,136,561 Weighted-average fair market value of shares awarded (in CHF) 95 61 71 Fair market value of outstanding shares at the end of the year (CHF billion) 2.3 2.7 3.2 The stock bonus awards for 2000 include approximately 19.8 million shares granted under the retention agreements with key employees of UBS PaineWebber at the time of merger. Stock purchase plans 31.12.02 31.12.01 31.12.00 Share quantity purchased 3,822,907 2,922,515 1,264,725 Weighted-average purchase price (in CHF)1 63 63 44 1 Some of the shares purchased are denominated in US dollars and were converted into CHF for purposes of this table. Stock purchase plans 31.12.04 31.12.03 31.12.02 Share quantity purchased through discounted purchase plans 1,035,079 1,722,492 1,339,223 Weighted-average purchase price (in CHF) 45 31 40 Share quantity purchased through EP at fair market value 2,448,231 2,593,391 2,483,684 Weighted-average purchase price (in CHF) 93 61 77 Weighted-average purchase price (in USD) 73 49 46
156148
Note 32 Equity Participation Plans (continued)
c) UBS option awardsOption Awards
Movements in options granted under the various equity participation plans mentioned aboveon the previous page are as follows:
Weighted | Weighted | Weighted | Weighted- | Weighted- | Weighted- | |||||||||||||||||||||||||||||||||||||||||||
average | average | average | average | average | average | |||||||||||||||||||||||||||||||||||||||||||
exercise | exercise | exercise | exercise | exercise | exercise | |||||||||||||||||||||||||||||||||||||||||||
Number of | price | Number of | price | Number of | price | Number of | price | Number of | price | Number of | price | |||||||||||||||||||||||||||||||||||||
options | (in CHF) | options | (in CHF) | options | (in CHF) | options | (in CHF) | options | (in CHF) | options | (in CHF) | |||||||||||||||||||||||||||||||||||||
31.12.02 | 31.12.021 | 31.12.01 | 31.12.011 | 31.12.00 | 31.12.00 | 31.12.04 | 31.12.04 | 1 | 31.12.03 | 31.12.03 | 1 | 31.12.02 | 31.12.02 | 1 | ||||||||||||||||||||||||||||||||||
Outstanding, at the beginning of the year | 63,286,669 | 66 | 63,308,502 | 58 | 30,415,386 | 66 | 109,040,026 | 63 | 88,164,227 | 67 | 63,286,669 | 66 | ||||||||||||||||||||||||||||||||||||
Options due to the acquisition of PaineWebber | 18,975,8102 | 34 | ||||||||||||||||||||||||||||||||||||||||||||||
Granted during the year | 37,060,178 | 71 | 11,070,992 | 94 | 21,248,0463 | 72 | 24,113,252 | 91 | 38,969,319 | 59 | 37,060,178 | 71 | ||||||||||||||||||||||||||||||||||||
Exercised during the year | (9,595,133 | ) | 54 | (10,083,075 | ) | 49 | (5,390,307 | ) | 50 | (29,396,959 | ) | 58 | (14,782,471 | ) | 54 | (9,595,133 | ) | 54 | ||||||||||||||||||||||||||||||
Forfeited during the year | (2,082,356 | ) | 71 | (1,009,750 | ) | 74 | (1,940,433 | ) | 64 | (2,692,824 | ) | 66 | (2,721,970 | ) | 64 | (2,082,356 | ) | 71 | ||||||||||||||||||||||||||||||
Expired unexercised | (505,131 | ) | 77 | 0 | 0 | 0 | 0 | (156,141 | ) | 76 | (589,079 | ) | 76 | (505,131 | ) | 77 | ||||||||||||||||||||||||||||||||
Outstanding, at the end of the year | 88,164,227 | 67 | 63,286,669 | 66 | 63,308,502 | 58 | 100,907,354 | 69 | 109,040,026 | 63 | 88,164,227 | 67 | ||||||||||||||||||||||||||||||||||||
Exercisable, at the end of the year | 21,765,482 | 51 | 25,550,932 | 50 | 18,310,839 | 34 | 37,941,280 | 65 | 34,726,720 | 59 | 21,765,482 | 51 | ||||||||||||||||||||||||||||||||||||
The following table summarizes additional information about stock options outstanding at 31 December 2002:2004:
Options outstanding | Options exercisable | |||||||||||||||||||
Range of exercise | Number of options | Weighted-average | Weighted-average | Number of | Weighted-average | |||||||||||||||
prices per share | outstanding | exercise price | remaining contractual life | options exercisable | exercise price | |||||||||||||||
CHF | CHF | Years | CHF | |||||||||||||||||
56.67-70.00 | 18,132,696 | 63.02 | 2.3 | 5,643,680 | 58.37 | |||||||||||||||
70.01-85.00 | 25,733,308 | 77.99 | 7.1 | 6,406,246 | 79.00 | |||||||||||||||
85.01-106.00 | 5,565,873 | 98.51 | 5.2 | 31,800 | 90.00 | |||||||||||||||
56.67-106.00 | 49,431,877 | 74.81 | 5.1 | 12,081,726 | 69.39 | |||||||||||||||
USD | USD | Years | USD | |||||||||||||||||
6.34-15.00 | 3,986,289 | 8.91 | 1.8 | 3,986,289 | 8.91 | |||||||||||||||
15.01-25.00 | 2,340,754 | 22.52 | 2.2 | 2,340,754 | 22.52 | |||||||||||||||
25.01-35.00 | 2,870,675 | 27.05 | 4.0 | 2,870,675 | 27.05 | |||||||||||||||
35.01-45.00 | 222,175 | 39.24 | 9.6 | 0 | 0 | |||||||||||||||
45.01-55.00 | 27,328,610 | 46.85 | 7.7 | 451,038 | 47.72 | |||||||||||||||
55.01-66.08 | 1,983,847 | 57.96 | 5.1 | 35,000 | 57.80 | |||||||||||||||
6.34-66.08 | 38,732,350 | 40.54 | 6.4 | 9,683,756 | 19.56 | |||||||||||||||
Options outstanding | Options exercisable | |||||||||||||||||||||||
Range of exercise | Number of options | Weighted-average | Weighted-average | Number of | Weighted-average | |||||||||||||||||||
prices per share | outstanding | exercise price | remaining contractual life | options exercisable | exercise price | |||||||||||||||||||
CHF | CHF | Years | CHF | |||||||||||||||||||||
53.37–70.00 | 18,600,149 | 61.19 | 6.7 | 6,781,903 | 63.74 | |||||||||||||||||||
70.01–85.00 | 16,437,141 | 78.01 | 6.6 | 8,820,175 | 77.90 | |||||||||||||||||||
85.01–103.75 | 17,577,171 | 96.82 | 7.7 | 5,277,876 | 99.54 | |||||||||||||||||||
53.37–103.75 | 52,614,461 | 78.35 | 7.0 | 20,879,954 | 78.77 | |||||||||||||||||||
USD | USD | Years | USD | |||||||||||||||||||||
7.65–35.00 | 3,185,982 | 21.00 | 1.6 | 3,185,982 | 21.00 | |||||||||||||||||||
35.01–45.00 | 11,460,304 | 43.13 | 8.1 | 1,868,770 | 43.33 | |||||||||||||||||||
45.01–55.00 | 19,076,401 | 47.57 | 6.2 | 10,590,462 | 47.41 | |||||||||||||||||||
55.01–81.97 | 14,570,206 | 71.11 | 8.7 | 1,416,112 | 58.13 | |||||||||||||||||||
7.65–81.97 | 48,292,893 | 51.86 | 7.1 | 17,061,326 | 42.92 | |||||||||||||||||||
Options are normally granted with a strike price either equal to fair market value or approximately 10% greater than the fair value of the underlying share on the grant date.
149
UBS Group Financial StatementsNotes to the Financial Statements
Note 32 Equity Participation Plans (continued)
d) Compensation Expense
Generally the Group’s policy is to recognize expense at the date of grantunder IFRS, for all equity participation instruments (shares, cash-settled warrants options and other cash-settled derivatives for which the underlying is UBS shares) except options, UBS accrues expense in the Group’s own shares). Theperformance year and determines the number of instruments granted to employees based on the instrument’s market price at the grant date, which is generally in the year following the performance year. For options, the amount of expense recognized is equal to the intrinsic value of the instrument at suchgrant date and is calculated as follows: 1) For stock options, it is(i. e. the difference between the strike price and fair market value of shares at the date of grant, if any. 2) For UBS shares and othergrant.
derivative instruments, itThis difference is generally zero, as option strike prices are generally at or above the fair market value. 3)prices of the shares). For discounted sharepurchase plans, the expense is equal to the difference between the fair market value and the discounted value.value and is accrued for in the performance year. Management’s estimate of the accrued expense before tax for share-based compensation for the years ended 31 December 2004, 2003 and 2002 2001was CHF 1,406 million, CHF 833 million and 2000 was CHF 592 million, CHF 974 million and CHF 1,749 million, respectively. The accruals include awards earned currently but issued in the following year.
157
Financial Statements
Notes to the Financial Statements
Note 32 Equity Participation Plans (continued)
e) Pro-Forma Net Income
The following table presents IFRS Net incomeprofit and Earnings per share for 2002, 20012004, 2003 and 20002002 as if the GroupUBS had adoptedapplied the fair value method of accounting for its equity participation plans, ratherplans. The fair value method would recognize expense equal to the fair value of option awards at grant, which is higher than the intrinsic value method described
in paragraph d) above. In addition,because of the table shows amounts already recorded in the Income statement for equity participation plans and the total expense that would have been recognized had the fairtime value method been applied.
CHF million, except per share data | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Net profit, as reported | 8,089 | 6,239 | 3,530 | |||||||||
Add: Equity-based employee compensation expense included in reported net income, net of tax | 1,131 | 630 | 493 | |||||||||
Deduct: Total equity-based employee compensation expense determined under the fair-value-based method for all awards, net of tax | (1,639 | ) | (1,069 | ) | (1,183 | ) | ||||||
Net profit, pro-forma | 7,581 | 5,800 | 2,840 | |||||||||
Earnings per share | ||||||||||||
Basic, as reported | 7.68 | 5.59 | 2.92 | |||||||||
Basic, pro-forma | 7.20 | 5.19 | 2.35 | |||||||||
Diluted, as reported | 7.47 | 5.48 | 2.87 | |||||||||
Diluted, pro-forma | 7.00 | 5.09 | 2.31 | |||||||||
CHF million, except per share data | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||
Net Income, as reported | 3,535 | 4,973 | 7,792 | ||||||||||
Add: Equity-based employee compensation expense included in reported net income, net of tax | 493 | 769 | 1,347 | ||||||||||
Deduct: Total equity-based employee compensation expense determined under the fair-value-based method for all awards, net of tax | (1,183 | ) | (1,116 | ) | (1,505 | ) | |||||||
Net income, pro-forma | 2,845 | 4,626 | 7,634 | ||||||||||
Earnings per share | |||||||||||||
Basic, as reported | 2.92 | 3.93 | 6.44 | ||||||||||
Basic, pro-forma | 2.35 | 3.65 | 6.31 | ||||||||||
Diluted, as reported | 2.87 | 3.78 | 6.35 | ||||||||||
Diluted, pro-forma | 2.31 | 3.51 | 6.22 | ||||||||||
The fair value of options granted was determined using a proprietary option pricing model, substantially similar to the Black-Scholes model, with the following assumptions:
31.12.02 | 31.12.01 | 31.12.00 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||||||
Expected volatility | 35 | % | 30 | % | 30 | % | 34% | 35% | 35% | |||||||||||||||
Risk free interest rate (CHF) | 3.28 | % | 3.51 | % | 3.27 | % | ||||||||||||||||||
Risk free interest rate (USD) | 4.65 | % | 5.81 | % | 5.66 | % | ||||||||||||||||||
Risk-free interest rate (CHF) | 2.03% | 1.70% | 3.28% | |||||||||||||||||||||
Risk-free interest rate (USD) | 3.70% | 3.17% | 4.65% | |||||||||||||||||||||
Expected dividend rate | 3.35 | % | 2.67 | % | 2.44 | % | 3.87% | 4.43% | 3.35% | |||||||||||||||
Expected life (years) | 4.5 | 4.5 | 4.4 | 5.6 | 4.5 | 4.5 | ||||||||||||||||||
The weighted-average fair value of options granted in 2002, 20012004, 2003 and 20002002 was CHF 20,25, CHF 2315 and CHF 1620 per share, respectively.
158
150
Note 33 Related Parties
The Group defines related parties as Associated companies, private equity investees, the Board of Directors, the Group Executive Board, close family members and enterprises which are controlled by these individuals through their majority shareholding or their role as chairman a) Remuneration and equity holdings The external members of the Board of Directors do not have employment or service contracts with UBS, and thus are not entitled to benefits upon termination of their service on the Board of Directors. Total fees paid to these individuals for their services as external board members amounted to CHF 5.7 million in 2004, CHF 5.4 million in 2003 and CHF 3.5 million in For its 2002 Financial Statements, theand/and / or CEO in those companies. In 2001 and 2000, the Group Managing Board was also included in the above definition. The change inThis definition is due tobased on the requirements of the “Directive on Information Relating to Corporate Governance” issued by the SWX Swiss Exchange and effective from 1 July 2002 for all listed companies in Switzerland. Included in the new rules are specific disclosure requirements for members of the Board of Directors and “management board”. For UBS, the Group Executive Board meets the definition of “management board” under the directive. Members of the Group Managing Board, however, are excluded from the new SWX requirements. The modification is also a response to the expansion of the Group Executive Board and the Group Managing Board during 2002. The number of Group Executive Board members increased from six to ten and the Group Managing Board members from thirty to fifty-two. Prior period figures and share and option quantities are based on the definition applied for 2001 and 2000.remunerationcompensation numbers exclude merger-related retention payments for the two ex-PaineWebber executives of CHF 21.1 million (USD 17.0 million) in 2003 and CHF 20.6 million (USD 14.9 million) in 2002. These retention payments were committed to at the executive memberstime of the Board of Directors, Group Executive Boardmerger in 2000 and Group Managing Board including accrued pension benefits amounted to CHF 321.4 millionfully disclosed at the time. No additional payments were due in 2001 and CHF 272.3 million in 2000.2002, CHF 3.3 million in 2001 and CHF 3.3 million in 2000.2002.
The number of long-term stock options and warrants outstanding to the executive members of the Board of Directors and Group Executive Board from equity participation plans was 6,004,997 (equivalent to the same number of shares) at 31 December 2004, 6,218,011 options (equivalent to the same number of shares) and 120,264 warrants (equivalent to 7,214 shares) at 31 December 2003 and 5,410,172 options (equivalent to the same number of shares) and 24,558,529 warrants (equivalent to 1,473,217 UBS shares) at 31 December 2002. The number of long-term stock options and warrants to these two groups plus the Group Managing Board amounted to 8,366,103 (equivalent to the same number of shares) and 60,578,417 (equivalent to 6,002,599 shares) at 31 December 2001. These plans are further explained in Note 32, Equity Participation Plans.
b) Loans and advances to Board of Directors and senior executives
151159
UBS Group Financial Statements
Notes to the Financial Statements
Note 33 Related Parties (continued)
c) Loans, advances to and transactions with significant associated companies
Note 33 Related Parties (continued) | Note 33 Related Parties (continued) | |||||||||||||||
c) Loans to significant associated companies | c) Loans to significant associated companies | |||||||||||||||
CHF million | 31.12.02 | 31.12.01 | 31.12.04 | 31.12.03 | ||||||||||||
Balance at the beginning of the year | 65 | 0 | 63 | 40 | ||||||||||||
Additions | 10 | 65 | 38 | 48 | ||||||||||||
Reductions | (35 | ) | 0 | (36 | ) | (25 | ) | |||||||||
Balance at the end of the year | 40 | 65 | 65 | 63 | ||||||||||||
All loans and advances to associated companies are transacted at arm’s length. At 31 December 20022004 and 2001,2003, there were trading exposurescommitments and guaranteescontingent liabilities to significant associated companies of CHF 13655 million and CHF 30614 million, respectively. In addition, the Group routinely receives services from associated companies at arm’s length terms. For the years ended 31 December 20022004, 31 December 2003 and 31 December 2001,2002, the amount paid to significant associates for these services was CHF 60248 million, CHF 106 million and CHF 9860 million, respectively. Fees received for services provided to associated companies for the years ended 31 December 2004, 31 December 2003 and 31 December 2002 was CHF 180 million, CHF 122 million and CHF 2 million, respectively.
d) Loans, advances to and transactions with private equity investees
d) Loans to private equity investees | d) Loans to private equity investees | |||||||||||||||
CHF million | 31.12.02 | 31.12.01 | 31.12.04 | 31.12.03 | ||||||||||||
Balance at the beginning of the year | 489 | 682 | 366 | 338 | ||||||||||||
Additions | 328 | 65 | 46 | 153 | ||||||||||||
Reductions | (479 | ) | (258 | ) | (222 | ) | (125 | ) | ||||||||
Balance at the end of the year | 338 | 489 | 190 | 366 | ||||||||||||
At 31 December 20022004 and 31 December 20012003, there were trading exposurescommitments and guarantees or commitmentscontingent liabilities to private equity companies of CHF 7336 million and CHF 17723 million, respectively. In addition the Group purchased services from private equity companies at arm’s length terms for the years ended 31 December 20022004, 31 December 2003 and 31 December 20012002 in the amount of CHF 1160 million, CHF 14 million and CHF 196116 million, respectively.
e) Other related party transactions
Other related party transactions | Other related party transactions | |||||||||||||||
CHF million | 2002 | 2001 | 2004 | 2003 | ||||||||||||
Goods sold and services provided by related parties to UBS | 54 | 38 | 34 | 43 | ||||||||||||
Services provided to related parties by UBS (fees received) | 13 | 17 | 10 | 7 | ||||||||||||
Loans granted to related parties by UBS | 140 | 0 | ||||||||||||||
Loans granted to related parties by UBS1 | 294 | 79 | ||||||||||||||
As part of its sponsorship of Team Alinghi, defender for the “America’s Cup 2007”, UBS paid CHF 128.5 million to AC 2003 SA during 2002. AC 2003 SA, whose(EUR 5.5 million) as sponsoring fee for 2004 and CHF 1.4 million (EUR 0.9 million) as sponsoring fee for the UBS Trophy in New Port, RI, USA. Team Alinghi’s controlling shareholder is UBS board member Ernesto Bertarelli,Bertarelli.
UBS also engages in trading and risk management activities (e.g. swaps, options, forwards) with related parties. These transactions may give rise to credit risk either for UBS or for a related party towards UBS. As part of its normal course of business, UBS is Team Alinghi’s management company.also a market maker in equity and debt instruments and at times may hold positions in instruments of related parties.
160
152
Note 34 Sales of Financial Assets in Securitizations
During the years ended 31 December 2004, 2003 and 2002, UBS securitized (i.e., transformed owned financial assets into securities through sales transactions) residential mortgage loans and securities, commercial mortgage loans and other financial assets, acting as lead or co-manager. UBS’s continuing involvement in these transactions was primarily limited to the temporary retention of various security interests.
Proceeds received at the time of securitization were as follows:
Proceeds received | ||||||||||||
CHF billion | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Residential mortgage securitizations | 91 | 131 | 143 | |||||||||
Commercial mortgage securitizations | 3 | 4 | 4 | |||||||||
Other financial asset securitizations | 9 | 2 | 6 | |||||||||
Related pre-tax gains (losses) recognized, including unrealized gains (losses) on retained interests, at the time of securitization were as follows:
Pre-tax gains / (losses) recognized | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Residential mortgage securitizations | 197 | 338 | 524 | |||||||||
Commercial mortgage securitizations | 141 | 214 | 206 | |||||||||
Other financial asset securitizations | 21 | 2 | (5 | ) | ||||||||
At 31 December 2004 and 2003, UBS retained CHF 2.4 billion and CHF 3.8 billion, respectively, in agency residential mortgage securities, backed by the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). The fair value of retained interests in residential mortgage securities is generally determined using observable market prices. Retained interests in other residential mortgage, commercial mortgage and other securities were not material at 31 December 2004 and 2003.
Note 3435 Post-Balance Sheet Events
There have been no material post-balance sheet events which would require disclosure or adjustment to the 31 December 20022004 Financial Statements.
On 113 February 2003,2005, the Board of Directors reviewed the Financial Statements and authorized them for issue. These Financial Statements will be submitted to the Annual General Meeting of Shareholders to be held on 1621 April 20032005 for approval.
161
Financial Statements
Notes to the Financial Statements
Note 3536 Significant Subsidiaries and Associates
The legal entity group structure of UBS is designed to support the Group’s businesses within an efficient legal, tax, regulatory and funding framework. Neither the Business Groups of UBS (namely UBS Warburg, UBS PaineWebber, UBSInvestment Bank, Wealth Management USA, Wealth Management & Business Banking and UBSGlobal Asset Management) nor Corporate Center are replicated in their own individual legal entities but rather they generally operate out of the parent bank, UBS AG, through its Swiss and foreign branches.
Significant subsidiaries | ||||||||||||||
Share | Equity | |||||||||||||
Jurisdiction | Business | capital | interest | |||||||||||
Company | of incorporation | Group1 | in millions | accumulated in % | ||||||||||
Banco UBS SA | Rio de Janeiro, Brazil | IB | BRL | 52.9 | 100.0 | |||||||||
BDL Banco di Lugano | Lugano, Switzerland | CC | CHF | 50.0 | 100.0 | |||||||||
BDL Banco di Lugano (Singapore) Ltd | Singapore, Singapore | CC | SGD | 25.0 | 100.0 | |||||||||
Brunswick UBS Ltd | George Town, Cayman Islands | IB | USD | 25.0 | 100.0 | |||||||||
Cantrade Private Bank Switzerland (CI) Limited | St. Helier, Jersey | CC | GBP | 0.7 | 100.0 | |||||||||
Crédit Industriel SA | Zurich, Switzerland | WM&BB | CHF | 10.0 | 100.0 | |||||||||
Ehinger & Armand von Ernst AG | Zurich, Switzerland | CC | CHF | 21.0 | 100.0 | |||||||||
Factors AG | Zurich, Switzerland | WM&BB | CHF | 5.0 | 100.0 | |||||||||
Ferrier Lullin & Cie SA | Geneva, Switzerland | CC | CHF | 30.0 | 100.0 | |||||||||
GAM Holding AG | Zurich, Switzerland | CC | CHF | 50.0 | 100.0 | |||||||||
GAM Limited | Hamilton, Bermuda | CC | USD | 2.0 | 100.0 | |||||||||
Giubergia UBS SIM SpA | Milan, Italy | IB | EUR | 15.1 | 51.7 | |||||||||
Noriba Bank BSC | Manama, Bahrain | WM&BB | USD | 10.0 | 100.0 | |||||||||
PaineWebber Capital Inc | Delaware, USA | WM-US | USD | 25.8 | 2 | 100.0 | ||||||||
PT UBS Securities Indonesia | Jakarta, Indonesia | IB | IDR | 50,000.0 | 96.7 | |||||||||
SBC Wealth Management AG | Zug, Switzerland | CC | CHF | 290.1 | 100.0 | |||||||||
SBCI IB Limited | London, Great Britain | IB | GBP | 100.0 | 100.0 | |||||||||
SG Warburg & Co International BV | Amsterdam, the Netherlands | IB | GBP | 40.5 | 100.0 | |||||||||
Thesaurus Continentale Effekten-Gesellschaft in Zürich | Zurich, Switzerland | WM&BB | CHF | 0.1 | 100.0 | |||||||||
UBS (Bahamas) Ltd | Nassau, Bahamas | WM&BB | USD | 4.0 | 100.0 | |||||||||
UBS (France) SA | Paris, France | WM&BB | EUR | 10.7 | 100.0 | |||||||||
UBS (Italia) SpA | Milan, Italy | WM&BB | EUR | 42.0 | 100.0 | |||||||||
UBS (Luxembourg) SA | Luxembourg, Luxembourg | WM&BB | CHF | 150.0 | 100.0 | |||||||||
UBS (Monaco) SA | Monte Carlo, Monaco | WM&BB | EUR | 9.2 | 100.0 | |||||||||
UBS (Trust and Banking) Limited | Tokyo, Japan | Global AM | JPY | 11,150.0 | 100.0 | |||||||||
UBS Advisory and Capital Markets Australia Ltd | Sydney, Australia | IB | AUD | 580.8 | 2 | 100.0 | ||||||||
UBS Alternative and Quantitative Investments LLC | Delaware, USA | Global AM | USD | 0.0 | 100.0 | |||||||||
UBS Americas Inc | Delaware, USA | IB | USD | 4,550.8 | 2 | 100.0 | ||||||||
UBS Asesores SA | Panama, Panama | WM&BB | USD | 0.0 | 100.0 | |||||||||
UBS Australia Limited | Sydney, Australia | IB | AUD | 50.0 | 100.0 | |||||||||
UBS Bank (Canada) | Toronto, Canada | WM&BB | CAD | 8.5 | 100.0 | |||||||||
UBS Bank USA | Utah, USA | WM-US | USD | 1,700.0 | 2 | 100.0 | ||||||||
UBS Belgium SA/NV | Brussels, Belgium | WM&BB | EUR | 16.0 | 100.0 | |||||||||
UBS Beteiligungs-GmbH & Co KG | Frankfurt am Main, Germany | IB | EUR | 498.8 | 100.0 | |||||||||
UBS Capital (Jersey) Ltd | St. Helier, Jersey | IB | GBP | 226.0 | 100.0 | |||||||||
UBS Capital AG | Zurich, Switzerland | IB | CHF | 5.0 | 100.0 | |||||||||
Footnotes
Significant subsidiaries
Equity | ||||||||||||||
Share | interest | |||||||||||||
Jurisdiction | Business | capital | accumul- | |||||||||||
Company | of incorporation | Group1 | in millions | ated in % | ||||||||||
Armand von Ernst & Cie AG | Berne, Switzerland | WB | CHF | 5.0 | 100.0 | |||||||||
Aventic AG | Zurich, Switzerland | WB | CHF | 30.0 | 100.0 | |||||||||
Banco UBS Warburg SA | Rio de Janeiro, Brazil | WA | BRL | 52.9 | 100.0 | |||||||||
Bank Ehinger & Cie AG | Basel, Switzerland | WB | CHF | 6.0 | 100.0 | |||||||||
BDL Banco di Lugano | Lugano, Switzerland | WB | CHF | 50.0 | 100.0 | |||||||||
BDL Banco di Lugano (Singapore) Ltd | Singapore, Singapore | WB | CHF | 22.5 | 100.0 | |||||||||
Brunswick UBS Warburg Ltd | George Town, Cayman Islands | WA | USD | 25.0 | 2 | 50.0 | ||||||||
Cantrade Privatbank AG | Zurich, Switzerland | WB | CHF | 10.0 | 100.0 | |||||||||
Cantrade Private Bank | ||||||||||||||
Switzerland (CI) Limited | St. Helier, Jersey | WB | GBP | 0.7 | 100.0 | |||||||||
Crédit Industriel SA | Zurich, Switzerland | WB | CHF | 10.0 | 100.0 | |||||||||
EIBA AG | Zurich, Switzerland | WA | CHF | 1.4 | 100.0 | |||||||||
Factors AG | Zurich, Switzerland | WB | CHF | 5.0 | 100.0 | |||||||||
Ferrier Lullin & Cie SA | Geneva, Switzerland | WB | CHF | 30.0 | 100.0 | |||||||||
Fondvest AG | Zurich, Switzerland | AM | CHF | 4.3 | 100.0 | |||||||||
GAM Holding AG | Zurich, Switzerland | AM | CHF | 200.0 | 100.0 | |||||||||
Global Asset Management Limited, Bermuda | Hamilton, Bermuda | AM | USD | 2.0 | 100.0 | |||||||||
IL Immobilien-Leasing AG | Opfikon, Switzerland | WB | CHF | 5.0 | 100.0 | |||||||||
Noriba Bank BSC | Manama, Bahrain | WB | USD | 10.0 | 100.0 | |||||||||
PaineWebber Capital Inc | Delaware, USA | PW | USD | 25.8 | 2 | 100.0 | ||||||||
PT UBS Warburg Indonesia | Jakarta, Indonesia | WA | IDR | 11,000.0 | 85.0 | |||||||||
PW Trust Company | New Jersey, USA | PW | USD | 4.4 | 2 | 99.6 | ||||||||
SG Warburg & Co International BV | Amsterdam, the Netherlands | WA | GBP | 40.5 | 100.0 | |||||||||
153
Note 36 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued) | ||||||||||||||
Share | Equity | |||||||||||||
Jurisdiction | Business | capital | interest | |||||||||||
Company | of incorporation | Group1 | in millions | accumulated in % | ||||||||||
UBS Capital Americas Investments II LLC | Delaware, USA | IB | USD | 130.0 | 2 | 100.0 | ||||||||
UBS Capital Americas Investments III Ltd | George Town, Cayman Islands | IB | USD | 61.1 | 2 | 100.0 | ||||||||
UBS Capital Asia Pacific Limited | George Town, Cayman Islands | IB | USD | 5.0 | 100.0 | |||||||||
UBS Capital BV | Amsterdam, the Netherlands | IB | EUR | 118.8 | 2 | 100.0 | ||||||||
UBS Capital II LLC | Delaware, USA | IB | USD | 2.6 | 2 | 100.0 | ||||||||
UBS Capital Latin America LDC | George Town, Cayman Islands | IB | USD | 113.0 | 2 | 100.0 | ||||||||
UBS Capital LLC | Delaware, USA | IB | USD | 378.5 | 2 | 100.0 | ||||||||
UBS Capital SpA | Milan, Italy | IB | EUR | 0.8 | 100.0 | |||||||||
UBS Card Center AG | Glattbrugg, Switzerland | WM&BB | CHF | 40.0 | 100.0 | |||||||||
UBS Corporate Finance Italia SpA | Milan, Italy | IB | EUR | 1.9 | 100.0 | |||||||||
UBS Corporate Finance South Africa (Proprietary) Limited | Sandton, South Africa | IB | ZAR | 0.0 | 100.0 | |||||||||
UBS Derivatives Hong Kong Limited | Hong Kong, China | IB | HKD | 60.0 | 100.0 | |||||||||
UBS Employee Benefits Trust Limited | St. Helier, Jersey | CC | CHF | 0.0 | 100.0 | |||||||||
UBS Energy Canada Ltd. | Calgary, Canada | IB | USD | 11.3 | 100.0 | |||||||||
UBS Energy LLC | Delaware, USA | IB | USD | 0.0 | 100.0 | |||||||||
UBS Equity Research Malaysia Sdn Bhd | Kuala Lumpur, Malaysia | IB | MYR | 0.5 | 70.0 | |||||||||
UBS España SA | Madrid, Spain | WM&BB | EUR | 54.2 | 100.0 | |||||||||
UBS Fiduciaria SpA | Milan, Italy | WM&BB | EUR | 0.2 | 100.0 | |||||||||
UBS Fiduciary Trust Company | New Jersey, USA | WM-US | USD | 4.4 | 2 | 99.6 | ||||||||
UBS Finance (Cayman Islands) Ltd | George Town, Cayman Islands | CC | USD | 0.5 | 100.0 | |||||||||
UBS Finance (Curação) NV | Willemstad, Netherlands Antilles | CC | USD | 0.1 | 100.0 | |||||||||
UBS Finance (Delaware) LLC | Delaware, USA | IB | USD | 37.3 | 2 | 100.0 | ||||||||
UBS Financial Services Inc. | Delaware, USA | WM-US | USD | 1,672.3 | 2 | 100.0 | ||||||||
UBS Financial Services Incorporated of Puerto Rico | Hato Rey, Puerto Rico | WM-US | USD | 31.0 | 2 | 100.0 | ||||||||
UBS Fund Advisor LLC | Delaware, USA | WM-US | USD | 0.0 | 100.0 | |||||||||
UBS Fund Holding (Luxembourg) SA | Luxembourg, Luxembourg | Global AM | CHF | 42.0 | 100.0 | |||||||||
UBS Fund Holding (Switzerland) AG | Basel, Switzerland | Global AM | CHF | 18.0 | 100.0 | |||||||||
UBS Fund Management (Switzerland) AG | Basel, Switzerland | Global AM | CHF | 1.0 | 100.0 | |||||||||
UBS Fund Services (Cayman) Ltd | George Town, Cayman Islands | Global AM | USD | 5.6 | 100.0 | |||||||||
UBS Fund Services (Ireland) Limited | Dublin, Ireland | Global AM | EUR | 0.5 | 100.0 | |||||||||
UBS Fund Services (Luxembourg) SA | Luxembourg, Luxembourg | Global AM | CHF | 2.5 | 100.0 | |||||||||
UBS Global Asset Management (Americas) Inc | Delaware, USA | Global AM | USD | 0.0 | 100.0 | |||||||||
UBS Global Asset Management (Australia) Ltd | Sydney, Australia | Global AM | AUD | 8.0 | 100.0 | |||||||||
UBS Global Asset Management (Canada) Co | Toronto, Canada | Global AM | CAD | 117.0 | 100.0 | |||||||||
UBS Global Asset Management (France) SA | Paris, France | WM&BB | EUR | 2.1 | 100.0 | |||||||||
UBS Global Asset Management (Hong Kong) Limited | Hong Kong, China | Global AM | HKD | 25.0 | 100.0 | |||||||||
UBS Global Asset Management (Italia) SIM SpA | Milan, Italy | Global AM | EUR | 2.0 | 100.0 | |||||||||
UBS Global Asset Management (Japan) Ltd | Tokyo, Japan | Global AM | JPY | 2,200.0 | 100.0 | |||||||||
UBS Global Asset Management (Singapore) Holdings Pte Ltd | Singapore, Singapore | Global AM | SGD | 4.0 | 100.0 | |||||||||
UBS Global Asset Management (Taiwan) Ltd | Taipei, Taiwan | Global AM | TWD | 340.0 | 97.1 | |||||||||
UBS Global Asset Management (US) Inc | Delaware, USA | Global AM | USD | 35.2 | 2 | 100.0 | ||||||||
UBS Global Asset Management Holding Ltd | London, Great Britain | Global AM | GBP | 33.0 | 100.0 | |||||||||
UBS Global Life AG | Vaduz, Liechtenstein | WM&BB | CHF | 5.0 | 100.0 | |||||||||
UBS Global Trust Corporation | St. John, Canada | WM&BB | CAD | 0.1 | 100.0 | |||||||||
UBS International Holdings BV | Amsterdam, the Netherlands | CC | EUR | 6.8 | 100.0 | |||||||||
UBS International Inc | New York, USA | WM&BB | USD | 34.3 | 2 | 100.0 | ||||||||
UBS International Life Limited | Dublin, Ireland | WM&BB | EUR | 1.0 | 100.0 | |||||||||
163
Footnotes
UBS Group Financial Statements
Notes to the Financial Statements
Note WM&BB: Wealth Management & Business Banking, Global AM: Global Asset Management, IB: Investment Bank, WM-US: Wealth Management USA, CC: Corporate Center, IH: Industrial Holdings.3536 Significant Subsidiaries and Associates (continued) Significant subsidiaries (continued) Share Equity Jurisdiction Business capital interest Company of incorporation Group1 in millions accumulated in % UBS Invest Kapitalanlagegesellschaft mbH Frankfurt am Main, Germany Global AM EUR 7.7 100.0 UBS Investment Bank AG Frankfurt am Main, Germany IB EUR 155.7 100.0 UBS Investment Bank Nederland BV Amsterdam, the Netherlands IB EUR 10.9 100.0 UBS Laing and Cruickshank Limited London, Great Britain WM&BB GBP 2.5 100.0 UBS Leasing AG Brugg, Switzerland WM&BB CHF 10.0 100.0 UBS Life AG Zurich, Switzerland WM&BB CHF 25.0 100.0 UBS Limited London, Great Britain IB GBP 21.2 100.0 UBS Loan Finance LLC Delaware, USA IB USD 16.7 100.0 UBS Mortgage Holdings LLC Delaware, USA WM-US USD 0.0 100.0 UBS New Zealand Limited Auckland, New Zealand IB NZD 7.5 100.0 UBS O’Connor LLC Delaware, USA Global AM USD 1.0 100.0 UBS PaineWebber Life Insurance Company California, USA WM-US USD 39.3 2 100.0 UBS Portfolio LLC Delaware, USA IB USD 0.1 100.0 UBS Preferred Funding Company LLC I Delaware, USA CC USD 0.0 100.0 UBS Preferred Funding Company LLC II Delaware, USA CC USD 0.0 100.0 UBS Preferred Funding Company LLC III Delaware, USA CC USD 0.0 100.0 UBS Preferred Funding Company LLC IV Delaware, USA CC USD 0.0 100.0 UBS Principal Finance LLC Delaware, USA IB USD 0.1 100.0 UBS Private Clients Australia Ltd Melbourne, Australia WM&BB AUD 53.9 100.0 UBS Real Estate Investments Inc Delaware, USA IB USD 0.3 100.0 UBS Real Estate Securities Inc Delaware, USA IB USD 0.4 100.0 UBS Realty Investors LLC Connecticut, USA Global AM USD 9.3 100.0 UBS Securities (Thailand) Ltd Bangkok, Thailand IB THB 400.0 100.0 UBS Securities Asia Limited Hong Kong, China IB HKD 20.0 100.0 UBS Securities Australia Ltd Sydney, Australia IB AUD 209.8 2 100.0 UBS Securities Canada Inc Toronto, Canada IB CAD 10.0 50.0 UBS Securities España Sociedad de Valores SA Madrid, Spain IB EUR 15.0 100.0 UBS Securities France SA Paris, France IB EUR 22.9 100.0 UBS Securities Hong Kong Limited Hong Kong, China IB HKD 230.0 100.0 UBS Securities India Private Limited Mumbai, India IB INR 237.8 75.0 UBS Securities International Limited London, Great Britain IB GBP 18.0 100.0 UBS Securities Japan Ltd George Town, Cayman Islands IB JPY 60,000.0 100.0 UBS Securities Limited London, Great Britain IB GBP 140.0 100.0 UBS Securities Limited Seoul Branch Seoul, South Korea IB KRW 0.0 100.0 UBS Securities LLC Delaware, USA IB USD 2,141.4 2 100.0 UBS Securities Philippines Inc Makati City, Philippines IB PHP 150.0 100.0 UBS Securities Singapore Pte Ltd Singapore, Singapore IB SGD 55.0 100.0 UBS Services USA LLC Delaware, USA WM-US USD 0.0 100.0 UBS Securities South Africa (Proprietary) Limited Sandton, South Africa IB ZAR 87.1 2 100.0 UBS Trust (Canada) Toronto, Canada WM&BB CAD 12.5 100.0 UBS Trust Company National Association New York, USA WM-US USD 5.0 2 100.0 UBS Trustees (Bahamas) Ltd Nassau, Bahamas WM&BB USD 2.0 100.0 UBS Trustees (Cayman) Ltd George Town, Cayman Islands WM&BB USD 2.0 100.0 UBS Trustees (Jersey) Ltd St. Helier, Jersey WM&BB GBP 0.0 100.0 UBS Trustees (Singapore) Limited Singapore, Singapore WM&BB SGD 3.3 100.0 UBS UK Holding Limited London, Great Britain IB GBP 5.0 100.0 UBS Wealth Management AG Frankfurt, Germany WM&BB EUR 51.0 100.0 Significant subsidiaries (continued)2 Equity Share interest Jurisdiction Business capital accumul- Company of incorporation Group1 in millions ated in % Thesaurus Continentale Effekten-Gesellschaft in Zürich Zurich, Switzerland WB CHF 30.0 100.0 UBS (Bahamas) Ltd Nassau, Bahamas WB USD 4.0 100.0 UBS (France) SA Paris, France WB EUR 10.0 100.0 UBS (Italia) SpA Milan, Italy WB EUR 22.2 100.0 UBS (Luxembourg) SA Luxembourg, Luxembourg WB CHF 150.0 100.0 UBS (Monaco) SA Monte Carlo, Monaco WB EUR 9.2 100.0 UBS (Sydney) Limited Sydney, Australia WA AUD 12.7 100.0 UBS (Trust and Banking) Limited Tokyo, Japan AM JPY 10,900.0 100.0 UBS (USA) Inc Delaware, USA WA USD 315.0 100.0 UBS Americas Inc Delaware, USA WA USD 4,490.82 100.0 UBS Australia Limited Sydney, Australia WA AUD 50.0 100.0 UBS Bank (Canada) Toronto, Canada WB CAD 20.7 100.0 UBS Beteiligungs-GmbH & Co KG Frankfurt, Germany WA EUR 398.8 100.0 UBS Bunting Warburg Inc Toronto, Canada WA CAD 33.3 50.0 UBS Capital (Jersey) Ltd St. Helier, Jersey WA GBP 226.0 100.0 UBS Capital AG Zurich, Switzerland WA CHF 5.0 100.0 UBS Capital Americas Investments II LLC Delaware, USA WA USD 130.0 2 100.0 UBS Capital Americas Investments III Ltd George Town, Cayman Islands WA USD 61.0 2 100.0 UBS Capital Asia Pacific Limited George Town, Cayman Islands WA USD 5.0 100.0 UBS Capital BV Amsterdam, the Netherlands WA EUR 104.1 2 100.0 UBS Capital II LLC Delaware, USA WA USD 2.6 2 100.0 UBS Capital Latin America LDC George Town, Cayman Islands WA USD 113.0 2 100.0 UBS Capital LLC Delaware, USA WA USD 378.5 2 100.0 UBS Capital Partners Limited London, Great Britain WA GBP 6.7 100.0 UBS Capital SpA Milan, Italy WA EUR 25.8 100.0 UBS Card Center AG Glattbrugg, Switzerland WB CHF 40.0 100.0 UBS Employee Benefits Trust Limited St. Helier, Jersey CC CHF — 100.0 UBS España SA Madrid, Spain WB EUR 85.3 100.0 UBS Fiduciaria SpA Milan, Italy WB EUR 0.2 100.0 UBS Finance (Cayman Islands) Ltd George Town, Cayman Islands CC USD 0.5 100.0 UBS Finance (Curação) NV Willemstad, Netherlands CC USD 0.1 100.0 Antilles UBS Finance (Delaware) LLC Delaware, USA WA USD 37.3 2 100.0 UBS Finanzholding AG Zurich, Switzerland CC CHF 10.0 100.0 UBS Fund Holding (Luxembourg) SA Luxembourg, Luxembourg AM CHF 42.0 100.0 UBS Fund Holding (Switzerland) AG Basel, Switzerland AM CHF 18.0 100.0 UBS Fund Management (Switzerland) AG Basel, Switzerland AM CHF 1.0 100.0 UBS Fund Services (Cayman) Ltd George Town, Cayman Islands AM USD 5.6 100.0 UBS Fund Services (Luxembourg) SA Luxembourg, Luxembourg AM CHF 2.5 100.0 UBS Global Asset Management (Americas) Inc Delaware, USA AM USD — 100.0 UBS Global Asset Management (Australia) Ltd Sydney, Australia AM AUD 8.0 100.0 UBS Global Asset Management (Canada) Co Halifax, Canada AM CAD 117.0 100.0 UBS Global Asset Management (France) SA Paris, France AM EUR 1.5 100.0 UBS Global Asset Management (Hong Kong) Limited Hong Kong, China AM HKD 25.0 100.0 UBS Global Asset Management (Italia) SIM SpA Milan, Italy AM EUR 2.0 100.0 UBS Global Asset Management (Japan) Ltd Tokyo, Japan AM JPY 2,200.0 100.0 UBS Global Asset Management (New York) Inc New York, USA AM USD 0.5 100.0 UBS Global Asset Management (Singapore) Ltd Singapore, Singapore AM SGD 4.0 100.0 UBS Global Asset Management (Taiwan) Ltd Taipei, Taiwan AM TWD 340.0 84.1 UBS Global Asset Management (US) Inc Delaware, USA AM USD 35.3 2 100.0
164
154
Footnotes
Note 3536 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued)
Equity | ||||||||||||||
Share | interest | |||||||||||||
Jurisdiction | Business | capital | accumul- | |||||||||||
Company | of incorporation | Group1 | in millions | ated in % | ||||||||||
UBS Global Asset Management Holding Ltd | London, Great Britain | AM | GBP | 8.0 | 2 | 100.0 | ||||||||
UBS Global Trust Corporation | St. John, Canada | WB | CAD | 0.1 | 100.0 | |||||||||
UBS Immoleasing AG | Zurich, Switzerland | WB | CHF | 3.0 | 100.0 | |||||||||
UBS International Holdings BV | Amsterdam, the Netherlands | CC | CHF | 13.8 | 100.0 | |||||||||
UBS Invest Kapitalanlagegesellschaft mbH | Frankfurt, Germany | AM | EUR | 6.4 | 100.0 | |||||||||
UBS Investment Bank Limited | London, Great Britain | WA | GBP | 10.0 | 100.0 | |||||||||
UBS Leasing AG | Brugg, Switzerland | WB | CHF | 10.0 | 100.0 | |||||||||
UBS Life AG | Zurich, Switzerland | WB | CHF | 25.0 | 100.0 | |||||||||
UBS Limited | London, Great Britain | WA | GBP | 10.0 | 100.0 | |||||||||
UBS O’Connor LLC | Delaware, USA | AM | USD | 1.0 | 100.0 | |||||||||
UBS O’Connor Trading Limited | George Town, Cayman Islands | AM | USD | 350.0 | 100.0 | |||||||||
UBS PaineWebber Inc | Delaware, USA | PW | USD | 1,707.5 | 2 | 100.0 | ||||||||
UBS PaineWebber Incorporated of | ||||||||||||||
Puerto Rico | Hato Rey, Puerto Rico | PW | USD | 31.6 | 2 | 100.0 | ||||||||
UBS PaineWebber Life Insurance Company | California, USA | PW | USD | 39.3 | 2 | 100.0 | ||||||||
UBS Portfolio LLC | New York, USA | WA | USD | 0.1 | 100.0 | |||||||||
UBS Preferred Funding Company LLC I | Delaware, USA | WA | USD | — | 100.0 | |||||||||
UBS Preferred Funding Company LLC II | Delaware, USA | WA | USD | — | 100.0 | |||||||||
UBS Preferred Funding Company LLC III | Delaware, USA | WA | USD | — | 100.0 | |||||||||
UBS Principal Finance LLC | Delaware, USA | WA | USD | 0.1 | 100.0 | |||||||||
UBS Private Banking (Belgium) SA | Brussels, Belgium | WB | EUR | 7.3 | 100.0 | |||||||||
UBS Private Banking Deutschland AG | Hamburg, Germany | WB | EUR | 51.0 | 100.0 | |||||||||
UBS Realty Investors LLC | Massachusetts, USA | AM | USD | — | 100.0 | |||||||||
UBS Trust (Canada) | Toronto, Canada | WB | CAD | 12.5 | 100.0 | |||||||||
UBS Trustees (Bahamas) Ltd | Nassau, Bahamas | WB | USD | 2.0 | 100.0 | |||||||||
UBS Trustees (Cayman) Ltd | George Town, Cayman Islands | WB | USD | 2.0 | 100.0 | |||||||||
UBS Trustees (Jersey) Ltd | St. Helier, Jersey | WB | GBP | 0.7 | 100.0 | |||||||||
UBS Trustees (Singapore) Limited | Singapore, Singapore | WB | SGD | 3.3 | 100.0 | |||||||||
UBS UK Holding Limited | London, Great Britain | WA | GBP | 5.0 | 100.0 | |||||||||
UBS UK Limited | London, Great Britain | WA | GBP | 609.0 | 100.0 | |||||||||
UBS Warburg (France) SA | Paris, France | WA | EUR | 22.9 | 100.0 | |||||||||
UBS Warburg (Italia) SpA | Milan, Italy | WA | EUR | 1.9 | 100.0 | |||||||||
UBS Warburg (Japan) Limited | George Town, Cayman Islands | WA | JPY | 50,000.0 | 100.0 | |||||||||
UBS Warburg (Malaysia) Sdn Bhd | Kuala Lumpur, Malaysia | WA | MYR | 0.5 | 70.0 | |||||||||
UBS Warburg (Nederland) BV | Amsterdam, the Netherlands | WA | EUR | 10.9 | 100.0 | |||||||||
UBS Warburg AG | Frankfurt, Germany | WA | EUR | 155.7 | 100.0 | |||||||||
UBS Warburg Asia Limited | Hong Kong, China | WA | HKD | 20.0 | 100.0 | |||||||||
UBS Warburg | ||||||||||||||
Australia Corporate Finance Ltd | Sydney, Australia | WA | AUD | — | 100.0 | |||||||||
UBS Warburg | ||||||||||||||
Australia Corporation Pty Limited | Sydney, Australia | WA | AUD | 50.4 | 2 | 100.0 | ||||||||
UBS Warburg Australia Equities Ltd | Sydney, Australia | WA | AUD | 190.0 | 2 | 100.0 | ||||||||
UBS Warburg Australia Limited | Sydney, Australia | WA | AUD | 571.5 | 2 | 100.0 | ||||||||
UBS Warburg Derivatives Limited | Hong Kong, China | WA | HKD | 20.0 | 100.0 | |||||||||
UBS Warburg Hong Kong Limited | Hong Kong, China | WA | HKD | 30.0 | 100.0 | |||||||||
UBS Warburg International Ltd | London, Great Britain | WA | GBP | 18.0 | 100.0 | |||||||||
UBS Warburg Investments Ltd | Sydney, Australia | WA | AUD | 0.1 | 100.0 | |||||||||
UBS Warburg LLC | Delaware, USA | WA | USD | 948.1 | 100.0 | |||||||||
UBS Warburg Ltd | London, Great Britain | WA | GBP | 17.5 | 100.0 | |||||||||
UBS Warburg New Zealand Equities Ltd | Auckland, New Zealand | WA | NZD | 7.5 | 100.0 | |||||||||
UBS Warburg Private Clients Ltd | Melbourne, Australia | WA | AUD | 53.9 | 100.0 | |||||||||
UBS Warburg Pte Ltd | Singapore, Singapore | WA | SGD | 55.0 | 100.0 | |||||||||
UBS Warburg Real Estate Securities Inc | Delaware, USA | WA | USD | 0.4 | 100.0 | |||||||||
UBS Warburg Securities (España) SV SA | Madrid, Spain | WA | EUR | 15.0 | 100.0 | |||||||||
155
Significant subsidiaries (continued) Share Equity Jurisdiction Business capital interest Company of incorporation Group1 in millions accumulated in % Motor-Columbus AG Baden, Switzerland IH CHF 253.0 55.6 Olten, Switzerland IH CHF 303.6 33.0 Milan, Italy IH EUR 20.0 32.3 Olten, Switzerland IH CHF 30.0 33.0 Schaffhausen, Switzerland IH CHF 0.4 24.7 Heidelberg, Germany IH EUR 25.0 33.0 Locarno, Switzerland IH CHF 27.5 19.6
WM&BB: Wealth Management & Business Banking, Global AM: Global Asset Management, IB: Investment Bank, WM-US: Wealth Management USA, CC: Corporate Center, IH: Industrial Holdings. Note 35 Significant Subsidiaries2 Share Capital and Associates (continued)Share Premium. 3
Significant subsidiaries (continued)
Equity | ||||||||||||||
Share | interest | |||||||||||||
Jurisdiction | Business | capital | accumul- | |||||||||||
Company | of incorporation | Group1 | in millions | ated in % | ||||||||||
UBS Warburg Securities | ||||||||||||||
(South Africa) (Pty) Limited | Sandton, South Africa | WA | ZAR | 87.1 | 100.0 | |||||||||
UBS Warburg Securities Co Ltd | Bangkok, Thailand | WA | THB | 400.0 | 100.0 | |||||||||
UBS Warburg Securities India Private Limited | Mumbai, India | WA | INR | 237.8 | 75.0 | |||||||||
UBS Warburg Securities Ltd | London, Great Britain | WA | GBP | 140.0 | 100.0 | |||||||||
UBS Warburg Securities Philippines Inc | Makati City, Philippines | WA | PHP | 150.0 | 100.0 | |||||||||
Consolidated companies: changes in 2002
Significant new companies
Deconsolidated companies
Consolidated companies: changes in 2004 | ||||
Significant new companies | ||||
UBS Alternative and Quantitative Investments LLC – Delaware, USA | ||||
UBS Energy Canada Limited – Calgary, Canada | ||||
UBS Energy LLC – Delaware, USA | ||||
UBS Fund Services (Ireland) Limited – Dublin, Ireland | ||||
UBS Global Life AG – Vaduz, Liechtenstein | ||||
UBS Laing and Cruickshank Limited – London, Great Britain | ||||
UBS Securities Limited Seoul Branch – Seoul, South Korea | ||||
UBS Services USA LLC – Delaware, USA | ||||
Motor-Columbus AG – Baden, Switzerland | ||||
Aare-Tessin AG für Elektrizität – Olten, Switzerland | ||||
Atel Energia S.r.l. – Milan, Italy | ||||
Atel Installationstechnik AG – Olten, Switzerland | ||||
Entrade GmbH – Schaffhausen, Switzerland | ||||
GAH Beteiligungs AG – Heidelberg, Germany | ||||
Società Elettrica Sopracenerina SA – Locarno, Switzerland | ||||
Deconsolidated companies | ||||
Significant deconsolidated companies | Reason for deconsolidation | |||
Aventic AG – Zurich, Switzerland | ||||
Significant associates | ||||||||||||
Equity interest | Share capital | |||||||||||
Company | Industry | in % | in millions | |||||||||
Electricité d’Emosson SA – Martigny, Switzerland | Electricity | 16 | CHF | 140 | ||||||||
Engadiner Kraftwerke AG – Zernez, Switzerland | Electricity | 7 | CHF | 140 | ||||||||
Kernkraftwerk Gösgen-Däniken AG – Däniken, Switzerland | Electricity | 13 | CHF | 350 | 1 | |||||||
Kernkraftwerk Leibstadt AG – Leibstadt, Switzerland | Electricity | 9 | CHF | 450 | ||||||||
SIS Swiss Financial Services Group AG – Zurich, Switzerland | Financial | 33 | CHF | 26 | ||||||||
Telekurs Holding AG – Zurich, Switzerland | Financial | 33 | CHF | 45 | ||||||||
Azienda Energetica Municipale S.p.A. – Milan, Italy | Electricity | 2 | EUR | 930 | ||||||||
UBS Currency Portfolio Ltd – George Town, Cayman Islands | Private Investment Company | 18 | USD | 1,831 | 2 | |||||||
UBS Global Equity Arbitrage Ltd – George Town, Cayman Islands | Private Investment Company | 37 | USD | 929 | 2 | |||||||
O’Connor Proprietary Series – Currency and Rates, Fundamental Long / Short and Convertible Arbitrage Limited – George Town, Cayman Islands | Private Investment Company | 44 | USD | 506 | 2 | |||||||
O’Connor Proprietary Series – Currency and Rates, Fundamental Long / Short and Convertible Arbitrage (EURO) Limited – George Town, Cayman Islands | Private Investment Company | 51 | EUR | 153 | 2 | |||||||
Volbroker.com Limited – London, Great Britain | Financial | 21 | GBP | 18 | ||||||||
Equity interest | Share capital | |||||||||||||
Company | Industry | in % | in millions | |||||||||||
SIS Swiss Financial Services Group AG — Zurich, Switzerland | Financial | 32.9 | CHF | 26 | ||||||||||
Giubergia UBS Warburg SIM SpA — Milan, Italy | Financial | 49.9 | EUR | 15 | ||||||||||
Motor Columbus AG — Baden, Switzerland | Electricity | 35.6 | CHF | 253 | ||||||||||
Telekurs Holding AG — Zurich, Switzerland | Financial | 33.3 | CHF | 45 | ||||||||||
Volbroker.com Limited — London, Great Britain | Financial | 21.0 | GBP | 18 | ||||||||||
None of the above investments carry voting rights that are significantly different from the proportion of shares held.165
156
Financial Statements
Notes to the Financial Statements
Note 36 Acquisition of Paine Webber Group, Inc.
Invested assets include all client assets managed by or deposited with UBS for investment purposes only. They therefore exclude all assets held for purely transactional purposes. Assets included are, for example, managed fund assets, managed institutional assets, discretionary and advisory wealth management portfolios, fiduciary deposits, time deposits, savings accounts and wealth management securities or brokerage accounts. Custody-only assets and transactional cash or current accounts as well as non-bankable assets (e. g. art collections) and deposits from third-party banks for funding or trading purposes are excluded.
On 3 November 2000,Group and sold in another, it is counted in both the Business Group that does the investment management and the one that distributes it. This results in double counting within UBS completed its acquisitiontotal invested assets, as both Business Groups are providing a service independently to their respective clients, and both add value and generate revenue.
CHF billion | 31.12.04 | 31.12.03 | ||||||
Fund assets managed by UBS | 354 | 339 | ||||||
Discretionary assets | 570 | 507 | ||||||
Other invested assets | 1,326 | 1,287 | ||||||
Total invested assets | 2,250 | 2,133 | ||||||
thereof double count | 294 | 283 | ||||||
Net new money | 88.9 | 69.1 | ||||||
166
Note 38 Business Combinations
During 2004, UBS completed several acquisitions that were accounted for as business combinations. Except Motor-Columbus, which is discussed separately, none of the acquisitions was individually significant to the financial statements, and therefore, they are presented aggregated per Business Group.
Wealth Management
Harris provides advice on pension and retirement benefit products, serving primarily executives and company directors with 28 employees. Subsequent to the acquisition both firms have been integrated into the UBS wealth management operations in the UK.
Step-up to | ||||||||||||
CHF million | Book value | fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 162 | 162 | |||||||||
Property and equipment | 3 | (1 | ) | 2 | ||||||||
Financial Investments | 5 | 0 | 5 | |||||||||
Goodwill | 0 | 521 | 521 | |||||||||
All other assets | 260 | 2 | 262 | |||||||||
Total assets | 268 | 684 | 952 | |||||||||
Liabilities | ||||||||||||
Provisions | 5 | 19 | 24 | |||||||||
Deferred tax liabilities | 0 | 54 | 54 | |||||||||
All other liabilities | 178 | 0 | 178 | |||||||||
Total liabilities | 183 | 73 | 256 | |||||||||
Net assets | 85 | 611 | 696 | |||||||||
Total liabilities and equity | 268 | 684 | 952 | |||||||||
Intangible assets recognized relate to the businesses’ existing customer relationships and have been assigned useful lives of twenty years, over which they will be amortized.
167
Financial Statements
Notes to the Financial Statements
Note 38 Business Combinations (continued)
Investment Bank
sideration to the sellers of CHF 113 million (USD 99 million) and will pay a further CHF 75 million (USD 66 million) at the end of 2005 plus 20% of Brunswick UBS’s net profits for 2005. Formed in 1997, Brunswick UBS has developed a significant franchise in the Russian securities market, employing 120 people in Moscow. UBS has already consolidated Brunswick, so that the effects of this acquisition on the financial statements are minor.
Step-up to | ||||||||||||
CHF million | Book value | fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 21 | 133 | 154 | |||||||||
Property and equipment | 20 | (13 | ) | 7 | ||||||||
Financial investments | 99 | (2 | ) | 97 | ||||||||
Deferred tax assets | 37 | (37 | ) | – | ||||||||
Goodwill | – | 336 | 336 | |||||||||
All other assets | 361 | (1 | ) | 360 | ||||||||
Total assets | 538 | 416 | 954 | |||||||||
Liabilities | ||||||||||||
Deferred tax liabilities | – | 23 | 23 | |||||||||
All other liabilities | 364 | 32 | 396 | |||||||||
Total liabilities | 364 | 55 | 419 | |||||||||
Minority interests | 40 | (39 | ) | 1 | ||||||||
Equity | 134 | 400 | 534 | |||||||||
Total liabilities, minority interests and equity | 538 | 416 | 954 | |||||||||
Intangible assets recognized relate to the businesses’ existing customer relationships and have been assigned useful lives of five years in the case of Brunswick and eight years in the case of Schwab over which they will be amortized.
168
Note 38 Business Combinations (continued)
Notz Stucki
Motor-Columbus
Elektrizität (Atel), a Swiss group engaged in the production, distribution and trading of electricity.
Step-up to | ||||||||||||
CHF million | Book value | fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 444 | 750 | 1,194 | |||||||||
Property and equipment | 1,939 | 144 | 2,083 | |||||||||
Investments in associates | 655 | 367 | 1,022 | |||||||||
Financial investments | 621 | 19 | 640 | |||||||||
Deferred tax assets | 113 | 67 | 180 | |||||||||
All other assets | 2,629 | – | 2,629 | |||||||||
Total assets | 6,401 | 1,347 | 7,748 | |||||||||
Liabilities | ||||||||||||
Provisions | 835 | 75 | 910 | |||||||||
Debt issued | 700 | 27 | 727 | |||||||||
Deferred tax liabilities | 293 | 308 | 601 | |||||||||
All other liabilities | 3,045 | – | 3,045 | |||||||||
Total liabilities | 4,873 | 410 | 5,283 | |||||||||
Minority interests | 784 | 382 | 1,166 | |||||||||
Equity | 744 | 555 | 1,299 | |||||||||
Total liabilities, minority interests and equity | 6,401 | 1,347 | 7,748 | |||||||||
The CHF 75 million step-up to fair value of provisions relates to contingent liabilities arising from guarantees and certain contractual obligations. UBS’s share in the equity at fair value of CHF 1,299 million is CHF 723 million, while the remaining CHF 576 million is recognized as additional minority interests, bringing total minority interest as of the acquisition date to CHF 1,742 million.
options issued was measuredUseful economic lives between 4 and 25 years have been assigned to amortizable and depreciable assets based on contractual lives, where applicable, or estimates of the date of acquisition, 3 November 2000.
169
Financial Statements
Notes to the Paine-Webber acquisition amounted to CHF 9.0 billion and CHF 11.6 billion respectively.
Note 38 Business Combinations (continued)
Pro-forma information (unaudited)
and 2003, respectively. Adjustments have been made to reflect additional amortization and depreciation of assets and liabilities, which have been assigned fair values different from their carryover basis in purchase accounting.
For the year ended | ||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | ||||||
Total operating income | 44,812 | 39,536 | ||||||
Net profit | 8,112 | 6,277 | ||||||
Basic earnings per share (CHF) | 7.71 | 5.62 | ||||||
Note 3739 Currency Translation Rates
The following table shows the principal rates used to translate the financial statements of foreign entities into Swiss francs:
Spot rate | Average rate | |||||||||||||||||||||||||||||||||||||||
As at | Year ended | Spot rate | Average rate | |||||||||||||||||||||||||||||||||||||
As at | Year ended | |||||||||||||||||||||||||||||||||||||||
31.12.02 | 31.12.01 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.04 | 31.12.03 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||||||||||||||||||
1 USD | 1.38 | 1.67 | 1.54 | 1.69 | 1.69 | 1.14 | 1.24 | 1.24 | 1.34 | 1.54 | ||||||||||||||||||||||||||||||
1 EUR | 1.45 | 1.48 | 1.46 | 1.50 | 1.56 | 1.55 | 1.56 | 1.54 | 1.54 | 1.46 | ||||||||||||||||||||||||||||||
1 GBP | 2.23 | 2.43 | 2.33 | 2.44 | 2.57 | 2.19 | 2.22 | 2.27 | 2.20 | 2.33 | ||||||||||||||||||||||||||||||
100 JPY | 1.17 | 1.27 | 1.24 | 1.40 | 1.57 | 1.11 | 1.15 | 1.15 | 1.16 | 1.24 | ||||||||||||||||||||||||||||||
170
Note 3840 Swiss Banking Law Requirements
The consolidated financial statements of UBS are prepared in accordance with International Financial Reporting Standards. Set out below are the deviations which would result ifsignificant differences regarding recognition and measurement between IFRS and the provisions of the Banking Ordinance and the Guidelines of the Swiss Federal Banking Commission governing financial statement reporting pursuant to Article 23 through Article 27 of the Banking Ordinance were applied in the preparation of the consolidated financial statements of UBS.Ordinance.
1. Treasury sharesConsolidation
157
UBS Group Financial StatementsNoteswell as real estate entities are subject to the Financial Statements
consolidation. Entities which are held for other purposes are classified as Financial investments and a corresponding reserve for own shares is established within Shareholders’ equity. All derivative contracts on own shares are reported as Positive or Negative replacement values. Traded own shares and derivatives on own shares are carried at fair value. Gains and losses realized on disposal and unrealized gains and losses from changes in the fair valuetemporarily are recorded as Net trading income. Own shares reported within Financial investments are reported at the lower of cost or market value. Reductions to market value and reversals of such reductions, as well as gains and losses on disposal, are included in Other income. Own shares repurchased for cancellation are reported as financial investments and accounted for at cost. Upon cancellation, the par value of shares repurchased and cancelled is debited against Share capital for the par value, with the remainder of the purchase cost debited against General statutory reserve.investments.
2. Financial investments
3. Cash flow hedges
der IFRS, when hedge accounting is applied for these instruments, the unrealized gain or loss on the effective portion of the derivatives is recorded in Shareholders’ equity until the hedged cash flows occur, at which time the accumulated gain or loss is realized and released to income.
4. Gains/losses not recognized in the income statementInvestment property
5. Fair value option
5. Extraordinary income and expense
6. Goodwill
158171
Note 38 Swiss Banking Law Requirements (continued)
CHF million | 31.12.02 | 31.12.01 | |||||||
Differences in the Balance Sheet | |||||||||
Treasury shares | |||||||||
Trading portfolio | 371 | 128 | |||||||
Financial investments | 6,623 | 3,253 | |||||||
Due to banks | 23 | 24 | |||||||
Negative replacement values | (2 | ) | 0 | ||||||
Other liabilities | 293 | 0 | |||||||
Shareholders’ equity | 6,680 | 3,357 | |||||||
Financial investments | |||||||||
Financial investments | (1,314 | ) | (1,856 | ) | |||||
Other liabilities | (113 | ) | (215 | ) | |||||
Shareholders’ equity | (1,201 | ) | (1,641 | ) | |||||
Cash flow hedges | |||||||||
Other liabilities | (256 | ) | (459 | ) | |||||
Shareholders’ equity | 256 | 459 | |||||||
Differences in the Income Statement | |||||||||
Treasury shares | |||||||||
Net trading income | (70 | ) | (70 | ) | |||||
Other income | (269 | ) | (231 | ) | |||||
Personnel expenses | 4 | ||||||||
Tax expenses | (53 | ) | (71 | ) | |||||
Financial investments | |||||||||
Other income | (255 | ) | (607 | ) | |||||
Reclassification of extraordinary income and expense | |||||||||
Other income | (350 | ) | (95 | ) | |||||
Extraordinary income | 361 | 109 | |||||||
Extraordinary expense | 11 | 14 | |||||||
159
UBS Group Financial Statements
Notes to the Financial Statements
Note 3941 Reconciliation of International Financial Reporting Standards (IFRS) to United States Generally Accepted Accounting Principles (US GAAP)
The consolidated financial statements of the GroupUBS have been prepared in accordance with IFRS. The principles of IFRS differ in certain respects from United States Generally Accepted Accounting Principles (“US GAAP”). The following is a summary of the relevant significant accounting and valuation differences between IFRS and US GAAP.
a. Purchase accounting (merger of Union Bank of Switzerland and Swiss Bank Corporation) |
Under IFRS, the Group accounted for the 1998 merger of Union Bank of Switzerland and Swiss Bank Corporation was accounted for under the uniting of interests method. The balance sheets and income statements of the banks were combined, and no adjustments were made to the carrying values of the assets and liabilities. Under US GAAP, the business combination creating UBS AG is accounted for under the purchase method with Union Bank of Switzerland being considered the acquirer. Under the purchase method, the cost of acquisition is measured at fair value and the acquirer’s interests in identifiable tangible assets and liabilities of the acquiree are restated to fair values at the date of acquisition. Any excess consideration paid over the fair value of net tangible assets acquired is allocated, first to identifiable intangible assets based on their fair values, if determinable, with the remainder allocated to goodwill.
Goodwill and intangible assets
On 1 January 2002, the GroupUBS adopted SFAS 141, “Business Combinations” and SFAS 142, “Goodwill and Other Intangible Assets”. SFAS 141 requires reclassification of intangible assets to goodwill which no longer meet the recognition criteria under the new standard. SFAS 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized but be tested annually for impairment. Identifiable intangible assets with finite lives will continue to be amortized.
due to recognition of deferred tax assets of Swiss Bank Corporation which had previously been subject to valuation reserves.
Other purchase accounting adjustments
b. Reversal of IFRS goodwill amortization |
The adoption of SFAS 142 “Goodwill and Intangible Assets” resulted in two new reconciling itemsitems: 1) Intangible assets on the IFRS Balancebalance sheet with a book value of CHF 1.8 billion at 31 December 20011 January 2002 were reclassified to goodwillGoodwill for US GAAP.GAAP; 2) The amortization of IFRS goodwillGoodwill and the intangibleIntangible assets reclassified to goodwillGoodwill for US GAAP (CHF 778 million, CHF 831 million and CHF 1,017 million for the yearyears ended 31 December 2002)2004, 31 December 2003 and 31 December 2002, respectively) was reversed for US GAAP.reversed.
160
CHF million, except for per share data | ||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
Reported Net profit under US GAAP | 5,546 | 3,234 | 4,437 | |||||||||
Add back: SBC purchase accounting goodwill | 0 | 1,657 | 1,679 | |||||||||
Add back: Amortization of intangibles reclassified to goodwill for US GAAP and/or IFRS goodwill | 0 | 886 | 315 | |||||||||
Adjusted net profit under US GAAP | 5,546 | 5,777 | 6,431 | |||||||||
Reported basic earnings per share under US GAAP | 4.59 | 2.58 | 3.70 | |||||||||
Add back: SBC purchase accounting goodwill | 0.00 | 1.32 | 1.40 | |||||||||
Add back: Amortization of intangibles reclassified to goodwill for US GAAP and/or IFRS goodwill | 0.00 | 0.71 | 0.26 | |||||||||
Adjusted basic earnings per share under US GAAP | 4.59 | 4.61 | 5.36 | |||||||||
Reported diluted earnings per share under US GAAP | 4.51 | 2.46 | 3.64 | |||||||||
Add back: SBC purchase accounting goodwill | 0.00 | 1.30 | 1.38 | |||||||||
Add back: Amortization of intangibles reclassified to goodwill for US GAAP and/or IFRS goodwill | 0.00 | 0.70 | 0.26 | |||||||||
Adjusted diluted earnings per share under US GAAP | 4.51 | 4.46 | 5.28 | |||||||||
The table below shows the estimated, aggregated amortization expenses for other intangible assets, which are stilladoption of IFRS 3 Business Combinations, UBS will cease amortizing pre-existing Goodwill under IFRS beginning 1 January 2005. Goodwill will be subject to an annual amortization, on aimpairment test as it is under US GAAP, basis:and there will no longer be a difference between the two sets of standards regarding goodwill amortization. Goodwill from business combinations entered into on or after 31 March 2004 has already been accounted for under the provisions of IFRS 3, and no Goodwill amortization has been recorded for these transactions under IFRS or US GAAP.
c. Purchase accounting under IFRS 3 and FAS 141
With the adoption of IFRS 3 on 31 March 2004, the accounting for business combinations generally converged with US GAAP with the exception of the measurement of minority interests and the recognition of a revaluation reserve in the case of a step acquisition.
CHF million | ||||
Estimated, aggregated amortization expense for: | ||||
2003 | 116 | |||
2004 | 97 | |||
2005 | 93 | |||
2006 | 80 | |||
2007 | 71 | |||
2008 and thereafter | 765 | |||
Total | 1,222 | |||
172
Under IFRS, restructuring provisions are recognized when a legal or constructive obligation has been incurred. In 1997, the Group recognized a CHF 7,000 million restructuring provision to cover personnel, IT, premises and other costs associated with combining and restructuring the merged Group. A further CHF 300 million provision was recognized in 1999, reflecting the impact of increased precision in the estimation of certain leased and owned property costs.
turing provision of CHF 1,575 million during 1998 for US GAAP. CHF 759 million of this provision related to estimated costs for restructuring the operations and activities of Swiss Bank Corporation, and that amount was recorded as a liability of the acquired business. The remaining CHF 816 million of estimated costs were charged to restructuring expense during 1998. The US GAAP restructuring provision was increased by CHF 600 million and CHF 130 million in 1999 and 2000, respectively.
