o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Yesþ | Noo |
Yeso | Noþ |
Yesþ | Noo |
Large accelerated filerþ | Non-accelerated filero |
U.S. GAAPo | International Financial Reporting Standards as issued by the International Accounting Standards Boardþ | Othero |
* | As of December 31, 2008, UBS had two outstanding mandatory convertible notes (“MCNs”), one in the face amount of CHF 13 billion and the other CHF 6 billion. Upon their conversion or settlement, these MCNs are expected to lead to the issuance of 270,438,942 and a maximum of 329,447,681 new shares out of conditional capital, respectively. |
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Item 17o | Item 18 |
Yeso | Noþ |
-3-
Name of each exchange on | ||
Title of each class | which registered | |
Ordinary Shares (par value of CHF 0.10 each) | 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* | |
$1,000,000,000 6.243% Noncumulative Trust Preferred Securities | New York Stock Exchange | |
$1,000,000,000 6.243% Noncumulative Company Preferred Securities | New York Stock Exchange* | |
Subordinated Guarantee of UBS AG with respect to each of the Noncumulative Company Preferred Securities above | New York Stock Exchange* | |
$9,000,000 PPNs due April 2009 | ||
$6,900,000 PPNs due May 2009 | ||
$5,100,000 PPNs due September 2009 | ||
$24,223,000 PPNs due | ||
$30,000,000 PPNs due April 2010 | ||
$31,000,000 PPNs due May 2010 | ||
$23,000,000 PPNs due June 2010 | ||
$10,000,000 PPNs due July 2010 | ||
$7,750,000 PPNs due August 2010 | ||
$12,660,000 PPNs due September 2010 | ||
$8,000,000 PPNs due November 2010 | ||
$17,842,000 PPNs due October 2011 | ||
$100,000,000 E-TRACS UBS Bloomberg CMCI Food ETN due April 2038 | NYSE Arca | |
$50,000,000 E-TRACS UBS Bloomberg CMCI Agriculture ETN due April 2038 | NYSE Arca | |
$50,000,000 E-TRACS UBS Bloomberg CMCI Energy ETN due April 2038 | NYSE Arca | |
$100,000,000 E-TRACS UBS Bloomberg CMCI ETN due April 2038 | NYSE Arca | |
$100,000,000 E-TRACS UBS Bloomberg Gold ETN due April 2038 | NYSE Arca | |
$50,000,000 E-TRACS UBS Bloomberg CMCI Industrial Metals due April 2038 | NYSE Arca | |
$50,000,000 E-TRACS UBS Bloomberg CMCI Livestock ETN due April 2038 | NYSE Arca | |
$50,000,000 E-TRACS UBS Bloomberg CMCI Silver ETN due April 2038 | NYSE Arca | |
$50,000,000 E-TRACS UBS Long Platinum ETN due May 2018 | NYSE Arca | |
$50,000,000 E-TRACS UBS Short Platinum ETN due May 2018 | NYSE Arca |
* Not for trading, but solely in connection with the registration of the corresponding Trust Preferred Securities. |
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Page | ||||||||
25 | ||||||||
26 | ||||||||
26 | ||||||||
EX-1.1: ARTICLES OF ASSOCIATION | ||||||||
| ||||||||
EX-7: STATEMENT | ||||||||
EX-12: CERTIFICATIONS | ||||||||
EX-13: CERTIFICATIONS | ||||||||
EX-15: CONSENT OF ERNST & YOUNG |
-4--6-
-7-
-5--8-
Item 1. | Identity of Directors, Senior Management and Advisors. |
Item 2. | Offer Statistics and Expected Timetable. |
Item 3. | Key Information. |
Item 4. | Information on the Company. |
1-3 | Please seeCorporate Informationon page | |
Please seeThe Making of UBSon page 18 andKey factors affecting UBS’s financial positions and results of operations in 2008on pages | ||
7 | None. |
1, 2, 5, 7 | Please refer to |
-6--9-
3 | Please refer toSeasonal Characteristicson page | |
4 | Not applicable. | |
6 | Please see Item 10.C of this Form 20-F. | |
8 | Please seeRegulation and Supervisionon pages |
Item 4.A. | Unresolved Staff Comments. |
Item 5. | Operating and Financial Review and Prospects. |
-7-
-10-
Item 6. | Directors, Senior Management and Employees. |
1, 2, 3 | Please see pages | |
4 and 5 | None. |
-8-
1 | Please see pages |
-11-
343 and Note | ||
2 | Please see Note |
1 | Please see pages | |
2 | Please see | |
3 | Please see |
Item 7. | Major Shareholders and Related Party Transactions. |
-9--12-
Item 8. | Financial Information. |
Item 9. | The Offer and Listing. |
1, 2, 3, 5, 6, 7 | Not required because this Form 20-F is filed as an annual report. | |
4 | Please seeStock exchange priceson page |
-13-
-10-
-14-
-11-
Item 10. | Additional Information. |
-15-
-12-
-16-
-13-
-17-
-14-
-18-
-15-
-19-
-16-
-20-
-17-
-21-
-18-
-22-
-19-
-23-
Item 11. | Quantitative and Qualitative Disclosures About Market Risk. |
Item 12. | Description of Securities Other than Equity Securities. |
-20--24-
Item 13. | Defaults, Dividend Arrearages and Delinquencies. |
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds. |
Item 15. | Controls and Procedures. |
Item 15.T. | Controls and Procedures. |
Item 16.A. | Audit Committee Financial Expert. |
Item 16.B. | Code of Ethics. |
Item 16.C. | Principal Accountant Fees and Services. |
-21--25-
Item 16.D. | Exemptions from the Listing Standards for Audit Committee. |
Item 16.E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers. |
Item 16.F. | Change in Registrant’s Certifying Accountant. |
Item 16.G. | Corporate Governance. |
Item 17. | Financial Statements. |
Item 18. | Financial Statements. |
Item 19. | Exhibits. |
Exhibit | ||
Number | Description | |
1.1. | Articles of Association of UBS AG. | |
1.2. | Organization Regulations of UBS | |
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 |
-26-
Exhibit | ||
Number | Description | |
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 | |
15. | Consent of Ernst & Young Ltd. |
-22--27-
UBS AG | |||||
/s/ | |||||
Name: | Oswald Grübel | ||||
Title: | Group Chief Executive Officer |
Date: March | 11, 2009 | /s/ | |||
Name: | John Cryan | ||||
Title: | Group Chief Financial Officer | ||||
-28-
-23-
Exhibit | ||
Number | Description | |
1.1. | Articles of Association of UBS AG.* | |
1.2. | Organization Regulations of UBS | |
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 | |
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 | |
15. | Consent of Ernst & Young Ltd.* |
-24-
* | Filed as exhibit herewith |
-29-
Contents
1
annual report
2008
1 | Strategy, performance and responsibility
2 | UBS business divisions and Corporate Center
3 | Risk and treasury management
4 | Corporate governance and compensation
5 | Financial information
Contents
1
Annual Report 2008
Letter to shareholders
Dear Shareholders,
UBS recorded a net loss attributable to shareholders of CHF 20.9 billion in 2008. This extremely poor result stemmed primarily from the results of the fixed income trading business of the Investment Bank, mainly due to losses and writedowns on exposures related to US real estate and other credit positions. The loss has affected all stakeholders in UBS: in 2008, in US dollar terms, shareholders suffered a 58% fall in market capitalization, compared with the average 47% decline of the other members of the Dow Jones Banks Titans 30 Index; the total number of employees was reduced by 7%; and employee compensation was cut 36%. Clients have, understandably, expressed to us their disappointment about our losses, while at the same time stressing their appreciation for the advice and service levels they receive from their advisors.
In 2008, we focused on addressing our structural and strategic weaknesses and on establishing the long-term financial stability of UBS.Activities centered on the key areas we identified as requiring change: corporate governance, risk management and control processes, the liquidity and funding framework and management compensation. As a result, 2008 saw the introduction of new organization regulations to clarify the responsibilities of the Board of Directors (BoD) and the Group Executive Board (GEB), the establishment of an Executive Committee (EC) to allocate and monitor the use of capital and risk in each of the business divisions, and the formation of a dedicated BoD risk committee. We also merged the credit and market risk functions of the Investment Bank into a single unit led by the newly es-
tablished Chief Risk Officer position and a new liquidity and funding framework was introduced that requires each business division to be charged market-based rates for funding from other UBS divisions. We will continue to make changes in 2009, including the implementation of a new compensation model for senior executives that aligns compensation with the creation of sustainable results for shareholders. In addition, management compensation within business divisions will be based largely on divisional results and the responsible and independent management of each division’s resources and balance sheet.
Changes in our business divisions will play a vital role in the transformation of our firm.As announced on 10 February 2009, UBS now operates with four business divisions and a Corporate Center. The former Global Wealth Management & Business Banking division has been split into two business divisions: Wealth Management & Swiss Bank and Wealth Management Americas. We will continue to reposition the Investment Bank as a client-orientated and fee- and commission-earning business – in other words, the Investment Bank is moving away from the proprietary trading business that adversely affected our capital. A new unit has been established within the Investment Bank to manage the positions of those fixed income businesses we have decided to exit.
We took active steps to increase the financial stability of UBS in 2008.The issuance of two Mandatory Convertible Notes (MCNs) and a rights issue raised CHF 34.6 billion of new capital. During the year, our total balance sheet was reduced 11% to CHF 2,015 billion, risk-weighted assets fell 19% to CHF 302.3 billion and our identified risk concentrations fell sharply – with these reductions assisted by an agreement made in 2008 to sell a large portfolio of illiquid securities and other positions to a fund owned and controlled by the Swiss National Bank. Operating expenses fell 19% and the year-end tier 1 ratio was 11.0%, compared with 9.1% for year-end 2007 under the different standards that were then applicable under Basel I.
As announced on 18 February 2009, UBS settled a US cross-border case with the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) by entering into a Deferred Prosecution Agreement (DPA) with the DOJ and a Consent Order with the SEC.As part of these agreements, we will complete our previously announced exit of our US cross-border business and implement an enhanced program of internal controls to
2
Introduction
3
Annual Report 2008
ensure compliance with the Qualified Intermediary Agreement with the Internal Revenue Service. In addition, pursuant to an order issued by the Swiss Financial Market Supervisory Authority, information was transferred to the DOJ regarding accounts of certain US clients as set forth in the DPA, who, based on evidence available to UBS, committed tax fraud or the like within the meaning of the Swiss-US Double Taxation Treaty. The total cost for the settlement of USD 780 million has been fully charged to our 2008 results. This episode makes it particularly clear that our control framework must be extremely robust and that employee incentives must be aligned with risk management and control and the creation of long-term value for shareholders.
Outlook –The recent worsening of financial conditions and UBS-specific factors have adversely affected our results, particularly in the Investment Bank. Even after substantial risk reduction, our balance sheet remains exposed to illiquid and
volatile markets and our earnings will therefore remain at risk for some time to come. Net new money remains positive for our Wealth Management Americas division, but this is being partially offset by net outflows in Wealth Management & Swiss Bank. Global Asset Management has also experienced further net outflows.
11 March 2009
UBS
Peter Kurer | Oswald J. Gruebel | |
Chairman | Group Chief Executive Officer |
4
IntroductionUBS reporting at a glance
This year we have changed the structure of our annual report. Based on feedback from users, our annualAnnual publications
Annual report now consists of four themed reports. These combine audited(SAP no. 80531)
The four reports are:
Strategy, Performance and Responsibility 2007ThisEnglish, this single volume report provides a letter to shareholder and a description of our firm, its strategy, organizational structure and financial performance for the last two years. It also discusses our standards for corporate behavior and responsibility, outlines demographic trends in our work-force and describes the way our people learn and are led.of:
– | UBS’s strategy, performance and responsibility; | |
– | the strategy and performance of the business divisions and the Corporate Center; | |
– | risk, treasury and capital management at UBS; | |
– | corporate governance and executive compensation; and | |
– | financial information, including the financial statements. |
Risk, Treasury and Capital Management 2007Review (SAP no. 80530)In addition to outlining the principles by which we manage and control risk, this report provides an account of developments in credit risk, market risk, operational risk and treasury management during 2007. It also provides
Corporate Governance and Compensation Report 2007Comprehensive information on our governance arrangements is included in this report which also explains how we manage our relationships with regulators and shareholders. (SAP no. 82307)
Quarterly publications
Letter to shareholders
Financial Statements 2007report (SAP no. 80834)
How to order reports
The annual and quarterly publications are available in PDF format on the internet atwww.ubs.com/investors/topicsin the reporting section. Printed copies can be ordered from the services section of the website. Alternatively, they can be ordered by quoting the SAP number and the language preference where applicable, from UBS AG, Information Center, P.O. Box, CH-8098 Zurich, Switzerland.
5
Annual Report 2008
Other sources of information
Website
Result presentations
Messaging service / UBS news alert
Form 20-F and 2005, prepared accordingother submissions to the International Financial Reporting Standards (IFRS). It also includes the audited financial statements of US Securities and Exchange Commission
UBS AG (the parent bank) for 2007files periodic reports and 2006, prepared according to Swiss banking law. Additional disclosure required by Swiss and US regulations is included where appropriate.
In additionsubmits other information about UBS to the four reports,Review 2007US Securities and Exchange Commission (SEC). Principal among these filings is distributed broadlythe annual report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934.
If you only ordered specific reports in prior years, please note that the former Compensation Report is now calledUBS website atCorporate Governance and Compensation Report 2007,www.ubs. com/investors,and copies of documents filed with the former Annual Review is now calledReview 2007. OurSEC may be obtained from UBS’s Investor Relations team, whose contact details are listed inon the final pagesnext page of this report – please be in contact with us so that we can arrange delivery of the reports you require.
This report contains information that is current as of the date of this report. We undertake no obligation to update this information or notify you if it should change or if new information should become available.
Our aim is to provide publications that are useful and informative. In order to ensure that UBS remains among the leading providers of corporate disclosure, we would like to hear your opinions on how we can improve the content and presentation of our products (see contact details on the final pages of this report).
UBS
3
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.
under Swiss Company Law and Swiss Federal Banking Law as an Aktieng-esellschaft, a corporation that has issued shares of common stock to investors.
and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, phone +41-61-288 2020. UBS AG shares are listed on the SIX Swiss Exchange (traded through its trading platform SWX Europe, formerly virt-x), on the New York Stock Exchange (NYSE) and on the Tokyo Stock Exchange (TSE).
6
Letter to shareholders
Letter to shareholders
Dear shareholders,
In this year’s annual report we present a Group net loss of CHF 4,384 million. This resulted almost completely from our exposure to the US residential real estate market through positions in mortgage-backed securities and related structured products. The losses on these positions overshadow the outstanding 2007 performance in the majority of our other businesses. This makes this year’s financial result even more difficult for us to accept.
How are we correcting our shortcomings?SwitchboardsWe closed DRCM in 2007 and re-integrated its businesses into the Investment Bank. Recently, we introduced a new funding framework for the Investment Bank to ensure that our trading activities are financed at market comparable levels and consistent with the nature and liquidity of the respective positions. This will reduce the potential incentive to hold dis-
proportionately high trading inventories. Combined with commensurate balance sheet limits, it will also ensure better control over the size of our balance sheet. Finally, we have repositioned the activities of the Investment Bank so that its future will be built on our strengths and client franchises. In 2007, the areas in which we achieved outstanding results are those where we have developed strong and long-standing client relationships and excellent client service. They represent the majority of the Investment Bank’s business and are a solid basis on which to build sustainable and profitable growth.
Wealth and asset management delivered excellent results in 2007.Global Wealth Management & Business Banking produced record results in both net new money inflow, at CHF 156 billion, and profitability. Our Global Asset Management business group fell short of a record result only because it absorbed costs related to the closure of DRCM. The outflows in institutional assets largely related to the weak past investment performance in some core and value equity capabilities. However, these problems have been addressed and new investment management teams are in place. We are therefore confident that we can reverse this trend in the medium term.
4
wide basis and therefore be able to direct investment spending towards areas where it most benefits our clients and investors. We remain committed to managing our capital in a disciplined fashion. We will strive, subject to regulatory requirements, to return to our usual pattern of redistributing capital not required to grow our business to shareholders, once our profitability and capital ratios return to more normalized levels.
towards our clients is the backbone of our business. As an employer, UBS therefore remains committed to investing in its employees. We are dedicated to creating a productive working environment based on fairness and meritocracy.
Outlook –As explained in our letter about the fourth quarter result for 2007, we expect 2008 to be another difficult year. We are focusing on the development of our client-driven businesses and the risk management of our remaining exposures to the US real estate market. Our employees and senior management are committed to managing the business in a disciplined fashion, while continuing to deliver outstanding services to clients. We believe this is the best way to earn your confidence.
For all general queries. | Zurich | +41-44-234 1111 | ||||
London | +44-20-7568 0000 | |||||
Hong Kong | +852-2971 8888 | |||||
Investor Relations
UBS’s Investor Relations team supports | Hotline | +41-44-234 4100 | UBS AG | |||
institutional, professional and retail | ||||||
investors from our offices in Zurich | New York | +1-212-882 5734 | Investor Relations | |||
and New York. | ||||||
Fax (Zurich) | +41-44-234 3415 | P.O. Box | ||||
www.ubs.com/investors | CH-8098 Zurich, Switzerland | |||||
sh-investorrelations@ubs.com | ||||||
Media Relations
UBS’s Media Relations team supports | Zurich | +41-44-234 8500 | mediarelations@ubs.com | |||
global media and journalists from | ||||||
offices in Zurich, London, New York | London | +44-20-7567 4714 | ubs-media-relations@ubs.com | |||
and Hong Kong. | ||||||
New York | +1-212-882 5857 | mediarelations-ny@ubs.com | ||||
www.ubs.com/media | Hong Kong | +852-2971 8200 | sh-mediarelations-ap@ubs.com | |||
5Shareholder Services
UBS Shareholder Services, a unit of the | Hotline | +41-44-235 6202 | UBS AG | |||
Company Secretary, is responsible for | ||||||
the registration of the global registered | Fax | +41-44-235 3154 | Shareholder Services | |||
shares. | ||||||
P.O. Box | ||||||
CH-8098 Zurich, Switzerland | ||||||
sh-shareholder-services@ubs.com | ||||||
US Transfer Agent
For all global registered share-related | Calls from the US | +866-541 9689 | BNY Mellon Shareowner Services | |||
queries in the US. | ||||||
Calls outside the US | +1-201-680 6578 | 480 Washington Boulevard | ||||
www.melloninvestor.com | Fax | +1-201-680 4675 | Jersey City, NJ 07310, USA | |||
sh-relations@melloninvestor.com | ||||||
7
Strategy, performance and responsibility |
Strategy, performance and responsibility
6
7
Strategy and performancedevelopment
– | UBS is a global firm providing financial services | ||
– | |||
UBS’s commitmentstrategic priorities
Client focus:focus
UBS’s purpose is to serve clients and providegive them with confidence in making financial decision making.decisions. Whether it serves individual, corporate or institutional clients, UBS puts their success and interests first and strives to truly understand clients’ goals –their goals. As client needs and the first priority isfinancial services industry constantly evolve, UBS makes a systematic effort to capture client feedback, identify potential for improvement and adapt its offerings accordingly.
Profitable growth and earnings quality
UBS shareholders expect the success and interests of clients
Growth through client-driven revenue streams: targetingfirm to achieve profitable growth. Fulfilling this expectation requires UBS to establish sustainable and profitable growth by establishing a set of earningsearning streams based on true customer benefitclient benefit. It therefore strives to build a strong and growing client base and to continuously develop its unique assets and capabilities.
Three businesses, one underlying trend – growth of wealth:based on sustained socialRisk and economic trends, allcapital management
Taking, managing and controlling risk is a core element of UBS’s businesses – Global Wealth Management & Business Banking, Global Asset Managementbusiness activities. UBS’s aim is not, therefore, to eliminate all risks, but to achieve an appropriate balance between risk and return. Risk reduction and capital measures taken in 2008 aimed at maintaining UBS’s capital strength as a source of competitive advantage. Adapting risk exposures to the current market environment and managing UBS’s balance sheet remain strategic priorities for the firm.