161
UBS Group Financial StatementsNotes to the Financial Statements
d. |
Derivative instruments held or issued for hedging activities
Derivative instruments indexed to UBS shares
Financial investments available-for-sale
162
Bifurcation of embedded issuer calls out of structured debt instruments
Prior to the adoption of IAS 39 on 1 January 2001, financial investments were classified as either current investments or long-term investments under IFRS. The Group considered current financial investments to be held for sale and carried at lower of cost or market value (“LOCOM”). The Group accounted for long-term financial investments at cost, less any impairments. Under US GAAP, the Group’s financial investments are classified as available for sale (debt and marketable equity securities), and are carried at fair value with changes in fair value recorded in Other comprehensive income. Gains and losses are recognized in Net profit in the period sold, and losses are recognized in the period of impairment for IFRS and US GAAP. For the IFRS to US GAAP reconciliation, debt and marketable equity securities were adjusted from LOCOM to fair value and classified as available for sale investments. Unrealized gains or unrealized losses relating to these investments were recorded in Other comprehensive income.
Financial investments available for sale
Private equity investments
163
UBS Group Financial StatementsNotes to the Financial Statements
posespurposes is that certain private equity investments are now recorded at fair value, with changes in fair value recognized in US GAAP net profit. The remaining private equity investments continue to be accounted for at cost less “other than temporary” impairment.
cumulative effect of this change in accounting on US GAAP net profit was an increase of CHF 639 million, after tax. For the yearyears ended 31 December 2004, 31 December 2003 and 31 December 2002, the effect of applying the new standard on the reconciliation of IFRS net profit to US GAAP was to increase US GAAP net profit by an additionalCHF 154 million after tax, decrease US GAAP net profit by CHF 119 million, after tax and to increase US GAAP net profit by CHF 83 million, after tax.tax, respectively.
CHF million, except for per share data | Pro-forma | |||||||||||
For the year ended | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Net profit under US GAAP | 8,818 | 6,513 | 4,907 | |||||||||
Basic earnings per share | 8.56 | 5.83 | 4.06 | |||||||||
Diluted earnings per share | 8.15 | 5.72 | 3.99 | |||||||||
CHF million, except for per share data | ||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
Net profit under US GAAP | 4,907 | 2,763 | 5,523 | |||||||||
Basic earnings per share | 4.06 | 2.21 | 4.61 | |||||||||
Diluted earnings per share | 3.99 | 2.09 | 4.53 | |||||||||
See Note 2 for information regarding impairment charges recorded for private equity investments.
173
Financial Statements
Notes to the Financial Statements
Under IFRS, the GroupUBS recognizes pension expense based on a specific method of actuarial valuation used to determine the projected plan liabilities for accrued service, including future expected salary increases, and expected return on plan assets. Plan assets are recorded at fair value and are held in a separate trust to satisfy plan liabilities. Under IFRS the recognition of a prepaid asset is subject to certain limitations, and any unrecognized prepaid asset is recorded as pension expense. US GAAP does not allow a limitation on the recognition of prepaid assets recorded in the Balance Sheet.balance sheet.
liability is recognized, an equal amount will be recognized as an intangible asset up to the amount of any unrecognized pastprior service cost. Any amount not recognized as an intangible asset is reported in Other comprehensive income. The additional minimum liability required under US GAAP before tax amounts to CHF 1,2251,125 million, CHF 306 million and CHF 3061,225 million as at 31 December 20022004, 2003 and 2001,2002, respectively. The amount recognized in intangible assets was CHF 20 million, CHF 0 million and CHF 32 million and the amount recognized in Other comprehensive income before tax was CHF 1,125 million, CHF 306 million and CHF 1,223 million before taxes and CHF 303 million, before taxes as at 31 December 2004, 2003 and 2002, and 2001 respectively.
Under IFRS, the GroupUBS has recorded expenses and liabilities for post-retirement medical and life insurance benefits, determined under a methodology similar to that described above under retirement benefitpension plans.
h. Equity participation plans
164
As of the reporting date, IFRS does not have any standard in effect that specifically addressaddresses the recognition and measurement requirements for equity participation plans.
174
i. Software capitalization |
Under IFRS, effective 1 January 2000, certain costs associated with the acquisitions or development of internal useinternal-use software musthad to be capitalized. Once the software iswas ready for its intended use, the costs capitalized arewere amortized to the Incomeincome statement over the estimated life of the software. Under US GAAP, the same principle applies,applied, however this standard was effective 1 January 1999. For US GAAP, the costs associated with the acquisition or development of internal useinternal-use software that met the US GAAP software capitalization criteria in 1999 have beenwere reversed from Operating expenses and amortized over a life of two years from the time that the software iswas ready for its intended use. From 1 January 2000, the only remaining reconciliation item iswas the amortization of software capitalized in 1999 for US GAAP purposes. At 31 December 2002, this amount was fully utilized and there is no longer a difference between IFRS and US GAAP.
In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, “RescissionIFRS and US GAAP generally require consolidation of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. The new standard is effective for fiscal years beginning after 15 May 2002. UBS will adopt the new standard for its fiscal year 2003, but does not expect that it will have a significant effectentities on the financial statements.
165
UBS Group Financial StatementsNotesexposed to the Financial Statements
nized at its fair valuerisks inherent in the periodactivities of the entity; or retaining the majority of the residual or ownership risks related to the entity’s assets in which the liability is incurred and not at the time an entity commitsorder to an exit or disposal plan. SFAS No. 146 is applicable prospectively for exit or disposal activities initiated after 31 December 2002. UBS does not expect that the new standard will have a significant impact onobtain benefits from its financial statements.activities.
At 31 December 2003, the consolidation requirements of the predecessor standard, FIN 46, only applied to VIEs created after 31 January 2003.
k. Financial liabilities held at fair value through profit and loss
Revised IAS 39 provides the election to designate at initial recognition any financial asset or liability as held at fair value through profit and loss. UBS applies this fair value designation election to a significant portion of its issued debt. Many debt issues are in the form of hybrid instruments, consisting of a debt host with an embedded derivative. Regular debt instruments as well as hybrid instruments are carried in their entirety at fair value with all changes in fair value recorded in profit and loss. Under US GAAP, debt instruments have to be carried at amortized cost. Derivatives embedded in hybrid instruments are separated from the debt hosts and accounted for as if they were freestanding derivatives.
l. Physically settled written puts
With the adoption of revised IAS 32 and IAS 39 at 1 January 2004, the accounting for physically settled written put options on UBS shares changed. Previously, such put options were accounted for as derivatives whereas now the present value of the contractual amount is recorded as a liability, while the premium received is credited to equity. Subsequently, the liability is accreted over the life of the put option to its contractual amount recognizing interest expense in accordance with the effective interest method. Under US GAAP, physically settled written put options on UBS shares continue to be accounted for as derivative instruments. All other outstanding derivative contracts, except written put options with the UBS share as underlying, are treated as derivative instruments under both sets of accounting standards.
175
Financial Statements
Notes to the Financial Statements
m. Investment properties
As at 1 January 2004, UBS changed its accounting for investment properties from the cost less depreciation method to the fair value method. Under the fair value method,
changes in fair value are recognized in the income statement, and depreciation is no longer recognized. Under US GAAP, investment properties continue to be carried at cost less accumulated depreciation.
Note 41.2 Recently Issued US Accounting Standards
In December 2003, the “Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the Act) was passed in the US. Commencing 1 January 2006, the Act introduces a prescription drug benefit for individuals eligible under Medicare (Medicare Part D) as well as a federal subsidy equal to 28% of certain entitiespost-65 prescription drug claims for sponsors of retiree health care plans with drug benefits that are at least actuarially equivalent to those to be offered under Medicare Part D.
UBS elected to adopt early the additional disclosures required for foreign plans as well as the prescribed SFAS 132-R disclosures in its 2003 Financial Statements. Pursuant to the transitional disclosure requirements, UBS included the disclosure of the estimated future benefit payments for the year ended 31 December 2004 in Note 31, Pension and Other Post-Retirement Benefit Plans.
176
for VIEs that an enterprise will consolidate or in which it will have a significant variable interest. These disclosure requirements became effective for financial statements issued afterat 31 January 2003 and are provided in Note 40.2.
Recently issued US accounting standards not material either for contracts entered into after or those that existed on 25 October 2002.
share awards granted as part of annual bonuses in the year of corresponding performance, aligning with the revenue produced. For disclosure purposes, UBS recognized the fair value of that instrument is obtained from a quoted market priceoption awards on the date of grant. Thus, for recognition and disclosure purposes, expense for share and option awards issued prior to but outstanding at the date of adoption of SFAS 123-R has been fully attributed to prior periods. Further, share awards issued in an active market or is otherwise evidenced by comparison to observable market data. Management is in the process of completing the evaluation2005 as part of the impact of this view on the Group’s financial condition2004 performance year, have been fully recognized in 2004. Therefore under SFAS 123-R, only option awards and profit. As required, the Group applied this view to transactions entered intocertain share awards granted, modified or settled after the effective date of 21 November 2002. The impact was not significant. The impact of this issue is dependent upon the level of transactions executed that rely on data not observableare to be recognized in the market. Accordingly, it2005 financial statements. These awards will be recognized over the requisite service period as newly defined in SFAS 123-R, which is expected to result in a ramp-up of compensation expense over the next several years as these awards move through their vesting periods. Therefore, compensation expense is expected to decrease in 2005 compared to 2004 as the ramp-up effect for the share awards will offset the first-time recognition of the fair value of option awards. However, compensation cost will increase as awards to which the new measurement and attribution requirements apply move through their vesting period. Once these initial awards are fully vested (generally three years), compensation expense under SFAS 123-R is not possibleexpected to projectbe materially different than what would be disclosed in the impactpro-forma disclosures under SFAS 123.
166177
Financial Statements
Notes to the Financial Statements
Note 41.3 Reconciliation of IFRS Shareholders’ Equity and Net profit to US GAAP
Shareholders’ equity | Net profit | |||||||||||||||||||||||
Note 39.1 | ||||||||||||||||||||||||
CHF million | Reference | 31.12.02 | 31.12.01 | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||||||||||
Amounts determined in accordance with IFRS | 38,991 | 43,530 | 3,535 | 4,973 | 7,792 | |||||||||||||||||||
Adjustments in respect of: | ||||||||||||||||||||||||
SBC purchase accounting goodwill and other purchase accounting adjustments | a | 15,285 | 15,413 | (128 | ) | (1,614 | ) | (1,669 | ) | |||||||||||||||
Reversal of IFRS goodwill amortization | b | 1,017 | 0 | 1,017 | 0 | 0 | ||||||||||||||||||
Restructuring provision | c | 0 | 0 | 0 | (112 | ) | (238 | ) | ||||||||||||||||
Derivative instruments | d | (138 | ) | (169 | ) | 354 | 25 | (1,353 | ) | |||||||||||||||
Financial investments (prior to the adoption of IAS 39) | e | 0 | 0 | 0 | 0 | 28 | ||||||||||||||||||
Financial investments and private equity | f | (30 | ) | (709 | ) | 767 | 0 | 0 | ||||||||||||||||
Retirement benefit plans | g | 621 | 1,714 | (156 | ) | 119 | 59 | |||||||||||||||||
Other employee benefits | h | (1 | ) | (8 | ) | 7 | 8 | 8 | ||||||||||||||||
Equity participation plans | i | (164 | ) | (186 | ) | 63 | (12 | ) | (167 | ) | ||||||||||||||
Software capitalization | j | 0 | 60 | (60 | ) | (169 | ) | (160 | ) | |||||||||||||||
Tax adjustments | (5 | ) | (363 | ) | 147 | 16 | 137 | |||||||||||||||||
Total adjustments | 16,585 | 15,752 | 2,011 | (1,739 | ) | (3,355 | ) | |||||||||||||||||
Amounts determined in accordance with US GAAP | 55,576 | 59,282 | 5,546 | 3,234 | 4,437 | |||||||||||||||||||
Note 41.1 | Shareholders’ equity | Net profit | ||||||||||||||||||||||
CHF million | Reference | 31.12.04 | 31.12.03 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||
Amounts determined in accordance with IFRS | 34,978 | 35,310 | 8,089 | 6,239 | 3,530 | |||||||||||||||||||
Adjustments in respect of: | ||||||||||||||||||||||||
SBC purchase accounting goodwill and other purchase accounting adjustments | a | 15,152 | 15,196 | (44 | ) | (89 | ) | (128 | ) | |||||||||||||||
Reversal of IFRS goodwill amortization | b | 2,603 | 1,825 | 778 | 808 | 1,017 | ||||||||||||||||||
Purchase accounting under IFRS 3 and FAS 141 | c | (88 | ) | 0 | 3 | 0 | 0 | |||||||||||||||||
Derivative instruments | d | (75 | ) | (94 | ) | (217 | ) | 188 | 342 | |||||||||||||||
Financial investments and private equity | e | (266 | ) | (84 | ) | 304 | (159 | ) | 767 | |||||||||||||||
Pension plans | f | 372 | 1,303 | (110 | ) | (235 | ) | (156 | ) | |||||||||||||||
Other post-retirement benefit plans | g | (1 | ) | (1 | ) | 0 | 0 | 7 | ||||||||||||||||
Equity participation plans | h | (80 | ) | (112 | ) | (98 | ) | (152 | ) | 63 | ||||||||||||||
Software capitalization | i | 0 | 0 | 0 | 0 | (60 | ) | |||||||||||||||||
Consolidation of variable interest entities (VIEs) and deconsolidation of trust preferred securities | j | 47 | (10 | ) | 18 | (10 | ) | 0 | ||||||||||||||||
Financial liabilities held at fair value through profit and loss | k | 197 | 117 | 100 | 78 | 39 | ||||||||||||||||||
Physically settled written puts | l | 93 | 48 | 9 | 5 | 3 | ||||||||||||||||||
Investment properties | m | (8 | ) | (24 | ) | 14 | 88 | (23 | ) | |||||||||||||||
Other adjustments | (50 | ) | 0 | (50 | ) | 0 | 0 | |||||||||||||||||
Tax adjustments | (206 | ) | (300 | ) | 22 | (248 | ) | 145 | ||||||||||||||||
Total adjustments | 17,690 | 17,864 | 729 | 274 | 2,016 | |||||||||||||||||||
Amounts determined in accordance with US GAAP | 52,668 | 53,174 | 8,818 | 6,513 | 5,546 | |||||||||||||||||||
Under both IFRS and US GAAP, basic earnings per share (“EPS”) is computed by dividing income available to common shareholders by the weighted-averageweighted average number of common shares outstanding. Diluted EPS includes the determinants of basic EPS and, in addition, gives effect to dilutive potential common shares that were outstanding during the period.
31.12.02 | 31.12.01 | 31.12.00 | ||||||||||||||||||||||||||||||||||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||||||||||||||||||||||||||
For the year ended | US GAAP | IFRS | US GAAP | IFRS | US GAAP | IFRS | US GAAP | IFRS | US GAAP | IFRS | US GAAP | IFRS | ||||||||||||||||||||||||||||||||||||
Net profit available for ordinary shares (CHF million) | 5,546 | 3,535 | 3,234 | 4,973 | 4,437 | 7,792 | 8,818 | 8,089 | 6,513 | 6,239 | 5,546 | 3,530 | ||||||||||||||||||||||||||||||||||||
Net profit for diluted EPS (CHF million) | 5,520 | 3,515 | 3,135 | 4,874 | 4,423 | 7,778 | 8,813 | 8,084 | 6,514 | 6,240 | 5,520 | 3,510 | ||||||||||||||||||||||||||||||||||||
Weighted-average shares outstanding | 1,208,055,132 | 1,208,586,678 | 1,251,180,815 | 1,266,038,193 | 1,198,680,193 | 1,209,087,927 | ||||||||||||||||||||||||||||||||||||||||||
Weighted average shares outstanding | 1,029,895,610 | 1,052,914,417 | 1,116,602,289 | 1,116,953,623 | 1,208,055,132 | 1,208,586,678 | ||||||||||||||||||||||||||||||||||||||||||
Diluted weighted average shares outstanding | 1,222,862,165 | 1,223,382,942 | 1,273,720,560 | 1,288,577,938 | 1,215,169,966 | 1,225,577,700 | 1,081,961,360 | 1,081,961,360 | 1,138,800,625 | 1,138,800,625 | 1,222,862,165 | 1,223,382,942 | ||||||||||||||||||||||||||||||||||||
Basic earnings per share (CHF) | 4.59 | 2.92 | 2.58 | 3.93 | 3.70 | 6.44 | 8.56 | 7.68 | 5.83 | 5.59 | 4.59 | 2.92 | ||||||||||||||||||||||||||||||||||||
Diluted earnings per share (CHF) | 4.51 | 2.87 | 2.46 | 3.78 | 3.64 | 6.35 | 8.15 | 7.47 | 5.72 | 5.48 | 4.51 | 2.87 | ||||||||||||||||||||||||||||||||||||
167178
UBS Group Financial StatementsNotes to the Financial Statements
Note 39.441.5 Presentation differencesDifferences between IFRS and US GAAP
In addition to the differences in valuation and income recognition, other differences, essentially related to presentation, exist between IFRS and US GAAP. Although there is no impact on IFRS and US GAAP reported Shareholders’ equity and Net profit due to these differences, it may be useful to understand them to interpret the financial statements presented in accordance with US GAAP. The following is a summary of presentation differences that relate to the basic IFRS financial statements.
1. Settlement date vs. trade date accounting
2. Financial investments
3. Securities received as proceeds in a securities for securities lending transaction
liability is presented in the line “Obligation to return securities received as collateral”.
4. Reverse repurchase, repurchase, securities borrowing and securities lending transactions
5. Recognition/derecognition of financial assets
168179
Financial Statements
Notes to the Financial Statements
Note 41.6 Consolidated Income Statement
The following is a Consolidated Income Statement of the Group, for the years ended 31 December 2002,2004, 31 December 20012003 and 31 December 2000,2002, restated to reflect the impact of valuation and income recognition differences and presentation differences between IFRS and US GAAP.
31.12.02 | 31.12.01 | 31.12.00 | �� | |||||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million | CHF million | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
For the year ended | Reference | US GAAP | IFRS | US GAAP | IFRS | US GAAP | IFRS | Reference | US GAAP | IFRS | US GAAP | IFRS | US GAAP | IFRS | ||||||||||||||||||||||||||||||||||||||||||
Operating income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income | a, d, 4 | 39,679 | 39,963 | 51,907 | 52,277 | 51,565 | 51,745 | a, d, j, 4, 5 | 39,124 | 39,398 | 39,940 | 40,159 | 39,679 | 39,963 | ||||||||||||||||||||||||||||||||||||||||||
Interest expense | a, 4 | (29,334 | ) | (29,417 | ) | (44,096 | ) | (44,236 | ) | (43,584 | ) | (43,615 | ) | a, j, k, 4, 5 | (27,306 | ) | (27,538 | ) | (27,700 | ) | (27,860 | ) | (29,334 | ) | (29,417 | ) | ||||||||||||||||||||||||||||||
Net interest income | 10,345 | 10,546 | 7,811 | 8,041 | 7,981 | 8,130 | 11,818 | 11,860 | 12,240 | 12,299 | 10,345 | 10,546 | ||||||||||||||||||||||||||||||||||||||||||||
Credit loss expense/(recovery) | (206 | ) | (206 | ) | (498 | ) | (498 | ) | 130 | 130 | ||||||||||||||||||||||||||||||||||||||||||||||
Net interest income after credit loss expense/(recovery) | 10,139 | 10,340 | 7,313 | 7,543 | 8,111 | 8,260 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Credit loss expense / (recovery) | 276 | 276 | (72 | ) | (72 | ) | (115 | ) | (115 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Net interest income after credit loss expense / (recovery) | 12,094 | 12,136 | 12,168 | 12,227 | 10,230 | 10,431 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net fee and commission income | 18,221 | 18,221 | 20,211 | 20,211 | 16,703 | 16,703 | 19,416 | 19,416 | 17,345 | 17,345 | 18,221 | 18,221 | ||||||||||||||||||||||||||||||||||||||||||||
Net trading income | d, 4 | 6,031 | 5,572 | 8,959 | 8,802 | 8,597 | 9,953 | d, h, j, k, l, 4, 5 | 4,879 | 4,972 | 4,021 | 3,756 | 5,940 | 5,451 | ||||||||||||||||||||||||||||||||||||||||||
Other income1 | e, f, 4 | 96 | (12 | ) | 534 | 558 | 1,514 | 1,486 | b, c, e, j, m | 1,188 | 897 | 380 | 462 | 96 | 4 | |||||||||||||||||||||||||||||||||||||||||
Income from Industrial Holdings | 3,648 | 3,648 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total operating income | 34,487 | 34,121 | 37,017 | 37,114 | 34,925 | 36,402 | 41,225 | 41,069 | 33,914 | 33,790 | 34,487 | 34,107 | ||||||||||||||||||||||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Personnel expenses | c, g, h, i | 18,610 | 18,524 | 19,713 | 19,828 | 17,262 | 17,163 | f, g, h | 18,729 | 18,515 | 17,615 | 17,231 | 18,610 | 18,524 | ||||||||||||||||||||||||||||||||||||||||||
General and administrative expenses | c | 7,072 | 7,072 | 7,631 | 7,631 | 6,813 | 6,765 | j | 6,705 | 6,703 | 6,086 | 6,086 | 7,072 | 7,072 | ||||||||||||||||||||||||||||||||||||||||||
Depreciation of property and equipment | a, j | 1,613 | 1,521 | 1,815 | 1,614 | 1,800 | 1,608 | a, i, m | 1,385 | 1,352 | 1,396 | 1,353 | 1,613 | 1,514 | ||||||||||||||||||||||||||||||||||||||||||
Amortization of goodwill | a, b | 0 | 930 | 2,484 | 1,025 | 2,018 | 533 | b | 0 | 713 | 0 | 756 | 0 | 930 | ||||||||||||||||||||||||||||||||||||||||||
Amortization of other intangible assets | b | 1,443 | 1,530 | 298 | 298 | 134 | 134 | b | 186 | 251 | 112 | 187 | 1,443 | 1,530 | ||||||||||||||||||||||||||||||||||||||||||
Restructuring costs | c | 0 | 0 | 112 | 0 | 191 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||
Goods and materials purchased | 2,861 | 2,861 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total operating expenses | 28,738 | 29,577 | 32,053 | 30,396 | 28,218 | 26,203 | 29,866 | 30,395 | 25,209 | 25,613 | 28,738 | 29,570 | ||||||||||||||||||||||||||||||||||||||||||||
Operating profit/(loss) before tax and minority interests | 5,749 | 4,544 | 4,964 | 6,718 | 6,707 | 10,199 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Operating profit / (loss) before tax and minority interests | 11,359 | 10,674 | 8,705 | 8,177 | 5,749 | 4,537 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Tax expense/(benefit) | 511 | 678 | 1,386 | 1,401 | 2,183 | 2,320 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Tax expense / (benefit) | 2,112 | 2,135 | 1,842 | 1,593 | 511 | 676 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net profit/(loss) before minority interests | 5,238 | 3,866 | 3,578 | 5,317 | 4,524 | 7,879 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net profit / (loss) before minority interests | 9,247 | 8,539 | 6,863 | 6,584 | 5,238 | 3,861 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Minority interests | (331 | ) | (331 | ) | (344 | ) | (344 | ) | (87 | ) | (87 | ) | j | (435 | ) | (450 | ) | (350 | ) | (345 | ) | (331 | ) | (331 | ) | |||||||||||||||||||||||||||||||
Change in accounting principle: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
cumulative effect of adoption of “AICPA Audit and Accounting Guide, Audits of Investment Companies” on certain financial investments, net of tax | f | 639 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||
Change in accounting principle: cumulative effect of adoption of “AICPA Audit and Accounting Guide, Audits of Investment Companies” on certain financial investments, net of tax | 0 | 0 | 0 | 0 | 639 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative adjustment of accounting for certain equity based compensation plans as cash settled, net of tax | 6 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net profit | 5,546 | 3,535 | 3,234 | 4,973 | 4,437 | 7,792 | 8,818 | 8,089 | 6,513 | 6,239 | 5,546 | 3,530 | ||||||||||||||||||||||||||||||||||||||||||||
180
169
Note 41.7 Condensed Consolidated Balance Sheet
UBS Group Financial StatementsNotes to the Financial Statements
The following is a Condensed Consolidated Balance Sheet of the Group, as ofat 31 December 20022004 and 31 December 2001,2003, restated to reflect the impact of valuation and income recognition principles and presentation differences between IFRS and US GAAP.
31.12.02 | 31.12.01 | |||||||||||||||||||||||||||||||||||||||
31.12.04 | 31.12.03 | |||||||||||||||||||||||||||||||||||||||
CHF million | Reference | US GAAP | IFRS | US GAAP | IFRS | Reference | US GAAP | IFRS | US GAAP | IFRS | ||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Cash and balances with central banks | 4,271 | 4,271 | 20,990 | 20,990 | 6,036 | 6,036 | 3,584 | 3,584 | ||||||||||||||||||||||||||||||||
Due from banks | a | 32,481 | 32,468 | 27,550 | 27,526 | h, j | 35,286 | 35,264 | 31,758 | 31,740 | ||||||||||||||||||||||||||||||
Cash collateral on securities borrowed | 4 | 139,073 | 139,052 | 162,566 | 162,938 | 4 | 218,414 | 220,242 | 211,058 | 213,932 | ||||||||||||||||||||||||||||||
Reverse repurchase agreements | 294,086 | 294,086 | 269,256 | 269,256 | 357,164 | 357,164 | 320,499 | 320,499 | ||||||||||||||||||||||||||||||||
Trading portfolio assets (including assets pledged as collateral of CHF 110,365 million at 31.12.02 and CHF 121,456 million at 31.12.01) | 1, 4 | 441,845 | 371,436 | 455,406 | 397,886 | |||||||||||||||||||||||||||||||||||
Trading portfolio assets | c, h, j,1, 4, 5 | 449,389 | 370,259 | 423,733 | 341,013 | |||||||||||||||||||||||||||||||||||
Trading portfolio assets pledged as collateral | 159,115 | 159,115 | 120,759 | 120,759 | ||||||||||||||||||||||||||||||||||||
Positive replacement values | 1, 4 | 83,757 | 82,092 | 73,474 | 73,447 | j, k, 1, 4, 5 | 284,468 | 284,577 | 248,924 | 248,206 | ||||||||||||||||||||||||||||||
Financial assets designated at fair value | c | 653 | ||||||||||||||||||||||||||||||||||||||
Loans | a, d | 211,755 | 211,647 | 226,747 | 226,545 | a, j, 5 | 228,968 | 232,387 | 212,729 | 212,679 | ||||||||||||||||||||||||||||||
Financial investments | f, 2 | 2,846 | 8,391 | 20,676 | 28,803 | e, j, 2 | 1,455 | 5,049 | 1,303 | 5,139 | ||||||||||||||||||||||||||||||
Securities received as collateral | 3 | 16,308 | 10,931 | 3 | 12,950 | 13,071 | ||||||||||||||||||||||||||||||||||
Accrued income and prepaid expenses | 4 | 6,462 | 6,453 | 7,545 | 7,554 | h, j | 5,882 | 5,876 | 6,219 | 6,218 | ||||||||||||||||||||||||||||||
Investments in associates | 705 | 705 | 697 | 697 | c | 2,153 | 2,427 | 1,616 | 1,616 | |||||||||||||||||||||||||||||||
Property and equipment | a, j | 8,358 | 7,869 | 9,276 | 8,695 | a, c, m | 9,045 | 8,736 | 8,116 | 7,683 | ||||||||||||||||||||||||||||||
Goodwill | a, b | 28,127 | 11,181 | 29,255 | 14,578 | a, b | 26,977 | 8,847 | 26,775 | 9,348 | ||||||||||||||||||||||||||||||
Other intangible assets | b, g | 1,222 | 2,515 | 4,510 | 4,507 | b, c | 1,722 | 3,302 | 1,174 | 2,181 | ||||||||||||||||||||||||||||||
Private equity investments | 2 | 4,328 | 6,069 | 2 | 3,094 | 3,308 | ||||||||||||||||||||||||||||||||||
Other assets | d, f, g, h, i, 1, 2 | 21,314 | 8,952 | 36,972 | 9,875 | c, d, f, h, j, 1, 2, 5 | 101,068 | 34,850 | 64,381 | 25,459 | ||||||||||||||||||||||||||||||
Total assets | 1,296,938 | 1,181,118 | 1,361,920 | 1,253,297 | 1,903,186 | 1,734,784 | 1,699,007 | 1,550,056 | ||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||
Due to banks | 83,178 | 83,178 | 106,531 | 106,531 | h, 1 | 119,021 | 118,901 | 127,385 | 127,012 | |||||||||||||||||||||||||||||||
Cash collateral on securities lent | 36,870 | 36,870 | 30,317 | 30,317 | 4 | 57,792 | 61,545 | 51,157 | 53,278 | |||||||||||||||||||||||||||||||
Repurchase agreements | 366,858 | 366,858 | 368,620 | 368,620 | j | 423,513 | 422,587 | 415,863 | 415,863 | |||||||||||||||||||||||||||||||
Trading portfolio liabilities | 1, 4 | 117,721 | 106,453 | 119,528 | 105,798 | j, 1, 4, 5 | 190,907 | 171,033 | 149,380 | 143,957 | ||||||||||||||||||||||||||||||
Obligation to return securities received as collateral | 3 | 16,308 | 10,931 | 3 | 12,950 | 13,071 | ||||||||||||||||||||||||||||||||||
Negative replacement values | 1, 4 | 132,354 | 81,282 | 116,666 | 71,443 | j, k, l, 1, 4, 5 | 360,345 | 303,712 | 326,136 | 254,768 | ||||||||||||||||||||||||||||||
Financial liabilities designated at fair value | j, k, 5 | 65,756 | 35,286 | |||||||||||||||||||||||||||||||||||||
Due to customers | a, d | 306,872 | 306,876 | 333,766 | 333,781 | j, 5 | 386,913 | 376,083 | 347,358 | 346,633 | ||||||||||||||||||||||||||||||
Accrued expenses and deferred income | 4 | 15,330 | 15,331 | 17,289 | 17,289 | j | 14,830 | 14,685 | 13,673 | 13,673 | ||||||||||||||||||||||||||||||
Debt issued | a, d | 129,527 | 129,411 | 156,462 | 156,218 | a, c, d, j, k, 1 | 164,744 | 117,828 | 123,259 | 88,843 | ||||||||||||||||||||||||||||||
Other liabilities | d, g, h, i, 1 | 32,815 | 12,339 | 38,416 | 15,658 | c, d, f, g, h, j, l, m, 1 | 117,743 | 42,342 | 74,044 | 31,360 | ||||||||||||||||||||||||||||||
Total liabilities | 1,237,833 | 1,138,598 | 1,298,526 | 1,205,655 | 1,848,758 | 1,694,472 | 1,641,326 | 1,510,673 | ||||||||||||||||||||||||||||||||
Minority interests | 3,529 | 3,529 | 4,112 | 4,112 | c ,j | 1,760 | 5,334 | 4,507 | 4,073 | |||||||||||||||||||||||||||||||
Total shareholders’ equity | 55,576 | 38,991 | 59,282 | 43,530 | 52,668 | 34,978 | 53,174 | 35,310 | ||||||||||||||||||||||||||||||||
Total liabilities, minority interests and shareholders’ equity | 1,296,938 | 1,181,118 | 1,361,920 | 1,253,297 | 1,903,186 | 1,734,784 | 1,699,007 | 1,550,056 | ||||||||||||||||||||||||||||||||
181
170
Financial Statements
Notes to the Financial Statements
Note 41.8 Comprehensive Income
Comprehensive income under US GAAP is defined as the change in Shareholders’shareholders’ equity excluding transactions with shareholders. Comprehensive income has two major components: Net profit, as reported in the income statement, and Other comprehensive income. Other comprehensive income includes such items as foreign currency translation, unrealized gains/gains / losses on available for saleavailable-for-sale securities, unrealized gains/gains / losses on changes in fair value of derivative instruments designated as cash flow hedges and additional minimum pension liability. The components and accumulated other comprehensive income amounts on a US GAAP basis for the years ended 31 December 2002,2004, 31 December 20012003 and 31 December 20002002 are as follows:
Unrealized | Unrealized | Additional | Accumulated | |||||||||||||||||||||
Foreign | gains/(losses) | gains/(losses) | minimum | other | ||||||||||||||||||||
currency | on available for | on cash flow | pension | comprehensive | Comprehensive | |||||||||||||||||||
CHF million | translation | sale securities | hedges | liability | income/(loss) | income/(loss) | ||||||||||||||||||
Balance at 1 January 2000 | (442 | ) | 16 | (426 | ) | |||||||||||||||||||
Net profit | 4,437 | |||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Foreign currency translation | (245 | ) | (245 | ) | ||||||||||||||||||||
Net unrealized gains on available for sale investments arising during the year, net of CHF 152 million tax | 456 | 456 | ||||||||||||||||||||||
Reclassification adjustment for gains on available for sale investments realized in net profit, net of CHF 40 million tax | (121 | ) | (121 | ) | ||||||||||||||||||||
Other comprehensive income/(loss) | 90 | |||||||||||||||||||||||
Comprehensive income | 4,527 | |||||||||||||||||||||||
Balance at 31 December 2000 | (687 | ) | 351 | (336 | ) | |||||||||||||||||||
Net profit | 3,234 | |||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Foreign currency translation | (82 | ) | (82 | ) | ||||||||||||||||||||
Net unrealized gains on available for sale investments arising during the year, net of CHF 27 million tax | 109 | 109 | ||||||||||||||||||||||
Reclassification adjustment for gains on available for sale investments realized in net profit, net of CHF 26 million tax | (104 | ) | (104 | ) | ||||||||||||||||||||
Net unrealized gains on cash flow hedges arising during the year, net of CHF 1 million tax | 4 | 4 | ||||||||||||||||||||||
Reclassification adjustment for losses on cash flow hedges realized in net profit, net of CHF 1 million tax | 3 | 3 | ||||||||||||||||||||||
Additional minimum pension liability, net of CHF 108 million tax | (195 | ) | (195 | ) | ||||||||||||||||||||
Other comprehensive income/(loss) | (265 | ) | ||||||||||||||||||||||
Comprehensive income | 2,969 | |||||||||||||||||||||||
Balance at 31 December 2001 | (769 | ) | 356 | 7 | (195 | ) | (601 | ) | ||||||||||||||||
Net profit | 5,546 | |||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Foreign currency translation | (80 | ) | (80 | ) | ||||||||||||||||||||
Net unrealized gains on available for sale investments arising during the year, net of CHF 34 million tax | 109 | 109 | ||||||||||||||||||||||
Impairment charges reclassified to the income statement, net of CHF 26 million tax | 95 | 95 | ||||||||||||||||||||||
Reclassification adjustment for gains on available for sale investments realized in net profit, net of CHF 102 million tax | (368 | ) | (368 | ) | ||||||||||||||||||||
Net unrealized losses on cash flow hedges arising during the year, net of CHF 3 million tax | (1 | ) | (1 | ) | ||||||||||||||||||||
Reclassification adjustment for gains on cash flow hedges realized in net profit, net of CHF 0 million tax | (8 | ) | (8 | ) | ||||||||||||||||||||
Additional minimum pension liability, net of CHF 93 million tax | (827 | ) | (827 | ) | ||||||||||||||||||||
Other comprehensive income/(loss) | (1,080 | ) | ||||||||||||||||||||||
Comprehensive income | 4,466 | |||||||||||||||||||||||
Balance at 31 December 2002 | (849 | ) | 192 | (2 | ) | (1,022 | ) | (1,681 | ) | |||||||||||||||
Unrealized | Accumu- | |||||||||||||||||||||||||||
gains / | Unrealized | lated other | ||||||||||||||||||||||||||
(losses) on | gains / | Additional | compre- | Compre- | ||||||||||||||||||||||||
Foreign | available- | (losses) on | minimum | Deferred | hensive | hensive | ||||||||||||||||||||||
currency | for-sale | cash flow | pension | income | income / | income / | ||||||||||||||||||||||
CHF million | translation | investments | hedges | liability | taxes | (loss) | (loss) | |||||||||||||||||||||
Balance at 1 January 2002 | (769 | ) | 469 | 9 | (303 | ) | (7 | ) | (601 | ) | ||||||||||||||||||
Net profit | 5,546 | |||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation | (80 | ) | (80 | ) | (80 | ) | ||||||||||||||||||||||
Net unrealized gains on available-for-sale investments | 143 | (34 | ) | 109 | 109 | |||||||||||||||||||||||
Impairment charges reclassified to the income statement | 121 | (26 | ) | 95 | 95 | |||||||||||||||||||||||
Reclassification of gains on available-for- sale investments realized in net profit | (470 | ) | 102 | (368 | ) | (368 | ) | |||||||||||||||||||||
Net unrealized losses on cash flow hedges | (4 | ) | 3 | (1 | ) | (1 | ) | |||||||||||||||||||||
Reclassification of gains on cash flow hedges realized in net profit | (8 | ) | 0 | (8 | ) | (8 | ) | |||||||||||||||||||||
Additional minimum pension liability | (920 | ) | 93 | (827 | ) | (827 | ) | |||||||||||||||||||||
Other comprehensive income / (loss) | (80 | ) | (206 | ) | (12 | ) | (920 | ) | 138 | (1,080 | ) | (1,080 | ) | |||||||||||||||
Comprehensive income | 4,466 | |||||||||||||||||||||||||||
Balance at 31 December 2002 | (849 | ) | 263 | (3 | ) | (1,223 | ) | 131 | (1,681 | ) | ||||||||||||||||||
Net profit | 6,513 | |||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation | (795 | ) | (795 | ) | (795 | ) | ||||||||||||||||||||||
Net unrealized losses on available-for-sale investments | (130 | ) | 49 | (81 | ) | (81 | ) | |||||||||||||||||||||
Impairment charges reclassified to the income statement | 111 | (18 | ) | 93 | 93 | |||||||||||||||||||||||
Reclassification of gains on available-for- sale investments realized in net profit | (69 | ) | 11 | (58 | ) | (58 | ) | |||||||||||||||||||||
Reclassification of losses on cash flow hedges realized in net profit | 3 | (1 | ) | 2 | 2 | |||||||||||||||||||||||
Additional minimum pension liability | 917 | (82 | ) | 835 | 835 | |||||||||||||||||||||||
Other comprehensive income / (loss) | (795 | ) | (88 | ) | 3 | 917 | (41 | ) | (4 | ) | (4 | ) | ||||||||||||||||
Comprehensive income | 6,509 | |||||||||||||||||||||||||||
Balance at 31 December 2003 | (1,644 | ) | 175 | 0 | (306 | ) | 90 | (1,685 | ) | |||||||||||||||||||
Net profit | 8,818 | |||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation | (818 | ) | (818 | ) | (818 | ) | ||||||||||||||||||||||
Net unrealized gains on available-for-sale investments | 32 | (15 | ) | 17 | 17 | |||||||||||||||||||||||
Impairment charges reclassified to the income statement | 10 | (2 | ) | 8 | 8 | |||||||||||||||||||||||
Reclassification of gains on available-for- sale investments realized in net profit | (5 | ) | 1 | (4 | ) | (4 | ) | |||||||||||||||||||||
Additional minimum pension liability | (819 | ) | 21 | (798 | ) | (798 | ) | |||||||||||||||||||||
Other comprehensive income / (loss) | (818 | ) | 37 | 0 | (819 | ) | 5 | (1,595 | ) | (1,595 | ) | |||||||||||||||||
Comprehensive income | 7,223 | |||||||||||||||||||||||||||
Balance at 31 December 2004 | (2,462 | ) | 212 | 0 | (1,125 | ) | 95 | (3,280 | ) | |||||||||||||||||||
171182
UBS Group Financial StatementsNotes to the Financial Statements
Note 4042 Additional Disclosures Required under US GAAP and SEC Rules
DuringFor the years ended 31 December 2002 and 2001, the Group securitized (i.e., transformed owned financial assets into securities through sales transactions) residential mortgage loans and securities, commercial mortgage loans and other financial assets, acting as lead or co-manager. The Group’s continuing involvement in these transactions was primarily limited to the temporary retention of various security interests. Proceeds received at the time of securitization from residential mortgage, commercial mortgage and other financial asset securitizations were CHF 143.5 billion, CHF 4.0 billion and CHF 5.8 billion, respectively in 2002 and CHF 67.6 billion, CHF 4.1 billion and CHF 2.8 billion, respectively in 2001. Related pre-tax gains (losses) recognized, including unrealized gains (losses) on retained interests, at the time of securitization were CHF 523.9 million, CHF 206.4 million and CHF (4.5) million, respectively in 2002 and CHF 112.9 million, CHF 129.7 mil-
ion and CHF 20.6 million, respectively in 2001. A significant portion of the securitization activities conducted in 2002 and 2001 were derived from businesses acquired in the purchase of PaineWebber Group Inc. in November 2000. During 2000, the Group did not engage in significant securitization transactions involving the transfer of its financial assets.
FASB interpretation (FIN)year 2004 UBS fully applied Financial Accounting Standards Board (FASB) Interpretation No. 46, Consolidation“Consolidation of Variable Interest Entities was issued on 17(revised December 2003)”, an interpretation of Accounting Research Bulletin No. 51 (FIN 46-R). At 31 December 2003 the predecessor standard, FIN 46, had application to UBS only with respect to transitional disclosure requirements, and consolidation requirements for certain VIEs created after 31 January 20032003.
Identification of variable interest entities (VIEs) and provides guidance
measurement of variable interests
– | do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties; or | |
– | do not have the characteristics of a controlling financial interest; or | |
– | have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of investors with disproportionately small or no voting interests. |
including fee payments to decision makers and to providersassets, exclusive of guarantees (including writers of put options and other instruments with similar results) as well as the interestsvariable interests. Interests of related parties (including management, employees, affiliates and agents). are included in the evaluation as if owned directly by the enterprise.
172
(in CHF million) | Notional amount | Maximum loss | ||||||||||||
SPE category | Total assets | of derivatives | Description of primary assets | exposure | ||||||||||
Trust vehicles for awards to UBS employees | 4,624.6 | 37,717.0 | UBS shares and derivatives thereon, alternative | |||||||||||
investments | 4,982.2 | 1 | ||||||||||||
Private equity investments | 784.6 | 0 | Private equity investments | 318.4 | ||||||||||
Hedge fund products including | Bonds, equities, derivatives | |||||||||||||
direct investment funds and funds of funds | 4,970.6 | 8,665.0 | and alternative investments | 1,643.6 | ||||||||||
Passive intermediary to a derivative transaction2 | 2,131.1 | 37,248.2 | Cash/corporate securities | 876.9 | ||||||||||
Dispersion of risk in a pool of investments | 2,689.1 | 8,125.6 | Debt securities, loan receivables and credit linked notes | 333.8 | ||||||||||
Cash, debt securities, | ||||||||||||||
Other credit protection vehicles | 1,639.0 | 2,922.5 | asset-backed securities and credit default swaps | 528.9 | ||||||||||
Other miscellaneous structures | 205.3 | 205.3 | Corporate debt and equities | 194.8 | ||||||||||
Total 31.12.2002 | 17,044.3 | 94,883.6 | 8,878.6 | |||||||||||
Measurement of maximum exposure to employee investment partnerships. At 31 December 2002,loss
The table above includes informationsame basis as for consolidated and non-consolidated special purpose entities. Certain entities subject to the above disclosure have been consolidated in the Group’s Financial Statements under IFRS and US GAAP due to the Group’s significant economic interest. However, in many special purpose entities UBS has a less than significant variable interest, or control is determined based on voting interest. These entities are not included in the table.
VIEs in which UBS is the primary beneficiary
173183
UBS Group Financial Statements
Notes to the Financial Statements
lion, including approximately CHF 2.0 billion in UBS shares and CHF 0.8 billion in alternative investment vehicles. Upon consolidation, the UBS shares are treated as treasury shares, which increases the weighted average number of treasury shares at 31 December 2004 by 23 million shares, and decreases the basic EPS denominator by 2%.
tion of exercise of control under IFRS. The total size of this population is approximately CHF 4.7 billion, mostly comprising investment funds managed by UBS, other investment fund products, and securitization vehicles.
VIEs in which UBS is the primary beneficiary | ||||||||||
Consolidated assets that are collateral | ||||||||||
(CHF million) | for the VIEs' obligations | |||||||||
Nature, purpose and activities of VIEs | Total assets | Classification | Amount | |||||||
Securitizations | 1,363 | Loan receivables, government debt securities, corporate debt securities | 1,363 | |||||||
Investment fund products | 4,648 | Investment funds | 4,648 | |||||||
Investment funds managed by UBS | 4,303 | Debt, equity | 4,270 | |||||||
Passive intermediary to a derivative transaction | 174 | Loan receivables, corporate debt securities | 174 | |||||||
Trust vehicles for awards to UBS employees | 2,798 | UBS shares and alternative investment vehicles | 2,798 | |||||||
Private equity investments | 300 | Private equity investments | 152 | |||||||
Other miscellaneous structures | 36 | – | – | |||||||
Total 31.12.04 | 13,622 | 13,405 | ||||||||
Entities which are de-consolidated for US GAAP purposes
VIEs in which UBS holds a significant variable interest
VIEs in which UBS holds a significant variable interest | ||||||||||
(CHF million) | Maximum exposure | |||||||||
Nature, purpose and activities of VIEs | Total assets | Nature of involvement | to loss | |||||||
Securitizations | 7,075 | UBS acts as swap counterparty | 2,700 | |||||||
Investment fund products | 4,863 | UBS holds notes or units | 1,744 | |||||||
Investment funds managed by UBS | 1,978 | UBS acts as investment manager | 742 | |||||||
Credit protection vehicles | 1,449 | SPE used for credit protection – UBS sells credit risk on portfolios to investors | 800 | |||||||
Other miscellaneous structures | 114 | UBS acts as swap counterparty | 54 | |||||||
Total 31.12.04 | 15,479 | 6,040 | ||||||||
184
Third-party VIEs not otherwise classified
UBS has identified that it holds variable interests in 56 third-party VIEs that in some cases could result in UBS being considered the primary beneficiary, but the information necessary to make this determination or perform the accounting required to consolidate the VIE, was held by third parties, and was not available to UBS. Additional disclosures for these VIEs are provided in the table below.
VIEs not originated by UBS – information unavailable from third parties | ||||||||||||||
Net income | Maximum | |||||||||||||
(CHF million) | from VIE in | exposure | ||||||||||||
Nature, purpose and activities of VIEs | Total assets | Nature of involvement | current period | to loss | ||||||||||
Securitizations | 4,083 | UBS acts as swap counterparty | 114 | 3,561 | ||||||||||
Investment fund products | 480 | UBS acts as swap counterparty | 24 | 457 | ||||||||||
Total 31.12.04 | 4,563 | 138 | 4,018 | |||||||||||
Future developments
185
Financial Statements
Notes to the Financial Statements
Note 42.2 Industrial Holdings’ Income Statement1
Following an additional percentage acquisition of Motor-Columbus, UBS now holds a majority ownership interest in the company. As a result, UBS has fully consolidated Motor-Columbus in its financial statements, housing it within a separate segment. “Industrial Holdings” consists of Motor-Columbus, a Swiss holding company, whose most significant asset is a 59.3% interest in Atel, a Swiss-based European energy provider. The following table provides information required by Regulation S-X for commercial and industrial companies, including a condensed income statement and certain additional balance sheet information:
CHF million | 31.12.04 | 2 | ||
Operating income | ||||
Net sales | 3,632 | |||
Operating expenses | ||||
Cost of products sold | 3,200 | |||
Marketing expenses | 44 | |||
General and administrative expenses | 131 | |||
Other intangible assets amortization | 77 | |||
Other operating expenses | 8 | |||
Total operating expenses | 3,460 | |||
Operating profit | 172 | |||
Non-operating profit | ||||
Interest income | 4 | |||
Interest expense | (38 | ) | ||
Other non-operating income, net | 50 | |||
Non-operating profit | 16 | |||
Net profit before tax and minority interests | 188 | |||
Income taxes | 47 | |||
Net profit before minority interests | 141 | |||
Equity in income of associates, net of tax | 17 | |||
Minority interests | (113 | ) | ||
Net profit | 45 | |||
Accounts receivables trade, gross | 1,681 | |||
Allowance for doubtful receivables | (18 | ) | ||
Accounts receivables trade, net | 1,663 | |||
186
Note 42.3 Indemnifications
Guarantee of PaineWebber securities
UBS. At 31 December 2002,2004, the amount of senior liabilities of UBS to which the holders of the subordinated debt securities would be subordinated is approximately CHF 1,1291,685 billion.
187
Financial Statements
Notes to the Financial Statements
Supplemental Guarantor Consolidating Income Statement
CHF million | UBS AG | UBS | Consolidating | UBS AG | UBS | Consolidating | ||||||||||||||||||||||||||||||||||
For the year ended 31 December 2002 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||||||||||||||||||||||
For the year ended 31 December 2004 | Parent Bank | 1 | Americas Inc. | Subsidiaries | entries | UBS Group | ||||||||||||||||||||||||||||||||||
Operating income | ||||||||||||||||||||||||||||||||||||||||
Interest income | 25,253 | 16,693 | 4,520 | (6,503 | ) | 39,963 | 29,423 | 13,364 | 14,486 | (17,875 | ) | 39,398 | ||||||||||||||||||||||||||||
Interest expense | 18,187 | 14,273 | 3,460 | (6,503 | ) | 29,417 | 21,732 | 10,009 | 13,672 | (17,875 | ) | 27,538 | ||||||||||||||||||||||||||||
Net interest income | 7,066 | 2,420 | 1,060 | 0 | 10,546 | 7,691 | 3,355 | 814 | 0 | 11,860 | ||||||||||||||||||||||||||||||
Credit loss expense | (134 | ) | (15 | ) | (57 | ) | 0 | (206 | ) | 334 | 1 | (59 | ) | 0 | 276 | |||||||||||||||||||||||||
Net interest income after credit loss expense | 6,932 | 2,405 | 1,003 | 0 | 10,340 | 8,025 | 3,356 | 755 | 0 | 12,136 | ||||||||||||||||||||||||||||||
Net fee and commission income | 6,841 | 7,325 | 4,055 | 0 | 18,221 | 7,830 | 7,119 | 4,467 | 0 | 19,416 | ||||||||||||||||||||||||||||||
Net trading income | 4,420 | 773 | 379 | 0 | 5,572 | 4,204 | 386 | 382 | 0 | 4,972 | ||||||||||||||||||||||||||||||
Income from subsidiaries | (1,429 | ) | 0 | 0 | 1,429 | 0 | 1,364 | 0 | 0 | (1,364 | ) | 0 | ||||||||||||||||||||||||||||
Other income | (131 | ) | (26 | ) | 145 | 0 | (12 | ) | 449 | 737 | (289 | ) | 0 | 897 | ||||||||||||||||||||||||||
Income from industrial holdings | 0 | 0 | 3,648 | 0 | 3,648 | |||||||||||||||||||||||||||||||||||
Total operating income | 16,633 | 10,477 | 5,582 | 1,429 | 34,121 | 21,872 | 11,598 | 8,963 | (1,364 | ) | 41,069 | |||||||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||||||||||
Personnel expenses | 8,370 | 7,531 | 2,623 | 0 | 18,524 | 9,699 | 6,577 | 2,239 | 0 | 18,515 | ||||||||||||||||||||||||||||||
General and administrative expenses | 2,627 | 2,003 | 2,443 | 0 | 7,073 | 1,994 | 2,719 | 1,990 | 0 | 6,703 | ||||||||||||||||||||||||||||||
Depreciation of property and equipment | 1,062 | 204 | 255 | 0 | 1,521 | 769 | 155 | 428 | 0 | 1,352 | ||||||||||||||||||||||||||||||
Amortization of goodwill and other intangible assets | 144 | 2,211 | 104 | 0 | 2,459 | 46 | 750 | 168 | 0 | 964 | ||||||||||||||||||||||||||||||
Goods and materials purchased | 0 | 0 | 2,861 | 0 | 2,861 | |||||||||||||||||||||||||||||||||||
Total operating expenses | 12,203 | 11,949 | 5,425 | 0 | 29,577 | 12,508 | 10,201 | 7,686 | 0 | 30,395 | ||||||||||||||||||||||||||||||
Operating profit/(loss) before tax and minority interests | 4,430 | (1,472 | ) | 157 | 1,429 | 4,544 | ||||||||||||||||||||||||||||||||||
Operating profit / (loss) before tax and minority interests | 9,364 | 1,397 | 1,277 | (1,364 | ) | 10,674 | ||||||||||||||||||||||||||||||||||
Tax expense/(benefit) | 895 | (460 | ) | 243 | 0 | 678 | ||||||||||||||||||||||||||||||||||
Tax expense / (benefit) | 1,275 | 153 | 707 | 0 | 2,135 | |||||||||||||||||||||||||||||||||||
Net profit/(loss) before minority interests | 3,535 | (1,012 | ) | (86 | ) | 1,429 | 3,866 | |||||||||||||||||||||||||||||||||
Net profit / (loss) before minority interests | 8,089 | 1,244 | 570 | (1,364 | ) | 8,539 | ||||||||||||||||||||||||||||||||||
Minority interests | 0 | 0 | (331 | ) | 0 | (331 | ) | 0 | (35 | ) | (415 | ) | 0 | (450 | ) | |||||||||||||||||||||||||
Net profit/(loss) | 3,535 | (1,012 | ) | (417 | ) | 1,429 | 3,535 | |||||||||||||||||||||||||||||||||
Net profit / (loss) | 8,089 | 1,209 | 155 | (1,364 | ) | 8,089 | ||||||||||||||||||||||||||||||||||
Net profit/(loss) US GAAP2 | 5,214 | (65 | ) | 397 | 0 | 5,546 | ||||||||||||||||||||||||||||||||||
Net profit / (loss) US GAAP2 | 6,426 | 1,977 | 415 | 0 | 8,818 | |||||||||||||||||||||||||||||||||||
188
174
Supplemental Guarantor Consolidating Balance Sheet
CHF million | UBS AG | UBS | Consolidating | UBS AG | UBS | Consolidating | ||||||||||||||||||||||||||||||||||
For the year ended 31 December 2002 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||||||||||||||||||||||
For the year ended 31 December 2004 | Parent Bank | 1 | Americas Inc. | Subsidiaries | Entries | UBS Group | ||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Cash and balances with central banks | 3,609 | 7 | 655 | 0 | 4,271 | 4,152 | 7 | 1,877 | 0 | 6,036 | ||||||||||||||||||||||||||||||
Due from banks | 65,992 | 14,205 | 82,384 | (130,113 | ) | 32,468 | 94,881 | 11,194 | 132,730 | (203,541 | ) | 35,264 | ||||||||||||||||||||||||||||
Cash collateral on securities borrowed | 32,248 | 139,424 | 1,056 | (33,676 | ) | 139,052 | 87,198 | 185,741 | 95,334 | (148,031 | ) | 220,242 | ||||||||||||||||||||||||||||
Reverse repurchase agreements | 197,168 | 150,717 | 40,725 | (94,524 | ) | 294,086 | 213,080 | 171,447 | 229,558 | (256,921 | ) | 357,164 | ||||||||||||||||||||||||||||
Trading portfolio assets | 197,184 | 148,430 | 25,823 | 0 | 371,437 | 205,075 | 138,015 | 27,169 | 0 | 370,259 | ||||||||||||||||||||||||||||||
Trading portfolio assets pledged as collateral | 107,944 | 39,998 | 11,173 | 0 | 159,115 | |||||||||||||||||||||||||||||||||||
Positive replacement values | 82,087 | 3,249 | 17,168 | (20,413 | ) | 82,091 | 287,786 | 1,985 | 138,451 | (143,645 | ) | 284,577 | ||||||||||||||||||||||||||||
Financial assets designated at fair value | 0 | 0 | 653 | 0 | 653 | |||||||||||||||||||||||||||||||||||
Loans | 252,625 | 25,904 | 14,796 | (81,678 | ) | 211,647 | 252,342 | 29,440 | 36,509 | (85,904 | ) | 232,387 | ||||||||||||||||||||||||||||
Financial investments | 1,613 | 1,684 | 5,094 | 0 | 8,391 | 839 | 937 | 3,273 | 0 | 5,049 | ||||||||||||||||||||||||||||||
Accrued income and prepaid expenses | 2,343 | 3,143 | 1,458 | (491 | ) | 6,453 | 3,129 | 1,846 | 3,546 | (2,645 | ) | 5,876 | ||||||||||||||||||||||||||||
Investments in associates | 9,730 | 20 | 81 | (9,126 | ) | 705 | 28,915 | 14 | 1,307 | (27,809 | ) | 2,427 | ||||||||||||||||||||||||||||
Property and equipment | 6,144 | 731 | 994 | 0 | 7,869 | 5,475 | 511 | 2,750 | 0 | 8,736 | ||||||||||||||||||||||||||||||
Goodwill and other intangible assets | 128 | 12,946 | 622 | 0 | 13,696 | 528 | 9,664 | 1,957 | 0 | 12,149 | ||||||||||||||||||||||||||||||
Other assets | 3,989 | 4,009 | 3,603 | (2,649 | ) | 8,952 | 8,536 | 3,728 | 24,922 | (2,336 | ) | 34,850 | ||||||||||||||||||||||||||||
Total assets | 854,860 | 504,469 | 194,459 | (372,670 | ) | 1,181,118 | 1,299,880 | 594,527 | 711,209 | (870,832 | ) | 1,734,784 | ||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||
Due to banks | 85,634 | 89,815 | 37,842 | (130,113 | ) | 83,178 | 157,889 | 87,736 | 76,817 | (203,541 | ) | 118,901 | ||||||||||||||||||||||||||||
Cash collateral on securities lent | 35,800 | 32,625 | 2,121 | (33,676 | ) | 36,870 | 85,053 | 45,362 | 79,161 | (148,031 | ) | 61,545 | ||||||||||||||||||||||||||||
Repurchase agreements | 136,797 | 295,885 | 28,700 | (94,524 | ) | 366,858 | 119,826 | 332,513 | 227,169 | (256,921 | ) | 422,587 | ||||||||||||||||||||||||||||
Trading portfolio liabilities | 56,105 | 43,784 | 6,564 | 0 | 106,453 | 98,019 | 59,867 | 13,147 | 0 | 171,033 | ||||||||||||||||||||||||||||||
Negative replacement values | 89,135 | 3,524 | 9,036 | (20,413 | ) | 81,282 | 309,809 | 2,105 | 135,443 | (143,645 | ) | 303,712 | ||||||||||||||||||||||||||||
Financial liabilities designated at fair value | 47,116 | 0 | 18,640 | 0 | 65,756 | |||||||||||||||||||||||||||||||||||
Due to customers | 339,787 | 19,957 | 28,810 | (81,678 | ) | 306,876 | 366,762 | 47,265 | 47,960 | (85,904 | ) | 376,083 | ||||||||||||||||||||||||||||
Accrued expenses and deferred income | 7,779 | 6,580 | 1,463 | (491 | ) | 15,331 | 7,588 | 6,233 | 3,509 | (2,645 | ) | 14,685 | ||||||||||||||||||||||||||||
Debt issued | 58,704 | 7,111 | 63,596 | 0 | 129,411 | 56,658 | 5,214 | 55,956 | 0 | 117,828 | ||||||||||||||||||||||||||||||
Other liabilities | 6,933 | 2,604 | 5,451 | (2,649 | ) | 12,339 | 9,378 | 2,442 | 32,858 | (2,336 | ) | 42,342 | ||||||||||||||||||||||||||||
Total liabilities | 816,674 | 501,885 | 183,583 | (363,544 | ) | 1,138,598 | 1,258,098 | 588,737 | 690,660 | (843,023 | ) | 1,694,472 | ||||||||||||||||||||||||||||
Minority interests | 0 | 55 | 3,474 | 0 | 3,529 | 0 | 144 | 5,190 | 0 | 5,334 | ||||||||||||||||||||||||||||||
Total shareholders’ equity | 38,186 | 2,529 | 7,402 | (9,126 | ) | 38,991 | 41,782 | 5,646 | 15,359 | (27,809 | ) | 34,978 | ||||||||||||||||||||||||||||
Total liabilities, minority interests and shareholders’ equity | 854,860 | 504,469 | 194,459 | (372,670 | ) | 1,181,118 | 1,299,880 | 594,527 | 711,209 | (870,832 | ) | 1,734,784 | ||||||||||||||||||||||||||||
Total shareholders’ equity — US GAAP 2 | 44,852 | 3,176 | 7,548 | 0 | 55,576 | |||||||||||||||||||||||||||||||||||
Total shareholders’ equity – US GAAP2 | 29,116 | 7,760 | 15,792 | 0 | 52,668 | |||||||||||||||||||||||||||||||||||
189
175
UBS Group Financial Statements
Notes to the Financial Statements
Supplemental Guarantor Consolidating Cash Flow Statement
CHF million | UBS AG | UBS | UBS AG | UBS | ||||||||||||||||||||||||||||
For the year ended 31 December 2002 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | ||||||||||||||||||||||||||||
For the year ended 31 December 2004 | Parent Bank | 1 | Americas Inc. | Subsidiaries | UBS Group | |||||||||||||||||||||||||||
Net cash flow from/(used in) operating activities | 8,422 | (927 | ) | (9,859 | ) | (2,364 | ) | |||||||||||||||||||||||||
Net cash flow from / (used in) operating activities | (6,652 | ) | (1,636 | ) | (19,610 | ) | (27,898 | ) | ||||||||||||||||||||||||
Cash flow from/(used in) investing activities | ||||||||||||||||||||||||||||||||
Cash flow from / (used in) investing activities | ||||||||||||||||||||||||||||||||
Investments in subsidiaries and associates | (23 | ) | (16 | ) | (21 | ) | (60 | ) | (2,511 | ) | 0 | 0 | (2,511 | ) | ||||||||||||||||||
Disposal of subsidiaries and associates | 984 | 0 | 0 | 984 | 800 | 0 | 0 | 800 | ||||||||||||||||||||||||
Purchase of property and equipment | (1,019 | ) | (189 | ) | (555 | ) | (1,763 | ) | (555 | ) | (164 | ) | (430 | ) | (1,149 | ) | ||||||||||||||||
Disposal of property and equipment | 22 | 28 | 17 | 67 | 64 | 249 | 391 | 704 | ||||||||||||||||||||||||
Net (investment in) / divestment of financial investments | 39 | 145 | 502 | 686 | ||||||||||||||||||||||||||||
Net cash flow from / (used in) investing activities | (2,163 | ) | 230 | 463 | (1,470 | ) | ||||||||||||||||||||||||||
Cash flow from / (used in) financing activities | ||||||||||||||||||||||||||||||||
Net (investment in)/divestment of financial investments | 931 | 307 | 915 | 2,153 | ||||||||||||||||||||||||||||
Net cash flow from/(used in) investing activities | 895 | 130 | 356 | 1,381 | ||||||||||||||||||||||||||||
Cash flow from/(used in) investing activities | ||||||||||||||||||||||||||||||||
Net money market paper issued/(repaid) | (30,635 | ) | 471 | 3,958 | (26,206 | ) | ||||||||||||||||||||||||||
Net money market paper issued / (repaid) | 5,758 | 199 | 15,422 | 21,379 | ||||||||||||||||||||||||||||
Net movements in treasury shares and own equity derivative activity | (5,605 | ) | 0 | 0 | (5,605 | ) | (4,999 | ) | 0 | 0 | (4,999 | ) | ||||||||||||||||||||
Capital issuance | 6 | 0 | 0 | 6 | 2 | 0 | 0 | 2 | ||||||||||||||||||||||||
Capital repayment by par value reduction | (2,509 | ) | 0 | 0 | (2,509 | ) | ||||||||||||||||||||||||||
Issuance of long-term debt | 8,414 | 915 | 7,803 | 17,132 | ||||||||||||||||||||||||||||
Repayment of long-term debt | (11,099 | ) | (2,780 | ) | (1,032 | ) | (14,911 | ) | ||||||||||||||||||||||||
Dividends paid | (2,806 | ) | 0 | 0 | (2,806 | ) | ||||||||||||||||||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 35,426 | (26 | ) | 15,811 | 51,211 | |||||||||||||||||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (11,944 | ) | (1,869 | ) | (10,904 | ) | (24,717 | ) | ||||||||||||||||||||||||
Increase in minority interests | 0 | 0 | 0 | 0 | 0 | (969 | ) | 1,071 | 102 | |||||||||||||||||||||||
Dividend payments to/and purchase from minority interests | 0 | 0 | (377 | ) | (377 | ) | ||||||||||||||||||||||||||
Dividend payments to / purchase from minority interests | 0 | (1 | ) | (331 | ) | (332 | ) | |||||||||||||||||||||||||
Net activity in investments in subsidiaries | 2,775 | (161 | ) | (2,614 | ) | 0 | (4,799 | ) | 866 | 3,933 | 0 | |||||||||||||||||||||
Net cash flow from/(used in) financing activities | (38,653 | ) | (1,555 | ) | 7,738 | (32,470 | ) | |||||||||||||||||||||||||
Net cash flow from / (used in) financing activities | 16,638 | (1,800 | ) | 25,002 | 39,840 | |||||||||||||||||||||||||||
Effects of exchange rate differences | (2,608 | ) | 1,919 | 227 | (462 | ) | (1,282 | ) | 401 | (171 | ) | (1,052 | ) | |||||||||||||||||||
Net increase/(decrease) in cash equivalents | (31,944 | ) | (433 | ) | (1,538 | ) | (33,915 | ) | ||||||||||||||||||||||||
Net increase / (decrease) in cash equivalents | 6,541 | (2,805 | ) | 5,684 | 9,420 | |||||||||||||||||||||||||||
Cash and cash equivalents, beginning of the year | 89,856 | 15,552 | 10,851 | 116,259 | 43,309 | 18,811 | 11,236 | 73,356 | ||||||||||||||||||||||||
Cash and cash equivalents, end of the year | 57,912 | 15,119 | 9,313 | 82,344 | 49,850 | 16,006 | 16,920 | 82,776 | ||||||||||||||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||||||||||||||||||
Cash and balances with central banks | 3,609 | 7 | 655 | 4,271 | 4,152 | 7 | 1,877 | 6,036 | ||||||||||||||||||||||||
Money market paper2 | 33,509 | 9,615 | 3,059 | 46,183 | 31,262 | 13,450 | 697 | 45,409 | ||||||||||||||||||||||||
Due from banks maturing in less than three months | 20,794 | 5,497 | 5,599 | 31,890 | 14,436 | 2,549 | 14,346 | 31,331 | ||||||||||||||||||||||||
Total | 57,912 | 15,119 | 9,313 | 82,344 | 49,850 | 16,006 | 16,920 | 82,776 | ||||||||||||||||||||||||
Guarantee of other securities
these securities. UBS’s obligations under the trust preferred securities guarantee are subordinated to the prior payment in full of the deposit liabilities of UBS and all other liabilities of UBS. At 31 December 2002,2004, the amount of senior liabilities of UBS to which the holders of the subordinated debt securities would be subordinated is approximately CHF 1,1291,685 billion.
176
190
177
178
179
UBS AG (Parent Bank)
UBS AG (Parent Bank)
Table of Contents
200 | ||||
201 | ||||
201 | ||||
192
180
UBS AG (Parent Bank) |
Parent Bank Review
Income Statement |
The Parent Bank UBS AG net profit increased by CHF 1,1791,749 million from CHF 4,6554,197 million to CHF 5,8345,946 million. Income from investments in associates increaseddecreased to CHF 3,417461 million from CHF 1,5321,914 million in 20012003 mainly due to higherless distribution received. Sundry expense from ordinary activities was CHF 381 million, up from CHF 139 millionThe increase in 2001. This was mainly due to higher net writedown of financial investments. DepreciationExtraordinary income and write-offs were CHF 3,025 million, up from CHF 1,650 million in 2001 mainly caused by higher writedownexpenses is explained on investments inpage 198.
associated companies. Extraordinary income contains CHF 260 million (2001: CHF 87 million) from the sale of subsidiaries.
Balance Sheet |
Total assets increased by CHF 48141 billion to CHF 1,0641,136 billion byat 31 December 2002.2004. This movement is mostly impactedmainly caused by increased trading-related assets where mainly tradingpositions in Due from banks of CHF 28 billion and Due from customers of CHF 29 billion. A considerable increase resulted in Trading balances in securities and positiveprecious metals of CHF 52 billion (thereof debt instruments CHF 25 billion and equities CHF 37 billion) as well as in Positive replacement values have increased. Liquid assets have significantly decreasedof CHF 17 billion. The decrease in financial investments of CHF 4.5 billion is mainly due to reductionthe reclassification of deposits withown shares to Trading balances in securities and precious metals. The Investments in associated companies expanded by almost CHF 6 billion which is mainly due to new investments or additional financing of subsidiaries abroad, the Bankestablishment of Japan.new fund companies and the step acquisition of Motor-Columbus.