Measures taken in 2008
In August 2008, UBS launched a comprehensive program to help the firm adjust to the new realities in the financial industry. It aims to capitalize on the strengths inherent in its leading client franchises across its business divisions, to further grow these franchises, and to address certain weaknesses in its business model that had become apparent both before and as a result of the financial crisis.
A significant reduction in risk exposures has been achieved during the year.UBS reduced its risk positions very significantly during the year, including through a transaction with the Swiss National Bank. UBS also took several measures to strengthen its risk organization.
The Investment Bank – are focused on areasis in the process of repositioning itself toward client-driven growth,combined with above-average growth ratesa further reduction of its balance sheet and risk positions.
“One firm” approach:UBS has implemented new corporate governance guidelines,actively reinforcing a clear separation of the synergies between UBS’s businesses create additionalroles and responsibilities of the Board of Directors and its committees, from those of the Group Executive Board.
Senior management compensation has been reviewed.In November 2008, UBS announced the new compensation model that is directly aligned with sustainable earnings opportunities, on topvalue creation within each manager’s area of their individual growth rates. To UBS, the “one firm” approach means meeting client needs without expecting clients to worry about its internal organizational structuresresponsibility, and incorporates a longer performance evaluation horizon.
Challenges in 2007
Losses on sizeable trading positions in the US mortgage market led to UBS’s first ever negative Group result:the sudden collapse in the US mortgage securitization market impacted UBS worse than anticipated, overshadowing the strength of UBS’s client-driven businesses. Lessons from these developments were drawn at all levels
Measures taken
8
UBS’s business structure
UBS key facts | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | |||||||||||||
Financials | ||||||||||||||||
Operating income (CHF million) | 31,980 | 47,736 | 40,691 | (33 | ) | |||||||||||
Net profit attributable to UBS shareholders (CHF million) | (4,384 | ) | 12,257 | 14,029 | ||||||||||||
Invested assets (CHF billion) | 3,189 | 2,989 | 2,652 | 7 | ||||||||||||
Tier 1 ratio (%)1 | 8.8 | 11.9 | 12.8 | |||||||||||||
Economic | ||||||||||||||||
Tax expense (CHF million)2 | 1,017 | 2,751 | 2,785 | (63 | ) | |||||||||||
Distribution to shareholders (dividends and buybacks) (CHF million) | 5,075 | 5,889 | 6,702 | (14 | ) | |||||||||||
Salaries and bonuses (CHF million) | 20,057 | 19,011 | 15,867 | 6 | ||||||||||||
Social and environmental | ||||||||||||||||
Personnel (FTE)2 | 83,560 | 78,140 | 69,569 | 7 | ||||||||||||
Women in ranked positions (% of total officer population) | 26.5 | 25.5 | 22.1 | 4 | ||||||||||||
Corporate charitable donations (incl. disaster relief efforts) (CHF million)3 | 46 | 38 | 45 | 21 | ||||||||||||
Volunteering hours spent by employees | 82,858 | 53,679 | N/A | 54 | ||||||||||||
CO2 emissions (tons) | 281,705 | 293,169 | 372,184 | (4 | ) | |||||||||||
Long-term ratings and benchmarks | ||||||||||||||||
Fitch, London | AA | AA+ | AA+ | |||||||||||||
Moody’s, New York | Aaa | Aa2 | Aa2 | |||||||||||||
Standard & Poor’s, New York | AA | AA+ | AA+ | |||||||||||||
Dow Jones Sustainability Index4 | ü | ü | ü | |||||||||||||
FTSE4Good4 | ü | ü | ü | |||||||||||||
Climate Leadership Index4 | ü | ü | ü | |||||||||||||
Interbrand: rank among 100 most valuable global brands | 39 | 42 | 44 | |||||||||||||
UBS financial highlights | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||
Performance indicators from continuing operations | ||||||||||||||||
Diluted earnings per share (CHF)1 | (7.60 | ) | (2.61 | ) | 4.64 | (191 | ) | |||||||||
Return on equity attributable to UBS shareholders (%)2 | (57.9 | ) | (11.7 | ) | 23.9 | (395 | ) | |||||||||
Cost/income ratio (%)3 | 680.4 | 111.0 | 70.5 | |||||||||||||
Net new money (CHF billion)4 | (226.0 | ) | 140.6 | 151.7 | ||||||||||||
Group results | ||||||||||||||||
Operating income | 1,201 | 31,721 | 47,484 | (96 | ) | |||||||||||
Operating expenses | 28,555 | 35,463 | 33,365 | (19 | ) | |||||||||||
Operating profit before tax (from continuing and discontinued operations) | (27,155 | ) | (3,597 | ) | 15,007 | (655 | ) | |||||||||
Net profit attributable to UBS shareholders | (20,887 | ) | (5,247 | ) | 11,527 | (298 | ) | |||||||||
Personnel (full-time equivalents)5 | 77,783 | 83,560 | 78,140 | (7 | ) | |||||||||||
Invested assets (CHF billion) | 2,174 | 3,189 | 2,989 | (32 | ) | |||||||||||
UBS balance sheet and capital management | ||||||||||||||||
Balance sheet key figures | ||||||||||||||||
Total assets | 2,015,098 | 2,274,891 | 2,348,733 | (11 | ) | |||||||||||
Equity attributable to UBS shareholders | 32,800 | 36,875 | 51,037 | (11 | ) | |||||||||||
Market capitalization6 | 43,519 | 108,654 | 154,222 | (60 | ) | |||||||||||
BIS capital ratios7 | ||||||||||||||||
Tier 1 (%) | 11.0 | 9.1 | 8 | 12.2 | 8 | |||||||||||
Total BIS (%) | 15.1 | 12.2 | 8 | 15.0 | 8 | |||||||||||
Risk-weighted assets | 302,273 | 374,421 | 8 | 344,015 | (19 | ) | ||||||||||
Long-term ratings | ||||||||||||||||
Fitch, London | A+ | AA | AA+ | |||||||||||||
Moody’s, New York | Aa2 | Aaa | Aa2 | |||||||||||||
Standard & Poor’s, New York | A+ | AA | AA+ | |||||||||||||
The 2008 results and ratios tablethe balance sheet in this report differ from those presented in UBS’s fourth quarter 2008 report issued on 10 February 2009 due to: (1) the settlement agreements with the US Department of Justice and Securities and Exchange Commission related to the US cross-border case, as described in the capital management section in Risk, Treasury and Capital Management 2007. 2 Excludes Industrial Holdings. 3 Excludes UBS Optimus Foundation. 4ü Indicates UBS is included“Settlement regarding the US cross-border case” sidebar in the index.“Wealth Management International & Switzerland” section of this report; and (2) the determination by the Swiss National Bank (SNB) of the 30 September 2008 valuation of approximately USD 7.8 billion of securities not yet transferred by UBS to the SNB StabFund, as described in the “Transaction with the Swiss National Bank” sidebar in the “Strategy and structure” section of this report. The full effect of the settlement agreements, and all but approximately CHF 0.1 billion of the SNB pricing adjustment, are taken into account in UBS’s 2008 results and the balance sheet in this report. The total impact on net profit after tax was negative CHF 1,190 million.
9
Strategy, performance and developmentresponsibility
Strategy and structure
Strategy and structure
UBS is a global firm working withproviding financial services to private, corporate institutional and privateinstitutional clients. Its strategy is to concentrate on three global core businesses – wealth management, asset management and investment banking – and securities trading. It also focuses onto provide retail and corporate banking services in Switzerland. All the businesses are built to benefit from the same underlying fundamental trend – the growth of wealth. UBS operates as one firm and aims to deliverBy delivering valuable advice, products and services to its clients, while creating high qualitythe firm aims to generate sustainable earnings streams.and create value for its shareholders.
UBS clientsstrategy and businessesbusiness model
UBS has crafted its business strategy to benefit from one underlying global trend: the growth of wealth. Despite the current financial crisis, the firm believes that over the long term wealth creation will continue to be a prominent characteristic of the world economy. UBS’s three core businesses of wealth management, asset management and investment banking are geared to take advantage of this trend.
Wealth Management & Swiss BankInUBS’s wealth managementUBS’s services are designed for business caters to high net worth and affluent individuals around the world (except those served by Wealth Management Americas) whether they are investing internationally or in their home country. UBS provides them withoffers these clients a complete range of tailored unbiased advice and investment services – ranging from asset management to estate planning and from corporate finance to art banking.services. ItsSwiss retail and corporate bankingBank businessprovides a complete set of banking and securities services for domesticSwiss individual and corporate clients.
Wealth Management Americas
Wealth Management Americas offers sophisticated products and services specifically designed to address the needs of high net worth and affluent individuals. It includes Wealth Management US, domestic Canada, domestic Brazil and the international business booked in the United States.
Global Asset Management
As ana worldwide asset manager,UBS offers innovative investment management solutions in nearly every asset class to
private, institutionalcorporate and corporateinstitutional clients, as well as through financial intermediaries. Investment capabilities compriseinclude traditional assets (for instance equities, fixed income and asset allocation), alternative and quantitative investments (multi-manager funds, funds of hedge funds and hedge funds) and real estate.
Investment Bank
In theinvestment banking and securitiesbusinesses, UBS provides securities products and research in equities, fixed income, rates, foreign exchange energy and metals. It also provides advisory services as well as access to the world’s capital markets for corporate, institutional, intermediary and alternative asset management clients.
è | Refer to the “Reporting structure” and “UBS business divisions and Corporate Center” sections of this report for more information on UBS’s business divisions and the Corporate Center |
UBS competitive profile
UBS’s competitive profilecurrent business mix is a result of many decades of development, internal growth initiatives and acquisitions. Since 1998, UBS has progressively divested non-core businesses and participations, and invested in growing its core businesses and creating a balanced reach worldwide.
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Strategy, performance and responsibility |
UBS corporate governance
As mandated by Swiss banking law, UBS operates under a strict dual board structure comprising the Board of Directors (BoD) and the Group Executive Board (GEB).
è | Refer to the “Corporate governance” section of this report for more information |
UBS’s strategic priorities
Client focus
UBS’s purpose is to serve clients and give them confidence in making financial decisions. Whether it serves individual, corporate or institutional clients, UBS puts their success and interests first and strives to truly understand their goals. ClientAs client needs develop continuously, as doesand the financial services industry.industry constantly evolve, UBS strivesmakes a systematic effort to systematically capture clients’client feedback, in order to identify potential for improving processes,improvement and then adapt its products and servicesofferings accordingly.
Three businesses, one underlying trend: growth of wealth Based on sustained social and economic trends, UBS’s businesses are focused on areas with above-average growth rates. In addition, structural developments in various countries are creating broader regional client demand for new financial advice, structuring and execution.
A global and focused strategyUBS’s consistent strategic focus has led to the current business mix. The current business mix has emerged over fifteen years of development, internal growth initiative and acquisitions, reflecting the firm’s core capabilities, strengths, culture and history. Since 1998, UBS has progressively divested non-core businesses and participations, helping it to invest in growing its core businesses and create a balanced reach worldwide.
10
business to the Swiss market, concentrating on domestic opportunities and growing selected market segments.
Growth through sustainable, client-driven revenue streams The composition and structure of UBS’s businesses is defined by the long-term needs of its clients. The optimal basis for building a high quality, sustainable earnings stream is a business mix that reflects these long-term needs. Because UBS takes this approach, the firm can grow without needing to change its strategic positioning or competitive profile. In order to fulfill the long-term needs of its clients, UBS:
“One firm” approachThe synergies between UBS’s businesses create additional sustainable earnings opportunities, on top of their individual growth rates.
11
Strategy and developmentStrategy and structure
ment offering. Cooperation between businesses helps UBS to capture important trends such as the demand for structured products and alternative investments. In mid-2006, the investment banking department and the wealth management businesses launched a dedicated joint initiative focusing on the ultra-high net worth segment. In 2007, the cooperation between the investment banking department and wealth management in key regions has resulted in an inflow of approximately CHF 9 billion of net new money
into the wealth management business and resulted in over 90 new mandates for the Investment Bank, generating around CHF 300 million in fees.
Last year was very difficult for UBS, with the sudden and unprecedented collapse in the US mortgage securitization market hitting UBS far worse than anticipated. Since the middle of 2007, UBS has concentrated on the immediate challenge of risk managing its exposure to the US real estate market, and on drawing the appropriate lessons for the firm as a whole. With the approval of the capital improvement measures by UBS shareholders at the extraordinary general meeting in February 2008, UBS retained a strong capital position. These measures include:
Closure of Dillon Read Capital Management and repositioning of fixed income, currencies and commoditiesIn May 2007, UBS announced the closure of Dillon Read Capital Management (DRCM) an alternative investment management venture established in June 2006 in order to allow outside investors access to the trading strategies managed by UBS. The core of DRCM was formed by the transfer of UBS’s principal finance and commercial real estate trading business from the Investment Bank to Global Asset Management. DRCM’s first outside investor fund was launched at the end of 2006. The development of the business, however, did not meet original expectations. After a review of its prospects, the operational complexity of its business model and other factors, UBS’s management decided to close DRCM. As a consequence, outside investor interests were redeemed and UBS’s proprietary portfolios were returned from Global Asset Management to the Investment Bank, where the positions were integrated into the appropriate desks of the fixed income, currencies and commodities (FICC) business unit.
12
Another advantage of the “one firm” approach is that it helps UBS to create synergies on cost and funding, which the firm estimates saves it around CHF 1 billion per year. UBS shares infrastructure and services between parts of its business, eliminating redundant structures, management and control functions and providing it with more purchasing power. All the businesses operate under one brand, increasing the efficiency of brand building efforts.
Managing UBS’s business
Board structureThe management and oversight structure of UBS is based on two separate boards – the Board of Directors (BoD) and the Group Executive Board (GEB).
driven businesses such as global syndicated finance and the flow credit businesses (investment grade, high yield trading and loans sales and trading).
Balance sheet management and funding frameworkUntil 2007, the Investment Bank’s activities were substantially funded on a short-term basis and therefore at short-term rates. This allowed individual business lines in the Investment Bank to benefit from the low, short-term funding rates available to UBS as a whole and led to the build-up of sizeable trading inventories. Now, in order to encourage more disciplined use of UBS’s balance sheet, the internal pricing applied for the Investment Bank reflects UBS’s funding costs, plus an add-on to align the price more closely to the prices of defined peer firms. In addition, the Investment Bank’s businesses are required to be term-funded, based on an assessment of the quality and liquidity of their assets by UBS’s central treasury function.
treasury department. As a result of this change, the cost of funding in the Investment Bank now better reflects the liquidity of the underlying assets being funded and is comparable with the costs applicable to its peer group.
Improvements in risk management and controlThe losses experienced in 2007 do not invalidate UBS’s risk management and risk control principles, but it became evident that their implementation needs to be strengthened. In addition to the structural changes in the Investment Bank and its funding framework, risk management and valuation of US residential real estate related products have been refined, and will continue to be updated to reflect changes in projections for lifetime cumulative losses and market parameters. UBS is also applying more extensive limits, by asset class, based on gross values and risk sensitivities. Stress testing is being revisited to deliver a more diverse range of scenarios which better differentiate between the source of a stress event and its contagion effect. UBS plans to use more targeted analysis of the positions and vulnerabilities of each portfolio. Liquidity as well as price
sensitivity will form another important aspect of stress testing.
Focus on profitable growth
UBS shareholders expect the firm to achieve profitable growth. As described in this section, fulfillingFulfilling this expectation requires UBS to establish a set ofsustainable earning streams that are based on true customer benefit, client benefit. It therefore strives to
build a strong and growing client base and maintainto continuously develop its unique assets and capabilitiescapabilities.
Risk and capital management
Taking, managing and controlling risk is a core element of UBS’s business activities. UBS’s aim is not, therefore, to eliminate all risks, but to achieve an appropriate balance between risk and return. Risk reduction and capital measures taken in such2008 aimed at maintaining UBS’s capital strength as a way that it creates valuesource of competitive advantage. Adapting risk exposures to the current market environment and managing UBS’s balance sheet remain strategic priorities for the firm.
è | Refer to the “Risk and treasury management” section of this report for more information on risk and capital management |
Business divisions’ franchises
UBS continues to develop the platform and reach of the business divisions known since 10 February 2009 asWealth Management & Swiss BankandWealth Management Americas. This includes the expansion of its global presence in international wealth management growth markets. UBS’s leading position in Switzerland, both clientsas a wealth manager and investors.as the largest retail bank, will remain a cornerstone of UBS’s strategy and a source of sustainable profit growth.
è | Refer to the “UBS business divisions and Corporate Center” section of this report for more information on UBS’s business divisions and the Corporate Center |
13
Strategy, performance and developmentresponsibility
Strategy and structure
Measures taken
also defines UBS’s risk framework, principlesIn August 2008, UBS launched a comprehensive program to re-engineer its businesses and overall risk-taking capacity. A clear majority of its members are non-executive and fully independent.
Executive governance
Controls have been improved and accountability and transparency increased at the level of UBS,top management. One result has been the implementationcreation of strategyan Executive Committee to allocate and continuously monitor the use of capital and risk in each of the business divisions. Other wide-ranging changes to the Group’s business results. Together withgovernance have been proposed and implemented. Refer to the Chairman’s Office“Corporate governance” section of the BoD (which consists of the Chairman and the Vice Chairmen of the BoD), the GEB is responsiblethis report for developing UBS’s strategies.
functionsLiquidity and funding framework
The business divisions have been incentivized to manage their balance sheets with greater autonomy and responsibility. A new liquidity and funding concept has been approved and is being implemented. Refer to the “Liquidity and funding management” section of Chairmanthis report for more information on liquidity and funding.
Senior management compensation
Senior management compensation is now aligned to sustainable value creation within each manager’s area of the BoD and Chief Executive Officer (who is positioned within the GEB) are performed by two different people. No member of one board may be a member of the other.
Organizational structureWhile UBS is structured into three business groupsresponsibility and a Corporate Center, it is managed as an integrated firm. Eachlonger performance evaluation horizon has been introduced. UBS announced a new compensation model for senior executives in November 2008 (effective 1 January 2009). Refer to the “Compensation, shareholdings and loans” section of this report for more information on senior management compensation.
Transformation of UBS’s wealth management business group is led by a member of the GEB.
As announced on 10 February 2009, Global Wealth Management & Business Banking has been divided into two new business divisions: Wealth Management & Swiss Bank and Wealth Management Americas.
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Strategy, performance and responsibility |
Strategy
Key performance indicators: 2009 and developmentIndustry trends
Industry trendsbeyond
Long-term perspectives
UBS uses key performance indicators (KPIs) to monitor the firm’s performance and the delivery of returns to shareholders. Until the end of 2008, UBS focused on four KPIs at the Group level, as described in the discussion of performance measures in the “Measurement and analysis of performance” section of this report. In response to the next ten years,changing market environment, UBS conducted a detailed review of its KPI framework in 2008. The objective of this review was to adjust these indicators – which are used by the world economyfirm to evaluate its economic performance as a whole and the contribution of individual employ-
ees to that performance – to more closely reflect the firm’s strategic priorities.
Key performance indicators | ||||||||
Wealth Management & | Wealth Management | |||||||
Group | Swiss Bank | Americas | Investment Bank | Global Asset Management | ||||
Net profit growth | Pre-tax profit growth | Pre-tax profit growth | Pre-tax profit growth | Pre-tax profit growth | ||||
Cost / income ratio | Cost / income ratio | Cost / income ratio | Cost / income ratio | Cost / income ratio | ||||
Gross margin (RoIA)1 | Gross margin (RoIA) | Gross margin (RoIA) | ||||||
Return on equity (RoE) | Return on attributed equity | |||||||
Return on assets, gross | Return on assets, gross | |||||||
Return on risk-weighted assets, gross | ||||||||
FINMA leverage ratio2 | ||||||||
Impaired lending portfolio3 | Value at Risk4 | |||||||
Tier 1 ratio | ||||||||
Net new money rate | Net new money rate | Net new money rate | Net new money rate | |||||
Economic profit | ||||||||
Client sophistication
The recent growth of financial sponsors and hedge funds ex-emplifies the changing nature of financial market relationships, in which increasingly sophisticated clients are asking for more complex solutions to meet their needs. These clients require innovative solutions that span product groups and
geographies. Aided by technological improvements, investment banks are reacting with product innovations, such as new structured products, algorithmic trading or equity bridge financing and targeted services, such as prime brokerage, in a bid to produce the most competitive offering. UBS believes that the investment banks which are best positioned to serve such clients are those with global reach, strong platform capabilities and the scale to offer customization economically.