181193
UBS AG (Parent Bank) |
Financial Statements
Income Statement
CHF million | % change from | |||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.01 | |||||||||
Interest and discount income | 20,059 | 29,967 | (33 | ) | ||||||||
Interest and dividend income from trading portfolio | 7,074 | 8,089 | (13 | ) | ||||||||
Interest and dividend income from financial investments | 23 | 185 | (88 | ) | ||||||||
Interest expense | (20,125 | ) | (31,444 | ) | (36 | ) | ||||||
Net interest income | 7,031 | 6,797 | 3 | |||||||||
Credit-related fees and commissions | 252 | 291 | (13 | ) | ||||||||
Fee and commission income from securities and investment business | 7,249 | 8,232 | (12 | ) | ||||||||
Other fee and commission income | 515 | 524 | (2 | ) | ||||||||
Fee and commission expense | (1,167 | ) | (1,176 | ) | (1 | ) | ||||||
Net fee and commission income | 6,849 | 7,871 | (13 | ) | ||||||||
Net trading income | 4,634 | 5,015 | (8 | ) | ||||||||
Net income from disposal of financial investments | 125 | 15 | 733 | |||||||||
Income from investments in associated companies | 3,417 | 1,532 | 123 | |||||||||
Income from real estate holdings | 50 | 54 | (7 | ) | ||||||||
Sundry income from ordinary activities | 1,908 | 1,183 | 61 | |||||||||
Sundry ordinary expenses | (381 | ) | (139 | ) | 174 | |||||||
Other income from ordinary activities | 5,119 | 2,645 | 94 | |||||||||
Operating income | 23,633 | 22,328 | 6 | |||||||||
Personnel expenses | 8,916 | 9,443 | (6 | ) | ||||||||
General and administrative expenses | 4,379 | 4,869 | (10 | ) | ||||||||
Operating expenses | 13,295 | 14,312 | (7 | ) | ||||||||
Operating profit | 10,338 | 8,016 | 29 | |||||||||
Depreciation and write-offs on investments in | ||||||||||||
associated companies and fixed assets | 3,025 | 1,650 | 83 | |||||||||
Allowances, provisions and losses | 1,053 | 1,140 | (8 | ) | ||||||||
Profit before extraordinary items and taxes | 6,260 | 5,226 | 20 | |||||||||
Extraordinary income | 265 | 95 | 179 | |||||||||
Extraordinary expenses | 7 | 7 | 0 | |||||||||
Tax expense/(benefit) | 684 | 659 | 4 | |||||||||
Profit for the period | 5,834 | 4,655 | 25 | |||||||||
Income Statement | ||||||||||||
For the year ended | % change from | |||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.03 | |||||||||
Interest and discount income | 18,902 | 19,417 | (3 | ) | ||||||||
Interest and dividend income from trading portfolio | 10,457 | 9,325 | 12 | |||||||||
Interest and dividend income from financial investments | 13 | 11 | 18 | |||||||||
Interest expense | (21,659 | ) | (20,034 | ) | (8 | ) | ||||||
Net interest income | 7,713 | 8,719 | (12 | ) | ||||||||
Credit-related fees and commissions | 228 | 228 | 0 | |||||||||
Fee and commission income from securities and investment business | 8,002 | 6,998 | 14 | |||||||||
Other fee and commission income | 735 | 826 | (11 | ) | ||||||||
Fee and commission expense | (1,135 | ) | (1,180 | ) | 4 | |||||||
Net fee and commission income | 7,830 | 6,872 | 14 | |||||||||
Net trading income | 3,469 | 521 | 566 | |||||||||
Net income from disposal of financial investments | 87 | (69 | ) | |||||||||
Income from investments in associated companies | 461 | 1,914 | (76 | ) | ||||||||
Income from real estate holdings | 46 | 43 | 7 | |||||||||
Sundry income from ordinary activities | 1,418 | 1,213 | 17 | |||||||||
Sundry ordinary expenses | (26 | ) | (96 | ) | 73 | |||||||
Other income from ordinary activities | 1,986 | 3,005 | (34 | ) | ||||||||
Operating income | 20,998 | 19,117 | 10 | |||||||||
Personnel expenses | 9,699 | 8,889 | 9 | |||||||||
General and administrative expenses | 3,833 | 3,943 | (3 | ) | ||||||||
Operating expenses | 13,532 | 12,832 | 5 | |||||||||
Operating profit | 7,466 | 6,285 | 19 | |||||||||
Depreciation and write-offs on investments in associated companies and fixed assets | 1,021 | 919 | 11 | |||||||||
Allowances, provisions and losses | 184 | 658 | (72 | ) | ||||||||
Profit before extraordinary items and taxes | 6,261 | 4,708 | 33 | |||||||||
Extraordinary income | 1,016 | 92 | ||||||||||
Extraordinary expenses | 49 | 1 | ||||||||||
Tax expense / (benefit) | 1,282 | 602 | 113 | |||||||||
Profit for the period | 5,946 | 4,197 | 42 | |||||||||
194
182
Balance Sheet
% change from | ||||||||||||
CHF million | 31.12.02 | 31.12.01 | 31.12.01 | |||||||||
Assets | ||||||||||||
Liquid assets | 3,609 | 20,215 | (82 | ) | ||||||||
Money market paper | 33,671 | 54,384 | (38 | ) | ||||||||
Due from banks | 265,106 | 252,226 | 5 | |||||||||
Due from customers | 165,938 | 173,690 | (4 | ) | ||||||||
Mortgage loans | 117,677 | 117,706 | 0 | |||||||||
Trading balances in securities and precious metals | 199,546 | 185,306 | 8 | |||||||||
Financial investments | 8,377 | 17,253 | (51 | ) | ||||||||
Investments in associated companies | 10,275 | 11,331 | (9 | ) | ||||||||
Tangible fixed assets | 4,633 | 5,624 | (18 | ) | ||||||||
Accrued income and prepaid expenses | 2,342 | 3,231 | (28 | ) | ||||||||
Positive replacement values | 249,064 | 171,798 | 45 | |||||||||
Other assets | 3,734 | 3,725 | 0 | |||||||||
Total assets | 1,063,972 | 1,016,489 | 5 | |||||||||
Total subordinated assets1 | 4,717 | 4,219 | 12 | |||||||||
Total amounts receivable from Group companies | 218,915 | 213,954 | 2 | |||||||||
Liabilities | ||||||||||||
Money market paper issued | 22,131 | 52,604 | (58 | ) | ||||||||
Due to banks | 303,023 | 303,036 | 0 | |||||||||
Due to customers on savings and deposit accounts | 76,687 | 67,664 | 13 | |||||||||
Other amounts due to customers | 274,431 | 288,684 | (5 | ) | ||||||||
Medium-term note issues | 4,220 | 5,213 | (19 | ) | ||||||||
Bond issues and loans from central mortgage institutions | 67,759 | 65,471 | 3 | |||||||||
Accruals and deferred income | 7,846 | 8,707 | (10 | ) | ||||||||
Negative replacement values | 256,278 | 172,469 | 49 | |||||||||
Other liabilities | 3,281 | 5,795 | (43 | ) | ||||||||
Value adjustments and provisions | 4,177 | 3,959 | 6 | |||||||||
Share capital | 1,005 | 3,589 | (72 | ) | ||||||||
General statutory reserve | 12,392 | 14,507 | (15 | ) | ||||||||
Reserve for own shares | 6,623 | 3,253 | 104 | |||||||||
Other reserves | 18,285 | 16,883 | 8 | |||||||||
Profit brought forward | ||||||||||||
Profit for the period | 5,834 | 4,655 | 25 | |||||||||
Total liabilities | 1,063,972 | 1,016,489 | 5 | |||||||||
Total subordinated liabilities | 13,315 | 16,444 | (19 | ) | ||||||||
Total amounts payable to Group companies | 142,139 | 126,182 | 13 | |||||||||
Balance Sheet | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.03 | |||||||||
Assets | ||||||||||||
Liquid assets | 4,152 | 2,895 | 43 | |||||||||
Money market paper | 31,262 | 21,233 | 47 | |||||||||
Due from banks | 350,055 | 321,796 | 9 | |||||||||
Due from customers | 159,988 | 130,814 | 22 | |||||||||
Mortgage loans | 132,941 | 131,900 | 1 | |||||||||
Trading balances in securities and precious metals | 288,170 | 236,096 | 22 | |||||||||
Financial investments | 4,503 | 8,955 | (50 | ) | ||||||||
Investments in associated companies | 20,547 | 14,757 | 39 | |||||||||
Fixed assets | 4,212 | 4,367 | (4 | ) | ||||||||
Accrued income and prepaid expenses | 3,129 | 3,666 | (15 | ) | ||||||||
Positive replacement values | 128,300 | 111,612 | 15 | |||||||||
Other assets | 8,550 | 6,585 | 30 | |||||||||
Total assets | 1,135,809 | 994,676 | 14 | |||||||||
Total subordinated assets | 4,970 | 4,450 | 12 | |||||||||
Total amounts receivable from Group companies | 446,850 | 397,410 | 12 | |||||||||
Liabilities | ||||||||||||
Money market paper issued | 29,637 | 23,879 | 24 | |||||||||
Due to banks | 428,371 | 377,447 | 13 | |||||||||
Due to customers on savings and deposit accounts | 83,976 | 84,360 | 0 | |||||||||
Other amounts due to customers | 316,467 | 274,408 | 15 | |||||||||
Medium-term bonds | 1,686 | 2,403 | (30 | ) | ||||||||
Bond issues and loans from central mortgage institutions | 60,125 | 45,968 | 31 | |||||||||
Accruals and deferred income | 7,588 | 7,060 | 7 | |||||||||
Negative replacement values | 158,811 | 127,885 | 24 | |||||||||
Other liabilities | 5,951 | 6,802 | (13 | ) | ||||||||
Value adjustments and provisions | 3,929 | 3,894 | 1 | |||||||||
Share capital | 901 | 946 | (5 | ) | ||||||||
General statutory reserve | 7,572 | 7,212 | 5 | |||||||||
Reserve for own shares | 9,056 | 8,024 | 13 | |||||||||
Other reserves | 15,793 | 20,191 | (22 | ) | ||||||||
Profit for the period | 5,946 | 4,197 | 42 | |||||||||
Total liabilities | 1,135,809 | 994,676 | 14 | |||||||||
Total subordinated liabilities | 12,695 | 12,471 | 2 | |||||||||
Total amounts payable to Group companies | 357,311 | 257,955 | 39 | |||||||||
195
Statement of Appropriation of Retained Earnings
UBS AG (Parent Bank)
Financial Statements
Statement of Appropriation of Retained Earnings | ||||
CHF million | ||||
The Board of Directors proposes to the Annual General Meeting the following appropriation: | ||||
Profit for the financial year | ||||
Appropriation to general statutory reserve | ||||
Appropriation to other reserves | ||||
Proposed dividends | ||||
Total appropriation | ||||
Dividend Distribution
The Board of Directors will recommend to the Annual General Meeting on 1621 April 20032005 that UBS should pay a dividend of CHF 2.003.00 per share of CHF 0.80 par value. If the dividend is approved, the payment of CHF 2.003.00 per share, after deduction of 35% Swiss withholding tax, would be made on 2326 April 20032005 for shareholders who hold UBS shares on 1621 April 2003.2005.
196
183
UBS AG (Parent Bank) | |
Notes to the Financial Statements
Notes to the Financial Statements
Accounting Principles
Accounting and Valuation Principles
The Parent Bank’s accounting and valuation policies are in compliance with Swiss banking law. The accounting and valuation policies are principally the same as for the Group Financial Statements outlined in Note 1:1, Summary of Significant Accounting Policies. Major differences between the Swiss banking law requirements and International Financial Reporting Standards are described in Note 3840 to the Group Financial Statements.
Treasury shares
value are included in the income statement. Treasury shares included in Financial investments are carried at the lower of cost or market value.
Foreign currency translation
Assets and liabilities of foreign branches are translated into CHF at the exchange rates at the balance sheet date, while income and expense items are translated at weighted average rates for the period. Exchange differences arising on the translation of each of these foreign branches are credited to a provision account (other liabilities) in case of a gain, while any losses are firstly debited to that provision account until such provision is fully utilized, and secondly to profit and loss.
Investments in associated companies
Property and equipment
Extraordinary income and expenses
184197
UBS AG (Parent Bank)
Notes to the Financial Statements
Additional Income Statement Information |
Net Trading Income
Net Trading Income | Net Trading Income | |||||||||||||||||||||||
For the year ended | % change from | |||||||||||||||||||||||
CHF million | % change from | 31.12.04 | 31.12.03 | 31.12.03 | ||||||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.01 | |||||||||||||||||||||
Equities | 2,208 | 2,435 | (9 | ) | 2,262 | 1,708 | 32 | |||||||||||||||||
Fixed income1 | 565 | 829 | (32 | ) | (266 | ) | (1,307 | ) | 80 | |||||||||||||||
Foreign exchange and other | 1,861 | 1,751 | 6 | 1,473 | 120 | |||||||||||||||||||
Total | 4,634 | 5,015 | (8 | ) | 3,469 | 521 | 566 | |||||||||||||||||
Extraordinary Income and Expenses
Extraordinary income contains CHF 260609 million (2001:first-time adoption impact as at 1 January 2004 from changing the valuation method for treasury shares from lower of cost or market to the mark to market method. It further includes CHF 8772 million
(2003: CHF 33 million) from the sale of subsidiariesinvestments in associates and CHF 5334 million (2001:from release of provisions (2003: CHF 859 million)
185198
Value Adjustments and Provisions
Provisions | Recoveries, | |||||||||||||||||||
applied in | doubtful | |||||||||||||||||||
accordance | interest, | New | ||||||||||||||||||
with their | currency | provisions | ||||||||||||||||||
Balance at | specified | translation | charged | Balance at | ||||||||||||||||
CHF million | 31.12.01 | purpose | differences | to income | 31.12.02 | |||||||||||||||
Default risks (credit and country risk) | 8,032 | (2,451 | ) | (310 | ) | 135 | 5,406 | |||||||||||||
Trading portfolio risks | 2,133 | (285 | ) | 511 | 2,359 | |||||||||||||||
Litigation risks | 528 | (235 | ) | (39 | ) | 191 | 445 | |||||||||||||
Operational risks | 1,264 | (630 | ) | (90 | ) | 893 | 1,437 | |||||||||||||
Capital and income taxes | 901 | (394 | ) | 6 | 766 | 1,279 | ||||||||||||||
Total allowance for general credit losses and other provisions | 12,858 | (3,710 | ) | (718 | ) | 2,496 | 10,926 | |||||||||||||
Allowances deducted from assets | 8,899 | 6,749 | ||||||||||||||||||
Total provisions as per balance sheet | 3,959 | 4,177 | ||||||||||||||||||
186
Statement of Shareholders’ Equity
Total share- | ||||||||||||||||||||||||
General | General | holders' | ||||||||||||||||||||||
statutory | statutory | equity | ||||||||||||||||||||||
reserves: | reserves: | Reserves | (before | |||||||||||||||||||||
Share | Share | Retained | for own | Other | distribution | |||||||||||||||||||
CHF million | capital | premium | earnings | shares | reserves | of profit) | ||||||||||||||||||
As at 31.12.00 and 1.1.01 | 4,444 | 17,370 | 677 | 4,007 | 16,274 | 42,772 | ||||||||||||||||||
Par value reduction | (683 | ) | 20 | (663 | ) | |||||||||||||||||||
Cancellation of own shares | (184 | ) | (3,815 | ) | (3,999 | ) | ||||||||||||||||||
Capital increase | 12 | 110 | 122 | |||||||||||||||||||||
Increase in reserves | 165 | (165 | ) | 0 | ||||||||||||||||||||
Profit for the period | 4,655 | 4,655 | ||||||||||||||||||||||
Changes in reserves for own shares | (754 | ) | 754 | 0 | ||||||||||||||||||||
As at 31.12.01 and 1.1.02 | 3,589 | 13,665 | 842 | 3,253 | 21,538 | 42,887 | ||||||||||||||||||
Par value reduction | (2,509 | ) | 117 | (2,392 | ) | |||||||||||||||||||
Cancellation of own shares | (81 | ) | (2,209 | ) | (2,290 | ) | ||||||||||||||||||
Capital increase | 6 | 94 | 100 | |||||||||||||||||||||
Increase in reserves | 0 | |||||||||||||||||||||||
Profit for the period | 5,834 | 5,834 | ||||||||||||||||||||||
Changes in reserves for own shares | 3,370 | (3,370 | ) | 0 | ||||||||||||||||||||
As at 31.12.02 | 1,005 | 11,550 | 842 | 6,623 | 24,119 | 44,139 | ||||||||||||||||||
Value Adjustments and Provisions | ||||||||||||||||||||||||
Provisions | Recoveries, | |||||||||||||||||||||||
applied in | doubtful interest, | New | ||||||||||||||||||||||
accordance | currency | Provisions | provisions | |||||||||||||||||||||
Balance at | with their | translation | released | charged | Balance at | |||||||||||||||||||
CHF million | 31.12.03 | specified purpose | differences | to income | to income | 31.12.04 | ||||||||||||||||||
Default risks (credit and country risk) | 4,218 | (814 | ) | (292 | ) | (962 | ) | 627 | 2,777 | |||||||||||||||
Trading portfolio risks | 2,723 | 413 | 201 | 3,337 | ||||||||||||||||||||
Litigation risks | 392 | (312 | ) | 15 | (77 | ) | 215 | 233 | ||||||||||||||||
Operational risks | 1,871 | (580 | ) | 164 | (137 | ) | 190 | 1,508 | ||||||||||||||||
Capital and income taxes | 1,118 | (819 | ) | 24 | 1,535 | 1,858 | ||||||||||||||||||
Total allowance for general credit losses and other provisions | 10,322 | (2,525 | ) | 324 | (1,176 | ) | 2,768 | 9,713 | ||||||||||||||||
Allowances deducted from assets | 6,428 | 5,784 | ||||||||||||||||||||||
Total provisions as per balance sheet | 3,894 | 3,929 | ||||||||||||||||||||||
Share Capital
Par value | Ranking for dividends | |||||||||||||||
As at 31 December 2002 | No. of shares | Capital in CHF | No. of shares | Capital in CHF | ||||||||||||
Issued and paid up | 1,256,297,678 | 1,005,038,142 | 1,182,262,598 | 945,810,078 | ||||||||||||
Conditional share capital | 9,590,918 | 7,672,734 | 0 | 0 | ||||||||||||
Statement of Shareholders’ Equity | ||||||||||||||||||||||||
General statutory | General statutory | Total Shareholders’ | ||||||||||||||||||||||
reserves: | reserves: | Reserves for | equity (before | |||||||||||||||||||||
CHF million | Share capital | Share premium | Retained earnings | own shares | Other reserves | distribution of profit) | ||||||||||||||||||
As at 31.12.02 and 1.1.03 | 1,005 | 11,550 | 842 | 6,623 | 24,119 | 44,139 | ||||||||||||||||||
Cancellation of own shares | (61 | ) | (5,468 | ) | �� | (5,529 | ) | |||||||||||||||||
Capital increase | 2 | 59 | 61 | |||||||||||||||||||||
Increase in reserves | 229 | (229 | ) | |||||||||||||||||||||
Prior year dividend | (2,298 | ) | (2,298 | ) | ||||||||||||||||||||
Profit for the period | 4,197 | 4,197 | ||||||||||||||||||||||
Changes in reserves for own shares | 1,401 | (1,401 | ) | |||||||||||||||||||||
As at 31.12.03 and 1.1.04 | 946 | 6,141 | 1,071 | 8,024 | 24,388 | 40,570 | ||||||||||||||||||
Cancellation of own shares | (47 | ) | (4,469 | ) | (4,516 | ) | ||||||||||||||||||
Capital increase | 2 | 72 | 74 | |||||||||||||||||||||
Increase in reserves | 288 | (288 | ) | |||||||||||||||||||||
Prior year dividend | (2,806 | ) | (2,806 | ) | ||||||||||||||||||||
Profit for the period | 5,946 | 5,946 | ||||||||||||||||||||||
Changes in reserves for own shares | 1,032 | (1,032 | ) | |||||||||||||||||||||
As at 31.12.04 | 901 | 6,213 | 1,359 | 9,056 | 21,739 | 39,268 | ||||||||||||||||||
Share Capital | ||||||||||||||||
Par value | Ranking for dividends | |||||||||||||||
No. of shares | Capital in CHF | No. of shares | Capital in CHF | |||||||||||||
As at 31.12.04 | ||||||||||||||||
Issued and paid up | 1,126,858,177 | 901,486,542 | 1,086,923,083 | 869,538,466 | ||||||||||||
Conditional share capital | 3,533,012 | 2,826,410 | ||||||||||||||
As at 31.12.03 | ||||||||||||||||
Issued and paid up | 1,183,046,764 | 946,437,411 | 1,126,339,764 | 901,071,811 | ||||||||||||
Conditional share capital | 6,871,752 | 5,497,402 | ||||||||||||||
199
187
UBS AG (Parent Bank) | ||
Off-Balance Sheet and Other Information |
Assets Pledged or Assigned as Security for Own Obligations,Assets Subject to Reservation of Title
31.12.02 | 31.12.01 | Change in % | ||||||||||||||||||||||||||||||||||||||||||||||
Assets Pledged or Assigned as Security for Own Obligations, Assets Subject to Reservation of Title | Assets Pledged or Assigned as Security for Own Obligations, Assets Subject to Reservation of Title | |||||||||||||||||||||||||||||||||||||||||||||||
Book | Effective | Book | Effective | Book | Effective | 31.12.04 | 31.12.03 | Change in % | ||||||||||||||||||||||||||||||||||||||||
CHF million | value | liability | value | liability | value | liability | Book value | Effective liability | Book value | Effective liability | Book value | Effective liability | ||||||||||||||||||||||||||||||||||||
Money market paper | 10,475 | 29,893 | (65 | ) | 16,022 | 5,063 | 6,225 | 157 | ||||||||||||||||||||||||||||||||||||||||
Mortgage loans | 808 | 506 | 1,239 | 813 | (35 | ) | (38 | ) | 175 | 60 | 428 | 210 | (59 | ) | (71 | ) | ||||||||||||||||||||||||||||||||
Securities | 2,495 | 5,224 | (52 | ) | 102,726 | 55,126 | 96,065 | 66,395 | 7 | (17 | ) | |||||||||||||||||||||||||||||||||||||
Total | 13,778 | 506 | 36,356 | 813 | (62 | ) | (38 | ) | 118,923 | 60,249 | 102,718 | 66,605 | 16 | (10 | ) | |||||||||||||||||||||||||||||||||
Assets are pledged as collateral for securities borrowing and repo transactions, for collateralized credit lines with central banks, loans from mortgage institutions and security deposits relating to stock exchange membership.
Fiduciary Transactions
% change from | ||||||||||||
CHF million | 31.12.02 | 31.12.01 | 31.12.01 | |||||||||
Deposits | ||||||||||||
with other banks | 28,865 | 38,978 | (26 | ) | ||||||||
with Group banks | 351 | 532 | (34 | ) | ||||||||
Loans and other financial transactions | 713 | 1,042 | (32 | ) | ||||||||
Total | 29,929 | 40,552 | (26 | ) | ||||||||
Commitments and Contingent Liabilities | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.03 | |||||||||
Contingent liabilities | 123,429 | 122,555 | 1 | |||||||||
Irrevocable commitments | 50,552 | 42,708 | 18 | |||||||||
Liabilities for calls on shares and other equities | 104 | 97 | 7 | |||||||||
Confirmed credits | 1,820 | 1,592 | 14 | |||||||||
Due to UBS Pension Plans, Loans to Corporate Bodies/Related Parties
% change from | ||||||||||||
CHF million | 31.12.02 | 31.12.01 | 31.12.01 | |||||||||
Due to UBS pension plans and UBS debt instruments held by pension plans | 814 | 476 | 71 | |||||||||
Securities borrowed from pension plans | 2,645 | 824 | 221 | |||||||||
Loans to directors, senior executives and auditors1 | 28 | 32 | (13 | ) | ||||||||
Derivative Instruments | ||||||||||||||||||||||||
31.12.2004 | 31.12.2003 | |||||||||||||||||||||||
Notional amount | Notional amount | |||||||||||||||||||||||
CHF million | PRV | 1 | NRV | 2 | CHF bn | PRV | NRV | CHF bn | ||||||||||||||||
Interest rate contracts | 174,995 | 183,210 | 15,398 | 141,654 | 149,972 | 10,321 | ||||||||||||||||||
Credit derivative contracts | 7,895 | 9,353 | 671 | 7,085 | 7,679 | 315 | ||||||||||||||||||
Foreign exchange contracts | 81,377 | 79,046 | 3,729 | 75,229 | 70,658 | 3,131 | ||||||||||||||||||
Precious metal contracts | 1,919 | 1,590 | 61 | 2,382 | 2,176 | 55 | ||||||||||||||||||
Equity / index contracts | 20,487 | 44,107 | 721 | 25,362 | 37,613 | 346 | ||||||||||||||||||
Commodity contracts | 1,739 | 1,616 | 41 | 1,025 | 895 | 11 | ||||||||||||||||||
Total derivative instruments | 288,412 | 318,922 | 20,621 | 252,737 | 268,993 | 14,179 | ||||||||||||||||||
200
Fiduciary Transactions | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.03 | |||||||||
Deposits: | ||||||||||||
with other banks | 30,581 | 29,549 | 3 | |||||||||
with Group banks | 740 | 672 | 10 | |||||||||
Loans and other financial transactions | 6 | 6 | 0 | |||||||||
Total | 31,327 | 30,227 | 4 | |||||||||
Due to UBS Pension Plans, Loans to Corporate Bodies / Related Parties | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.03 | |||||||||
Due to UBS pension plans and UBS debt instruments held by pension plans | 1,329 | 1,096 | 21 | |||||||||
Securities borrowed from pension plans | 3,778 | 2,930 | 29 | |||||||||
Loans to directors, senior executives and auditors 1 | 16 | 25 | (36 | ) | ||||||||
Headcount
Parent Bank headcount was 35,542 on 31 December 2004 and 33,949 on 31 December 2003.
188201
204
Additional Disclosure Required under SEC Regulations
Table of Contents
A | |||||||
B | |||||||
209 | |||||||
210 | |||||||
211 | |||||||
211 | |||||||
C | |||||||
211 | |||||||
D | |||||||
212 | |||||||
212 | |||||||
214 | |||||||
216 | |||||||
217 | |||||||
218 | |||||||
219 | |||||||
220 | |||||||
221 | |||||||
222 | |||||||
223 | |||||||
225 | |||||||
226 | |||||||
227 |
206
194
Stan-dardsStandards (IFRS) and are denominated in Swiss francs,
B – Selected Financial Data
Average rate1 | ||||||||||||||||
Year ended 31 December | High | Low | (USD per 1 CHF) | At period end | ||||||||||||
1998 | 0.7731 | 0.6485 | 0.6894 | 0.7281 | ||||||||||||
1999 | 0.7361 | 0.6244 | 0.6605 | 0.6277 | ||||||||||||
2000 | 0.6441 | 0.5479 | 0.5912 | 0.6172 | ||||||||||||
2001 | 0.6331 | 0.5495 | 0.5910 | 0.5857 | ||||||||||||
2002 | 0.7229 | 0.5817 | 0.6453 | 0.7229 | ||||||||||||
Month | High | Low | ||||||||||||||
September 2002 | 0.6789 | 0.6578 | ||||||||||||||
October 2002 | 0.6760 | 0.6605 | ||||||||||||||
November 2002 | 0.6928 | 0.6714 | ||||||||||||||
December 2002 | 0.7229 | 0.6736 | ||||||||||||||
January 2003 | 0.7401 | 0.7135 | ||||||||||||||
February 2003 | 0.7411 | 0.7275 | ||||||||||||||
Average rate | 1 | |||||||||||||||
Year ended 31 December | High | Low | (USD per 1 CHF) | At period end | ||||||||||||
2000 | 0.6441 | 0.5479 | 0.5912 | 0.6172 | ||||||||||||
2001 | 0.6331 | 0.5495 | 0.5910 | 0.5857 | ||||||||||||
2002 | 0.7229 | 0.5817 | 0.6453 | 0.7229 | ||||||||||||
2003 | 0.8189 | 0.7048 | 0.7493 | 0.8069 | ||||||||||||
2004 | 0.8843 | 0.7601 | 0.8059 | 0.8712 | ||||||||||||
Month | High | Low | ||||||||||||||
September 2004 | 0.8026 | 0.7865 | ||||||||||||||
October 2004 | 0.8371 | 0.7908 | ||||||||||||||
November 2004 | 0.8781 | 0.8315 | ||||||||||||||
December 2004 | 0.8843 | 0.8616 | ||||||||||||||
January 2005 | 0.8712 | 0.8381 | ||||||||||||||
February 2005 | 0.8632 | 0.8182 | ||||||||||||||
207
195
Additional Disclosure Required
under SEC Regulations
B – Selected Financial Data (continued)
For the year ended | ||||||||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||||||||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | 31.12.98 | |||||||||||||||||||||||||||||||||||
Income statement data | ||||||||||||||||||||||||||||||||||||||||
Interest income | 39,963 | 52,277 | 51,745 | 35,604 | 37,442 | 39,398 | 40,159 | 39,963 | 52,277 | 51,745 | ||||||||||||||||||||||||||||||
Interest expense | 29,417 | 44,236 | 43,615 | 29,695 | 32,424 | (27,538 | ) | (27,860 | ) | (29,417 | ) | 44,236 | 43,615 | |||||||||||||||||||||||||||
Net interest income | 10,546 | 8,041 | 8,130 | 5,909 | 5,018 | 11,860 | 12,299 | 10,546 | 8,041 | 8,130 | ||||||||||||||||||||||||||||||
Credit loss (expense)/recovery | (206 | ) | (498 | ) | 130 | (956 | ) | (951 | ) | 276 | (72 | ) | (115 | ) | (498 | ) | 130 | |||||||||||||||||||||||
Net interest income after credit loss (expense)/recovery | 10,340 | 7,543 | 8,260 | 4,953 | 4,067 | 12,136 | 12,227 | 10,431 | 7,543 | 8,260 | ||||||||||||||||||||||||||||||
Net fee and commission income | 18,221 | 20,211 | 16,703 | 12,607 | 12,626 | 19,416 | 17,345 | 18,221 | 20,211 | 16,703 | ||||||||||||||||||||||||||||||
Net trading income | 5,572 | 8,802 | 9,953 | 7,719 | 3,313 | 4,972 | 3,756 | 5,451 | �� | 8,802 | 9,953 | |||||||||||||||||||||||||||||
Other income | (12 | ) | 558 | 1,486 | 3,146 | 2,241 | 897 | 462 | 4 | 558 | 1,486 | |||||||||||||||||||||||||||||
Income from Industrial Holdings | 3,648 | |||||||||||||||||||||||||||||||||||||||
Operating income | 34,121 | 37,114 | 36,402 | 28,425 | 22,247 | 41,069 | 33,790 | 34,107 | 37,114 | 36,402 | ||||||||||||||||||||||||||||||
Operating expenses | 29,577 | 30,396 | 26,203 | 20,532 | 18,376 | 30,395 | 25,613 | 29,570 | 30,396 | 26,203 | ||||||||||||||||||||||||||||||
Operating profit before tax | 4,544 | 6,718 | 10,199 | 7,893 | 3,871 | 10,674 | 8,177 | 4,537 | 6,718 | 10,199 | ||||||||||||||||||||||||||||||
Tax expense/(benefit) | 678 | 1,401 | 2,320 | 1,686 | 904 | 2,135 | 1,593 | 676 | 1,401 | 2,320 | ||||||||||||||||||||||||||||||
Minority interests | (331 | ) | (344 | ) | (87 | ) | (54 | ) | 5 | (450 | ) | (345 | ) | (331 | ) | (344 | ) | (87 | ) | |||||||||||||||||||||
Net profit | 3,535 | 4,973 | 7,792 | 6,153 | 2,972 | 8,089 | 6,239 | 3,530 | 4,973 | 7,792 | ||||||||||||||||||||||||||||||
Cost/income ratio (%)1 | 86.2 | 80.8 | 72.2 | 69.9 | 79.2 | 72.6 | 75.6 | 86.4 | 80.8 | 72.2 | ||||||||||||||||||||||||||||||
Cost/income ratio before goodwill (%)1, 2 | 79.0 | 77.3 | 70.4 | 68.7 | 77.7 | |||||||||||||||||||||||||||||||||||
Per share data (CHF) | ||||||||||||||||||||||||||||||||||||||||
Basic earnings per share3 | 2.92 | 3.93 | 6.44 | 5.07 | 2.44 | |||||||||||||||||||||||||||||||||||
Basic earnings per share before goodwill2, 3 | 4.73 | 4.97 | 7.00 | 5.35 | 2.72 | |||||||||||||||||||||||||||||||||||
Diluted earnings per share3 | 2.87 | 3.78 | 6.35 | 5.02 | 2.40 | |||||||||||||||||||||||||||||||||||
Diluted earnings per share before goodwill2, 3 | 4.65 | 4.81 | 6.89 | 5.30 | 2.68 | |||||||||||||||||||||||||||||||||||
Cash dividends declared per share (CHF)4 | 2.00 | 1.50 | 1.83 | 1.67 | ||||||||||||||||||||||||||||||||||||
Cash dividends declared per share (USD)4 | 0.86 | 1.10 | 1.10 | |||||||||||||||||||||||||||||||||||||
Dividend payout ratio (%)4 | 68.49 | 23.28 | 36.18 | 68.21 | ||||||||||||||||||||||||||||||||||||
Basic earnings per share2 | 7.68 | 5.59 | 2.92 | 3.93 | 6.44 | |||||||||||||||||||||||||||||||||||
Diluted earnings per share2 | 7.47 | 5.48 | 2.87 | 3.78 | 6.35 | |||||||||||||||||||||||||||||||||||
Operating profit before tax per share | 10.14 | 7.32 | 3.75 | 5.31 | 8.44 | |||||||||||||||||||||||||||||||||||
Cash dividends declared per share (CHF)3 | 3.00 | 2.60 | 2.00 | 0.00 | 1.50 | |||||||||||||||||||||||||||||||||||
Cash dividend equivalent in USD3 | 2.00 | 1.46 | 0.00 | 0.86 | ||||||||||||||||||||||||||||||||||||
Dividend payout ratio (%)3 | 39.1 | 46.5 | 68.5 | 23.3 | ||||||||||||||||||||||||||||||||||||
Rates of return (%) | ||||||||||||||||||||||||||||||||||||||||
Return on shareholders’ equity5 | 8.9 | 11.7 | 21.5 | 22.4 | 10.7 | |||||||||||||||||||||||||||||||||||
Return on shareholders’ equity before goodwill2, 5 | 14.4 | 14.8 | 23.4 | 23.6 | 12.0 | |||||||||||||||||||||||||||||||||||
Return on Shareholders’ equity4 | 24.7 | 17.8 | 8.9 | 11.7 | 21.5 | |||||||||||||||||||||||||||||||||||
Return on average equity | 7.6 | 10.4 | 22.0 | 18.6 | 9.0 | 22.9 | 16.8 | 8.3 | 11.3 | 22.0 | ||||||||||||||||||||||||||||||
Return on average assets | 0.24 | 0.36 | 0.70 | 0.65 | 0.28 | 0.44 | 0.40 | 0.24 | 0.36 | 0.70 | ||||||||||||||||||||||||||||||
208
196
As at | ||||||||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||||||||||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | 31.12.98 | |||||||||||||||||||||||||||||||||||
Balance sheet data | ||||||||||||||||||||||||||||||||||||||||
Total assets | 1,181,118 | 1,253,297 | 1,087,552 | 896,556 | 861,282 | 1,734,784 | 1,550,056 | 1,346,678 | 1,253,297 | 1,087,552 | ||||||||||||||||||||||||||||||
Shareholders’ equity | 38,991 | 43,530 | 44,833 | 30,608 | 28,794 | 34,978 | 35,310 | 38,952 | 43,530 | 44,833 | ||||||||||||||||||||||||||||||
Average equity to average assets (%) | 3.14 | 3.49 | 3.17 | 3.52 | 3.06 | 1.93 | 2.38 | 2.87 | 3.49 | 3.17 | ||||||||||||||||||||||||||||||
Market capitalization | 79,448 | 105,475 | 112,666 | 92,642 | 90,720 | 103,638 | 95,401 | 79,448 | 105,475 | 112,666 | ||||||||||||||||||||||||||||||
Shares | ||||||||||||||||||||||||||||||||||||||||
Registered ordinary shares | 1,256,297,678 | 1,281,717,499 | 1,333,139,187 | 1,292,679,486 | 1,289,857,836 | 1,126,858,177 | 1,183,046,764 | 1,256,297,678 | 1,281,717,499 | 1,333,139,187 | ||||||||||||||||||||||||||||||
Own shares to be delivered | 0 | 0 | 28,447,788 | 0 | 0 | 0 | 0 | 0 | 0 | 28,444,788 | ||||||||||||||||||||||||||||||
Treasury shares | 97,181,094 | 41,254,951 | 55,265,349 | 110,621,142 | 73,370,094 | 103,524,971 | 111,360,692 | 97,181,094 | 41,254,951 | 55,265,349 | ||||||||||||||||||||||||||||||
BIS capital ratios | ||||||||||||||||||||||||||||||||||||||||
Tier 1 (%) | 11.3 | 11.6 | 11.7 | 10.6 | 9.3 | 11.8 | 11.8 | 11.3 | 11.6 | 11.7 | ||||||||||||||||||||||||||||||
Total BIS (%) | 13.8 | 14.8 | 15.7 | 14.5 | 13.2 | 13.6 | 13.3 | 13.8 | 14.8 | 15.7 | ||||||||||||||||||||||||||||||
Risk-weighted assets | 238,790 | 253,735 | 273,290 | 273,107 | 303,719 | 264,125 | 251,901 | 238,790 | 253,735 | 273,290 | ||||||||||||||||||||||||||||||
Invested assets (CHF billion) | 2,037 | 2,448 | 2,445 | 1,744 | 1,573 | 2,250 | 2,133 | 1,959 | 2,448 | 2,445 | ||||||||||||||||||||||||||||||
Headcount (full-time equivalents)1 | 69,061 | 69,985 | 71,076 | 49,058 | 48,011 | |||||||||||||||||||||||||||||||||||
Headcount Financial Businesses (full-time equivalents) | ||||||||||||||||||||||||||||||||||||||||
Long-term ratings2 | ||||||||||||||||||||||||||||||||||||||||
Switzerland | 25,990 | 26,662 | 27,972 | 29,163 | 30,215 | |||||||||||||||||||||||||||||||||||
Europe (excluding Switzerland) | 10,764 | 9,906 | 10,009 | 9,650 | 9,286 | |||||||||||||||||||||||||||||||||||
Americas | 26,232 | 25,511 | 27,350 | 27,463 | 28,114 | |||||||||||||||||||||||||||||||||||
Asia Pacific | 4,438 | 3,850 | 3,730 | 3,709 | 3,461 | |||||||||||||||||||||||||||||||||||
Total | 67,424 | 65,929 | 69,061 | 69,985 | 71,076 | |||||||||||||||||||||||||||||||||||
Long-term ratings1 | ||||||||||||||||||||||||||||||||||||||||
Fitch, London | AAA | AAA | AAA | AAA | AAA | AA+ | AA+ | AAA | AAA | AAA | ||||||||||||||||||||||||||||||
Moody’s, New York | AA2 | AA2 | Aa1 | Aa1 | Aa1 | Aa2 | Aa2 | Aa2 | Aa2 | Aa1 | ||||||||||||||||||||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | AA+ | AA+ | AA+ | AA+ | AA+ | AA+ | AA+ | ||||||||||||||||||||||||||||||
Balance Sheet Data
CHF million | ||||||||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | 31.12.98 | |||||||||||||||
Assets | ||||||||||||||||||||
Total assets | 1,181,118 | 1,253,297 | 1,087,552 | 896,556 | 861,282 | |||||||||||||||
Due from banks | 32,468 | 27,526 | 29,147 | 29,907 | 68,495 | |||||||||||||||
Cash collateral on securities borrowed | 139,052 | 162,938 | 177,857 | 113,162 | 91,695 | |||||||||||||||
Reverse repurchase agreements | 294,086 | 269,256 | 193,801 | 132,391 | 141,285 | |||||||||||||||
Trading portfolio assets | 371,436 | 397,886 | 315,588 | 211,932 | 159,179 | |||||||||||||||
Positive replacement values | 82,092 | 73,447 | 57,875 | 62,957 | 90,511 | |||||||||||||||
Loans | 211,647 | 226,545 | 244,842 | 234,858 | 247,926 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 83,178 | 106,531 | 82,240 | 76,365 | 85,716 | |||||||||||||||
Cash collateral on securities lent | 36,870 | 30,317 | 23,418 | 12,832 | 19,171 | |||||||||||||||
Repurchase agreements | 366,858 | 368,620 | 295,513 | 196,914 | 137,617 | |||||||||||||||
Trading portfolio liabilities | 106,453 | 105,798 | 82,632 | 54,638 | 47,033 | |||||||||||||||
Negative replacement values | 81,282 | 71,443 | 75,923 | 95,786 | 125,847 | |||||||||||||||
Due to customers | 306,876 | 333,781 | 310,679 | 279,960 | 274,850 | |||||||||||||||
Debt issued | 129,411 | 156,218 | 129,635 | 120,987 | 102,310 | |||||||||||||||
Shareholders’ equity | 38,991 | 43,530 | 44,833 | 30,608 | 28,794 | |||||||||||||||
Balance Sheet Data | ||||||||||||||||||||
As at | ||||||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Assets | ||||||||||||||||||||
Total assets | 1,734,784 | 1,550,056 | 1,346,678 | 1,253,297 | 1,087,552 | |||||||||||||||
Due from banks | 35,264 | 31,740 | 32,516 | 27,526 | 29,147 | |||||||||||||||
Cash collateral on securities borrowed | 220,242 | 213,932 | 139,049 | 162,938 | 177,857 | |||||||||||||||
Reverse repurchase agreements | 357,164 | 320,499 | 294,067 | 269,256 | 193,801 | |||||||||||||||
Trading portfolio assets | 370,259 | 341,013 | 261,071 | 397,886 | 315,588 | |||||||||||||||
Trading portfolio assets pledged as collateral | 159,115 | 120,759 | 110,365 | |||||||||||||||||
Positive replacement values | 284,577 | 248,206 | 247,421 | 73,447 | 57,875 | |||||||||||||||
Loans | 232,387 | 212,679 | 211,740 | 226,545 | 244,842 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 118,901 | 127,012 | 83,178 | 106,531 | 82,240 | |||||||||||||||
Cash collateral on securities lent | 61,545 | 53,278 | 36,870 | 30,317 | 23,418 | |||||||||||||||
Repurchase agreements | 422,587 | 415,863 | 366,858 | 368,620 | 295,513 | |||||||||||||||
Trading portfolio liabilities | 171,033 | 143,957 | 106,453 | 105,798 | 82,632 | |||||||||||||||
Negative replacement values | 303,712 | 254,768 | 247,206 | 71,443 | 75,923 | |||||||||||||||
Financial liabilities designated at fair value | 65,756 | 35,286 | 14,516 | |||||||||||||||||
Due to customers | 376,083 | 346,633 | 306,876 | 333,781 | 310,679 | |||||||||||||||
Debt issued | 117,828 | 88,843 | 114,446 | 156,218 | 129,635 | |||||||||||||||
Shareholders’ equity | 34,978 | 35,310 | 38,952 | 43,530 | 44,833 | |||||||||||||||
209
197
Additional Disclosure Required
under SEC Regulations
US GAAP Income Statement Data | ||||||||||||||||||||
For the year ended | ||||||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 39,124 | 39,940 | 39,679 | 51,907 | 51,565 | |||||||||||||||
Interest expense | (27,306 | ) | (27,700 | ) | (29,334 | ) | (44,096 | ) | (43,584 | ) | ||||||||||
Net interest income | 11,818 | 12,240 | 10,345 | 7,811 | 7,981 | |||||||||||||||
Credit loss (expense)/recovery | 276 | (72 | ) | (115 | ) | (498 | ) | 130 | ||||||||||||
Net interest income after credit loss (expense)/recovery | 12,094 | 12,168 | 10,230 | 7,313 | 8,111 | |||||||||||||||
Net fee and commission income | 19,416 | 17,345 | 18,221 | 20,211 | 16,703 | |||||||||||||||
Net trading income | 4,879 | 4,021 | 5,940 | 8,959 | 8,597 | |||||||||||||||
Other income | 1,188 | 380 | 96 | 534 | 1,514 | |||||||||||||||
Income from Industrial Holdings | 3,648 | |||||||||||||||||||
Total operating income | 41,225 | 33,914 | 34,487 | 37,017 | 34,925 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 18,729 | 17,615 | 18,610 | 19,713 | 17,262 | |||||||||||||||
General and administrative expenses | 6,705 | 6,086 | 7,072 | 7,631 | 6,813 | |||||||||||||||
Depreciation of property and equipment | 1,385 | 1,396 | 1,613 | 1,815 | 1,800 | |||||||||||||||
Amortization of goodwill | 0 | 0 | 0 | 2,484 | 2,018 | |||||||||||||||
Amortization of other intangible assets | 186 | 112 | 1,443 | 298 | 134 | |||||||||||||||
Goods and materials purchased | 2,861 | |||||||||||||||||||
Restructuring costs | 0 | 0 | 0 | 112 | 191 | |||||||||||||||
Total operating expenses | 29,866 | 25,209 | 28,738 | 32,053 | 28,218 | |||||||||||||||
Operating profit/(loss) before tax and minority interests | 11,359 | 8,705 | 5,749 | 4,964 | 6,707 | |||||||||||||||
Tax expense/(benefit) | 2,112 | 1,842 | 511 | 1,386 | 2,183 | |||||||||||||||
Net profit/(loss) before minority interests | 9,247 | 6,863 | 5,238 | 3,578 | 4,524 | |||||||||||||||
Minority interests | (435 | ) | (350 | ) | (331 | ) | (344 | ) | (87 | ) | ||||||||||
Change in accounting principle: cumulative effect of adoption of “AICPA Audit and Accounting Guide, Audits of Investment Companies” on certain financial investments, net of tax1 | 639 | |||||||||||||||||||
Cumulative adjustment of accounting for certain equity based compensation plans as cash settled, net of tax | 6 | |||||||||||||||||||
Net profit/(loss) | 8,818 | 6,513 | 5,546 | 3,234 | 4,437 | |||||||||||||||
US GAAP Income Statement Data
CHF million | ||||||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | 31.12.98 | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 39,679 | 51,907 | 51,565 | 35,404 | 29,136 | |||||||||||||||
Interest expense | (29,334 | ) | (44,096 | ) | (43,584 | ) | (29,660 | ) | (25,773 | ) | ||||||||||
Net interest income | 10,345 | 7,811 | 7,981 | 5,744 | 3,363 | |||||||||||||||
Credit loss (expense)/recovery | (206 | ) | (498 | ) | 130 | (956 | ) | (787 | ) | |||||||||||
Net interest income after credit loss (expense)/recovery | 10,139 | 7,313 | 8,111 | 4,788 | 2,576 | |||||||||||||||
Net fee and commission income | 18,221 | 20,211 | 16,703 | 12,607 | 8,925 | |||||||||||||||
Net trading income | 6,031 | 8,959 | 8,597 | 7,174 | 455 | |||||||||||||||
Other income | 96 | 534 | 1,514 | 3,182 | 725 | |||||||||||||||
Total operating income | 34,487 | 37,017 | 34,925 | 27,751 | 12,681 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 18,610 | 19,713 | 17,262 | 12,483 | 7,938 | |||||||||||||||
General and administrative expenses | 7,072 | 7,631 | 6,813 | 6,664 | 6,259 | |||||||||||||||
Depreciation of property and equipment | 1,613 | 1,815 | 1,800 | 1,619 | 1,439 | |||||||||||||||
Amortization of goodwill | 0 | 2,484 | 2,018 | 1,793 | 936 | |||||||||||||||
Amortization of other intangible assets | 1,443 | 298 | 134 | 42 | 28 | |||||||||||||||
Restructuring costs | 0 | 112 | 191 | 750 | 1,089 | |||||||||||||||
Total operating expenses | 28,738 | 32,053 | 28,218 | 23,351 | 17,689 | |||||||||||||||
Operating profit/(loss) before tax and minority interests | 5,749 | 4,964 | 6,707 | 4,400 | (5,008 | ) | ||||||||||||||
Tax expense/(benefit) | 511 | 1,386 | 2,183 | 1,509 | (1,339 | ) | ||||||||||||||
Net profit/(loss) before minority interests | 5,238 | 3,578 | 4,524 | 2,891 | (3,669 | ) | ||||||||||||||
Minority interests | (331 | ) | (344 | ) | (87 | ) | (54 | ) | 4 | |||||||||||
Change in accounting principle: cumulative effect of adoption of “AICPA Audit and Accounting Guide, Audits of Investment Companies” on certain financial investments, net of tax | 639 | 0 | 0 | 0 | 0 | |||||||||||||||
Net profit/(loss) | 5,546 | 3,234 | 4,437 | 2,837 | (3,665 | ) | ||||||||||||||
210
198
US GAAP Balance Sheet Data
US GAAP Balance Sheet Data | US GAAP Balance Sheet Data | |||||||||||||||||||||||||||||||||||||||
As at | ||||||||||||||||||||||||||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||||||||||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | 31.12.98 | |||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Total assets | 1,296,938 | 1,361,920 | 1,124,554 | 893,525 | 899,589 | 1,903,186 | 1,699,007 | 1,296,938 | 1,361,920 | 1,124,554 | ||||||||||||||||||||||||||||||
Due from banks | 32,481 | 27,550 | 29,182 | 29,954 | 68,554 | 35,286 | 31,758 | 32,481 | 27,550 | 29,182 | ||||||||||||||||||||||||||||||
Cash collateral on securities borrowed | 139,073 | 162,566 | 177,857 | 113,162 | 91,695 | 218,414 | 211,058 | 139,073 | 162,566 | 177,857 | ||||||||||||||||||||||||||||||
Reverse repurchase agreements | 294,086 | 269,256 | 193,801 | 132,391 | 141,285 | 357,164 | 320,499 | 294,086 | 269,256 | 193,801 | ||||||||||||||||||||||||||||||
Trading portfolio assets | 441,845 | 455,406 | 318,788 | 228,230 | 178,130 | 449,389 | 423,733 | 331,480 | 455,406 | 318,788 | ||||||||||||||||||||||||||||||
Trading portfolio assets pledged as collateral | 159,115 | 120,759 | 110,365 | |||||||||||||||||||||||||||||||||||||
Positive replacement values1 | 83,757 | 73,474 | 57,775 | 62,294 | 90,520 | 284,468 | 248,924 | 83,757 | 73,474 | 57,775 | ||||||||||||||||||||||||||||||
Loans | 211,755 | 226,747 | 245,214 | 235,401 | 248,657 | 228,968 | 212,729 | 211,755 | 226,747 | 245,214 | ||||||||||||||||||||||||||||||
Goodwill | 28,127 | 29,255 | 31,016 | 21,163 | 21,455 | 26,977 | 26,775 | 28,127 | 29,255 | 31,016 | ||||||||||||||||||||||||||||||
Other intangible assets | 1,222 | 4,510 | 4,710 | 265 | 252 | 1,722 | 1,174 | 1,222 | 4,510 | 4,710 | ||||||||||||||||||||||||||||||
Other assets | 21,314 | 36,972 | 27,955 | 18,717 | 29,398 | 101,068 | 64,381 | 21,314 | 36,972 | 27,955 | ||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||
Due to banks | 83,178 | 106,531 | 82,240 | 76,363 | 85,716 | 119,021 | 127,385 | 83,178 | 106,531 | 82,240 | ||||||||||||||||||||||||||||||
Cash collateral on securities lent | 36,870 | 30,317 | 23,418 | 12,832 | 19,127 | 57,792 | 51,157 | 36,870 | 30,317 | 23,418 | ||||||||||||||||||||||||||||||
Repurchase agreements | 366,858 | 368,620 | 295,513 | 173,840 | 136,824 | 423,513 | 415,863 | 366,858 | 368,620 | 295,513 | ||||||||||||||||||||||||||||||
Trading portfolio liabilities | 117,721 | 119,528 | 87,832 | 52,658 | 47,772 | 190,907 | 149,380 | 117,721 | 119,528 | 87,832 | ||||||||||||||||||||||||||||||
Obligation to return securities received as collateral | 16,308 | 10,931 | 0 | 0 | 0 | 12,950 | 13,071 | 16,308 | 10,931 | 0 | ||||||||||||||||||||||||||||||
Negative replacement values1 | 132,354 | 116,666 | 75,423 | 95,004 | 125,857 | 360,345 | 326,136 | 132,354 | 116,666 | 75,423 | ||||||||||||||||||||||||||||||
Due to customers | 306,872 | 333,766 | 310,686 | 279,971 | 274,861 | 386,913 | 347,358 | 306,872 | 333,766 | 310,686 | ||||||||||||||||||||||||||||||
Accrued expenses and deferred income | 15,330 | 17,289 | 21,038 | 12,040 | 11,232 | 14,830 | 13,673 | 15,330 | 17,289 | 21,038 | ||||||||||||||||||||||||||||||
Debt issued | 129,527 | 156,462 | 129,750 | 120,704 | 101,973 | 164,744 | 123,259 | 129,527 | 156,462 | 129,750 | ||||||||||||||||||||||||||||||
Shareholders’ equity | 55,576 | 59,282 | 62,960 | 51,833 | 54,761 | 52,668 | 53,174 | 55,576 | 59,282 | 62,960 | ||||||||||||||||||||||||||||||
Ratio of Earnings to Fixed Charges
The following table sets forth UBS AG’s ratio of earnings to fixed charges, for the periods indicated. Ratios of earnings to combined fixed charges and preferred stock dividends requirements are not presented as there were no preferred share dividends in any of the periods indicated.
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | 31.12.98 | |||||||||||||||
IFRS1 | 1.14 | 1.14 | 1.23 | 1.25 | 1.11 | |||||||||||||||
US GAAP1, 2 | 1.18 | 1.10 | 1.15 | 1.14 | 0.80 | |||||||||||||||
For the year ended | ||||||||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||||||||
IFRS1 | 1.36 | 1.27 | 1.14 | 1.14 | 1.23 | |||||||||||||||
US GAAP1 | 1.39 | 1.29 | 1.18 | 1.10 | 1.15 | |||||||||||||||
C – Information on the Company
remainder, along with most of UBS’s offices outside Switzerland, being held under commercial leases.
199211
Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3
Selected Statistical Information
Average Balances and Interest Rates
The following table sets forth average interest-earning assets and average interest-bearing liabilities, along with the average rates, for the years ended 31 December 2002, 20012004, 2003 and 2000.2002.
31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million, except where indicated | CHF million, except where indicated | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Due from banks | Due from banks | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 12,534 | 388 | 3.1 | 11,753 | 1,055 | 9.0 | 13,366 | 1,273 | 9.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 12,463 | 183 | 1.5 | 11,417 | 200 | 1.8 | 12,534 | 388 | 3.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 23,648 | 389 | 1.6 | 21,118 | 1,035 | 4.9 | 17,668 | 634 | 3.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 17,603 | 634 | 3.6 | 15,528 | 1,823 | 11.7 | 16,994 | 2,280 | 13.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | Cash collateral on securities borrowed and reverse repurchase agreements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 5,471 | 235 | 4.3 | 7,868 | 563 | 7.2 | 8,383 | 558 | 6.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 17,969 | 457 | 2.5 | 6,576 | 200 | 3.0 | 5,471 | 235 | 4.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 710,065 | 10,549 | 1.5 | 582,066 | 10,948 | 1.9 | 573,526 | 10,949 | 1.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 573,576 | 10,949 | 1.9 | 474,295 | 17,774 | 3.7 | 348,395 | 18,530 | 5.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trading portfolio assets | Trading portfolio assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 7,812 | 269 | 3.4 | 12,940 | 307 | 2.4 | 20,800 | 244 | 1.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 10,122 | 337 | 3.3 | 7,990 | 222 | 2.8 | 7,812 | 269 | 3.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign — taxable | 373,810 | 16,714 | 4.5 | 332,126 | 16,183 | 4.9 | 255,399 | 11,560 | 4.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign – taxable | 494,692 | 18,914 | 3.8 | 407,867 | 18,151 | 4.5 | 373,810 | 16,714 | 4.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign — non-taxable | 1,720 | 31 | 1.8 | 1,450 | 42 | 2.9 | 1,206 | 38 | 3.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign – non-taxable | 2,309 | 27 | 1.2 | 1,668 | 21 | 1.3 | 1,720 | 31 | 1.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign – total | 497,001 | 18,941 | 3.8 | 409,535 | 18,172 | 4.4 | 375,530 | 16,745 | 4.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial assets designated at fair value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 196 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign — total | 375,530 | 16,745 | 4.5 | 333,576 | 16,225 | 4.9 | 256,605 | 11,598 | 4.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans | Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 170,641 | 6,987 | 4.1 | 177,404 | 8,017 | 4.5 | 181,646 | 10,985 | 6.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 168,456 | 5,401 | 3.2 | 165,397 | 6,437 | 3.9 | 170,641 | 6,987 | 4.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 60,382 | 1,813 | 3.0 | 51,457 | 1,805 | 3.5 | 55,199 | 1,789 | 3.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 55,199 | 1,789 | 3.2 | 72,176 | 3,090 | 4.3 | 67,528 | 3,813 | 5.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial investments | Financial investments | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 3,794 | 60 | 1.6 | 4,598 | 90 | 2.0 | 3,440 | 105 | 3.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 1,132 | 27 | 2.4 | 1,988 | 40 | 2.0 | 3,794 | 60 | 1.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign — taxable | 8,781 | 105 | 1.2 | 39,252 | 363 | 0.9 | 22,529 | 297 | 1.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign – taxable | 4,122 | 66 | 1.6 | 4,798 | 35 | 0.7 | 8,781 | 105 | 1.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign — non-taxable | 0 | 0 | 0.0 | 0 | 0 | 0.0 | 0 | 0 | 0.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign – non-taxable | 0 | 0 | 0.0 | 0 | 0 | 0.0 | 0 | 0 | 0.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign — total | 8,781 | 105 | 1.2 | 39,252 | 363 | 0.9 | 22,529 | 297 | 1.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign – total | 4,122 | 66 | 1.6 | 4,798 | 35 | 0.7 | 8,781 | 105 | 1.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total interest-earning assets | Total interest-earning assets | 1,230,941 | 38,161 | 3.1 | 1,149,390 | 49,307 | 4.3 | 939,686 | 49,683 | 5.3 | 1,505,556 | 38,163 | 2.5 | 1,262,342 | 39,094 | 3.1 | 1,230,956 | 38,161 | 3.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest on swaps | Net interest on swaps | 1,802 | 2,970 | 2,062 | 1,235 | 1,065 | 1,802 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income and average interest-earning assets | Interest income and average interest-earning assets | 1,230,941 | 39,963 | 3.2 | 1,149,390 | 52,277 | 4.5 | 939,686 | 51,745 | 5.5 | 1,505,556 | 39,398 | 2.6 | 1,262,342 | 40,159 | 3.2 | 1,230,956 | 39,963 | 3.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest-earning assets | Non-interest-earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive replacement values | 190,063 | 153,687 | 135,762 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive replacement values | 246,952 | 249,155 | 188,462 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed assets | 12,532 | 13,376 | 9,660 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed assets | 7,840 | 11,710 | 12,625 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 53,293 | 46,954 | 32,925 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 68,925 | 40,104 | 53,293 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total average assets | Total average assets | 1,486,829 | 1,363,407 | 1,118,033 | 1,829,273 | 1,563,311 | 1,485,336 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
200212
Average Balances and Interest Rates (continued)
31.12.02 | 31.12.01 | 31.12.00 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million, except where indicated | CHF million, except where indicated | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities and Equity | Liabilities and Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Due to banks | Due to banks | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 28,625 | 452 | 1.6 | 36,260 | 1,424 | 3.9 | 31,133 | 2,397 | 7.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 31,129 | 416 | 1.3 | 28,719 | 150 | 0.5 | 28,625 | 452 | 1.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 94,747 | 1,575 | 1.7 | 72,712 | 1,751 | 2.4 | 60,621 | 1,362 | 2.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 60,621 | 1,362 | 2.2 | 61,642 | 3,506 | 5.7 | 57,258 | 3,758 | 6.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash collateral on securities lent and repurchase agreements | Cash collateral on securities lent and repurchase agreements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 18,382 | 355 | 1.9 | 13,147 | 600 | 4.6 | 12,700 | 478 | 3.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 33,846 | 489 | 1.4 | 23,287 | 295 | 1.3 | 18,382 | 355 | 1.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 614,295 | 9,525 | 1.6 | 515,665 | 9,328 | 1.8 | 523,375 | 9,726 | 1.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 523,375 | 9,726 | 1.9 | 415,121 | 13,917 | 3.4 | 284,220 | 14,437 | 5.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trading portfolio liabilities | Trading portfolio liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 3,239 | 146 | 4.5 | 2,526 | 1 | 0.0 | 1,078 | 4 | 0.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 3,717 | 180 | 4.8 | 3,252 | 156 | 4.8 | 3,239 | 146 | 4.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 161,286 | 7,813 | 4.8 | 127,104 | 9,769 | 7.7 | 109,013 | 8,080 | 7.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial liabilities designated at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 85 | 1 | 1.2 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 49,234 | 1,167 | 2.4 | 22,445 | 751 | 3.3 | 10,905 | 341 | 3.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 109,013 | 8,220 | 7.5 | 94,597 | 7,814 | 8.3 | 66,597 | 5,305 | 8.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Due to customers | Due to customers | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic — demand deposits | 42,484 | 435 | 1.0 | 41,664 | 715 | 1.7 | 44,403 | 595 | 1.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic – demand deposits | 67,005 | 167 | 0.2 | 55,496 | 100 | 0.2 | 42,484 | 435 | 1.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic — savings deposits | 71,465 | 625 | 0.9 | 66,089 | 716 | 1.1 | 72,207 | 781 | 1.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic – savings deposits | 84,112 | 414 | 0.5 | 81,963 | 527 | 0.6 | 71,465 | 625 | 0.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic — time deposits | 27,646 | 447 | 1.6 | 31,261 | 989 | 3.2 | 27,199 | 826 | 3.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic – time deposits | 19,052 | 280 | 1.5 | 21,125 | 395 | 1.9 | 27,646 | 447 | 1.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic — total | 141,595 | 1,507 | 1.1 | 139,014 | 2,420 | 1.7 | 143,809 | 2,202 | 1.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic – total | 170,169 | 861 | 0.5 | 158,584 | 1,022 | 0.6 | 141,595 | 1,507 | 1.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign1 | 192,992 | 2,677 | 1.4 | 161,723 | 2,149 | 1.3 | 172,650 | 3,062 | 1.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign1 | 172,650 | 3,062 | 1.8 | 187,783 | 6,738 | 3.6 | 143,432 | 7,303 | 5.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-term debt | Short-term debt | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 69 | 0 | 0.0 | 69 | 0 | 0.0 | 79 | 0 | 0.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 246 | 0 | 64 | 0 | 0.0 | 69 | 0 | 0.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 79,902 | 1,338 | 1.7 | 73,193 | 1,015 | 1.4 | 91,616 | 1,915 | 2.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 91,616 | 1,915 | 2.1 | 96,184 | 4,227 | 4.4 | 78,075 | 4,338 | 5.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt | Long-term debt | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 10,082 | 433 | 4.3 | 12,754 | 587 | 4.6 | 15,490 | 778 | 5.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 7,639 | 168 | 2.2 | 6,413 | 188 | 2.9 | 10,082 | 433 | 4.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 46,930 | 2,239 | 4.8 | 43,798 | 3,002 | 6.9 | 38,020 | 2,615 | 6.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 30,922 | 1,328 | 4.3 | 30,775 | 1,286 | 4.2 | 35,958 | 2,038 | 5.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | Total interest-bearing liabilities | 1,206,197 | 29,417 | 2.4 | 1,102,895 | 44,236 | 4.0 | 871,891 | 43,615 | 5.0 | 1,470,209 | 27,538 | 1.9 | 1,223,936 | 27,860 | 2.3 | 1,206,130 | 29,417 | 2.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest-bearing liabilities | Non-interest-bearing liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative replacement values | 192,659 | 165,220 | 157,668 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative replacement values | 260,629 | 254,819 | 191,183 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 41,297 | 47,676 | 53,049 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 63,065 | 47,391 | 45,337 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | Total liabilities | 1,440,153 | 1,315,791 | 1,082,608 | 1,793,903 | 1,526,146 | 1,442,650 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders’ equity | Shareholders’ equity | 46,676 | 47,616 | 35,425 | 35,370 | 37,165 | 42,686 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total average liabilities and shareholders’ equity | Total average liabilities and shareholders’ equity | 1,486,829 | 1,363,407 | 1,118,033 | 1,829,273 | 1,563,311 | 1,485,336 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | Net interest income | 10,546 | 8,041 | 8,130 | 11,860 | 12,299 | 10,546 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net yield on interest-earning assets | Net yield on interest-earning assets | 0.9 | 0.7 | 0.9 | 0.8 | 1.0 | 0.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The percentage of total average interest-earning assets attributable to foreign activities was 86% for 2004 (85% for 2003 and 84% for 2002 (81% for 2001 and 76% for 2000)2002). The percentage of total average interest-bearing liabilities attributable to foreign activities was 84% for 2004 (82% for 2003 and 83% for 2002 (82% for 2001 and 77% for 2000)2002).
201213
Additional Disclosure Required
under SEC Regulations
Analysis of Changes in Interest Income and Expense
The following tables allocate, by categories of interest-earning assets and interest-bearing liabilities, the changes in interest income and expense due to changes in volume and interest rates for the year ended 31 December 20022004 compared to the year ended 31 December 2001,2003, and for the year ended 31 December 20012003 compared to the year ended 31 December 2000.2002. Volume and rate variances have been calculated on movements in average balances and changes in interest rates. Changes due to a combination of volume and rates have been allocated proportionally. Refer to page 209221 of Industry Guide 3 for a discussion of the treatment of impaired, non-performing and restructured loans.
2002 compared to 2001 | 2001 compared to 2000 | ||||||||||||||||||||||||||||||||||||||||||||||||
Increase/(decrease) | Increase/(decrease) | 2004 compared to 2003 | 2003 compared to 2002 | ||||||||||||||||||||||||||||||||||||||||||||||
due to changes in | due to changes in | Increase / (decrease) | Increase / (decrease) | ||||||||||||||||||||||||||||||||||||||||||||||
due to changes in | due to changes in | ||||||||||||||||||||||||||||||||||||||||||||||||
Average | Average | Net | Average | Average | Net | Average | Average | Net | Average | Average | Net | ||||||||||||||||||||||||||||||||||||||
CHF million | CHF million | volume | rate | change | volume | rate | change | volume | rate | change | volume | rate | change | ||||||||||||||||||||||||||||||||||||
Interest income from interest-earning assets | Interest income from interest-earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Due from banks | Due from banks | ||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 70 | (737 | ) | (667 | ) | (153 | ) | (65 | ) | (218 | ) | ||||||||||||||||||||||||||||||||||||||
Domestic | 19 | (36 | ) | (17 | ) | (35 | ) | (153 | ) | (188 | ) | ||||||||||||||||||||||||||||||||||||||
Foreign | 124 | (770 | ) | (646 | ) | 124 | 277 | 401 | |||||||||||||||||||||||||||||||||||||||||
Foreign | 243 | (1,432 | ) | (1,189 | ) | (196 | ) | (261 | ) | (457 | ) | ||||||||||||||||||||||||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | Cash collateral on securities borrowed and reverse repurchase agreements | ||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | (173 | ) | (155 | ) | (328 | ) | (35 | ) | 40 | 5 | |||||||||||||||||||||||||||||||||||||||
Domestic | 342 | (85 | ) | 257 | 48 | (83 | ) | (35 | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign | 2,432 | (2,831 | ) | (399 | ) | 162 | (163 | ) | (1 | ) | |||||||||||||||||||||||||||||||||||||||
Foreign | 3,673 | (10,498 | ) | (6,825 | ) | 6,673 | (7,429 | ) | (756 | ) | |||||||||||||||||||||||||||||||||||||||
Trading portfolio assets | Trading portfolio assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | (123 | ) | 85 | (38 | ) | (94 | ) | 157 | 63 | ||||||||||||||||||||||||||||||||||||||||
Domestic | 60 | 55 | 115 | 6 | (53 | ) | (47 | ) | |||||||||||||||||||||||||||||||||||||||||
Foreign — taxable | 2,043 | (1,512 | ) | 531 | 3,456 | 1,167 | 4,623 | ||||||||||||||||||||||||||||||||||||||||||
Foreign – taxable | 3,907 | (3,144 | ) | 763 | 1,533 | (96 | ) | 1,437 | |||||||||||||||||||||||||||||||||||||||||
Foreign — non-taxable | 8 | (19 | ) | (11 | ) | 8 | (4 | ) | 4 | ||||||||||||||||||||||||||||||||||||||||
Foreign – non-taxable | 8 | (2 | ) | 6 | (1 | ) | (9 | ) | (10 | ) | |||||||||||||||||||||||||||||||||||||||
Foreign – total | 3,915 | (3,146 | ) | 769 | 1,532 | (105 | ) | 1,427 | |||||||||||||||||||||||||||||||||||||||||
Financial assets designated at fair value | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||
Foreign | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||
Foreign — total | 2,051 | (1,531 | ) | 520 | 3,464 | 1,163 | 4,627 | ||||||||||||||||||||||||||||||||||||||||||
Loans | Loans | ||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | (304 | ) | (726 | ) | (1,030 | ) | (255 | ) | (2,713 | ) | (2,968 | ) | |||||||||||||||||||||||||||||||||||||
Domestic | 119 | (1,155 | ) | (1,036 | ) | (215 | ) | (335 | ) | (550 | ) | ||||||||||||||||||||||||||||||||||||||
Foreign | 312 | (304 | ) | 8 | (120 | ) | 136 | 16 | |||||||||||||||||||||||||||||||||||||||||
Foreign | (730 | ) | (571 | ) | (1,301 | ) | 260 | (983 | ) | (723 | ) | ||||||||||||||||||||||||||||||||||||||
Financial investments | Financial investments | ||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | (16 | ) | (14 | ) | (30 | ) | 36 | (51 | ) | (15 | ) | ||||||||||||||||||||||||||||||||||||||
Domestic | (17 | ) | (4 | ) | (13 | ) | (29 | ) | 9 | (20 | ) | ||||||||||||||||||||||||||||||||||||||
Foreign — taxable | (274 | ) | 16 | (258 | ) | 217 | (151 | ) | 66 | ||||||||||||||||||||||||||||||||||||||||
Foreign – taxable | (5 | ) | 36 | 31 | (48 | ) | (22 | ) | (70 | ) | |||||||||||||||||||||||||||||||||||||||
Foreign — non-taxable | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||
Foreign – non-taxable | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||
Foreign — total | (274 | ) | 16 | (258 | ) | 217 | (151 | ) | 66 | ||||||||||||||||||||||||||||||||||||||||
Foreign – total | (5 | ) | 36 | 31 | (48 | ) | (22 | ) | (70 | ) | |||||||||||||||||||||||||||||||||||||||
Interest income | Interest income | ||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | (546 | ) | (1,547 | ) | (2,093 | ) | (501 | ) | (2,632 | ) | (3,133 | ) | |||||||||||||||||||||||||||||||||||||
Domestic | 523 | (1,217 | ) | (694 | ) | (225 | ) | (615 | ) | (840 | ) | ||||||||||||||||||||||||||||||||||||||
Foreign | 4,963 | (14,016 | ) | (9,053 | ) | 10,418 | (7,661 | ) | 2,757 | ||||||||||||||||||||||||||||||||||||||||
Foreign | 6,778 | (7,015 | ) | (237 | ) | 1,650 | 123 | 1,773 | |||||||||||||||||||||||||||||||||||||||||
Total interest income from interest-earning assets | Total interest income from interest-earning assets | 4,417 | (15,563 | ) | (11,146 | ) | 9,917 | (10,293 | ) | (376 | ) | 7,301 | (8,232 | ) | (931 | ) | 1,425 | (492 | ) | 933 | |||||||||||||||||||||||||||||
Net interest on swaps | Net interest on swaps | (1,168 | ) | 908 | 170 | (737 | ) | ||||||||||||||||||||||||||||||||||||||||||
Total interest income | Total interest income | (12,314 | ) | 532 | (761 | ) | 196 | ||||||||||||||||||||||||||||||||||||||||||
202214
Analysis of Changes in Interest Income and Expense (continued)
2002 compared to 2001 | 2001 compared to 2000 | |||||||||||||||||||||||||||||||||||||||||||||||||
Analysis of Changes in Interest Income and Expense (continued) | Analysis of Changes in Interest Income and Expense (continued) | |||||||||||||||||||||||||||||||||||||||||||||||||
Increase/(decrease) | Increase/(decrease) | 2004 compared to 2003 | 2003 compared to 2002 | |||||||||||||||||||||||||||||||||||||||||||||||
due to changes in | due to changes in | Increase / (decrease) | Increase / (decrease) | |||||||||||||||||||||||||||||||||||||||||||||||
due to changes in | due to changes in | |||||||||||||||||||||||||||||||||||||||||||||||||
Average | Average | Net | Average | Average | Net | Average | Average | Net | Average | Average | Net | |||||||||||||||||||||||||||||||||||||||
CHF million | CHF million | volume | rate | change | volume | rate | change | volume | rate | change | volume | rate | change | |||||||||||||||||||||||||||||||||||||
Interest expense on interest-bearing liabilities | Interest expense on interest-bearing liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||
Due to banks | Due to banks | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | (298 | ) | (674 | ) | (972 | ) | 395 | (1,368 | ) | (973 | ) | |||||||||||||||||||||||||||||||||||||||
Domestic | 12 | 254 | 266 | 2 | (304 | ) | (302 | ) | ||||||||||||||||||||||||||||||||||||||||||
Foreign | 529 | (705 | ) | (176 | ) | 266 | 123 | 389 | ||||||||||||||||||||||||||||||||||||||||||
Foreign | (58 | ) | (2,086 | ) | (2,144 | ) | 289 | (541 | ) | (252 | ) | |||||||||||||||||||||||||||||||||||||||
Cash collateral on securities lent and repurchase agreements | Cash collateral on securities lent and repurchase agreements | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 241 | (486 | ) | (245 | ) | 17 | 105 | 122 | ||||||||||||||||||||||||||||||||||||||||||
Domestic | 137 | 57 | 194 | 93 | (153 | ) | (60 | ) | ||||||||||||||||||||||||||||||||||||||||||
Foreign | 1,775 | (1,578 | ) | 197 | (146 | ) | (252 | ) | (398 | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign | 3,681 | (7,872 | ) | (4,191 | ) | 6,676 | (7,196 | ) | (520 | ) | ||||||||||||||||||||||||||||||||||||||||
Trading portfolio liabilities | Trading portfolio liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 0 | 145 | 145 | 6 | (9 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||
Domestic | 22 | 2 | 24 | 1 | 9 | 10 | ||||||||||||||||||||||||||||||||||||||||||||
Foreign | 2,632 | (4,588 | ) | (1,956 | ) | 1,339 | 350 | 1,689 | ||||||||||||||||||||||||||||||||||||||||||
Financial liabilities designated at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 0 | 1 | 1 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||
Foreign | 884 | (468 | ) | 416 | 358 | 52 | 410 | |||||||||||||||||||||||||||||||||||||||||||
Foreign | 1,197 | (791 | ) | 406 | 2,240 | 269 | 2,509 | |||||||||||||||||||||||||||||||||||||||||||
Due to customers | Due to customers | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic — demand deposits | 14 | (294 | ) | (280 | ) | (36 | ) | 156 | 120 | |||||||||||||||||||||||||||||||||||||||||
Domestic – demand deposits | 23 | 44 | 67 | 130 | (465 | ) | (335 | ) | ||||||||||||||||||||||||||||||||||||||||||
Domestic — savings deposits | 59 | (150 | ) | (91 | ) | (67 | ) | 2 | (65 | ) | ||||||||||||||||||||||||||||||||||||||||
Domestic – savings deposits | 13 | (126 | ) | (113 | ) | 94 | (192 | ) | (98 | ) | ||||||||||||||||||||||||||||||||||||||||
Domestic — time deposits | (116 | ) | (426 | ) | (542 | ) | 31 | 132 | 163 | |||||||||||||||||||||||||||||||||||||||||
Domestic – time deposits | (39 | ) | (76 | ) | (115 | ) | (104 | ) | 52 | (52 | ) | |||||||||||||||||||||||||||||||||||||||
Domestic — total | (43 | ) | (870 | ) | (913 | ) | (72 | ) | 290 | 218 | ||||||||||||||||||||||||||||||||||||||||
Domestic – total | (3 | ) | (158 | ) | (161 | ) | 120 | (605 | ) | (485 | ) | |||||||||||||||||||||||||||||||||||||||
Foreign | 406 | 122 | 528 | (197 | ) | (716 | ) | (913 | ) | |||||||||||||||||||||||||||||||||||||||||
Foreign | (545 | ) | (3,131 | ) | (3,676 | ) | 2,262 | (2,827 | ) | (565 | ) | |||||||||||||||||||||||||||||||||||||||
Short-term debt | Short-term debt | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||
Domestic | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||
Foreign | 94 | 229 | 323 | (387 | ) | (513 | ) | (900 | ) | |||||||||||||||||||||||||||||||||||||||||
Foreign | (201 | ) | (2,111 | ) | (2,312 | ) | 1,014 | (1,125 | ) | (111 | ) | |||||||||||||||||||||||||||||||||||||||
Long-term debt | Long-term debt | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | (123 | ) | (31 | ) | (154 | ) | (137 | ) | (54 | ) | (191 | ) | ||||||||||||||||||||||||||||||||||||||
Domestic | 36 | (56 | ) | (20 | ) | (158 | ) | (87 | ) | (245 | ) | |||||||||||||||||||||||||||||||||||||||
Foreign | 216 | (979 | ) | (763 | ) | 419 | (32 | ) | 387 | |||||||||||||||||||||||||||||||||||||||||
Foreign | 6 | 36 | 42 | (295 | ) | (457 | ) | (752 | ) | |||||||||||||||||||||||||||||||||||||||||
Interest expense | Interest expense | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | (223 | ) | (1,916 | ) | (2,139 | ) | 209 | (1,036 | ) | (827 | ) | |||||||||||||||||||||||||||||||||||||||
Domestic | 204 | 100 | 304 | 58 | (1,140 | ) | (1,082 | ) | ||||||||||||||||||||||||||||||||||||||||||
Foreign | 4,290 | (16,970 | ) | (12,680 | ) | 12,900 | (11,452 | ) | 1,448 | |||||||||||||||||||||||||||||||||||||||||
Foreign | 6,326 | (6,952 | ) | (626 | ) | 938 | (1,413 | ) | (475 | ) | ||||||||||||||||||||||||||||||||||||||||
Total interest expense | Total interest expense | 4,067 | (18,886 | ) | (14,819 | ) | 13,109 | (12,488 | ) | 621 | 6,530 | (6,852 | ) | (322 | ) | 996 | (2,553 | ) | (1,557 | ) | ||||||||||||||||||||||||||||||
203215
Additional Disclosure Required
under SEC Regulations
Deposits
2002, 20012004, 2003 and 2000.2002. The geographic allocation is based on the location of the office or branch where the deposit is made. Deposits by foreign depositors in domestic offices were CHF 43,91449,699 million, CHF 54,09549,857 million and CHF 45,81543,914 million at 31 December 2002,2004, 31 December 20012003 and 31 December 2000,2002, respectively. 31.12.04 31.12.03 31.12.02 Average Average Average Average Average Average CHF million, except where indicated deposit rate (%) deposit rate (%) deposit rate (%) Demand deposits 7,770 0.1 3,836 0.0 3,524 0.7 Time deposits 4,693 1.7 7,581 0.6 9,010 1.7 Total domestic offices 12,463 0.7 11,417 0.4 12,534 1.4 23,648 1.7 21,118 2.4 17,668 2.2 36,111 1.3 32,535 1.7 30,202 1.9 Demand deposits 67,005 0.2 55,496 0.2 42,484 1.0 Savings deposits 84,112 0.5 81,963 0.6 71,465 0.9 Time deposits 19,052 1.5 21,125 1.9 27,646 1.6 Total domestic offices 170,169 0.5 158,584 0.6 141,595 1.1 192,992 1.4 161,723 1.3 172,650 1.8 363,161 1.0 320,307 1.0 314,245 1.5 31.12.02 31.12.01 31.12.00 Average Average Average Average Average Average CHF million, except where indicated deposit rate (%) deposit rate (%) deposit rate (%) Demand deposits 3,524 0.7 3,741 1.2 4,649 1.9 Time deposits 9,010 1.7 8,012 4.2 8,717 8.7 Total domestic offices 12,534 1.4 11,753 3.3 13,366 6.3 17,603 2.2 15,528 5.7 16,994 6.6 30,137 1.9 27,281 4.6 30,360 6.5 Demand deposits 42,484 1.0 41,664 1.7 44,403 1.3 Savings deposits 71,465 0.9 66,089 1.1 72,207 1.1 Time deposits 27,646 1.6 31,261 3.2 27,199 3.0 Total domestic offices 141,595 1.1 139,014 1.7 143,809 1.5 172,650 1.8 187,783 3.6 143,432 5.1 314,245 1.5 326,797 2.8 287,241 3.3 1Mainly time deposits.