Wealth accumulation
In many economies, a notable shift is taking place away from labor-intensive production to more capital-intensive activity.
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Strategy, performance and developmentresponsibilityIndustry trendsStrategy and structure
Risk management in 2008
BasedUBS entered 2008 with significant legacy risk positions which exceeded the firm’s risk bearing capacity. While UBS incurred substantial writedowns on this, UBS seesits risk positions, it pursued an active risk reduction program through sales in 2008. Significant transactions included the sale in May of US residential mortgage-backed securities to a clear trend towards individual wealth accumulation that is likely to continue overfund managed by BlackRock for proceeds of USD 15 billion and the next decade, particularlyagreement reached in Asia. Wealth is expected to grow faster than GDP in developed countries. Moreover,October with the ratio of wealth to GDP in emerging markets is currently low and should increase, due, among other factors, to generally higher savings rates. These developments will benefit wealth management businesses across the world. They will also help the asset management industry as private wealth is a key driver for institutional asset growth. Investment banks and securities businesses should also benefit thanks to rising capitalization levels in global financial markets and higher trading volumes.
Retirement provisioning
In coming decades, most countries with established, mature economies will face a major demographic shift related to declining birth rates. This means that while the number of retired citizens will rise, there will be fewer younger people available to replace them in the workforce and therefore fund their retirement. Due to this demographic trend, pension reform is on the agenda of many governments across the world. The strong reliance in Continental Europe and Japan on unfunded schemes will make reform especially urgent in these locations. Although each country will follow its own regulatory agenda, UBS sees a general and gradual shift from unfunded public pension schemes to privately funded ones.
Securitization
The de-emphasis of traditional on-balance sheet lending and an increase in securities trading were key contributors to the transformation of the financial services industry over the past decades. Better capital market access and a globalization of financial flows, which improved the pool of available liquidity, have enabled corporations to solve funding needs by directly accessing capital markets while allowing banks to securitize assets and redistribute risk previously held on balance sheet. However, the recent US-led dislocation of credit markets has slowed down this development.
Equitization
According to recent estimates, equity accounts for nearly half of the growth in global financial assets as more institutional and individual investors tend to allocate a greater share
As announced on 16 October 2008, the Swiss National Bank (SNB) and UBS reached an agreement to transfer illiquid securities and other positions from UBS’s balance sheet to a fund owned and controlled by the SNB. From the originally agreed USD 60 billion, the transaction size has been reduced to USD 38.6 billion (including the effect of price adjustments so far totaling USD 0.7 billion). With this transaction, UBS caps future potential losses from these assets, reduces its risk-weighted assets, materially de-risks its balance sheet and is no longer exposed to the funding risk of the assets to be transferred.
Transaction structure
The SNB will finance the fund with a loan in the amount of 90% of the purchase price to be paid by the fund, secured by the assets of the fund. 10% of the purchase price will be financed through an equity contribution by the SNB. The loan will be non-recourse to UBS and will be priced at LIBOR plus 250 basis points. The fund and loan facility will terminate in eight years, but the termination date may be extended to 10 or 12 years. The cash flow from the assets, including interest, rental income, principal repayments and proceeds from asset sales (net of expenses and working capital requirements),
will be applied to service the loan until full repayment.
Governance
In fourth quarter 2008, the fund was established under the name SNB StabFund as a Swiss limited partnership for collective investments. Its objective is to manage the acquired positions based on fundamental value considerations. The SNB StabFund is owned by a general partner and a limited partner,
both of which are wholly owned by the SNB. The general partner has a board of directors with five members, of which three are designated by the SNB and two by UBS.
Portfolio composition and size
The overall portfolio valuation of positions already transferred or still expected to be transferred to the SNB StabFund is USD 38.6 billion, as shown in the table opposite, subject to any further pricing adjustments. The SNB StabFund acquired a first tranche of 2,042 securities positions from UBS on 16 December 2008 for USD 16.4 billion. The remaining positions identified for sale to the fund are planned to be transferred in March 2009 in one or more additional transfers.
16
Strategy, performance and responsibility |
Implications for UBS’s 2008
income statement
Issuance of MCNs to the
Swiss Confederation
In Western Europe,connection with the transaction with the SNB, UBS sees significant growth potential becauseraised CHF 6 billion of continued financial market integration. Growth potential is even highernew capital in the emerging markets in viewform of the relatively low levels of stock market capitalization compared with GDP. Equitization is expected to provide growth opportunities not only to investment banking and securities businesses, but also to wealth and asset managers, as assets are increasingly shiftedmandatory convertible notes (MCNs) convertible into higher margin classes. In addition,UBS registered shares. These were placed with the continued commoditiza-tionSwiss Confederation and issued on 9 December 2008. Refer to the “Capital management” section of trading services, UBS believes that smaller providers will start outsourcing these services to larger competitors.
Non-traditional asset classes
The last two decades have seen robust growththis report and “Note 26 Capital increases and mandatory convertible notes” in non-traditional asset classes – meaning investments other than cash, bonds or public equities. North America led the way, with real estate and private equity becoming significant componentsfinancial statements of portfolios from the early 1980s onwards. More recently, UBS has seen hedge funds becoming mainstream investments across the globe. Investors are increasingly relying on these asset classes to boost expected returns and increase portfolio diversification. The strong demand and improved ability to structure and securitize even non-financial assets has spurred the development of even more asset classes.
While this is a key driver for the asset management industry, it also builds demand for a variety of sophisticated ancillary products and services, ranging from initial public offerings (IPOs) and leveraged finance for private equity firms to prime brokerage and administrative services for hedge funds.
Corporate restructuring and internationalization
In the last few years, many businesses have benefited from strong global economic growth, low levels of nominal interest rates and abundant global liquidity. As a result, the global default rate touched a historical minimum and profits grew significantly. More recently, however, due to the sub-prime crisis, interest rates have risen while global levels of liquidity have fallen. The credit cycle has turned and default rates are moving back towards the long-term average. This is likely to trigger continued corporate restructuring which will, in turn, offer business opportunities for the investment banking business.
Positions affected by the transfer to the Swiss National Bank StabFund | ||||||||||||
Valuation as of 30 September 2008 | ||||||||||||
USD million | Priced | Not yet priced | Total | |||||||||
US sub-prime | 4.0 | 1.6 | 5.6 | |||||||||
US Alt-A | 1.5 | 0.8 | 2.4 | |||||||||
US prime | 1.2 | 0.7 | 1.9 | |||||||||
US reference-linked note program | 5.8 | 0.0 | 5.8 | |||||||||
Commercial real estate | 3.4 | 2.3 | 5.7 | |||||||||
Student loan-backed securities | 0.5 | 0.0 | 0.5 | |||||||||
Other positions | 8.5 | 9.0 | 17.5 | |||||||||
Price difference | (0.7 | ) | 1 | (0.7 | ) | |||||||
Total | 24.2 | 14.4 | 38.6 | |||||||||
17
Strategy, performance and developmentresponsibility
The making of UBS
The making of UBS
All the firms that have come to make up today’s UBS look back on a long and illustriousdiverse history. Both the two Swiss predecessor banks and PaineWebber Group Inc. (PaineWebber) came into being in the second half of the 19th century, while S.G. Warburg’s roots go back to 1934. But it was in the 1990s when UBS’s current identity began to form.
The next major move was in 1995, when SBC merged withacquired S.G. 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 crucial to today’s equities business.
è |
18
Strategy, performance and responsibility |
19
Strategy, performance and responsibility
Current market climate and industry drivers
Current market climate and industry drivers
The current crisis and its aftermath will have profound implications for the financial services industry and the world economy.
Market crisis and economic downturn
2008 was one of the most difficult years ever for the financial services industry. As the crisis deepened over the course of the year, the problems in the financial industry spread to other parts of the world economy. A precipitous drop in prices across most main asset classes, coupled with deleveraging, resulted in poorly functioning lending markets and a lack of inter-bank liquidity. Banks were forced to recapitalize, sometimes with the help of governments. Hopes that the crisis might be short-lived were dashed after the failure of one of the major US investment banks in mid-September, which resulted in very severe liquidity issues for many financial institutions. Banks experienced a scarcity of equity, credit supply further contracted and numerous countries fell into recession.
tries, sometimes very rapidly. Even countries which have not experienced high leverage growth and significant asset price increases have been affected as investment spending and exports dropped. In particular, countries which relied on foreign capital inflows (either to the government or to the private sector) are at risk of seeing foreign investment and exports fall, which could in turn hurt the value of their currency.
Macro economic perspectives
The macro economic outlook for 2009 is not positive. A modest recovery can be expected only if the measures taken by governments and central banks prove to be both effective and efficient. Few observers expect the financial services industry to rebound quickly from this crisis.
Market capitalization of the components of the Dow Jones Banks Titans 30 Index, 2008 versus 20071
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Strategy, performance and responsibility |
Stock market indices development
Industry drivers
A number of drivers are expected to have a significant impact on banks’ earnings and the structure of the financial services industry in the short to medium term. The most relevant factors are described below.
De-leveraging
The current downturn is different from previous ones not only in terms of its severity and wide geographical reach, but also in terms of the de-leveraging process that lies at its heart. De-leveraging is the process through which households, companies and the banks that intermediate between them simultaneously attempt to sell real and financial assets to pay back their debts. This unleashes two strong deflationary forces.
savings can provide opportunities for certain banks, risk aversion and the downward pressure it exerts on asset prices tend to reinforce each other.
Government intervention and re-regulation
The financial crisis has sparked heavy public intervention in the global financial system. State intervention packages have included a mix of capital injections by governments, public guarantees for selected bank liabilities such as deposits and commercial paper, and maximum loss guarantees for illiquid assets held in banks’ balance sheets. Governments have increasingly attached conditions to the measures they have taken, providing them the opportunity to at least temporarily influence the business activities of certain banks.
21
Strategy, performance and responsibility
Current market climate and industry drivers
Client behavior and demand
The relationship between financial firms and their clients has seen accelerating change over the past couple of years, for example with the rise of increasingly sophisticated clients (such as leveraged finance investors and hedge funds). However, the corporate and institutional client segment as a whole is expected to continue requiring innovative solutions which cater to specific and unique needs, and span product groups and geographies.
Wealth preservation
The financial crisis has already resulted in a substantial destruction of wealth as the price of many real and financial assets has fallen from the peaks of 2007. Many investors see a risk of further wealth destruction in the current economic climate. During this phase business opportunities for the financial services industry will mostly be in the realm of value preservation rather than return maximization.
Retirement provisions
The economic crisis does not fundamentally alter the private retirement industry’s growth drivers, namely the demographic shift related to falling birth rates and aging and the falling coverage provided by public pension schemes. Despite the drop in the value of their assets in 2008, private fully funded schemes will continue providing individuals with the best investment tools to accumulate wealth for
retirement, and savings will continue to flow into them. The ability of public pension schemes to fund themselves over the long term may be limited as several countries are already heavily indebted and running large deficits, including some driven by measures taken to help their economy in the current downturn, while demographics indicate that the ratio of workers to retirees will decrease in the foreseeable future. In some countries, particularly those which have experienced the largest destruction of accumulated wealth due to the crisis (for example, the US and UK, where pension funds are comparatively more exposed to equity markets than in other countries), a pick-up in individual savings rates would provide additional funds, which will partly be invested in private retirement schemes. This, combined with continued demand for specialist advice in wealth management, continues to represent an opportunity for wealth and asset managers.
Corporate restructuring
The corporate sector is generally better equipped to deal with the negative impact of a slowing economy than in previous downturns, mostly due to a relatively lower level of debt. However, a sharp reduction in demand for goods and services across developed and emerging markets and a continued lack of liquidity in credit markets will inevitably impact the corporate sector. Over the medium term, default rates are expected to rise from the historically low levels prevailing before the crisis, and further major bankruptcies are likely. The internationalization of business – particularly expansion in emerging markets – is likely to slow down as the attractiveness of new markets remains subdued and cash flows previously available for expansion are used to restructure balance sheets. In such a corporate environment, most of the opportunities for the banking sector are likely to arise from simple financing requirements, balance-sheet restructuring and asset disposals.
Emerging markets
Strong growth in emerging markets has been a key feature of the boom years in the global economy prior to the crisis, and banks have benefited greatly from strong growth in these markets. Growth in emerging markets is expected to slow markedly in 2009, reflecting the increased interconnections between economies in the era of globalization. Export surplus countries, including those relying on commodities exports, are most vulnerable to a further deterioration in the global economic environment, but also best placed to benefit from a potential recovery. Over the long term, however, banks which have built up a significant presence in emerging markets and serve a wide range of institutional and private clients are likely to continue benefiting from above-average economic growth in these countries.
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Strategy, performance and responsibility |
Strategy, performance and responsibility
Risk factors
Risk factors
Certain risks, including those described below, can impact UBS’s ability to carry out its business strategies and directly affect its earnings. Asbusiness activities, financial condition, results of operations and prospects. Because the business of a consequence,broad-based international financial services firm such as UBS is inherently exposed to risks that only become apparent with the revenuesbenefit of hindsight, risks of which UBS is not presently aware could also materially affect its business activities, financial condition, results of operations and operating profit of UBS have varied from period-to-period – andprospects. The sequence in which the risk factors are likely to continue to vary – and revenues and operating profit for any particular period willpresented below is not be indicative of future results.their likelihood of occurrence or the potential magnitude of their financial consequences.
Risks related to the current market crisis
UBS, like many other financial market participants, was severely affected by the progressive market dislocation during 2007.financial crisis that unfolded in 2007 and worsened in 2008. The deterioration of financial markets in 2008 was extremely severe by historical standards, and UBS recorded substantial losses on legacy risk positions. UBS has taken a series of measures to reduce its risk exposures, including the US residential mortgage market in 2007 was more sudden and severe than any such event in recent market history. As a result, the securitized markets becamesale of up to USD 38.6 billion of illiquid and UBS’sother positions including securities that had been assigned high credit ratings, lost substantial value. The losses incurredto a fund owned and controlled by the Swiss National Bank (SNB) as announced in 2007, and the fourth quarter. However, UBS continues to hold positions held by UBS on 31 December 2007, are detailed inidentified as risk concentrations (refer to the “Risk concentrations” section ofRisk, Treasury and Capital Management 2007 this report for more information on these positions, as well as positions in other asset classes that might be negatively affected by the current market crisis).
In addition, UBS continues to hold positionsis exposed to the US residential mortgagegeneral systemic and counterparty risks that are exacerbated by the ongoing market
UBS holds positions which may be adversely affected by the ongoing financial crisis and economic climate
As discussed in the paragraphs below on general risk factors, the values of all the assets UBS holds on its own account depend on the development of market conditions and the overall economic environment, as well as factors affecting particular assets, may lead to reductions in the market or carrying value of UBS’s assets. Although UBS’s exposure to the US mortgage market (including residential sub-prime, Alt-A and prime) was reduced dramatically in 2008, UBS still holds sizeableremains exposed to that market, albeit on a reduced scale. In addition, certain of its monoline-insured positions relatedare exposed to the US residential mortgage market in particular residential mortgage-backed securities (RMBS) and super senior tranches of collateralized debt obligations (CDO) backed by RMBSs. While UBS continues to manage, trade and hedge these positions, theas described below. The markets for most of theseUS mortgage-related securities have so far remained illiquid. In 2007, UBS incurred substantial losses (realizedilliquid and mark-to-market) on its holdings. The firm may record further realized losses upon the sale of any assets, or upon liquidation following a default under CDO structures to which it is exposed, and may record additional mark-to-market losses in the event of adverse developments specificimpossible to its positions (such as the deterioration of remittance data in underlying mortgage pools). In addition, the value of UBS’s holdings has been and may be further reduced by various factors affecting the overall mortgage market or the US mortgage and real estate markets in general. These factors include deteriorating loss assumptions with respect to mortgage-related assets generally, even those assets that are not themselves experiencing difficulties, due to higher levels of mortgage borrower defaults and the possible forced sale of inventories by other market participants.
whether and how long current market conditions will persist, or whether they will further deteriorate.
UBS has boughtrelies on credit protection from third parties, including monoline insurers, that may not be effective
UBS’s business entails exposure to counterparty credit risk.risk, including to monoline insurers and other providers of credit protection. UBS’s credit exposure to the monoline sector arises from over-the-counter (OTC) derivative contracts – mainly credit default swaps (CDS)(CDSs) which are carried at fair value.value – in respect of mortgage related and “monoline-wrapped” securities. The fair value of these CDSs – and thus UBS’s exposure to the counterparties – depends on the valuation and the perceived credit risk of the instrument against which protection has been bought. Towards the end of 2007, monolineMonoline insurers werehave been very adversely affected by their exposure to US residential mortgage-linked products, resulting in credit rating downgrades and the need to raise additional capital. UBS has recorded large credit valuation adjustments on theits claims against monoline counter-parties.counterparties. If the financial condition of these counterparties or their perceived credit worthinesscreditworthiness deteriorates further, UBS could record further credit valuation adjustments on the CDSs bought from monoline insurers.iscould also actively tradingincur losses in connection with restructurings of monoline insurers, including possible losses on third party hedge protection which UBS may incur as a result of changes in the corporate structure of the insurers. UBS also trades securities issued securitiesby and derivatives of monolinesrelated to monoline insurers, including CDSs, and the value of these contractssecurities and derivatives is subject to market volatility.
UBS holds positions in other asset classes that have been or might be negatively affected by the current market crisis
In 2007 and 2008, UBS incurred substantial losses (realized and mark-to-market) on its holdings of securities related to the US residential mortgage market. The market dislocation that began in 2007 has been progressively felt in asset classes beyond US sub-primeresidential mortgages. In 2007,2008, UBS recorded markdowns on other assets carried at fair value, including auction rate securities (ARS), leveraged underwritingfinance commitments, – particularly commitments made prior to the credit market dislocation in July 2007 – and positions related to Alt-A residential mortgages and commercial mortgages in the US. InUnited States and non-US mortgage- and asset-backed securities (ABSs). UBS has recorded and in the future UBS could record negative fair value adjustments on these assets and on other asset classes to which the effect ofmay be affected by the crisis in the credit markets may spread, such as other US asset-backed securities or securities issued by US states and municipalities and student loan programs, including auction rate certificates (ARCs) and others.markets. Such securities may also be wrapped by monoline insurers and therefore could incurgive rise to losses if the difficulties in the monoline sector persist or increase (see the previous risk factor on monoline exposures).
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Strategy, performance and responsibility
Risk factors
UBS’s inventory of ARS is likely to increase in the future as a sponsorresult of ARCs programs,its commitment to repurchase client-owned ARS, as further described in the “Risk management” section of this report. UBS has provided liquidity to their auction processes. Dueis also exposed to the decreasing demand for ARC securities in lightrisk of recent market concerns about the financial status of monoline insurerslosses and the continued deterioration of credit markets, the firm’s inventory in these securities has increased and is subject to valuation uncertainties.write-downs on its leveraged finance commitments. UBS holds positions related to real estate markets in countries other than the US and these exposuresUnited States on which it could also recordsuffer losses.
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Risk factors related to UBS’s business activity
Performance in the financial services industry depends on the economic climate – negative developments can adversely affect UBS’s business activities
The financial services industry prospers in conditions of economic growth, stable geopolitical conditions, capital markets that are transparent, liquid and buoyant and positive investor sentiment. An economic downturn, inflation or a severe financial crisis (as seen in 2007) would2008) can negatively affect UBS’s revenues and it wouldmay be unable to immediately adjust all of its costs to the resulting deterioration in market or business conditions.– a general reduction in business activity and market volumes affects fees, commissions and margins from market-making and customer-driven transactions and activities; – a market downturn is likely to reduce the volume and valuations of assets UBS manages on behalf of clients, reducing its asset- and performance-based fees; – reduced market liquidity limits trading and arbitrage opportunities and impedes UBS’s ability to manage risks, impacting both trading income and performance-based fees;
– | assets UBS holds for its own account as investments or trading positions could continue to fall in value; | ||
– | impairments and defaults on credit exposures and on trading and investment positions could increase, and losses may be exacerbated by falling collateral values; and | ||
– | if individual countries impose restrictions on cross-border payments or other exchange or capital controls, UBS could suffer losses from enforced default by counterparties, be unable to access its own assets, or be impeded in – or prevented from – managing its risks. |
Due to its sizeable trading inventory, trading activities and the counterparty credit risks in many of its businesses, UBS is dependent upon its risk management and control processes to avoid or limit potential lossesRisk-taking
Controlled risk-taking is a major part of the business of a financial services firm. UBS derives a substantial part of its revenues from market-making and proprietary trading in cash and derivatives markets. Credit is an integral part of many of UBS’s retail, wealth management and Investment Bank activities. This includes lending, underwriting and derivatives businesses and positions.InterestChanges in interest rates, equity prices, foreign exchange levels and other market fluctuations can adversely affect itsUBS’s earnings. Some losses from risk-taking activities are inevitable but, to be successful over time, UBS must balance the risks it takes with the returns it generates. It must therefore diligently identify, assess, manage and control its risks, not only in normal market conditions but also as they might develop under more extreme (“stressed”) conditions, when concentrations of exposure can lead to severe losses. UBS’s approach to risk management and control and its tools and processes for market and credit risk control, including country risk, are described inRisk, Treasury and Capital Management 2007. The steps UBS is taking to strengthen its market risk framework are also described in the same report.2007,2008, UBS is not always able to prevent losses arising from extreme andor sudden market dislocationsevents that are not anticipated by its risk measures and systems and affect sizeable inventory positions and therefore lead to serious losses. Value at Risk (VaR), a statistical measure for market risk, is derived from historical market data, and thus, by definition, could not have predicted the losses seen in the stressed conditions in 2007. However,2008. Moreover, stress loss and concentration controls, and the dimensions in which UBS aggregates risk to identify potentially highly correlated exposures, proved to be inadequate.is taking stepshas taken to strengthen its risk management and risk control frameworksframework are described in the affected areas, but the firm“Risk management” section of this report.if:if, for example:– it does not fully identify the risks in its portfolio, in particular risk concentrations and correlated risks;
24
Strategy, performance and responsibility |
– | its assessment of the risks identified, or its response to negative trends, proves to be inadequate or incorrect; | ||
– | markets move in ways that are unexpected – in terms of their speed, direction, severity or correlation – and UBS’s ability to manage risks in the resultant environment is therefore restricted; | ||
– | |||
– | collateral or other security provided by its counterparties proves inadequate to cover their obligations at the time of their default. |
21
Strategy and developmentRisk factors
The valuation of certain assets report provides detailed information on the determination of fair value from valuation techniques. There is no single market standard for valuation models in this including many of the positions related to the US sub-prime residential mortgage market, relyrelies on models. For some or all of the inputs to these models there is no observable source
Where possible, UBS marks its trading book assets at their quoted market price in an active market. In the current environment, such price information is not available for certain instruments linked to the US residential mortgage market and UBS applies valuation techniques to measure such instruments. Valuation techniques use “market observable inputs” where available, derived from similar assets in similar and active markets, from recent transaction prices for comparable items or from other observable market data. For positions for which some or all of the reference data is not observable or has limited observability, UBS uses valuation models with non-market observable inputs. These positions include super senior RMBS CDO tranches related to“Note 27 Fair value of financial instruments” in the US residential mortgage market.Note 26 inFinancial Statements 2007financial statements of thisarea and sucharea. Such models have inherent limitations, andlimitations; different assumptions and inputs would generate different results, and these differences could have a significant impact on UBS’s financial results. UBS is obliged to regularly reviewreviews and updateupdates its valuation models to incorporate all factors that market participants would consider in setting a price, – this includesincluding factoring in current market conditions. Judgment is an important component of this process and UBS carefully considers whether the assumptions and inputs of its models remain appropriate to establish a fair value for the instrument.process. Changes in model inputs or in the models themselves could have a material impact on UBS’s financial results.
Credit ratings and liquidity and funding management are critical to UBS’s ongoing performance
è | Refer to the “Risk and treasury management” section of this report for more information on UBS’s approach to liquidity and funding management |
25
Strategy, performance and responsibility
Risk factors
UBS’s capital strength is important to support its client franchise Operational risks may affect UBS’s business
UBS’s capital position measured by the BIS capital ratios is and has traditionally been strong, both in absolute terms and relative to its competitors. Capital ratios are determined by (1) risk-weighted assets – balance(RWAs) (balance sheet, off-balance sheet and other market and operational risk positions, measured and risk-weighted according to regulatory criteria –criteria) and (2) eligible capital.capital. UBS’s capital ratiosare subject to change. Eligible capital, for example, could come under pressure due toexperience a reduction in case of financial losses, acquired goodwill or as seen towardsa result of foreign exchange movements. RWAs, on the endother hand, will be driven by UBS’s business activities and by changes in the risk profile of 2007,these assets. They could furthermore be subject to a change in regulatory requirements or due to an increase in risk-weighted assets.the interpretation thereof. For instance, substantial market volatility, a widening of credit spreads (the major driver of UBS’s VaR) or, a change in regulatory treatment of certain positions (including, but not limited to, the definitions of assets allocated to the trading or the banking books), stronger foreign currencies, increased counter-party risk or a further deterioration in the economic environment could result in a rise in risk-weighted assetsRWAs or a change in capital requirements and thereby potentially reduce UBS’s capital ratios.
All UBS’s businesses are dependent on the bank’s ability to process a large number of complex transactions across multiple and diverse markets in different currencies, in addition to being subject to the many different legal and regulatory regimes of these countries. UBS’s operational risk management and control systems and processes, which are described in the operational risk“Operational risk” section ofRisk, Treasury and Capital Management 2007, this report, are designed to ensure that the
22
risks associated with the bank’s activities, including those arising from process error, failed execution, unauthorized trading, fraud, systems failure and failure of security and physical protection, are appropriately controlled. If these internal controls fail or prove ineffective in identifying and remedying such risks, UBS could suffer operational failures that might result in losses.
Legal claims and regulatory risks and restrictions arise in the conduct of UBS’s business ness. Currently, UBS is responding to a number of government inquiries and investigations, and is involved in a number of litigations and disputes, related to the sub-prime crisis, sub-prime securities, and structured transactions involving sub-prime securities. These matters concern, among other things, UBS’s valuations, disclosures, writedowns, underwriting and contractual obligations. UBS might be unable to identify or capture revenue or competitive opportunities, or retain and attract qualified employees
In the ordinary course of its business, UBS is subject to regulatory oversight and liability risk. It is involved in a variety of other claims, disputes and legal proceedings and regulatorygovernment investigations in jurisdictions where UBS is active, including the US, SwitzerlandUnited States and other jurisdictions. Regulatory activity and legal claims have increased as a consequenceSwitzerland. These types of the current market crisis, and are expected to increase further. Such proceedings expose UBS to substantial monetary damages and legal defense costs, injunctive relief, criminal and civil penalties and the potential for regulatory restrictions on UBS’s businesses. The outcome of these matters cannot be predicted and they could adversely affect UBS’s future business.busi- è See NoteRefer to “Note 21 provisions and litigation” inFinancial Statements 2007 the financial statements of this report for more information on legal proceedings in which UBS is involved
26
Strategy, performance and responsibility |
is unable to attract or retain the qualified people needed to carry them out.
UBS’s reputation is key to its business
UBS’s reputation is critical in maintaining its relationships with clients, investors, regulators and the general public. The reputation of UBS can be damaged, for instance, by misconduct by its employees, by activities of business partners over which UBS has limited or no control, by severe or prolonged financial losses or by uncertainty about its financial soundness and its reliability. This could result in client attrition in different parts of UBS’s business and could negatively impact its financial performance. TheMaintaining the firm’s reputation isand addressing adverse reputational developments are therefore a key factorfactors in itsUBS’s risk management efforts.
UBS’s global presence exposes the bank to other risks,
UBS operates in more than 50 countries, earns income and holds assets and liabilities in many different currencies and is subject to many different legal, tax and regulatory regimes.might takegenerally takes a number of years) or the expiration of statutes of limitations. In addition, changes in tax laws, judicial interpretation of tax laws or policies and practices of tax authorities could have a material impact on taxes paid by UBS and cause the amount of taxes ultimately paid by UBS to differ from the amount accrued. have an effect on its reported income, particularly between the Swiss franc and the US dollar (US dollar income represents the major part of UBS’s non-Swiss franc income). have an effect on its reported income and shareholders’ equity. UBS’s approach to management of this currency risk is explained in the corporate currency management system inRisk, Treasury and Capital Management 2007.“Treasury management” section of this report.
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24
Financial performance
UBS results 2007
Losses on trading positionsrelated to the US residential sub-prime and Alt-A real estate market totaled approximately CHF 21.3 billion
Record net fee and commission incomeof CHF 30.6 billion, reflecting strong performance in wealth and asset management, investment banking and equity underwriting
Operating expensesof the financial businesses, at CHF 34,503 million, were up 5% from 2006. Higher staff levels drove salary expenses and general and administrative expenses up. Performance-based compensation declined, reflecting the losses on US sub-prime related positions
UBS performance indicators 2007
Return on equitywas negative 10.2%, down from positive 26.4% in 2006
Diluted earnings per sharewere negative CHF 2.49, compared with a positive CHF 5.57 in 2006
Cost/income ratiofor financial businesses was 110.3% in 2007, significantly up from 69.7% in 2006
Net new money:at CHF 140.6 billion, down from a record in 2006 (CHF 151.7 billion). The decrease was mostly driven by full-year outflows in Global Asset Management. Record net new money inflows were seen in Swiss and international wealth management (up by CHF 27.5 billion from 2006)
26
Business group performance from continuing operations before tax | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Wealth Management International & Switzerland | 6,306 | 5,203 | 4,161 | 21 | ||||||||||||
Wealth Management US | 718 | 582 | 312 | 23 | ||||||||||||
Business Banking Switzerland | 2,460 | 2,356 | 2,189 | 4 | ||||||||||||
Global Wealth Management & Business Banking | 9,484 | 8,141 | 6,662 | 16 | ||||||||||||
Global Asset Management | 1,315 | 1 | 1,392 | 1,057 | (6 | ) | ||||||||||
Investment Bank | (15,525 | ) | 5,943 | 5,181 | ||||||||||||
Corporate Center | 1,255 | 2 | (1,087 | ) | (708 | ) | ||||||||||
Financial Businesses | (3,471 | ) | 14,389 | 12,192 | ||||||||||||
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FinancialStrategy, performanceMeasurement and analysis ofresponsibility
Financial performance
Measurement and analysis ofFinancial performance
UBS’s performance is reported in accordance with International Financial Reporting Standards (IFRS). as issued by the International Accounting Standards Board. This section provides a discussion and analysis of the UBSUBS’s results commentsfor 2008, commenting on the underlying operational performance of the business, with a focus on continuing operations.
UBS financial highlights | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||
Performance indicators from continuing operations | ||||||||||||||||
Diluted earnings per share (CHF)1 | (7.60 | ) | (2.61 | ) | 4.64 | (191 | ) | |||||||||
Return on equity attributable to UBS shareholders (%)2 | (57.9 | ) | (11.7 | ) | 23.9 | (395 | ) | |||||||||
Cost/income ratio (%)3 | 680.4 | 111.0 | 70.5 | |||||||||||||
Net new money (CHF billion)4 | (226.0 | ) | 140.6 | 151.7 | ||||||||||||
Group results | ||||||||||||||||
Operating income | 1,201 | 31,721 | 47,484 | (96 | ) | |||||||||||
Operating expenses | 28,555 | 35,463 | 33,365 | (19 | ) | |||||||||||
Operating profit before tax (from continuing and discontinued operations) | (27,155 | ) | (3,597 | ) | 15,007 | (655 | ) | |||||||||
Net profit attributable to UBS shareholders | (20,887 | ) | (5,247 | ) | 11,527 | (298 | ) | |||||||||
Personnel (full-time equivalents)5 | 77,783 | 83,560 | 78,140 | (7 | ) | |||||||||||
Invested assets (CHF billion) | 2,174 | 3,189 | 2,989 | (32 | ) | |||||||||||
UBS balance sheet and capital management | ||||||||||||||||
Balance sheet key figures | ||||||||||||||||
Total assets | 2,015,098 | 2,274,891 | 2,348,733 | (11 | ) | |||||||||||
Equity attributable to UBS shareholders | 32,800 | 36,875 | 51,037 | (11 | ) | |||||||||||
Market capitalization6 | 43,519 | 108,654 | 154,222 | (60 | ) | |||||||||||
BIS capital ratios7 | ||||||||||||||||
Tier 1 (%) | 11.0 | 9.1 | 8 | 12.2 | 8 | |||||||||||
Total BIS (%) | 15.1 | 12.2 | 8 | 15.0 | 8 | |||||||||||
Risk-weighted assets | 302,273 | 374,421 | 8 | 344,015 | (19 | ) | ||||||||||
Long-term ratings | ||||||||||||||||
Fitch, London | A+ | AA | AA+ | |||||||||||||
Moody’s, New York | Aa2 | Aaa | Aa2 | |||||||||||||
Standard & Poor’s, New York | A+ | AA | AA+ | |||||||||||||
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Strategy, performance and responsibility |
Measurement and analysis of performance
Key factors affecting UBS’s financial position and
results of operations in 2008
– | In 2008, UBS continued to be severely affected by negative revenues in the Investment Bank due to trading losses on risk positions. Refer to the “Risk concentrations” section and “Note 3 Net interest and trading income” in the financial statements of this report for more information on risk positions and associated losses. |
– | UBS recorded a significant increase in credit losses from CHF 238 million in the prior year to CHF 2,996 million. This reflects the deteriorating economic environment and impairment charges taken on reclassified financial assets in fourth quarter 2008. Refer to the “Credit risk” section of this report for more information. |
– | On 5 March 2008, UBS issued mandatory convertible notes (MCNs) with a face value of CHF 13 billion to two investors. This transaction resulted in an accounting gain of CHF 3,860 million in first quarter 2008 and in an increase in share premium of CHF 7.0 billion. Refer to “Note 26 Capital increases and mandatory convertible notes” in the financial statements of this report for more information. |
– | On 23 April 2008, the annual general meeting of shareholders approved a proposal that UBS strengthen its shareholders’ equity by way of an ordinary capital increase. The capital increase was completed in June 2008 by means of a rights offering and resulted in the issue of 760,295,181 new fully paid registered shares with a par value of CHF 0.10 each. Net proceeds from the capital increase were approximately CHF 15.6 billion. Refer to “Note 26 Capital increases and mandatory convertible notes” in the financial statements of this report for more information. |
– | On 20 May 2008, UBS completed the sale of a portfolio of US residential mortgage-backed securities (RMBSs) for proceeds of USD 15 billion to the RMBS Opportunities Master Fund, LP, a third-party entity managed by BlackRock, Inc. The portfolio had a notional value of approximately USD 22 billion and comprised primarily Alt-A and sub-prime related assets. The fund was capitalized with approximately USD 3.75 billion in equity raised by BlackRock from third-party investors and an eight-year amortizing USD 11.25 billion senior secured loan provided by UBS (balance at year-end 2008 was USD 9.2 billion). |
– | As announced on 16 October 2008, the Swiss National Bank (SNB) and UBS have reached an agreement to transfer, in one or more sales, up to USD 60 billion of illiquid and other positions from UBS’s balance sheet to a sepa- |
rate fund entity controlled and owned by the SNB. The size of the transaction has since been reduced to USD 38.6 billion. This transaction allowed UBS to reduce its exposure to certain asset classes and potential associated losses. In parallel, UBS placed CHF 6 billion of MCNs with the Swiss Confederation on 9 December 2008. The overall impact on UBS’s income statement of the SNB transaction and the placement of the MCNs with the Swiss Confederation was a net charge of CHF 4.5 billion. This reflects a net loss arising from the acquisition of the equity purchase option, a loss arising from valuation differences determined to date on securities sold or to be sold to the SNB StabFund, losses on hedges that were subject to trading restrictions as a result of the SNB transaction, and the impact of the contingent issuance of UBS shares in connection with the transaction. The fair valuation impact of the issuance of the MCNs, as described in “Note 26 Capital increases and mandatory convertible notes” in the financial statements of this report, is also included in this total. | ||
– | In 2008, the Investment Bank recorded a gain on own credit from financial liabilities designated at fair value of CHF 2,032 million, resulting from the widening of UBS’s credit spread, which was partly offset by the effects of redemptions and repurchases of such liabilities. The cumulative own credit balance for such debt held at 31 December 2008 amounts to CHF 2,953 million. Refer to “Note 27 Fair value of financial instruments” in the financial statements of this report for more information. Financial liabilities designated at fair value are liabilities for which UBS applied the option granted by IFRS to fair value them through profit or loss, predominately issued structured products. The gain reflects an increase in the difference between the market value of UBS’s debt accounted for under the fair value option (which is presented on the balance sheet line “Financial liabilities designated at fair value”) and the amount it would cost UBS to issue this debt at current market terms. As a general rule, the market value of UBS’s outstanding debt decreases if UBS’s own credit spread widens and increases if UBS’s credit spread tightens. Therefore, if UBS’s credit spread were to tighten again in the future, the market value of UBS’s outstanding fair valued debt would increase accordingly, resulting in the reversal of some or all of the gains on own credit recorded so far, unless UBS redeems own debt before maturity. | |
– | Following the auction rate securities (ARS) settlement in August 2008, Wealth Management US recorded losses of CHF 1,524 million, of which CHF 1,464 million were in- |
29
Strategy, performance and responsibility
Financial performance
cluded in general and administrative expenses, and CHF 60 million were recognized as trading losses. Under the ARS settlement, Wealth Management US agreed to purchase ARS from clients at their par value. Up to fourth quarter 2008, the ARS settlement liability represented a provision. The liability was reclassified from provisions to negative replacement values in fourth quarter 2008, when ARS settlement rights, which are treated as derivative instruments, were issued to and accepted by clients. Losses incurred post-reclassification represented trading losses. | ||
– | As announced on 18 February 2009, UBS settled the US cross-border case with the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC), by entering into a deferred prosecution agreement with the DOJ and a consent order with the SEC. As part of these settlement agreements, UBS agreed to pay an amount of CHF 917 million (USD 780 million) to the United States. Refer to the “Settlement regarding the US cross-border case” sidebar in the “Wealth Management International & Switzerland” section of this report for more information. | |
– | UBS recognized an income tax benefit of CHF 6,837 million in 2008, which mainly reflects the CHF 6,126 million impact from the recognition of incremental deferred tax assets on available tax losses. The incremental deferred tax assets relate mainly to Swiss tax losses incurred during 2008 (primarily due to the writedown of investments in US subsidiaries) but was reduced by a decrease in the deferred tax assets recognized for US tax losses. Refer to “Note 22 Income taxes” in the financial statements of this report for more information. |
Discontinued operations
As discontinued activities are no longer relevant to the management of the company, UBS does not consider them to be indicative of its future potential performance. Theyperformance and they are therefore not included in UBS’sits business planning decisions. This helps to better assessassists in comparing UBS’s performance against that of its peers, and to estimatein the estimation of future growth potential.
Factors affecting UBS’s financial positions and results of operations in 2007
Seasonal characteristics
The main businesses of UBS do not generally show significant seasonal patterns, except foralthough the Investment Bank, whereBank’s revenues are impactedhave been affected in some years by the seasonal characteristics of general financial market activity and deal
flows in investment banking.