At 31 December 2002,2004, the maturity of time deposits exceeding CHF 150,000, or an equivalent amount in other currencies, was as follows:
CHF million | Domestic | Foreign | Domestic | Foreign | ||||||||||||
Within 3 months | 27,456 | 110,053 | 30,107 | 128,027 | ||||||||||||
3 to 12 months | 8,202 | 26,821 | ||||||||||||||
3 to 6 months | 1,392 | 3,470 | ||||||||||||||
6 to 12 months | 882 | 662 | ||||||||||||||
1 to 5 years | 768 | 2,766 | 932 | 2,627 | ||||||||||||
Over 5 years | 44 | 859 | 215 | 2,843 | ||||||||||||
Total time deposits | 36,470 | 140,499 | 33,528 | 137,629 | ||||||||||||
204216
Short-term Borrowings
The following table presents our period-end, average and maximum month-end outstanding amounts for short-term borrowings, along with the average rates and period-end rates at and for the years ended 31 December 2002, 20012004, 2003 and 2000.2002. Money market paper issued Due to banks Repurchase agreements1 CHF million, except where indicated 31.12.04 31.12.03 31.12.02 31.12.04 31.12.03 31.12.02 31.12.04 31.12.03 31.12.02 Period-end balance 79,442 58,115 72,800 83,381 89,089 48,732 557,892 500,592 464,020 Average balance 80,148 73,257 91,685 89,765 68,896 59,044 587,988 498,679 509,572 Maximum month-end balance 94,366 92,605 108,463 115,880 96,694 77,312 637,594 593,738 593,786 Average interest rate during the period (%) 1.7 1.4 2.1 1.6 2.8 3.1 1.5 1.8 1.8 Average interest rate at period-end (%) 2.1 1.3 1.5 2.0 1.5 2.0 2.0 1.3 1.7 Money market paper issued Due to banks Repurchase agreements1 CHF million, except where indicated 31.12.02 31.12.01 31.12.00 31.12.02 31.12.01 31.12.00 31.12.02 31.12.01 31.12.00 Period-end balance 72,800 99,006 74,780 48,780 77,312 51,245 464,020 462,316 330,857 Average balance 91,685 96,253 78,154 59,109 70,621 58,031 509,572 400,648 278,601 Maximum month-end balance 108,463 117,022 89,821 77,312 85,808 73,355 593,786 502,578 342,427 Average interest rate during the period (%) 2.1 4.4 5.6 3.1 7.0 7.0 1.8 3.2 4.8 Average interest rate at period-end (%) 1.5 2.6 6.0 2.0 2.2 4.1 1.7 2.9 4.8 1For the purpose of this disclosure, balances are presented on a gross basis.
205217
Additional Disclosure Required under SEC Regulations |
D – Information Required by Industry Guide 3 (continued)
Contractual Maturities of the Investments in Debt Instruments | ||||||||||||||||||||||||||||||||
Within 1 year | 1–5 years | 5–10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 20041 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 1 | 5.50 | 2 | 4.29 | 6 | 3.80 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 10 | 3.97 | 10 | 4.14 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 36 | 2.13 | 4 | 1.25 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 57 | 2.74 | 50 | 2.92 | 0 | 0.00 | 33 | 0.00 | ||||||||||||||||||||||||
Mortgage-backed securities | 3 | 2.50 | 0 | 0.00 | 5 | 3.21 | 64 | 4.36 | ||||||||||||||||||||||||
Other debt securities | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 107 | 66 | 11 | 98 | ||||||||||||||||||||||||||||
Due to the adoption of IAS 39, Financial investments, available for sale, are reported at fair value from 1 January 2001. 31 December 2000 amounts have not been restated.
Within 1 year | 1 - 5 years | 5 - 10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 20021 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 0 | 0.00 | 7 | 4.88 | 8 | 3.86 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 8 | 4.02 | 30 | 3.94 | 4 | 3.59 | 0 | 0.00 | ||||||||||||||||||||||||
US Treasury and agencies | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 35 | 4.63 | 45 | 3.13 | 1 | 6.12 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 675 | 2.23 | 249 | 2.64 | 19 | 3.41 | 21 | 8.02 | ||||||||||||||||||||||||
Mortgage-backed securities | 4 | 2.25 | 15 | 3.97 | 4 | 4.03 | 0 | 0.00 | ||||||||||||||||||||||||
Other debt securities | 1 | 4.77 | 48 | 2.65 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 723 | 394 | 36 | 22 | ||||||||||||||||||||||||||||
1Money market papers have contractual maturities of less than one year.
Within 1 year | 1–5 years | 5–10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 20031 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 3 | 6.61 | 4 | 2.92 | 6 | 3.80 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 5 | 3.90 | 20 | 2.01 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 45 | 1.89 | 9 | 1.49 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 81 | 1.09 | 68 | 3.53 | 7 | 7.38 | 0 | 0.00 | ||||||||||||||||||||||||
Mortgage-backed securities | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Other debt securities | 4 | 0.00 | 8 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 138 | 109 | 13 | 1 | ||||||||||||||||||||||||||||
Within 1 year | 1 - 5 years | 5 - 10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 20011 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 9 | 5.26 | 10 | 4.50 | 16 | 3.43 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 3 | 4.36 | 38 | 3.90 | 4 | 3.59 | 0 | 0.00 | ||||||||||||||||||||||||
US Treasury and agencies | 0 | 0.00 | 24 | 4.38 | 8 | 5.15 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 5,014 | 0.97 | 5,048 | 1.01 | 27 | 2.88 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 63 | 4.53 | 1,102 | 4.59 | 30 | 3.22 | 23 | 15.372 | ||||||||||||||||||||||||
Mortgage-backed securities | 0 | 0.00 | 5 | 5.41 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Other debt securities | 2 | 4.77 | 87 | 3.91 | 28 | 3.56 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 5,091 | 6,314 | 113 | 24 | ||||||||||||||||||||||||||||
1Money market papers have contractual maturities of less than one year.2The yield presented is the current
Within 1 year | 1–5 years | 5–10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 20021 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 0 | 0.00 | 7 | 4.88 | 8 | 3.86 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 8 | 4.02 | 30 | 3.94 | 4 | 3.59 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 35 | 4.63 | 45 | 3.13 | 1 | 6.12 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 675 | 2.23 | 249 | 2.64 | 19 | 3.41 | 21 | 8.02 | ||||||||||||||||||||||||
Mortgage-backed securities | 4 | 2.25 | 15 | 3.97 | 4 | 4.03 | 0 | 0.00 | ||||||||||||||||||||||||
Other debt securities | 1 | 4.77 | 48 | 2.65 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 723 | 394 | 36 | 22 | ||||||||||||||||||||||||||||
Within 1 year | 1 - 5 years | 5 - 10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 2000 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 2 | 6.90 | 16 | 5.13 | 16 | 6.45 | 0 | 0.00 | ||||||||||||||||||||||||
Swiss local governments | 1 | 6.11 | 27 | 5.19 | 18 | 4.43 | 0 | 0.00 | ||||||||||||||||||||||||
US Treasury and agencies | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 2,451 | 1.62 | 1,236 | 1.80 | 1,165 | 0.85 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 16 | 5.20 | 917 | 6.02 | 206 | 2.21 | 0 | 0.00 | ||||||||||||||||||||||||
Mortgage-backed securities | 20 | 6.02 | 5 | 6.54 | 22 | 14.46 | 0 | 0.00 | ||||||||||||||||||||||||
Other debt securities | 21 | 6.57 | 56 | 4.33 | 11 | 3.68 | 0 | 0.00 | ||||||||||||||||||||||||
Total amortized cost | 2,511 | 2,257 | 1,438 | 0 | ||||||||||||||||||||||||||||
Total market value | 2,514 | 2,272 | 1,434 | 0 | ||||||||||||||||||||||||||||
206218
Due from Banks and Loans (gross)
Loans are widely dispersed over industry sectors both within and outside of Switzerland. With the exceptions of private households (foreign and domestic) and banks and financial institutions outside Switzerland and real estate and rentals in Switzerland, there is no material concentration of loans. For further discussion of the loan portfolio, see the Includes Due from banks from Industrial Holdings of CHF 764 million at 31 December 2004. UBS Handbook 2002/2003.2004 / 2005. The following table illustrates the diversification of the loan portfolio among industry sectors at 31 December 2004, 2003, 2002, 2001 2000, 1999 and 1998.2000. The industry categories presented are consistent with the classification of loans for reporting to the Swiss Federal Banking Commission and Swiss National Bank. CHF million 31.12.04 31.12.03 31.12.02 31.12.01 31.12.00 1,406 619 1,029 1,533 2,896 Construction 1,943 2,175 2,838 3,499 4,870 Financial institutions 4,332 4,009 4,301 5,673 5,725 Hotels and restaurants 2,269 2,440 2,655 2,950 3,526 5,485 6,478 7,237 8,686 9,577 Private households 105,160 102,181 95,295 93,746 91,667 Public authorities 5,460 5,251 5,529 5,222 5,658 Real estate and rentals 11,466 12,449 13,573 14,992 16,673 Retail and wholesale 4,908 6,062 7,172 8,674 9,635 9,110 9,493 10,237 12,161 11,767 894 1,201 1,722 1,860 2,651 Total domestic 152,433 152,358 151,588 158,996 164,645 Banks 34,114 31,405 31,882 26,728 27,168 Chemicals 366 245 519 1,080 1,423 Construction 122 84 153 266 773 Electricity, gas and water supply 745 249 1,105 977 1,584 Financial institutions 35,459 23,493 18,378 14,458 20,348 2,758 2,421 2,300 4,258 4,596 Mining 1,695 1,114 868 1,313 2,070 Private households 30,237 21,194 33,063 25,619 29,470 Public authorities 1,228 1,224 2,628 6,454 11,754 Real estate and rentals 940 473 616 10,227 5,077 Retail and wholesale 1,102 1,880 1,367 1,732 1,862 Services 8,002 7,983 1,654 4,786 1,585 Transport, storage and communication 762 3,658 676 2,117 993 319 214 2,304 2,973 11,168 Total foreign 117,849 95,637 97,513 102,988 119,871 270,282 247,995 249,101 261,984 284,516 CHF million 31.12.02 31.12.01 31.12.00 31.12.99 31.12.98 Banks 1,029 1,533 2,896 5,802 4,543 Construction 2,838 3,499 4,870 6,577 7,897 Financial institutions 4,301 5,673 5,725 9,387 10,240 Hotels and restaurants 2,655 2,950 3,526 4,259 4,129 7,237 8,686 9,577 11,377 13,505 Private households 95,295 93,746 91,667 93,846 97,664 Public authorities 5,529 5,222 5,658 5,277 5,858 Real estate and rentals 13,573 14,992 16,673 19,835 21,231 Retail and wholesale 7,172 8,674 9,635 10,904 8,912 10,237 12,161 11,767 14,862 11,582 1,738 1,860 2,651 1,818 1,662 Total domestic 151,604 158,996 164,645 183,944 187,223 Banks 31,882 26,728 27,168 24,983 65,000 Chemicals 519 1,080 1,423 Construction 153 266 773 Electricity, gas and water supply 1,105 977 1,584 Financial institutions 18,378 14,458 20,348 2,300 4,258 4,596 Mining 868 1,313 2,070 Private households 33,063 25,619 29,470 Public authorities 2,628 6,454 11,754 Real estate and rentals 616 10,227 5,077 Retail and wholesale 1,367 1,732 1,862 Services 1,654 4,786 1,585 Transport, storage and communication 676 2,117 993 2,557 2,973 11,168 69,087 78,741 Total foreign 97,766 102,988 119,871 94,070 143,741 249,370 261,984 284,516 278,014 330,964 12Includes chemicals, food and beverages. 23Includes transportation, communication, health and social work, education and other social and personal service activities.34Includes mining and electricity, gas and water supply. 4For5 31 December 2003 and 31 December 2002 amounts include a change in accounting treatment of credit risk losses on OTC derivatives as at 1 January 2004, which are now recorded under Net trading income. As a consequence, the yearsunderlying gross exposure is no longer reported as “Due from Banks and Loans (gross)”. Years prior to the year 2000, no detailed industry classifications are available. 52002 have not been restated. 6Includes food and beverages. 67Includes hotels and restaurants.
207219
Additional Disclosure Required
under SEC Regulations
Due from Banks and Loans (gross) (continued)
The following table analyzes the Group’s mortgage portfolio by geographic origin of the client and type of mortgage at 31 December 2004, 2003, 2002, 2001 2000, 1999 and 1998.2000. Mortgages are included in the industry categories mentioned above.
CHF million | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | 31.12.98 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||||||||||||||||||||||
Mortgages | ||||||||||||||||||||||||||||||||||||||||
Domestic | 116,359 | 116,628 | 116,348 | 126,677 | 138,306 | 124,496 | 122,069 | 116,359 | 116,628 | 116,348 | ||||||||||||||||||||||||||||||
Foreign | 11,510 | 9,583 | 4,206 | 1,310 | 2,479 | 12,185 | 7,073 | 11,510 | 9,583 | 4,206 | ||||||||||||||||||||||||||||||
Total gross mortgages | 127,869 | 126,211 | 120,554 | 127,987 | 140,785 | 136,681 | 129,142 | 127,869 | 126,211 | 120,554 | ||||||||||||||||||||||||||||||
Mortgages | ||||||||||||||||||||||||||||||||||||||||
Residential | 108,779 | 101,969 | 96,181 | 91,408 | 106,093 | 117,731 | 109,980 | 108,779 | 101,969 | 96,181 | ||||||||||||||||||||||||||||||
Commercial | 19,090 | 24,242 | 24,373 | 36,579 | 34,692 | 18,950 | 19,162 | 19,090 | 24,242 | 24,373 | ||||||||||||||||||||||||||||||
Total gross mortgages | 127,869 | 126,211 | 120,554 | 127,987 | 140,785 | 136,681 | 129,142 | 127,869 | 126,211 | 120,554 | ||||||||||||||||||||||||||||||
Due from Banks and Loan Maturities (gross)
The following table discloses loans by maturity at 31 December 2002.2004. The determination of maturities is based on contract terms. Information on interest rate sensitivities can be found in Note 29 to the UBS Group Financial Statements.
CHF million | Within 1 year | 1 to 5 years | Over 5 years | Total | Within 1 year | 1 to 5 years | Over 5 years | Total | ||||||||||||||||||||||||
Domestic | ||||||||||||||||||||||||||||||||
Banks | 969 | 60 | 0 | 1,029 | 812 | 594 | 0 | 1,406 | ||||||||||||||||||||||||
Mortgages | 57,875 | 55,676 | 2,808 | 116,359 | 48,428 | 67,205 | 8,863 | 124,496 | ||||||||||||||||||||||||
Other loans | 24,905 | 7,534 | 1,777 | 34,216 | 18,818 | 5,960 | 1,753 | 26,531 | ||||||||||||||||||||||||
Total domestic | 83,749 | 63,270 | 4,585 | 151,604 | 68,058 | 73,759 | 10,616 | 152,433 | ||||||||||||||||||||||||
Foreign | ||||||||||||||||||||||||||||||||
Banks | 31,285 | 373 | 224 | 31,882 | 32,285 | 1,442 | 387 | 34,114 | ||||||||||||||||||||||||
Mortgages | 10,711 | 688 | 111 | 11,510 | 10,691 | 1,314 | 180 | 12,185 | ||||||||||||||||||||||||
Other loans | 52,447 | 1,492 | 435 | 54,374 | 59,198 | 6,581 | 5,771 | 71,550 | ||||||||||||||||||||||||
Total foreign | 94,443 | 2,553 | 770 | 97,766 | 102,174 | 9,337 | 6,338 | 117,849 | ||||||||||||||||||||||||
Total gross loans | 178,192 | 65,823 | 5,355 | 249,370 | ||||||||||||||||||||||||||||
Total gross1 | 170,232 | 83,096 | 16,954 | 270,282 | ||||||||||||||||||||||||||||
At 31 December 2004, the total amounts of Due from banks and loans due after one year granted at fixed and floating rates are as follows:
CHF million | 1 to 5 years | Over 5 years | Total | |||||||||
Fixed rate loans | 78,623 | 14,828 | 93,451 | |||||||||
Adjustable or floating rate loans | 4,473 | 2,126 | 6,599 | |||||||||
Total | 83,096 | 16,954 | 100,050 | |||||||||
220
Impaired, Non-performing and Restructured Loans
loans to reflect their net estimated recoverable amount.have been restructured on concessionary terms.
The gross interest income that would have been recorded on non-performing loans was CHF 201107 million for domestic loans and CHF 17 million for foreign loans for the year ended 31 December 2004, CHF 171 million for domestic loans and CHF 23 million for foreign loans for the year ended 31 December 2003, CHF 148 million for domestic loans and CHF 53 million for foreign loans for the year ended 31 December 2002, CHF 336 million for all non-performing loans for the year ended 31 December 2001 and CHF 182 million for all non-performing loans for the year ended 31 December 2000. The amount of interest income that was included in net income for those loans was CHF 174106 million for domestic loans and CHF 8 million for foreign loans for the year ended 31 December 2004, CHF 163 million for domestic loans and CHF 8 million for foreign loans for the year ended 31 December 2003, CHF 152 million for domestic loans and CHF 22 million for foreign loans for the year ended 31 December 2002 and CHF 201 million for all non-performing loans for the year ended 31 December 2001. There was no interest income recorded in net income for non-performing loans in 2000. The table below provides an analysis of the Group’s non-performing loans, for further information see the UBS Handbook 2002/2003.
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Non-performing loans: | ||||||||||||||||||||
Domestic | 2,772 | 4,012 | 4,609 | 6,531 | 7,588 | |||||||||||||||
Foreign | 924 | 889 | 1,391 | 2,108 | 2,864 | |||||||||||||||
Total non-performing loans | 3,696 | 4,901 | 6,000 | 8,639 | 10,452 | |||||||||||||||
Foreign restructured loans1 | 179 | |||||||||||||||||||
CHF million | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | 31.12.98 | |||||||||||||||
Non-performing loans: | ||||||||||||||||||||
Domestic | 4,609 | 6,531 | 7,588 | 11,435 | 14,023 | |||||||||||||||
Foreign | 1,420 | 2,108 | 2,864 | 1,638 | 2,091 | |||||||||||||||
Total non-performing loans | 6,029 | 8,639 | 10,452 | 13,073 | 16,114 | |||||||||||||||
Foreign restructured loans1 | 179 | 287 | 449 | |||||||||||||||||
1 Include only performing foreign restructured loans. UBS does not, as a matter of policy, typically restructure loans to accrue interest at rates different from the original contractual terms or reduce the principal amount of loans. Instead, specific loan allowances are established as necessary. Unrecognized interest related to foreign restructured loans was not material to the results of operations during these periods.
or less than 90 days in arrears, with respect to payment of principal or interest; however,and for the years ended 31 December 2004 and 2003, these are loans not considered “non-performing” in accordance with Swiss regulatory guidelines, but where the Group’s credit officers have expressed doubts as to the ability of the borrowers to repay the loans. As at 31 December 20022004 and 31 December 2003 specific allowances of CHF 1,407241 million and CHF 694 million respectively had been established against these loans.
221
209
Additional Disclosure Required
under SEC Regulations
Cross-Border Outstandings
Cross-border outstandings consist of general banking products such as loans (including unutilized commitments) and deposits with third parties, credit equivalents of over the counter (OTC) derivatives and repurchase agreements, and the market value of the inventory of securities. Outstandings are monitored and reported on an ongoing basis by the credit risk management and control organization with a dedicated country risk information system. With the exception of the 32 most developed economies, these exposures are rigorously limited.
The following analysis excludes Due from banks from Industrial Holdings.
the asset could be liquidated. This follows the “Guidelines for the Management of Country Risk”, which are applicable to all banks that are supervised by the Swiss Federal Banking Commission.
31.12.04 | ||||||||||||||||||||
CHF million | Banks | Private Sector | Public Sector | Total | % of total assets | |||||||||||||||
United States | 8,733 | 114,202 | 9,150 | 132,085 | 7.6 | |||||||||||||||
Germany | 18,666 | 5,977 | 7,351 | 31,994 | 1.8 | |||||||||||||||
Italy | 4,588 | 2,699 | 16,803 | 24,090 | 1.4 | |||||||||||||||
Japan | 1,366 | 10,409 | 9,472 | 21,247 | 1.2 | |||||||||||||||
United Kingdom | 8,321 | 11,929 | 328 | 20,578 | 1.2 | |||||||||||||||
France | 5,559 | 6,835 | 2,776 | 15,170 | 0.9 | |||||||||||||||
31.12.03 | ||||||||||||||||||||
CHF million | Banks | Private Sector | Public Sector | Total | % of total assets | |||||||||||||||
United States | 10,125 | 108,461 | 8,138 | 126,724 | 8.2 | |||||||||||||||
Italy | 4,747 | 2,233 | 18,289 | 25,269 | 1.6 | |||||||||||||||
Germany | 17,499 | 5,884 | 1,270 | 24,654 | 1.6 | |||||||||||||||
United Kingdom | 8,340 | 11,344 | 550 | 20,234 | 1.3 | |||||||||||||||
France | 4,841 | 5,604 | 4,271 | 14,716 | 0.9 | |||||||||||||||
Japan | 1,630 | 7,845 | 4,001 | 13,477 | 0.9 | |||||||||||||||
31.12.02 | ||||||||||||||||||||
CHF million | Banks | Private Sector | Public Sector | Total | % of total assets | |||||||||||||||
United States | 11,111 | 105,375 | 7,958 | 124,444 | 9.2 | |||||||||||||||
Germany | 17,633 | 6,038 | 5,857 | 29,528 | 2.2 | |||||||||||||||
Italy | 4,490 | 1,955 | 17,071 | 23,515 | 1.7 | |||||||||||||||
United Kingdom | 10,001 | 11,963 | 345 | 22,310 | 1.7 | |||||||||||||||
France | 5,218 | 7,640 | 8,138 | 20,996 | 1.6 | |||||||||||||||
Australia | 5,435 | 4,114 | 2,285 | 11,834 | 0.9 | |||||||||||||||
Canada | 2,186 | 3,044 | 5,851 | 11,081 | 0.8 | |||||||||||||||
222
210
31.12.02 | ||||||||||||||||||||||||
Banking products | ||||||||||||||||||||||||
Traded | Tradable | % of total | ||||||||||||||||||||||
CHF million | Banks | Non-banks | products1 | assets2 | Total | assets | ||||||||||||||||||
United States | 1,083 | 698 | 27,617 | 95,046 | 124,444 | 10.5 | ||||||||||||||||||
Germany | 2,590 | 4,732 | 13,101 | 9,104 | 29,527 | 2.5 | ||||||||||||||||||
Italy | 1,139 | 296 | 7,229 | 14,852 | 23,516 | 2.0 | ||||||||||||||||||
United Kingdom | 4,161 | 606 | 5,437 | 12,106 | 22,310 | 1.9 | ||||||||||||||||||
France | 2,077 | 1,805 | 5,710 | 11,403 | 20,995 | 1.8 | ||||||||||||||||||
Australia | 133 | 535 | 4,514 | 6,651 | 11,833 | 1.0 | ||||||||||||||||||
Canada | 130 | 872 | 4,964 | 5,115 | 11,081 | 0.9 | ||||||||||||||||||
Japan | 312 | 88 | 1,766 | 7,816 | 9,982 | 0.8 | ||||||||||||||||||
Cayman Islands | 7 | 1,175 | 5,054 | 3,387 | 9,623 | 0.8 | ||||||||||||||||||
Netherlands | 289 | 1,548 | 4,110 | 3,313 | 9,260 | 0.8 | ||||||||||||||||||
31.12.01 | ||||||||||||||||||||||||
Banking products | ||||||||||||||||||||||||
Traded | Tradable | % of total | ||||||||||||||||||||||
CHF million | Banks | Non-banks | products1 | assets2 | Total | assets | ||||||||||||||||||
United States | 2,360 | 1,284 | 31,129 | 114,615 | 149,388 | 11.9 | ||||||||||||||||||
United Kingdom | 2,483 | 543 | 9,128 | 27,754 | 39,908 | 3.2 | ||||||||||||||||||
Germany | 3,605 | 6,395 | 11,962 | 11,755 | 33,717 | 2.7 | ||||||||||||||||||
Japan | 640 | 770 | 4,442 | 22,995 | 28,847 | 2.3 | ||||||||||||||||||
Italy | 1,086 | 498 | 11,628 | 11,180 | 24,392 | 1.9 | ||||||||||||||||||
France | 159 | 2,043 | 4,114 | 8,052 | 14,368 | 1.1 | ||||||||||||||||||
Canada | 114 | 950 | 5,220 | 8,038 | 14,322 | 1.1 | ||||||||||||||||||
Netherlands | 1,834 | 2,414 | 6,126 | 3,110 | 13,484 | 1.1 | ||||||||||||||||||
31.12.00 | ||||||||||||||||||||||||
Banking products | ||||||||||||||||||||||||
Traded | Tradable | % of total | ||||||||||||||||||||||
CHF million | Banks | Non-banks | products1 | assets2 | Total | assets | ||||||||||||||||||
United States | 1,826 | 958 | 21,796 | 64,077 | 88,657 | 8.2 | ||||||||||||||||||
Japan | 123 | 895 | 6,378 | 58,779 | 66,175 | 6.1 | ||||||||||||||||||
United Kingdom | 1,795 | 1,224 | 9,037 | 22,440 | 34,496 | 3.2 | ||||||||||||||||||
Germany | 2,686 | 3,720 | 13,198 | 5,085 | 24,689 | 2.3 | ||||||||||||||||||
Italy | 1,293 | 931 | 3,629 | 9,700 | 15,553 | 1.4 | ||||||||||||||||||
France | 1,085 | 1,900 | 3,956 | 5,987 | 12,928 | 1.2 | ||||||||||||||||||
Netherlands | 910 | 1,480 | 6,092 | 3,803 | 12,285 | 1.1 | ||||||||||||||||||
Australia | 27 | 370 | 3,113 | 7,508 | 11,018 | 1.0 | ||||||||||||||||||
1Traded products consist of derivative instruments and repurchase agreements. In 2002, 2001 and 2000 unsecured OTC derivatives exposure is reported based on the Potential Credit Exposure measurement methodology and is therefore not directly comparable to the exposures in the prior years, which were measured based on Gross Replacement Values plus Add-on. 2Tradable assets consist of equity and fixed income financial instruments held for trading purposes, which are marked to market on a daily basis and private equity investments at the lower of book or market value.
211
D – Information Required by Industry Guide 3 (continued)
Additional Disclosure Requiredunder SEC Regulations
Summary of Movements in Allowances and Provisions for Credit Losses
The following table provides an analysis of movements in allowances and provisions for credit losses.
As a result of Swiss bankruptcy laws, The following analysis includes Due from banks write-offfrom Industrial Holdings.and/and / or in case of debt forgiveness. Under Swiss law, a creditor can continue to collect from a debtor who has emerged from bankruptcy, unless the debt has been forgiven through a formal agreement. CHF million 31.12.04 31.12.03 31.12.02 31.12.01 31.12.00 3,954 5,232 8,218 10,581 13,398 Banks 0 0 0 0 0 Construction (49 ) (73 ) (148 ) (248 ) (261 ) Financial institutions (24 ) (37 ) (103 ) (51 ) (178 ) Hotels and restaurants (101 ) (57 ) (48 ) (52 ) (193 ) (77 ) (121 ) (275 ) (109 ) (264 ) Private households (208 ) (262 ) (536 ) (1,297 ) (640 ) Public authorities 0 (18 ) 0 0 0 Real estate and rentals (109 ) (206 ) (357 ) (317 ) (729 ) Retail and wholesale (68 ) (67 ) (101 ) (115 ) (160 ) (83 ) (111 ) (155 ) (93 ) (227 ) (9 ) (43 ) (49 ) (46 ) (30 ) (728 ) (995 ) (1,772 ) (2,328 ) (2,682 ) Banks (21 ) (17 ) (49 ) (24 ) (15 ) Chemicals (1 ) 0 0 (2 ) 0 Construction (3 ) 0 0 (10 ) (13 ) Electricity, gas and water supply 0 0 (36 ) (63 ) (3 ) Financial institutions (34 ) (112 ) (228 ) (74 ) (33 ) (23 ) (77 ) (70 ) (119 ) (11 ) Mining (8 ) (15 ) (1 ) (304 ) 0 Private households (8 ) (11 ) (65 ) (5 ) 0 Public authorities (2 ) 0 (1 ) 0 (4 ) Real estate and rentals 0 (1 ) (2 ) (1 ) 0 Retail and wholesale 0 (76 ) (10 ) 0 (160 ) Services (7 ) (25 ) (39 ) (30 ) (8 ) Transport, storage and communication 0 (24 ) (74 ) 0 (11 ) (22 ) (83 ) (189 ) (48 ) (55 ) (129 ) (441 ) (764 ) (680 ) (313 ) (857 ) (1,436 ) (2,536 ) (3,008 ) (2,995 ) CHF million 31.12.02 31.12.01 31.12.00 31.12.99 31.12.98 8,218 10,581 13,398 14,978 16,213 Banks 0 0 0 (4 ) (2 ) Construction (148 ) (248 ) (261 ) (296 ) (228 ) Financial institutions (103 ) (51 ) (178 ) (92 ) (66 ) Hotels and restaurants (48 ) (52 ) (193 ) (137 ) (98 ) (275 ) (109 ) (264 ) (242 ) (214 ) Private households (536 ) (1,297 ) (640 ) (598 ) (534 ) Public authorities 0 0 0 0 (2 ) Real estate and rentals (357 ) (317 ) (729 ) (823 ) (610 ) Retail and wholesale (101 ) (115 ) (160 ) (210 ) (178 ) (155 ) (93 ) (227 ) (315 ) (116 ) (49 ) (46 ) (30 ) (41 ) (15 ) (1,772 ) (2,328 ) (2,682 ) (2,758 ) (2,063 ) Banks (49 ) (24 ) (15 ) Chemicals 0 (2 ) 0 Construction 0 (10 ) (13 ) Electricity, gas and water supply (36 ) (63 ) (3 ) Financial institutions (228 ) (74 ) (33 ) (70 ) (119 ) (11 ) Mining (1 ) (304 ) 0 Private households (65 ) (5 ) 0 Public authorities (1 ) 0 (4 ) Real estate and rentals (2 ) (1 ) 0 Retail and wholesale (10 ) 0 (160 ) Services (39 ) (30 ) (8 ) Transport, storage and communication (74 ) 0 (11 ) (189 ) (48 ) (55 ) (764 ) (680 ) (313 ) (517 ) (261 ) (2,536 ) (3,008 ) (2,995 ) (3,275 ) (2,324 ) Domestic 43 58 124 54 59 Foreign 27 23 39 11 0 70 81 163 65 59 (2,466 ) (2,927 ) (2,832 ) (3,210 ) (2,265 ) Credit loss expense/(recovery) 206 498 (130 ) 956 951 (337 ) 66 145 674 79 5,621 8,218 10,581 13,398 14,978 1Includes chemicals, food and beverages. 2Includes transportation, communication, health and social work, education and other social and personal service activities. 3Includes mining and electricity, gas and water supply. 4For years prior to 2000, no detailed industry classifications are available. 5Includes food and beverages. 65Includes hotels and restaurants.7See the following table for details.
212223
Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Summary of Movements in Allowances and Provisions for Credit Losses (continued) | ||||||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Recoveries | ||||||||||||||||||||
Domestic | 54 | 49 | 43 | 58 | 124 | |||||||||||||||
Foreign | 5 | 38 | 27 | 23 | 39 | |||||||||||||||
Total recoveries | 59 | 87 | 70 | 81 | 163 | |||||||||||||||
Net write-offs | (798 | ) | (1,349 | ) | (2,466 | ) | (2,927 | ) | (2,832 | ) | ||||||||||
Increase/(decrease) in credit loss allowance and provision | (251 | ) | 72 | 115 | 498 | (130 | ) | |||||||||||||
Collective loan loss provisions | (25 | ) | ||||||||||||||||||
Other adjustments1 | 3 | (1 | ) | (635 | ) | 66 | 145 | |||||||||||||
Balance at end of year | 2,883 | 3,954 | 5,232 | 8,218 | 10,581 | |||||||||||||||
CHF million | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | 31.12.98 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||||||||||||||||||||||
Doubtful interest | 0 | 0 | 182 | 409 | 423 | 0 | 0 | 0 | 0 | 182 | ||||||||||||||||||||||||||||||
Net foreign exchange | (269 | ) | 44 | 23 | 351 | (98 | ) | 2 | (57 | ) | (269 | ) | 44 | 23 | ||||||||||||||||||||||||||
Subsidiaries sold and other | (68 | ) | 22 | (60 | ) | (86 | ) | (246 | ) | |||||||||||||||||||||||||||||||
Subsidiaries sold and other adjustments | 1 | 56 | (366 | ) | 22 | (60 | ) | |||||||||||||||||||||||||||||||||
Total adjustments | (337 | ) | 66 | 145 | 674 | 79 | 3 | (1 | ) | (635 | ) | 66 | 145 | |||||||||||||||||||||||||||
213224
Additional DisclosureD – Information Required by Industry Guide 3 (continued)under SEC Regulations
Allocation of the Allowances and Provisions for Credit Losses
The following table provides an analysis of the allocation of the allowances and provisions for credit loss by industry sectorssector and geographic location at 31 December 2004, 2003, 2002, 2001 2000, 1999 and 1998.2000. For a description of procedures with respect to allowances and provisions for credit losses, see the UBS Handbook 2002/2003.2004/2005. The following analysis includes Due from banks from Industrial Holdings. CHF million 31.12.04 31.12.03 31.12.02 31.12.01 31.12.00 Banks 10 10 10 34 0 Construction 112 158 265 467 843 Financial institutions 82 137 89 262 328 Hotels and restaurants 98 214 286 346 454 224 327 458 722 863 Private households 333 511 750 1,082 1,570 Public authorities 9 9 39 37 0 Real estate and rentals 250 383 577 1,067 1,635 Retail and wholesale 363 201 315 395 629 222 549 470 448 419 188 150 225 165 413 1,891 2,649 3,484 5,025 7,154 230 256 24 39 32 Chemicals 4 5 5 5 0 Construction 1 0 6 0 11 Electricity, gas and water supply 15 0 96 88 107 Financial institutions 140 168 153 420 262 112 359 314 653 547 Mining 14 19 148 169 586 Private households 48 48 58 103 72 Public authorities 66 69 0 0 0 Real estate and rentals 5 7 6 9 82 Retail and wholesale 95 51 13 0 41 Services 32 32 262 414 126 Transport, storage and communication 1 195 144 45 2 22 (166 ) (177 ) 242 267 785 1,043 1,052 2,187 2,135 207 262 696 1,006 1,292 2,883 3,954 5,232 8,218 10,581 CHF million 31.12.02 31.12.01 31.12.00 31.12.99 31.12.98 Banks 10 34 0 41 49 Construction 265 467 843 1,247 1,671 Financial institutions 89 262 328 342 668 Hotels and restaurants 286 346 454 690 657 458 722 863 1,223 1,331 Private households 750 1,082 1,570 2,350 2,741 Public authorities 39 37 0 40 107 Real estate and rentals 577 1,067 1,635 2,696 3,333 Retail and wholesale 315 395 629 779 825 470 448 419 934 766 315 165 413 141 71 3,574 5,025 7,154 10,483 12,219 24 39 32 Chemicals 5 5 0 Construction 6 0 11 Electricity, gas and water supply 96 88 107 Financial institutions 153 420 262 314 653 547 Mining 148 169 586 Private households 58 103 72 Public authorities 0 0 0 Real estate and rentals 6 9 82 Retail and wholesale 13 0 41 Services 262 414 126 Transport, storage and communication 144 45 2 82 242 267 1,311 2,187 2,135 1,539 1,309 Country provisions 736 1,006 1,292 1,376 1,450 2,047 3,193 3,427 2,915 2,759 5,621 8,218 10,581 13,398 14,978 1Includes chemicals, food and beverages. 2�� Includes transportation, communication, health and social work, education and other social and personal service activities. 3Includes mining and electricity, gas and water supply. 4For years prior to 2000, no detailed industry classifications are available. 5Counterparty allowances and provisions only. Country provisions with banking counterparties amounting to CHF 40917 million are disclosed under country provisions. 6collective loan loss provisions for 2004. 5Includes food and beverages. 76Includes hotels and restaurants. 87The 2004, 2003, 2002, 2001 2000, 1999 and 19982000 amounts include CHF 161 million, CHF 262 million, CHF 696 million, CHF 1,006 million and CHF 1,292 million respectively of country provisions. 8 The 2004, 2003, 2002, 2001 and 2000 amounts include CHF 211 million, CHF 290 million, CHF 366 million, CHF 305 million CHF 54 million, CHF 149 million and CHF 43554 million respectively of provisions and for unused commitments and contingent liabilities.
214225
Additional Disclosure Required under SEC Regulations
Due from Banks and Loans by industry sectorIndustry Sector (gross)
The following table presents the percentage of loans in each industry sector and geographic location to total loans. This table can be read in conjunction with the preceding table showing the breakdown of the allowances and provisions for credit losses by industry sectors to evaluate the credit risks in each of the categories. Includes Due from banks from Industrial Holdings in the amount of CHF 764 million. in % 31.12.04 31.12.03 31.12.02 31.12.01 31.12.00 0.5 0.2 0.4 0.6 1.0 Construction 0.7 0.9 1.1 1.3 1.7 Financial institutions 1.6 1.6 1.7 2.2 2.0 Hotels and restaurants 0.8 1.0 1.1 1.1 1.2 2.0 2.6 2.9 3.3 3.4 Private households 38.9 41.2 38.3 35.8 32.2 Public authorities 2.0 2.1 2.2 2.0 2.0 Real estate and rentals 4.2 5.0 5.4 5.7 5.9 Retail and wholesale 1.8 2.4 2.9 3.3 3.4 3.4 3.8 4.1 4.6 4.1 0.5 0.6 0.8 0.8 1.0 56.4 61.4 60.9 60.7 57.9 Banks 12.6 12.7 12.8 10.2 9.5 Chemicals 0.1 0.1 0.2 0.4 0.5 Construction 0.0 0.0 0.1 0.1 0.3 Electricity, gas and water supply 0.3 0.1 0.4 0.4 0.6 Financial institutions 13.1 9.5 7.4 5.5 7.2 1.0 1.0 0.9 1.6 1.6 Mining 0.6 0.4 0.3 0.5 0.7 Private households 11.2 8.5 13.3 9.8 10.4 Public authorities 0.5 0.5 1.1 2.5 4.1 Real estate and rentals 0.3 0.2 0.2 3.9 1.8 Retail and wholesale 0.4 0.8 0.5 0.7 0.7 Services 3.0 3.2 0.7 1.8 0.6 Transport, storage and communication 0.3 1.5 0.3 0.8 0.3 0.2 0.1 0.9 1.1 3.8 43.6 38.6 39.1 39.3 42.1 100.0 100.0 100.0 100.0 100.0 in % 31.12.02 31.12.01 31.12.00 31.12.99 31.12.98 Banks 0.4 0.6 1.0 2.1 1.4 Construction 1.1 1.3 1.7 2.4 2.4 Financial institutions 1.7 2.2 2.0 3.4 3.1 Hotels and restaurants 1.1 1.1 1.2 1.5 1.2 2.9 3.3 3.4 4.1 4.1 Private households 38.2 35.8 32.2 33.8 29.5 Public authorities 2.2 2.0 2.0 1.9 1.8 Real estate and rentals 5.5 5.7 5.9 7.1 6.4 Retail and wholesale 2.9 3.3 3.4 3.9 2.7 4.1 4.6 4.1 5.3 3.5 0.7 0.8 1.0 0.7 0.5 60.8 60.7 57.9 66.2 56.6 Banks 12.8 10.2 9.5 9.0 19.6 Chemicals 0.2 0.4 0.5 Construction 0.1 0.1 0.3 Electricity, gas and water supply 0.4 0.4 0.6 Financial institutions 7.4 5.5 7.2 0.9 1.6 1.6 Mining 0.3 0.5 0.7 Private households 13.3 9.8 10.4 Public authorities 1.1 2.5 4.1 Real estate and rentals 0.2 3.9 1.8 Retail and wholesale 0.5 0.7 0.7 Services 0.7 1.8 0.6 Transport, storage and communication 0.3 0.8 0.3 1.0 1.1 3.8 24.8 23.8 39.2 39.3 42.1 33.8 43.4 100.0 100.0 100.0 100.0 100.0 12Includes chemicals, food and beverages. 23Includes transportation, communication, health and social work, education and other social and personal service activities. 34Includes mining and electricity, gas and water supply. 4For the years prior to 2000, no detailed industry classifications are available. 5Includes food and beverages. 6Includes hotels and restaurants.
215226
Additional DisclosureD – Information Required by Industry Guide 3 (continued)under SEC Regulations
Loss History Statistics
The following is a summary of the Group’s loan loss Includes Due from banks from Industrial Holdings of CHF 764 million. history.history (relating to Due from banks and loans). CHF million, except where indicated 31.12.04 31.12.03 31.12.02 31.12.01 31.12.00 Gross loans 270,282 1 247,995 249,101 261,984 284,516 Impaired loans 4,861 7,209 9,933 14,629 18,494 Non-performing loans 3,696 4,901 6,000 8,639 10,452 2,883 3,954 5,232 8,218 10,581 Net write-offs 798 1,349 2,466 2,927 2,832 Credit loss (expense)/recovery 276 (72 ) (115 ) (498 ) 130 Impaired loans as a percentage of gross loans 1.8 2.9 4.0 5.6 6.5 Non-performing loans as a percentage of gross loans 1.4 2.0 2.4 3.3 3.7 Allowances and provisions for credit losses as a percentage of: Gross loans 1.1 1.6 2.1 3.1 3.7 Impaired loans 59.3 54.8 52.7 56.2 57.2 Non-performing loans 78.0 80.7 87.2 95.1 101.2 51.5 48.0 45.7 49.9 52.4 61.3 56.4 57.6 62.2 60.6 Net write-offs as a percentage of: Gross loans 0.3 0.5 1.0 1.1 1.0 Average loans outstanding during the period 0.3 0.5 1.0 1.2 1.1 Allowances and provisions for credit losses 27.7 34.1 47.1 35.6 26.8 Allowances and provisions for credit losses as a multiple of net write-offs 3.61 2.93 2.12 2.81 3.74 CHF million, except where indicated 31.12.02 31.12.01 31.12.00 31.12.99 31.12.98 Gross loans 249,370 261,984 284,516 278,014 330,964 Impaired loans 10,365 14,629 18,494 22,456 26,447 Non-performing loans 6,029 8,639 10,452 13,073 16,114 Allowances and provisions for credit losses 5,621 8,218 10,581 13,398 14,978 Net write-offs 2,466 2,927 2,832 3,210 2,265 Credit loss expense/(recovery) 206 498 (130 ) 956 951 Impaired loans as a percentage of gross loans 4.2 5.6 6.5 8.1 8.0 Non-performing loans as a percentage of gross loans 2.4 3.3 3.7 4.7 4.9 Allowances and provisions for credit losses as a percentage of: Gross loans 2.3 3.1 3.7 4.8 4.5 Impaired loans 54.2 56.2 57.2 59.7 56.6 Non-performing loans 93.2 95.1 101.2 102.5 93.0 47.2 49.9 52.4 55.5 51.4 57.8 62.2 60.6 3 66.3 62.1 Net write-offs as a percentage of: Gross loans 1.0 1.1 1.0 1.2 0.7 Average loans outstanding during the period 1.1 1.2 1.1 1.2 0.8 Allowances and provisions for credit losses 43.9 35.6 26.8 24.0 15.1 Allowances and provisions for credit losses as multiple of net write-offs 2.28 2.81 3.74 4.17 6.61 12 Includes collective loan loss provisions. 3Allowances relating to impaired loans only. 24Allowances relating to non-performing loans only.331 December 2000 figure has been restated to account for an overallocation of allowances to non-performing loans.
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228
Profile
Cautionary statement regarding forward-looking statements |This communication contains statements that constitute “forward-looking statements”, including, but not limited to, statements relating to the implementation of strategic initiatives, such as the European wealth management business, and other statements relating to our future business development and economic performance. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to, (1) general market, macro-economic, governmental and regulatory trends, (2) movements in local and international securities markets, currency exchange rates and interest rates, (3) competitive pressures, (4) technological developments, (5) changes in the financial position or creditworthiness of our customers, obligors and counterparties and developments in the markets in which they operate, (6) legislative developments, (7) management changes and changes to our Business Group structure and (8) other key factors that we have indicated could adversely affect our business and financial performance which are contained in other parts of this document and in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth elsewhere in this document and in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2004. UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.
Imprint |Publisher/Copyright: UBS AG, Switzerland | Languages: English, German | SAP-No. 80531E-0501
UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
www.ubs.com
Handbook 2004/2005 – U.S. Version
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Introduction
This is the thirdfifth annual edition of the UBS Groupour Handbook.
The Handbook describes the UBS Group: itsIn it, we describe ourselves – our strategy, organization, and businesses. It outlinesWe outline the principles by which the Group manageswe manage risk, and reportsreport on last year’s developments in 2002 for theour credit risk, market risk, and treasury management areas.
TheAs in previous years, the Handbook extensivelyalso discusses the Group’sour corporate governance arrangements and itsour relationships with regulators and shareholders, along withwhile providing detailed facts aboutinformation on the UBS share.
TheYou should read the Handbook should be read in conjunction with the other information published by UBS, as described on page 5 and 6.4.
We sincerely hope that you will find the information in our reporting documentsannual reports useful and informative. We believe that UBS is amongone of the leaders in corporate disclosure, butand we would be very interested to hear your views on how we might improve the content, information and presentation of our information portfolio.the reporting products we publish.
Mark Branson
Chief Communication Officer
UBS AG
1
Introduction
UBS financial highlights
UBS income statement | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Net profit | 8,089 | 6,239 | 3,530 | 30 | ||||||||||||
Basic earnings per share(CHF)1 | 7.68 | 5.59 | 2.92 | 37 | ||||||||||||
Diluted earnings per share(CHF)1 | 7.47 | 5.48 | 2.87 | 36 | ||||||||||||
Return on shareholders’ equity(%)2 | 24.7 | 17.8 | 8.9 | |||||||||||||
Financial Businesses3 | ||||||||||||||||
Operating income | 37,402 | 33,790 | 34,107 | 11 | ||||||||||||
Operating expenses | 26,935 | 25,613 | 29,570 | 5 | ||||||||||||
Net profit | 8,044 | 6,239 | 3,530 | 29 | ||||||||||||
Cost / income ratio(%)4 | 72.6 | 75.6 | 86.4 | |||||||||||||
Net new money, wealth management businesses(CHF billion)5 | 59.4 | 50.8 | 36.2 | |||||||||||||
Headcount(full-time equivalents) | 67,424 | 65,929 | 69,061 | 2 | ||||||||||||
UBS balance sheet and capital management | ||||||||||||||||
As at | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Balance sheet key figures | ||||||||||||||||
Total assets | 1,734,784 | 1,550,056 | 1,346,678 | 12 | ||||||||||||
Shareholders’ equity | 34,978 | 35,310 | 38,952 | (1 | ) | |||||||||||
Market capitalization | 103,638 | 95,401 | 79,448 | 9 | ||||||||||||
BIS capital ratios | ||||||||||||||||
Tier 1(%)6 | 11.8 | 11.8 | 11.3 | |||||||||||||
Total BIS(%) | 13.6 | 13.3 | 13.8 | |||||||||||||
Risk-weighted assets | 264,125 | 251,901 | 238,790 | 5 | ||||||||||||
Invested assets(CHF billion) | 2,250 | 2,133 | 1,959 | 5 | ||||||||||||
Long-term ratings | ||||||||||||||||
Fitch, London | AA+ | AA+ | AAA | |||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||||||
From third quarter 2004 onwards, Motor-Columbus has been fully consolidated in UBS’s financial statements. The reporting structure is split into two components: Financial Businesses and Industrial Holdings.
2
Introduction |
UBS Group Financial Highlightsat a glance
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Income statement key figures | ||||||||||||||||
Operating income | 34,121 | 37,114 | 36,402 | (8 | ) | |||||||||||
Operating expenses | 29,577 | 30,396 | 26,203 | (3 | ) | |||||||||||
Operating profit before tax | 4,544 | 6,718 | 10,199 | (32 | ) | |||||||||||
Net profit | 3,535 | 4,973 | 7,792 | (29 | ) | |||||||||||
Cost/income ratio (%)1 | 86.2 | 80.8 | 72.2 | |||||||||||||
Cost/income ratio before goodwill(%)1, 2 | 79.0 | 77.3 | 70.4 | |||||||||||||
Per share data (CHF) | ||||||||||||||||
Basic earnings per share3 | 2.92 | 3.93 | 6.44 | (26 | ) | |||||||||||
Basic earnings per share before goodwill2, 3 | 4.73 | 4.97 | 7.00 | (5 | ) | |||||||||||
Diluted earnings per share3 | 2.87 | 3.78 | 6.35 | (24 | ) | |||||||||||
Diluted earnings per share before goodwill2, 3 | 4.65 | 4.81 | 6.89 | (3 | ) | |||||||||||
Return on shareholders’ equity (%) | ||||||||||||||||
Return on shareholders’ equity4 | 8.9 | 11.7 | 21.5 | |||||||||||||
Return on shareholders’ equity before goodwill2, 4 | 14.4 | 14.8 | 23.4 | |||||||||||||
CHF million, except where indicated | % change from | |||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Balance sheet key figures | ||||||||||||||||
Total assets | 1,181,118 | 1,253,297 | 1,087,552 | (6 | ) | |||||||||||
Shareholders’ equity | 38,991 | 43,530 | 44,833 | (10 | ) | |||||||||||
Market capitalization | 79,448 | 105,475 | 112,666 | (25 | ) | |||||||||||
BIS capital ratios Tier 1 (%)5 | 11.3 | 11.6 | 11.7 | |||||||||||||
Total BIS (%) | 13.8 | 14.8 | 15.7 | |||||||||||||
Risk-weighted assets | 238,790 | 253,735 | 273,290 | (6 | ) | |||||||||||
Invested assets (CHF billion) | 2,037 | 2,448 | 2,445 | (17 | ) | |||||||||||
Headcount (full-time equivalents) | 69,061 | 69,985 | 6 | 71,076 | 6 | (1 | ) | |||||||||
Long-term ratings7 | ||||||||||||||||
Fitch, London | AAA | AAA | AAA | |||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa1 | |||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||||||
Earnings adjusted for significant financial events and pre-goodwill2, 8
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | ||||||||||||
Operating income | 33,894 | 37,114 | 36,402 | (9 | ) | |||||||||||
Operating expenses | 27,117 | 29,073 | 25,096 | (7 | ) | |||||||||||
Operating profit before tax | 6,777 | 8,041 | 11,306 | (16 | ) | |||||||||||
Net profit | 5,529 | 6,296 | 8,799 | (12 | ) | |||||||||||
Cost/income ratio (%)1 | 79.5 | 77.3 | 69.2 | |||||||||||||
Basic earnings per share (CHF)3 | 4.57 | 4.97 | 7.28 | (8 | ) | |||||||||||
Diluted earnings per share (CHF)3 | 4.50 | 4.81 | 7.17 | (6 | ) | |||||||||||
Return on shareholders’ equity (%)4 | 13.9 | 14.8 | 24.3 | |||||||||||||
2
The UBS Group
UBS is one of the world’s leading financial firms, serving a discerning global client base. We combineAs an organization, it combines financial strength with a global culture that embraces change. We are the world’s leading provider of wealth management services and one of the largest asset managers globally. In the investment banking and securities businesses, we are among the select bracket of major global houses. In Switzerland, we are the clear market leader serving corporate and retail clients. As an integrated firm, we createUBS creates added value for our clients by drawing on the combined resources and expertise of all ourits businesses.
Our first priority
Businesses
Wealth management
3
Our Business Groups
All our Business Groups are in the top echelons of their sectors globally and are committed to vigorously growing their franchises.
invested assets, UBS Wealth Management & Business Banking
Investment banking and securities services for 3.5 million individuals and 180,000 corporate clients in Switzerland as well as 5,000 financial institutions worldwide.
UBS Global Asset Management
UBS Warburg
tently placed in the top tiertiers of major industry rankings, it is a leading player in the global primary and secondary markets for equity, equity-linked and equity derivative products. In fixed income, products.it is a first-rate global player. In foreign exchange, it places first in many key industry rankings. In investment banking, it provides first-class advice and execution capabilities to its corporate client base worldwide. SharplyAll its businesses are sharply client-focused, it providesproviding innovative products, top-quality research and comprehensive access to the world’s capital marketsmarkets.
Asset management
Swiss corporate and institutionalindividual clients
UBS PaineWebber
Corporate Center
Corporate Center
43
Introduction
Sources of Informationinformation about UBS
This Handbook contains a detailed description of UBS, its strategy, its organization and its businesses. You can find out more about UBS from the sources shown below.businesses, as well as our financial management including credit, market and operational risk, our treasury processes, and details of our corporate governance.
Publications
Publications
Annual Review 20022004
Financial Report 20022004
Quarterly reports
The compensation report
The making of UBS
How to order reports
Website
mationinformation and copies of recent presentations given by members of senior management to investors at external conferences.
MessengerMessaging service
Results presentations
UBSForm 20-F and other submissions to the environment
We file periodic reports and submit other information about UBS withto the US Securities and Exchange Commission (SEC). Principal among these filings is the Form 20-F,20-F; our Annual Report filed pursuant to the US Securities Exchange Act of 1934.
5
Profile
Handbook 2004/2005 or to parts of the Financial Report 2002.2004. However, there is a small amount of additional information in the Form 20-F which is not presented elsewhere, and is particularly targeted at readers in the US. You are encouraged to refer to this additional disclosure.
4
Introduction |
20549. Please call the SEC at 1-800-SEC-0330 (in the US) or at +1 202 942 8088 (outside
the US) for further information on the operation of its public reference room. You may also inspect our SEC reports and other information at the New York Stock Exchange, Inc., 20 Broad Street, New York, NY 10005 and the American Stock Exchange LLC, 86 Trinity Place, New York, NY 10006. 10005.
Much of this additional information may also be found on the UBS website at www.ubs.com/investors, and copies of documents filed with the SEC may be obtained from UBS’s Investor Relations team, at the addresses shown on the followingnext page.
Corporate information |
The legal and commercial name of the company is UBS AG. The company was formed on 29 June 1998, when Union Bank of Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872) merged to form UBS.
two registered offices and principal places of business are:
65
Introduction
Contacts
Switchboards | ||||||||||
For all general queries. | + | |||||||||
London | +44-20-7568 0000 | |||||||||
New York | + | |||||||||
Hong Kong | + | |||||||||
Our Investor Relations team supports institutional, professional and retail investors from our office in Zurich. | ||||||||||
Hotline | + | UBS AG | ||||||||
www.ubs.com/investors | + | Investor Relations | ||||||||
Patrick Zuppiger | + | P.O. Box | ||||||||
Caroline Ryton | + | CH-8098 Zurich, Switzerland | ||||||||
Fax | + | sh-investorrelations@ubs.com | ||||||||
Media Relations | ||||||||||
Our Media Relations team supports global media and journalists from offices in Zurich, London, New York and Hong Kong. | Zurich | +41-44-234 8500 | mediarelations@ubs.com | |||||||
London | +44-20-7567 4714 | ubs-media-relations@ubs.com | ||||||||
www.ubs.com/media | New York | +1-212-882 5857 | mediarelations-ny@ubs.com | |||||||
Hong Kong | +852-2971 8200 | sh-mediarelations-ap@ubs.com | ||||||||
Shareholder Services | ||||||||||
UBS Shareholder Services, a unit of the Company Secretary, is responsible for the registration of the Global Registered Shares. | Hotline | +41-44-235 6202 | UBS AG | |||||||
Fax | +41-44-235 3154 | Shareholder Services | ||||||||
P.O. Box | ||||||||||
CH-8098 Zurich, Switzerland | ||||||||||
sh-shareholder-services@ubs.com | ||||||||||
US Transfer Agent | ||||||||||
related queries in the US. www.melloninvestor.com | ||||||||||
+ | ||||||||||
Calls outside the US | + | Overpeck Centre | ||||||||
Fax | +1-201-296 4801 | 85 Challenger Road | ||||||||
Ridgefield Park, NJ 07660, USA | ||||||||||
7
8
9
sh-relations@melloninvestor.com | ||||||
6
Strategy, Structure and HistoryUBS
OurWe have an ambitious vision of UBS is– to be recognized as one of the world’s pre-eminentbest global financial firms.services firm. We are the world’s largest private bank,wealth manager, while in the investment banking and securities tradingbusiness we are amongin a select bracket of major global houses. In Switzerland, we are the clear market leader in corporate and retail banking. As an integrated group, we deliver the whole firm to our clients, giving them added value by drawing on the combined resources
7
UBS
Strategy and expertise of all our businesses. Every client is a client of UBS, not of an individual business unit. Our first priority is always our clients’ success.structure
Strategy and structure
Our vision
We are determined to be recognized as the best global financial services company. We will earn this recognition from clients, shareholders and professionals through our ability to anticipate, learn and shape our future, while always delivering the very best quality in all that we do. We share a common ambition to succeed. Throughout our development as a leading global financial services group, we have evolved a distinct culture of ambition, performance and learning that has enabled us to continually innovate and broaden our expertise. ThroughBy harnessing all of our resources, we developdeliver smart solutions with and for our clients and partners, and enable them to make savvy financial decisions. Our ambitious, performance-driven working atmosphere is what attracts and retains the best talent for our company,in the market, and by growing our client and talent franchises, we add sustainable value for our shareholders.
Our strategic future
We are a truly global firm, working with corporate, institutional and private clients around the world. Our strategy remainsfocuses on wealth management, investment banking and securities and asset management, all on a global scale, as well as retail and corporate banking in Switzerland. These areas have been our consistent strategic priorities for many years. This long-term perspective and commitment has helped us to become the successful firm we are today, with a broadly diversified business mix.
Growth
which propelled us into top-five positions in the onshore private banking markets of the UK and after a decadeGermany. During the year, we announced acquisitions that brought UBS around CHF 40 billion in new invested assets in key wealth management markets. Our European wealth management business, which we started building up four years ago, continues to grow strongly. The CHF 82 billion in invested assets it held at the end of transformational mergers and acquisitions, we believe that the best way2004 represents more than 10% of our Wealth Management business. We also continue to expand our business is to grow it organically using the internal resources we already have at our disposal. We have the right people, an ideal platform, a sound capital base and the confidence that we can achieve our chosen objectives.
with an office in Tokyo.
Our financial stability stems frombrand, a key differentiating factor in the fact that weindustry, is another critically important component in our growth strategy – and our recent efforts are starting to pay off. In 2004, for the first time, UBS featured as one of the best capitalized banks100 top brands in the world.Global Brand Scoreboard, published byBusinessWeek. In the survey, which is widely regarded as the marketing industry’s benchmark, UBS ranked as the world’s 45thmost valuable brand, ahead of many household names. We believecontinue to invest in building familiarity with our brand in our key markets. Our global “You & Us” advertising campaign, launched in 2004, shows how UBS delivers global financial resources through personal relationships based on intimate understanding.
Financial success, risk and capital management
8
UBS |
circumstances, we continue to generate capital well in excess of our requirements. As a first priority, this financial strengthcapital is a keyused for investment in the growth of our businesses. In the absence of attractive re-investment opportunities, we return excess capital to our shareholders, through either direct distributions or share buybacks.
Business strategies
performance of UBS reflects the Group’s strong franchise in each of its core businesses” resulting in broadly-diversified revenue sources.
10
sesses long-term growth opportunities and we will therefore continue to strongly expand in the key US market. An extensive presence in the US is critical to maintaining a strong global position as it accounts for half of the global investment banking fee pool.
In theinvestment banking and securities businesses as this will enablewe aim to be the global leader and the most profitable service provider to corporate clients, institutional investors and intermediaries. Our diversified business portfolio gives us an ability to deliver a full spectrum of services efficiently. In ordershift focus according to maintain operational efficiency, we ensure that our processes are streamlinedmarket opportunities – capitalizing on revenue opportunities where they arise and avoid duplication of activities. Our client philosophy is advice-led, with the quality and expertise of our relationship managers helping us to build long-term and mutually beneficial relationships with our clients.
should be pursued solely for its own sake. It is a tool that is an integral component of all our businesses. We use technology to extend our reach to clients and markets we could not previously have accessed, enhancing client service and experience.
9
Integrated business model
UBS
Strategy and structure
Long-term perspectives
– | financial liberalization and deregulation | |
– | wealth accumulation | |
– | retirement provisioning | |
– | securitization | |
– | equitization | |
– | corporate restructuring |
Financial liberalization and deregulation
Wealth accumulation
10
UBS |
Retirement provisioning
Securitization
Equitization
Corporate restructuring
11
UBS
Strategy and structure
Operating as “one firm”
We firmly believe our integrated business model. We believemodel creates more value than our businesses would as stand-alone units. Our clients should effortlessly be able to access all the services our firm can provide, where and when they are required, and regardless of what combinations of teams lie behind the necessary solutions. OurThis “one firm” approach facilitates cross-selling through client referrals and the exchange of products and distribution services between businesses and thus contributes significantly to our revenue flows.
wealth management and asset management businesses to target ultra-high net worth clients, whose needs are similar to those of institutional clients. Given the turbulent markets seen in the past three years, they are increasingly interested in preserving their capital while achieving reasonable returns at a competitive price. As a result, our asset management business started to develop products specifically for this client segment, such as an absolute return bond fund. With such targeted products and by linking the clients’ family offices with our investment management professionals, we were able to attract significant additional invested assets.August 2002, Fitch reaffirmed its AAA long-term ratingour US-based wealth management business, our “one firm” model is supporting a transformation from a traditional US brokerage firm into a holistic wealth management business. For instance, the expertise of our treasury and the strong lending practices developed in our Swiss business banking unit have been leveraged widely, particularly for our Utah-based UBS while keepingBank USA, which opened in 2003. It now offers a variety of lending products, broadening the outlook negative, “becausescope of the potential threat a sustained bear market over the next year would pose to earnings”. At the same time Fitch commented that “UBSour financial relationships with our US clients. UBS Bank USA is exceptionally well-capitalized with a strong performance, particularly in comparison with its European peers but also on a global scale”. UBS’s ratings remain among the best of any major globally active financial institution. Well-capitalized, with strong and balanced cash-flow generation, and a cautious risk profile, UBS isnow one of the soundest financial institutions worldwide.UBS’s long-term credit ratings are shown in the table below. Each of these ratings reflects only the view of the applicable rating agency at the time the rating was issued, and any explanation of the significance of a rating may be obtained only from the ratingagency. There is no assurance that any credit rating will remain in effect for any given period of time or that a rating will not be lowered, suspended or withdrawn entirely by the rating agency, if in the rating agency’s judgment, circumstances so warrant.Long-term credit ratings As at 31.12.02 31.12.01 31.12.00 Fitch, London AAA AAA AAA Moody’s, New York Aa2 Aa2 Aa1 Standard & Poor’s, New York AA+ AA+ AA+
11
last year to a renowned private equity firm which came to us wanting to raise new money. UBS Warburg’s Financial Sponsors Group managed the day-to-day relationship with the client, while the Private Equity Funds Group, also part of UBS Warburg, raised institutional funds in Europe and Asia. At the same time, we successfully offered the investment opportunity to both UBS PaineWebber and UBS Private Banking’s high-net worth clients.
build a coherent infrastructure that does not duplicate activities unnecessarily.
Striving for Excellence
Responsible Relationships
12
UBS |
management and control. AnOne example of that is our centralized treasury process which ensures that cash flows within UBS are pooled and netted before being funded through one access point to the money markets. At the same time, embeddingthe way we embed the same approach to risk management deeply into all our businesses is one of our most important success factors. Risk identification, managementAnother example underlining our “one firm” approach is our information technology infrastructure (ITI) unit launched successfully in 2004. This unit, housed within the Corporate Center, integrates all IT infrastructure functions across UBS –
data networks, telephone and controlother communications systems, IT security, distributed computing and servers, mainframes and data centers, market data services, user services and desktop computing.
contribution beyond what they might believe possible.
12
The Business Groups
UBS Wealth Management &Business Banking
High Ethical Standards
UBS Global Asset Management
With its integratedinvestment platform, it seeks to deliver superior investment performance to institutional investorsdiversity of cultures, perspectives, skills, and financial intermediaries. More than 440 investment professionals, located in all the major financial centers around the world, provide clients with access to a breadth and scope of investment capabilities that distinguishes it from its competitors. The organization consists of three platforms. The first, the price/value investment philosophy is at the heart of our core investment management business. The second, the alternative and quantitative investments platform, encompasses several specialist businesses with distinctive brands, including O’Connor. The third, our real estate businesses — principally located in the US and the UK, with significant presence in Switzerland and Japan — have been combined into a separate and global real estate capability.experiences. UBS Global Asset Management had total invested assets of CHF 557 billion on 31 December 2002, of which CHF 279 billion were from institutional investors and CHF 278 billion from private clients via the wholesale intermediary market.UBS WarburgUBS Warburg is a leading investment banking and securities firm that provides a full spectrum of products to institutional and corporate clients, governments and financial intermediaries around the world. UBS Warburg consists of the Corporate and Institutional Clients and UBS Capital business units. The Corporate and Institutional Clients business unit provides securities products and advisory services to a broad customer base worldwide. It is one of the top-ranked firms in the world for institutional clients, where its strength lies in global equity research and distribution, as well as in structuring and distributing fixed income cash and derivative products. The business is organized into three main areas, distinguished by the type of products and services offered as well as the inherent nature of their business risks. The business areas are:–Investment Banking–Equities–Fixed Income, Rates and Currencies
13
UBS
Strategy and structure
Managing our business
In the investment banking business, UBS Warburg provides first-class advice and execution capabilities to a global corporate client base. In the equities business, it is a leader in both primary and secondary markets for equity, equity-linked (e.g. convertible bonds) and equity derivative products. In the fixed income and foreign exchange business, it is a top-tier global house, providing innovative products and original thinking to corporate and institutional clients in all major markets.