Performance measures
UBSKey performance indicators (2008)ForUntil the last eight years,end of 2008, UBS has consistently assessed its performance against a set of four measures that wereindicators designed to measure the delivery of continuously improving returns to its shareholders.
28
Business group key performance indicators
conditions) of returns to its shareholders. At the business group or business unitGroup level, performance is measured by carefully chosenthese indicators were: after-tax return on equity; net new money; diluted earnings per share (EPS); and cost / income ratio. Business division key performance indicators (KPIs). They indicate the business group’s or business unit’s success in creating value for shareholders but UBS does not disclose explicit targets for these KPIs. The KPIs show the key drivers of each unit’s core business activities and include financial metrics, such as cost / income ratios and invested assets, along with non-financial metrics, such as the number of client advisors.
è | A new key performance indicator framework was introduced in first quarter 2009 and will be used to measure performance in 2009 and forward. Refer to the “Key performance indicators: 2009 and beyond” sidebar in the “Strategy and structure” section of this report for more information |
Client/invested assets reportingSince 2001, UBS has reportedreports two distinct metrics for client funds:
– |
– |
30
Strategy, performance and responsibility |
Business division / business unit key performance indicators (2008) | ||||
Business | Key performance indicators | Definition | ||
Business divisions and business units (excluding Corporate Center) | Cost/income ratio (%) | Total operating expenses/total operating income before credit loss (expense)/recovery | ||
Return on attributed equity (%) | Performance before tax/average attributed equity | |||
Wealth and asset management businesses and Business Banking Switzerland | Invested assets (CHF billion) | Client assets managed by or deposited with UBS for investment purposes only (for further details please see “Client/invested assets reporting”) | ||
Net new money (CHF billion) | Inflow of invested assets from new clients | |||
+ inflows from existing clients | ||||
– outflows from existing clients | ||||
– outflows due to client defection | ||||
Wealth and asset management businesses | Gross margin on invested assets (bps) | Total operating income before credit loss (expense)/recovery/average invested assets | ||
Wealth Management International & Switzerland | Client advisors | Expressed in full-time equivalents | ||
Revenues per advisor (CHF thousand) | Total operating income before credit loss (expense)/recovery/average number of client advisors | |||
Net new money per advisor (CHF thousand) | Net new money/average number of client advisors | |||
Invested assets per advisor (CHF thousand) | Average invested assets/average number of client advisors | |||
Wealth Management US | Recurring income (CHF million) | Interest, asset-based revenues for portfolio management and account-based, distribution and advisory fees (as opposed to transactional revenues) | ||
Revenues per advisor (CHF thousand) | Total operating income before credit loss (expense)/recovery/average number of financial advisors | |||
Net new money per advisor (CHF thousand) | Net new money/average number of financial advisors | |||
Invested assets per advisor (CHF thousand) | Average invested assets/average number of financial advisors | |||
Business Banking Switzerland | Impaired lending portfolio as a % of total lending portfolio, gross | Impaired lending portfolio, gross/total lending portfolio, gross | ||
Investment Bank | Compensation ratio (%) | Personnel expenses/total operating income before credit loss (expense)/recovery | ||
Impaired lending portfolio as a % of total lending portfolio, gross | Impaired lending portfolio, gross/total lending portfolio, gross | |||
Average regulatory VaR (10-day, 99% confidence, based on 5 years of historical data) | Value at Risk (VaR) expresses maximum potential loss measured to a 99% confidence level, over a 10-day time horizon and based on 5 years of historical data | |||
ed assets and client assets as a result of a change in the service level delivered are treated as net new money flow.
mutual funds are managed by the Global Asset Management business division and sold by Global Wealth Management & Business Banking. Both businesses involved count these funds as invested assets. This approach is in line with both finance industry practices and UBS’s open architecture strategy and allows the firm to accurately reflect the performance of each individual business. Overall, CHF 392273 billion of invested assets were double counted in 20072008 (CHF 371392 billion in 2006)2007).
29
Financial performanceMeasurement and analysis of performance
30
UBS reporting structure
Reintegration of Dillon Read Capital Management portfolios into the Investment Bank
Netting of balance sheet items
Syndicated finance revenues
Accounting changes
Effective 2007, UBS adopted the disclosure requirements of the International Financial Reporting Standard 7 (IFRS 7). The new standard has no impact on recognition, measurement and presentation of financial instruments. It does require entities to provide disclosures in their financial statements that enable users to evaluate:
31
Strategy, performance and responsibility
Financial performance
UBS reporting structure
Changes to reporting structure and
presentation in presentation of non-performing loan disclosure2008
UBS stopped disclosing non-performing loans as a key performance indicator for the Investment Bank and Business Banking Switzerland in quarterly reports beginning in first quarter 2007, after the firm had previously stopped doing so in its annual report 2006. UBS continues to disclose and discuss the impaired lending portfolio, which is a key component of its internal credit risk management and control processes. As in previous years, non-performing loans, as defined under Swiss Federal Banking Commission (SFBC) regulation, will beIndustrial Holdings reported in the notes to the annual financial statements.
Share-based payment: disclosure (IFRS 2)
impact of this change will be that, from 1 January 2008 on, most of UBS’s share awards will be expensed in the performance year rather than over the period through which the non-compete conditions are applicable. Restrictions remaining effective after the employee becomes entitled to the share-based award will be considered when determining grant date fair value. Following adoption of this amendment, UBS will fully restate the two comparative prior years (2006 and 2007). With the restatement, an additional compensation expense of approximately CHF 800 million will be recognized in 2007 to account for higher share-based awards, mainly in the Investment Bank. For further details please see Note 1 inFinancial Statements 2007.
Discontinuation of the adjusted expected credit loss concept Starting in first quarter 2008, UBS will cease using the adjusted expected
Industrial Holdings to be reported in Corporate Center
Exiting of the municipal securities business by the
Investment Bank
In June 2008, UBS announced the closure of its Investment Bank’s institutional municipal securities business. This hap-
pened with immediate effect and the retail operations of the municipal securities business, including secondary market activities, were transferred to Wealth Management US. A goodwill impairment charge of CHF 341 million was recorded in second quarter 2008 in relation to the exiting of this business and was attributed to the Investment Bank.
Exiting of certain commodities businesses by the
Investment Bank
In October 2008, UBS announced that the Investment Bank would exit the commodities business, with the exception of precious metals. This resulted in an expense of CHF 133 million in fourth quarter 2008.
UBS reporting structure in 2008
Global Wealth Management & | Global Asset Management | Investment Bank | Corporate Center | |||||||
Business Banking | ||||||||||
Wealth Management International & Switzerland | ||||||||||
Wealth Management US | ||||||||||
Business Banking Switzerland | ||||||||||
Wealth Management & Swiss Bank and Wealth Management Americas
On 10 February 2009, UBS announced with immediate effect the split of Global Wealth Management & Business Banking into two divisions: Wealth Management & Swiss Bank and Wealth Management Americas. UBS will start reporting results based on this new structure with the first quarter 2009 results.
Investment Bank
As announced on 3 October 2008 onwards. As in previous years,and reiterated on 10 February 2009, the strategyInvestment Bank is being repositioned to de-emphasizefocus on its core franchises. The fixed income, currencies and reduce exposurecommodities (FICC) business unit of the Investment Bank has exited several businesses including institutional municipal securities, proprietary trading, commodities (excluding
precious metals, exchange-traded derivatives and indices) and real estate and securitization activities, as well as exotic structured products. The internal organization of the FICC business unit has changed to private equity while capitalizingreflect this repositioning, but these changes are not expected to have an immediate impact on orderly exit opportunities as they arise continues.
32
Strategy, performance and responsibility |
Performance indicators
For the year ended | ||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||
RoE (%)1 | ||||||||||||
as reported | (9.4 | ) | 28.2 | 39.7 | ||||||||
from continuing operations | (10.2 | ) | 26.4 | 27.6 | ||||||||
Diluted earnings per share (CHF)2 | ||||||||||||
as reported | (2.28 | ) | 5.95 | 6.68 | ||||||||
from continuing operations | (2.49 | ) | 5.57 | 4.65 | ||||||||
Cost / income ratio of the financial businesses (%)3,4 | 110.3 | 69.7 | 70.1 | |||||||||
Net new money, financial businesses (CHF billion)5 | 140.6 | 151.7 | 148.5 | |||||||||
Share-based payments: revisions to International
Financial Reporting Standard 2
UBS adopted amended IFRS 2 on 1 January 2008. As a result, from 1 January 2008, UBS’s share-based awards that are not generally forfeited upon the employee leaving UBS are expensed in the performance year. In contrast, share-based awards featuring stringent forfeiture rules are amortized over the shorter of the legal vesting period and the period from grant through to the retirement eligibility date of the employee.
Recognition of a defined benefit asset for the
Swiss pension plan
In third quarter 2008, UBS concluded that it meets the requirements of IAS 19Employee Benefits for recognizing a defined benefit asset associated with its Swiss pension plan. Prior to this, it had been UBS policy to disclose only this amount in “Note 30 Pension and other post-employment benefit plans” in the financial statements of UBS’s annual reports. UBS concluded that recognition of an asset should also consider unrecognized net actuarial losses and past service cost as permitted by IAS 19 as this results in a better reflection of the corridor approach. At the end of third quarter 2008, the measurement of the defined benefit asset represented the total cumulative unrecognized net actuarial losses plus unrecognized past service cost plus the present value of economic benefits available in the form of refunds of the plan or reductions in future contributions to the plan.
CHF 0.5 billion in deferred tax liabilities and an increase of approximately CHF 1.6 billion in retained earnings. Refer to “Note 1 Summary of significant accounting policies” in the financial statements and the “Capital management” section of this report for more information.
IAS 39Reclassification of financial instruments
The markets for many financial instruments began to dry up in 2007 and many instruments that previously traded in active and liquid markets ceased to trade actively by mid-2008. In an effort to address accounting concerns arising from the global credit crisis, the International Accounting Standards Board published an amendment to International Accounting Standard 39 (IAS 39Financial Instruments: Recognition and Measurement) on 13 October 2008.
33
Strategy, performance and responsibility
Financial performance
the fourth quarter, the operating profit before taxes would have been CHF 3.8 billion lower if the reclassification had not occurred. Refer to “Note 29 Measurement categories of financial assets and liabilities” in the financial statements of this report for more information on the reclassification of financial assets in 2008.
Discontinuation of the adjusted expected
credit loss concept
In first quarter 2008, UBS ceased using the adjusted expected credit loss concept in its internal management reporting and began to book, in line with IFRS, actual credit losses (recoveries) instead. Prior year results have been restated. This change had no impact on the Group’s overall net profit.
IFRS 8 Operating Segments
The new standard on segment reporting, IFRS 8Operating Segments, came into force on 1 January 2009 and replaced IAS 14Segment Reporting. The external segmental reporting is based on internal reporting within UBS to the Group Executive Board (or, the “chief operating decision maker”) which makes decisions on the allocation of resources and assesses the performance of the reportable segments. Based on the new UBS structure which was announced on 10 February 2009 and following IFRS 8 guidance, UBS will show in 2009 four reportable segments. The business divisions Wealth Management & Swiss Bank, Wealth
Management Americas, Global Asset Management and the Investment Bank represent one reportable segment each. The Corporate Center, which does not meet the requirements of an operating segment, will also be shown separately. In addition, the new standard requires UBS to provide descriptive information about the types of products and services from which each reportable segment derives its revenue. As UBS’s reportable segment operations are mainly financial, the total interest income and expense for all reportable segments will be presented on a net basis.
unlikely to be material. Going forward, the segment assets and segment liabilities will be disclosed without the intercompany balances and this basis is in line with the internal reporting. An explanation of the basis on which the segment information is prepared, and reconciliations to the amounts presented in the statement of comprehensive income and the statement of financial position are also required by the new standard. UBS will be providing geographical information about total operating income and total non-current assets based on the following new geographical breakdown: Switzerland, UK, Rest of Europe, USA, Asia Pacific and Rest of the World.
34
Key performance indicators
Until the end of 2008, UBS focused on four key performance indicators: return on equity, diluted earnings per share, cost / income ratio and net new money. These indica-
Return on equity
Diluted earnings per share
tors are designed to monitor the returns UBS delivers to shareholders and are calculated using results from continuing operations.
Cost/income ratio
Net new money
Key performance indicators | |||||||||||||
For the year ended | |||||||||||||
31.12.08 | 31.12.07 | 31.12.06 | |||||||||||
Return on equity (RoE) (%)1 | (57.5 | ) | (10.9 | ) | 25.7 | ||||||||
RoE from continuing operations (%)1 | (57.9 | ) | (11.7 | ) | 23.9 | ||||||||
Diluted earnings per share (EPS) (CHF)2 | (7.55 | ) | (2.43 | ) | 4.99 | ||||||||
Diluted EPS from continuing operations (CHF)2 | (7.60 | ) | (2.61 | ) | 4.64 | ||||||||
Cost/income ratio (%)3 | 680.4 | 111.0 | 70.5 | ||||||||||
Net new money (CHF billion)4 | (226.0 | ) | 140.6 | 151.7 | |||||||||
3335
Strategy, performance and responsibility
Financial performancePerformance indicators
UBS focuses on four2008
The key performance indicators designed to measure the continuous delivery of improving returns to shareholders. Each indicator is calculated based on results from continuing operations. The first two indicators, return on equity and diluted earnings per share, are based on the results of the entire firm. The cost / income ratio and net new money indicators are limited to the financial businesses. On this basis, performance indicators 2007 show:
– | return on equity from continuing operations for full-year 2008 at negative 57.9%, down from negative 11.7% in 2007. The profits recorded by UBS’s wealth and asset management businesses were more than offset by substantial losses in the Investment Bank. | |
– | negativediluted earnings per share from continuing operations of CHF 7.60, compared with negative CHF 2.61 in 2007. | |
– | acost/income ratio of 680.4%, compared with 111.0% a year ago. | |
– | net new money at negative CHF 226.0 billion, down from positive CHF 140.6 billion in 2007. Net new money outflows were most pronounced in the Global Wealth Management & Business Banking division, which recorded total net new money outflows of CHF 123.0 billion. Wealth |
Management International & Switzerland contributed to the majority of this total with net outflows of CHF 101.0 billion, the most significant outflows occurring in the Latin America, Mediterranean, Middle East & Africa regions. Wealth Management US reported net new money outflows of CHF 10.6 billion, mainly due to net outflows in the second and third quarters. The Swiss retail business recorded net new money outflows of CHF 11.4 billion. Global Asset Management saw total net outflows of CHF 103.0 billion. Of this, outflows in institutional were CHF 55.6 billion and occurred primarily via third-party distribution channels. Institutional net outflows were observed in all categories except money market funds, infrastructure and real estate. Wholesale intermediary had total net outflows of CHF 47.4 billion, reflecting higher outflows mainly in multi-asset, equities and fixed income. Approximately three-fourths of the wholesale intermediary outflows were through UBS distribution channels.
Net new money1 | ||||||||||||
For the year ended | ||||||||||||
CHF billion | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||
Wealth Management International & Switzerland | (101.0 | ) | 125.1 | 97.6 | ||||||||
Wealth Management US | (10.6 | ) | 26.6 | 15.7 | ||||||||
Business Banking Switzerland | (11.4 | ) | 4.6 | 1.2 | ||||||||
Global Wealth Management & Business Banking | (123.0 | ) | 156.3 | 114.5 | ||||||||
Institutional | (55.6 | ) | (16.3 | ) | 29.8 | |||||||
Wholesale intermediary | (47.4 | ) | 0.6 | 7.4 | ||||||||
Global Asset Management | (103.0 | ) | (15.7 | ) | 37.2 | |||||||
UBS | (226.0 | ) | 140.6 | 151.7 | ||||||||
Invested assets | |||||||||||||||||
As of | % change from | ||||||||||||||||
CHF billion | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | |||||||||||||
Wealth Management International & Switzerland | 870 | 1,294 | 1,138 | (33 | ) | ||||||||||||
Wealth Management US | 600 | 840 | 824 | (29 | ) | ||||||||||||
Business Banking Switzerland | 129 | 164 | 161 | (21 | ) | ||||||||||||
Global Wealth Management & Business Banking | 1,599 | 2,298 | 2,123 | (30 | ) | ||||||||||||
Institutional | 335 | 522 | 519 | (36 | ) | ||||||||||||
Wholesale intermediary | 240 | 369 | 347 | (35 | ) | ||||||||||||
Global Asset Management | 575 | 891 | 866 | (35 | ) | ||||||||||||
UBS | 2,174 | 3,189 | 2,989 | (32 | ) | ||||||||||||
36
Strategy, performance and responsibility |
2007
Key performance indicators show:
– | return on equity from continuing operations for full-year 2007 at negative | |
– | negativediluted earnings per share from continuing operations of CHF | |
– | a |
– | net new money at CHF 140.6 billion, down from a record in 2006 of CHF 151.7 billion. The decrease was mostly driven by full-year outflows in Global Asset Management, mainly in institutional which had net new money |
Net new money1 | ||||||||||||
For the year ended | ||||||||||||
CHF billion | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Wealth Management International & Switzerland | 125.1 | 97.6 | 68.2 | |||||||||
Wealth Management US | 26.6 | 15.7 | 26.9 | |||||||||
Business Banking Switzerland | 4.6 | 1.2 | 3.4 | |||||||||
Global Wealth Management & Business Banking | 156.3 | 114.5 | 98.5 | |||||||||
Institutional | (16.3 | ) | 29.8 | 21.3 | ||||||||
Wholesale intermediary | 0.6 | 7.4 | 28.2 | |||||||||
Global Asset Management | (15.7 | ) | 37.2 | 49.5 | ||||||||
UBS excluding Private Banks & GAM | 140.6 | 151.7 | 148.0 | |||||||||
Corporate Center | ||||||||||||
Private Banks & GAM2 | 0.0 | 0.0 | 0.5 | |||||||||
UBS | 140.6 | 151.7 | 148.5 | |||||||||
Invested assets | ||||||||||||||||
As of | % change from | |||||||||||||||
CHF billion | 31.12.07 | 31.12.06 | 31.12.051 | 31.12.06 | ||||||||||||
Wealth Management International & Switzerland | 1,294 | 1,138 | 982 | 14 | ||||||||||||
Wealth Management US | 840 | 824 | 752 | 2 | ||||||||||||
Business Banking Switzerland | 164 | 161 | 153 | 2 | ||||||||||||
Global Wealth Management & Business Banking | 2,298 | 2,123 | 1,887 | 8 | ||||||||||||
Institutional | 522 | 519 | 441 | 1 | ||||||||||||
Wholesale intermediary | 369 | 347 | 324 | 6 | ||||||||||||
Global Asset Management | 891 | 866 | 765 | 3 | ||||||||||||
UBS | 3,189 | 2,989 | 2,652 | 7 | ||||||||||||
34
A new key performance indicator (KPI) framework was introduced in first quarter 2009 and will be used to
measure performance in 2009 and forward. Refer to the “Key performance indicators: 2009 and beyond”
sidebar in the “Strategy and structure” section of this report for more information on UBS’s new KPIs.
37
Strategy, performance and responsibility
Financial performance
From continuing operations, performance indicators show:
Income statement | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||
Continuing operations | ||||||||||||||||
Interest income | 65,890 | 109,112 | 87,401 | (40 | ) | |||||||||||
Interest expense | (59,687) | (103,775 | ) | (80,880 | ) | (42 | ) | |||||||||
Net interest income | 6,203 | 5,337 | 6,521 | 16 | ||||||||||||
Credit loss (expense) / recovery | (2,996) | (238 | ) | 156 | ||||||||||||
Net interest income after credit loss expense | 3,207 | 5,099 | 6,677 | (37 | ) | |||||||||||
Net fee and commission income | 22,929 | 30,634 | 25,456 | (25 | ) | |||||||||||
Net trading income | (25,818) | (8,353 | ) | 13,743 | (209 | ) | ||||||||||
Other income | 884 | 4,341 | 1,608 | (80 | ) | |||||||||||
Total operating income | 1,201 | 31,721 | 47,484 | (96 | ) | |||||||||||
Cash components | 16,356 | 22,342 | 21,346 | (27 | ) | |||||||||||
Share-based components | (94) | 3,173 | 2,685 | |||||||||||||
Total personnel expenses | 16,262 | 25,515 | 24,031 | (36 | ) | |||||||||||
General and administrative expenses | 10,498 | 8,429 | 7,942 | 25 | ||||||||||||
Depreciation of property and equipment | 1,241 | 1,243 | 1,244 | 0 | ||||||||||||
Impairment of goodwill | 341 | 0 | 0 | |||||||||||||
Amortization of intangible assets | 213 | 276 | 148 | (23 | ) | |||||||||||
Total operating expenses | 28,555 | 35,463 | 33,365 | (19 | ) | |||||||||||
Operating profit from continuing operations before tax | (27,353) | (3,742 | ) | 14,119 | (631 | ) | ||||||||||
Tax expense | (6,837) | 1,369 | 2,998 | |||||||||||||
Net profit from continuing operations | (20,517) | (5,111 | ) | 11,121 | (301 | ) | ||||||||||
Discontinued operations | ||||||||||||||||
Profit from discontinued operations before tax | 198 | 145 | 888 | 37 | ||||||||||||
Tax expense | 1 | (258 | ) | (11 | ) | |||||||||||
Net profit from discontinued operations | 198 | 403 | 899 | (51 | ) | |||||||||||
Net profit | (20,319) | (4,708 | ) | 12,020 | (332 | ) | ||||||||||
Net profit attributable to minority interests | 568 | 539 | 493 | 5 | ||||||||||||
from continuing operations | 520 | 539 | 390 | (4 | ) | |||||||||||
from discontinued operations | 48 | 0 | 103 | |||||||||||||
Net profit attributable to UBS shareholders | (20,887) | (5,247 | ) | 11,527 | (298 | ) | ||||||||||
from continuing operations | (21,037) | (5,650 | ) | 10,731 | (272 | ) | ||||||||||
from discontinued operations | 150 | 403 | 796 | (63 | ) | |||||||||||
Earnings per share | ||||||||||||||||
Basic earnings per share (CHF) | (7.54) | (2.42 | ) | 5.19 | (212 | ) | ||||||||||
from continuing operations | (7.60) | (2.61 | ) | 4.83 | (191 | ) | ||||||||||
from discontinued operations | 0.05 | 0.19 | 0.36 | (74 | ) | |||||||||||
Diluted earnings per share (CHF) | (7.55) | (2.43 | ) | 4.99 | (211 | ) | ||||||||||
from continuing operations | (7.60) | (2.61 | ) | 4.64 | (191 | ) | ||||||||||
from discontinued operations | 0.05 | 0.19 | 0.34 | (74 | ) | |||||||||||
Additional information | ||||||||||||||||
Personnel (full-time equivalents)1 | 77,783 | 83,560 | 78,140 | (7 | ) | |||||||||||
3538
Strategy, performance and responsibility |
2008
Results
2008 saw the unfolding of a global financial crisis that affected UBS deeply. While UBS’s wealth and asset management businesses contributed positively to UBS results
UBS results
Income statement | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million, except per share data | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Continuing operations | ||||||||||||||||
Interest income | 109,112 | 87,401 | 59,286 | 25 | ||||||||||||
Interest expense | (103,775 | ) | (80,880 | ) | (49,758 | ) | 28 | |||||||||
Net interest income | 5,337 | 6,521 | 9,528 | (18 | ) | |||||||||||
Credit loss (expense) / recovery | (238 | ) | 156 | 375 | ||||||||||||
Net interest income after credit loss expense | 5,099 | 6,677 | 9,903 | (24 | ) | |||||||||||
Net fee and commission income | 30,634 | 25,456 | 21,184 | 20 | ||||||||||||
Net trading income | (8,353 | ) | 13,743 | 8,248 | ||||||||||||
Other income | 4,332 | 1,598 | 1,127 | 171 | ||||||||||||
Revenues from Industrial Holdings | 268 | 262 | 229 | 2 | ||||||||||||
Total operating income | 31,980 | 47,736 | 40,691 | (33 | ) | |||||||||||
Personnel expenses | 24,798 | 23,591 | 20,067 | 5 | ||||||||||||
General and administrative expenses | 8,465 | 7,980 | 6,504 | 6 | ||||||||||||
Depreciation of property and equipment | 1,251 | 1,252 | 1,247 | 0 | ||||||||||||
Amortization of intangible assets | 282 | 153 | 133 | 84 | ||||||||||||
Goods and materials purchased | 119 | 116 | 97 | 3 | ||||||||||||
Total operating expenses | 34,915 | 33,092 | 28,048 | 6 | ||||||||||||
Operating profit from continuing operations before tax | (2,935 | ) | 14,644 | 12,643 | ||||||||||||
Tax expense | 1,311 | 2,785 | 2,465 | (53 | ) | |||||||||||
Net profit from continuing operations | (4,246 | ) | 11,859 | 10,178 | ||||||||||||
Discontinued operations | ||||||||||||||||
Operating profit from discontinued operations before tax | 135 | 879 | 5,094 | (85 | ) | |||||||||||
Tax expense | (266 | ) | (12 | ) | 582 | |||||||||||
Net profit from discontinued operations | 401 | 891 | 4,512 | (55 | ) | |||||||||||
Net profit | (3,845 | ) | 12,750 | 14,690 | ||||||||||||
Net profit attributable to minority interests | 539 | 493 | 661 | 9 | ||||||||||||
from continuing operations | 539 | 390 | 430 | 38 | ||||||||||||
from discontinued operations | 0 | 103 | 231 | (100 | ) | |||||||||||
Net profit attributable to UBS shareholders | (4,384 | ) | 12,257 | 14,029 | ||||||||||||
from continuing operations | (4,785 | ) | 11,469 | 9,748 | ||||||||||||
from discontinued operations | 401 | 788 | 4,281 | (49 | ) | |||||||||||
Earnings per share | ||||||||||||||||
Basic earnings per share (CHF) | (2.28 | ) | 6.20 | 6.97 | ||||||||||||
from continuing operations | (2.49 | ) | 5.80 | 4.84 | ||||||||||||
from discontinued operations | 0.21 | 0.40 | 2.13 | (48 | ) | |||||||||||
Diluted earnings per share (CHF) | (2.28 | ) | 5.95 | 6.68 | ||||||||||||
from continuing operations | (2.49 | ) | 5.57 | 4.65 | ||||||||||||
from discontinued operations | 0.21 | 0.38 | 2.03 | (45 | ) | |||||||||||
36
In 2007,2008, UBS reported a Group net loss attributable to UBS shareholders (“attributable loss”) of CHF 4,38420,887 million – a loss of CHF 4,78521,037 million from continuing operations and a profit of CHF 401150 million from discontinued operations. In 2006,2007, UBS recorded a Group net profit attributable to UBS shareholders (“attributable profit”) of CHF 12,257 million.
Dividend
As agreed by the extraordinary general meeting on 27 February 2008, the cash dividend for 2007 was replaced by a stock dividend. Furthermore, the Board of Directors (BoD) is authorized, at any time until 27 February 2010, to increase the share capital by a maximum of CHF 10,370,000 through the issuance of a maximum of 103,700,000 fully paid registered shares with a par value of CHF 0.10 each. Existing shareholders will be granted subscription rights for the acquisition of the new shares without payment in proportion
to their shareholdings after the annual general meeting (AGM) to be held on 23 April 2008. The exchange ratio will be determined by the BoD, and shareholders will be informed of it on or by the date of the AGM. The allotted entitlements will be tradable on virt-x and therefore allow shareholders to choose whether they wish to receive new UBS AG shares or monetize the value of the entitlements by selling them in the market.
2006
In 2006, attributable profit was CHF 12,257 million.
37
Financial performanceFinancial businesses results
Financial businesses results
Income statement1 | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Continuing operations | ||||||||||||||||
Interest income | 109,112 | 87,401 | 59,286 | 25 | ||||||||||||
Interest expense | (103,775 | ) | (80,880 | ) | (49,758 | ) | 28 | |||||||||
Net interest income | 5,337 | 6,521 | 9,528 | (18 | ) | |||||||||||
Credit loss (expense) / recovery | (238 | ) | 156 | 375 | ||||||||||||
Net interest income after credit loss expense | 5,099 | 6,677 | 9,903 | (24 | ) | |||||||||||
Net fee and commission income | 30,634 | 25,456 | 21,184 | 20 | ||||||||||||
Net trading income | (8,353 | ) | 13,743 | 8,248 | ||||||||||||
Other income | 3,652 | 1,295 | 561 | 182 | ||||||||||||
Total operating income | 31,032 | 47,171 | 39,896 | (34 | ) | |||||||||||
Cash components | 22,300 | 21,282 | 18,275 | 5 | ||||||||||||
Share-based components2 | 2,387 | 2,187 | 1,628 | 9 | ||||||||||||
Total personnel expenses | 24,687 | 23,469 | 19,903 | 5 | ||||||||||||
General and administrative expenses | 8,421 | 7,929 | 6,448 | 6 | ||||||||||||
Services (to) / from other business units | (124 | ) | (9 | ) | (14 | ) | ||||||||||
Depreciation of property and equipment | 1,243 | 1,245 | 1,240 | 0 | ||||||||||||
Amortization of intangible assets | 276 | 148 | 127 | 86 | ||||||||||||
Total operating expenses | 34,503 | 32,782 | 27,704 | 5 | ||||||||||||
Operating profit from continuing operations before tax | (3,471 | ) | 14,389 | 12,192 | ||||||||||||
Tax expense | 1,275 | 2,751 | 2,296 | (54 | ) | |||||||||||
Net profit from continuing operations | (4,746 | ) | 11,638 | 9,896 | ||||||||||||
Discontinued operations | ||||||||||||||||
Profit from discontinued operations before tax | 7 | 4 | 4,564 | 75 | ||||||||||||
Tax expense | (258 | ) | 0 | 489 | ||||||||||||
Net profit from discontinued operations | 265 | 4 | 4,075 | |||||||||||||
Net profit | (4,481 | ) | 11,642 | 13,971 | ||||||||||||
Net profit attributable to minority interests | 489 | 389 | 454 | 26 | ||||||||||||
from continuing operations | 489 | 389 | 454 | 26 | ||||||||||||
from discontinued operations | 0 | 0 | 0 | |||||||||||||
Net profit attributable to UBS shareholders | (4,970 | ) | 11,253 | 13,517 | ||||||||||||
from continuing operations | (5,235 | ) | 11,249 | 9,442 | ||||||||||||
from discontinued operations | 265 | 4 | 4,075 | |||||||||||||
Additional information | ||||||||||||||||
Personnel (full-time equivalents) | 83,560 | 78,140 | 69,569 | 7 | ||||||||||||
38
2007
Results
Last year was one of the most difficult in UBS’s history. While most UBS businesses, in particular the wealth management businesses, continued their strong revenue and profit growth momentum and finished the year with record results, this performance was overshadowed by the developments in the Investment Bank’s positions related to the US residential mortgage market. The sudden and serious deterioration in the US housing market, in combination with a large exposure in sub-prime mortgage related securities and derivatives, has deeply impacted UBS.
Operating income
Total operating income was CHF 31,0321,201 million in 2007,2008, down 34% from CHF 47,17131,721 million in 2006.2007.Net interest incomeat CHF 6,203 million was up 16% compared with CHF 5,337 million was down 18% compared with CHF 6,521 million a year earlier.Net trading incomewas negative CHF 25,818 million, sharply down from negative CHF 8,353 million sharply down from positive CHF 13,743 million in 2006.2007.
Net income from trading businesses
Trading versus non-trading income
centrations in the fixed income, currencies and commodities (FICC) area of the Investment Bank in 2008.
Net interest and trading income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||
Net interest income | 6,203 | 5,337 | 6,521 | 16 | ||||||||||||
Net trading income | (25,818) | (8,353 | ) | 13,743 | (209 | ) | ||||||||||
Total net interest and trading income | (19,615) | (3,016 | ) | 20,264 | (550 | ) | ||||||||||
Breakdown by businesses | ||||||||||||||||
Net income from trading businesses1 | (26,883) | (10,658 | ) | 13,730 | (152 | ) | ||||||||||
Net income from interest margin businesses | 6,160 | 6,230 | 5,718 | (1 | ) | |||||||||||
Net income from treasury activities and other | 1,107 | 1,412 | 816 | (22 | ) | |||||||||||
Total net interest and trading income | (19,615) | (3,016 | ) | 20,264 | (550 | ) | ||||||||||
39
Strategy, performance and responsibility
Financial performance
2,032 million, resulting from the widening of UBS’s credit spread, which was partly offset by the effects of redemptions and repurchases of such liabilities. Refer to “Note 27 Fair value of financial instruments” in the financial statements of this report for more information. In 2007, the Investment Bank recorded a gain of CHF 659 million on own credit.
Net income from interest margin businesses
Net income from treasury activities and other
Credit loss expense
è | Refer to the “Risk management and control” section of this report for more information on UBS’s risk management approach, method of credit risk measurement and the development of credit risk exposures |
Net fee and commission income
– | Underwriting fees fell 48% to CHF 1,957 million, driven by a 56% decline in equity underwriting fees and a 31% decline in debt underwriting fees. |
– | Mergers and acquisitions and corporate finance fees fell 40% to CHF 1,662 million, in an environment of reduced market activity and lower mandated deal volumes. |
– | Net brokerage fees fell 16% to CHF 6,445 million, mainly due to lower client transaction volumes in the wealth management businesses and the Investment Bank’s cash equities and Asian equity derivatives business. |
– | Investment fund fees fell 25% to CHF 5,583 million due to lower asset-based fees from the asset management and wealth management businesses. |
– | Fiduciary fees increased 1% to CHF 301 million, reflecting an increase in business volume. |
– | Custodian fees fell 12% to CHF 1,198 million, mainly due to the lower asset base. |
– | Portfolio and other management and advisory fees fell 21% to CHF 6,169 million mainly due to the lower asset base in the wealth management businesses and reduced performance fees in the asset management business. |
– | Insurance-related and other fees, at CHF 317 million in 2008, decreased by 25% from a year earlier mainly due to lower commission income from life insurance products at Wealth Management US. |
Other income
Credit loss (expense) / recovery | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||
Global Wealth Management & Business Banking | (421) | 28 | 109 | |||||||||||||
Investment Bank | (1,246) | (266 | ) | 47 | 368 | |||||||||||
Investment Bank – credit losses from reclassified financial instruments | (1,329) | |||||||||||||||
UBS | (2,996) | (238 | ) | 156 | ||||||||||||
40
Strategy, performance and responsibility |
Net fee and commission income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||
Equity underwriting fees | 1,138 | 2,564 | 1,834 | (56 | ) | |||||||||||
Debt underwriting fees | 818 | 1,178 | 1,279 | (31 | ) | |||||||||||
Total underwriting fees | 1,957 | 3,742 | 3,113 | (48 | ) | |||||||||||
Mergers and acquisitions and corporate finance fees | 1,662 | 2,768 | 1,852 | (40 | ) | |||||||||||
Brokerage fees | 8,355 | 10,281 | 8,053 | (19 | ) | |||||||||||
Investment fund fees | 5,583 | 7,422 | 5,858 | (25 | ) | |||||||||||
Fiduciary fees | 301 | 297 | 252 | 1 | ||||||||||||
Custodian fees | 1,198 | 1,367 | 1,266 | (12 | ) | |||||||||||
Portfolio and other management and advisory fees | 6,169 | 7,790 | 6,622 | (21 | ) | |||||||||||
Insurance-related and other fees | 317 | 423 | 449 | (25 | ) | |||||||||||
Total securities trading and investment activity fees | 25,540 | 34,090 | 27,465 | (25 | ) | |||||||||||
Credit-related fees and commissions | 273 | 279 | 269 | (2 | ) | |||||||||||
Commission income from other services | 1,010 | 1,017 | 1,064 | (1 | ) | |||||||||||
Total fee and commission income | 26,823 | 35,386 | 28,798 | (24 | ) | |||||||||||
Brokerage fees paid | 1,909 | 2,610 | 1,904 | (27 | ) | |||||||||||
Other | 1,984 | 2,142 | 1,438 | (7 | ) | |||||||||||
Total fee and commission expense | 3,894 | 4,752 | 3,342 | (18 | ) | |||||||||||
Net fee and commission income | 22,929 | 30,634 | 25,456 | (25 | ) | |||||||||||
Operating expenses
Total operating expenses were down 19% to CHF 28,555 million from CHF 35,463 million. The decline was mainly due to significantly lower performance-related compensation, partly offset by provisions for auction rate securities and the provision made in connection with the US cross-border case.
Personnel expenses
General and administrative expenses
curities of CHF 1,464 million, the provision of CHF 917 million made in connection with the US cross-border case and restructuring charges. These offset cost reductions in all other categories during 2008. In absolute terms, the largest reductions came from lower travel and entertainment expenses, reduced costs from outsourcing of IT and other services and lower marketing and public relations expenses.
Depreciation, amortization and impairment of goodwill
Income tax
UBS recognized an income tax benefit in the income statement of CHF 6,837 million for 2008, which mainly reflects the CHF 6,126 million impact from the recognition of incremental deferred tax assets on available tax losses.
41
Strategy, performance and responsibility
Financial performance
2007
Results
In 2007, UBS reported a Group net loss attributable to UBS shareholders (“attributable loss”) of CHF 5,247 million – a loss of CHF 5,650 million from continuing operations and a profit of CHF 403 million from discontinued operations. In 2006, UBS recorded a Group net profit attributable to UBS shareholders (“attributable profit”) of CHF 11,527 million.
Operating income
Total operating income was CHF 31,721 million in 2007, down 33% from CHF 47,484 million in 2006.Net interest income at CHF 5,337 million was down 18% compared with CHF 6,521 million a year earlier.Net trading income was negative CHF 8,353 million, sharply down from positive CHF 13,743 million in 2006.
Net income from trading businesses
was severely impacted by losses on positions related to the US mortgage market (see Note 3 inFinancial statements 2007for further details). Fixed income, currencies and commodities (FICC)FICC results were very weak. As credit markets continued to worsen towards the end of 2007, theThe credit business in FICC delivered negative revenues, especially in proprietary strategies. Structured products results were down, especially in Europe and the US, reflecting the decrease in customer demand for complex derivatives transactions. Markdowns on highly leveraged underwritingfinance commitments also had a negative impact. The result for emerging markets was helped by gains from the sale of UBS’s stake in Brazil Mercantile & Futures Exchange after demutualization. In addition, UBS had a gain of CHF 397 million on credit default swaps (CDS) hedging loan exposures, compared with a loss of CHF 245 million the previous year.
Net income from interest margin businesses
Net interest and trading income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Net interest income | 5,337 | 6,521 | 9,528 | (18 | ) | |||||||||||
Net trading income | (8,353 | ) | 13,743 | 8,248 | ||||||||||||
Total net interest and trading income | (3,016 | ) | 20,264 | 17,776 | ||||||||||||
Breakdown by businesses | ||||||||||||||||
Net income from trading businesses1 | (10,658 | ) | 13,730 | 11,795 | ||||||||||||
Net income from interest margin businesses | 6,230 | 5,718 | 5,292 | 9 | ||||||||||||
Net income from treasury activities and other | 1,412 | 816 | 689 | 73 | ||||||||||||
Total net interest and trading income | (3,016 | ) | 20,264 | 17,776 | ||||||||||||
Net income from treasury activities of the Investment Bank.
39
and other
Financial performanceFinancial businesses results
At CHF 1,412 million,net income from treasury activities and otherin 2007 was up CHF 596 million, or 73% higher than the CHF 816 million inof 2006. The accounting treatment of interest rate swaps, which hedge the economic interest rate risk of accrual-accounted balance sheet items (for example, loans or money market and retail banking products), positively affected income. They are carried on the balance sheet at fair value and, if they qualify for cash flow hedge accounting under IAS 39, changes in fair value are recorded in equity, thereby avoiding volatility in the groupGroup income statement. In 2007, these hedges were not fully effective, leading to a gain that was booked to UBS’s income statement. Higher interest income was also recorded as a result of increased yield on a slightly higher average capital base.