UBS PaineWebber
worth clients and their financial advisors, who offer their clients a wide array of investment products and services.
Corporate Center
Board structure
14
ty of the membersmajority of the Board of Directors areis non-executive and fully independent.
Organizational structure
Changes in senior management communicated
in 2004 and early 2005
On 1 October 2004, Georges Gagnebin stepped down from the Group Executive Board of UBS to fully focus on his role as Vice Chairman of the board of the holding company housing our independent private banks and GAM. At this time, Marcel Rohner assumed the title of Chairman of Wealth Management & Business Banking, in addition to his role as CEO. | ||
– | With the election of Stephan Haeringer to the Board of Directors of UBS on 15 April 2004, John Costas became Deputy CEO of UBS, in addition to his role as Investment Bank CEO. | |
– | Effective 1 March 2005, Walter Stuerzinger, our Chief Risk Officer since 2001, will be appointed to UBS’s Group Executive Board, reporting to Peter Wuffli, Chief Executive Officer. Walter Stuerzinger will assume firm-wide responsibility for market, operational and credit risk control. | |
– | As of the Annual General Meeting (AGM) on 21 April 2005, Alberto Togni, whose term of office expires in 2005, is stepping down from the Board as he has reached retirement age. The Board of Directors will propose the following new members for election: Marco Suter, currently UBS Chief Credit Officer, as executive director, and Peter R. Voser, Chief Financial Officer of the Royal Dutch/Shell Group of Companies and Managing Director of The “Shell” Transport and Trading Company, plc., London, as non-executive director. After their election, the Board of Directors should comprise eleven members. |
As 2003 progresses, the environment for the financial services industry as a whole continues to be a challenging one. Uncertainty over economic developments and rising geopolitical concerns are affecting investor sentiment and therefore transaction levels, and are holding back a significant recovery in corporate activity. Despite that, we believe UBS Warburg’s extremely strong institutional client franchise and growing corporate client franchise will help it further grow its business in the future, with restructuring activity by corporations expected to provide new business opportunities. The global reach of our wealth management businesses and the quality of our financial advisors worldwide make us confident that we will be able to meet the varied aspirations of our clients in different markets. In the short-term, market levels will have a direct impact on asset-based fees while transaction revenues remain heavily linked to investor confidence. We still firmly
believe, however, in the long-term potential of the global wealth management market as we continue to invest in building up our domestic presence in key European markets.
Long-term perspectives
1514
UBS
nal research, which indicates that the world’s core affluent, an estimated 11 million households globally, will raise their current 50% share of total global financial wealth. The US is one example, where core affluent individuals are expected to hold 70% of all wealth by 2012, up from 64% in 2002.
with scale and scope, global reach and advanced technology will benefit in the long-term despite the current market environment.
In November 2002 we announced a further evolution of our brand strategy and portfolio. On 9 June 2003, we will adopt the single UBS brand to represent all our businesses and will no longer market our services using the UBS Warburg or UBS PaineWebber brands. The move to a simpler branding accurately reflects our integrated business model and the “one firm” approach we deliver to clients.
16
17
The making of UBS
All of the firms whichthat have come to make up today’s UBS look back on a long and illustrious history. TheBoth the two Swiss predecessor banks and PaineWebber came into being in the second half of the 19th century as did PaineWebber, while SG Warburg was founded inWarburg’s roots go back to 1934. But it is in the past decade1990s that UBS’s current identity began to take concrete shape.
of the leading US-based institutional asset management firms. Both the O’Connor and Brinson deals represented fundamental steps in the development of the firm’s products and processes.
with SG Warburg, the British merchant bank. The deal helped to fill SBC’s strategic gaps in corporate finance, brokerage and research and, most importantly, brought with it an institutional client franchise, which is still at the core of today’s equities business.
A brochure published in early 2005 outlines the series of transformational mergers and global setacquisitions that created today’s UBS. It also includes brief profiles of businesses.the firm’s antecedent companies and their historical roots. The report can be ordered on the internet at: www.ubs.com/investors.
1815
16
Although the synergies and strategic benefits resulting from the 1998 merger between the former Union Bank of Switzerland and Swiss Bank Corporation are widely acknowledged, less is known of a comprehensive program in Switzerland that has softened the blow for many employees displaced by the integration. Called MIDSAM (a combined German acronym that roughly equates with “job reduction measures”), the program has effectively helped over 3,000 UBS employees affected by merger-related restructuring in the four years it was in place. Employees who lost their jobs as a result of the merger or the subsequent reorganization were given considerable support. Their periods of notice were doubled, while financial contributions were made to training programs and outplacement consulting. They were also closely assisted by dedicated teams of
experts, specifically trained for the task, whose sole job was to find creative ways for employees to find a new and fulfilling occupation — or help them settle into early retirement. For UBS itself, with total program costs of around CHF 900 million, MIDSAM was by no means a low-cost option.
19
20
The Business Groups
21We manage our Business Groups together to optimize shareholder value – making the whole worth more than the sum of the parts.
17
UBS Wealth Management & Business Banking
Georges GagnebinChairman UBS Wealth Management
& Business Banking
Marcel RohnerCEO UBS Wealth Management& Business Banking
UBS Wealth Management & Business Banking provides private bankingis the number one provider of financial services for wealthy clients around the world and is the leading bank for individual and corporate clients in Switzerland.
Business Banking | UBS Wealth Management | |||||||||||||||||||||||
Private Banking | Switzerland | & Business Banking | ||||||||||||||||||||||
CHF million, except where indicated | ||||||||||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.02 | 31.12.01 | 31.12.02 | 31.12.01 | ||||||||||||||||||
Income | 7,279 | 7,696 | 5,494 | 5,792 | 12,773 | 13,488 | ||||||||||||||||||
Credit loss expense | (28 | ) | (37 | ) | (286 | ) | (567 | ) | (314 | ) | (604 | ) | ||||||||||||
Total operating income | 7,251 | 7,659 | 5,208 | 5,225 | 12,459 | 12,884 | ||||||||||||||||||
Personnel expenses | 2,083 | 1,947 | 2,727 | 2,878 | 4,810 | 4,825 | ||||||||||||||||||
General and administrative expenses | 2,158 | 2,038 | 159 | 396 | 2,317 | 2,434 | ||||||||||||||||||
Depreciation | 125 | 151 | 355 | 465 | 480 | 616 | ||||||||||||||||||
Amortization of goodwill and other intangible assets | 111 | 109 | 0 | 0 | 111 | 109 | ||||||||||||||||||
Total operating expenses | 4,477 | 4,245 | 3,241 | 3,739 | 7,718 | 7,984 | ||||||||||||||||||
Business Group performance before tax | 2,774 | 3,414 | 1,967 | 1,486 | 4,741 | 4,900 | ||||||||||||||||||
Cost/income ratio before goodwill (%) | 60 | 54 | 59 | 65 | 60 | 58 | ||||||||||||||||||
Net new money (CHF billion) | 16.6 | 24.6 | 3.7 | 9.2 | ||||||||||||||||||||
Invested assets (CHF billion) | 688 | 791 | 205 | 215 | ||||||||||||||||||||
Headcount (full-time equivalents) | 10,488 | 10,249 | 18,442 | 19,220 | 28,930 | 29,469 | ||||||||||||||||||
Business Banking | Wealth Management & | |||||||||||||||||||||||
CHF million, except where indicated | Wealth Management | Switzerland | Business Banking | |||||||||||||||||||||
For the year ended or as at | 31.12.04 | 31.12.03 | 31.12.04 | 31.12.03 | 31.12.04 | 31.12.03 | ||||||||||||||||||
Total operating income | 7,693 | 6,793 | 5,038 | 5,120 | 12,731 | 11,913 | ||||||||||||||||||
Total operating expenses | 4,258 | 4,184 | 2,993 | 2,975 | 7,251 | 7,159 | ||||||||||||||||||
Business Group / Business Unit performance before tax | 3,435 | 2,609 | 2,045 | 2,145 | 5,480 | 4,754 | ||||||||||||||||||
Net new money(CHF billion) | 42.3 | 29.7 | 2.6 | 2.5 | 44.9 | 32.2 | ||||||||||||||||||
Invested assets(CHF billion) | 778 | 701 | 140 | 136 | 918 | 837 | ||||||||||||||||||
Headcount(full-time equivalents) | 10,093 | 9,176 | 15,508 | 16,181 | 25,601 | 25,357 | ||||||||||||||||||
Business
Business
Organizational structure
In 2002, ourwe created the new name and management came into effect, replacingWealth Management & Business Banking organization. The Business Group is managed in a fully integrated way, whilst the former UBS Switzerland designation. High-end affluent clients that were previously the responsibility of the former Private and Corporate Clients (PCC) unit became Private Banking clients, although their advisor relationships remained the same. Product development was consolidated into a single Products and Services area, and a new Market Strategy and Development area was created, which provides comprehensive marketing services for the whole Business
Group. We report results are reported for the following two business units:segments:
– |
– | Business Banking Switzerland, |
infrastructure. Thus, within Wealth Management & Business Banking the support areas provide products and services to the two abovementioned business units as well as to other UBS businesses.
Competitors
22
18
The Business Groups |
Wealth Management
With more than 140 years of private banking experience, an extensive global network, and CHF 688778 billion in invested assets on 31 December 2002, UBS Private Banking is the world’s largest private bank.
2004, our more than 3,700 client advisors consistently deliver high-quality, individually tailored solutions to our clients worldwide.
Business
UBS Private BankingThe Wealth Management unit provides a comprehensive range of products and services individually tailored for wealthy clients around the world via its global branch network and an extensive channel ofthrough financial intermediaries.
growth initiative to expand our domestic private banking presence in the five key European markets of France, Germany, Italy, Spain and the UK. Since 2001, we have steadily opened offices and hired experienced client advisors in key locations within our five target markets.
Organizational structure
Our global product offering is carefully tailored to meet country-specific tax and legal regulations as well as the varied aspirations of clients in different markets. With this geographical focus in mind, our client advisorsWe are organized into the two business areas of:
– |
– |
We have aA number of global teams that havewith specialized areas of specialized expertise and which concentrate on the requirements of particular client groups. In September 2002, we were the first European financial group to open aAn example is our Islamic finance subsidiary in Bahrain. CalledBahrain, Noriba, bank, itwhich we opened in September 2002. It offers sharia-compliant products to institutions and high net worth individuals residing in the Arabian GulfMiddle East and around the world.
Competitors
The Wealth Management unit’s major competitors comprise all globally active wealth managers, such as the wealth management operations of Credit Suisse, HSBC, and Citigroup. We also compete with private banks that operate within their respective domestic markets, such as Pictet and Julius Baer in Switzerland, Coutts in the UK, Deutsche Bank and Sal. Oppenheim in Germany, and Unicredito in Italy.
Clients
Client focus is the main driver of all our activities. We are committed to proactively and consistently delivering tailored and unbiased financial solutions of the highest quality to our clients. We strive to create long-term personal relationships.
23
19
The Business GroupsUBS Wealth Management & Business Banking
During the first half of 2003, UBS will create a new holding company to incorporate GAM, its specialist asset management firm, as well as its five independent private banks — Cantrade (Zurich), Banco di Lugano (Lugano), Ferrier Lullin (Geneva), Bank Ehinger (Basel)A clearly structured advisory process helps client advisors add value at each step and Armand von Ernst (Bern). With this common platform, all of our independent wealth management subsidiaries will be equipped and encouraged to grow faster, and deliver their full value creation potential. The new structure will ease the path to integration where it makes sense, targeting economies of scale not achievable by each organization on its own. It may allow a future role in the consolidation of the private banking industry.
Office. He will be joined on the board as Deputy Chairman by Georges Gagnebin, Chairman of UBS Wealth Management & Business Banking and Peter Kurer, UBS Group General Counsel. Hans De Gier will lead the strategic reorganization and integration efforts, supported by the six current Chief Executives of the subsidiaries, and will join the boards of all six firms.
24
In order to achieve our business objectives and maintain our position as the wealth management provider of choice, it is imperative that we constantly work to fulfillprovides our clients objectives, demandswith a consistent and needs around the world.
Four-step advisory process
priate solution is based on an agreement between the client and the client advisor, a solid basis for a long-lasting relationship.
Financial intermediaries
European wealth management
25
Strategy
same timeframe,period, invested assets increased by 75% towere up 78% at CHF 2882 billion on 31 December 2002. The impact2004.
Wealth Management in Asia Pacific
Bolt-on purchases
Products
Platform
2620
The Business Groups |
port theBank Lateinamerika’s wealth management business, and American Express Bank’s private banking activities in Luxembourg. These businesses primarily serve international or offshore clientele. We also made a number of acquisitions in our domestic European wealth management initiative. It was successfully launched in France in 2002,business, including the merger of our German wealth management business with Sauerborn Trust. In the UK, we acquired Laing & Cruickshank Investment Management and will be rolled out next in GermanyScott Goodman Harris. In early 2005, we also purchased the Italian financial intermediary firm Etra.
Products and Italy, followed byservices
Our clients can count on the remaining target markets.
In order to maintain our credibility and reputation with clients, we have to offer them neutral advice that is not biased towards any particular set of products or services. Doing this successfully entails opening our product architecture to include products and services from third-party suppliers. At the same time, we have no intention of becoming a one-stop financial supermarket, and we therefore carefully choose and screen third party offers, only selecting those that meet the high quality standards our clients demand. Combining this careful product selection with our structured advisory process ensures that the solutions we propose to clients are the ones that best fit their needs and goals. Open architecture is key to offering high-quality solutions building on the trust inherent in any relationship between client and client advisor.
Product positioning framework
Investment products
2721
The Business Groups | ||
Our UBS Life business, which was established in first quarter 2001, focuses on the sale of unit-linked products. They are sold alongside more traditional life insurance policiesto investments that we provide from third party sources. In 2002, 4,193 clients bought life insurance from UBS Life, ranking it among the top providers in the Swiss market for unit-linked insurance.
Investment solutionswould otherwise only be available to institutional clients.
support from UBS’scan choose a non-discretionary mandate, where our investment professionals. For them, Private Banking providesprofessionals provide analysis and supervisionmonitoring of portfolios, and their risk profiles, together with tailor-made proposals to support investment decisions. WeFor both types of mandates, we offer different levels of structured advisory services, eachrelative return programs based on an all-inclusive fee.
Financial planninga symmetrical risk concept. For discretionary mandates, we also offer absolute return programs. These focus on preserving capital, while still participating in market upturns. At the end of 2004, around 21% of Wealth Management assets were discretionary.
structured products and alternative investments. We also fulfill their personalbasic banking needs with a wide range of products – ranging from cash accounts and savings accounts to credit cards, mortgages, and securities-backed lending.
Wealth management solutions
28
The family office team helps wealthy families preserve and optimize their investments across generations, taking into account all economic, political, legal, and personal aspects.
Distribution
Our extensive resources of UBS Warburg.
real estate portfolios, offering support in complicated cross-border real estate transactions.
2922
The Business Groups | ||
Business Banking Switzerland
Business Banking Switzerland, UBS Wealth Management & Business Banking’sUBS’s retail and commercial banking unit, is the market leader in Switzerland and provides a complete set of banking and securities services for individual and corporate clients.
Business |
UBS isWe are the leading bank in Switzerland. At the end of 2002, the Business Banking Switzerland unit2004, clients had around 3.5 million individual client accounts, and relationships with around 180,000 enterprises across Switzerland as well as 5,000 financial institutions worldwide. Clients haveCHF 140 billion in invested assets of CHF 205 billion with us. With a total loan book of CHF 139137 billion on 31 December 2002,2004, we have a leading position inlead the Swiss lending and retail mortgage market.markets.
Organizational structure |
The Business Banking Switzerland unit comprises the domestic branch network for corporate and individual clients, which is organized into eight regions.
Competitors
Business Banking Switzerland’s major competitors are banks active in the retail network, as well asand corporate banking markets in Switzerland. This group includes Credit Suisse, the main activities of the three logistics business
areas of Operations, Resources,country’s cantonal banks, Raiffeisen Bank, and Information Technology.other regional or local Swiss banks.
Clients and products |
Business Banking Switzerland offers high-quality, standardized products to the retail market for individual and small company clients, as well as more complex products and advisory services for larger corporate and institutional clients and financial institutions.
PrivateIndividual clients
phone services, e-banking), our branches which are organized into eight regions, area key driving forcesforce in serving our clients effectively.
Corporate clients
30
Around 7,5007,200 of our clients are large companies that utilize our expertise in handling complex financial transactions. We provide them with a wide range of financial advice, to them, from the selection and design of investment products to assisting within complex mergers and acquisitions or providing structured financing, advice services, often working in close cooperationco-operation with specialists from elsewhere in the UBS Group.other parts of UBS.
23
The Business Groups
Wealth Management & Business Banking
ise and access to our full range of products and services.
relationship. As a result of this process, the risk profile of our loan portfolio has gradually improved in the four years since its introduction, while the credit quality of counterparties has also improved. At the same time, risk-adjusted pricing benefits our clients by promoting transparent and open discussions between client and advisor. The advisor clearly communicates the basis for credit decisions, and possible areas of improvement can be identified, which, if successfully implemented, can then be reflected in lower loan pricing.
Financial institutions
Business areas focusing on clientOur private clients’ needs can only fully exploit their potential ifhave changed in recent years. Today, they are provided with a reliable and efficient infrastructure.
31
In recent years the needs of our private clients have changed. Although our physical branch network used to be the principal distribution platform, today clients want the flexibility of being able to access their accounts using the full range of modern communication technology. They want to contact their banktechnology when it is convenient for them, and without restrictions imposed by regular business hours.
the-clock availability. Our customer service centers in five locations provide basic information and advicesupport 24 hours a day. In 39day by telephone. Additionally, in 56 of our branches in Switzerland, we have implemented a “two-zone concept”two-zone concept where standard transactions are executed via ATMs, while client advisors, sitting in an open plan desk area next to the automated tellers, focus on giving clients value-added advice.
e-commerce
be copied or decoded. Its codes are only valid for a very short timespan — unlike the paper list.
Loan portfolio |
On 31 December 2002,2004, Business Banking Switzerland’s loan portfolio was CHF 139137 billion. MortgagesOf the total, mortgages represented CHF 107110 billion, around 80% of which more than 80% werethem being residential mortgages.
32
has clearly improved in recent years. For more details onof the UBS credit portfolio, please refer to the “Risk Analysis”credit risk section on pages 59 to 77.of this Handbook.
Recovery portfolio
TheOur recovery portfolio amounted to CHF 8.64.4 billion aton 31 December 2002,2004. Since the end of which CHF 7.8 billion was impaired and carried provisions of CHF 3.4 billion. The recovery1998, the portfolio has been cut by 67% over the last four years from CHF 26 billion at 31 December 199883% thanks to our successful recovery efforts. Over the same six-year period, non-performing loans (those with payments outstanding for ninety days or longer) decreased from CHF 14.0 billion to CHF 5.03.2 billion, leading toresulting in a non-performing loans to gross loans ratio of 3.6%2.3%.
The extensive consolidation in the financial industry over the last decade and the rise of new, interactive technologies such as the internet have substantially changed the demands and performance requirements for the IT infrastructures of major global financial service providers. Flexible platforms and online capabilities are now de rigueur, as are IT applications that give clients comprehensive real-time, online services and allow the bank and client advisors to get an integrated view of client data and transactions.
operational risks, achieve shorter times to market for products and services, introduce front-line applications for all business processes, cut operational costs and create clearly-defined interfaces based on industry standards.
3324
The Business Groups | |
The Business Groups
Global Asset Management
UBS Global Asset Management
John A. FraserChairman and CEOUBSThe Global Asset Management
UBS Global Asset Management Business Group is aone of the world’s leading asset manager,managers, providing traditional and alternative investment management solutions to financial intermediaries and institutional clients as well as to private clients through financial intermediaries.investors.
Business Group reporting | ||||||||
UBS Global Asset Management | ||||||||
CHF million, except where indicated | ||||||||
For the year ended | 31.12.02 | 31.12.01 | ||||||
Institutional fees | 899 | 1,174 | ||||||
Wholesale Intermediary fees | 1,054 | 1,044 | ||||||
Total operating income | 1,953 | 2,218 | ||||||
Personnel expenses | 946 | 1,038 | ||||||
General and administrative expenses | 513 | 569 | ||||||
Depreciation | 37 | 46 | ||||||
Amortization of goodwill and other intangible assets | 270 | 286 | ||||||
Total operating expenses | 1,766 | 1,939 | ||||||
Business Group performance before tax | 187 | 279 | ||||||
Cost/income ratio before goodwill (%) | 77 | 75 | ||||||
Net new money — Institutional (CHF billion) | (0.6 | ) | 6.2 | |||||
Invested assets — Institutional (CHF billion) | 279 | 328 | ||||||
Net new money — Wholesale Intermediary (CHF billion) | (1.8 | ) | 28.7 | |||||
Invested assets — Wholesale Intermediary (CHF billion) | 278 | 344 | ||||||
Headcount (full-time equivalents) | 3,346 | 3,281 | ||||||
Business Group reporting | ||||||||
For the year ended or as at | ||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | ||||||
Total operating income | 2,022 | 1,737 | ||||||
Total operating expenses | 1,478 | 1,405 | ||||||
Business Group performance before tax | 544 | 332 | ||||||
Net new money – institutional(CHF billion) | 23.7 | 12.7 | ||||||
of which: money market funds – institutional (CHF billion) | (1.2) | (5.0 | ) | |||||
Invested assets – institutional(CHF billion) | 344 | 313 | ||||||
of which: money market funds – institutional (CHF billion) | 17 | 14 | ||||||
Net new money – wholesale intermediary(CHF billion) | (4.5 | ) | (5.0 | ) | ||||
of which: money market funds – wholesale intermediary (CHF billion) | (20.6) | (23.0 | ) | |||||
Invested assets – wholesale intermediary(CHF billion) | 257 | 261 | ||||||
of which: money market funds – wholesale intermediary (CHF billion) | 64 | 87 | ||||||
Headcount(full-time equivalents) | 2,665 | 2,627 | ||||||
Business |
UBS Global Asset Management provides investment management services for institutional investors, and for financial intermediaries worldwide. Our purpose is to deliver superior results for clients through our integrated investment platform.
Thetraditional investmentsbusiness offers equities and depth of investment resources around the world and have the critical mass to attract and retain the best people. State-of-the-artfixed income, risk management, toolsasset allocation and currency capabilities. Our central investment approach is based on rigorous fundamental analysis to identify intrinsic value.
34
25
The Business Groups
Global Asset Management
and processes are central to our disciplined investment approach. Developed in-house, our Global Equity Risk System allows portfolio managers to call upon comprehensive risk analysis within seconds. In this way, portfolio managers can be sure that portfolios are managed in line with clients’ individual risk/return objectives.
Organizational structure |
UBS Global Asset Management’sOur main offices are in London, Chicago, New York, Tokyo and Zurich. With over 3,000We have around 2,600 employees located in more than 20 countries, UBS Global Asset Management is truly global.countries.
In the Corporate Center as of first quarter 2003. For further details please refer to the “Private Banking” section on page 24).
UBS Global Asset Management competesinstitutional arena, we compete against other global asset managers suchincluding Capital Group, Wellington Management, Alliance Bernstein, Barclays Global Investors and PIM-CO as well as a range of regional and local firms in particular markets. In the wholesale market, our main global competitors include Fidelity Investments, DWS Investments, Merrill Lynch Investment Managers, DeutscheINVESCO and Allianz Dresdner Asset Management, Fidelity and AMVESCAP.among others.
Clients |
UBS Global Asset Management offers a range of investment capabilities designed for institutional investors and the wholesale intermediary marketplace around the globe.
35
The Business GroupsUBS Global Asset Management
We combine investment expertise and sophisticated risk and currency management with a clear commitment to providing client-centric solutions. Our capabilities include active investment in equity and fixed income, passive and exchange-traded funds, as well as alternative investment strategies using fund-of-funds and multi-manager funds, real estate and timber.
26
The Business Groups |
Distribution
Institutional
– | corporate and public pension plans |
– | endowments, municipalities, charities and private foundations |
– | insurance companies |
– |
– |
Wholesale Intermediaryintermediary
Products and services
Investment management products and services are offered in the form of segregated, pooled and advisory mandates and a range of registered investment funds.
ditional and alternative investments and services into one integrated package. For selected clients, we provide training and education services where clients send employees from their organization to spend extended internships with our investment and risk management teams.
Investment performance
Markets experienced greater volatility in 2004 than they did in 2003 because of the rise in oil prices and continued geopolitical instability. Still, equity markets made progress, with strong gains seen in fourth quarter. Over the year, most major global and regional equity strategies outperformed their benchmarks, with particularly strong performances in Europe and the US.
36
27
The Business Groups
Global Asset Management
Industry trends and competitive positioning
The long-term outlook for the asset management industry remains strong, primarily driven by demographic pressurespositive, as pension reforms and accompanying pension reform. However, asset management, like most of the financial servicesneed for increased private savings encourage higher money inflows across the developed world. Industry profitability has generally improved, due to the recovery in equity markets and widespread industry is undergoingrestructuring.
tiple capabilities, such as UBS. In most major markets, institutional business remains consultant-driven. Our consistently strong investment performance has resulted in an increasing number of positive endorsements from consultants.
Investment performance
3728
The Business Groups |
The Business GroupsUBS Warburg
UBS Warburg is one of the world’s leading firms in the investment banking and securities firms,business, providing a full spectrum of services to institutional and corporate clients, governments and financial intermediaries around the world.intermediaries.
Business Group reportingReporting
Corporate and | ||||||||||||||||||||||||
Institutional Clients | UBS Capital | UBS Warburg | ||||||||||||||||||||||
CHF million, except where indicated | ||||||||||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.02 | 31.12.01 | 31.12.02 | 31.12.01 | ||||||||||||||||||
Income | 14,100 | 15,587 | (1,602 | ) | (872 | ) | 12,498 | 14,715 | ||||||||||||||||
Credit loss expense | (128 | ) | (112 | ) | (128 | ) | (112 | ) | ||||||||||||||||
Total operating income | 13,972 | 15,475 | (1,602 | ) | (872 | ) | 12,370 | 14,603 | ||||||||||||||||
Personnel expenses | 7,784 | 8,258 | 94 | 96 | 7,878 | 8,354 | ||||||||||||||||||
General and administrative expenses | 2,314 | 2,586 | 64 | 64 | 2,378 | 2,650 | ||||||||||||||||||
Depreciation | 381 | 454 | 1 | 2 | 382 | 456 | ||||||||||||||||||
Amortization of goodwill and other intangible assets | 364 | 402 | 0 | 0 | 364 | 402 | ||||||||||||||||||
Total operating expenses | 10,843 | 11,700 | 159 | 162 | 11,002 | 11,862 | ||||||||||||||||||
Business Group performance before tax | 3,129 | 3,775 | (1,761 | ) | (1,034 | ) | 1,368 | 2,741 | ||||||||||||||||
Cost/income ratio before goodwill (%) | 74 | 72 | 85 | 78 | ||||||||||||||||||||
Net new money (CHF billion) | 0.5 | 0.1 | ||||||||||||||||||||||
Invested assets (CHF billion) | 3 | 1 | ||||||||||||||||||||||
Headcount (full-time equivalents) | 15,964 | 15,562 | 73 | 128 | 16,037 | 15,690 | ||||||||||||||||||
For the year ended or as at | ||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | ||||||
Total operating income | 15,977 | 13,936 | ||||||
Total operating expenses | 11,437 | 10,081 | ||||||
Business Group / Business Unit performance before tax | 4,540 | 3,855 | ||||||
Headcount(full-time equivalents) | 16,568 | 15,277 | ||||||
Business |
UBS WarburgUBS’s Investment Bank operates globally as a client-driven investment banking and securities firm. Our salespeople, research analysts and investment bankers provide products and services to the world’s key institutional investors, intermediaries, banks, insurance companies, corporations, sovereign governments, supranational organizations and supranational organizations.private investors.
Organizational structure
Competitors
38
Our global reach gives our clients unique access to financial markets around the world backed up by a complete array of services and products.
The Corporate and Institutional Clients (CIC) business unit provides wholesale products and advisory services to a diverse client base worldwide. It has a significant corporate client financing and advisory business, withwhose particular strengths lie in advisingproviding advice on cross-border mergers and acquisitions and theraising capital raising requirements offor our global corporate and governmental client base. Although historicallyHistorically, we have been among the leaders in European corporate finance, and in recent years we arehave also now been one of
the fastest growingfew investment bankbanks experiencing strong growth in the US according to Freeman & Co’s “All Industries” data.and Asia Pacific regions.
29
The Business Groups
Investment Bank
Organizational structure
We are headquartered in London employs almostand New York and employ roughly 16,000 people in 31 countries around the world.
Although we pursue a strategy of organic growth, we have also taken the opportunity of enhancing our franchise with acquisitions over the last few years. In 2003, we strengthened our equities business by acquiring ABN Amro’s prime brokerage business in the We organize our businessthreethe four distinct areas:areas of:– Equities – Fixed income, rates and currencies (FIRC) – Investment Bankingbanking– Fixed Income, Rates and CurrenciesPrivate equityThey are distinguishedtypeUS. In 2004, we bought Charles Schwab SoundView Capital Markets, the capital markets division of products and services offered and the nature of the business risks they raise. All businesses are run on a global basis.
Legal structure
The Investment Bank operates through branches and subsidiaries of UBS AG. Securities activities in the US are conducted through UBS WarburgSecurities LLC, a registered broker-dealer.
As a global investment banking and securities firm, we compete against other major international players such as Citigroup, Credit Suisse First Boston, Goldman Sachs, Deutsche Bank, JP MorganChase, Merrill Lynch and Morgan Stanley.
Products and services
Equities
39
The Business GroupsUBS Warburg
For the year ended | |||||||||||||
% of total | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||
Investment banking clients | 23 | 23 | 23 | ||||||||||
Securities revenue from corporate clients | 6 | 6 | 5 | ||||||||||
Institutional clients and markets | 71 | 71 | 72 | ||||||||||
Total | 100 | 100 | 100 | ||||||||||
our clients access toanalysts made the global equity markets. In the US, our equities business istop rankings in 2004’sInstitutional Investorsurveys than at any other firm, and we ranked among the top investment banksthree in termsall the magazine’s surveys around the world.
30
The Business Groups |
nology allows us to adapt and continuously improve our business processes and client services.
Fixed income, rates and currencies
– | credit fixed income, incorporating credit trading and credit derivatives | |
– | foreign exchange and cash & collateral trading | |
– | rates, incorporating interest rate derivatives, residential mortgages, government bonds and energy trading | |
– | principal finance and commercial real estate. |
Our global origination and distribution platforms, as well as economic,our highly regarded research capabilities, underpin our major business lines. In research, we ranked first in fixed income strategy inThomson Financial’sExtel survey for the second year running, and derivative research. first in theInstitutional InvestorAll American research poll 2004 for mortgage-backed securities (MBS) strategy.
Investment banking and research and in following appropriate and clear procedures for any crossing of those barriers in connection with investment banking transactions.
Investment Banking
and acquisition transactions and capital market issues. Some of the more notable deals of 2002mandates included:
– |
– |
40
– |
– | joint bookrunner on the second largest IPO in 2004 and the largest IPO in Japan in six years, the USD |
– | ||
– | joint bookrunner on a three tranche GBP 2.25 billion benchmark issue for Network Rail as part of its GBP 20 billion multicurrency debt issuance program for which UBS is the global coordinator | |
– | joint lead arranger and bookrunner on a USD 1.9 billion senior credit facility and USD |
Private equity
Fixed Income, Rates and Currencies
Loan portfolio
41
The Business GroupsUBS Warburg
Our e-commerce capabilities are based around our client online portal. This site gives our clients direct access to prices, research, trade ideas and analytical tools through applications such as ResearchWeb - - our equity research site, DealKey, an internet facility for managing equity and equity-linked new issues, and CreditDelta, our credit portfolio management product.
We believe that markets will continue to be difficult until at least the second half of 2003,
which will have a short-term negative impact, particularly on our equities and investment banking businesses. Nonetheless, we are confident that as recent new investment banking hires build their productivity, and as the momentum we have built in the European and US markets pays dividends, we will continue to gain market share in 2003.
42
UBS Capital is the Group’s private equity business. It now focuses on managing its existing portfolio to maximize value.
UBS Capital invested in unlisted companies with a view to preparing them for salecompany before selling to a trade or financial buyers, and, where appropriate, stagingbuyer, or through an Initial Public Offering (IPO). A review in late 2001 and early 2002, carefully considered the strategic futureIPO.
UBS Capital is structured along regional lines and is fully integrated within the UBS Warburg Business Group. Its portfolio in Asia and Europe mostly comprises balance sheet investments. UBS Capital in the US is focused on both balance sheet investments and the UBS Capital Americas
fund. Around 30% of UBS Capital’s portfolio is invested in third party funds which are overseen by a dedicated portfolio management team.third-party funds.
UBS Capital
The Business Groups
Investment Bank
Private equity had a total investment portfolio of CHF 3.11.9 billion on 31 December 2002,2004, measured by the historichistorical cost of investments less divestments, returns of capital and permanent impairments. The fair value of the portfolio at the same date was CHF 3.82.7 billion.
UBS Capital’s portfolio primarily comprises late stage investments that are spread throughout Europe, the US and Asia and are typically held for threeearlier.
Conditions in the international capital markets, and in the global economy more generally, are expected to remain harsh for some time. UBS Capital’s strategy is to managefocus on managing existing assets in order to reduce balance sheet risk. The investment teams managing UBS Capital’s assets will endeavor to obtain the best possible returnsmaximize value for UBS shareholders and
for investors in itsUBS funds. Consistent with the de-emphasis of our role as principal investor in this asset class, we continue to capitalize on orderly exit opportunities for investments when they arise and to reduce exposure to private equity funds. As the portfolio shrinks, our performance will continue to be linked to the economic conditions prevailing in the markets of our underlying investments. In first quarter 2005, our private equity investments will be moved to the Industrial Holdings segment. Current management will continue to look after the portfolio.
43
Private equity investment portfolio | ||||||||||||
Aging (based on date of initial investment) | ||||||||||||
As at | ||||||||||||
CHF million1 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
pre-1994 | 23 | 46 | 54 | |||||||||
1994 | 3 | 4 | 97 | |||||||||
1995 | 12 | 40 | 112 | |||||||||
1996 | 7 | 44 | 63 | |||||||||
1997 | 60 | 95 | 134 | |||||||||
1998 | 63 | 91 | 373 | |||||||||
1999 | 163 | 258 | 636 | |||||||||
2000 | 703 | 986 | 1,119 | |||||||||
2001 | 207 | 284 | 438 | |||||||||
2002 | 26 | 79 | 58 | |||||||||
2003 | 419 | 386 | ||||||||||
2004 | 165 | |||||||||||
Total | 1,851 | 2,313 | 3,084 | |||||||||
Geographical region (by headquarters of investee) | ||||||||||||
As at | ||||||||||||
CHF million1 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
North America | 1,027 | 1,157 | 1,302 | |||||||||
Europe | 579 | 794 | 1,238 | |||||||||
Latin America | 52 | 108 | 189 | |||||||||
Asia Pacific | 193 | 254 | 355 | |||||||||
Total | 1,851 | 2,313 | 3,084 | |||||||||
Industry sector (based on industry classification codes) | ||||||||||||||||||||||||
As at | ||||||||||||||||||||||||
CHF million, except where indicated1 | 31.12.04 | % of Portfolio | 31.12.03 | % of Portfolio | 31.12.02 | % of Portfolio | ||||||||||||||||||
Consumer related | 326 | 18 | 383 | 17 | 517 | 17 | ||||||||||||||||||
Transportation | 16 | 1 | 17 | 1 | 85 | 3 | ||||||||||||||||||
Communications | 127 | 7 | 170 | 7 | 240 | 8 | ||||||||||||||||||
Computer related | 88 | 5 | 132 | 6 | 342 | 11 | ||||||||||||||||||
Energy | 11 | 1 | 0 | 0 | 83 | 3 | ||||||||||||||||||
Other electronics related | 131 | 7 | 145 | 6 | 174 | 6 | ||||||||||||||||||
Other manufacturing | 59 | 3 | 59 | 3 | 286 | 9 | ||||||||||||||||||
Chemicals and materials | 2 | 0 | 2 | 0 | 8 | 0 | ||||||||||||||||||
Industrial products and services | 199 | 11 | 422 | 18 | 746 | 24 | ||||||||||||||||||
Others | 892 | 47 | 983 | 42 | 603 | 19 | ||||||||||||||||||
Total | 1,851 | 100 | 2,313 | 100 | 3,084 | 100 | ||||||||||||||||||
UBS Capital investment portfolioAging (based on date of initial investment)
As at | ||||||||||||
CHF million1 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
pre-1994 | 54 | 85 | 65 | |||||||||
1994 | 97 | 190 | 253 | |||||||||
1995 | 112 | 214 | 272 | |||||||||
1996 | 63 | 202 | 166 | |||||||||
1997 | 134 | 207 | 520 | |||||||||
1998 | 373 | 722 | 842 | |||||||||
1999 | 636 | 1,123 | 1,490 | |||||||||
2000 | 1,119 | 1,781 | 1,941 | |||||||||
2001 | 438 | 487 | ||||||||||
2002 | 58 | |||||||||||
Total | 3,084 | 5,011 | 5,549 | |||||||||
UBS Capital investment portfolioGeographic region (by headquarters of investee)
As at | ||||||||||||
CHF million1 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
North America | 1,302 | 2,134 | 2,356 | |||||||||
Europe | 1,238 | 2,018 | 2,333 | |||||||||
Latin America | 189 | 339 | 382 | |||||||||
Asia Pacific | 355 | 520 | 478 | |||||||||
Total | 3,084 | 5,011 | 5,549 | |||||||||
UBS Capital investment portfolioIndustry sector (based on industry classification codes)
As at | ||||||||||||||||||||||||
CHF million1 | 31.12.02 | % of Portfolio | 31.12.01 | % of Portfolio | 31.12.00 | % of Portfolio | ||||||||||||||||||
Consumer related | 517 | 17 | 773 | 15 | 1,023 | 18 | ||||||||||||||||||
Transportation | 85 | 3 | 522 | 10 | 640 | 12 | ||||||||||||||||||
Communications | 240 | 8 | 414 | 8 | 380 | 7 | ||||||||||||||||||
Computer related | 342 | 11 | 833 | 17 | 819 | 15 | ||||||||||||||||||
Energy | 83 | 3 | 152 | 3 | 190 | 3 | ||||||||||||||||||
Other electronics related | 174 | 6 | 247 | 5 | 247 | 4 | ||||||||||||||||||
Other manufacturing | 286 | 9 | 94 | 2 | 106 | 2 | ||||||||||||||||||
Chemicals and materials | 8 | 0 | 54 | 1 | 106 | 2 | ||||||||||||||||||
Industrial products and services | 746 | 24 | 1,360 | 27 | 1,361 | 25 | ||||||||||||||||||
Others | 603 | 19 | 562 | 12 | 677 | 12 | ||||||||||||||||||
Total | 3,084 | 100 | 5,011 | 100 | 5,549 | 100 | ||||||||||||||||||
32
44
The Business Groups |
Strategic opportunities
Our diversified business portfolio demonstrates our ability to shift focus according to market opportunities – taking advantage of and capitalizing on revenue opportunities where they arise and withdrawing resources at the right moment, when conditions change. We will continue to build our competitive strength, focusing on growth opportunities and winning market share.
ness, especially in Asia Pacific and the US, while further enhancing our credit derivatives business into one of the market’s leading players.
33
The Business GroupsUBS PaineWebber
Wealth Management USA
UBS PaineWebberWealth Management USA
UBS PaineWebber,As one of the top wealth managers in the US, provideswe provide a complete set of sophisticated wealth management services through consultative relationships withto our affluent and high net worth clients.
Business Group reporting adjusted for significant financial events1
UBS PaineWebber | ||||||||
CHF million, except where indicated | ||||||||
For the year ended | 31.12.02 | 31.12.01 | ||||||
Income | 5,561 | 6,391 | ||||||
Credit loss expense | (13 | ) | (18 | ) | ||||
Total operating income | 5,548 | 6,373 | ||||||
Personnel expenses | 4,245 | 5,019 | ||||||
General and administrative expenses | 1,263 | 1,441 | ||||||
Depreciation | 149 | 124 | ||||||
Amortization of goodwill and other intangible assets | 457 | 502 | ||||||
Total operating expenses | 6,114 | 7,086 | ||||||
Business Group performance before tax | (566 | ) | (713 | ) | ||||
Business Group performance before tax and acquisition costs2 | 632 | 693 | ||||||
Cost/income ratio before goodwill (%) | 102 | 103 | ||||||
Cost/income ratio before acquisition costs (%)2 | 89 | 90 | ||||||
Net new money (CHF billion) | 18.5 | 33.2 | ||||||
Interest and dividend income (CHF billion) | 17.9 | 21.5 | ||||||
Invested assets (CHF billion) | 584 | 769 | ||||||
Headcount (full-time equivalents) | 19,563 | 20,413 | ||||||
For the year ended or as at | ||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | ||||||
Total operating income | 5,093 | 5,182 | 1 | |||||
Total operating expenses | 4,914 | 5,187 | ||||||
Business Group performance before tax | 179 | (5 | ) | |||||
Net new money (CHF billion) | 17.1 | 21.1 | ||||||
Interest and dividend income (CHF billion) | 16.0 | 15.8 | ||||||
Invested assets (CHF billion) | 639 | 634 | ||||||
Headcount (full-time equivalents) | 17,388 | 17,435 | ||||||
45
The Business GroupsUBS PaineWebber
500,000 in investable assets) and to high net worth individuals (upwards of(clients with more than USD 5 million in investable assets). We have a network of almost 9,000more than 7,500 financial advisors in 365366 branch office locations. Our strength lies in the emphasis we put on buildinglocations that build and maintainingmaintain consultative relationships with ourtheir clients.
34
The Business Groups |
Organizational structure
PaineWebber merged with UBS in November 2000 with UBS,and its US private clients business became a separate business unit of UBS Warburg.within UBS’s Investment Bank. At the same time, PaineWebber’s Capital Markets Group was integrated intowithin the Corporate and Institutional ClientsInvestment Banking & Securities business unit of UBS Warburg; thewhile its asset management unit (formerly(then called Mitchell Hutchins) moved into UBSthe Global Asset Management and mostBusiness Group. Most non-US private client businesses became part of the non-USour Wealth Management business unit. The US private client business became part of UBS Private Banking.
Legal Structure
In the US, we operate through direct and indirect subsidiaries of UBS. SecuritiesUBS and securities activities
in the US are conducted through fourthree registered broker-dealers.
Competitors |
UBS PaineWebber competes against other wealth management firms in the US, includingOur major competitors include Citigroup’s Smith Barney business, as well as the private client group businesses of Morgan Stanley, Merrill Lynch and Merrill Lynch.Wachovia.
Clients and strategy |
Our business strategy is based on gathering new assets, which we achieve by focusing on meetingWe aim to meet the investment needs of core affluent and high net worth clients in the US. During 2002, we attracted CHF 18.5 billion in net new money excluding interestUS by providing them with a holistic wealth management service embracing both their assets and dividends,liabilities. Our asset-gathering strategy emphasizes the importance of generating recurring fees from advice and according toproducts, as fee-based relationships provide us with a source of regular, low volatility revenues.
35
The Business Groups
Wealth Management USA
46
clientour clients and thetheir financial advisoradvisors is our consultative process, induring which each financial advisor profiles and creates an investment plan for his or her client based on the client’s individual needs and goals. Centered around an asset allocation strategy and consideringIt takes the client’s risk tolerance theinto account, and follows an appropriate asset allocation strategy. The plan is designed to help the client accumulate, preserve andor transfer wealth. AfterOnce the plan is put in place, there areadvisors hold regular portfolio reviews that help ensure it remains on track to meet the client’s long-term goals.goals are met.
47
The Business GroupsUBS PaineWebber
expertise of our financial advisors. All new financial advisors undergo a training program that is designed to provide them with the necessary financial planning, analysis, client relationship management, and legal and compliance expertise. This is a continuousknowledge. Moreover, this process and does not end when the financialan advisor entersstarts working at a branch office. In our- it is continuous. We believe experience shows that our training programs are a key factor in both developinghelping to develop long-term, mutually beneficial relationships with our clients as well as in retaining our financial advisors.clients.
Products and services |
We offer clients wealth management services that meet individual investment needs. We haveneeds with an open architecture productprod-
Investment products
36
The Business Groups |
Lending products
48
to can offer a full array of mortgage products that helpshelp meet our clients’ home financing needs.
Industry trends
For corporations and corporate executives
For financial advisors, 2002 saw the introduction of a number of tools to leverage the asset-gathering technology available on ConsultWorks, the firm’s web-based workstation. Chief among these was the UBS PaineWebberAdvisor,smwhich can help lead financial advisors step-by-step through our consultative process with both clients and prospects.premier US wealth managers. In 2003, we will introduce Consultworks2 that will give our financial advisors the ability to con-
duct comprehensive profiling and asset allocation, and offer investment recommendations.
In 2003,2005, we plan to remain focused on further increasing our market share of US household financial assets andby capitalizing on our enhanced lending and wealth management capabilities as well as the enhanced capabilities and balance sheet strength that the merger with UBS has brought.
4937
The Business Groups | |
Corporate Center’s aim isCenter
Corporate Center partners with the Business Groups to ensure that all our businesses actthe firm operates as coherentlyan effective and effectively as possible.integrated whole with a common vision and set of values.
CHF million, except where indicated | Private Banks & GAM | Corporate Functions | Corporate Center | |||||||||||||||||||||
For the year ended or as at | 31.12.04 | 31.12.03 | 31.12.04 | 31.12.03 | 31.12.04 | 31.12.03 | ||||||||||||||||||
Total operating income | 1,139 | 878 | 440 | 144 | 1,579 | 1,022 | ||||||||||||||||||
Total operating expenses | 696 | 670 | 1,159 | 1,111 | 1,855 | 1,781 | ||||||||||||||||||
Business Group / Business Unit performance before tax | 443 | 208 | (719 | ) | (967 | ) | (276 | ) | (759 | ) | ||||||||||||||
Invested assets(CHF billion) | 92 | 84 | 92 | 84 | ||||||||||||||||||||
Net new money(CHF billion) | 7.7 | 7.2 | 7.7 | 7.2 | ||||||||||||||||||||
Headcount(full-time equivalents) | 1,649 | 1,672 | 3,553 | 3,561 | 5,202 | 5,233 | ||||||||||||||||||
Corporate Center | |||||||||
CHF million, except where indicated | |||||||||
For the year ended | 31.12.02 | 31.12.01 | |||||||
Income | 1,315 | 800 | |||||||
Credit loss recovery | 249 | 236 | |||||||
Total operating income | 1,564 | 1,036 | |||||||
Personnel expenses | 645 | 592 | |||||||
General and administrative expenses | 601 | 537 | |||||||
Depreciation | 473 | 372 | |||||||
Amortization of goodwill and other intangible assets | 24 | 24 | |||||||
Total operating expenses | 1,743 | 1,525 | |||||||
Business Group performance before tax | (179 | ) | (489 | ) | |||||
Headcount (full-time equivalents) | 1,185 | 1,132 | |||||||
Aims and objectives
Our commitment to a strong,strongly integrated business model means that our portfolio of complementary businesses aremust be managed together to optimize shareholder value, making the whole worth more than the sum of its parts.
Chief Risk Officer/Chief Credit Officer
UBS stakeholders, for branding, and for positioning the firm as the employer of choice. It coordinates activities critical to the firm’s reputation and assumes responsibility for certain shared services, such as information technology infrastructure (ITI).
Organizational structure
Corporate Center is reported in two separate business units: Corporate Functions and Private Banks & GAM. The CFO is head of the Corporate Center, leading its business planning, budgeting and human resources core processes. Effective 1 March 2005, a new Group Executive Board (GEB) position was established for the Chief Risk Officer. His mandate will be to develop and implement the group’s risk control processes across credit, market, and operational risk.
38
The Business Groups |
Corporate Functions
Chief Financial Officer (CFO)
Chief Risk Officer (CRO)
Chief Credit Officer (CCO)
Group Controller
50
agement and control principles can be found in the “Risk Management and Control” section of this Handbook.
Group Treasurer
Group Controller
Group tax issues, ensuring compliance with all local tax requirements. Treasurer
ensures
Group Human Resources
Chief Communication Officer
Group General Counsel
Group Head Human Resources
Group Legal Services
5139
The Business Groups
Corporate Center
The Leadership Institute
52Chief Technology Officer (CTO)
40
53
Industrial Holdings
Industrial Holdings
Income statement1
For the year ended2 | ||||
CHF million, except where indicated | 31.12.04 | |||
Total operating income | 3,667 | |||
Total operating expenses | 3,460 | |||
207 |
As at | ||||
Headcount(full-time equivalents) | 8,020 | |||
Business On 31 December 2004, the Industrial Holdings segment was made up by Motor-Columbus, a financial holding company whose only significant asset is a 59.3% interest in the Atel Group. Atel, based in Olten, Switzerland, is a European energy provider focused on domestic and international power generation, electricity transmission and energy services as well as electricity trading and marketing. Motor-Columbus also holds several other small finance and property companies. Organizational structure UBS owns a 55.6% stake in Motor-Columbus after purchasing an additional 20% stake on 1 July 2004. As a result, UBS, as majority owner, consolidated Motor-Columbus into its accounts, revaluing its assets and liabilities. Motor-Columbus employed 8,020 staff on 31 December 2004.Risk
42
Financial Management
Risk management and control
Risk management and control
UBS’sWe recognize that taking risk is core to our financial business and that operational risks are an inevitable consequence of being in business. Our aim is to achieve an appropriate balance between risk and return. Thus, in our day-to-day business and in the strategic management of our balance sheet and capital, we seek to limit the scope for adverse variations in our earnings and control exposure to “stress events”.
An integrated approach to riskmanagement and control
Excellence in risk management is however, most fundamentally based upon a business management team that makes risk identification management and control critical components of its processes and plans.
Key responsibilities Responsibility therefore flows from the top.
54
Management and Control Principles),for approving our risk principles and for the determination ofdetermining our risk capacity and risk appetite.capacity.
necessary, given the aggregate risk profile of the portfolio or the risks of specific positions.
44
Financial Management |
The risk control process
There are five critical elements in our independent risk control process:
– | weidentify risk |
– | we |
55
– | we establishrisk policiesto reflect our risk principles, risk capacity and risk appetite, and consistent with evolving business requirements and international best practice |
– | we have comprehensiverisk reportingto stakeholders, and to management at all levels, against the approved risk control framework and, where applicable, limits |
– | wecontrol risk |
The risks we take
Business risksare the risks associated with a chosen business strategy, including business cycles, industry cycles, and technological change. They are the sole responsibility of the relevant business, and are not subject to an independent control process. They are, however, factored into the firm’s planning and budgeting process.
45
Financial Management
Risk management and control
Primary risks are credit risk, market risk and liquidity and funding risk:
– | credit riskis the risk of loss resulting from client |
– | market riskis exposure to |
– | liquidity and funding riskis the risk that |
Operational risk can arise in a consequencenumber of business undertaken:
– | transaction processing riskarises from errors, failures or shortcomings at any point in the transaction process, from deal execution and capture to final settlement |
– | compliance riskis the risk of financial loss due to regulatory fines or penalties, restriction or suspension of business, or |
– | legal riskis the risk of financial loss resulting from the |
– | liability riskis the risk that we, or someone acting on our behalf, fail to fulfill the obligations, responsibilities or duties imposed by law or assumed under a contract and that claims are therefore made against us |
– | security riskis the risk of loss of confidentiality, integrity or availability of our information or other assets |
– | tax riskis the risk of additional tax arising from technically incorrect positions taken on tax matters, or failure to comply with tax |
56
withholding or reporting requirements on behalf of clients or employees; and the risk of claims by clients or counterparties as a result of |
How we measure risk
In principle, for risks whichthat are quantifiable, in principle we measure the potential loss at three levels —– expected loss, statistical loss and stress loss.
57
liosfrom all sources, including operational and for countrybusiness risks. It is measured against a severe, low probability but nevertheless plausible constellation of events. Our risk but we use a variety of scenarios and techniques, which we continue to refine, in order to identify other areascapacity is the level of risk concentrationwe are capable of absorbing based on our earnings power, without unacceptable damage to our dividend paying ability, our strategic plans and, potential vulnerabilityultimately, our reputation and ongoing business viability.
Risk reporting
46
58
Financial Management |
Capital and RiskFinancial ManagementRisk Analysis
Credit risk
Credit risk represents the loss which UBS would suffer if a client or counterparty failed to meet its contractual obligations. It is an integral part of many of our business activities and is inherent in traditional banking products Credit risk of counterparties and groups We set limits on our credit exposure to both individual counterparties and counterparty groups. In the Investment Bank, where it is most relevant, we differentiate between “take and hold” and “temporary” exposures, the latter being those accepted with the intention of syndicating, selling or hedging within a short period.—– loans, commitments to lend and other contingent liabilities, such as letters of credit —– and in “traded products” — forward contracts,– derivative contracts such as forwards, swaps and options, and repo transactions and securities borrowing and lending relationships. Positions in “tradable assets” such as bonds and equities, including both direct holdings and synthetic positions through derivatives, also carry credit risk, but where theytransactions.heldaccounted for trading andon an amortized cost basis while others are marked to market they fall under the market risk limits and controls described under “Market risk” on page 71 below. For completeness, they are included, where applicable,recorded in the credit risk exposures reported in “Compositionfinancial statements at fair value. Banking products are generally accounted for on an amortized cost basis, but loans which have been originated by the Group for subsequent syndication or distribution via the cash markets are carried at fair value. Within traded products, OTC derivatives are carried at fair value, while repos and securities borrowing and lending transactions are carried at amortized cost. Regardless of credit exposures” on pages 63 to 68 below. Creditthe accounting treatment, all banking and traded products are governed by the same risk management and control at UBS is governed by aframework – the Group Credit Policy Framework and byour detailed credit policies and procedures developed for the Group and within the Business Groups.procedures. To ensure a consistent and unified approach with appropriate checks and balances, allAll Business Groups wheretaking material credit risk is taken have independent credit risk control (CRC) functions.units, headed by Chief Credit Officers (CCOs) reporting functionally to the Group CCO. They are headed by chiefresponsible for counterparty ratings and credit officers (CCOs) reportingrisk assessment. Credit risk authority, including authority to establish allowances and provisions or credit valuation adjustments for impaired claims, is vested in the Chairman’s Office and the GEB and from there is further delegated on an ad personam basis to the Group CCO and credit officers in the Business Groups. The level of credit authority delegated to Business Group senior management.authority holders varies according to the quality of the counterparty and any associated security, and takes into account the seniority and experience of the individual.centrally,Corporate Center to ensure prompt identification, accurate assessment, proper approval and consistent monitoring and reporting of credit risk. Senior business management, the GEB and the Chairman’s Office are provided with regular, standardized reports of aggregate Business Group credit risk exposure by the CRC organization as part of a comprehensive risk reporting framework. The approval and monitoring of new counterparties, and of new transactions giving rise tocredit risk, plays a central part in the risk control process. Credit approval authority is exercised within the independent CRC functions by authorized credit officers. The notional amount of their authority is dependent on the quality of the counterparty and any security, and on the experience and seniority of the credit officer. The CRC functions continuously monitor the credit quality of counterparties and our exposure to them, and the credit risk profile of the Business Group portfolios. CRC has authority over counterparty rating, credit risk assessment and approval, and the establishment of allowances and provisions.Credit risk of counterparties and groupsWe restrict our credit exposure to both individual counterparties and counterparty groups by credit limits. The size of limit depends on our assessment of their financial strength, particularly their sustainable free cash flow to service obligations, and on the economic environment, industry position and qualitative factors such as management strength. In UBS Warburg, where it is most relevant, we differentiate between “take and hold” exposure and “temporary” exposure — exposure accepted with the intention of syndicating, selling or hedging it within a short period. The business is given more authority for temporary exposures but, in return, the exposures are subject to portfolio stress limits as explained under “Statistical and stress loss” on page 61. against limits is measured for banking products as the face value amount of the loan or commitment. For most traded products we determine the future exposure profile by modeling the potential evolution of the value of the portfolio of trades with each counterparty over its life (potential credit exposure), taking into account legally enforceable close outclose-out netting agreements where applicable (see Note 23 to the UBS Group Financial Statements).applicable. Credit limits for individual counterparties are applied to the “maximum likely exposure”, a statistical measure derived from
59
Capital and Risk ManagementRisk Analysis
this analysis, a 95% confidence statistical measure of the exposure in each counterparty portfolio.
Credit portfolio risks
Portfolio measures of credit risk
Expected loss
Expected loss
UBS internal rating scale andmapping to external ratings
TheWe assess the default probabilitiesof individual coun-terparties are assessed by means ofcounterparties using rating tools tailored to the various categories of counterparty. For the major part of the business within UBS Wealth Management & Business Banking,counterparty, and from these we usederive a statistical approach or “score card” to form groups of clients with similar propensity to default. UBS Warburg, with its less homogeneous client base, uses an approach under which credit officers assess the credit standing of counterparties based on guidelines and an analytical format or “template”, designed to ensure consistency of ratings across the Business Group. In all cases, the analysis is founded on an assessment of both financial ratios and qualitative factors. The result of this counterparty specific analysis is expressed as a rating.
47
Financial Management
Credit risk
UBS internal rating scale and mapping
to external ratings
UBS | Moody’s Investor | Standard & Poor’s | ||||
Rating | Description | Services equivalent | equivalent | |||
0 and 1 | Investment grade | Aaa | AAA | |||
2 | Aa1 to Aa3 | AA+ to AA– | ||||
3 | A1 to A3 | A+ to A– | ||||
4 | Baa1 to Baa2 | BBB+ to BBB | ||||
5 | Baa3 | BBB– | ||||
6 | Sub-investment grade | Ba1 | BB+ | |||
7 | Ba2 | BB | ||||
8 | Ba3 | BB– | ||||
9 | B1 | B+ | ||||
10 | B2 | B | ||||
11 | B3 | B– | ||||
12 | Caa to C | CCC to C | ||||
13 | Impaired and defaulted | D | D | |||
14 | D | D | ||||
vations for each external grade. Observed defaults per rating category vary year-on-year, and especially over an economic cycle, and therefore this mapping does not therefore,
60
imply that UBS expects this number of defaults in any given period.
Statistical and stress loss
Total credit exposure
Wealth Management | Business Banking Switzerland | |||||||||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||
Loans utilization (gross) | 43,571 | 36,238 | 29,615 | 137,147 | 138,534 | 139,491 | ||||||||||||||||||
Contingent claims | 3,444 | 3,154 | 4,238 | 7,570 | 8,270 | 7,210 | ||||||||||||||||||
Unutilized committed lines | 669 | 408 | 350 | 1,275 | 1,392 | 1,634 | ||||||||||||||||||
Total banking products | 47,684 | 39,800 | 34,203 | 145,992 | 148,196 | 148,335 | ||||||||||||||||||
Unsecured OTC products | 0 | 0 | 0 | 1,226 | 1,385 | 1,682 | ||||||||||||||||||
Other derivatives (secured or exchange-traded) | 2,087 | 853 | 563 | 322 | 337 | 149 | ||||||||||||||||||
Securities lending / borrowing | 0 | 0 | 0 | 3,953 | 1,093 | 917 | ||||||||||||||||||
Repo / reverse-repo | 1 | 0 | 0 | 37 | 26 | 14 | ||||||||||||||||||
Total traded products3 | 2,088 | 853 | 563 | 5,538 | 2,841 | 2,762 | ||||||||||||||||||
Total credit exposure, gross | 49,772 | 40,653 | 34,766 | �� | 151,530 | 151,037 | 151,097 | |||||||||||||||||
Total credit exposure, net of allowances and provisions | 49,744 | 40,637 | 34,697 | 149,213 | 147,911 | 147,141 | ||||||||||||||||||
48
Financial Management |
stress loss it is therefore analyzed initially in material credit portfolios, we make an initial analysis based on sub-portfolios with more homogeneous characteristics.
Composition of credit exposures
Our credit exposure arises principally in Wealth Management & Business Banking and Investment Bank and, to a lesser extent, in Wealth Management USA.
ucts exposure to lower rated counterparties is generally collateralized or otherwise supported.
Wealth Management & Business Banking
Wealth Management & | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Banking | Investment Bank | Wealth Management USA | Others1 | UBS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||||||||||||||||||||||||||
180,718 | 174,772 | 169,106 | 68,653 | 55,154 | 61,449 | 14,652 | 13,116 | 12,857 | 5,495 | 4,953 | 5,689 | 269,518 | 2 | 247,995 | 249,101 | |||||||||||||||||||||||||||||||||||||||||||||
11,014 | 11,424 | 11,448 | 3,391 | 3,201 | 4,407 | 274 | 355 | 430 | 215 | 583 | 309 | 14,894 | 15,563 | 16,594 | ||||||||||||||||||||||||||||||||||||||||||||||
1,944 | 1,800 | 1,984 | 51,224 | 44,670 | 36,439 | 0 | 80 | 811 | 0 | 73 | 72 | 53,168 | 46,623 | 39,306 | ||||||||||||||||||||||||||||||||||||||||||||||
193,676 | 187,996 | 182,538 | 123,268 | 103,025 | 102,295 | 14,926 | 13,551 | 14,098 | 5,710 | 5,609 | 6,070 | 337,580 | 310,181 | 305,001 | ||||||||||||||||||||||||||||||||||||||||||||||
1,226 | 1,385 | 1,682 | 53,372 | 53,649 | 55,002 | 0 | 0 | 0 | 329 | 573 | 0 | 54,927 | 55,607 | 56,684 | ||||||||||||||||||||||||||||||||||||||||||||||
2,409 | 1,190 | 712 | 15,741 | 14,535 | 10,850 | 0 | 1 | 3 | 0 | 0 | 0 | 18,150 | 15,726 | 11,565 | ||||||||||||||||||||||||||||||||||||||||||||||
3,953 | 1,093 | 917 | 27,301 | 22,220 | 11,962 | 0 | 0 | 0 | 0 | 0 | 0 | 31,254 | 23,313 | 12,879 | ||||||||||||||||||||||||||||||||||||||||||||||
38 | 26 | 14 | 20,305 | 19,546 | 21,744 | 171 | 151 | 439 | 0 | 0 | 0 | 20,514 | 19,723 | 22,197 | ||||||||||||||||||||||||||||||||||||||||||||||
7,626 | 3,694 | 3,325 | 116,719 | 109,950 | 99,558 | 171 | 152 | 442 | 329 | 573 | 0 | 124,845 | 114,369 | 103,325 | ||||||||||||||||||||||||||||||||||||||||||||||
201,302 | 191,690 | 185,863 | 239,987 | 212,975 | 201,853 | 15,097 | 13,703 | 14,540 | 6,039 | 6,182 | 6,070 | 462,425 | 424,550 | 408,326 | ||||||||||||||||||||||||||||||||||||||||||||||
198,957 | 188,548 | 181,838 | 239,529 | 212,195 | 200,697 | 15,079 | 13,675 | 14,498 | 5,977 | 6,178 | 6,061 | 459,542 | 420,596 | 403,094 | ||||||||||||||||||||||||||||||||||||||||||||||
49
Financial Management
Credit risk
Wealth Management & Business Banking:
distribution of banking product exposure across counterparty rating and loss given default (LGD) buckets
Loss given default buckets | Weighted | |||||||||||||||||||||||
CHF million | Gross exposure | 0–25% | 26–50% | 51–75% | 76–100% | average LGD(%) | ||||||||||||||||||
0 | 1,057 | 156 | 244 | 632 | 25 | 48 | ||||||||||||||||||
1 | 405 | 2 | 228 | 167 | 8 | 45 | ||||||||||||||||||
2 | 22,463 | 17,209 | 4,371 | 827 | 56 | 24 | ||||||||||||||||||
3 | 14,674 | 8,442 | 3,482 | 2,386 | 364 | 30 | ||||||||||||||||||
4 | 7,812 | 659 | 4,977 | 2,159 | 17 | 40 | ||||||||||||||||||
5 | 97,325 | 85,137 | 7,729 | 2,313 | 2,146 | 27 | ||||||||||||||||||
6 | 12,090 | 2,396 | 7,830 | 1,742 | 122 | 36 | ||||||||||||||||||
7 | 14,120 | 1,473 | 9,737 | 1,673 | 1,237 | 40 | ||||||||||||||||||
8 | 11,713 | 446 | 9,216 | 1,782 | 269 | 38 | ||||||||||||||||||
9 | 5,257 | 321 | 3,778 | 1,053 | 105 | 40 | ||||||||||||||||||
10 | 1,307 | 234 | 639 | 420 | 14 | 41 | ||||||||||||||||||
11 | 564 | 321 | 101 | 116 | 26 | 35 | ||||||||||||||||||
12 | 735 | 272 | 298 | 161 | 4 | 36 | ||||||||||||||||||
Total non-impaired | 189,522 | 117,068 | 52,630 | 15,431 | 4,393 | 30 | ||||||||||||||||||
Investment grade | 143,736 | 111,605 | 21,031 | 8,484 | 2,616 | |||||||||||||||||||
Sub-investment grade | 45,786 | 5,463 | 31,599 | 6,947 | 1,777 | |||||||||||||||||||
Impaired and defaulted | 4,154 | |||||||||||||||||||||||
Total banking products | 193,676 | |||||||||||||||||||||||
50
Financial Management |
diversified with 45% of loans being secured on single-family homes and apartments, which, historically, have exhibited a low risk profile. The 15% of exposure secured on residential multi-family homes consists of rented apartment buildings. Loans and other credit engagements with individual clients, excluding mortgages, are predominantly extended against the pledge of marketable securities to continued to focus on improving the quality of our credit portfolio, reducing both individual and sector concentrations. Investment BankUBS is exposedsettlement riskwhich we apply conservative standards in determining the amount we are prepared to lend against them.consequencemarket-leading lender to this segment of predominantly small- to medium-sized enterprises in Switzerland. During 2004 we have
Investment Bank: credit hedging, banking products
As at 31.12.04 | ||||||||||||||||||||||||
Funded risk | Specific allowances | Nominal | ||||||||||||||||||||||
participations and | for credit loss and | Adjusted | amount of credit | |||||||||||||||||||||
CHF million | Gross exposure1 | cash collateral | Risk transfers2 | loan loss provisions | credit exposure | protection bought3 | ||||||||||||||||||
Investment grade | 54,316 | (212 | ) | 888 | 0 | 54,987 | 19,041 | |||||||||||||||||
Sub-investment grade | 31,295 | (221 | ) | (882 | ) | 0 | 30,193 | 2,806 | ||||||||||||||||
Impaired and defaulted | 794 | 0 | (6 | ) | (410 | ) | 391 | 0 | ||||||||||||||||
Total banking products exposure | 86,405 | (433 | ) | 0 | (410 | ) | 85,571 | 21,847 | ||||||||||||||||
Note: Columns cannot be totaled as adjusted credit exposure is set to zero in case of over-hedging.
Investment Bank: distribution of banking products exposure across counterparty rating
and loss given default (LGD) buckets
Exposure after | Weighted | |||||||||||||||||||||||||||
Adjusted | application of | Loss given default buckets | Average | |||||||||||||||||||||||||
CHF million | credit exposure | credit hedges1 | 0–25% | 26–50% | 51–75% | 76–100% | LGD(%) | |||||||||||||||||||||
Not rated | 13 | 13 | 5 | 8 | 50 | |||||||||||||||||||||||
0 and 1 | 1,312 | 1,135 | 30 | 1,105 | 49 | |||||||||||||||||||||||
2 | 11,969 | 10,490 | 218 | 9,455 | 796 | 21 | 50 | |||||||||||||||||||||
3 | 18,449 | 14,605 | 2,494 | 11,363 | 255 | 493 | 43 | |||||||||||||||||||||
4 | 13,257 | 7,052 | 66 | 6,833 | 73 | 80 | 50 | |||||||||||||||||||||
5 | 9,987 | 4,755 | 860 | 3,805 | 90 | 0 | 41 | |||||||||||||||||||||
6 | 3,748 | 2,424 | 1,107 | 1,267 | 4 | 46 | 29 | |||||||||||||||||||||
7 | 9,136 | 8,902 | 7,718 | 1,131 | 53 | 0 | 11 | |||||||||||||||||||||
8 | 6,213 | 6,021 | 4,910 | 1,026 | 5 | 80 | 13 | |||||||||||||||||||||
9 | 4,164 | 3,565 | 855 | 2,452 | 230 | 28 | 35 | |||||||||||||||||||||
10 | 4,059 | 3,945 | 522 | 2,589 | 624 | 210 | 43 | |||||||||||||||||||||
11 | 2,388 | 2,382 | 390 | 1,550 | 442 | 0 | 46 | |||||||||||||||||||||
12 | 485 | 350 | 239 | 111 | 0 | 0 | 21 | |||||||||||||||||||||
Total non-impaired loans | 85,180 | 65,639 | 19,409 | 42,692 | 2,580 | 958 | 37 | |||||||||||||||||||||
Investment grade | 54,987 | 38,050 | 3,668 | 32,566 | 1,222 | 594 | ||||||||||||||||||||||
Sub-investment grade | 30,193 | 27,589 | 15,741 | 10,126 | 1,358 | 364 | ||||||||||||||||||||||
Impaired and defaulted | 391 | 391 | 12 | 333 | 19 | 27 | ||||||||||||||||||||||
Total banking products | 85,571 | 66,030 | 19,421 | 43,025 | 2,599 | 985 | 37 | |||||||||||||||||||||
of which: temporary exposure | 14,282 | 238 | 12,557 | 1,111 | 376 | |||||||||||||||||||||||
51
Financial Management
Credit risk
The Investment Bank’s total banking products exposure on 31 December 2004 was CHF 123 billion, as reported in accordance with IFRS, of which CHF 69 billion was loans, compared with CHF 103 billion total and CHF 55 billion loans on 31 December 2003 and CHF 102 billion total and CHF 61 billion loans on 31 December 2002. Part of the increase of CHF 20 billion over the course of 2004 was the result of our expanding prime brokerage and equity finance businesses, and part reflects increased underwriting activity as we capitalized on our strengthened business franchise in advising corporate clients. Note that disclosures in this section present the credit exposure from a risk management and control perspective, which differs from disclosure under IFRS. In particular, gross banking products exposure in risk terms amounts to CHF 86.4 billion, a difference of CHF 36.9 billion to the CHF 123.3 billion reported for the Investment Bank in the table on page 49. This difference is mainly made up of cash collateral posted by UBS against negative replacement values and other positions
which, from a risk perspective, do not classify as loans but where the underlying credit risk is incorporated into our traded products measurement methodologies. On the other hand, in our internal risk control view we consider certain US residential mortgage financing conducted under repo-/reverse repo-like agreements as banking product exposures.
52
Financial Management |
before and after application of risk mitigants. Additionally, in the matrix on page 51, we show the distribution of Investment Bank’s banking products exposure after application of risk mitigants across rating grades and LGD buckets. LGDs in this portfolio are assigned based on benchmark LGDs which are 40% for senior secured claims, 50% for senior unsecured claims and 70% for subordinated claims. There is thus a concentration in the 26–50% bucket. The significant exposure in the sub-investment grade 0–25% bucket is mainly comprised of short term loans to US mortgage originators, secured on their mortgage portfolios, pending securitization. Note that exposure distribution across counterparty ratings shown elsewhere in this section refers only to gross exposure and probability of default, without reference to the likely severity of loss or loss mitigation from collateral or credit hedges.