The Investment Bank realized a net credit loss expense of CHF 266 million in 2007, compared with a net credit loss recovery of CHF 47 million in 2006. This mainly relates to valuation adjustments taken in connection with the securitization of certain US commercial real estate assets.
Net fee and commission income
– | Underwriting fees, at their highest level ever, were CHF 3,742 million, up 20% from 2006. Equity underwriting fees were up significantly and offset a decrease in fixed income underwriting fees. |
Credit loss (expense) / recovery | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Global Wealth Management & Business Banking | 28 | 109 | 223 | (74 | ) | |||||||||||
Investment Bank | (266 | ) | 47 | 152 | ||||||||||||
UBS | (238 | ) | 156 | 375 | ||||||||||||
4042
Strategy, performance and responsibility |
– | At CHF 2,768 million, mergers and acquisitions and corporate finance fees in 2007 were up significantly by 49% compared with 2006, in a brisk merger and acquisition environment. |
– | Net brokerage fees were CHF 7,671 million in 2007, up 25% from 2006, mainly driven by higher revenues in Europe, the US and Asia, due to additional services from a new equities trading platform, and a considerable increase in client activity in all client segments. Additionally, the equity derivatives business also posted higher revenues due to increased business volume. |
– | Investment fund fees, at their highest level ever, were CHF 7,422 million in 2007, up 27% from 2006, mainly reflecting higher asset-based fees for the wealth management businesses and higher management and performance fees at Global Asset Management. |
– | Fiduciary fees increased 18% to CHF 297 million due to an increase in business volume. |
– | At CHF 1,367 million, custodian fees in 2007 were up 8% compared with 2006. This increase was due to an enlarged asset base. |
– | Portfolio and other management and advisory fees increased by 18% to CHF 7,790 million in 2007. The increase was again the result of rising invested asset levels and to a lesser extent higher management fees. |
– | Insurance-related and other fees, at CHF 423 million in 2007, decreased by 6% from a year earlier. |
due to an enlarged asset base. Portfolio and other management and advisory fees increased by 18% to CHF 7,790 million in 2007 from CHF 6,622 million in 2006. The increase is again the result of rising invested asset levels driven by strong net new money inflows and to a lesser extent due to higher management fees. Insurance-related and other fees, at CHF 423 million in 2007, decreased by 6% from a year earlier. Lower insurance fees paid in Global Asset Management were only partially offset by increased sales and asset-based fees from the wealth management businesses. Credit-related fees and commissions increased slightly by 4% to CHF 279 million in 2007 from CHF 269 million in 2006. Commission income from other services decreased by 4% from CHF 1,064 million in 2006 to CHF 1,017 million in 2007, mainly driven by equity derivative products, partially offset by higher fees for account keeping.
Operating expenses
Total operating expenses increased by 5%6% to CHF 34,50335,463 million in 2007 from CHF 32,78233,365 million in 2006.
Personnel expenses
advisors. Performance-related compensation decreased, reflecting the losses incurred in the Investment Bank. Personnel expenses are managed on a full-year basis with final fixing of annual performance-related payments in fourth quarter. Share-based components were up 9%18%, or CHF 200488 million, to CHF 2,3873,173 million from CHF 2,1872,685 million, mainly reflecting accelerated amortization of deferred compensation awarded for senior managers who have left UBS. Contractors’ expenses, at CHF 630 million, were CHF 192 million below 2006’s,2006 levels, mainly due to the transfer of Perot contractors into permanent staff. Insurance and social security contributions declined by 11%8% to CHF 1,2191,290 million in 2007 compared with CHF 1,3741,398 million in 2006, reflecting lower bonus payments. Contributions to retirement benefit plans rose 15% or CHF 120 million to CHF 922 million in 2007 as a result of both higher salaries paid and the increased staff levels. At CHF 1,9561,958 million in 2007, other personnel expenses increased by CHF 392390 million from 2006, mainly driven by severance payments relating to the reduction in staff levels.
General and administrative expenses
Net fee and commission income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | �� | 31.12.05 | 31.12.06 | |||||||||||
Equity underwriting fees | 2,564 | 1,834 | 1,341 | 40 | ||||||||||||
Debt underwriting fees | 1,178 | 1,279 | 1,264 | (8 | ) | |||||||||||
Total underwriting fees | 3,742 | 3,113 | 2,605 | 20 | ||||||||||||
Mergers and acquisitions and corporate finance fees | 2,768 | 1,852 | 1,460 | 49 | ||||||||||||
Brokerage fees | 10,281 | 8,053 | 6,718 | 28 | ||||||||||||
Investment fund fees | 7,422 | 5,858 | 4,750 | 27 | ||||||||||||
Fiduciary fees | 297 | 252 | 212 | 18 | ||||||||||||
Custodian fees | 1,367 | 1,266 | 1,176 | 8 | ||||||||||||
Portfolio and other management and advisory fees | 7,790 | 6,622 | 5,310 | 18 | ||||||||||||
Insurance-related and other fees | 423 | 449 | 372 | (6 | ) | |||||||||||
Total securities trading and investment activity fees | 34,090 | 27,465 | 22,603 | 24 | ||||||||||||
Credit-related fees and commissions | 279 | 269 | 306 | 4 | ||||||||||||
Commission income from other services | 1,017 | 1,064 | 1,027 | (4 | ) | |||||||||||
Total fee and commission income | 35,386 | 28,798 | 23,936 | 23 | ||||||||||||
Brokerage fees paid | 2,610 | 1,904 | 1,631 | 37 | ||||||||||||
Other | 2,142 | 1,438 | 1,121 | 49 | ||||||||||||
Total fee and commission expense | 4,752 | 3,342 | 2,752 | 42 | ||||||||||||
Net fee and commission income | 30,634 | 25,456 | 21,184 | 20 | ||||||||||||
41
Financial performanceFinancial businesses results
Indicative tax rates for financial businesses | ||||||||||||
For the year ended | ||||||||||||
in % | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Global Wealth Management & Business Banking | 20 | 20 | 19 | |||||||||
Wealth Management International & Switzerland | 19 | 19 | 18 | |||||||||
Wealth Management US | 42 | 42 | 40 | |||||||||
Business Banking Switzerland | 20 | 20 | 17 | |||||||||
Global Asset Management | 20 | 24 | 24 | |||||||||
Investment Bank | N/A | 31 | 29 | |||||||||
travel and entertainment expenditures, higher. Professional fees were up on higher legal fees and IT and other outsourcing expenses were higher in all UBS businesses. This increase was only partially offset by lower provisions.
Depreciation, amortization and impairment of goodwill
TaxIncome tax
TaxUBS recognized a tax expense from continuing operationsin the income statement of CHF 1,369 million for 2007, was CHF 1,275 million, compared with a tax expense for 2006 of CHF 2,7512,998 million.
Business group tax rates
Fair value disclosure of shares and options
The fair value of shares granted in 2007 rose to CHF 2,116 million. This is 258 million, or 14%, more than the CHF 1,858
Business group performance from continuing operations before tax | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Wealth Management International & Switzerland | 6,306 | 5,203 | 4,161 | 21 | ||||||||||||
Wealth Management US | 718 | 582 | 312 | 23 | ||||||||||||
Business Banking Switzerland | 2,460 | 2,356 | 2,189 | 4 | ||||||||||||
Global Wealth Management & Business Banking | 9,484 | 8,141 | 6,662 | 16 | ||||||||||||
Global Asset Management | 1,315 | 1 | 1,392 | 1,057 | (6 | ) | ||||||||||
Investment Bank | (15,525 | ) | 5,943 | 5,181 | ||||||||||||
Corporate Center | 1,255 | 2 | (1,087 | ) | (708 | ) | ||||||||||
Financial businesses | (3,471 | ) | 14,389 | 12,192 | ||||||||||||
1 Includes costs related to the closure of Dillon Read Capital Management (CHF 384 million, pre-tax). 2 Includes gain on sale of 20.7% stake in Julius Baer (CHF 1,950 million, pre-tax).
42
million granted in 2006, with the increase largely due to a rise in the proportion of bonuses being delivered in restricted shares.
2006
Results
Attributable net profit in 2006 was CHF 11,253 million, of which discontinued operations contributed CHF 4 million, compared with CHF 4,075 million in 2005 following the sale of Private Banks & GAM. Net profit from continuing operations was CHF 11,249 million, up 19% from CHF 9,442 million in 2005. Higher revenues in practically all businesses drove the increase, outpacing growth in costs. Asset-based revenues showed particular strength, a reflection of rising market levels as well as strong inflows into the wealth and asset management businesses. UBS saw a strong increase in brokerage, corporate finance and underwriting fees. Income from trading activities was driven by higher gains from equity derivatives, prime brokerage and equity proprietary trading. Fixed income activities saw stronger results driven by positive market conditions and improved performances in derivatives, mortgage-backed securities and commodities. Revenues from interest margin products increased, a reflection of the success and growth of lending activities to wealthy private clients worldwide. UBS also reported credit loss recoveries. Expenses continued to increase (+18%) in the context of strategic expansion. Personnel expenses were up 18% from 2005, performance-related payments rose with revenues and there was a 12% increase in staff numbers. For 2006, 53% of personnel expenses took the form of bonus or other variable compensation, up from 50% in 2005. General and administrative expenses were up 23% from 2005. Provision expenses rose, mainly as a result of the settlement agreement with Sumitomo Corporation and the sublease of unused office space in New Jersey, US. The rise in costs was
outpaced by the improvement in revenues, driving the cost / income ratio down to 69.7% – the lowest level ever recorded.
Operating income
43
Strategy, performance and responsibility
Financial performanceFinancial businesses results
Balance sheet
% change from | ||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.07 | |||||||||
Assets | ||||||||||||
Cash and balances with central banks | 32,744 | 18,793 | 74 | |||||||||
Due from banks | 64,451 | 60,907 | 6 | |||||||||
Cash collateral on securities borrowed | 122,897 | 207,063 | (41 | ) | ||||||||
Reverse repurchase agreements | 224,648 | 376,928 | (40 | ) | ||||||||
Trading portfolio assets | 271,838 | 660,182 | (59 | ) | ||||||||
Trading portfolio assets pledged as collateral | 40,216 | 114,190 | (65 | ) | ||||||||
Positive replacement values | 854,100 | 428,217 | 99 | |||||||||
Financial assets designated at fair value | 12,882 | 11,765 | 9 | |||||||||
Loans | 340,308 | 335,864 | 1 | |||||||||
Financial investments available-for-sale | 5,248 | 4,966 | 6 | |||||||||
Accrued income and prepaid expenses | 6,141 | 11,953 | (49 | ) | ||||||||
Investments in associates | 892 | 1,979 | (55 | ) | ||||||||
Property and equipment | 6,706 | 7,234 | (7 | ) | ||||||||
Goodwill and intangible assets | 12,935 | 14,538 | (11 | ) | ||||||||
Other assets | 19,094 | 20,312 | (6 | ) | ||||||||
Total assets | 2,015,098 | 2,274,891 | (11 | ) | ||||||||
Liabilities | ||||||||||||
Due to banks | 125,628 | 145,762 | (14 | ) | ||||||||
Cash collateral on securities lent | 14,063 | 31,621 | (56 | ) | ||||||||
Repurchase agreements | 102,561 | 305,887 | (66 | ) | ||||||||
Trading portfolio liabilities | 62,431 | 164,788 | (62 | ) | ||||||||
Negative replacement values | 851,803 | 443,539 | 92 | |||||||||
Financial liabilities designated at fair value | 101,546 | 191,853 | (47 | ) | ||||||||
Due to customers | 474,774 | 641,892 | (26 | ) | ||||||||
Accrued expenses and deferred income | 10,196 | 22,150 | (54 | ) | ||||||||
Debt issued | 197,254 | 222,077 | (11 | ) | ||||||||
Other liabilities | 34,040 | 61,496 | (45 | ) | ||||||||
Total liabilities | 1,974,296 | 2,231,065 | (12 | ) | ||||||||
Equity | ||||||||||||
Share capital | 293 | 207 | 42 | |||||||||
Share premium | 25,250 | 12,433 | 103 | |||||||||
Net income recognized directly in equity, net of tax | (4,471 | ) | (1,161 | ) | (285 | ) | ||||||
Revaluation reserve from step acquisitions, net of tax | 38 | 38 | 0 | |||||||||
Retained earnings | 14,892 | 35,795 | (58 | ) | ||||||||
Equity classified as obligation to purchase own shares | (46 | ) | (74 | ) | 38 | |||||||
Treasury shares | (3,156 | ) | (10,363 | ) | 70 | |||||||
Equity attributable to UBS shareholders | 32,800 | 36,875 | (11 | ) | ||||||||
Equity attributable to minority interests | 8,002 | 6,951 | 15 | |||||||||
Total equity | 40,802 | 43,826 | (7 | ) | ||||||||
Total liabilities and equity | 2,015,098 | 2,274,891 | (11 | ) | ||||||||
44
Strategy, performance and responsibility |
vironment in key emerging markets allowed the release
2008 asset development
31.12.08 vs 31.12.07:
Lending and borrowing
Lending
money inflows. Insurance-related and other fees, at CHF 449 million in 2006, increased by 21% from 2005, due to higher commissions from insurance related products. Credit-related fees and commissions decreased by 12% to CHF 269 million in 2006 from CHF 306 million in 2005, a reflection of declining business volumes and lower income from loans.
Operating expenses
44
Tax
The tax expense for 2006 was CHF 2,751 million, resulting in an effective tax rate of 19.1%, compared with the full-year 2005 tax rate of 18.8%. The tax rate for 2006 was positively influenced by the release of deferred tax valuation allowances, mainly reflecting improved forecast earnings in certain group companies and branches.
Fair value disclosure of shares and options
The fair value of shares granted in 2006 rose to CHF 1,858 million, 35% higher than CHF 1,381 million in 2005. The increase compared with 2005 was primarily driven by higher performance-based compensation and a rise in the proportion of bonuses being delivered in restricted shares.
45
Financial performanceBalance sheet and off balance sheet
Balance sheet and off balance sheet
Balance sheet
% change from | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | |||||||||
Assets | ||||||||||||
Cash and balances with central banks | 18,793 | 3,495 | 438 | |||||||||
Due from banks | 60,907 | 50,426 | 21 | |||||||||
Cash collateral on securities borrowed | 207,063 | 351,590 | (41 | ) | ||||||||
Reverse repurchase agreements | 376,928 | 405,834 | (7 | ) | ||||||||
Trading portfolio assets | 610,061 | 627,036 | (3 | ) | ||||||||
Trading portfolio assets pledged as collateral | 164,311 | 251,478 | (35 | ) | ||||||||
Positive replacement values | 428,217 | 292,975 | 46 | |||||||||
Financial assets designated at fair value | 11,765 | 5,930 | 98 | |||||||||
Loans | 335,864 | 297,842 | 13 | |||||||||
Financial investments available-for-sale | 4,966 | 8,937 | (44 | ) | ||||||||
Accrued income and prepaid expenses | 11,953 | 10,361 | 15 | |||||||||
Investments in associates | 1,979 | 1,523 | 30 | |||||||||
Property and equipment | 7,234 | 6,913 | 5 | |||||||||
Goodwill and intangible assets | 14,538 | 14,773 | (2 | ) | ||||||||
Other assets | 18,000 | 17,249 | 4 | |||||||||
Total assets | 2,272,579 | 2,346,362 | (3 | ) | ||||||||
Liabilities | ||||||||||||
Due to banks | 145,762 | 203,689 | (28 | ) | ||||||||
Cash collateral on securities lent | 31,621 | 63,088 | (50 | ) | ||||||||
Repurchase agreements | 305,887 | 545,480 | (44 | ) | ||||||||
Trading portfolio liabilities | 164,788 | 204,773 | (20 | ) | ||||||||
Negative replacement values | 443,539 | 297,063 | 49 | |||||||||
Financial liabilities designated at fair value | 191,853 | 145,687 | 32 | |||||||||
Due to customers | 641,892 | 555,886 | 15 | |||||||||
Accrued expenses and deferred income | 21,848 | 21,527 | 1 | |||||||||
Debt issued | 222,077 | 190,143 | 17 | |||||||||
Other liabilities | 60,776 | 63,251 | (4 | ) | ||||||||
Total liabilities | 2,230,043 | 2,290,587 | (3 | ) | ||||||||
Equity | ||||||||||||
Share capital | 207 | 211 | (2 | ) | ||||||||
Share premium | 8,884 | 9,870 | (10 | ) | ||||||||
Net income recognized directly in equity, net of tax | (1,188 | ) | 815 | |||||||||
Revaluation reserve from step acquisitions, net of tax | 38 | 38 | 0 | |||||||||
Retained earnings | 38,081 | 49,151 | (23 | ) | ||||||||
Equity classified as obligation to purchase own shares | (74 | ) | (185 | ) | 60 | |||||||
Treasury shares | (10,363 | ) | (10,214 | ) | (1 | ) | ||||||
Equity attributable to UBS shareholders | 35,585 | 49,686 | (28 | ) | ||||||||
Equity attributable to minority interests | 6,951 | 6,089 | 14 | |||||||||
Total equity | 42,536 | 55,775 | (24 | ) | ||||||||
Total liabilities and equity | 2,272,579 | 2,346,362 | (3 | ) | ||||||||
46
UBS’s total assets stood at CHF 2,272.633 billion on 31 December 2007, down2008, an increase of CHF 14 billion from the prior year-end. Due from banks and loans to customers both increased CHF 2,346.44 billion, rising to CHF 64 billion and CHF 340 billion, respectively. The customer loan increase stemmed mainly from the BlackRock collateralized funding transaction (a USD 11.25 billion eight-year amortizing loan; balance on 31 December 2008 USD 9.2 billion) in second quarter 2008 and the reclassification of illiquid trading assets from the trading portfolio in fourth quarter 2008, par-
tially offset by lower volumes from the Investment Bank prime brokerage business and from lombard lending in Global Wealth Management & Business Banking. The Swiss loan portfolio remained stable during 2008 at around CHF 163 billion.
Borrowing
Lending andoutweigh maturing senior straight bonds. Interbank borrowing
Lending
Borrowing
occurred primarily in prime brokerage and the exchange-traded derivatives business.
RepurchaseRepurchase/reverse repurchase agreements
and securities borrowing/lending
In 2007,Secured lending on the asset side of the balance sheet, the sums of cash collateral on securities borrowed and reverse repurchase agreements significantly decreased by CHF 173.4 billion, or 23%declined during 2008 to CHF 584.0348 billion while the sum of securities lent and repurchase agreements declined byon 31 December 2008. The CHF 271.1236 billion or 45% to CHF 337.5 billion. Thisdecline occurred almost entirely in the Investment Bank, where the matched book (awas reduced as part of its overall balance sheet reduction (the matched book is a repurchase agreement portfolio comprised of assets and liabilities with equal maturities and equal value so that the market risks substantially cancel each other out) was reduced. In addition,. Furthermore, as part of the fixed income book decreased as a result of lower short trading inventories and, to a lesser extent, through lower equity securities borrowing activities.
Trading portfolio
Between 31 December 2006 and 31 December 2007, trading assets declined sharply by CHF 104.1 billion to CHF 774.4 billion. This included a currency impact of approximately CHF 33 billion. Trading assets inventory in debt instruments dropped by CHF 97 billion in all major securities categories such as commercial paper, government bonds, asset-backed securities and corporate bonds due to either disposals or markdowns. Equity instruments also slightly decreased, while precious metals inventory continued to grow.
Replacement values
In 2007, the positive replacement value of derivative instruments increased by CHF 135.2 billion to CHF 428.2 billion, while the negative replacement values of derivative instruments increased by CHF 146.5 billion to CHF 443.5 billion. Both changes are due to movements in interest rates and currencies, as well as because of increased spread volatility in credit default swaps on products related to the US mortgage trading business.