Further details of derivative instruments are provided in note 23 to the financial statements and details of securities borrowing, securities lending, repurchase and reverse repurchase activities can be found in note 10 to the financial statements.
Wealth Management USA
Settlement risk
Settlement risk arises in transactions involving the exchange of valuesvalue when we must honor our obligation to deliver cash or securities without first being able to determine that we have received the counter-value. ThisThe most significant element of our settlement risk is particularly significant inarises from foreign exchange and precious metals transactions, and we limit and monitor the risk on a continuous basis against settlement limits for each counterparty based on our assessment of their credit standing. Settlement risk reduction is a high priority and we continue to work to achieve shorter settlement cycles from payment release to reconciliation, and to reduce exposure by establishing risk reduction arrangements with counterparties, such as payment netting and covered settlements.
53
The CRC function at
Financial Management
Credit risk
Emerging market exposure by major geographical area and product type
CHF million | Total | Banking products | Traded products | Tradable assets | ||||||||||||||||||||||||||||||||||||||||||||
As at | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||||||||||||||||
Emerging Europe | 2,878 | 1,833 | 2,005 | 683 | 441 | 390 | 955 | 606 | 532 | 1,240 | 786 | 1,083 | ||||||||||||||||||||||||||||||||||||
Emerging Asia | 11,853 | 7,721 | 4,755 | 4,790 | 2,416 | 2,189 | 2,438 | 1,113 | 1,179 | 4,625 | 4,192 | 1,387 | ||||||||||||||||||||||||||||||||||||
Latin America | 1,646 | 1,849 | 1,711 | 193 | 425 | 618 | 319 | 568 | 330 | 1,134 | 856 | 763 | ||||||||||||||||||||||||||||||||||||
Africa / Middle East | 2,219 | 2,363 | 2,205 | 842 | 882 | 979 | 842 | 1,083 | 818 | 535 | 398 | 408 | ||||||||||||||||||||||||||||||||||||
Total | 18,596 | 13,766 | 10,676 | 6,508 | 4,164 | 4,176 | 4,554 | 3,370 | 2,859 | 7,534 | 6,232 | 3,641 | ||||||||||||||||||||||||||||||||||||
number of Third Party Members we deal with has nearly doubled in 2004. CLS does not, of course, eliminate the Corporate Center assignscredit risk arising on foreign exchange transactions from changes in exchange rates prior to settlement, which we continue to measure and control as for other traded products, as described on page 47 under credit risk of counterparties and groups.
Country risk
We assign ratings to all countries to which we have exposure. Like the counterparty ratings, the sov-
61
Capital and Risk ManagementRisk Analysis
ereignSovereign ratings express the probability of the occurrence of a country risk event that would lead to an impairment of UBS’s exposures.our claims. The default probabilities and the mapping to the ratings of the major rating agencies are the same as for counterparty credit risks (see table on page 60)48), the three lowest ratings being designated “distressed”.
risk we also consider the probable financial impact of market disruptiondisruptions arising prior to, during and following a country crisis, incrisis. These might take the form of severe falls in the country’s markets and asset prices, longer-term devaluation of the currency, and potential immobilization of currency balances.
Country risk exposure
Credit loss under conservative assumptions(expense) /recovery versus adjusted expected credit loss charged to the Business Groups
CHF million | Wealth Management | Business Banking Switzerland | ||||||||||||||||||||||
For the year ended | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||
Total banking products exposure at year end | 47,684 | 39,800 | 34,203 | 145,992 | 148,196 | 148,335 | ||||||||||||||||||
Credit loss (expense) / recovery | (1 | ) | 4 | 1 | 92 | (71 | ) | (239 | ) | |||||||||||||||
– as a proportion of total banking products exposure(bps) | (0 | ) | 1 | 0 | 6 | (5 | ) | (16 | ) | |||||||||||||||
Adjusted expected credit loss charged to the Business Groups2 | (8 | ) | (4 | ) | (26 | ) | (25 | ) | (127 | ) | (286 | ) | ||||||||||||
– as a proportion of total banking products exposure(bps) | (2 | ) | (1 | ) | (8 | ) | (2 | ) | (9 | ) | (19 | ) | ||||||||||||
54
Financial Management |
billion or 75% is to investment grade countries, compared to 62% a year earlier. The potential loss under this stress loss measure is subjectgrowth of CHF 4.8 billion in total emerging markets exposure arose to a limit approved bylarge extent in Asia as we actively sought and captured market opportunities in targeted countries we consider to have long-term potential.
We defineprevious page analyze the cross-border emerging market countries as countries which have yetcountry exposures by country rating category, by major geographical area and by product type on 31 December 2004 compared to reach a mature stage of economic, financial, institutional, political31 December 2003 and social development or where there is significant potential for economic or political instability. All emerging market countries are subject to country ceilings. The country data provided on pages 6831 December 2002.
Impairment and 69 covers only emerging market countries and not all countries which are subject to ceilings.provisioning policies
UBS classifiesWe classify a claim as impaired if the book valuewe consider it probable that we will suffer a loss on that claim as a result of the claim exceeds the present value of the cash flows actually expected in future periods —obligor’s inability to meet commitments (including interest payments, scheduled principal repayments or other payments due, (forfor example, on derivatives transactions),a derivative product or under a guarantee) according to the contractual terms, and including liquidationafter realization of collateral where available. Within this category, weany available collateral. We further classify loans carried at amortized cost as non-performing where payment of interest, principal or fees is overdue by more than 90 days. Non-performancedays and there is notno firm evidence that they will be made good by later payments or the determinantliquidation of collateral, or where insolvency proceedings have commenced or obligations have been restructured on concessionary terms.although it may, in some circumstances, be the first evidencefinancial statements depends on the accounting treatment of impairment.the claim. For products carried at amortized cost, impairment is recognized through the creation of an allowance or provision, which is charged to the income statement as credit loss expense. For products recorded at fair value, impairment is recognized through a credit valuation adjustment, which is charged to the income statement through the net trading income line.Future cash flows considered recoverableThe credit controls applied to valuation and workout are discounted to presentthe same for both amortized cost and fair value in accordance with the principles of IAS 39. A provision is then made for the probable loss on the claim in question and charged to the income statement as credit loss expense.work-outworkout strategy and estimation of cash flows considered recoverable are independently approved by the CRC function. The recovery valueCCO organization.
We also assess portfolios of mortgage loansclaims carried at amortized cost with similar credit risk characteristics for collective impairment. A portfolio is determined by capitalizing an economically sustainable rental yield, adjusted for the discount generally observed in forced liquidations, and related costs if the strategy is basedconsidered impaired on a foreclosure. For commercial exposures, enterprise valuecollective basis if there is determined from an assessmentobjective evidence to suggest that it contains impaired obligations but the individual impaired items cannot yet be identified. Note that such portfolios are not included in the totals of expected cash flows from future operations if recovery is likely to be successful,impaired loans in the table on page 56 / 57 or ofin note 9c in the liquidation value of the assets if bankruptcy proceedings are to be initiated against the borrower.
62
establish country-specific scenarios, which are kept under review and updated as necessary, to evaluate the extent to which the value of our banking and traded product exposure areexposures would be affected by country risk incidents or country-specific systemic risks. The appropriateAppropriate allowances and provisions are then determined by evaluating the type of credit exposure in the portfolio for each country and the loss severities that have been attributed to each exposure type. Furthermore,Where fair valued portfolios are affected by country risk, it is recognized in the fair values of individual claims.
Credit loss expense
Our financial statements are prepared in accordance with IFRS, under which credit loss expense charged to the financial statements in any period is the sum of net allowances and direct writeoffs minus recoveries arising in that period, i.e. the credit losses actually incurred. By contrast, in our internal management reporting and in the management discussion and analysis section of our financial report, we measure credit loss expense based on the expected loss concept described on page 47. To hold the Business Groups accountable for credit losses actually incurred, we additionally charge or refund them with the difference between actual credit loss expense and expected loss, amortized over a three-year period. The difference between the amounts charged to the Business Groups (“adjusted expected credit loss”) and the credit loss expense recorded at Group level is reported in Corporate Functions (see note 2 to the financial statements).
Wealth Management & | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Banking | Investment Bank | Wealth Management USA | Others1 | UBS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||||||||||||||||||||||||||
193,676 | 187,996 | 182,538 | 123,268 | 103,025 | 102,295 | 14,926 | 13,551 | 14,098 | 5,710 | 5,609 | 6,070 | 337,580 | 310,181 | 305,001 | ||||||||||||||||||||||||||||||||||||||||||||||
91 | (67 | ) | (238 | ) | 240 | (4 | ) | 126 | 3 | (3 | ) | (15 | ) | (58 | ) | 2 | 12 | 276 | (72 | ) | (115 | ) | ||||||||||||||||||||||||||||||||||||||
5 | (4 | ) | (13 | ) | 19 | (0 | ) | 12 | 2 | (2 | ) | (11 | ) | (102 | ) | 4 | 20 | 8 | (2 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||||
(33 | ) | (131 | ) | (312 | ) | (7 | ) | (55 | ) | (90 | ) | (5 | ) | (8 | ) | (13 | ) | (6 | ) | (2 | ) | (2 | ) | (51 | ) | (196 | ) | (417 | ) | |||||||||||||||||||||||||||||||
(2 | ) | (7 | ) | (17 | ) | (1 | ) | (5 | ) | (9 | ) | (3 | ) | (6 | ) | (9 | ) | (11 | ) | (4 | ) | (3 | ) | (2 | ) | (6 | ) | (14 | ) | |||||||||||||||||||||||||||||||
55
Financial Management
Credit risk
In 2004, we experienced a net credit loss recovery of CHF 276 million, compared to net credit loss expense of CHF 72 million in 2003 and CHF 115 million in 2002. This favorable result was achieved in a period which saw a very sanguine environment for credit markets globally. Economic expansion in the US provided a strong stimulus for growth worldwide. Almost without exception, credit spreads contracted in all the major developed and emerging capital markets, as healthy expansion of cash flows allowed the corporate sector to de-leverage and build liquidity.
Net credit loss recovery at Wealth Management & Business Banking amounted to CHF 91 million in 2004 compared to net credit loss expenses of CHF 67 million in 2003 and CHF 238 million in 2002. Our domestic credit portfolio demonstrated strong resilience in a Swiss economic environment which saw a 9.2% increase in corporate bankruptcies compared to 2003 (see the graph on this page). The measures taken in recent years to improve the quality of our credit portfolio have resulted in lower levels of new defaults and our success in managing the impaired portfolio has resulted in a higher than anticipated level of recoveries.
Allowances and provisions for credit risk
CHF million | Wealth Management | Business Banking Switzerland | ||||||||||||||||||||||
As at | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||
Due from banks | 300 | 738 | 701 | 3,052 | 2,574 | 2,591 | ||||||||||||||||||
Loans | 43,271 | 35,500 | 28,914 | 134,095 | 135,960 | 136,900 | ||||||||||||||||||
Total lending portfolio, gross | 43,571 | 36,238 | 29,615 | 137,147 | 138,534 | 139,491 | ||||||||||||||||||
Allowances for credit losses | (28 | ) | (16 | ) | (66 | ) | (2,135 | ) | (2,876 | ) | (3,649 | ) | ||||||||||||
Total lending portfolio, net | 43,543 | 36,222 | 29,549 | 135,012 | 135,658 | 135,842 | ||||||||||||||||||
Impaired lending portfolio, gross | 10 | 8 | 17 | 4,171 | 6,382 | 8,347 | ||||||||||||||||||
Estimated liquidation proceeds of collateral for impaired loans | (2 | ) | 0 | 0 | (1,678 | ) | (2,460 | ) | 0 | |||||||||||||||
Impaired lending portfolio, net of collateral | 8 | 8 | 17 | 2,493 | 3,922 | 8,347 | ||||||||||||||||||
Allocated allowances for impaired lending portfolio | 7 | 8 | 14 | 2,038 | 2,822 | 3,559 | ||||||||||||||||||
Other allowances and provisions | 21 | 8 | 55 | 279 | 304 | 397 | ||||||||||||||||||
Total allowances and provisions for credit losses | 28 | 16 | 69 | 2,317 | 3,126 | 3,956 | ||||||||||||||||||
of which allowances and provisions for country risk | 15 | 8 | 51 | 119 | 110 | 464 | ||||||||||||||||||
Non-performing loans | 4 | 2 | 4 | 3,161 | 4,418 | 5,028 | ||||||||||||||||||
Allowances for non-performing loans | 4 | 0 | 2 | 1,883 | 2,346 | 2,747 | ||||||||||||||||||
Ratios | ||||||||||||||||||||||||
Allowances and provisions as a % of lending portfolio, gross | 0.1 | 0.0 | 0.2 | 1.7 | 2.3 | 2.8 | ||||||||||||||||||
Impaired as a % of lending portfolio, gross | 0.0 | 0.0 | 0.1 | 3.0 | 4.6 | 6.0 | ||||||||||||||||||
Allocated allowances as a % of impaired lending portfolio, gross | 70.0 | 100.0 | 82.4 | 48.9 | 44.2 | 42.6 | ||||||||||||||||||
Allocated allowances as a % of impaired lending portfolio, net of collateral | 87.5 | 100.0 | 82.4 | 81.7 | 72.0 | 42.6 | ||||||||||||||||||
Non-performing loans as a % of lending portfolio, gross | 0.0 | 0.0 | 0.0 | 2.3 | 3.2 | 3.6 | ||||||||||||||||||
Allocated allowances as a % of non-performing loans, gross | 100.0 | 0.0 | 50.0 | 59.6 | 53.1 | 54.6 | ||||||||||||||||||
56
Financial Management |
Impaired loans, allowances and provisions
paratively lower than would otherwise be the case, which explains the relatively small reduction in countries that are subjectour non-performing loans portfolio between 31 December 2002 and 31 December 2003.
Credit is an integral part of many of our business activities.
Wealth Management & | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Banking | Investment Bank | Wealth Management USA | Others1 | UBS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||||||||||||||||||||||||||
3,352 | 3,312 | 3,292 | 26,559 | 24,486 | 24,495 | 1,532 | 1,493 | 1,327 | 3,313 | 2,733 | 3,797 | 34,756 | 2 | 32,024 | 32,911 | |||||||||||||||||||||||||||||||||||||||||||||
177,366 | 171,460 | 165,814 | 42,094 | 30,668 | 36,954 | 13,120 | 11,623 | 11,530 | 2,182 | 2,220 | 1,892 | 234,762 | 215,971 | 216,190 | ||||||||||||||||||||||||||||||||||||||||||||||
180,718 | 174,772 | 169,106 | 68,653 | 55,154 | 61,449 | 14,652 | 13,116 | 12,857 | 5,495 | 4,953 | 5,689 | 269,518 | 2 | 247,995 | 249,101 | |||||||||||||||||||||||||||||||||||||||||||||
(2,163 | ) | (2,892 | ) | (3,715 | ) | (388 | ) | (655 | ) | (1,091 | ) | (18 | ) | (25 | ) | (29 | ) | (62 | ) | (4 | ) | (9 | ) | (2,631 | ) | (3,576 | ) | (4,844 | ) | |||||||||||||||||||||||||||||||
178,555 | 171,880 | 165,391 | 68,265 | 54,499 | 60,358 | 14,634 | 13,091 | 12,828 | 5,433 | 4,949 | 5,680 | 266,887 | 2 | 244,419 | 244,257 | |||||||||||||||||||||||||||||||||||||||||||||
4,181 | 6,390 | 8,364 | 557 | 791 | 1,531 | 18 | 25 | 29 | 105 | 3 | 9 | 4,861 | 7,209 | 9,933 | ||||||||||||||||||||||||||||||||||||||||||||||
(1,680 | ) | (2,460 | ) | 0 | (33 | ) | (3 | ) | 0 | 0 | (2 | ) | 0 | (45 | ) | 0 | 0 | (1,758 | ) | (2,465 | ) | 0 | ||||||||||||||||||||||||||||||||||||||
2,501 | 3,930 | 8,364 | 524 | 788 | 1,531 | 18 | 23 | 29 | 60 | 3 | 9 | 3,103 | 4,744 | 9,933 | ||||||||||||||||||||||||||||||||||||||||||||||
2,045 | 2,830 | 3,573 | 380 | 599 | 932 | 18 | 25 | 29 | 62 | 4 | 9 | 2,505 | 3,458 | 4,543 | ||||||||||||||||||||||||||||||||||||||||||||||
300 | 312 | 452 | 78 | (184 | ) | 224 | 0 | 3 | 13 | 0 | 0 | 0 | 378 | 496 | 689 | |||||||||||||||||||||||||||||||||||||||||||||
2,345 | 3,142 | 4,025 | 458 | 780 | 1,156 | 18 | 28 | 42 | 62 | 4 | 9 | 2,883 | 3,954 | 5,232 | ||||||||||||||||||||||||||||||||||||||||||||||
134 | 118 | 515 | 49 | 144 | 181 | 0 | 0 | 0 | 0 | 0 | 0 | 183 | 262 | 696 | ||||||||||||||||||||||||||||||||||||||||||||||
3,165 | 4,420 | 5,032 | 408 | 455 | 938 | 18 | 25 | 29 | 105 | 1 | 1 | 3,696 | 4,901 | 6,000 | ||||||||||||||||||||||||||||||||||||||||||||||
1,887 | 2,346 | 2,749 | 297 | 392 | 677 | 18 | 25 | 29 | 62 | 1 | 1 | 2,264 | 2,764 | 3,456 | ||||||||||||||||||||||||||||||||||||||||||||||
1.3 | 1.8 | 2.4 | 0.7 | 1.4 | 1.9 | 0.1 | 0.2 | 0.3 | 1.1 | 0.1 | 0.2 | 1.1 | 1.6 | 2.1 | ||||||||||||||||||||||||||||||||||||||||||||||
2.3 | 3.7 | 4.9 | 0.8 | 1.4 | 2.5 | 0.1 | 0.2 | 0.2 | 1.9 | 0.1 | 0.2 | 1.8 | 2.9 | 4.0 | ||||||||||||||||||||||||||||||||||||||||||||||
48.9 | 44.3 | 42.7 | 68.2 | 75.7 | 60.9 | 100.0 | 100.0 | 100.0 | 59.0 | 133.3 | 100.0 | 51.5 | 48.0 | 45.7 | ||||||||||||||||||||||||||||||||||||||||||||||
81.8 | 72.0 | 42.7 | 72.5 | 76.0 | 60.9 | 100.0 | 108.7 | 100.0 | 103.3 | 133.3 | 100.0 | 80.7 | 72.9 | 45.7 | ||||||||||||||||||||||||||||||||||||||||||||||
1.8 | 2.5 | 3.0 | 0.6 | 0.8 | 1.5 | 0.1 | 0.2 | 0.2 | 1.9 | 0.0 | 0.0 | 1.4 | 2.0 | 2.4 | ||||||||||||||||||||||||||||||||||||||||||||||
59.6 | 53.1 | 54.6 | 72.8 | 86.8 | 72.2 | 100.0 | 100.0 | 100.0 | 59.0 | 100.0 | 100.0 | 61.3 | 56.4 | 57.6 | ||||||||||||||||||||||||||||||||||||||||||||||
Total exposure
UBS Wealth Management | ||||||||||||||||||||||||||||||||||||
& Business Banking | UBS Warburg | UBS PaineWebber | ||||||||||||||||||||||||||||||||||
CHF million | ||||||||||||||||||||||||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||||||||||||||
Loans utilization (gross) | 174,032 | 181,854 | 185,271 | 61,718 | 61,229 | 73,810 | 12,857 | 18,246 | 24,649 | |||||||||||||||||||||||||||
Contigent claims | 11,752 | 13,303 | 10,613 | 4,407 | 11,640 | 17,173 | 430 | 542 | ||||||||||||||||||||||||||||
Unutilized committed lines | 1,984 | 2,520 | 3,574 | 36,439 | 47,355 | 49,936 | 811 | 715 | ||||||||||||||||||||||||||||
Total banking products | 187,768 | 197,677 | 199,458 | 102,564 | 120,224 | 140,919 | 14,098 | 19,503 | 24,649 | |||||||||||||||||||||||||||
Unsecured OTC products | 1,682 | 1,961 | 883 | 55,002 | 64,416 | 61,340 | ||||||||||||||||||||||||||||||
Other derivatives (secured exchange-traded) | 712 | 2,317 | 1,638 | 10,850 | 12,150 | 8,994 | ||||||||||||||||||||||||||||||
Securities lending | 917 | 45 | 2,193 | 11,962 | 14,575 | 12,159 | ||||||||||||||||||||||||||||||
Repo | 14 | 67 | 650 | 21,744 | 18,948 | 22,183 | ||||||||||||||||||||||||||||||
Total traded products2 | 3,325 | 4,390 | 5,364 | 99,558 | 110,089 | 104,676 | ||||||||||||||||||||||||||||||
Total credit exposure, gross | 191,093 | 202,067 | 204,822 | 202,122 | 230,313 | 245,595 | 14,098 | 19,503 | 24,649 | |||||||||||||||||||||||||||
Total credit exposure, | ||||||||||||||||||||||||||||||||||||
net of allowances | 187,369 | 196,557 | 197,042 | 200,620 | 227,949 | 242,873 | 14,069 | 19,469 | 24,629 | |||||||||||||||||||||||||||
Total tradable assets3 | 164 | 2,908 | 2,626 | 183,977 | 241,357 | 219,070 | ||||||||||||||||||||||||||||||
[Additional columns below]
[Continued from above table, first column(s) repeated]
Other1 | UBS Group | |||||||||||||||||||||||
CHF million | ||||||||||||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||||||||||
Loans utilization (gross) | 763 | 655 | 786 | 249,370 | 261,984 | 284,516 | ||||||||||||||||||
Contigent claims | 5 | 2 | 16,594 | 25,487 | 27,786 | |||||||||||||||||||
Unutilized committed lines | 72 | 18 | 39,306 | 50,608 | 53,510 | |||||||||||||||||||
Total banking products | 840 | 675 | 786 | 305,270 | 338,079 | 365,812 | ||||||||||||||||||
Unsecured OTC products | 56,684 | 66,377 | 62,223 | |||||||||||||||||||||
Other derivatives (secured exchange-traded) | 11,562 | 14,467 | 10,632 | |||||||||||||||||||||
Securities lending | 12,879 | 14,620 | 14,352 | |||||||||||||||||||||
Repo | 21,758 | 19,015 | 22,833 | |||||||||||||||||||||
Total traded products2 | 102,883 | 114,479 | 110,040 | |||||||||||||||||||||
Total credit exposure, gross | 840 | 675 | 786 | 408,153 | 452,558 | 475,852 | ||||||||||||||||||
Total credit exposure, | ||||||||||||||||||||||||
net of allowances | 840 | 670 | 781 | 402,898 | 444,645 | 465,325 | ||||||||||||||||||
Total tradable assets3 | 613 | 121 | 136 | 184,754 | 244,386 | 221,832 | ||||||||||||||||||
63
57
Capital and Risk ManagementRisk Analysis
Group in nominal terms. For internal risk management and risk control purposes, we also measure credit risk in terms of statistical and stress loss, taking into account the size of the credit exposures, plus the quality of the counterparty, collateral and diversification effects, as explained on page 61.
UBS Wealth Management& Business Banking
mortgages, are predominantly extended against the pledge of marketable securities where UBS applies conservative standards to determine the advance value of the collateral.
64
UBS Wealth Management & Business Banking:distribution of gross loans across counterparty rating and loss given default (LGD) buckets
Loss given default buckets | Weighted | |||||||||||||||||||||||
Gross | Average | |||||||||||||||||||||||
CHF million | Exposure | 0-25% | 26-50% | 51-75% | 76-100% | LGD(%) | ||||||||||||||||||
0 | 1,183 | 512 | 576 | 95 | 0 | 36 | ||||||||||||||||||
1 | 476 | 388 | 48 | 39 | 1 | 31 | ||||||||||||||||||
2 | 2,963 | 1,721 | 860 | 341 | 41 | 32 | ||||||||||||||||||
3 | 35,555 | 18,017 | 8,579 | 3,771 | 5,188 | 33 | ||||||||||||||||||
4 | 5,743 | 1,936 | 1,738 | 2,024 | 45 | 40 | ||||||||||||||||||
5 | 81,954 | 75,014 | 4,184 | 1,775 | 981 | 27 | ||||||||||||||||||
6 | 8,596 | 1,955 | 3,691 | 2,753 | 197 | 42 | ||||||||||||||||||
7 | 10,953 | 3,055 | 4,825 | 1,654 | 1,419 | 43 | ||||||||||||||||||
8 | 10,235 | 2,017 | 5,938 | 1,461 | 819 | 39 | ||||||||||||||||||
9 | 5,987 | 1,257 | 3,494 | 843 | 393 | 40 | ||||||||||||||||||
10 | 1,206 | 218 | 694 | 212 | 82 | 42 | ||||||||||||||||||
11 | 341 | 53 | 208 | 54 | 26 | 41 | ||||||||||||||||||
12 | 467 | 166 | 134 | 118 | 49 | 43 | ||||||||||||||||||
Total | 165,659 | 106,309 | 34,969 | 15,140 | 9,241 | 33 | ||||||||||||||||||
Investment grade | 127,874 | 97,588 | 15,985 | 8,045 | 6,256 | |||||||||||||||||||
Sub-investment grade | 37,785 | 8,721 | 18,984 | 7,095 | 2,985 | |||||||||||||||||||
Impaired and defaulted | 8,373 | |||||||||||||||||||||||
Total gross loans | 174,032 | |||||||||||||||||||||||
predominantly small to medium sized enterprises in Switzerland. During 2002, our high credit underwriting standards and the continued relative strength of the Swiss economy have contributed to improved credit quality within the portfolio, with individual and sector concentrations having been further reduced.
UBS Warburg
years, UBS Warburg has engaged in a substantial credit risk hedging program through which we have effectively reduced our banking products exposure by CHF 25.3 billion. This was achieved mainly by transferring the underlying risk to high grade market counterparties using credit default swaps. The table on the following page provides a view of the net banking products exposure, reflecting the effect of these credit risk hedging activities. In order to better illustrate the effects of credit hedging and other risk mitigation, we have expanded the 2002 columns in the rating distribution graph on page 67 to show exposures before and after risk mitigation. Additionally, in the matrix on the following page, we show the distribution of UBS Warburg’s net banking products exposure across rating grades and LGD buckets. In UBS Warburg’s portfolio, the standard LGD on senior secured claims is 40% and on senior unsecured claims 50%, which explains the concentration in the 26-50% bucket in the matrix on page 66. The significant exposure in the sub-investment grade 0-25% bucket is mainly comprised of collateralized short-term bridge loans for US residential real estate portfolios awaiting securitization.
65
Financial ManagementRisk Analysis
As at 31.12.2002 | ||||||||||||||||
Gross | Credit | Other Risk | Net | |||||||||||||
CHF million | Exposure1 | Hedges2 | Mitigants3 | Exposure | ||||||||||||
Investment grade | 47,020 | 21,463 | 913 | 26,272 | ||||||||||||
Sub-investment grade | 29,256 | 3,770 | 613 | 25,551 | ||||||||||||
Impaired and defaulted | 1,981 | 99 | 1,229 | 818 | ||||||||||||
Total banking products exposure | 78,257 | 25,332 | 2,755 | 52,641 | ||||||||||||
Note: Columns cannot be totaled as net exposure is set to zero in case of over-hedging or over-provisioning.
UBS Warburg: distribution of net take and hold banking products exposure1across counterparty rating and loss given default (LGD) buckets
Net | Loss given default buckets | Weighted | ||||||||||||||||||||||
Credit | Average | |||||||||||||||||||||||
CHF million | Exposure2 | 0-25% | 26-50% | 51-75% | 76-100% | LGD(%) | ||||||||||||||||||
Not rated | 26 | 25 | 1 | 47 | ||||||||||||||||||||
0 and 1 | 2,245 | 2,243 | 2 | 50 | ||||||||||||||||||||
2 | 5,006 | 349 | 4,650 | 3 | 4 | 52 | ||||||||||||||||||
3 | 8,398 | 4,315 | 4,069 | 14 | 39 | |||||||||||||||||||
4 | 4,661 | 347 | 4,232 | 82 | 50 | |||||||||||||||||||
5 | 2,594 | 367 | 2,218 | 9 | 47 | |||||||||||||||||||
6 | 2,840 | 1,537 | 1,272 | 7 | 24 | 32 | ||||||||||||||||||
7 | 5,558 | 4,315 | 1,243 | 23 | ||||||||||||||||||||
8 | 8,599 | 7,854 | 734 | 11 | 9 | |||||||||||||||||||
9 | 5,051 | 3,969 | 1,041 | 1 | 40 | 16 | ||||||||||||||||||
10 | 551 | 67 | 482 | 2 | 45 | |||||||||||||||||||
11 | 312 | 312 | 42 | |||||||||||||||||||||
12 | 802 | 132 | 628 | 9 | 33 | 39 | ||||||||||||||||||
Total non-impaired | 46,643 | 23,252 | 23,149 | 42 | 200 | 38 | ||||||||||||||||||
Investment grade | 22,930 | 5,378 | 17,437 | 12 | 103 | |||||||||||||||||||
Sub-investment grade | 23,713 | 17,874 | 5,712 | 30 | 97 | |||||||||||||||||||
Impaired and defaulted | 797 | |||||||||||||||||||||||
Total take and hold | 47,440 | |||||||||||||||||||||||
66
67
Capital and Risk ManagementRisk Analysis
agement activities. Providing risk management solutions to our customers, including the use of derivative products, is a core business of UBS Warburg. Here, transactions with counterparties of lower quality are generally conducted on a secured basis or for short tenors only. In line with general market trends, UBS Warburg has also entered into bilateral collateral agreements with other major banks to mitigate the potential concentrations of exposure arising from industry consolidation and the continuing increase in volumes of OTC derivatives traded.
UBS PaineWebber
Country risk
68
Emerging market exposure by major geographical area and product type
CHF million | Total | Banking products | Traded products | Tradable assets | ||||||||||||||||||||||||||||||||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||||||||||||||||||||||||||||
Emerging Europe | 2,005 | 1,954 | 1,612 | 390 | 632 | 809 | 532 | 750 | 395 | 1,083 | 572 | 408 | ||||||||||||||||||||||||||||||||||||
Emerging Asia | 4,755 | 7,747 | 7,642 | 2,189 | 4,029 | 4,053 | 1,179 | 1,537 | 1,355 | 1,387 | 2,181 | 2,234 | ||||||||||||||||||||||||||||||||||||
Latin America | 1,711 | 2,876 | 4,268 | 618 | 1,122 | 2,352 | 330 | 863 | 1,025 | 763 | 891 | 891 | ||||||||||||||||||||||||||||||||||||
Africa/Middle East | 2,205 | 2,858 | 2,736 | 979 | 1,432 | 1,564 | 818 | 962 | 669 | 408 | 464 | 503 | ||||||||||||||||||||||||||||||||||||
Total | 10,676 | 15,435 | 16,258 | 4,176 | 7,215 | 8,778 | 2,859 | 4,112 | 3,444 | 3,641 | 4,108 | 4,036 | ||||||||||||||||||||||||||||||||||||
UBS Group’s Financial Statements are prepared in accordance with IFRS, under which credit loss expense charged to the Financial Statements in any period is the sum of net allowances and direct writeoffs minus recoveries arising in that period, i.e. the credit losses actually incurred. To better reflect the characteristics of credit risks in our activities, we measure and present our Business Group results in terms of expected loss, rather than actual IFRS loss, and provide a reconciliation between the two - see the section “Expected loss” on pages 60 to 61 and pages 39 to 40 of our Financial Report 2002 for further details. The following discussion covers the actual credit loss expense recorded under IFRS.
was characterized by heightened investor risk aversion, with pronounced tiering by credit quality, resulting in higher-risk corporate and sovereign borrowers facing increasingly difficult financing conditions.
69
IFRS credit loss expense
UBS Wealth Management | ||||||||||||||||||||||||||||||||||||
CHF million | & Business Banking | UBS Warburg | UBS PaineWebber | |||||||||||||||||||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||||||||||||||
Total banking products exposure at year end | 187,768 | 197,677 | 199,458 | 102,564 | 120,224 | 140,919 | 14,098 | 19,503 | 24,649 | |||||||||||||||||||||||||||
IFRS actual credit loss expense/(recovery) | 241 | 123 | (695 | ) | (35 | ) | 360 | 562 | 15 | 15 | 3 | |||||||||||||||||||||||||
- as a proportion of total banking products exposure (bps) | 13 | 6 | (35 | ) | (3 | ) | 30 | 40 | 11 | 8 | 1 | |||||||||||||||||||||||||
Expected loss charged to Business Groups2 | 314 | 604 | 785 | 128 | 112 | 243 | 13 | 18 | 3 | |||||||||||||||||||||||||||
- as a proportion of total banking products exposure (bps) | 17 | 31 | 39 | 12 | 9 | 17 | 9 | 9 | 1 | |||||||||||||||||||||||||||
[Additional columns below]
[Continued from above table, first column(s) repeated]
CHF million | Other1 | UBS Group | ||||||||||||||||||||||
For the year ended | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||||||||||
Total banking products exposure at year end | 840 | 675 | 786 | 305,270 | 338,079 | 365,812 | ||||||||||||||||||
IFRS actual credit loss expense/(recovery) | (15 | ) | 0 | 0 | 206 | 498 | (130 | ) | ||||||||||||||||
- as a proportion of total banking products exposure (bps) | (179 | ) | 0 | 0 | 7 | 15 | (4 | ) | ||||||||||||||||
Expected loss charged to Business Groups2 | 0 | 0 | 0 | 455 | 734 | 1,031 | ||||||||||||||||||
- as a proportion of total banking products exposure (bps) | 0 | 0 | 0 | 15 | 22 | 28 | ||||||||||||||||||
1Includes UBS Global Asset Management and Corporate Center. 2 For an explanation of the credit loss charge used in our Business Group reporting, please see the “Expected loss” section on page 60 and 61 and pages 39 and 40 of the Financial Report 2002.
Impaired loans, allowances and provisions
on page 62. We are confident that our policies and processes ensure a consistent and fair basis for determining prudent levels of allowances and provisions.
Allowances and provisions for credit loss
UBS Wealth Management & | ||||||||||||
CHF million | Business Banking | |||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
Loans to banks (gross) | 6,449 | 7,938 | 9,150 | |||||||||
Loans to customers (gross) | 167,583 | 173,916 | 176,121 | |||||||||
Gross loans | 174,032 | 181,854 | 185,271 | |||||||||
Non-performing loans | 5,033 | 7,004 | 8,342 | |||||||||
Other impaired loans | 3,340 | 4,306 | 5,978 | |||||||||
Total impaired loans | 8,373 | 11,310 | 14,320 | |||||||||
Allowances for non-performing loans | 2,750 | 4,248 | 5,141 | |||||||||
Allowances for other impaired loans | 832 | 1,143 | 2,579 | |||||||||
Total allowances for impaired loans | 3,582 | 5,391 | 7,720 | |||||||||
Other allowances and provisions2 | 452 | 243 | 83 | |||||||||
Total allowances and provisions | 4,034 | 5,634 | 7,803 | |||||||||
of which country allowances and provisions | 515 | 507 | 498 | |||||||||
Ratios | ||||||||||||
Impaired loans as a % of gross loans | 4.8 | 6.2 | 7.7 | |||||||||
Non-performing loans as a % of gross loans | 2.9 | 3.9 | 4.5 | |||||||||
Allowances and provisions for credit loss as a % of gross loans | 2.3 | 3.1 | 4.2 | |||||||||
Allocated allowances as a % of impaired loans | 42.8 | 47.7 | 53.9 | |||||||||
Allocated allowances as a % of non-performing loans | 54.6 | 60.7 | 61.6 | |||||||||
70
to CHF 5,621 million at 31 December 2002. Note 9b to the UBS Group Financial Statements provides further details of the changes in allowances and provisions during the year.
loans ratio improved to 2.4% at 31 December 2002 from 3.3% at 31 December 2001 and 3.7% at 31 December 2000. These positive results were due, in part, to the reduction of our exposure to international credit risk, which produced fewer new impaired and non-performing loans than in previous years, and in part to continuing efforts to conclude proceedings and reach settlement on existing non-performing loans.
Market risk is the risk of loss arising from movements in market variables, including observable market variables such as interest rates, exchange rates and equity markets. In addition to thesemarkets, and other general market risk factors, theothers which may be only indirectly observable such as volatilities and correlations. The risk of price movements on securities and other obligations in tradable form, resulting from general credit and country risk factors and events specific to individual issuers, of securities is also considered market risk.
UBS Warburg | UBS PaineWebber | Other1 | UBS Group | |||||||||||||||||||||||||||||||||||||||||
31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||||||||||||||||||||
24,495 | 17,702 | 18,310 | 1,327 | 2,151 | 2,061 | 640 | 470 | 543 | 32,911 | 28,261 | 30,064 | |||||||||||||||||||||||||||||||||
37,223 | 43,527 | 55,500 | 11,530 | 16,095 | 22,588 | 123 | 185 | 243 | 216,459 | 233,723 | 254,452 | |||||||||||||||||||||||||||||||||
61,718 | 61,229 | 73,810 | 12,857 | 18,246 | 24,649 | 763 | 655 | 786 | 249,370 | 261,984 | 284,516 | |||||||||||||||||||||||||||||||||
967 | 1,609 | 2,068 | 29 | 17 | 16 | 0 | 9 | 26 | 6,029 | 8,639 | 10,452 | |||||||||||||||||||||||||||||||||
996 | 1,667 | 2,064 | 0 | 17 | 0 | 0 | 0 | 0 | 4,336 | 5,990 | 8,042 | |||||||||||||||||||||||||||||||||
1,963 | 3,276 | 4,132 | 29 | 34 | 16 | 0 | 9 | 26 | 10,365 | 14,629 | 18,494 | |||||||||||||||||||||||||||||||||
706 | 1,104 | 1,167 | 29 | 17 | 16 | 0 | 5 | 5 | 3,485 | 5,374 | 6,329 | |||||||||||||||||||||||||||||||||
575 | 760 | 777 | 0 | 17 | 0 | 0 | 0 | 0 | 1,407 | 1,920 | 3,356 | |||||||||||||||||||||||||||||||||
1,281 | 1,864 | 1,944 | 29 | 34 | 16 | 0 | 5 | 5 | 4,892 | 7,294 | 9,685 | |||||||||||||||||||||||||||||||||
264 | 681 | 813 | 13 | 0 | 0 | 0 | 0 | 0 | 729 | 924 | 896 | |||||||||||||||||||||||||||||||||
1,545 | 2,545 | 2,757 | 42 | 34 | 16 | 0 | 5 | 5 | 5,621 | 8,218 | 10,581 | |||||||||||||||||||||||||||||||||
221 | 499 | 794 | 0 | 0 | 0 | 0 | 0 | 0 | 736 | 1,006 | 1,292 | |||||||||||||||||||||||||||||||||
3.2 | 5.4 | 5.6 | 0.2 | 0.2 | 0.1 | 0.0 | 1.4 | 3.3 | 4.2 | 5.6 | 6.5 | |||||||||||||||||||||||||||||||||
1.6 | 2.6 | 2.8 | 0.2 | 0.1 | 0.1 | 0.0 | 1.4 | 3.3 | 2.4 | 3.3 | 3.7 | |||||||||||||||||||||||||||||||||
2.5 | 4.2 | 3.7 | 0.3 | 0.2 | 0.1 | 0.0 | 0.8 | 0.6 | 2.3 | 3.1 | 3.7 | |||||||||||||||||||||||||||||||||
65.3 | 56.9 | 47.0 | 100.0 | 100.0 | 100.0 | 0.0 | 55.6 | 19.2 | 47.2 | 49.9 | 52.4 | |||||||||||||||||||||||||||||||||
73.0 | 68.6 | 56.4 | 100.0 | 100.0 | 100.0 | 0.0 | 55.6 | 19.2 | 57.8 | 62.2 | 60.6 | |||||||||||||||||||||||||||||||||
71
etaryproprietary positions in equities, fixed income and interest rate products, foreign exchange and, to a lesser extent, precious metals and energy. ActivityThere is more limited trading activity, mainly in OECD markets, with somedue to the facilitation of client business, in emerging markets.our Wealth Management operations.
Risk measures
We apply market risk measures, limits and controls at the portfolio level, and we apply concentration limits and other controls, where necessary, to individual risk types, to particular books and to specific exposures.
Portfolio risk measures
They are applied to all foreign exchange, precious metals and energy exposuressignificant market risks, whether they arise in trading or non-trading portfolios.
58
Risk measurement
Financial Management |
tistical “normality”, which is generally not fully valid, and will therefore tend to under- or over-estimate the actual risk. This can be seen from the 1-day and 10-day VaR figures for our Investment Bank shown in the tables on page 61.
72
Most major financial institutions employ stress tests, but their approaches differ widely and there is no benchmark or industry standard in terms of stress scenarios or the way in which they are applied to an institution’s positions. Furthermore, the impact of a given stress scenario, even if measured in the same way across institutions, depends entirely on the make up of each institution’s portfolio, and a scenario highly
The Boardapplicable to one institution may have no relevance to another. Comparison of Directorsstress results between institutions can therefore be highly misleading, and for this reason we do not publish quantitative stress results but provide only qualitative analysis.
Change in VaR model
Concentration limits and other controls for UBS Warburg.trading books
59
Financial Management
Market risk
Market risk developments
The upturn in investor sentiment towards the end of 2003 continued into first quarter 2004, despite the expectation of higher interest rates. The start to the year UBS Warburg has maintained its previous strategyalso saw the fastest rate of concentrating risk takingglobal GDP growth in liquidnearly two decades. However, increasing geopolitical uncertainty towards the end of the first quarter subdued investor sentiment, affecting equity and fixed income markets and instruments,energy prices.
In 2002, we have seen periods of exceptional volatility, in conjunction with extraordinary falls in securitieshigh oil prices. Oil prices increased substantially during 2004, reaching 21-year highs, following political uncertainty in the bondMiddle East. This upward trend ceased towards the end of the year after better than expected oil inventory figures were released and equity markets, especiallythe demand for heating oil fell, a reflection of mild weather in the telecommunications and energy sectors. These falls occurred in response to profit warnings, and revelations of accounting irregularities and corporate misgovernance, particularly inUS.
Equity markets started the year well, but eased off towards the end of first quarter, affected by political uncertainty and a patch of soft US economic data over the summer months. Once the US election was over and better than expected corporate results were published in the final quarter, equity markets rallied strongly. The year as a whole also saw stronger equity issuance activity than in 2003.
60
Financial Management |
Investment Bank: Value at Risk (10-day 99% confidence) | ||||||||||||||||||||||||||||||||
Year ended 31.12.04 | Year ended 31.12.03 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.04 | Min. | Max. | Average | 31.12.03 | ||||||||||||||||||||||||
Risk type | ||||||||||||||||||||||||||||||||
Equities | 121 | 188 | 153 | 126 | 142 | 194 | 171 | 160 | ||||||||||||||||||||||||
Interest rates | 244 | 441 | 340 | 361 | 166 | 403 | 278 | 254 | ||||||||||||||||||||||||
Foreign exchange | 5 | 73 | 30 | 29 | 7 | 82 | 31 | 28 | ||||||||||||||||||||||||
Other1 | 9 | 87 | 37 | 32 | 7 | 51 | 15 | 10 | ||||||||||||||||||||||||
Diversification effect | 2 | 2 | (202 | ) | (215 | ) | 2 | 2 | (177 | ) | (157 | ) | ||||||||||||||||||||
Total | 274 | 457 | 358 | 332 | 236 | 470 | 317 | 295 | ||||||||||||||||||||||||
Year ended 31.12.02 | Year ended 31.12.01 | Year ended 31.12.00 | |||||||||||||||||||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.02 | Min. | Max. | Average | 31.12.01 | Min. | Max. | Average | 31.12.00 | |||||||||||||||||||||||||||||||||||||
Risk type | |||||||||||||||||||||||||||||||||||||||||||||||||
Equities | 123.3 | 293.0 | 177.2 | 178.3 | 123.9 | 454.9 | 181.1 | 157.0 | 144.7 | 245.9 | 199.4 | 146.5 | |||||||||||||||||||||||||||||||||||||
Interest rates | 161.8 | 303.4 | 219.2 | 280.9 | 127.6 | 299.8 | 182.7 | 226.2 | 113.8 | 182.4 | 148.1 | 122.4 | |||||||||||||||||||||||||||||||||||||
Foreign exchange | 6.2 | 100.0 | 35.0 | 9.6 | 9.3 | 90.7 | 28.5 | 25.8 | 7.8 | 98.0 | 32.7 | 31.5 | |||||||||||||||||||||||||||||||||||||
Other (incl. energy)2 | 3.6 | 112.8 | 29.8 | 12.6 | 2.2 | 14.4 | 6.1 | 5.1 | 2.1 | 27.4 | 9.7 | 5.3 | |||||||||||||||||||||||||||||||||||||
Diversification effect | 3 | 3 | (186.3 | ) | (171.4 | ) | 3 | 3 | (146.2 | ) | (143.1 | ) | 3 | 3 | (148.2 | ) | (128.2 | ) | |||||||||||||||||||||||||||||||
Total | 198.3 | 389.6 | 274.9 | 310.0 | 179.8 | 470.3 | 252.2 | 271.0 | 177.2 | 296.1 | 241.7 | 177.2 | |||||||||||||||||||||||||||||||||||||
UBS: Value at Risk (10-day 99% confidence) | ||||||||||||||||||||||||||||||||||||
As at 31.12.04 | Year ended 31.12.04 | Year ended 31.12.03 | ||||||||||||||||||||||||||||||||||
CHF million | Limits | Min. | Max. | Average | 31.12.04 | Min. | Max. | Average | 31.12.03 | |||||||||||||||||||||||||||
Business Groups | ||||||||||||||||||||||||||||||||||||
Investment Bank | 600 | 274 | 457 | 358 | 332 | 236 | 470 | 317 | 295 | |||||||||||||||||||||||||||
Wealth Management USA | 50 | 12 | 27 | 17 | 16 | 8 | 21 | 14 | 17 | |||||||||||||||||||||||||||
Global Asset Management1 | 30 | 5 | 16 | 11 | 7 | 7 | 16 | 11 | 8 | |||||||||||||||||||||||||||
Wealth Management & Business Banking | 5 | 1 | 1 | 1 | 1 | 1 | 5 | 2 | 1 | |||||||||||||||||||||||||||
Corporate Center2,3 | 150 | 35 | 69 | 47 | 38 | 40 | 83 | 58 | 49 | |||||||||||||||||||||||||||
Reserve | 170 | |||||||||||||||||||||||||||||||||||
Diversification effect | 4 | 4 | (69 | ) | (62 | ) | 4 | 4 | (95 | ) | (76 | ) | ||||||||||||||||||||||||
Total | 750 | 274 | 453 | 365 | 332 | 223 | 460 | 307 | 294 | |||||||||||||||||||||||||||
73
Only covers UBS Group: Value at Risk (10-day 99% confidence)positions in alternative & quantitative investment funds.2 Year ended 31.12.02 Year ended 31.12.01 Year ended 31.12.00 CHF million Limits Min. Max. Average 31.12.02 Min. Max. Average 31.12.01 Min. Max. Average 31.12.00 UBS Warburg — Corporate and Institutional Clients1, 2 450 198.3 389.6 274.9 310.0 179.8 470.3 252.2 271.0 177.2 296.1 241.7 177.2 50 11.1 36.2 18.9 14.2 13.2 37.3 20.4 23.6 17.8 28.2 21.8 21.3 UBS Global Asset Management 30 7.0 13.1 9.4 8.6 UBS Wealth Management & Business Banking4 50 4.1 8.9 5.4 4.1 3.7 5.3 4.8 4.8 3.3 4.8 4.1 3.7 150 30.1 63.7 39.8 62.1 31.3 63.5 37.4 40.9 29.9 149.4 69.4 45.3 Reserve 150 Diversification effect (68.3 ) (86.6 ) (49.0 ) (35.7 ) (89.0 ) (58.0 ) 600 211.3 373.9 280.1 312.4 191.9 482.5 265.8 304.6 189.0 321.9 248 189.6 1 Includes UBSW Energy The private label banks are included in Wealth Management & Business Banking up to 30 June 2003 and in Corporate Center from start of trading on 11 February 2002. 2 Positions have been restated for 2001 and 2000 to exclude UBS PaineWebber exposures. 1 July 2003.3 UBS PaineWebber included from legal merger date 3 November 2000. 4 Includes interest rate exposures in the banking books of Treasury and, from 1 July 2003, the Private Banks. 5 Includes interest rate exposures inprivate label banks.4 As the banking book of Group Treasury.minimum and maximum occur on different days for different Business Groups, it is not meaningful to calculate a portfolio diversification effect.
UBS: Value at Risk (1-day 99% confidence) | ||||||||||||||||||||||||||||||||
Year ended 31.12.04 | Year ended 31.12.03 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.04 | Min. | Max. | Average | 31.12.03 | ||||||||||||||||||||||||
Investment Bank | 106 | 168 | 133 | 114 | 94 | 146 | 111 | 116 | ||||||||||||||||||||||||
UBS | 107 | 173 | 137 | 118 | 94 | 152 | 113 | 123 | ||||||||||||||||||||||||
7461
Financial Management
Market risk
al, market risk exposures have stayed withinEquities VaR ended the normal ranges.year at CHF 126 million, CHF 34 million lower than the 2003 year-end figure of CHF 160 million, and averaged CHF 153 million compared to CHF 171 million for 2003. There was a significant fall in fourth quarter following the satisfactory conclusion of a number of arbitrage strategies.
Management of the VaR model, but none of these changes has had a material impact on the reported risk.
In June 2002, we appointed a Group Head of Consequential Risk, reporting to the Group CRO, whose mission is to ensure that the Group has formulated and implemented, and constantly reviews and refines, a consistent, coherent and
comprehensive approach to the management and control of consequential risk throughout our business.
75
fore also important, to ensure that our standards are complied with, that they are effective, and that remedial action is taken where necessary.
Know Your Customer and Anti-money laundering controls
IT security
participant and a market leader in the provision of internet based and other “e” services to our clients, we need both strong IT security and adequate business continuity arrangements to protect a range of interest groups, including our clients and customers, other market participants and our shareholders, and to meet our legal and regulatory obligations.
Fraud prevention
76
consistency of detail and definition. Banks will have to support their quantitative approaches with a strong qualitative framework and, as outlined in the “Consequential risk” section above, we are developing group-wide qualitative standards. While it is clear that improving the qualitative framework should beneficially impact loss experience, there is no simple formula. Once the final details of Basel II are clear, we will further accelerate our quantitative work.
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Group Treasury
The processes and transactions for which Group Treasury is responsible relate to our corporate legal structure, regulatory capital, balance sheet, funding and liquidity, non-trading currency and interest rate risk and financial investments, including:
Interest rate risk is inherent in many of our businesses. It arises from a variety of factors, including differences in timing between contractual maturity or re-pricing of assets, liabilities and derivative instruments, which impact net interest income in the event of changes in market interest rates. In the case of variable rate assets and liabilities, UBS is also exposed to basis risk, which is the difference in re-pricing characteristics of floating rate indices, such as the savings rate and market rates, and which can result in changes to net income and the valuation of our assets and liabilities. In addition, certain products have embedded options that affect their pricing and effective maturity.
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Internal hedging process
generally transferred to CCT. Client current and savings accounts and many other products of UBS Wealth Management & Business Banking have no contractual maturity date or directlydirect market-linked rate, and can be thought of as containing embedded pre-payment/withdrawal and re-pricing options. Theirtheir interest rate risk cannot be transferred by simple back-to-back transactions andtransactions. Instead, they are therefore transferred on a pooled basis. This entails the establishment ofbasis via a “replication” portfolio —– a portfolio of revolving transactions between the originating business unit and Group Treasury at market rates designed to approximate the average cash flow and re-pricing behavior of the pooled client transactions. The structure and parameters of the replication portfolios are set in accordance with long-term observations of market and client behavior and are reviewed periodically. The current extraordinarily low interest rate environment, especially in Swiss franc rates, led, at the end of 2002, to some temporary adjustments of the replication portfolios for variable rate liabilities.
and the investment of our own equity. These are all strategic decisions, which implicitly create interest rate exposures. TheseThe risk in most such non-business items areis also transferred to Group Treasury through replicating portfolios, which,but in this case arethe replication is designed to approximate the investmentdesired funding or fundinginvestment profile mandated by the GEB.senior management.
Interest rate risk in the Group TreasuryBank Book
79
Capital and Risk ManagementGroup Treasury
– | Interest rate sensitivity, which expresses the impact of a one basis point (0.01%) parallel rise in interest rates on the fair value (net present value) of |
– | Economic value sensitivity, which measures the potential change in fair value of |
– | Net interest income at risk, which is defined as the potential change in |
62
Financial Management |
Bank’s trading units, which are the sole interface to the external markets for both cash and derivative transactions.
Interest rate risk development
Inat the overall Group level into a portfolio of major currencies, in order to reflect the significant increase in our business activities denominated in foreign currencies,currencies. Accordingly, the GEB decided in 2002 to diversifyconsolidated equity, which includes the equity investment strategy from a pure Swiss franc investment portfolio into portfolios of different currencies. Our equitysubsidiaries, is currentlynow invested in portfolios of longer term fixed-rate assetsnot only in Swiss francs but also in US dollars and, euros, in line with the strategic investment targets set by the GEB.to a lesser extent, euro and UK sterling. At 31 December 20022004 the Swiss franc portfolio had an average duration of 3.3approximately 3.1 years and an interest rate sensitivity of CHF 11.936.60 million per basis point. For the US dollar portfolio, the duration was 5.14.3 years and its sensitivity CHF 1.814.98 million per basis point. For the euro portfolio the duration was 3.1 years and its sensitivity CHF 0.52 million per basis point and for the euroUK sterling portfolio the duration was 3.33.1 years and its sensitivity CHF 0.470.51 million per basis point.
it would lead to higher net interest income at risk (when measured excluding the equity itself) and to higher volatility in the Group’sour actual interest earnings.
80
Interest rate sensitivity of the bank book
As at 31.12.02 | ||||||||||||||||||||||||
CHF thousand per | Within 1 | 1 to 3 | 3 to 12 | 1 to 5 | Over 5 | |||||||||||||||||||
basis point increase | month | months | months | years | years | Total | ||||||||||||||||||
CHF | 16 | (126 | ) | 97 | (63 | ) | (114 | ) | (190 | ) | ||||||||||||||
USD | 27 | (80 | ) | (66 | ) | 56 | 936 | 873 | ||||||||||||||||
EUR | 8 | (3 | ) | 44 | 191 | 1 | 241 | |||||||||||||||||
GBP | 0 | 0 | (37 | ) | 89 | 581 | 632 | |||||||||||||||||
JPY | 0 | 0 | 0 | 20 | (24 | ) | (4 | ) | ||||||||||||||||
Others | 0 | 0 | 0 | (1 | ) | (3 | ) | (4 | ) | |||||||||||||||
Total1 | 50 | (208 | ) | 38 | 292 | 1,378 | 1,549 | |||||||||||||||||
of which equity replicating portfolio (CHF) | 62 | 24 | 439 | 6,393 | 5,011 | 11,929 | ||||||||||||||||||
of which equity replicating portfolio (USD) | 3 | 0 | 11 | 629 | 1,164 | 1,807 | ||||||||||||||||||
of which equity replicating portfolio (EUR) | 1 | 1 | 16 | 267 | 189 | 474 | ||||||||||||||||||
Total equity replicating portfolio | 66 | 25 | 466 | 7,289 | 6,364 | 14,210 | ||||||||||||||||||
Bank book without equity replicating portfolio (total) | (16 | ) | (233 | ) | (428 | ) | (6,997 | ) | (4,987 | ) | (12,661 | ) | ||||||||||||
Change in risk under the two methodologies
As at | ||||||||||||
CHF million | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
Net interest income at risk | (151 | ) | (313 | ) | (247 | ) | ||||||
Economic value sensitivity | (1,246 | ) | (1,319 | ) | (908 | ) | ||||||
would lead to a CHF 1,2461,214 million decline in fair value, compared with an exposure of CHF 1,3191,169 million to the same scenario on 31 December 2001.2003.
Interest rate sensitivity of the Treasury book | ||||||||||||||||||||||||
As at 31.12.04 | ||||||||||||||||||||||||
CHF thousands per basis point increase | Within 1 month | 1 to 3 months | 3 to 12 months | 1 to 5 years | Over 5 years | Total | ||||||||||||||||||
CHF | (166 | ) | 1 | (87 | ) | 55 | 81 | (116 | ) | |||||||||||||||
USD | 52 | (20 | ) | 0 | (96 | ) | 649 | 585 | ||||||||||||||||
EUR | 12 | (4 | ) | 24 | 123 | 19 | 174 | |||||||||||||||||
GBP | 1 | (2 | ) | (18 | ) | 0 | 474 | 455 | ||||||||||||||||
JPY | 2 | 0 | 0 | (4 | ) | 0 | (2 | ) | ||||||||||||||||
Others | (1 | ) | 0 | 0 | (1 | ) | (2 | ) | (4 | ) | ||||||||||||||
Total1 | (100 | ) | (25 | ) | (81 | ) | 77 | 1,221 | 1,092 | |||||||||||||||
of which equity replicating portfolio(CHF) | 35 | 14 | 211 | 3,616 | 2,728 | 6,604 | ||||||||||||||||||
of which equity replicating portfolio(USD) | 13 | 3 | 90 | 1,791 | 3,081 | 4,978 | ||||||||||||||||||
of which equity replicating portfolio(EUR) | 2 | 1 | 17 | 287 | 213 | 520 | ||||||||||||||||||
of which equity replicating portfolio(GBP) | 2 | 1 | 15 | 287 | 203 | 508 | ||||||||||||||||||
Total equity replicating portfolio | 52 | 19 | 333 | 5,981 | 6,225 | 12,610 | ||||||||||||||||||
Treasury book without replicating portfolio(total) | (152 | ) | (44 | ) | (414 | ) | (5,904 | ) | (5,004 | ) | (11,518 | ) | ||||||||||||
Change in risk under the two methodologies | ||||||||||||
As at | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Net interest income at risk | (321 | ) | (233 | ) | (151 | ) | ||||||
Economic value sensitivity | (1,214 | ) | (1,169 | ) | (1,246 | ) | ||||||
63
Financial Management
Market risk
Management of non-trading currency risk
We report our results in Swiss francs, the currency of the country in which we are incorporated, but a substantial proportion of our assets and liabilities, revenues and costs arise in other currencies. Our corporate currency management activities are designed to protect UBS’s BIS Tier 1 capital ratio and expected future foreign currency earnings from adverse movements of the Swiss franc against the currencies of our assets, revenues and costs, while preserving the option to take advantage of opportunities which may arise.
the volatility in our Swiss franc results that would result from repeated re-translation, although it cannot protect the bank’s earnings against a sustained downward or upward move of one of the main currencies against the Swiss franc.
Non-trading currency risk VaR (10-day 99% confidence) | ||||||||||||
CHF million | 2004 | 2003 | 2002 | |||||||||
Minimum | 2.2 | 0.7 | 0.7 | |||||||||
Maximum | 41.9 | 32.0 | 14.2 | |||||||||
Average | 17.2 | 12.3 | 3.0 | |||||||||
End of period | 3.5 | 28.3 | 0.7 | |||||||||
64
Financial Management |
Financial Management
Liquidity and funding management
Liquidity and funding management
UBS’s business activities generate asset and liability portfolios which are intrinsically highly diversified with respect to market, product and currency. This reduces our exposure to individual funding sources, and also provides a broad range of investment opportunities, which in turn reduces liquidity risk. We adopt a centralized approach to liquidity and funding management to exploit these advantages to the full.
Liquidity approach
Our approach to liquidity management, which covers all branches and has definedsubsidiaries, is to ensure that we will always have sufficient liquidity to meet liabilities when due, under both normal and stressed conditions, without compromising our ability to respond quickly to strategic market opportunities. Our integrated framework incorporates an appropriate contingency plan. A first setassessment of principles relates toall expected cash flows and the establishmentlevel of liquidity risk limits (for example, a net overnighthigh-grade collateral that could be used for additional funding limit). The riskpurposes. Risk limits are set by the GEB and monitored by Group Treasury. The Group’sCompliance with the risk limits and actual credit liquidity exposure is assessed byexposures are regularly reported to the
Group Treasury Committee (GTC), which is chaired by the Group Treasurer and meets on a monthly basis. A second set of principles concentrates on GEB. Moreover, detailed contingency plans have been developed for liquidity crisis management for which a detailed Group Liquidity Contingency Plan has been developed. This hasand have been incorporated into UBS’s Global Crisis Management Concept,our global crisis management concept, which covers all types of crisis events, including a liquidity crisis, and applies to all Business Groups and subsidiaries of the UBS Group.events. Regional committees monitor the markets in which UBS operates for potential threats and regularly report theirany findings to Group Treasury. In the event of a liquidity crisis, regional crisis task forces would implement contingency plans under the direction of senior management.
Benefits of centralization
81
Capital and Risk ManagementGroupTreasury
to liquidity management adopted at UBS allows these advantages to be exploited. Group Treasury is, furthermore, instrumental in executing an integrated collateral management process on a Group-wide basis to ensure that the large pool of high-quality collateral gathered across the Group is made available for repurchase and securities lending transactions through which CCT creates additional revenues for both UBS and our clients, and also generates substantial funding on a secured basis. This additional liquidity cushion could be crucial in crisis situations.
Funding sources and approach
sale of corporate loans and retail mortgages. These do not, however, constitute a material portion of UBS’s funding activities and our liquidity status would not be significantly affected if capital markets were to become inaccessible for such securitization transactions. UBS has no long-term commitments to continue to purchase the types of assets being securitized.
82
other currencies (primarily sterling and Japanese yen). UBS does not rely on buying committed credit facilities from third party banks, but instead we base our contingent funding sources on our ability to raise secured funding through the use of high-quality collateral.
Liquidity management approach
them, which may place further demands on liquidity. We also take into account the fact that, while under normal market conditions it can be safely assumed that most maturing assets would be repaid, trading assets successfully liquidated and maturing liabilities replaced by creating new liabilities, this will not necessarily be the case under stressed conditions.
83
Capital and Risk ManagementGroup Treasury
UBS-specific crisis: liquidity gap and contingency funding
As at | ||||||||||||||||
CHF billion | 31.12.02 | 30.9.02 | 30.6.02 | 31.3.02 | ||||||||||||
Crisis liquidity gap | (26 | ) | (33 | ) | (10 | ) | (12 | ) | ||||||||
Secured contingency funding | 71 | 73 | 72 | 89 | ||||||||||||
Net position | 45 | 40 | 62 | 77 | ||||||||||||
Our exposure under these liquidity stress scenarios is analyzed on a monthly basis and any ensuing liquidity gap is assessed to ascertain the ability of the bank to bridge the gap by means of our large stock of committed, undrawn central bank facilities and through increased use of repurchase and similar transactions. The assumed crisis gap is monitored monthly by Group Treasury and action is taken if it exceeds a predefined trigger level.
el collateral margins. It doesWe do not take account of our additional stock of liquid securities that could be used to raise secured funding on the interbank market and it is assumed that none of theno contingency funding would be raised on an unsecured basis.
unconditional but, rather, are rather, linked to other, (independent)independent conditions precedent being fulfilled. The scenario also assumes that the crisis would engulf UBS’s source of retail deposits, thereby leading to massiveheavy withdrawals from current accounts, savings accounts and deposits. Furthermore, access to the client collateral pool is assumed to be limited as a result of securities lending agreements being cancelled during such a crisis.
Financial Management
Liquidity and funding management
Funding sources and approach
With a broad diversification of funding sources (by market, product and currency), we maintain a well-balanced portfolio of liabilities, which generates a stable flow of financing and provides protection in the event of market disruptions. This, together with our centralized funding management, enables us to pursue a strategy to fund business activities at the lowest possible cost.
has no long-term commitments to continue to purchase the types of assets being securitized.
84
66
Financial Management |
Financial Management
Operational risk
Operational risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external causes, whether deliberate, accidental or natural. It is inherent in all our activities, not only in the business we conduct but also from the fact that we are a business – because we are an employer, we own and occupy property, and we hold assets, including information, belonging to ourselves and to our clients. Our approach to operational risk is not designed to eliminate risk per se but, rather, to contain it within acceptable levels, as determined by senior management, and to ensure that we have sufficient information to make informed decisions about additional controls, adjustments to controls, or risk mitigation efforts.
Operational risk framework
Every function, whether a front-end business or a control or logistics unit, must manage the operational risks that arise from its own activities. Because operational risk is all-pervasive, with a failure in one area potentially impacting many others, our framework is based on mutual oversight across all functions. To ensure the independence and objectivity of any risk decisions, overall governance authority lies with the Group CRO and Head of Operational Risk. In our Business Groups, we have integrated operational risk processes into the existing control and governance structures.
As major operational risk events occur, we assess their causes and the implications for our control framework, whether or not they lead to direct financial loss. This includes non-UBS events that are relevant to our business if sufficient information is made public. In 2004, we conducted such investigations in response to a variety of internal and external events, among them customer complaints, virus attacks and power failures. It is important that we use all available information to test our control framework because, even if an internal event does not lead to a direct or indirect financial loss, it may indicate that our standards are not being complied with.
Operational risk measurement
We maintain a database of financial events (both profits and losses) and their underlying causes, and use it in the quantitative modeling that will ultimately form the basis for our operational risk regulatory capital requirement under Basel II, for which we intend to use an advanced measurement approach. It is, however, important to understand that losses from a single event can arise in several ways, some of which may not translate directly into a monetary amount (for example losses caused by business disruption); that the impact of a loss may be large relative to its monetary amount (for example a regulatory fine); and that the level of risk at any time is not directly correlated to actual financial losses or their frequency of occurrence, which are, at best, only indicative.
Operational risk development
Operational risk has been high on our agenda throughout 2004 and will continue to be a priority for the foreseeable future. The appointment to the GEB of the Group CRO, who has overall responsibility for operational risk, alongside credit and market risk, is, in part, recognition of the importance we attach to the management and control of this risk. We
67
Financial Management
Operational risk
have experienced a number of incidents, the most prominent of which were cases related to bank notes trading and to US withholding tax, both reported in second quarter 2004. These have highlighted the challenges we face in managing a complex, integrated, fast changing, global business, particularly against the backdrop of heightened regulatory and public sensitivity to shortcomings in corporate processes.
Recently, we have launched a number of special initiatives under the overall supervision of the Group CRO, focusing on areas prone to regulatory lapses and failures of management oversight, in an effort to prevent recurrence of past errors and ensure that we meet our obligations to regulators and maintain the standards they expect of us. A broad education program is part of these initiatives.
68
Financial Management |
Financial Management
Motor-Columbus
Motor-Columbus
The Atel Group, the operating arm of Motor-Columbus, is exposed to electricity price risk, interest rate risk, currency risk, credit risk, and other business risks.
Energy price risk
Price risks in the energy business arise from, among others, price volatility, changing market prices and changing correlations between markets and products. Derivative financial instruments are used to hedge underlying physical transactions, subject to the risk policy.
Interest rate risk
Interest rate swaps are permitted to hedge capital markets interest rate exposure, with changes in fair value being reported in the income statement.
Currency risks
To minimize currency risk, Atel tries to offset operating income and expenses in foreign currencies. Any surplus is hedged through currency forwards and options within the framework of the financial risk policy.
Credit risk
Credit risk management is based on assessment of the creditworthiness of new contracting parties before entering into any transaction, giving rise to credit exposure, and continuous monitoring of creditworthiness and exposures thereafter. In the energy business, Atel only enters into transactions leading to credit exposure with counterparties that fulfill the criteria laid out in the risk policy. Concentration risk is minimized by the number of customers and their geographical distribution.
69
are designed to protect the Group’s BIS Tier 1 ratio and expected future foreign currency cash flows from adverse movements of the Swiss franc against the currencies of our assets, revenues and costs, while preserving the option to take advantage of market opportunities which may arise.
Translation (balance sheet) currency risk
The financial transactions to achieve this structure were started in fourth quarter 2002. The first significant impact on our capital base can be expected in first quarter 2003 (depending on the size of currency moves against the Swiss franc). Further equity investments will follow in the course of 2003. We believe that complete BIS Tier 1 ratio protection will be achieved towards the end of 2003 when the target currency mix of invested equity should be in place.
Transaction (revenues/expenses)currency risk
Non-trading currency risk VaR
CHF million | 2002 | 2001 | 2000 | |||||||||
Minimum | 0.7 | 0.9 | 11.6 | |||||||||
Maximum | 14.2 | 16.2 | 113.4 | |||||||||
Average | 3.0 | 3.6 | 33.7 | |||||||||
End of period | 0.7 | 1.0 | 12.7 | |||||||||
85
Capital Management & the UBS Share
Our approach to capital management has been a trademark of UBS. It ensures attractive value creation for shareholders while protecting our strong capitalization and Risk ManagementGroup Treasurycredit ratings.
Capital adequacy
As at | ||||||||||||
CHF million, except ratios | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
BIS Tier 1 capital | 27,047 | 29,322 | 31,892 | |||||||||
of which hybrid Tier 1 capital1 | 3,182 | 3,848 | 2,456 | |||||||||
BIS total capital | 33,009 | 37,471 | 42,860 | |||||||||
BIS Tier 1 capital ratio (%) | 11.3 | 11.6 | 11.7 | |||||||||
BIS total capital ratio (%) | 13.8 | 14.8 | 15.7 | |||||||||
Balance sheet assets | 205,401 | 214,481 | 223,528 | |||||||||
Off balance sheet and other positions | 18,122 | 25,935 | 39,002 | |||||||||
Market risk positions | 15,267 | 13,319 | 10,760 | |||||||||
Total BIS risk-weighted assets | 238,790 | 253,735 | 273,290 | |||||||||
Capital Management & the UBS Share
Capital management
Capital management
The approach we take to capital management is one of our trademarks. We are dedicateddedicate ourselves to remainingmaintaining strong debt ratings and sound capital ratios (see capital strength box on the next page), assuring our position as one of the best capitalizedbest-capitalized financial services firms in the worldworld. Our strong capitalization allows us to invest in the growth of our businesses by making acquisitions or by growing organically. But in the absence of such opportunities, we will return any excess capital to our shareholders, while maintaining our BIS Tier 1 ratio at a high level.
Distribution of cash to shareholders in 2004
We transferred a total of CHF 6.6 billion of free equity to our attractivenessshareholders in 2004. The total amount was split between our dividend payment of CHF 2.8 billion made in April 2004 and the CHF 3.8 billion in shares we repurchased during 2004 for purposes of cancellation. For more details on our dividend payments, see page 76 of this section.
Capital securities
UBS placed CHF 2.0 billion in subordinated debt in public capital markets in 2004 to clients and investors. Our overall capital needs are continually reviewed to ensure thatdiversify the maturity profile of our capital base appropriately supports our current and planned business and regulatorysecurities. Outstanding Tier 2 capital requirements. The usesecurities accounted for CHF 5.0 billion of a variety of instruments, such aseligible capital on 31 December 2004. Additionally, we have USD 2.6 billion (CHF 3.0 billion) outstanding in trust preferred securities,shares which count as Tier 1 capital under regulatory rules. Currently, no convertible debt on UBS shares is outstanding.
Capital requirement
The capital we are required to meet overall capital levels,hold is designeddetermined by the credit risk we take weighted according to support our efforts to meet return on equity targetstype of counterparty and enhance shareholder value.
Sound capitalization
Capital adequacy
As at | ||||||||||||
CHF million, except ratios | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
BIS Tier 1 capital | 31,051 | 29,765 | 27,047 | |||||||||
of which hybrid Tier 1 capital1 | 2,963 | 3,224 | 3,182 | |||||||||
BIS total capital | 35,866 | 33,581 | 33,009 | |||||||||
BIS Tier 1 capital ratio(%) | 11.8 | 11.8 | 11.3 | |||||||||
BIS total capital ratio(%) | 13.6 | 13.3 | 13.8 | |||||||||
Balance sheet assets | 217,769 | 212,176 | 205,401 | |||||||||
Off-balance sheet and other positions | 28,205 | 21,456 | 18,122 | |||||||||
Market risk positions | 18,151 | 18,269 | 15,267 | |||||||||
Total BIS risk-weighted assets | 264,125 | 251,901 | 238,790 | |||||||||
72
Capital Mgmt.& the UBS Share |
financial statements). Most of our capital requirement arises from balance sheet assets. Off-balance sheet positions and Note 29d to the UBS Group Financial Statements).
– | where BIS guidelines apply a maximum risk weight of 100%, the SFBC applies risk weights above 100% to certain asset classes (for example real estate, |
– | where the BIS guidelines apply a 20% risk weight to |
from our loan portfolio, especially at the Investment Bank, as well as an increase in our mortgage lending activities.
Capital ratios
The ratios we report measure capital adequacy by comparing our eligible capital (Tier 1 and total) with total risk-weighted assets. As a result of thesethe differences in regulatory rules, UBS’s risk-weighted assets are higher, and our ratios of total capital and Tier 1 capital to risk-weighted assets, are lower, when calculated under the SFBC regulations than under the BIS guidelines. Nevertheless, UBS and its predecessor banks havehas always had total capital and Tier 1 capital well in excess of the minimum requirements of both the BIS and the SFBC since these regulationsSFBC.
Share buyback and cancellationLong-term credit ratings
As at | ||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | ||||||||||
Fitch, London | AA+ | AA+ | AAA | |||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||
8673
Effect of second line trading program on basic earnings per share (EPS)Capital Management & the UBS Share
Treasury shares
For the year ended | ||||||||||||
31.12.02 | 31.12.01 | 31.12.00 | ||||||||||
Weighted average shares for basic EPS after treasury shares | 1,208,586,678 | 1,266,038,193 | 1,209,087,927 | |||||||||
Weighted average second trading line treasury shares | 118,594,983 | 65,624,005 | 43,261,410 | |||||||||
Basic EPS | 2.92 | 3.93 | 6.44 | |||||||||
Cumulative impact of treasury shares on basic EPS (CHF) | 0.26 | 0.19 | 0.22 | |||||||||
Cumulative impact of treasury shares on basic EPS (%) | 8.9 | 4.9 | 3.5 | |||||||||
Treasury shares
Treasury shares earmarked for cancellation (share buyback)
Strong earnings and careful management of our balance sheet allowed us to conduct a share buyback program for the fourth consecutive year in 2004 – giving us the opportunity to reduce the number of issued UBS shares, and enhance ourenhancing earnings per share.
Share buyback program 2004 / 2005
Dividends and par value reduction
New second line buy backbuyback program 2005 / 2006
Effect of second line buyback program on basic earnings per share (EPS)
For the year ended | ||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | ||||||||||
Weighted average shares for basic EPS after treasury shares | 1,052,914,417 | 1,116,953,623 | 1,208,586,678 | |||||||||
Weighted average second trading line treasury shares | 236,970,415 | 182,301,119 | 118,594,983 | |||||||||
Basic EPS | 7.68 | 5.59 | 2.92 | |||||||||
Cumulative impact of treasury shares on basic EPS(CHF)1 | 1.41 | 0.79 | 0.26 | |||||||||
Cumulative impact of treasury shares on basic EPS(%)1 | 18.4 | 14.1 | 8.9 | |||||||||
74
Capital Mgmt.& the UBS Share |
under a second line buy-backbuyback program. The program is aimed at institutional investors, allowing tax efficient cancellation of shares.
Treasury share holdings for employee participation plans
UBS shares are also purchased and held for satisfying share delivery obligations under UBS’s share and option-based participation plans that align the long-term interests of executives, managers, staff and shareholders. For share-based participation plans, UBS shares are purchased in the market and set aside for future distribution to employees once the holding period criteria have been met. For satisfying future share delivery obligations out of employee option plans, UBS shares are also purchased in the market and held to partially hedge the future obligations.
Treasury shares held by the Investment Bank
The Investment Bank, acting as liquidity provider to publish the equity futures market and as a market maker in UBS shares and derivatives, has issued derivatives linked to UBS stock. Most of these instruments are classified as cash-settled derivatives and are held for trading purposes only. For hedging the economic exposure, a limited number of UBS shares are held by the Investment Bank.
Treasury shares – statutory limit
Under the Swiss Stock Exchange Act, treasury shares held by the company have to be reported once they rise above a certain threshold. In 2004, UBS holdings of its own shares were above the 5% threshold requiring disclosure. This was primarily due to shares repurchased for subsequent cancellation. For more information, refer to page 85 in the corporate governance report.
Treasury share activities
Treasury shares purchased | ||||||||||||||||||||||||||||||||
for employee share and | ||||||||||||||||||||||||||||||||
Share buyback program | option participation plans | Total number of shares | ||||||||||||||||||||||||||||||
Number | Average | Remaining volume of share | Number | Average | Number | Average | ||||||||||||||||||||||||||
Month of purchase | of shares | price in CHF | buyback program in CHF million | of shares | price in CHF | of shares | price in CHF | |||||||||||||||||||||||||
January 2004 | 2,775,000 | 90.25 | 2003 / 2004 program | 484 | 328,414 | 86.84 | 3,103,414 | 89.89 | ||||||||||||||||||||||||
February 2004 | 0 | 0.00 | 2003 / 2004 program | 484 | 6,749 | 91.67 | 6,749 | 91.67 | ||||||||||||||||||||||||
March 2004 | 0 | 0.00 | 2004 / 2005 program | 6,000 | 17,787,364 | 94.32 | 17,787,364 | 94.32 | ||||||||||||||||||||||||
April 2004 | 2,180,094 | 95.24 | 2004 / 2005 program | 5,792 | 2,392,850 | 95.05 | 4,572,944 | 95.14 | ||||||||||||||||||||||||
May 2004 | 2,750,000 | 91.81 | 2004 / 2005 program | 5,540 | 11,688,596 | 91.14 | 14,438,596 | 91.27 | ||||||||||||||||||||||||
June 2004 | 9,975,000 | 90.92 | 2004 / 2005 program | 4,633 | 1,929,365 | 90.85 | 11,904,365 | 90.91 | ||||||||||||||||||||||||
July 2004 | 8,765,000 | 86.21 | 2004 / 2005 program | 3,877 | 725,308 | 88.14 | 9,490,308 | 86.36 | ||||||||||||||||||||||||
August 2004 | 4,645,000 | 84.43 | 2004 / 2005 program | 3,485 | 19,591 | 82.08 | 4,841,591 | 84.33 | ||||||||||||||||||||||||
September 2004 | 7,300,000 | 88.29 | 2004 / 2005 program | 2,841 | 164,430 | 89.06 | 7,464,430 | 88.30 | ||||||||||||||||||||||||
October 2004 | 4,320,000 | 88.84 | 2004 / 2005 program | 2,457 | 12,668 | 88.63 | 4,443,668 | 88.83 | ||||||||||||||||||||||||
November 2004 | 0 | 0.00 | 2004 / 2005 program | 2,457 | 6,287,543 | 93.05 | 6,287,543 | 93.05 | ||||||||||||||||||||||||
December 2004 | 0 | 0.00 | 2004 / 2005 program | 2,457 | 4,575,357 | 94.22 | 4,575,357 | 94.22 | ||||||||||||||||||||||||
Maximum | Unutilised | |||||||||||||||||||||||||||
volume | Amount | Total shares | Average price | volume | ||||||||||||||||||||||||
Program | Announcement | Beginning | Expiration | Cancellation | CHF billion | CHF billion | purchased | CHF | CHF billion | |||||||||||||||||||
2000 / 2001 | 14.12.99 | 17.01.00 | 02.03.01 | 13.07.01 | 4 | 4.0 | 55,265,349 | 1 | 72.37 | 0 | ||||||||||||||||||
2001 / 2002 | 22.02.01 | 05.03.01 | 05.03.02 | 05.07.02 | 5 | 2.3 | 28,818,690 | 79.46 | 2.7 | |||||||||||||||||||
2002 / 2003 | 14.02.01 | 06.03.02 | 08.10.02 | 10.07.03 | 5 | 5.0 | 67,700,000 | 73.84 | 0 | |||||||||||||||||||
2002 / 2003 | 09.10.02 | 11.10.02 | 05.03.03 | 10.07.03 | 3 | 0.5 | 8,270,080 | 64.07 | 2.5 | |||||||||||||||||||
2003 / 2004 | 18.02.03 | 06.03.03 | 05.03.04 | 30.06.04 | 5 | 4.5 | 59,482,000 | 75.93 | 0.5 | |||||||||||||||||||
2004 / 2005 | 10.02.04 | 08.03.04 | 07.03.05 | 6 | 3.5 | 39,935,094 | 88.72 | 2.5 | ||||||||||||||||||||
75
Capital Management & the internet at www.ubs.com/ investors. The repurchased shares will be canceled following approval byUBS Share
Dividends
Dividends
UBS normally pays an annual dividend to shareholders registered as of the date of the Annual General Meeting in(the record date). Payment is usually scheduled three business days thereafter.
Dividend 2003/2004
We were able, after the approval of the Annual General Meeting of shareholders on 15 April 2004.
Dividend
Planned dividend for 2004
The Board of Directors will recommend at the Annual General Meeting on 1621 April 2003 that UBS should pay2005 a dividend of CHF 2.003.00 per share for the 20022004 financial year, on a par with15.4% higher than last year’s dividend of CHF 2.00 distribution.
A single register exists for UBS ordinary shares, although it is split into two. There is a Swiss register, which is maintained by UBS acting as Swiss transfer agent, and a US register, which is maintained by Mellon Investor Services, as US transfer agent. A shareholder is entitled to hold shares registered in his / her name on either register and transfer shares from one register to the other upon giving proper instruction to the transfer agents.
87US shareholders
The norm in the US is to declare dividends at least ten days in advance of the applicable record date with ex-dividend trading commencing two days before the record date. To ensure that shareholders on the Swiss and US registers are similarly treated in connection with dividend payments, and to avoid disparities between the two markets, NYSE trading takes place with due bills for the two-business day period preceding the dividend record date.
76
Capital Mgmt.& the UBS Share |
Capital Management & the UBS Share
The UBS share in 2004
The UBS share in 2004
UBS shares are listed on the Swiss (where they are traded on virt-x), New York and Tokyo stock exchanges. For a detailed definition of the UBS share (par value, type, rights of security), see page 85 of the Corporate Governance section.
Ticker symbols
Trading exchange | Reuters | |||
virt-x | UBSN VX | UBSN.VX | ||
New York Stock Exchange | UBS US | UBS.N | ||
Tokyo Stock Exchange | 8657 JP | UBS.T | ||
88The first quarter started off with very high levels of investor confidence. It was widely assumed that banking shares would experience very strong earnings across their businesses in first quarter, giving them added drive. The UBS share tracked those developments, rising 14% in the first six weeks of the year.
77
Capital Management & the UBS Share
The UBS share in 2004
and because of its positive third quarter earnings report, again slightly above expectations, in early November.
Share liquidity
During 2004, daily average volume in the UBS share on virt-x was 4.83 million shares. On NYSE, it was 294,000 shares. Because of the greater volume on virt-x, trading of UBS shares there is expected to remain the main factor determining the movement in our share price.
UBS share data
As at | ||||||||||||
Registered shares | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Total shares outstanding | 1,126,858,177 | 1,183,046,764 | 1,256,297,678 | |||||||||
Total shares ranking for dividend | 1,086,923,083 | 1,126,339,764 | 1,182,262,598 | |||||||||
Treasury shares | 103,524,971 | 111,360,692 | 97,181,094 | |||||||||
Weighted average shares (for basic EPS calculations) | 1,052,914,417 | 1,116,953,623 | 1,208,586,678 | |||||||||
Weighted average shares (for diluted EPS calculations) | 1,081,961,360 | 1,138,800,625 | 1,223,383,942 | |||||||||
For the year ended | ||||||||||||
CHF | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Earnings per share | ||||||||||||
Basic EPS | 7.68 | 5.59 | 2.92 | |||||||||
Diluted EPS | 7.47 | 5.48 | 2.87 | |||||||||
UBS shares and market capitalization
As at | % change from | |||||||||||||||
Number of shares, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Total ordinary shares issued | 1,126,858,177 | 1,183,046,764 | 1,256,297,678 | (5 | ) | |||||||||||
Second trading line treasury shares | ||||||||||||||||
2002 first program | (67,700,000 | ) | ||||||||||||||
2002 second program | (6,335,080 | ) | ||||||||||||||
2003 program | (56,707,000 | ) | ||||||||||||||
2004 program | (39,935,094 | ) | ||||||||||||||
Shares outstanding for market capitalization | 1,086,923,083 | 1,126,339,764 | 1,182,262,598 | (3 | ) | |||||||||||
Share price (CHF) | 95.35 | 84.70 | 67.20 | 13 | ||||||||||||
Market capitalization (CHF million) | 103,638 | 95,401 | 79,448 | 9 | ||||||||||||
Total treasury shares | 103,524,971 | 111,360,692 | 97,181,094 | (7 | ) | |||||||||||
8978
Capital Mgmt.& the UBS Share |
Trading volumes
For the year ended | ||||||||||||
1000 shares | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
SWX total (virt-x) | 1,227,234 | 1,319,658 | 1,320,861 | |||||||||
SWX daily average (virt-x) | 4,832 | 5,279 | 5,221 | |||||||||
NYSE total | 73,994 | 66,201 | 46,318 | |||||||||
NYSE daily average | 294 | 263 | 184 | |||||||||
Stock exchange prices1
SWX Swiss Exchange | New York Stock Exchange2 | |||||||||||||||||||||||
High(CHF) | Low(CHF) | Period end(CHF) | High(USD) | Low(USD) | Period end(USD) | |||||||||||||||||||
2004 | 98.35 | 81.60 | 95.35 | 84.37 | 64.94 | 83.84 | ||||||||||||||||||
Fourth quarter 2004 | 96.35 | 84.00 | 95.35 | 84.37 | 70.10 | 83.84 | ||||||||||||||||||
December | 96.35 | 93.25 | 95.35 | 84.37 | 81.22 | 83.84 | ||||||||||||||||||
November | 94.45 | 87.50 | 92.10 | 81.60 | 73.06 | 81.00 | ||||||||||||||||||
October | 90.15 | 84.00 | 86.30 | 72.62 | 70.10 | 72.49 | ||||||||||||||||||
Third quarter 2004 | 91.00 | 81.60 | 87.90 | 72.38 | 64.94 | 70.33 | ||||||||||||||||||
September | 91.00 | 86.20 | 87.90 | 72.38 | 68.26 | 70.33 | ||||||||||||||||||
August | 87.25 | 81.60 | 84.90 | 68.50 | 64.94 | 67.49 | ||||||||||||||||||
July | 87.65 | 82.85 | 85.60 | 70.93 | 66.48 | 66.77 | ||||||||||||||||||
Second quarter 2004 | 98.35 | 88.25 | 88.25 | 76.05 | 68.89 | 71.06 | ||||||||||||||||||
June | 92.30 | 88.25 | 88.25 | 74.79 | 70.82 | 71.06 | ||||||||||||||||||
May | 91.35 | 88.90 | 89.90 | 74.53 | 68.89 | 72.10 | ||||||||||||||||||
April | 98.35 | 91.25 | 92.15 | 76.05 | 69.65 | 70.80 | ||||||||||||||||||
First quarter 2004 | 97.05 | 85.70 | 94.10 | 79.25 | 67.92 | 74.49 | ||||||||||||||||||
March | 97.05 | 91.65 | 94.10 | 75.94 | 71.94 | 74.49 | ||||||||||||||||||
February | 96.90 | 89.65 | 93.30 | 79.25 | 71.65 | 74.01 | ||||||||||||||||||
January | 91.25 | 85.70 | 90.25 | 73.04 | 67.92 | 71.67 | ||||||||||||||||||
2003 | 85.40 | 49.80 | 84.70 | 68.16 | 38.00 | 67.99 | ||||||||||||||||||
Fourth quarter 2003 | 85.40 | 74.85 | 84.70 | 68.16 | 57.54 | 67.99 | ||||||||||||||||||
Third quarter 2003 | 80.50 | 73.50 | 74.10 | 59.25 | 54.38 | 56.23 | ||||||||||||||||||
Second quarter 2003 | 75.75 | 58.90 | 75.35 | 58.35 | 43.58 | 55.40 | ||||||||||||||||||
First quarter 2003 | 72.10 | 49.80 | 57.50 | 51.86 | 38.00 | 42.70 | ||||||||||||||||||
2002 | 84.30 | 51.05 | 67.20 | 51.99 | 34.54 | 48.12 | ||||||||||||||||||
Fourth quarter 2002 | 75.45 | 51.05 | 67.20 | 50.88 | 34.54 | 48.12 | ||||||||||||||||||
Third quarter 2002 | 75.15 | 56.80 | 61.30 | 49.94 | 37.86 | 41.00 | ||||||||||||||||||
Second quarter 2002 | 84.15 | 69.80 | 74.85 | 51.99 | 46.90 | 49.89 | ||||||||||||||||||
First quarter 2002 | 84.30 | 73.00 | 82.80 | 50.50 | 43.27 | 49.75 | ||||||||||||||||||
2001 | 96.83 | 62.10 | 83.80 | 58.49 | 40.12 | 50.00 | ||||||||||||||||||
Fourth quarter 2001 | 86.85 | 69.70 | 83.80 | 52.83 | 43.23 | 50.00 | ||||||||||||||||||
Third quarter 2001 | 86.33 | 62.10 | 75.60 | 49.73 | 40.12 | 46.15 | ||||||||||||||||||
Second quarter 2001 | 92.00 | 77.50 | 85.83 | 51.47 | 44.87 | 47.02 | ||||||||||||||||||
First quarter 2001 | 96.83 | 72.33 | 83.17 | 58.49 | 43.02 | 47.68 | ||||||||||||||||||
2000 | 88.17 | 63.58 | 88.17 | 54.10 | 40.18 | 54.10 | ||||||||||||||||||
Fourth quarter 2000 | 88.17 | 71.17 | 88.17 | 54.10 | 40.18 | 54.10 | ||||||||||||||||||
Third quarter 2000 | 88.00 | 74.67 | 76.67 | 50.74 | 44.76 | 44.85 | ||||||||||||||||||
Second quarter 2000 | 83.33 | 69.83 | 79.67 | 50.66 | 42.99 | 48.67 | ||||||||||||||||||
First quarter 2000 | 72.83 | 63.58 | 72.83 | |||||||||||||||||||||
79
Corporate GovernanceIntroduction and Principles80
Introduction and principles
Corporate governance —– the way that the leadership and management of the firm are organized and how they operate in practice —– ultimately aims at leading UBS to success, protecting the interests of its shareholders and creating value for them and for all stakeholders. Good corporate governance seeks to balance “entrepreneurship”,entrepreneurship, control and transparency, while supporting the firm’s success by ensuring efficient decision-making processes.
member of the other. This structure establishes checks and balances and creates an institutional independence of the Board of Directors from the day-to-day management of the firm, for which responsibility is conferred on the Group Executive Board. No member of one board may be a member of the other.
SWX Swiss Exchange Reporting on Corporate Governance
This Corporate Governance |
The Handbook’s “Corporate Governance” section contains the following information required by the SWX Swiss Exchange Directive on Information relating to Corporate Governance:
– | group structure and shareholders |
– | capital structure |
– | Board of Directors |
– |
– | compensation, shareholdings and loans |
– | shareholders’ participation rights |
– | change of control and defense measures |
– | auditors |
– | information policy |
In addition, thisThis section describessummarizes the regulatory and supervisory environment of UBS in its principal locations of activity explainsand describes how UBS complies with the few exceptions where UBS’s corporate governance standards differ from theNYSE listing standards of the New York Stock Exchange (NYSE), and containson corporate governance. In addition, it provides a list of theall members of the Group Managing Board and the Vice Chairmen of UBS, the next layerBusiness Groups who, together with the GEB, form the senior leadership of management responsibility below the Group Executive Board.firm.
90
Corporate Governance |
Corporate Governance
Group Structurestructure and Shareholders
shareholders
Under Swiss company law, UBS AG is organized as an “Aktiengesellschaft“Aktiengesellschaft” (AG)”, a corporation that has issued shares of common stock to investors. UBS AG is the parent company of the UBS Group.
UBS Group legal entity structure |
The legal entity structure of UBS is designed to support the Group’sits businesses within an efficient legal, tax, regulatory and funding framework. NeitherNone of the Business Groups of UBS nor theor its Corporate Center operate through separate legal entities, but rather they generally operate out of the parent bank, UBS AG, through its branches worldwide.
Operational Group structure |
The four Business Groups UBS– Wealth Management & Business Banking (with its two business units Private BankingWealth Management and Business Banking Switzerland), UBS Warburg (comprising the Corporate and Institutional Clients and UBS Capital business units), UBS PaineWebber and UBS Global Asset Management, Investment Bank, Wealth Management USA, – together with the Corporate Center (comprising the two units Private Banks & GAM and Corporate Functions), form the operational structure of the Group. Group performanceGroup’s financial businesses. Performance is reported according to this structure (see the Financial Report 2002, pages 35-74)2004). A description of the various Business Groups and their strategy, structure, organization, products and services is contained in this Handbook on pages 21-51.
The18-40. In addition, the UBS Group accounts contain a separate reporting segment called Industrial Holdings, which was created in 2004 following listed company is includedthe full consolidation of Motor-Columbus into the financial statements. This allows UBS to maintain continuity in the Group’spresentation and analysis of the core financial statements on an equityparticipation basis:
Listed and non-listed companies belonging to the Group
Motor-Columbus AG, Baden (Switzerland), listed on the SWX Swiss Exchange, share capital CHF 253 million, capitalization as ofon 31 December 20022004 CHF 1,224.52,464.2 million, UBS stake 35.6%
55.6%, Valor No 212427/ISIN CH0002124276.
Significant shareholders |
Chase NomineeNominees Ltd., London, acting in its capacity as a nominee for other investors, was registered with 7.68%8.76% of all shares issued as of 31 December 2002,2004, compared to 6.94%8.27% at year-end 2001.2003 and 7.68% at year-end 2002. DTC (Cede & Co.), New York, the US securities clearing organization “The Depository Trust Company”, was registered as a shareholder for a great number of beneficial owners with 5.77% of all shares issued as of 31 December 2004 (4.54% as of 31 December 2003). According to UBS’s Regulation on the Registration of Shares, voting rights of nominees are restricted to 5%. As in previous years, no, while clearing and settlement organizations are exempt from this restriction. No other shareholder was registered withshareholders hold more than 5% of all shares issued. Ownership of UBS shares is widely spread. Details aboutThe tables on the distribution of UBS shares, the number of shares registered and not registered, voting rights, as well asnext page provide information about the distribution by category of shareholders and by geographygeography. This information relates only to registered shareholders and cannot be assumed to be representative of the entire UBS investor base. Only registered shareholders are publishedentitled to exercise voting rights.pages 139-140the Stock Exchange (disclosure of this Handbook. Duringshareholdings) and includes, among others, securities lending and share acquisition rights that provide entitlement for the yearfuture acquisition of shares. Since 13 September 2002, UBS’s holdings of its own shares twice surpassedhave been above the 5% threshold requiring disclosure under the Swiss Stock Exchange law,law. Primarily due to share repurchases for subsequent cancelation. This led tocancellation, UBS’s holdings surpassed the following announcements:10% limit as of 19 May 2004
9183
Corporate Governance
Group Structurestructure and Shareholders
shareholders
and dropped below 10% on 30 June following the cancellation of 59.5 million shares repurchased under the 2003 / 2004 share buyback program. Press releases were issued on 24 May and 5 July in that respect. On 30 June 2004, UBS’s holdings consisted of 6.7% of its own shares, and an additional 0.5% of its own shares through derivatives. UBS’s position in its own shares stood at between 5 and 10% for the remainder of the year.
Cross shareholdings |
UBS has no cross shareholdings in excess of a reciprocal 5% of capital or voting rights with any other company.
Distribution of UBS shares
As at 31.12.04 | Shareholders registered | Shares registered | ||||||||||||||
Number of shares registered | Number | % | Number | % of shares issued | ||||||||||||
1-100 | 46,251 | 23.4 | 2,514,386 | 0.2 | ||||||||||||
101-1,000 | 119,281 | 60.4 | 45,141,727 | 4.0 | ||||||||||||
1,001-10,000 | 29,521 | 14.9 | 73,491,491 | 6.5 | ||||||||||||
10,001-100,000 | 2,169 | 1.1 | 55,337,923 | 4.9 | ||||||||||||
100,001-1,000,000 | 307 | 0.2 | 89,014,495 | 7.9 | ||||||||||||
1,000,001-5,000,000 | 60 | 0.0 | 127,633,553 | 11.4 | ||||||||||||
5,000,001-11,268,581 (1%) | 9 | 0.0 | 59,454,323 | 5.3 | ||||||||||||
1-2% | 2 | 0.0 | 25,692,118 | 2.3 | ||||||||||||
2-3% | 2 | 0.0 | 51,996,111 | 4.6 | ||||||||||||
3-4% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
4-5% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
Over 5% | 2 | 1 | 0.0 | 163,797,441 | 14.5 | |||||||||||
Total registered | 197,610 | 100.0 | 694,073,568 | 61.6 | ||||||||||||
Unregistered2 | 432,784,609 | 38.4 | ||||||||||||||
Total shares issued | 1,126,858,177 | 3 | 100.0 | |||||||||||||
Shareholders: type and distribution
Shareholders | Shares | |||||||||||||||
As at 31.12.04 | Number | % | Number | % | ||||||||||||
Individual shareholders | 189,921 | 96.1 | 145,519,936 | 12.9 | ||||||||||||
Legal entities | 7,130 | 3.6 | 164,503,084 | 14.6 | ||||||||||||
Nominees, fiduciaries | 559 | 0.3 | 384,050,548 | 34.1 | ||||||||||||
Unregistered | 432,784,609 | 38.4 | ||||||||||||||
Total | 197,610 | 100.0 | 1,126,858,177 | 100.0 | ||||||||||||
Switzerland | 180,333 | 91.3 | 284,751,706 | 25.3 | ||||||||||||
Europe | 11,877 | 6.0 | 240,102,269 | 21.3 | ||||||||||||
North America | 2,747 | 1.4 | 120,416,197 | 10.7 | ||||||||||||
Other countries | 2,653 | 1.3 | 48,803,396 | 4.3 | ||||||||||||
Unregistered | 432,784,609 | 38.4 | ||||||||||||||
Total | 197,610 | 100.0 | 1,126,858,177 | 100.0 | ||||||||||||
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Corporate Governance |
Corporate Governance
Capital Structure
structure
UBS is committed to capital management that is driven by shareholder value considerations. At the same time, UBS is dedicated to remaining one of the best capitalizedbest-capitalized financial services firms in the world.
Capital |
OrdinaryUnder Swiss company law, shareholders have to approve in a shareholders’ meeting any increase in the total number of issued shares, which may be an ordinary share capital
Conditional and authorized share capital
Changes of capitalshareholders’ equity
UBS shares are issued as Global Registered Shares withShares. Each share has a par value of CHF 0.80 each, with each carryingand carries one vote. Voting rights may, however, only be exercised if the holder expressly declares having acquired these shares in his own name and for his own account. Global Registered Shares provide direct and equal ownership for all shareholders, irrespective of the country and stock exchange where they are traded. For details see the “Shareholders’Shareholders’ participation rights”rights section on pages 109-110104-105 of this Handbook.
85 Corporate Governance in trust preferred shares outstanding which count as Tier 1 capital under regulatory rules. Limitation on transferability and nominee registration |
UBS does not apply any restrictions or limitations on the transferability of its shares. Shares registered according to the provisions in the Articles of Association (express declaration of beneficial ownership) may be voted without any limit in scope.
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Corporate GovernanceCorporate Organization
UBS has issued special provisions for the registration of fiduciaries/fiduciaries / nominees. Fiduciaries/Fiduciaries / nominees are entered in the share register with voting rights up to a total of 5% of all shares issued, if they agree to disclose, upon request from the firm, beneficial owners holding 0.3% or more of all UBS shares. An exception fromto the 5% rule exists for securities clearing organizations such as theThe Depository Trust Company (DTC) in New York and SegaInterSettle (SIS) in Switzerland.
Convertible bonds and options
on which all details areas reported in Note 32enote 32c to the UBS Group Financial Statements.financial statements. For a total of 9,590,9183,533,012 of those options, exercise will be satisfied through the creation of newly issued shares (conditional capital). Share capital would therefore be increased by a maximum of CHF 7,672,734.40.2,826,409.60. For the other employee options, the exercise would be satisfied by the delivery of already issued treasury shares.
9486
Corporate Governance |
Corporate Governance
Board of Directors
The Board of Directors is the most senior body with ultimate responsibility for the strategy and the management of the company and for the supervision of its executive management. The shareholders elect each member of the Board, which appoints the Chairman, the Vice Chairmen and the various Board Committees.
Members of the Board of Directors
The table below provides information on the composition of the Board of Directors as at 31 December 2004. It shows each member’s functions in UBS, nationality, year of initial appointment to the Board and current term of office, professional history and education, date of birth, and other activities and functions such as mandates on boards of important corporations, organizations and foundations, permanent functions for
important interest groups and official functions and political mandates.
Marcel Ospel | Professional history, education and date of birth | ||||
Marcel Ospel was elected to the Board at the AGM in April 2001 and thereafter appointed as Chairman. Prior to this mandate, he served as Group Chief Executive Officer of UBS. He was the President and Group Chief Executive Officer of Swiss Bank Corporation (SBC) from 1996 to 1998. He was made CEO of SBC Warburg in 1995, having been a member of the Executive Board of SBC since 1990. From 1987 to 1990 he was in charge of Securities Trading and Sales at SBC. From 1984 to 1987 Mr. Ospel was a Managing Director with Merrill Lynch Capital Markets, and from 1980 to 1984 he worked at SBC International London and New York in the Capital Markets division. He began his career at SBC in the Central Planning and Marketing Division in 1977. Mr. Ospel graduated from the School of Economics and Business Administration (SEBA) in Basel. He was born on 8 February 1950. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Marcel Ospel is a member of the International Capital Markets Advisory Committee of the Federal Reserve Bank of New York, and holds mandates with the Monetary Authority of Singapore’s International Advisory Panel and the International Monetary Conference. He is a trustee of the Foundation Board of the Patronate Committee for the Basel Museums of Art, and of the Committee for the Museum of Antiques, Basel, and is the Chairman of the “Optimus Foundation”, a charitable foundation administered by UBS.Permanent functions for important interest groups Marcel Ospel is the treasurer of “Economiesuisse”, the Swiss business federation, Zurich, and is a member of the European Financial Services Round Table, Brussels. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Chairman | ||||
Nationality | Swiss | ||||
Year of initial appointment | 2001 | ||||
Current term of office runs until | 2005 (proposed for re-election at the AGM 2005) | ||||
Professional history, education and date of birth | |||||
Alberto Togni has been with UBS and SBC since 1959. From 1994 to 1997 he was Chief Risk Officer and a member of the Group Executive Committee of Swiss Bank Corporation (SBC). He previously held various functions in the Commercial division, becoming its head in 1993. In 1981 he was named member of the Executive Board. Prior to that, he assumed different management roles in Zurich, New York,Tokyo and as representative for the Middle East in Beirut, after professional training and various assignments with SBC in Lausanne, New York and Zurich. Mr. Togni graduated from the New York Institute of Finance. He was born on 30 October 1938. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Alberto Togni is the Chairman of the Board of the Helmut Horten Foundation, Croglio (Ticino, Switzerland). | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Executive Vice Chairman | ||||
Nationality | Swiss | ||||
Year of initial appointment | 1998 | ||||
Current term of office runs until | 2005 (not standing for re-election) | ||||
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Board of Directors
Stephan Haeringer | Professional history, education and date of birth | ||||
Before being elected to the Board of Directors in 2004, Stephan Haeringer was Deputy President of the Group Executive Board, a position he held between 2002 and 2004. Between 2000 and 2002, he was CEO of UBS Switzerland and the Private and Corporate Clients business. In 1998, following the UBS-SBC merger, he was appointed the Division Head of Private and Corporate Clients. He originally joined the former Union Bank of Switzerland in 1967, assuming a broad variety of responsibilities within the firm - among them Chief Executive Officer Region Switzerland, Division Head Private Banking and Institutional Asset Management and Head of the Financial Division. Between 1967 and 1988, Mr. Haeringer was assigned various management roles in the areas of Investment Counseling, Specialized Investments, Portfolio Management, Securities Administration and Collateral Loans. He received professional training at Williams de Broe Hill Chaplin & Cie, London, and at Goldman Sachs & Co. and Brown Brothers Harriman in New York. Mr. Haeringer was born on 6 December 1946. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Stephan Haeringer is a member of the Board of the Helmut Horten Foundation, Croglio (Ticino, Switzerland), and a member of the Board Committee of the Zurich Chamber of Commerce. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Executive Vice Chairman | ||||
Nationality | Swiss | ||||
Year of initial appointment | 2004 | ||||
Current term of office runs until | 2007 | ||||
Peter Böckli | Professional history, education and date of birth | ||||
Peter Böckli, non-executive Vice Chairman since 2002, has been a member of the Board of Directors of UBS and its predecessor Swiss Bank Corporation since 1985. He has been a partner in the law office of Böckli Bodmer & Partners since 1981 and was a part-time professor of tax and business law at the University of Basel from 1995 to 2001. From 1963 to 1981 he was an attorney-at-law in New York, Paris and Basel. Mr. Böckli graduated as doctor iuris from the University of Basel and as an attorney-at-law and is a non-resident member of the Association of the Bar of the City of New York. He was born on 7 May 1936. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Peter Böckli is a member of the Board of Directors of Nestlé S.A., Vevey (Switzerland). He is Vice Chairman of the Board of Manufacture des Montres Rolex S.A., Bienne (Switzerland), and is the Secretary of the Board of Trustees of the Wilhelm Doerenkamp Foundation, Chur (Switzerland), and a member of the Board of Trustees of the Holler Foundation, Munich (Germany). Official functions and political mandates: Peter Böckli acts as an expert advising the Swiss Federal Government on various legislative projects. | |||||
Address | Böckli Bodmer & Partners St. Jakobsstrasse 41 CH-4002 Basel | ||||
Functions in UBS | Non-executive Vice Chairman Chairman of the Nominating Committee | ||||
Nationality | Swiss | ||||
Year of initial appointment | 1998 | ||||
Current term of office runs until | 2006 | ||||
Ernesto Bertarelli | Professional history, education and date of birth | ||||
Ernesto Bertarelli has been the Chief Executive Officer of Serono International SA, Geneva, since 1996. He started his career with Serono in 1985 and held several positions in sales and marketing. Prior to his appointment as CEO, he served for five years as Deputy CEO. Mr. Bertarelli holds a bachelor of science from the Babson College Boston and a Harvard MBA. He was born on 22 September 1965. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Ernesto Bertarelli has been the Vice Chairman of the Board of Serono S.A., Coinsins (Switzerland), since 1991. He is the Chairman of Bertarelli & Cie., Chéserex (Switzerland), of Kedge Capital Partners Ltd., Jersey, of Team Alinghi SA, Ecublens (Switzerland), and of Alinghi Holdings Ltd, Jersey. He holds various board mandates in professional organizations of the biotech and pharmaceutical industries. | |||||
Address | Serono International SA Chemin des Mines 15bis CH-1211 Geneva 20 | ||||
Function in UBS | Member of the Board | ||||
Nationality | Swiss | ||||
Year of initial appointment | 2002 | ||||
Current term of office runs until | 2006 | ||||
Sir Peter Davis | Professional history, education and date of birth | ||||
Sir Peter Davis was Group Chief Executive Officer / Chairman of J Sainsbury plc, London between 2000 and 2004. He was the Group Chief Executive of Prudential plc from 1995 to 2000 and Chief Executive and Chairman of Reed International and Chairman of Reed Elsevier (following the merger of Reed International with Elsevier) from 1986 to 1995. From 1976 to 1986, he had responsibility for all buying and marketing operations at J Sainsbury plc. Prior to that he served as Marketing Director and Managing Director for Key Markets, part of Fitch Lovell Ltd., and as Marketing and Sales manager at General Foods Ltd., Banbury (United Kingdom). He is today a company director and investor. Mr. Davis was educated at Shrewsbury School, graduated from the Chartered Institute of Marketing and holds an Hon LL.D (Dr Law) from Exeter University. He was born on 23 December 1941. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Sir Peter Davis is a member of the Board of the Royal Opera House, London and a member of the Con federation of British Industry (CBI), London. Official functions and political mandates: Sir Peter Davis is the Chairman of the Employers’ Task Force on Pensions, London. | |||||
Address | 41 Bloomfield Terrace, London SW1W 8BQ | ||||
Functions in UBS | Member of the Audit Committee Member of the Compensation Committee Member of the Nominating Committee | ||||
Nationality | British | ||||
Year of initial appointment | 2001 | ||||
Current term of office runs until | 2007 | ||||
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Corporate Governance |
Rolf A. Meyer | Professional history, education and date of birth | ||||
Rolf A. Meyer has been a member of the Boards of UBS and its predecessor Union Bank of Switzerland since 1992. He was Chairman and CEO of Ciba Specialty Chemicals Ltd. until November 2000. He first joined Ciba-Geigy Group in 1973 as a financial analyst, and subsequently became Group Company Controller in Johannesburg, South Africa, Head of Strategic Planning and Control in Basel, Head of Finance and Information Systems in Ardsley, N.Y., and later Chief Financial Officer of the Group. After the merger of Ciba-Geigy and Sandoz to create Novartis, he led the spin-off of Ciba Specialty Chemicals. He is today a company director. Mr. Meyer graduated in Political Science (Ph.D.) and holds a Master of Business Administration. He was born on 31 October 1943. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Rolf A. Meyer is a member of the Board of DKSH AG (Diethelm Keller Siber Hegner), Zurich, and is the Chairman of its Audit and Finance Committee. | |||||
Address | Heiniweidstrasse 18 CH-8806 Bäch | ||||
Functions in UBS | Chairman of the Compensation Committee Member of the Audit Committee | ||||
Nationality | Swiss | ||||
Year of initial appointment | 1998 | ||||
Current term of office runs until | 2006 | ||||
Helmut Panke | Professional history, education and date of birth | ||||
Helmut Panke has been Chairman of the Board of Management of BMW AG, Munich, since May 2002. He has been with the company since 1982, when he joined as head of Planning and Controlling in the Research and Development Division. He subsequently assumed management functions in corporate planning, organization and corporate strategy. Before his appointment as Chairman, he was a member of BMW’s Board of Management from 1996. Between 1993 and 1996, he was Chairman and CEO of BMW Holding Corporation in the US. Mr. Panke graduated from the University of Munich with a doctoral degree in physics (Ph.D.) and was assigned to the University of Munich and the Swiss Institute for Nuclear Research before joining McKinsey in Düsseldorf and Munich as a consultant. He was born on 31 August 1946. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Helmut Panke is a member of the Board of Directors of Microsoft Corporation, Redmond, WA (USA) and is a member of the Board of Trustees of the BMW Foundation Herbert Quandt. Permanent functions for important interest groups: Helmut Panke is a member of the Board of Directors of ACEA, the Association des Constructeurs Européens d’Automobiles, Belgium, of VDA, the association of the German automobile industry, and of the American Chamber of Commerce in Germany. | |||||
Address | BMW Group Knorrstrasse 147 D-80788 Munich | ||||
Function in UBS | Member of the Nominating Committee. | ||||
Nationality | German | ||||
Year of initial appointment | 2004 | ||||
Current term of office runs until | 2007 | ||||
Peter Spuhler | Professional history, education and date of birth | ||||
Peter Spuhler is the owner of Stadler Rail AG (Switzerland), which he acquired in 1989 when it was a small firm with 18 employees. Today the Stadler Rail Group has more than 1,000 staff and is an internationally successful light railway vehicle business. Since 1997 Peter Spuhler has taken over a number of companies and founded new units within the Stadler Rail Group, mainly in Switzerland and in Germany. Mr. Spuhler joined Stadler Ltd. in 1987 as an employee after studying economics at the University of St. Gallen. He was born on 9 January 1959. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Peter Spuhler is Chairman of Stadler Rail Ltd. and of Stadler Bussnang Ltd., as well as of various companies within the Stadler Rail Group.Permanent functions for important interest groups: He is Vice President of LITRA, a Swiss organization providing information services in the interests of public transport, Berne. Official functions and political mandates: Peter Spuhler is a member of the Lower House of the Swiss Parliament (Nationalrat). | |||||
Address | Stadler Bussnang AG Bahnhofplatz 9565 Bussnang | ||||
Function in UBS | Member of the Compensation Committee | ||||
Nationality | Swiss | ||||
Year of initial appointment | 2004 | ||||
Current term of office runs until | 2007 | ||||
Lawrence A. Weinbach | Professional history, education and date of birth Lawrence A. Weinbach was the Chairman, President and CEO of Unisys Corporation from 1997 to 2004. As of 1 January 2005 he stepped down as President and CEO, concentrating on the function of Executive Chairman. From 1961 to 1997 he was with Arthur Andersen / Andersen Worldwide as Managing Partner, and was Chief Executive of Andersen Worldwide from 1989 to 1997, Chief Operating Officer from 1987 to 1989, and Managing Partner of the New York office from 1983. He was elected to partnership at Arthur Andersen in 1970 and became Managing Partner of the Stamford, Connecticut, office in 1974 and Partner in charge of the accounting and audit practice in New York from 1980 to 1983. Mr. Weinbach is a Certified Public Accountant and holds a bachelor of science in Economics from the Wharton School of the University of Pennsylvania. He was born on 8 January 1940. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Lawrence A. Weinbach is the Chairman of Unisys Corporation, Blue Bell, PA (USA), and a member of the Board of Directors of Avon Products Inc., New York, where he is the chairman of the audit committee. He is a trustee and member of the audit committee of Carnegie Hall.Permanent functions for important interest groups: Lawrence A. Weinbach is a member of the NYSE Listed Company Advisory Committee and of the National Security Telecommunications Advisory Committee. | ||||
Address | Unisys Corporation Unisys Way Blue Bell, PA 19424 | ||||
Function in UBS | Chairman of the Audit Committee | ||||
Nationality | American (US) | ||||
Year of initial appointment | 2001 | ||||
Current term of office runs until | 2005 (proposed for re-election at the AGM 2005) | ||||
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Corporate Governance
Board of Directors
Organizational principles and personnel changes
The Board and in particular its Chairman, takesof Directors has ultimate responsibility for the mid- andmid-and long-term strategic direction of the Group, for appointments and dismissals at top management levels for mid-term succession planning and for compensation principles. It definesthe definition of the firm’s risk parameterprinciples and risk limit structure.capacity. A large majority of the Board members are non-executive and independent. The Chairman and at least one Vice Chairman have executive roles in line with Swiss
Banking banking laws, and assume supervisory and leadership responsibilities. The Chairman also assumes a leadership role in corporate responsibility issues, public and political affairs and developing corporate culture.
Changes in 2005
age. The table below provides information about the Board of Directors as at 31 December 2002.
Year of | Current term | |||||||
initial | of office | |||||||
Name and business address | Positions held in UBS | appointment | runs until | |||||
Marcel Ospel UBS AG, Bahnhofstrasse 45, CH-8098 Zurich | Chairman | 2001 | 2005 | |||||
Alberto Togni UBS AG, Bahnhofstrasse 45, CH-8098 Zurich | Executive Vice Chairman | 1998 | 2005 | |||||
Johannes A. de Gier UBS AG, Bahnhofstrasse 45, CH-8098 Zurich | Executive Vice Chairman | 2001 | 20031 | |||||
Peter Böckli Böckli Bodmer & Partners, St. Jakobs-Strasse 41, P.O. Box 2348, CH-4002 Basel | Non-executive Vice Chairman Chairman of the Nominating Committee | 1998 | 20031 | |||||
Ernesto Bertarelli Serono International SA, Chemin des Mines 15bis, CH-121Y1 Geneva 20 | Member of the Compensation Committee | 2002 | 2006 | |||||
Sir Peter Davis J Sainsbury plc, 33 Holborn, London EC 1N 2HT | Member of the Audit Committee Member of the Nominating Committee | 2001 | 2004 | |||||
Rolf A. Meyer Heiniweidstrasse 18, CH-8806 Bäch | Chairman of the Compensation Committee Member of the Audit Committee | 1998 | 20031 | |||||
Hans Peter Ming Sika AG, Wiesenstrasse 7, CH-8008 Zurich | Member of the Compensation Committee Member of the Nominating Committee | 1998 | 2004 | |||||
Lawrence A. Weinbach Unisys Corporation, Unisys Way, Blue Bell, PA 19424 | Chairman of the Audit Committee | 2001 | 2005 | |||||
95
Corporate GovernanceBoard of Directors
Marcel Ospelwas elected towill propose the Board at the AGM in April 2001 and thereafter appointed as Chairman. Prior to this mandate, he served asfollowing new members for election: Marco Suter, currently Group Chief ExecutiveCredit Officer of UBS. He was the President and Group Chief Executive Officer of Swiss Bank Corporation (SBC) from 1996 to 1998. He was made CEO of SBC Warburg in 1995, having been a member of the ExecutiveUBS Group Managing Board, of SBC since 1990. From 1987 to 1990 he was in charge of Securities Tradingas executive director, and Sales at SBC. From 1984 to 1987 Mr. Ospel was a Managing Director with Merrill Lynch Capital Markets, and from 1980 to 1984 he worked at SBC International London and New York in the Capital Markets division. He began his career at Swiss Bank Corporation in the Central Planning and Marketing Division in 1977. Mr. Ospel graduated from the School of Economics and Business Administration (SEBA) in Basel. He was born on 8 February 1950 and is a Swiss citizen.
the University of Amsterdam. He was born on 24 December 1944 and is a Dutch citizen.
96
Controller in Johannesburg, South Africa, Head of Strategic Planning and Control in Basel, Head of Finance and Information Systems in Ardsley, N.Y., and laterR. Voser, Chief Financial Officer of the Group. After the mergerThe Royal Dutch /Shell Group of Ciba-GeigyCompanies and Sandoz to create Novartis, he led the spin-off of Ciba Specialty Chemicals. He now holds various international board mandates. Mr. Meyer graduated in Political Science (Ph.D.) and holds a Master of Business Administration. He was born on 31 October 1943 and is a Swiss citizen.
Executive responsibilities
Chairman Marcel Ospel assumestakes a leading role in mid- and long-term strategic planning, the selection and supervision of top-level management,the CEO and the members of the Group Executive Board, mid-term succession planning and developing and shaping global compensation principles, and the definition of the Group’s risk appetite and risk limit structure.principles. He also actively supports major client and transaction initiatives.
Non-executive Board members
These non-executive directors and their close family members have not been employed by the Company’s principal Auditors, Ernst & Young.
Important business connections of non-executive
Board members with UBS
Elections and term of office
97
Corporate GovernanceBoard of Directors
Mandates on Boards of important corporations, organizations and foundations
Hans Peter Ming is the Chairman of Sika AG, Baar (Switzerland), and a member of the Board of Pestalozzi AG, Dietikon (Switzerland).
Permanent functions for important interestand pressure groups
Official functions and political mandates
The members of the Board of Directors are elected individually by the AGM for a term of office of fourthree years. The initial term of each member is fixed in such a way as to assureensure that about one fourththird of all the members have to be newly elected or reelectedre-elected every year. The Board will propose to the 2003 AGM to reduce the term of office from four to three years.
Internal organization
98
After each Annual General Meeting of Shareholders, the Board elects its Chairman and one or more Vice Chairmen and appoints its Secretary. It meets as often as business requires, but at least six times per year. As a rule,In 2004 the Board held seven meetings with the members of the Group Executive Board (GEB) participate inparticipating, two telephone conferences and a full-day strategy seminar and was called to take two circular decisions. In addition, the Board met four times without participation of executive management. On average 93% of Board members were present at Board meetings, in an advisory capacity, butand 90% at the meetings without management. Seven meetings and the Strategy Seminar were attended by all the Board also holds regular meetings withoutmembers.
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Corporate Governance |
The new Board members were introduced to their new function by a tailored program, consisting of three sessions with the GEB.
The Board is organized as follows:
Chairman’s Office
Audit Committee
Compensation Committee Nominating Committee 91mustand Rolf Meyer have accounting or financial management expertise.expertise and are therefore considered “financial experts”, according to the rules established by the US Sarbanes-Oxley Act of 2002. The Audit Committee does not itself perform audits, but supervises the work of the auditors. Its primary responsibility is thereby to monitor and review the organization and efficiency of internal control procedures and the financial reporting process. The Audit Committee plays an important role in ensuring the independence of the external auditors and therefore has to authorize all mandates assigned to them. It also has responsibility for the treatment of complaints regarding accounting and auditing matters (“whistle-blowing”).2002,2004, Lawrence A. Weinbach was the chairman and Sir Peter Davis and Rolf A. Meyer the additional members of the Committee. The Audit Committee meets 4-6met six times per year. Thein 2004, with representatives of the external auditors, the Group CFO, the Group Controller and the Head of Group Internal Audit participating. It also held periodic separate sessions with these representatives of management and of external and internal audit, as well as with the Group General Counsel. A special session was organized with the Group CEO to discuss the annual financial results. In February 2004, the members of the Audit Committee met with the Committee of the Swiss Federal Banking Commission to discuss its mandate, responsibilities and working methods and regulatory developments. All three members of the Committee were present at all the meetings.the President of the GEB and the executive directors. It determines the individual compensationsalaries and bonusincentive awards for the executive directors, the PresidentGroup CEO and the members of the GEB, and submits proposals forreviews and approves termination agreements with leaving GEB members. For details about the compensationdecision-making procedures within the Committee please refer to pages 98-99 of non-executive directors to the executive Board members. All members are independent from UBS. this Handbook.2002, the Committee was chaired by2004, Rolf A. Meyer chaired the Committee, with Ernesto BertarelliSir Peter Davis and Hans Peter MingSpuhler as its additional members. The Committee meets 3-5met four times per year.during 2004. The two new Committee members were briefed on important compensation issues and instruments and the UBS compensation philosophy, policies and procedures in an additional special session. Average participation at the meetings was 92%, meaning that one member was absent at one of the meetings and the other meetings were attended by all three members. Theis composed ofBoard members.independent directors. It assumes responsibility for defining principles for the selection of candidates for Board member-
Corporate Governance
Board of Directors
ship, reviewing possible candidates and proposing to the full Board candidatesthose to be submitted for election to the Board membership and for supportingby the AGM. The Committee supports the Chairman’s Office and the full Board in evaluating management and Board performance. It reviews the proposals of the Chairman’s Office on Corporate Governancecorporate governance principles and design for submission to the full Board.
Corporate Responsibility Committee comprises members
99
the GEB, Marcel Rohner, CEO UBS Wealth Management & Business Banking, Donald B. Marron, Chairman UBS Americas,USA, and Ken Costa, Vice Chairman UBS Warburg.Raoul Weil, Head of Wealth Management International. The Corporate Responsibility Committee met twice during 2004. For additional information on corporate responsibility, please refer to the specific chapter at the end of this Handbook.
Charters and additional information
The ultimate responsibility for the strategy and the management of UBS lies with the Board of Directors. In line with Swiss banking law, the Board has delegated the responsibility for day-to-day management to the Group Executive Board. No-oneNo-
one may be a member of both bodies. The supervision and control of the executive management remains with the Board of Directors. All details as to authorities and responsibilities of the two bodies are governed by the Articles of Association and the Organization Regulations andwith their Appendices.Appendix. Please refer to www.ubs.com/about.corporate-governance.
Information and control instruments vis-à-vis the Group Executive Board |
The Board of Directors is kept informed onof the activities of the Group Executive Board in various ways. The Chairman of the Board or one of the executiveExecutive Vice Chairmen participate in each
meeting of the GEB in an advisory capacity, thus keeping the Chairman’s Office apprised of all current developments. The minutes of the GEB meetings are filed with the executive Board members and made available for inspection to the non-executive members. At Board meetings, the PresidentGroup CEO and the members of the GEB regularly updatesupdate the Board on important issues.
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Corporate Governance | ||
Corporate Governance
Group Executive Board
The Group Executive Board (GEB) has business management responsibility for UBS. The PresidentGroup CEO and the members of the GEB are appointed by the Board of Directors and are accountable to the Chairman and the Board for the firm’s results.
Members of the Group Executive Board
The table below provides information on the composition of the Group Executive Board as at 31 December 2004. It shows each member’s function in UBS, nationality, year of initial appointment to the GEB, professional history and education, date of birth, and other activities and functions such as mandates on boards of important corporations, organizations and foundations, permanent functions for important
interest groups and official functions and political mandates.
Professional history, education and | |||||
Peter A. Wuffli was named President of the Group Executive Board on 18 December 2001 and Group CEO in 2003. Previously, he was Chairman and CEO of UBS Asset Management, and from 1998 to 1999 Group Chief Financial Officer of UBS. From 1994 to 1998, he was the Chief Financial Officer at Swiss Bank Corporation (SBC) and a member of SBC’s Group Executive Committee. In 1984, he joined McKinsey & Co as management consultant where he became a partner in 1990. He was a freelance economics reporter for “Neue Zürcher Zeitung” before joining McKinsey. Mr. Wuffli graduated in economics and social sciences from the University of St. Gallen and holds a doctor’s degree in international management. He was born on 26 October 1957. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Peter Wuffli is a Board member of the Zurich Opera House and a member of the Executive Committee of the Institute of International Finance Inc., Washington DC. He is a member of the Executive Committee and Vice Chairman of the Board of IMD International Institute for Management Development in Lausanne (Switzerland) and the Treasurer of the Swiss-American Chamber of Commerce in Zurich. Official functions and political mandates: Peter Wuffli is the Chairman of the “Friends of the Swiss Liberal Party” (Freunde der FDP), an organization supporting the dialogue between the Swiss Liberal Party and business. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Group Chief Executive Officer | ||||
Nationality | Swiss | ||||
Year of initial appointment to the GEB | 1998 | ||||
John P. Costas | Professional history, education and date of birth | ||||
John P. Costas has been Chairman & CEO of the Investment Bank since 2002, having been CEO since 2001. In 2004 he was additionally named Deputy Group CEO. He was President and Chief Operating Officer of UBS Warburg from the beginning of 2001, and COO and Global Head Fixed Income from 1999. Mr. Costas joined Union Bank of Switzerland in 1996 as Head of Fixed Income. From 1981 to 1996 he was with Credit Suisse First Boston, his last position being co-head of Global Fixed Income. Mr. Costas graduated from the Tuck School at Dartmouth with an MBA in Finance and holds a BA in political science from the University of Delaware. He was born on 27 January 1957. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: John Costas is a member of the New York City Partnership & Chamber of Commerce, Inc. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Functions in UBS | Chairman and Chief Executive Officer Investment Bank; Deputy Group CEO | ||||
Nationality | American (US) | ||||
Year of initial appointment to the GEB | 2001 | ||||
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Corporate Governance
Group Executive Board
John A. Fraser | Professional history, education and date of birth | ||||
John A. Fraser was appointed as Chairman & CEO of the Global Asset Management Business Group in late 2001. Immediately prior to that, he was President and COO of UBS Asset Management and Head of Asia Pacific. From 1994 to 1998 he was Executive Chairman and CEO of SBC Australia Funds Management Ltd. Before joining UBS, Mr. Fraser held various positions at the Australian Treasury, including two international postings to Washington DC – first, at the International Monetary Fund and, second, as Minister (Economic) at the Australian Embassy. From 1990 to 1993 he was Deputy Secretary (Economic) of the Australian Treasury. Mr. Fraser graduated from Monash University in Australia in 1972 and holds a first class honors degree in economics. He was born on 8 August 1951. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Chairman and Chief Executive Officer Global Asset Management | ||||
Nationality | Australian | ||||
Year of initial appointment to the GEB | 2002 | ||||
Peter Kurer | Professional history, education and date of birth | ||||
Peter Kurer has been the Group General Counsel since 2001, when he joined UBS. Between 1991 and 2001 he was a partner at the Homburger law firm in Zurich. Between 1980 and 1990 he was with Baker & McKenzie in Zurich, first as associate, later as partner, after having been a law clerk at the District Court of Zurich. Mr. Kurer graduated as a doctor iuris from the University of Zurich and was admitted as attorney-at-law in Zurich. He holds an LL.M. from the University of Chicago and was born on 28 June 1949. Other activities and functions Permanent functions for important interest groups: Peter Kurer is a member of the Visiting Committee to the Law School of The University of Chicago. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Group General Counsel | ||||
Nationality | Swiss | ||||
Year of initial appointment to the GEB | 2002 | ||||
Marcel Rohner | Professional history, education and date of birth | ||||
Marcel Rohner was appointed CEO of Wealth Management & Business Banking in mid-2002 and additionally named Chairman in 2004. Before that, in 2001 and 2002, he was COO and Deputy CEO of the Private Banking unit of UBS Switzerland. In 1999 he was named Group Chief Risk Officer, after being appointed Head of Market Risk Control of Warburg Dillon Read in 1998. Between 1993 and 1998, Mr. Rohner was with Swiss Bank Corporation’s investment banking arm. In 1995, he was appointed Head of Market Risk Control Europe. Mr. Rohner graduated with a Ph.D. in economics from the University of Zurich and was a teaching assistant at the Institute for Empirical Research in Economics at the University of Zurich from 1990 to 1992. He was born on 4 September 1964. Other activities and functions Permanent functions for important interest groups: Marcel Rohner is Vice Chairman of the Swiss Bankers Association, Basel. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Chairman and Chief Executive Officer Wealth Management & Business Banking | ||||
Nationality | Swiss | ||||
Year of initial appointment to the GEB | 2002 | ||||
Clive Standish | Professional history, education and date of birth | ||||
Clive Standish was named Group Chief Financial Officer on 1 April 2004, having been Chairman and CEO Asia Pacific from 2002 onwards. In 1998, he was named CEO Asia Pacific of Warburg Dillon Read. Between 1991 and 1998, Mr. Standish was with Swiss Bank Corporation (SBC). In 1997 he was appointed Deputy Chairman Asia Pacific of SBC Warburg Dillon Read. Between 1994 and 1997 he served as Managing Director and CEO of SBC Warburg Dillon Read Australia. In 1991 he was appointed Head of Capital Markets and Managing Director of SBC Dominguez Barry Limited. Between 1983 and 1991, Mr. Standish was Founding Executive Director at Dominguez Barry Samuel Montagu Limited, having been a partner with Dominguez & Barry Partners from 1979 to 1983. Mr. Standish started his professional career in 1972 with NM Rothschild & Sons Limited in London, after completing high school. He was born on 17 March 1953. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Group Chief Financial Officer | ||||
Nationality | British | ||||
Year of initial appointment to the GEB | 2002 | ||||
Mark B. Sutton | Professional history, education and date of birth | ||||
Mark B. Sutton was appointed CEO of Wealth Management USA in January 2004. Later that year, he was also named Chairman. In 2002, he became President and Chief Operating Officer of UBS PaineWebber, having been head of the PaineWebber US Private Client Group since 2001. In 1998, he was named President of the Private Client Group. Mr. Sutton became Executive Vice President in 1995 after the acquisition of Kidder, Peabody & Co., where, between 1992 and 1994, he served as CEO of the Investment Services Division and CEO of the Brokerage Unit. Previously he was active at Mitchell Hutchins Asset Management, a subsidiary of PaineWebber. Between 1984 and 1987, he served as Division Manager at PaineWebber, Austin, Texas. Mr. Sutton first joined a predecessor company of PaineWebber, Rotan Mosle, as a financial advisor in 1980, after having assumed the same function with Merrill Lynch in Fayetteville, Arkansas from 1978 to 1980. He holds a bachelor of science in finance from the University of Arkansas, Fayetteville. Mr. Sutton was born on 19 October 1954. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Mark Sutton is a member of the Board of the Securities Industry Association, Washington D.C. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Chairman and Chief Executive Officer Wealth Management USA | ||||
Nationality | American (US) | ||||
Year of initial appointment to the GEB | 2002 | ||||
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Corporate Governance |
Responsibilities, authorities and organizational principles
The GEB has executive management responsibility for the Group and is accountable to the Board for the firm’s results. Together with the Chairman’s Office, the GEB assumes overall responsibility for the development of UBS’s strategies. The GEB, and in particular its President,the CEO, is responsible for the implementation and results of the firm’s business strategies, for the alignment of the Business Groups to UBS’s integrated business model, and for the exploitation of synergies across the firm. The President alsoThrough its Risk Subcommittee, the GEB assumes responsibility for businessthe Group’s risk control standards, concepts, methodologies and financial planning, financial reportinglimits. The GEB plays a key role in defining the human resources policy and the definition and supervisioncompensation principles of risk control. Together with the Group. It also fosters an entrepreneurial leadership spirit throughout the firm. The authorities of the GEB are defined
Chairman’s Office,in the Organization Regulations, which are available on the internet at www.ubs.com/corporate-governance.
Personnel changes in 2005
A new Group Executive Board position will be established with effect from 1 March 2005. Walter Stuerzinger, Group Chief Risk Officer since 2001, was appointed GEB assumes overallmember as from this date. He will assume responsibility for the development and implementation of the Group’s risk control processes across credit, market and operational risk.
Management contracts
UBS has not entered into management contracts with any third parties.
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Corporate Governance
Compensation, shareholdings and loans
Compensation, shareholdings and loans
UBS’s strategies.compensation policy intends to provide competitive total compensation opportunities that will enable the firm to attract, retain and motivate the talent it requires. Compensation should provide incentives that foster an entrepreneurial and performance-oriented culture and support the firm’s integrated business strategy. Compensation of senior executives is closely linked to the achievement of sustainable shareholder returns and provides appropriate incentives for long-term value creation.
Compensation philosophy
Group compensation policy
Senior executive compensation policy
The table below provides information on the members of the GEB as at 31 December 2002:
Peter A. Wuffliwas named President of the Group Executive Board on 18 December 2001. Previously he was Chairmansignificant and CEO of UBS Asset Management, and from 1998 to 1999 Group Chief Financial Officer of UBS. From 1994 to 1998, he was the Chief Financial Officer
at Swiss Bank Corporation (SBC) and a member of SBC’s Group Executive Committee. In 1984, he joined McKinsey & Cotheir decisions should be aligned as management consultant where he became a partner in 1990. Mr. Wuffli graduated in economics and social sciences from the University of St. Gallen and
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holds a doctor’s degree in international management. He was born on 26 October 1957 and is a Swiss citizen.
graduated from Monash University in Australia in 1972 with a first class B.Econ. (Hons.). He was born on 8 August 1951 and is an Australian citizen.
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1999 he was named Group Chief Risk Officer. In 1998 he became Head of Market Risk Control. Between 1993 and 1998, Mr. Rohner was with Swiss Bank Corporation’s investment banking arm. In 1995 he was appointed Head of Market Risk Control Europe. Mr. Rohner graduated with a Ph.D in economics from the University of Zurich and was a teaching assistant at the Institute for Empirical Research in Economics at the University of Zurich from 1990 to 1992. He was born on 4 September 1964 and is a Swiss citizen.
Mandates on Boards of important corporations, organizations and foundations
Permanent functions for importantinterest and pressure groups
Official functions and political mandates
UBS has not entered into any management contracts.
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UBS seeks to attract, retain, motivate and develop highly qualified people for senior management positions, thereby ensuring the sustainable creation of shareholder value. UBS is prepared to provide its senior executives with superior compensation in return for superior performance.
Senior executive compensation principles and authorities
Components of compensation
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Corporate Governance |
Performance measurement and management (PMM)
Senior executive share ownership programs and shareholding requirements
Executive share ownership commitment
– |
– |
– |
tive compensation in the form of restricted or deferred UBS shares. Executives opting to take a greater than mandatory portion of their annual incentive in restricted or deferred UBS shares receive additional stock options under SESOP at the conditions described above.
Non-executive directors’ remuneration
Governance
Authorities and responsibilities
Compensation Committee activities
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Corporate Governance
Compensation, shareholdings and loans
Controller. During 2004 the Compensation Committee did not appoint any external compensation consultants, but used internal and external compensation surveys and intelligence provided by compensation specialists. The chairman of the Committee participated in external international seminars for compensation professionals. The Committee makes its decisions on individual compensation for the executive Vice Chairmen, the Group CEO and the members of the GEB considering individual performance and personal contributions of each member, market data of competitors, actual compensation in prior periods and the assessment submitted by the SWX Swiss Exchange Directive,Chairman of the Board. It also takes into consideration the proposals made by the Group CEO when it makes compensation decisions for GEB members. For its decision on the Chairman’s compensation, the Committee relies on the annual assessment performed by the full Board and its own judgement of performance and contributions as well as comparisons with pay levels for comparable functions outside UBS.
– | Best practice review of compensation design, pay mix and disclosure: Compared with nine key competitors that are regularly monitored for compensation purposes, UBS has attractive, but at the same time shareholder-friendly compensation systems. In general, cash and share components are somewhat larger than average and option grants less significant. Restrictions and forfeiture rules are stringent, and options are granted with a premium strike price. The Committee decided not to disclose individual compensation numbers, pending new Swiss legislative requirements. | |
– | Review of competitive pay and performance: The Committee assessed the data available from US proxy statement disclosure and compensation consultants’ surveys. The numbers for 2003 show that UBS – for most of its senior executive positions – was paying competitive compensation, yet not at the highest level. The above-mentioned nine competitors paid total compensation between CHF 20 million and 45 million to their Chairmen and / or CEOs in 2003. Average median pay for the Chairmen and / or CEOs of this group of competitors was CHF 26 million for 2003, the second highest value stood at CHF 34.5 million. These numbers normally include base salaries, cash bonus and the fair value of equity-based awards. | |
– | Review of Compensation Plan Rules: The Compensation Committee annually performs a review of the Compensation Plan Rules for Senior Executives. It ensures that shareholders’ interests are carefully taken into consideration and that the plan design provides appropriate incentives for long-term value creation. The “Senior Executive Equity Ownership Plan” (SEEOP) and the “Senior Executive Stock Option Plan” (SESOP) therefore contain stringent rules on vesting, sales restrictions and forfeiture of shares and options in case of termination of employment. |
The Committee also regularly reviews the individual employment contracts of senior executives. These contracts provide for a general notice period of twelve months, during which the senior executive is entitled to receive salary and incentives, unless he has been terminated for cause. Shares and options that have not vested at the time of termination may be subject to forfeiture, mainly if the senior executive is joining a competitor.
Actual 2004 senior executive compensation
Key elements for decision-making process within the Compensation Committee
Actual process and decisions taken:
– | In February 2004 the Compensation Committee defined personal incentive targets for each senior executive for 2004 based on both financial performance and qualitative indicators. The 2003 forecasts (Group net profit after tax, minority interests and goodwill/Business Group net profit before tax, minority interests and goodwill amortization) were measured against 2004 forecasts. The relevant percentage change, applied to 2003 target incentives, led to theoretical individual target incentives for 2004. Increases or decreases of these calculated amounts were applied at the discretion of the Committee that takes future potential, changing roles and competitive positioning into consideration. | |
– | In early February 2005, actual results were assessed against prior forecasts and set targets. Actual performance was also analyzed with reference to UBS’s Group and Business Group financial targets and similar metrics of key competitors. These measurements and assessments defined a theoretical level of incentive awards. | |
– | This calculated theoretical incentive award was finally measured against various additional factors: individually defined criteria, further potential, leadership qualities and contributions to overall success of UBS. This qualitative assessment leads to increases or decreases from the theoretical bonus up to 25%. | |
– | Long-term incentive option awards were granted in February 2004, based on the individual past performance of each senior executive, their contribution to the overall success of the firm, and their future potential. |
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Corporate Governance |
Assessment elements for Chairman’s compensation
Actual compensation 2004 for acting members of the Board of Directors and the Group Executive Board
sation per head for the executive members of the Board of Directors and the members of the Group Executive Board (GEB).
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increased by 26.4% on average over 2003.
descriptionChanges in the composition of the decisiontwo corporate bodies as well as new definitions of roles impact the disclosed total compensation number and should be taken into consideration when making process for different executive populations:
Employee share ownership commitment
UBS believes that broader-based employee stock ownership will further enhance its ability to deliver superior shareholder returns by increasing the alignment between the interests of employees and shareholders. Broader employee share ownership will be achieved in the following ways:
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Compensation for acting members of the Board of Directors (Board) and the Groupas Executive Board (GEB)
Executive members of the Board and members of the GEBVice Chairman.
Actual remuneration 2004 for non-executive members of the GEB who leftBoard of Directors
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Corporate Governance
Compensation, shareholdings and loans
Compensation details and additional information | ||||||||||||
Compensation for acting executive BoD members and members of the GEB1 | ||||||||||||
For the year ended | ||||||||||||
CHF, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Base salaries and other cash payments | 14,767,068 | 13,602,045 | 14,766,368 | |||||||||
Incentive awards – cash | 69,745,013 | 65,602,513 | 74,732,647 | |||||||||
Employer’s contributions to retirement benefit plans | 1,050,322 | 1,225,543 | 1,320,220 | |||||||||
Benefits in kind, fringe benefits (at market value) | 1,607,166 | 993,719 | 1,019,000 | |||||||||
Total (requested by SWX) | 87,169,569 | 81,423,820 | 91,838,235 | |||||||||
Incentive awards – Restricted UBS shares (fair value) | 79,723,391 | 64,176,428 | 41,006,156 | |||||||||
Restricted UBS options (fair value)2 | 23,736,337 | 12,752,019 | 14,268,501 | |||||||||
Total (including shares and options) | 190,629,297 | 158,352,267 | 147,112,892 | |||||||||
Total number of shares granted | 792,256 | 675,741 | 665,135 | |||||||||
Total number of options awarded2 | 1,094,052 | 1,037,000 | 850,000 | |||||||||
of which CHF options | 473,666 | 457,000 | 470,000 | |||||||||
of which USD options | 620,386 | 580,000 | 380,000 | |||||||||
Explanations:
– | Number of senior executives: 2002: three executive BoD, ten GEB members in office as of 31 December and two who left during the year 2003: two executive BoD, ten GEB members in office as of 31 December and one executive director who stepped down during the year 2004: three executive BoD, seven GEB members in office as of 31 December and two who stepped down during the year | |
– | Benefits in kind: car leasing, company car allowance, staff discount on banking products and services, health and welfare benefits, general expenses allowances | |
– | Sharesvalued at CHF 101.80 per share (average price of UBS shares at virt-x over the last ten trading days of February 2005), and USD 86.74 per share (average price of UBS shares at the NYSE over the last ten trading days of February 2005). Value per share 2003: CHF 95.30 / USD 76.40; 2002: CHF 61.00 / USD 45.10. | |
– | Optionson UBS shares were granted at a strike price of CHF 103.75 and USD 81.25 respectively, ten percent above the average high and low price at the virt-x and the NYSE respectively on the last trading day in February 2004. Options vest three years after grant and will expire ten years from the date of grant. Fair values per option at grant: CHF 23.90 / USD 20.51 for options granted in February 2004 and CHF 12.46 / USD 13.46 for options granted to match higher share elections in February 2005. Fair values per option at grant 2003: CHF 12.33/USD 9.90; 2002: CHF 16.30 / USD 11.74. |
– | Retirement benefit plans:InSwitzerland, senior executives participate in UBS’s general pension plans, which comprise a basic component operated on the defined benefit principle, a savings plan to bridge the income gap between UBS retirement age and the age defined for the start of social security payments, and a defined contribution plan. The cap compensation amount to be included in these plans was set at CHF 730,000 for all employees in 2004. This translates into a maximum annual pension of CHF 272,000 after retirement plus a one-off payout of accumulated capital from the savings plan in the maximum amount of CHF 217,052. No special top management pension schemes (“bel etage” packages) are offered to senior executives. Senior executivesoutside Switzerlandparticipate in the respective local pension plans. In the US there are two different plans, one operating on a cash balance basis, which entitles the participant to receive a contribution based on compensation limited to USD 250,000. The other plan, operated for all Wealth Management USA employees, is a defined contribution plan with compensation included up to a limit of USD 205,000. A special arrangement exists for senior executives with an annual contribution of USD 100,000. US senior executives may also participate in the UBS 401K defined contribution plan open to all employees. In the UK senior executives participate in a pension plan operated on a defined contribution basis, with compensation for pension purposes limited to the UK earnings cap of GBP 102,000. Note 31 to the UBS Group financial statements describes the various retirement benefit plans established in Switzerland and in major foreign markets. |
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Corporate Governance |
Compensation details and 311,255 USD-shares (for details see paragraph below), with a fair value of CHF 41,006,156. In June 2002 this group of senior executives were granted 470,000 CHF long-term incentive (LTI) options and 380,000 USD LTI options (for details see paragraph below) for financial years 2001 and 2002. At fair value these options were worth CHF 14,268,501. No such award was made in 2001.additional information (continued)
Non-executive membersHighest total compensation for a BoD member
Total compensation of the Board
For the year ended | ||||||||||||
CHF, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Base salary | 2,000,000 | 2,000,000 | 2,000,000 | |||||||||
Incentive award – cash | 9,500,000 | 7,500,080 | 4,584,545 | |||||||||
Employer’s contributions to retirement benefit plans | 82,588 | 82,588 | 82,588 | |||||||||
Benefits in kind, fringe benefits (at market value) | 190,371 | 150,000 | 90,000 | |||||||||
Incentive award – restricted UBS shares (fair value) | 9,500,078 | 7,499,920 | 4,584,455 | |||||||||
Restricted UBS options (fair value) | — | 1 | 1,565,910 | 1,222,500 | ||||||||
Total | 21,273,037 | 18,798,498 | 12,564,088 | |||||||||
Number of UBS shares granted | 93,321 | 78,698 | 75,155 | |||||||||
Number of UBS options granted | — | 1 | 127,000 | 75,000 | ||||||||
Additional severance payments Compensation for former membersto receive theirAdditional honorariums and remuneration (base Board fee plus fees for chairs and memberships of Board Committees) either 50% in cash and 50% in restricted UBS shares100% restricted UBS shares. Shares are attributed with a price discount of 15% and are restricted for four years. The six non-executive Board members, together with Markus Kündig, who stepped down at the AGM on 18 April 2002,remuneration were paid CHF 1,825,000 in cash forto any of the financial year 2002. They elected to receive 27,965 shares, which at fair value were worth CHF 1,705,865.Board or GEB members.As a matter of policy, UBS does not pay any additional severance in addition to the salary and bonus entitlements of a leaving member of the Board or the GEB. Whether or not payments for such running entitlements are madepaid in the form of final bonus or severance payments, they are included in the numbers reported above under compensation for acting members of the Board and the GEB.
of the Board and GEBFormer membersthe Boarddeferred compensation as a consequence of Directors ora changed employment situation for a former member of the Group Executive Board, compensation agreements were not paidre-negotiated. The Compensation Committee approved an additional payment of CHF 24.8 million to the former executive and the UK tax and social security authorities. Remuneration for non-executive Board members For the period CHF, except where indicated AGM 2004 / 2005 AGM 2003 / 2004 AGM 2002 / 2003 Cash 2,210,130 1,889,097 1,825,000 Restricted UBS shares at fair value 3,516,681 3,513,044 1,705,865 5,726,811 5,402,141 3,530,865 Number of UBS shares granted (15% discount) 34,545 36,863 27,965
Explanations:
– | Number of non-executive BoD members: 2002: six acting members as of 31 December and one who stepped down at the 2002 AGM 2003: seven acting members as of 31 December, one for nine months only 2004: seven acting members as of 31 December. |
– | Sharesvalued at CHF 101.80 (average price of UBS shares at virt-x over the last ten trading days of February 2005), discount price CHF 86.55. The shares are blocked for four years. Related parties of non-executive BoD members are not granted any shares. Value per share 2003: CHF 95.30, 2002: CHF 61.00 | |
– | Allowance for “Out of pocket” expenses(CHF 15,000) in addition. |
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Corporate Governance
Compensation, shareholdings and loans
Additional information on equity-based compensation during
Note 32 to the UBS Group financial statements provides comprehensive information on the Group’s various Equity Participation Plans for employees. It shows pro-forma results under the assumption of expensing options at fair value rather than charging their intrinsic value at grant date. The Financial Report 2004 also provides information on how business unit results would have been impacted if options granted to employees had been expensed.
Disclosure differences between IFRS and SWX requirements as from 2005
describe how to value shares and options grants and how to expense these awards over the respective vesting periods. In future, disclosure in the financial statements will be reported on this accounting basis, while the disclosure of compensation in the Handbook will continue to relate to figures attributable to performance in the financial year under review, neitherreview.
Disclosure of management transactions
No individual BoD or GEB member holds 1% or more of all shares issued.
Executive Board members and
members of the GEB1
Shares held as of 31 December 2004: 3,410,116
Of which | ||||||||||
Vested | Vesting 2005 | Vesting 2006 | Vesting 2007 | Vesting 2008 | Vesting 2009 | |||||
1,362,263 | 420,009 | 426,233 | 489,150 | 400,224 | 312,237 | |||||
Non-executive Board members1
Shares held as of 31 December 2004: 96,494
Of which | ||||||||||
Non-restricted | Blocked until 2005 | Blocked until 2006 | Blocked until 2007 | Blocked until 2008 | ||||||
25,501 | 4,371 | 12,688 | 27,832 | 26,102 | ||||||
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Corporate Governance |
Options held
Executive Board members and members of the ten GEB members were granted 353,880 shares, valued at CHF 61 per share (average price of
Senior executives held the following options on UBS shares at virt-x overas of 31 December 2004:
Number of options | Year of grant | Vesting date | Expiry date | Subscription ratio | Strike price | |||||
65,250 | 1999 | 26.02.2002 | 26.02.2005 | 1:1 | CHF 79.00 | |||||
216,000 | 2000 | 01.02.2003 | 01.02.2006 | 1:1 | CHF 66.67 | |||||
150,000 | 2001 | 24.01.2004 | 24.01.2008 | 1:1 | USD 57.80 | |||||
3,000 | 2001 | 28.02.2004 | 29.02.2008 | 1:1 | USD 53.39 | |||||
1,900,440 | 2001 | 20.02.2004 | 20.02.2009 | 1:1 | CHF 100.00 | |||||
231,617 | 2002 | 20.02.2005 | 31.01.2012 | 1:1 | CHF 77.75 | |||||
568,663 | 2002 | 31.01.2005 | 31.01.2012 | 1:1 | USD 45.26 | |||||
2,000 | 2002 | 28.02.2004 | 28.02.2012 | 1:1 | USD 46.24 | |||||
215,000 | 2002 | 28.06.2005 | 28.06.2012 | 1:1 | CHF 80.75 | |||||
280,000 | 2002 | 28.06.2005 | 28.06.2012 | 1:1 | USD 54.50 | |||||
300,491 | 2002 | 20.02.2005 | 31.07.2012 | 1:1 | CHF 77.75 | |||||
215,000 | 2002 | 28.06.2005 | 28.12.2012 | 1:1 | CHF 80.75 | |||||
480,000 | 2003 | 31.01.2006 | 31.01.2013 | 1:1 | USD 48.00 | |||||
2,000 | 2003 | 28.02.2005 | 28.02.2013 | 1:1 | USD 41.61 | |||||
427,000 | 2003 | 31.01.2006 | 31.07.2013 | 1:1 | CHF 65.00 | |||||
340,000 | 2004 | 28.02.2007 | 28.02.2014 | 1:1 | CHF 103.75 | |||||
608,536 | 2004 | 28.02.2007 | 28.02.2014 | 1:1 | USD 81.25 | |||||
Parties closely linked to the last ten trading daysexecutive members of January 2003),the Board and 311,255 shares, valued at USD 45.10 per share (average pricethe members of the GEB do not hold any options on UBS shares at the NYSE over the last ten trading days of January 2003). These shares are blocked for five years.
Non-executive Board members
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Number | Year | Vesting | Expiry | Subscription | Strike | ||||||||||||||||
of options | of grant | date | date | ratio | price | ||||||||||||||||
122,657 | 1997 | 24/06/02 | 24/06/03 | 1:1 | CHF 61.91 | ||||||||||||||||
40,002 | 1998 | 01/07/01 | 30/06/04 | 1:1 | CHF 56.67 | ||||||||||||||||
12,277 | 1998 | 26/05/03 | 26/05/04 | 1:1 | CHF 85.12 | ||||||||||||||||
140,214 | 1998 | 26/05/03 | 26/08/04 | 1:1 | CHF 85.12 | ||||||||||||||||
48,006 | 1998 | 30/06/03 | 30/06/04 | 1:1 | CHF 56.67 | ||||||||||||||||
119,544 | 1999 | 26/02/02 | 26/02/05 | 1:1 | CHF 79.00 | ||||||||||||||||
546,000 | 2000 | 01/02/03 | 01/02/06 | 1:1 | CHF 66.67 | ||||||||||||||||
2,006,490 | 2001 | 20/02/04 | 20/02/09 | 1:1 | CHF 100.00 | ||||||||||||||||
290,828 | 2002 | 20/02/05 | 31/01/12 | 1:1 | CHF 77.75 | ||||||||||||||||
300,491 | 2002 | 20/02/05 | 31/07/12 | 1:1 | CHF 77.75 | ||||||||||||||||
235,000 | 2002 | 28/06/05 | 28/12/12 | 1:1 | CHF 80.75 | ||||||||||||||||
140,000 | 2002 | 28/06/07 | 28/06/12 | 1:1 | CHF 80.75 | ||||||||||||||||
95,000 | 2002 | 28/06/07 | 28/06/12 | 1:1 | CHF 80.75 | ||||||||||||||||
3,000 | 2001 | 29/02/04 | 29/02/08 | 1:1 | USD 53.39 | ||||||||||||||||
360,000 | 2001 | 24/01/04 | 24/01/08 | 1:1 | USD 57.80 | ||||||||||||||||
568,663 | 2002 | 31/01/05 | 01/01/12 | 1:1 | USD 45.26 | ||||||||||||||||
2,000 | 2002 | 29/02/04 | 29/02/12 | 1:1 | USD 46.24 | ||||||||||||||||
380,000 | 2002 | 28/06/05 | 28/06/12 | 1:1 | USD 54.50 | ||||||||||||||||
In addition, this group of senior executives held the following warrants as of 31 December 2002: | |||||||||||||||||||||
24,558,529 | 2000 | 20/03/03 | 01/04/04 | 16.67 : 1 | CHF 75.00 | ||||||||||||||||
Non-executive Board members
Loans
No material additional honorariums and remuneration were paid to any of the Board or GEB members.
Granting loans is part of the ordinary business of Loans granted to executive Board members and members of the GEB Loans granted to non-executiveUBS, andUBS. Executive members of the Board and the members of the GEB have been granted loans, fixed advances and mortgages at the same terms and conditions as other employees, based on third-party conditions adjusted for reduced credit risk. In 2002, a thorough review of outstanding loans to senior executives was performed to ensure compliance with the US Sarbanes-Oxley Act of 2002. A thorough review of all outstanding loans to senior executives and Board members was performed in 2002 in order to ensure compliance with the new requirements of the US Sarbanes-Oxley Act, which limit or prohibit the extension of credit by UBS to certain of its executive officers. New loans and mortgages are now granted at general market conditions, with no preferential rates.2002, collateral2004, collateralized loans and fixed advances of CHF 14,425,0001,950,000 were receivable from executive Board members and membersone member of the GEB, and mortgages in the amount of CHF 13,264,00013,344,000 had been granted to thissix members of the group of senior executives and their close family members.
Board members140.5 million.294.3 million, including guarantees, contingent liabilities and unused committed credit facilities. For details see note 33 to the financial statements.Highest total compensationTotal compensation of the highest paid member of the Board of Directors, Chairman Marcel
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Ospel, amounted to CHF 11,341,588 for financial year 2002, including 75,155 restricted UBS shares. In addition, 75,000 options were granted as part of the senior executive long-term incentive (LTI) award made in June 2002 for financial years 2001 and 2002. At fair value these options were worth CHF 1,222,500. No such award was made in 2001.
Additional information on equity-basedcompensation and retirement benefit plans
Note 32 to the UBS Group Financial Statements provides comprehensive information on the
Group’s various Equity Participation Plans for employees on various levels of the organization. It shows pro-forma results under the assumption of expensing options at fair value rather than charging their intrinsic value at grant date. The Financial Report 2002 also provides information on how business unit results would have been impacted if options granted to employees had been expensed (please refer to “Review of Business Group performance” on page 35).
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Corporate Governance
Shareholders’ Participation Rights
participation rights
Shareholders’ Participation Rightsparticipation rights
UBS is committed to makemaking it as easy as possible for shareholders to take part in its decision-making processes. AllAlmost 200,000 shareholders directly registered and some 60,000 US shareholders — nearly 220,000 —registered via nominee companies receive regular written information about the firm’s activities and performance and are personally invited to shareholder meetings.
Relations with shareholders |
UBS fully subscribes to the principle of equal treatment of all shareholders, ranging from large investment institutions to individual investors, and regularly informs them about the development of the company of which they are co-owners.
Voting rights, restrictions and representation |
UBS is committed to making it as easy as possible for shareholders to take part in its decision-making processes and therefore places no restrictions on share ownership and voting rights. Only voting rights of nomineeNominee companies and trustees, who normally represent a great number of individual shareholders, may register an unlimited number of shares, but voting rights are limited to a maximum of 5% of outstanding UBS shares in order to avoid the risk of unknown shareholders with large stakes being entered into the share register. Securities clearing organizations such as theThe Depository Trust Company (DTC) in New York and SegaInterSettle (SIS) in Switzerland are exempt from the 5% voting limit. SIS, however, does not register its holdings with voting rights.
accept, reject or abstain on each individual item on the meeting agenda by either giving instructions to an Independent Proxy designated by UBS (as required under Swiss company law) or by appointing UBS, another bank or another registered shareholder of their choice, to vote on their behalf. Nominee companies normally submit the proxy material to the beneficial owners and transmit the collected votes to UBS.
Statutory quorums
Shareholder resolutions, the election and re-election of Board members, and the appointment of the Group and Statutory Auditors are decided at the General MeetingsMeeting of Shareholders by an absolute majority of the votes cast, excluding blank and invalid ballots. Article 704 of the Swiss Code of Obligations (Company Law)company law requires that for certain specific issues a majority of two-thirds of the votes represented at the meeting vote in favor of the resolution. These issues include the introduction of voting shares, the introduction of restrictions on the transferability of registered shares, conditional and authorized capital increases, and restrictions or exclusion of shareholders’ pre-emptive rights.
Convocation of general meetings of shareholders
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Corporate GovernanceShareholders’ Participation Rights
The Annual General Meeting of Shareholders (AGM) normally takes place in April, but in any case within six months afterof the close of the financial year. A personal invitation including a detailed agenda and explanation of each motion is sent to every registered shareholder at least 20 days ahead of the scheduled meeting. The meeting agenda is also published in various Swiss and international newspapers.newspapers and on the internet at www.ubs.com/shareholder-meeting.
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Corporate Governance |
deal with a specific issue put forward by them. Such a request may also be brought forward during the AGM.
Placing of items on the agenda |
Shareholders individually or jointly representing shares with an aggregate par value of one million Swiss francsCHF 250,000 may submit proposals for matters to be placed on the agenda for consideration by the shareholdersshareholders’ meeting. The Board of Directors will
submit to the AGM in 2003 a proposal to facilitate the exercise of this shareholder right, which — as a result of the two par-value repayments in 2001 and 2002 — had become more difficult. The proposed limit of an aggregate par value of CHF 250,000 brings the threshold back to what it used to be before the par value repayments.
tions to be put forward, together with a short explanation, if necessary. The Board of Directors formulates an opinion on the proposals, which is published together with the motions.
Registrations in share register |
The general rules for being entered with voting rights in the Swiss or US Share Register of UBS also apply before General Meetings of Shareholders (for details see pages 134 and 135)previous page). There is no “closing of the share register” in the days ahead of the meeting. Registrations including the transfer of voting rights are processed for as long as technically possible.possible, normally until two days before the meeting.
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Corporate Governance
Change of Controlcontrol and Defensive Measures
defense measures
Change of Controlcontrol and Defensive Measuresdefense measures
UBS believes in market forces. It therefore refrains from restrictions whichthat would hinder developments otherwise initiated in or supported by the financial markets. There are no specific protections against hostile takeover in place.
Duty to make an offer |
An investor who acquires 33 1/1/3% of all voting rights, whether they are exercisable or not, has to submit a take-overtakeover offer for all shares outstanding, according to the Swiss Stock Exchange Law.stock exchange law. UBS has not elected to change or opt out of this rule.
Clauses on changes of control |
The service agreements and employment contracts of the executive Board members, of the
members of the Group Executive Board and of the Group Managing Board do not contain clauses on change of control. UBS does not offer “golden parachutes” to its senior executives. Employment contracts contain notice periods of 12twelve months for GEB members and 6six to twelve months for GMB members, during whichdepending on local market practice. During this notice period they are entitled to running salary and bonuses.
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Corporate Governance |
Corporate Governance
Auditors
Auditors
Audit with its various functions and authorities, plays an important role in Corporate Governance.corporate governance. While putting high priority on remaining independent, the External Auditorsexternal auditors and Group Internal Audit closely coordinate their work, thereby ensuring the most effective performance of their responsibilities. The Chairman’s Office, the Audit Committee and ultimately the Board of Directors supervise the functioning of the overall audit work.
Ernst & Young Ltd., Basel, have been assigned the mandate to serve as global auditors for the UBS Group. They assume all auditing functions according to laws, regulatory requests, and the UBS Articles of Association (see also the paragraph about auditors responsibilities in the “Regulationregulation and supervision section”,section on page 118)111–112). The Audit Committee of the Board annually assesses the independence of Ernst & Young and has determined that Ernst & Young Ltd. meetsthey meet all independence requirements established by the US Securities and Exchange Commission (SEC). As partAuthority for pre-approval of itsall additional audit, process,audit-related and non-audit mandates to the principal auditors lies with the Audit Committee, ensuring that independence of the auditors is not jeopardized by conflicts of interests through additional mandates. Ernst & Young Ltd. informsinform the Audit Committee annually of the measures it takesthey are taking to ensure itstheir own and itstheir employees’ independence from UBS. The Audit Committee assesses this information on behalf of the Board and informs the Board accordingly.
Duration of the mandate and term of office of the lead auditorpartners
andthey will be proposed for re-electionreelection at the AGM 2003.2005 AGM.
Auditing fees
Additionalthe fees paid to auditors
Pre-approval procedures and policies
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Corporate Governance
Auditors
Fees paid to external auditors
UBS paid the following fees (including expenses) to its principal external auditors Ernst & Young Ltd.: | ||||||||
For the year ended | ||||||||
in CHF thousand | 31.12.04 | 31.12.03 | ||||||
Audit | ||||||||
Global audit fees | 33,465 | 27,645 | ||||||
Additional services classified as audit (services required by law or statute, including work of non-recurring nature mandated by regulators) | 3,094 | 4,589 | ||||||
Total audit | 36,559 | 32,234 | ||||||
Non-audit | ||||||||
Audit-related fees | 9,513 | 10,267 | ||||||
Tax advisory | 3,451 | 5,947 | ||||||
Other | 3,282 | 3,404 | ||||||
Total non-audit | 16,246 | 19,618 | ||||||
Committee for other services provided duringpre-approval. His decisions are brought to the year.
Group Internal Audit |
With around 240 professionals255 staff members worldwide at 31 December 2002,2004, Group Internal Audit provides an independent review of the effectiveness of theUBS’s system of internal controls and compliance with key rules and regulations. It specifically verifies or assesses whether the internal controls are commensurate with the corresponding risks and are working effectively, whether activities within the firm are being
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conducted and recorded properly, correctly and fully, and whether the organization of operations, including information technology, is efficient and the information is reliable. All key issues raised by Group Internal Audit are communicated to the management responsible, to the President of the GEBGroup CEO and to the Chairman’s Officeexecutive members of the Board of Directors via formal Audit Reports. The Chairman’s Office and the Audit Committee of the Board are regularly informed of important findings. Group Internal Audit closely cooperates with internal and external legal advisors and risk control units on investigations into major control issues.
Coordination and close cooperationco-operation with the external auditors enhance the efficiency of Group Internal Audit’s work.
The Audit Committee, on behalf of the Board of Directors, monitors the qualification, independence and performance of the Group Auditors and thetheir lead partners. It prepares proposals for appointment or removal of the external auditors
for submission toreview by the full Board, which then submits the proposal to the AGM.
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Corporate Governance |
Corporate Governance
Information Policy:UBS Financial Disclosure Principles
policy
Information Policy: UBS Financial Disclosure Principlespolicy
UBS’sOur financial disclosure policies aim to achieveat achieving a fair market value of thefor UBS share by communicating transparently, openlyshares through open, transparent and consistentlyconsistent communication with investors and the financial markets at all times.markets.
Main sources of information |
UBS provides regular information to its shareholders and to the financial community. For details, see page 5 and 6 of this Handbook.
Financial results will be published as follows:
First Quarter | ||||||
Second Quarter | ||||||
Third Quarter | ||||||
Fourth Quarter | ||||||
The Annual General Meeting of Shareholders
will take place as follows:
2006 | 19 April 2006 | |||||
UBS meets regularly with institutional investors throughout the year, holding results presentations, specialist investor seminars, road showsroadshows and one-to-one or group meetings across the world. Where possible, these events involve UBS senior management in addition toas well as the UBS Investor Relations team. We haveAs a means of further widening our audience and maintaining contact with our shareholders around the world, we also made significant progress in developing themake use of technology to further broaden access to our presentations throughdiverse technologies such as webcasting, audio links and cross-location video-conferencing for external audiences.video-conferencing.
Financial disclosure principles |
Based on our discussions with analysts and investors, we believe that the market rewards companies that provide clear, consistent and informative disclosure about their business. Our aim therefore is to communicate UBS’s strategy and results in such a way that shareholders and investors can gain a full and accurate understanding of how the company works, what its growth prospects are and what risks there areexist that this growth will not be realized.
– | Transparency:our disclosure is designed to enhance understanding of the economic drivers and detailed results of the business, in order to build trust and |
– | Consistency:we aim to ensure that our disclosure is consistent and comparable within each reporting period and between reporting |
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– | Simplicity:we try to disclose information in as simple a manner as possible consistent with allowing readers to gain the appropriate level of understanding of our businesses’ |
– | Relevance:we aim to avoid information overload by focusing our disclosure on what is relevant to UBS’s stakeholders, or required by regulation or |
– | Best practice:we strive to ensure that our disclosure is in line with industry norms, and if possible leads the way to improved standards. |
Financial reporting policies
We report UBS’s results quarterly, including a breakdown of results by Business Groups and business units and extensive disclosures relating to credit and market risk. The extent of disclosure and the quality of analysis and comment we provide put UBS’s reporting among the leaders in the banking sector, worldwide.
Group targets
Business Group key performance indicators
Accounting principles
Analysis of adjusted figures and results
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Corporate Governance
Information Policy:UBS Financial Disclosure Principlespolicy
UBS, we believe that equity values are driven by future cash flows.
Restatement of results
US regulatory disclosure requirements
closuredisclosure requirements of the Securities and Exchange Commission (SEC) and the NYSE for private foreign issuers. These include the requirement to make certain filings with the SEC. As a private foreign issuer, some of the SEC’s regulations and requirements which apply to domestic issuers are not applicable to UBS. We provide UBS’s regularreg-
ular quarterly reports to the SEC under cover of Form 6-K, and file an annual report on Form 20-F. We also provide additional disclosure at half yearhalf-year to meet specific SEC requirements, which again is provided under cover of Form 6-K. In addition, important corporate announcements, including press releases, are provided under cover of Form 6-K as they occur. These reports, as well as materials sent to shareholders in connection with annual and special meetings, are all available on our website, at www.ubs.com/investors.
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Corporate Governance |
Corporate Governance
Regulation and Supervision
supervision
Regulation and Supervisionsupervision
We aim to monitor regulatory developments, to comply with all applicable provisions and to work closely and maintain good relations with the regulators in all jurisdictions where we have offices, branches and subsidiaries.conduct business.
As a Swiss-registered company, UBS’s mainhome country regulator is the Swiss Federal Banking Commission (SFBC), but we are also regulated worldwide by supervisory agencies in the countries in which we conduct business, most notably the US and the UK..
Regulation and supervision in Switzerland |
General
Regulatory policy
minimum standards for the use of guarantees and credit derivatives issued on 14 October 2003. Another is a circular ruling the supervision of large banking groups issued on 21 April 2004. The latter directly applies to UBS and prescribes what information we are required to provide the SFBC, has issued a new Ordinance updating its rules on anti-money laundering, which will come into force in July 2003.the structure of our regular interaction with them, and the scope of on-site reviews (prudential independent controls) as well as extended audits by the SFBC. In certain fields, the SFBC officially endorses self-regulatory guidelines issued by the banking industry (through the Swiss Bankers’ Association), which thus becomemaking them an integral part of banking regulation. Recent examplesExamples are:
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Corporate GovernanceRegulation and Supervision
– |
– | Guidelines |
– | Portfolio Management Guidelines, |
– | Guidelines on Internal Control, |
– | Directives on the Independence of Financial Research, 2003 |
– | Allocation Directives for the New Issues Market, 2004. |
Certain aspects of securities broking, such as the organization of trading, are subject to self-regulation through the SWX Swiss Exchange (for example, the Listing regulation of 24 January 1996) and the Swiss Bankers’ Association, under the overall supervision of the SFBC.
Role of external auditors and direct supervision of large banking groups
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Corporate Governance
Regulation and supervision
activities. Close cooperation,co-operation, including regular trilateral meetings, has been established between the SFBC and UBS’s US and UK regulators, and further links are being established by the SFBC with other relevant regulators.
Reporting requirements and
capital requirements
ad-hoc and event-based information requests connected with direct supervision activity.
Disclosures to the Swiss National Bank
Banking regulation
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The licensing authority of each US banking officebranch has the authority to take possession of the business and property of the office it licenses in certain circumstances. Such circumstances generally include violations of law, unsafe business practices and insolvency. SoAs long as UBS maintains one or more federal branches, such as our California branches, the Office of the Comptroller of the Currency also has the authority to take possession of ourthe US operations of UBS AG under similar circumstances, and this federal power may preempt the state insolvency regimes that would otherwise be applicable to our state-licensed offices.branches. As a result, if the Office of the Comptroller of the Currency exercised its authority over ourthe US banking officesbranches of UBS AG pursuant to federal law in the event of a UBS insolvency, all of UBS’s US assets would most likely be applied first to satisfy creditors of our US banking officesbranches as a group, and then made available for application pursuant to any Swiss insolvency proceeding.
US regulation of other US operations
– | sales methods |
– | trade practices among broker-dealers |
– | use and safekeeping of customers’ funds and securities |
– | capital structure |
– | record-keeping |
– | the financing of customers’ purchases |
– | the conduct of directors, officers and employees. |
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Corporate Governance |
These entities are regulated by a number of different government agencies and self-regulatory organizations, including the Securities and Exchange Commission and the National
USA Patriot Act
Since 1 December 2001, following the implementation of the Financial Services and Markets Act 2000, UBS’s operations in the United
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Corporate GovernanceRegulation and Supervision
The FSA has established a risk-based approach to supervision and UBS is supervised by the Major Financial Groups section of the Deposit Takers and Markets Directorate. The FSA has a wide variety of supervisory tools available to it, including on-site inspections by supervisors (which may relate to a risk-basedan industry-wide theme or be firm-specific) and the ability to commission reports by skilled persons (who may be the firm’s auditors, or IT specialists, compliancelawyers or other consultants or lawyers)as appropriate). The FSA also has an extremely wide set of sanctions
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Corporate Governance
Compliance with NYSE Listing Standardslisting standards
on Corporate Governance
corporate governance
Compliance with NYSE Listing Standards
listing standards on Corporate Governancecorporate governance
UBS aims to comply with all relevant standards on corporate governance. As a foreign company, listed aton the New York Stock Exchange (NYSE), we haveare only required to explain differences between our corporate governance standardscomply with the rules relating to audit committees and annual certifications. UBS, however, has voluntarily adopted the overwhelming majority of the NYSE rules for US companies.
Introduction |
On 4 November 2003, the Securities and Exchange Commission (SEC) approved the revised New York Stock Exchange corporate governance rules. Foreign private issuers – such as UBS – must comply with the rules on Audit Committees by 31 July 2005 and must also disclose significant differences and material non-compliance with all other NYSE standards by the first annual shareholders meeting after 15 August 2002, the NYSE filedJanuary 2004. UBS fully complies with the SEC proposed rules that would effect substantial changesrequirements relating to Audit Committees and fulfills the overwhelming majority of the NYSE listing standards on corporate governance. The few exceptions are mainly due to the NYSE corporate governance listing standards. The proposed changes would tighten the definitiondifferent legal system in Switzerland and are explained in detail in this chapter.
Independence of director independence, expand the responsibilities of the audit committee, mandate the establishment of a compensation committee and nominating committee both composed of only independent directors and require listed companies to have a code of ethics and corporate governance guidelines.
The NYSE rules will require that the Board of Directors, based on the listing standards of a listed company have a majority of independent directors. For a director to be considered independent, the NYSE, approved “Criteria for defining external Board of Directors must affirmatively determine thatmembers’ independence”, which are published on the firm’s website under www.ubs.com/corporate-governance. Each external director has to personally confirm his compliance with the criteria. The Board, at its meeting of 3 February 2005, affirmatively determined that Ernesto Bertarelli, Peter Böckli, Sir Peter Davis, Rolf A. Meyer, Helmut Panke, Peter Spuhler and Lawrence A. Weinbach have no material relationship with the company,UBS, either
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Corporate GovernanceCompliance with NYSE Listing Standardson Corporate Governance
“America’s Cup 2007”. Mr. Bertarelli is the owner of Team Alinghi SA. Otherwise Ernesto Bertarelli fully satisfies the New York Stock Exchange independence requirements. The Board of Directors after having carefully considered the information provided by its external members, has determineddoes not believe that Peter Böckli, Ernesto Bertarelli, Sir Peter Davis, Rolf A. Meyer, Hans Peter Ming and Lawrence A. Weinbach are independentUBS’s sponsorship of Team Alinghi impairs Mr. Bertarelli’s independence in accordance with the criteria mentioned above.any way.
sulting, advisory or other compensatory fees from UBS other than in their capacity as directors. They do not receive any compensatory feeshold directly or indirectly paid to them as a partner, member or principalUBS shares in excess of an entity, which provides accounting, consulting, legal, investment banking, financial or other advisory services to UBS. And5% of the outstanding capital, and none of them serveserves on the audit committees of more than two other public companies.
UBS has established an Audit, a Compensationaudit, compensation and a Nominating Committee,nominating committees. The charters for all composed solelyBoard Committees are published on www.ubs.com/corporate-governance. Additional information on the Board Committees’ mandates, responsibilities and authorities and their activities during 2004 can be found on pages 91–92 of independent directors, as required by the NYSE rules.this section.
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Corporate Governance |
Differences from NYSE standards
According to Rule 303A.11 of the NYSE Corporate Governance listing standards, foreign private issuers have to disclose any significant ways in which their corporate governance practices differ from those to be followed by domestic companies. The UBS Board of Directors has determined the following differences:
For US listed companies the NYSE | ||
– | responsibility of the Audit Committee for appointment, compensation, retention and oversight of the Independent Auditors. UBS’s Audit Committee has been assigned all these responsibilities, except for appointment of the Independent Auditors, which – according to Swiss Company Law – is required to be voted upon by shareholders. The Audit Committee assesses the performance and qualification of the External Auditors and submits its proposal for appointment, re-appointment or removal to the full Board, which brings this proposal to the shareholders for vote at the Annual General Meeting (AGM). |
The NYSE rules require:
– | UBS, as a global financial services firm, has a |
– | In accordance with the Swiss Federal Banking Commission’s Circular Letter on Internal Audit, dated 14 December 1995, UBS gave the Chairman’s Office responsibility and authority for supervising the internal audit function. The complexity of the financial services industry requires in-depth knowledge to allow for an effective supervision of the internal audit function. The Chairman’s Office reports back to the full Board on all important |
122
– | responsibility of the Nominating Committee for oversight of management and Board Management evaluation (performance of the |
All Board Committees perform a self-assessment of their activities and report back to the full Board. The Board has direct responsibility and authority to evaluate |
– | proxy statement reports of the Audit and Compensation Under Swiss Company Law, all reports addressed to shareholders |
– | shareholders’ votes on equity compensation plans. Under Swiss Company Law, the approval of compensation plans is not within the authority of the AGM, but of the Board of Directors. The reason for this approach is the fact that the capital of a Swiss company is determined in the Articles of Association and, therefore, each increase of capital has to be submitted for shareholders’ approval. If equity-based compensation plans result in a need for a capital increase, AGM approval is mandatory. If, however, shares for such plans are purchased in the market, shareholders do not have the authority to vote on their approval. |
– | non-management directors to meet at least once per year separately, without any directors participating who are not independent because of their employment by the company. Under Swiss Banking Laws Board members are not allowed to assume any day-to-day management responsibility. UBS therefore considers all its Board members as “non-management directors”, despite the fact that three “executive” Board members perform their mandate on a full-time basis and are remunerated by the company for their services. The Board meets regularly without executive management, but including the three executive Board members. |
The proposed NYSE rules require that shareholders must vote on all equity-compensation plans and any material revisions to the terms of such plans (including for purposes of re-pricing existing options). UBS does not comply with this requirement.
Corporate Governance Guidelines, |
The proposed NYSE rules require each listed company to adopt and make publicly available Corporate Governance Guidelines and a Code of Business Conduct and Ethics. These documents must be adopted within six months of the SEC’s approval of the NYSE’s rules.
The UBS Board of Directors has already adopted Corporate Governance Guidelines,corporate governance guidelines, which are published on the UBS website at www.ubs.com/about.
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Corporate GovernanceGroup Managing Board
Senior leadership
Senior leadership
The senior leadership of UBS, in addition to the Group ManagingExecutive Board,
The includes the members of the Group Managing Board (GMB) representsand the next layer in the leadershipVice Chairmen of the Business Groups.
Group belowManaging Board
The members of the Group Executive Board. Its membersGMB are drawn from the management teams of the Business Groups and the Corporate Center.
Center or assume special Group functions. The GMB hasplays a crucial role in implementing our integrated business modelachieving UBS’s one-firm vision and in promoting the UBS cultureagenda. Its role is to understand, challenge and contribute to further developing the firm’s direction, values throughout the Group and externally.principles and to promote and communicate its culture.
UBS Wealth Management & Business BankingMembers as of 31 December 2004 and announced changes.
Wealth Management & Business Banking | ||
Michel Adjadj | Head of | |
Arthur Decurtins | Head of | |
Thomas K. Escher | Head of IT (Vice Chairman Wealth Management as from 1 July 2005) | |
Jürg Haller | Head of Products & Services | |
Eugen Haltiner | Head of Business Banking (Vice Chairman Business Banking as from 1 February 2005) | |
Marten Hoekstra | Head of Market Strategy & Development | |
Dieter Kiefer | Head of | |
Martin Liechti | Head of | |
Hans-Ulrich Meister | Head of Large Corporates & Multinationals (Head of Business Banking as from 1 February 2005) | |
Jeremy Palmer | Head of Wealth Management UK, Northern & Eastern Europe | |
Werner H. Peyer | Head of Wealth Management and Affluent Banking Zurich Region | |
Joe Rickenbacher | Chief Credit Officer | |
Alain Robert | Head of | |
Kathryn Shih | Head of | |
Jean Francis Sierro | Head of Resources | |
Anton Stadelmann | Chief Financial Officer | |
Vittorio Volpi | Head of | |
Raoul Weil | Head of | |
Stephan Zimmermann | Head of Operations (Chief Operations Officer as from 1 July 2005) | |
New member as from 1 March 2005: | ||
Michael A. Weisberg | Head of Investment Solutions/Products and Services | |
Investment Bank | ||
Andy Amschwand | Head of Investment Bank Switzerland Global | |
Global General Counsel | ||
Michael Bolin | Chief Administrative Officer | |
Gary Bullock | Global Head of Infrastructure Logistics | |
Regina A. Dolan | Chief Financial Officer | |
Robert Gillespie | Joint Global Head of Investment Banking | |
Michael Hutchins | Global Head of Fixed Income, | |
Huw Jenkins | Global Head of Equities | |
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Chief Risk Officer | ||||
(Group Chief Credit Officer as from 1 April 2005) | ||||
Joint Global Head of Investment Banking | ||||
Robert Wolf | ||||
New members as from 1 March | ||||
Simon C. Bunce | Chief Executive Officer and President of UBS Securities Japan Limited | |||
Thomas R. Hill | Global Head of Equity Research | |||
Wealth Management USA | ||
Robert J. Chersi | Chief | |
Head of | ||
Tom Naratil | Director of Banking and Transactional Solutions | |
James D. Price | Director of Investment and Marketing Solutions | |
Head of Eastern Division | ||
Robert H. Silver | President and Chief Operating Officer | |
New member as from 1 March 2005: | ||
David L. Zoll | ||
Global Asset Management | ||
Gabriel Herrera | Head of Europe, Middle East & Africa | |
Thomas Madsen | Global Head of Equities | |
Joe Scoby | CEO | |
Brian Singer | Global Head of Asset Allocation | |
Mark Wallace | Global Head of Logistics Infrastructure | |
Paul Yates | Head of UK | |
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Corporate Governance |
Corporate Center | ||||
Scott G. Abbey | Chief Technology Officer | |||
Mark Branson | Chief Communication Officer | |||
Rolf Enderli | Group Treasurer | |||
Thomas Hammer | Group Head of Human Resources | |||
Robert W. Mann | Head of Leadership Institute | |||
Hugo Schaub | Group Controller | |||
Walter H. Stuerzinger | Group Chief Risk Officer (Member of the GEB as from 1 March 2005) | |||
Marco Suter | Group Chief Credit Officer (proposed to 2005 AGM for election to the Board of Directors) | |||
New member as from 1 March 2005: | ||||
Neil R. Stocks | Head of Group Compliance | |||
Chairman’s Office | ||
Luzius Cameron | Company Secretary (as of 1 January 2005) | |
Gertrud Erismann-Peyer | Company Secretary (retiring as of 1 May 2005) | |
Markus Ronner | Head of Group Internal Audit | |
Business Group Vice Chairmen
Business Group Vice Chairmen are appointed to support the businesses in their relationships with key clients. They strongly contribute to the success of UBS and work closely together with the members of the Group Managing Board.
Members as of 1 February 2005 and announced changes
Wealth Management & Business Banking | ||
Thomas K. Escher | Wealth Management (as from 1 July 2005) | |
Carlo Grigioni | Wealth Management | |
Eugen Haltiner | Business Banking | |
Investment Bank | ||
Ken Costa | ||
Lord Brittan of Spennithorne, QC | ||
Senator Phil Gramm | ||
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Corporate Responsibility
Corporate Responsibility
For us, corporate responsibility is integral to everything we do, meaning that we want to create value sustainably for allWe make responsible behavior an important part of our stakeholders.culture, identity and business practice.
1
Corporate Responsibility
Corporate Responsibility
UBS has made corporate responsibilitymakes responsible behavior an important part of its culture, identity and business model. Our approach is to focus on corporate responsibility issues that provide clear benefits to all our stakeholders — clients, employees, shareholders and the community.practice. As a leading global financial services firm, we want to provide our clients with value-added products and services, promote a corporate culture that adheres to the highest ethical standards, while generatingand generate superior but sustainable returns for our shareholders. We are committed to being an equal opportunity employer, protecting the environment, adhering to high social standards, and contributing to the communities which we are a part of. For us, behaving responsibly sometimes means moving beyond solely profit-oriented considerations and legal requirements when doing business.
– | we aim to provide a working environment that is based on the values of diversity and meritocracy |
– | we uphold high ethical values when dealing with our clients and suppliers |
– | we support the communities not only with donations, but also by giving our employees the opportunity to engage in volunteering work |
– | we have a global environmental management process in place to make sure that in all our business dealings we act in an environmentally responsible manner. |
Our corporate responsibility processes
In 2001, we created a Corporate Responsibility Committee in 2001.Committee. It determines UBS’sdiscusses and judges how to meet the evolving expectations of our stakeholders related to our corporate responsibilityconduct. If it comes to the conclusion that there is gap between what stakeholders expect and sustainable development policies, supports increased awareness ofwhat we practice – and that this gap represents either a risk or an opportunity to the issue, monitorsfirm – the company’s adherencecommittee suggests appropriate measures to international standards, and advises the Group Executive Board and the Board of Directors. management, which is then responsible for implementing solutions.
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Corporate Responsibility |
Contributing to society – preventing money laundering
An extensive and constant effort to prevent money laundering is the most important single contribution to society that we can make. The integrity of the financial system is the responsibility of all those involved in it. We take our duties extremely seriously – in protecting both the system at large and our own operations. Our stakeholders expect us to be at the forefront of developing strategies and implementing measures necessary to achieve these objectives. The threats posed by money laundering and terrorism are real, and we all have a role in contributing to the fight against them as effectively as possible.
lored to our different business lines and their specific risks and exposures. This includes establishing, where applicable, consistent criteria by which a business relationship should be judged “higher-risk”. We utilize technology to assist us in the identification of transaction patterns or unusual dealings.
Investing in our communities
The “raison d’être” behind our well-established program of community investment is the recognition that our success depends not only on the skill and resources of our people and the relationships we foster with clients, but also on the health and prosperity of the communities we work in. Dedicated teams worldwide work closely with staff at all levels to build partnerships with organizations in the communities where we operate, focusing on education, regeneration and environmental projects.
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Corporate Responsibility
“UBS was instrumental in creating the Wolfsberg Group, named after their own management training center in Switzerland. With the help of the anti-corruption organization, Transparency International, 12 of the worlds largest banks – banks which would normally be guarded about sharing internal procedures with their competitors, collaborated to develop and publish the “Anti Money Laundering Principles” called the “Wolfsberg Principles” ...which have received worldwide recognition as good practice – filling gaps in national laws and regulations.”
Jermyn Brooks, Director, Transparency International
nations from our employees to most charities. In 2004 we donated more than CHF 25 million to support charitable causes and the communities we are a part of. Our employees, through their volunteer efforts, also make significant contri-
butions to the communities they live in, and, depending on location, UBS supports their commitment by offering up to two days per year for volunteering.
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Corporate Responsibility |
Socially responsible investments
UBS’s expertise in incorporating environmental and social aspects into its research and advisory activities is an important attraction for certain investors. In addition to financial considerations, socially responsible investments (SRI) take into account environmental, social or ethical criteria.
areas of increasing or diminishing risk, organize collaborative research by analysts about emerging SRI themes, and write about and advise on quantifying the effects on share prices of companies with exposure to such issues.
Our impact on the environment
We impact the environment in a number of ways. Our businesses consume electricity, employees travel for business purposes, they use paper and generate waste in the course of their work, and offices require heating and cooling systems. Improving our use of these resources can boost our operating margins and enhance environmental performance and we have a series of measures that manage our environmental impact efficiently. Performance in that respect has improved considerably since the expansion of our environmental management system to our offices outside Switzerland in 2002. The percentage of waste we recycle is now 70%, up from 32% in 2001. In the same timeframe, we significantly reduced the environmental impact of our consumption of paper by phasing out the use of chlorine bleached paper – which accounted for half the paper we used in 2001.
SRI invested assets
For the year ended | % change from | |||||||||||||||
CHF billion | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
UBS | 2,250 | 2,133 | 1,959 | 5 | ||||||||||||
Socially responsible investments | ||||||||||||||||
Positive criteria | 0.78 | 0.72 | 0.57 | 8 | ||||||||||||
Engagement1 | 38.5 | |||||||||||||||
Exclusion criteria | 7.32 | 8.95 | 7.88 | (18 | ) | |||||||||||
Third-party | 0.29 | |||||||||||||||
Total socially responsible investments’ assets | 46.89 | |||||||||||||||
Proportion of invested assets (%)2 | 2.08 | |||||||||||||||
Performance of UBS’ SRI Funds % | ||||||||||||||||
Absolute performance Eco Perf.3 | 4.66 | 15.90 | (34.96 | ) | ||||||||||||
Relative performance Eco Perf. vs. MSCI4 | (1.30 | ) | (3.74 | ) | (1.96 | ) | ||||||||||
Positive criteria: applies to the active selection of companies, focusing on how a company’s strategies, processes and products impact its financial success, the environment and society.
Engagement:investors enter into a dialogue with boards or management of companies with the aim of influencing corporate behavior and policies, if appropriate, in relation to environmental, social or ethical issues.
Exclusion criteria:companies or sectors are excluded based on environmental, social or ethical criteria, e.g. companies involved in weapons, tobacco, gambling, or with high negative environmental impacts.
Third-party:UBS’s open product platform gives clients access to SRI products from third-party providers. From 2004 we also report on these invested assets.
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Corporate Responsibility
The five environmental principles are:
– | we duly consider environmental risks in all our businesses, especially in lending, investment banking, advisory and research, and in our own investments. | |
– | we seek to take advantage of the financial market for environmentally-friendly products and services, such as Socially Responsible Investments (SRIs). | |
– | we actively seek ways to reduce our direct environmental impact on air, soil and water from in-house operations, with a primary focus on reducing greenhouse gas emissions. We also seek to assess the environmental impact of our suppliers. | |
– | we ensure efficient implementation of our policy through a global environmental management system certified according to ISO 14001 – the international environmental management standard. | |
– | we invest in knowhow and integrate environmental considerations into internal communications and training. |
Overall responsibility for environmental management lies with the Group Executive Board Marcel Rohner, CEOalthough each business is accountable for its environmental management.
Environmental performance indicators
which allow for year-on-year comparisons. They are based on industry standards such as EPI-Finance 2000 and VfU 2003 (both tailor environmental performance indicators to financial institutions).
Managing environmental risks in our business transactions
When evaluating potential business transactions, material environmental aspects can be important when assessing overall risks. For UBS, a failure to identify, manage or control these environmental risks can manifest itself across a wide variety of risks inherent to our business activities, such as credit risk. An example of that might be when a counterparty’s cash flow or assets are impaired by environmental factors such as inefficient production processes, polluted or contaminated property. Liability risks, such as when a bank takes over collateral onto its own books, would be another one.
Investment Bank
Management indicators
For the year ended | % change from | |||||||||||||||
Full-time equivalent, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Headcount financial businesses1 | 67,424 | 65,929 | 69,061 | 2 | ||||||||||||
In specialized environmental units2 | 22.0 | 16.4 | 17.5 | 34 | ||||||||||||
Environmental awareness raising | ||||||||||||||||
Employees trained | 1,664 | 1,377 | 2,266 | 21 | ||||||||||||
Training time(hours) | 2,124 | 1,857 | 2,246 | 14 | ||||||||||||
Specialized environmental training | ||||||||||||||||
Employees trained | 602 | 1,106 | 442 | (46 | ) | |||||||||||
Training time(hours) | 1,932 | 2,548 | 1,503 | (24 | ) | |||||||||||
External environmental audits3 | ||||||||||||||||
Employees audited | 11 | 26 | 125 | (58 | ) | |||||||||||
Auditing time(days) | 2.0 | 3.0 | 17.0 | (33 | ) | |||||||||||
Internal environmental audits4 | ||||||||||||||||
Employees audited | 148 | 171 | 150 | (13 | ) | |||||||||||
Auditing time(days) | 29.2 | 36.5 | 25.0 | (20 | ) | |||||||||||
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classification, on UBS’s familiarity with the counterparty, and on comfort with the contents of any prospectus provided by the client. In the initial due diligence phase, environmental factors are screened by Investment Banking staff. If there are indications of significant environmental risk, an internal environmental competence center may be contacted to provide a more detailed environmental assessment. In 2004, 32 such detailed assessments were completed by the competence center.
Wealth Management & Business Banking
ates a second screening and decides whether the risks identified are transparent enough for the credit decision to be taken. Transactions entailing significant environmental risk undergo a third step, a detailed environmental assessment – a service provided by the Business Group’s environmental risk unit. In 2004, 35 such detailed assessments took place. If a transaction poses substantial environmental risks, the bank can take several courses of action. It can adapt the terms of the loan contract, it may advise the client on how to mitigate environmental risks, or it may decline the transaction altogether.
Wealth Management USA
Third-party ratings
At UBS, the value-based management framework views management as the custodian of shareholder wealth. This framework sees the creation of long-term shareholder value as resting on four, mutually supporting pillars. First, we ensure that business decisions are analyzed in terms of the value that they create. Second, the realized value creation is measured and compared with targets. Third, we have incentive systems in place to align the interests of managers with those of shareholders, including tying a meaningful part of total compensation to individual performance targets as well as encouraging managers and staff to become shareholders. Moreover, internal value driver projections and valuations are benchmarked against external assessments, stock market expectations, and leading analyst forecasts.
Trust is critical for a global financial services provider. It requires a corporate culture that promotes behavior consistent with the highest ethical standards. To enhance the trust placed in us, it is vital that we protect our clients’ legitimate right to financial privacy while preventing the abuse of our services by criminals or terrorists.
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Because of the growing importance of advisory-based financial services and regulations regarding the exercise of due diligence, financial institutions are gathering more and more information from and about their clients. Unsurprisingly, public and private sector agents are showing a strong appetite for that data, and clients are increasingly worried about its misuse. Financial privacy, as with medical and other forms of personal privacy, are privileges enjoyed by citizens living in a modern, democratic society. At UBS, we firmly believe we should uphold and defend our clients’ right to safeguard their private financial information from third party interests.
the tool. The Financial Intelligence Unit (FIU), a dedicated compliance team maintaining the register, is automatically notified if and when any queries match with names on its database.
An important part of our success as a firm is the fact that our corporate culture blends the best influences of its diverse roots and encourages diversity. Our goal is to attract and retain the most talented and motivated individuals by offering them a rewarding and challenging environment. By encouraging individual success, we allow employees to develop their skills and progress within our organization. One of our competitive strengths is the ability to leverage the skills and knowledge of our staff across the 50 countries in which we operate. In order to fully take advantage of that, we have appointed
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a Global Head of Diversity for the Group. At the same time, we have established Business Group-specific regional and global diversity initiatives. In Switzerland, for example, comprehensive intercultural training is part of our management development program.
The success of UBS depends not only on the skills and resources of our people and the relationships we have with our clients, but also on the health and prosperity of the communities of which we are part. We directly benefit from a stable political and social environment, modern infrastructure and a good education system. Furthermore, community programs create benefits for a company’s reputation, and increase its appeal to its clients.
On another level, the UBS Optimus Foundation harnesses the expertise and the capabilities of UBS as a global financial services company by supporting clients when they express a desire to contribute to worthy causes. Since its launch over three years ago, the foundation has concentrated its investments in a select number of programs and organizations — all of which focus on people. The total number of projects is now twelve, divided into the categories of children and talents as well as medical research — running from one that aims to re-integrate Brazil’s street children in society to another that finances a Swiss cancer research project.
Environmental protection is one of the most pressing issues facing our world today. Consequently, it poses a challenge to companies, industries and sectors. At UBS, we remain committed to further integrating environmental considerations into all our business activities. To make this happen, our environmental policy focuses on taking advantage of environmental market opportunities, and considering environmental risks in our risk management processes, especially in lending and investment banking. In corporate services, we actively look for ways to reduce the direct environmental impact of our business activities.
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introduced processes that allow early identification of environmental risks in transactions. Initially, environmental factors are screened by the corresponding investment banking staff. If there are indications of heightened environmental risk, external specialists are called in to investigate them as part of the overall due diligence process. Also in the Swiss lending business, a careful review of financially relevant environmental aspects is an important part of UBS’s credit risk analysis.
about double-sided printing capabilities and other ways to save paper.
A number of different independent rating agencies that assess corporate responsibility programs across the world have rated UBS among the leaders in the field.
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Corporate Responsibility
Environmental and CO2 footprints
Every year, we analyze our environmental and CO2 footprints. The results from the graph and tables below show that the major areas where UBS has a direct impact are, in order of importance, energy consumption, business travel, paper consumption, and waste.
Ratio indicators per FTE
Unit | 2004 | Trend | 2003 | 2002 | ||||||||||||
Total direct energy | kWh / FTE | 13,855 | è | 14,659 | 13,394 | |||||||||||
Total indirect energy | kWh / FTE | 26,195 | î | 29,986 | 26,962 | |||||||||||
Total business travel | Pkm / FTE | 10,694 | é | 7,831 | 8,040 | |||||||||||
Total paper consumption | kg / FTE | 198 | è | 218 | 213 | |||||||||||
Total water consumption | m3/ FTE | 28.0 | è | 27.8 | 25.8 | |||||||||||
Total waste | kg / FTE | 362 | è | 395 | 418 | |||||||||||
Total environmental footprint | kWh / FTE | 40,562 | è | 43,581 | 40,370 | |||||||||||
Total CO21 | t / FTE | 3.87 | î | 4.80 | 4.07 | |||||||||||
CO2 footprint2 | t / FTE | 7.38 | è | 7.91 | 7.06 | |||||||||||
Our consumption of waste, water and paper remained relatively flat year-on-year. The waste recycling ratio increased to 70% from 59% due to an increased focus on recycling programs in all areas as well as heightened staff awareness.
133More detailed information on UBS’s environmental management system is available on the internet: www.ubs.com/environment
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Corporate Responsibility |
Absolute indicators
2004 | 2003 | 2002 | ||||||||||||||||||||||
Abolute | Data | Absolute | Abolute | |||||||||||||||||||||
Environmental performance indicators1 | GRI2 | normalized3 | quality4 | Trend5 | normalized3 | normalized3 | ||||||||||||||||||
Total direct energy6 | EN3 | 934 GWh | ** | è | 966 GWh | 925 GWh | ||||||||||||||||||
Direct intermediate energy purchased7 | EN3 | 753 GWh | ** | è | 771 GWh | 722 GWh | ||||||||||||||||||
electricity from hydroelectric power stations | 15 | % | ** | è | 17 | % | 18 | % | ||||||||||||||||
electricity from biomass and waste power stations | 6 | % | ** | ì | 0 | % | 0 | % | ||||||||||||||||
electricity from wind power stations | 1.5 | % | ** | é | 1.3 | % | 1.6 | % | ||||||||||||||||
electricity from other renewable resources | 5.7 | % | ** | è | 4 | % | 1.6 | % | ||||||||||||||||
district heating | 3.1 | % | ** | è | 3.1 | % | 3.8 | % | ||||||||||||||||
electricity from nuclear power stations | 30 | % | ** | è | 31 | % | 34 | % | ||||||||||||||||
electricity from gas-fired power stations | 16 | % | ** | î | 19 | % | 19 | % | ||||||||||||||||
electricity from oil-fired power stations | 5.5 | % | ** | è | 5.5 | % | 5.2 | % | ||||||||||||||||
electricity from coal-fired power stations | 16 | % | ** | î | 20 | % | 17 | % | ||||||||||||||||
Direct primary energy consumption8 | 182 GWh | ** | è | 196 GWh | 203 GWh | |||||||||||||||||||
natural gas | EN3 | 84 | % | ** | è | 81 | % | 80 | % | |||||||||||||||
heating oil | EN3 | 13 | % | * | è | 16 | % | 17 | % | |||||||||||||||
fuels (petrol, diesel, gas) | EN3 | 2.7 | % | ** | î | 3.2 | % | 2.6 | % | |||||||||||||||
renewable energy (solar power, bioorganic, etc.) | 0.04 | % | *** | ê | 0.1 | % | 0.1 | % | ||||||||||||||||
Total indirect energy9 | EN4 | 1,766 GWh | ** | î | 1,977 GWh | 1,862 GWh | ||||||||||||||||||
Total business travel | EN34 | 721 Mio. Pkm | ** | é | 516 Mio. Pkm | 555 Mio. Pkm | ||||||||||||||||||
rail travel | 5.3 | % | * | è | 5 | % | 6.3 | % | ||||||||||||||||
road travel | 1 | % | * | ê | 1.5 | % | 1.5 | % | ||||||||||||||||
air travel | 94 | % | ** | è | 94 | % | 92 | % | ||||||||||||||||
Number of flights (segments) | 344,454 | ** | é | 267,530 | 284,053 | |||||||||||||||||||
Total paper consumption | EN1 | 13,378 | t | ** | è | 14,393 | t | 14,682 | t | |||||||||||||||
post-consumer recycled | EN210 | 8.3 | % | ** | è | 8.4 | % | 8.4 | % | |||||||||||||||
new fibres ECF + TCF11 | 92 | % | ** | è | 91 | % | 61 | % | ||||||||||||||||
new fibres chlorine bleached | 0 | % | ** | è | 0 | % | 31 | % | ||||||||||||||||
Total water consumption | EN5 | 1.89 Mio. m3 | * | è | 1.83 Mio. m3 | 1.78 Mio. m3 | ||||||||||||||||||
drinking water | 100 | % | è | 100 | % | 100 | % | |||||||||||||||||
Total waste | EN11 | 24,421 | * | è | 26,034 | t | 28,877 | t | ||||||||||||||||
valuable materials separated and recycled | 70 | % | * | è | 59 | % | 48 | % | ||||||||||||||||
incinerated | 9.9 | % | * | ì | 7.7 | % | 7.9 | % | ||||||||||||||||
landfilled | 20 | % | * | ê | 33 | % | 44 | % | ||||||||||||||||
Total environmental footprint12 | 2,735 GWh | ** | è | 2,873 GWh | 2,788 GWh | |||||||||||||||||||
Total CO2 (GHG scope 1 and 2)13 | EN8 | 261,049 | t | ** | î | 316,241 | t | 281,136 | t | |||||||||||||||
Direct CO2 (GHG scope 1) | EN8 | 15 | % | ** | ì | 13 | % | 15 | % | |||||||||||||||
Indirect CO2 (GHG scope 2) | EN8 | 85 | % | ** | è | 87 | % | 85 | % | |||||||||||||||
CO2 footprint (GHG scope 1, 2 and 3)14 | 497,371 | t | ** | è | 521,480 | t | 487,689 | t | ||||||||||||||||
UBS Share InformationThe Global Registered ShareLegend:
The Global Registered Share
UBS ordinary shares1 All figures are registered shares with a par value of CHF 0.80 per share, fully paid up and non-assessable. They are issued in the form of Global Registered Shares (GRS). A Global Registered Share is a security that provides direct and equal ownership for all shareholders. It can be traded and transferred across applicable borders without the need for conversion, with identical shares traded on different stock exchanges in different currencies. For example, the same share purchasedbased on the New York Stock Exchange (NYSE) can be sold on virt-x, the pan-European stock exchange where Swiss-listed blue chip stocks are traded, or vice versa.
Registration
ister, which is maintained by UBS acting as Swiss transfer agent, and a US register, which is maintained by Mellon Investor Services, as US transfer agent. A shareholder is entitled to hold shares registered in their name on either register and transfer shares from one register to the other upon giving proper instruction to the transfer agents.
Share liquidity and currency effects
UBS normally pays a regular annual dividend to shareholders registeredknowledge as of the dateend of February 2005. 2 Global Reporting Initiative (see also www.globalreporting.org). EN stands for the Environmental Performance Indicators defined in the GRI. EN in brackets indicates a minor deviation from GRI that is commented. 3 Non-significant discrepancies from 100% are possible due to rounding errors. 4 Specifies the estimated reliability of the Annual General Meeting (the record date)aggregated data and corresponds approximately to the following uncertainty: up to 5% – ***, up to 15% – **, up to 30% – *. Uncertainty is the likely difference between a reported value and a real value. 5 Trend: at a *** / ** / * data quality, the respective trend is stable (è) if the variance equals 5 / 10 / 15%, low decreasing / increasing (îì) if it equals 10 / 20 / 30% and decreasing / increasing if the variance is bigger than 15 / 30 / 50% (éê). Payment6 Refers to energy consumed within the operational boundaries of UBS. 7 Refers to energy purchased that is usually scheduled three business days thereafter.produced by converting primary energy and consumed within the operational boundaries of UBS (electricity and district heating). 8 Refers to primary energy purchased which is consumed within the operational boundaries of UBS (oil, gas, fuels). 9 Refers to primary energy, which is consumed to produce the electricity and district heating consumed by UBS. 10 Differing from the GRI Guidelines, pre-consumer recycled paper is counted as paper coming from new fiber as a worst case approach. 11 Paper produced from new fiber, which is ECF (Elementary Chlorine Free) or TCF (Totally Chlorine Free) bleached. 12 Shows the environmental impact (through emissions, use of resources, waste) by a process including all relevant upstream and downstream processes. The environmental footprint is approximated using the equivalent of nonrenewable energy consumed. 13 Refers to the “GHG (greenhouse gas) protocol initiative” (www.ghgprotocol.org), an international standard for CO2 reporting. Scope 1 accounts for direct greenhouse gas emissions by UBS. Scope 2 accounts for indirect greenhouse gas emissions associated with the generation of imported / purchased electricity, heat or steam. 14 Represents the total global warming potential from all linked relevant upstream and downstream processes. It equals total CO2 emissions according to the GHG standard (scope 1, 2 and 3).
Validation by SGS Société Générale de Surveillance SA
“We have verified the correctness of the statements in the 2004 Environmental Report of UBS AG and, where necessary, have requested that proof be presented. We hereby confirm that the report has been prepared with the necessary care, that its contents are correct with
regard to environmental performance, that it describes the essential aspects of the environmental management system at UBS AG and that it reflects the actual practices and procedures at UBS AG.”Elvira Bieri and Dr. Erhard Hug, Zurich, March 2005
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The norm in the US is to declare dividends at least ten days in advance of the applicable record date and ex-dividend trading commences two days before the record date. To ensure that shareholders on the Swiss and US registers are similarly treated in connection with dividend payments, and to avoid disparities between the two markets, NYSE trading takes place with due bills for the two business day period preceding the dividend record date.For your notes:
Par value distribution July 2002
Dividend
Ticker symbols
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Cautionary statement regarding forward-looking statements | This communication contains statements that constitute “forward-looking statements”, including, but not limited to, statements relating to the implementation of strategic initiatives, such as the European wealth management business, and other statements relating to our future business development and economic performance. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to, (1) general market, macro-economic, governmental and regulatory trends, (2) movements in local and international securities markets, currency exchange rates and interest rates, (3) competitive pressures, (4) technological developments, (5) changes in the financial position or creditworthiness of our customers, obligors and counterparties and developments in the markets in which they operate, (6) legislative developments, (7) management changes and changes to our Business Group structure and (8) other key factors that we have indicated could adversely affect our business and financial performance which are contained in other parts of this document and in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth elsewhere in this document and in documents furnished by UBS Share InformationTheand filings made by UBS Share 2002with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2004. UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.
Imprint | Publisher/Copyright: UBS AG, Switzerland | Languages: English, German | SAP-No. 80532E-0501
The UBS Share 2002
economic data indicated no sign of a sustained global recovery and investors became increasingly cautious in their outlook.
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UBS share data
As at | ||||||||||||
Registered shares in 1000 units | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
Total shares outstanding | 1,256,298 | 1,281,717 | 1,333,139 | |||||||||
Total shares ranking for dividend | 1,182,263 | 1,258,653 | 1,277,874 | |||||||||
Treasury shares (average) | 61,266 | 47,244 | 97,545 | |||||||||
Treasury shares (year end) | 97,181 | 41,255 | 55,265 | |||||||||
Weighted average shares (for basic EPS calculations) | 1,208,587 | 1,266,038 | 1,209,088 | |||||||||
Weighted average shares (for diluted EPS calculations) | 1,223,383 | 1,288,578 | 1,225,578 | |||||||||
For the year ended | ||||||||||||
CHF | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
Earnings per share | ||||||||||||
Basic EPS | 2.92 | 3.93 | 6.44 | |||||||||
Basic EPS before goodwill amortization1 | 4.73 | 4.97 | 7.00 | |||||||||
Diluted EPS | 2.87 | 3.78 | 6.35 | |||||||||
Diluted EPS before goowill amortization1 | 4.65 | 4.81 | 6.89 | |||||||||
As at | ||||||||||||
CHF billion | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
Market capitalization | 79.4 | 105.5 | 112.7 | |||||||||
% change year-on-year | (25 | ) | (6 | ) | ||||||||
For the year ended | ||||||||||||
100 shares | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||
Trading volumes2 | ||||||||||||
SWX total | 1,049,364 | 1,000,402 | 1,211,446 | |||||||||
SWX daily average | 4,148 | 4,002 | 4,826 | |||||||||
NYSE total | 48,850 | 54,768 | 83,032 | |||||||||
NYSE daily average | 194 | 221 | 522 | |||||||||
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Stock exchange prices1
SWX Swiss Exchange | New York Stock Exchange2 | |||||||||||||||||||||||
High | Low | Period end | High | Low | Period end | |||||||||||||||||||
(CHF) | (CHF) | (CHF) | (USD) | (USD) | (USD) | |||||||||||||||||||
2002 | 84.30 | 51.05 | 67.20 | 51.99 | 34.54 | 48.12 | ||||||||||||||||||
Fourth quarter 2002 | 75.45 | 51.05 | 67.20 | 50.88 | 34.54 | 48.12 | ||||||||||||||||||
December | 75.30 | 66.50 | 67.20 | 50.54 | 47.56 | 48.12 | ||||||||||||||||||
November | 75.45 | 66.95 | 74.75 | 50.88 | 45.72 | 50.18 | ||||||||||||||||||
October | 70.35 | 51.05 | 70.35 | 47.26 | 34.54 | 47.26 | ||||||||||||||||||
Third quarter 2002 | 75.15 | 56.80 | 61.30 | 49.94 | 37.86 | 41.00 | ||||||||||||||||||
September | 70.55 | 57.50 | 61.30 | 46.26 | 38.75 | 41.00 | ||||||||||||||||||
August | 73.40 | 59.40 | 70.70 | 48.69 | 39.80 | 47.01 | ||||||||||||||||||
July | 75.15 | 56.80 | 65.30 | 49.94 | 37.86 | 44.30 | ||||||||||||||||||
Second quarter 2002 | 84.15 | 69.80 | 74.85 | 51.99 | 46.90 | 49.89 | ||||||||||||||||||
June | 81.95 | 69.80 | 74.85 | 51.99 | 46.90 | 49.89 | ||||||||||||||||||
May | 82.20 | 75.00 | 81.95 | 51.98 | 46.95 | 51.90 | ||||||||||||||||||
April | 84.15 | 77.55 | 78.10 | 50.30 | 47.63 | 48.49 | ||||||||||||||||||
First quarter 2002 | 84.30 | 73.00 | 82.80 | 50.50 | 43.27 | 49.75 | ||||||||||||||||||
March | 84.30 | 79.20 | 82.80 | 50.50 | 46.69 | 49.75 | ||||||||||||||||||
February | 81.30 | 73.00 | 78.85 | 47.70 | 43.27 | 46.44 | ||||||||||||||||||
January | 83.95 | 77.30 | 77.50 | 50.42 | 45.50 | 45.45 | ||||||||||||||||||
2001 | 96.83 | 62.10 | 83.80 | 58.49 | 40.12 | 50.00 | ||||||||||||||||||
Fourth quarter 2001 | 86.85 | 69.70 | 83.80 | 52.83 | 43.23 | 50.00 | ||||||||||||||||||
Third quarter 2001 | 86.33 | 62.10 | 75.60 | 49.73 | 40.12 | 46.15 | ||||||||||||||||||
Second quarter 2001 | 92.00 | 77.50 | 85.83 | 51.47 | 44.87 | 47.02 | ||||||||||||||||||
First quarter 2001 | 96.83 | 72.33 | 83.17 | 58.49 | 43.02 | 47.68 | ||||||||||||||||||
2000 | 88.17 | 63.58 | 88.17 | 54.10 | 40.18 | 54.10 | ||||||||||||||||||
Fourth quarter 2000 | 88.17 | 71.17 | 88.17 | 54.10 | 40.18 | 54.10 | ||||||||||||||||||
Third quarter 2000 | 88.00 | 74.67 | 76.67 | 50.74 | 44.76 | 44.85 | ||||||||||||||||||
Second quarter 2000 | 83.33 | 69.83 | 79.67 | 50.66 | 42.99 | 48.67 | ||||||||||||||||||
First quarter 2000 | 72.83 | 63.58 | 72.83 | |||||||||||||||||||||
1999 | 80.00 | 67.50 | 71.67 | |||||||||||||||||||||
Fourth quarter 1999 | 79.92 | 67.50 | 71.67 | |||||||||||||||||||||
Third quarter 1999 | 82.25 | 67.50 | 70.50 | |||||||||||||||||||||
Second quarter 1999 | 88.00 | 73.67 | 77.33 | |||||||||||||||||||||
First quarter 1999 | 82.00 | 69.08 | 77.50 | |||||||||||||||||||||
19983 | 108.83 | 45.00 | 70.33 | |||||||||||||||||||||
138
UBS shares and market capitalization
Number of shares, except where indicated | % change from | ||||||||||||||||
As at | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.01 | |||||||||||||
Total ordinary shares issued | 1,256,297,678 | 1,281,717,499 | 1,333,139,187 | (2 | ) | ||||||||||||
Second trading line treasury shares | |||||||||||||||||
2000 program | (55,265,349 | ) | |||||||||||||||
2001 program | (23,064,356 | ) | |||||||||||||||
2002 first program | (67,700,000 | ) | |||||||||||||||
2002 second program | (6,335,080 | ) | |||||||||||||||
Shares outstanding for market capitalization | 1,182,262,598 | 1,258,653,143 | 1,277,873,838 | (6 | ) | ||||||||||||
Share price (CHF) | 67.20 | 83.80 | 88.17 | (20 | ) | ||||||||||||
Market capitalization (CHF million) | 79,448 | 105,475 | 112,666 | (25 | ) | ||||||||||||
Total treasury shares | 97,181,094 | 41,254,951 | 55,265,349 | 136 | |||||||||||||
Distribution of UBS Shares
Shareholders registered | Shares registered | |||||||||||||||
As at 31.12.02 | ||||||||||||||||
Number of shares registered | Number | % | Number | % of shares issued | ||||||||||||
1-100 | 46,868 | 21.3 | 2,430,181 | 0.2 | ||||||||||||
101-1,000 | 133,449 | 60.7 | 51,563,181 | 4.1 | ||||||||||||
1,001-10,000 | 36,546 | 16.6 | 90,247,647 | 7.2 | ||||||||||||
10,001-100,000 | 2,635 | 1.2 | 65,357,281 | 5.2 | ||||||||||||
100,001-1,000,000 | 328 | 0.2 | 96,176,568 | 7.7 | ||||||||||||
1,000,001-5,000,000 | 55 | 0.0 | 120,932,421 | 9.6 | ||||||||||||
5,000,001-12,562,975 (1%) | 10 | 0.0 | 75,122,855 | 6.0 | ||||||||||||
1-2% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
2-3% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
3-4% | 2 | 0.0 | 98,849,839 | 7.9 | ||||||||||||
4-5% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
Over 5% | 1 | 1 | 0.0 | 96,531,157 | 7.7 | |||||||||||
Total registered | 219,894 | 100.0 | 697,211,130 | 55.6 | ||||||||||||
Unregistered2 | 559,086,548 | 44.4 | ||||||||||||||
Total shares issued | 1,256,297,678 | 3 | 100.0 | |||||||||||||
139
UBS AG | ||
Registered shareholders: type and distribution
Shareholders | Shares | |||||||||||||||
As at 31.12.02 | Number | % | Number | % | ||||||||||||
Individual shareholders | 211,100 | 96.0 | 173,717,031 | 24.9 | ||||||||||||
Legal entities | 8,205 | 3.7 | 189,658,658 | 27.2 | ||||||||||||
Nominees, fiduciaries | 589 | 0.3 | 333,835,441 | 47.9 | ||||||||||||
Total | 219,894 | 100.0 | 697,211,130 | 100 | ||||||||||||
Switzerland | 203,739 | 92.7 | 349,906,904 | 50.2 | ||||||||||||
Europe | 11,283 | 5.1 | 225,581,696 | 32.3 | ||||||||||||
North America | 2,872 | 1.3 | 59,723,099 | 8.6 | ||||||||||||
Other countries | 2,000 | 0.9 | 61,999,431 | 8.9 | ||||||||||||
Total | 219,894 | 100.0 | 697,211,130 | 100.0 | ||||||||||||
140
INDEX TO EXHIBITS
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