Other assets/liabilities
Investments in associates increased by 30% to CHF 2.0 billion on 31 December 2007, mainly due to a direct investment of Global Asset Management’s infrastructure business. Property and equipment were marginally up by 5% to CHF 7.2 billion, mainly driven by new investments, partially offset by write-offs and currency impact. Goodwill and other intangible assets, at CHF 14.5 billion on 31 December 2007, declined slightly by 2% from a year earlier, mainly related to currency movements, partially offset by UBS’s acquisitionsInvestment Bank’s balance sheet reduction measures, its trad-
4745
Strategy, performance and responsibility
Financial performanceBalance sheet and off balance sheet
during 2007ing short positions were reduced CHF 102 billion, which resulted in lower short-coverings via reverse repurchase agreements and securities borrowing transactions.
Equity
Atsecurities lent against cash collateral declined CHF 35.6221 billion, standing at CHF 117 billion on 31 December 2007,2008.
Trading portfolio
Significant reductions were achieved in the trading portfolio, which declined CHF 462 billion during 2008, or CHF 445 billion on a currency-adjusted basis. At the end of 2008, the trading portfolio stood at CHF 312 billion. The majority of the decrease related to the Investment Bank’s overall balance sheet reductions and occurred within the fixed income, currencies and commodities (FICC) business area and the equities business area. In FICC, trading inventories in a number of areas, including real estate, securitization and commodities, were substantially reduced, including USD 16.4 billion of illiquid assets transferred to the Swiss National Bank StabFund and approximately CHF 26 billion (represents fair values at the reclassification dates) of trading assets reclassified in fourth quarter 2008 to banking book as “Loans and receivables”. The reduction in equities inventories was mainly a result of stock market declines. Reductions occurred across all trading products, with debt instruments declining CHF 278 billion, equity instruments falling CHF 130 billion, traded loans falling CHF 35 billion and precious metals falling CHF 19 billion.
Replacement values
The positive and the negative replacement values (RVs) of derivative instruments developed in parallel, showing continued strong rises during 2008, driven by increased market valuations, while notional values declined 2% year-on-year. Positive RVs grew CHF 426 billion to CHF 854 billion in 2008, while the negative RVs of derivative instruments increased CHF 408 billion to CHF 852 billion. In both cases, the increases were largely driven by movements in currencies (for example, the weakening of the US dollar), lower interest rates and widening credit spreads. Increases occurred across almost all derivative products, with interest rate contracts growing by CHF 211 billion, foreign exchange contracts by CHF 123 billion and credit derivative contracts by CHF 92 billion.
Shareholders’ equity
On 31 December 2008, equity attributable to UBS shareholders decreased bywas CHF 14.132.8 billion, from 2006. representing a decrease of CHF 4.1 billion compared with 31 December 2007.
underlargely offset by UBS’s capital strengthening measures taken in 2008 (see the share buy-back program 2006 / 2007 of CHF 2.4 billion also reduced UBS’s equity.
48Equity attributable to UBS shareholders development
Net income | Equity | ||||||||||||||||||||||||
recognized | attributable | ||||||||||||||||||||||||
Share | directly | Retained | Treasury | to UBS | |||||||||||||||||||||
CHF billion | Share capital | premium | in equity | earnings | shares | shareholders | |||||||||||||||||||
Starting balance | 0.2 | 12.4 | (1.2 | ) | 35.8 | (10.4 | ) | 36.9 | |||||||||||||||||
Net loss attributable to UBS shareholders | (20.9 | ) | (20.9 | ) | |||||||||||||||||||||
of which: amount relates to MCNs issued in March 20081 | 3.7 | ||||||||||||||||||||||||
of which: amount relates to MCNs issued in December 20082 | 0.7 | ||||||||||||||||||||||||
Rights issue | 0.1 | 15.5 | 15.6 | ||||||||||||||||||||||
MCNs issued in March 20081 | 7.0 | 7.0 | |||||||||||||||||||||||
MCNs issued in December 20082 | (3.6 | ) | (3.6 | ) | |||||||||||||||||||||
Share-based compensation plans/sale of treasury shares | (6.6 | ) | 7.2 | 0.6 | |||||||||||||||||||||
Others | 0.5 | (3.3 | ) | (2.8 | ) | ||||||||||||||||||||
Ending balance | 0.3 | 25.2 | (4.5 | ) | 14.9 | (3.2 | ) | 32.8 | |||||||||||||||||
46
Strategy, performance and responsibility |
Off-balance sheet
Contractual obligations
The table below summarizes UBS’sincludes contractual obligations as of 31 December 2007. 2008.
Off-balance sheet arrangements
In the normal course of business, UBS enters into arrangements that, under International Financial Reporting Standards, (IFRS), arelead to either de-recognition of financial assets and liabilities for which UBS has transferred substantially all risks and rewards, or the non-recognition of financial assets (and liabilities) received for which UBS has not initially recognizedassumed the related risks and rewards. UBS recognizes these types of arrangements on the balance sheet and do not affectto the income statement. These typesextent of arrangements are kept off-balance sheet, unless (i) they become onerous, (ii) they are considered derivative instruments,its involvement, which, for example, may be in the form of derivatives, guarantees, financing commitments or (iii)servicing rights.
curred, it is recognized on the balance sheet, with the resulting loss or gain recorded in the income statement.
Risk concentrationspositions
Liquidity facilities and similar obligations
Contractual obligations | Contractual obligations | Contractual obligations | ||||||||||||||||||||||||||||||
Payment due by period | Payment due by period | |||||||||||||||||||||||||||||||
CHF million | Less than 1 year | 1 – 3 years | 3 – 5 years | More than 5 years | <1 year | 1–3 years | 3–5 years | >5 years | ||||||||||||||||||||||||
Long term debt | 58,869 | 68,517 | 35,735 | 98,553 | ||||||||||||||||||||||||||||
Long-term debt | 36,024 | 42,188 | 31,869 | 77,100 | ||||||||||||||||||||||||||||
Capital lease obligations | 163 | 301 | 222 | 0 | 63 | 104 | 40 | 0 | ||||||||||||||||||||||||
Operating leases | 1,085 | 1,929 | 1,595 | 3,769 | 1,034 | 1,799 | 1,405 | 2,573 | ||||||||||||||||||||||||
Purchase obligations | 873 | 973 | 41 | 99 | 202 | 166 | 85 | 0 | ||||||||||||||||||||||||
Other long term liabilities | 2,549 | 21 | 1,564 | 7 | ||||||||||||||||||||||||||||
Other liabilities | 3,718 | 121 | 1,406 | 0 | ||||||||||||||||||||||||||||
Total | 63,539 | 71,741 | 39,157 | 102,428 | 41,041 | 44,378 | 34,805 | 79,673 |
4947
Strategy, performance and responsibility
Financial performanceBalance sheet and off balance sheet
Off-balance sheet arrangements, risks, | Disclosure in the annual report | ||||
consolidation and fair value measurements | |||||
Contractual obligations | Strategy, performance and responsibility, “Off-balance sheet” section | ||||
Credit guarantees, performance guarantees, undrawn irrevocable credit facilities, and similar instruments | Strategy, | ||||
Strategy, | |||||
Derivative financial instruments | Financial | ||||
Credit derivatives | Financial statements, “Note 23 Derivative instruments and hedge accounting” | ||||
Leases | Financial | ||||
Non-consolidated securitization vehicles | |||||
Strategy, | |||||
Support to non-consolidated investment funds | Strategy, performance and responsibility, “Off-balance sheet” section | ||||
Securitizations (banking book only) | Risk and treasury management, “Basel II Pillar 3 disclosures” section | ||||
Risk concentrations | Risk | ||||
Credit risk information | Risk | ||||
Market risk information | Risk | ||||
Liquidity risk information | Risk | ||||
Consolidation | Financial | ||||
Fair value measurements, including | Financial | ||||
financial instruments” | |||||
Liquidity facilities and similar obligations
Non-consolidated securitization vehicles and collateralized debt obligations
50
Non-consolidatedheld in securitization vehicles and Collateralized debt obligations – agency transactions1, 2
Purchased and | ||||||||||||
CHF billion | SPE assets | retained interests | ||||||||||
Original principal | Current principal | |||||||||||
As of 31 December 2007 | outstanding | outstanding | Fair value | |||||||||
Securitizations originated by UBS3 | ||||||||||||
Residential mortgage | 2.1 | 1.9 | 0.6 | |||||||||
Commercial mortgage | 0.4 | 0.3 | 0.1 | |||||||||
Total | 2.5 | 2.2 | 0.7 | |||||||||
Securitizations not originated by UBS | ||||||||||||
Residential mortgage4 | 33.9 | |||||||||||
– | Sale and expected sale of positions to a fund owned and controlled by the Swiss National Bank (for a total volume of USD 38.6 billion). | |
– | Sale of a portfolio of US residential mortgage-backed securities for proceeds of USD 15 billion to the RMBS Opportunities Master Fund, LP, a third-party entity managed by BlackRock, Inc. | |
– | Several other true sales of asset-backed securities portfolios to third parties without recourse. | |
– | In addition, UBS announced the repositioning of its fixed income, currencies and commodities (FICC) business around client servicing and facilitation. The repositioning includes a substantial downsizing or exiting of real estate, securitization, and proprietary trading activities. |
Non-consolidated48
Strategy, performance and responsibility |
Consolidation of securitization vehicles and Collateralized debt obligations – non-agency transactions1CDOs
Purchased and | ||||||||||||||||||||
retained interests | Derivatives held by | |||||||||||||||||||
CHF billion | Total SPE assets | held by UBS | UBS | |||||||||||||||||
Original principal | Current principal | Delinquency | ||||||||||||||||||
As of 31 December 2007 | outstanding | outstanding | amounts | Fair value | Fair value | |||||||||||||||
Originated by UBS2 | ||||||||||||||||||||
CDOs and CLOs | ||||||||||||||||||||
Residential mortgage | 2.8 | 2.8 | 0.0 | 0.8 | (0.1 | ) | ||||||||||||||
Commercial mortgage | 6.0 | 6.0 | 0.0 | 0.2 | 0.0 | |||||||||||||||
Other ABS | 12.8 | 3 | 0.0 | 5.3 | 0.0 | |||||||||||||||
Securitizations | ||||||||||||||||||||
Residential mortgage | 2.9 | 2.6 | 0.2 | 0.4 | 0.0 | |||||||||||||||
Commercial mortgage | 7.8 | 7.8 | 0.0 | 0.5 | 0.0 | |||||||||||||||
Other ABS | 2.1 | 3 | 3 | 0.2 | 0.0 | |||||||||||||||
Total | 34.4 | 3 | 3 | 7.4 | (0.1 | ) | ||||||||||||||
Not originated by UBS | ||||||||||||||||||||
CDOs and CLOs | ||||||||||||||||||||
Residential mortgage | 103.9 | 100.5 | 0.0 | 0.2 | 0.3 | |||||||||||||||
Commercial mortgage | 38.8 | 35.1 | 0.0 | 2.0 | (0.6 | ) | ||||||||||||||
Other ABS | 51.6 | 3 | 0.0 | 11.5 | (3.9 | ) | ||||||||||||||
Securitizations | ||||||||||||||||||||
Residential mortgage | 742.6 | 3 | 16.9 | 21.4 | 0.2 | |||||||||||||||
Commercial mortgage | 224.2 | 206.3 | 0.7 | 5.2 | 0.1 | |||||||||||||||
Other ABS | 182.2 | 3 | 2.8 | 10.7 | 0.0 | |||||||||||||||
Total | 1,343.3 | 3 | 20.4 | 51.0 | (3.9 | ) | ||||||||||||||
Risks resulting from non-consolidated securitization vehicles and CDOs
Non-consolidated securitization vehicles and collateralized debt obligations – non-agency transactions1 | ||||||||||||||||||||||||
CHF billion | Total SPE assets | Involvements in non-consolidated SPEs held by UBS | ||||||||||||||||||||||
Purchased and | ||||||||||||||||||||||||
Original | Current | retained interests, and | ||||||||||||||||||||||
principal | principal | Delinquency | loans held by UBS2 | Derivatives held by UBS | ||||||||||||||||||||
As of 31 December 2008 | outstanding | outstanding | amounts | Fair value | Fair value | Nominal value | ||||||||||||||||||
Originated by UBS3 | ||||||||||||||||||||||||
CDOs and CLOs | ||||||||||||||||||||||||
Residential mortgage | 23.1 | 8.8 | 0.5 | 1.1 | 0.6 | 4.0 | ||||||||||||||||||
Commercial mortgage | 0.0 | 0.0 | 0.0 | 0.1 | (0.5 | ) | 0.7 | |||||||||||||||||
Other ABS | 0.5 | 0.5 | 0.0 | 0.0 | 0.1 | 0.1 | ||||||||||||||||||
Securitizations | ||||||||||||||||||||||||
Residential mortgage | 57.3 | 43.1 | 2.3 | 0.0 | (0.3 | ) | 12.7 | |||||||||||||||||
Commercial mortgage | 21.2 | 17.3 | 1.4 | 0.2 | 0.0 | 0.0 | ||||||||||||||||||
Other ABS | 3.8 | 1.1 | 0.1 | 0.0 | 0.0 | 5.1 | ||||||||||||||||||
Total | 105.9 | 70.8 | 4.3 | 1.4 | (0.1 | ) | 22.6 | |||||||||||||||||
Not originated by UBS | ||||||||||||||||||||||||
CDOs and CLOs | ||||||||||||||||||||||||
Residential mortgage | 330.8 | 169.5 | 17.1 | 3.4 | 1.9 | 8.7 | ||||||||||||||||||
Commercial mortgage | 6.7 | 1.3 | 0.0 | 0.6 | 0.1 | 0.9 | ||||||||||||||||||
Other ABS | 53.1 | 18.6 | 0.7 | 4.8 | 1.2 | 3.4 | ||||||||||||||||||
Securitizations | ||||||||||||||||||||||||
Residential mortgage | 1,259.7 | 616.5 | 81.6 | 3.5 | (2.4 | ) | 29.1 | |||||||||||||||||
Commercial mortgage | 555.0 | 476.1 | 3.7 | 4.2 | 0.0 | 0.0 | ||||||||||||||||||
Other ABS | 301.7 | 142.8 | 5.5 | 3.4 | 0.0 | 2.2 | ||||||||||||||||||
Total | 2,507.0 | 1,424.8 | 108.6 | 19.9 | 0.8 | 44.3 | ||||||||||||||||||
5149
Strategy, performance and responsibility
Financial performanceBalance sheet and off balance sheet
InvestmentSupport to non-consolidated investment funds
Purchase of commercial papers and other securities
Other types the second half of 2007, UBS Global Asset Management purchased financial assets, predominately US RMBS, from investment funds managed by UBS. The acquisition of financial assets owned by these investment funds was executed to maintain a stable net asset value of USD 1 per unit or to facilitate the orderly redemption of a fund in an unfavorable market environment. The acquired financial assets include predominantly asset-backed US mortgage instruments. The total loss resulting from the purchases, writedowns and sales of acquired financial assets amountsamounted to approximately USD 68 million0.1 billion in 2007, of which USD 66 million relatesthe majority related to transactions with a fund consolidated at 31 December 2007 and 2008 in UBS’s financial statements. The support provided to these investment funds has been made on a voluntary basis and cannot be expected to be provided to other investment funds in similar situations.During 2007, and until 6 March 2008, UBS was not required to support any money market fund which is subject to the Investment Company Act due to past industry practice.UBS managedUBS-managed investment funds. This bridges time
Leveraged finance deals
Guarantees and similar obligations
Contingent claims and undrawn credit facilities
31.12.07 | 31.12.06 | |||||||||||||||||||||||
Sub- | Sub- | |||||||||||||||||||||||
CHF million | Gross | participations | Net | Gross | participations | Net | ||||||||||||||||||
Credit guarantees and similar instruments | 13,381 | (593 | ) | 12,788 | 12,142 | (813 | ) | 11,329 | ||||||||||||||||
Performance guarantees and similar instruments | 3,969 | (464 | ) | 3,505 | 3,199 | (333 | ) | 2,866 | ||||||||||||||||
Documentary credits | 3,474 | (517 | ) | 2,957 | 2,567 | (238 | ) | 2,329 | ||||||||||||||||
Total contingent claims | 20,824 | (1,574 | ) | 19,250 | 17,908 | (1,384 | ) | 16,524 | ||||||||||||||||
Undrawn irrevocable credit facilities | 83,980 | (2 | ) | 83,978 | 97,287 | (2 | ) | 97,285 | ||||||||||||||||
52
50
Strategy, performance and responsibility |
Clearinghouse and future exchange memberships
Swiss deposit insurance
Private equity funding commitments and equity underwriting commitments
53Commitments1
The table below shows the maximum committed amount of commitments.
31.12.08 | 31.12.07 | |||||||||||||||||||||||
Sub- | Sub- | |||||||||||||||||||||||
CHF million | Gross | participations | Net | Gross | participations | Net | ||||||||||||||||||
Credit guarantees and similar instruments | 13,124 | (344 | ) | 12,780 | 13,381 | (593 | ) | 12,788 | ||||||||||||||||
Performance guarantees and similar instruments | 3,596 | (446 | ) | 3,150 | 3,969 | (464 | ) | 3,505 | ||||||||||||||||
Documentary credits | 2,979 | (415 | ) | 2,564 | 3,474 | (517 | ) | 2,957 | ||||||||||||||||
Total commitments | 19,699 | (1,205 | ) | 18,494 | 20,824 | (1,574 | ) | 19,250 | ||||||||||||||||
Undrawn irrevocable credit facilities | 60,316 | (1 | ) | 60,315 | 83,980 | (2 | ) | 83,978 | ||||||||||||||||
51
Strategy, performance and responsibility
Financial performanceCash flows
Cash flows
2008
At 31 December 2008, the level of cash and cash equivalents rose to CHF 179.7 billion, up CHF 30.6 billion from CHF 149.1 billion at the end of 2007.
Operating activities
Investing activities
Financing activities
2007
At the end of31 December 2007, the level of cash and cash equivalents rose to CHF 149.1 billion, up CHF 13.0 billion from CHF 136.1 billion at end-2006.the end of 2006.
Operating activities
Investing activities
52
Strategy, performance and responsibility |
Financing activities
2006
At the end of 2006, the level of cash and cash equivalents rose to CHF 136.1 billion, up CHF 45.1 billion from CHF 91.0 billion at end-2005.
Operating activities
Investing activities
Financing activities
5453
55
56
UBS employees
Strategic focus
UBS relies on the skill and dedication of its employees to deliver the solutions and service its clients demand.
The firm continually invests in its people and ensures organization-wide processes are in place to support this.
Increases in employee skill and productivity over time will support the growth of UBS’s businesses. To drive business growth from within, UBS seeks to retain and develop its own workforce, as illustrated by the firm’s staffing, people management, training and compensation policies and practices. The chart “Investing in employees” on the opposite page illustrates this.
Collaboration and respect underpin the firm-wide culture of valuing individual contributions and excellence. UBS fosters a performance-oriented environment, in which pay is linked to performance and compensation is linked to the achievement of business objectives.
Developments in 2007
58
Investing in employees
59
UBS employees
UBS employees
Investing in UBS employees
UBS relies on the expertise and commitment of its employees to delivermeet clients’ needs. For employees, UBS’s wide range of businesses, global career opportunities and an open and collaborative culture offer a platform for individual success.
Investing in UBS employees
UBS relies on the solutionsexpertise, talent and the quality of service demanded by its clients. “Human capital return on investment” is used by UBS as an indicator of the increase in skill and productivitycommitment of its workforce, in combination with financial performance. In 2007, UBS’s human capital return on investment showed a decreaseemployees to meet clients’ needs and deliver results for the year. As shownfirm. Engaging, developing and retaining a high-value workforce is therefore a priority, and in the graph at the right, following a steady increase from 2002 until the first half of 2007,2008 UBS continued to judiciously invest in its return on investment declined in the second half of 2007. This decrease is principally the result of a continued investment in the bank’s workforce despite the quick and steep deterioration in market conditions in the second half of 2007.personnel. This investment however, should provewill help ensure that the firm has the range of skills and experience necessary to be centralmeet client needs now and to UBS’s ability to grow the firm when market conditions stabilize.
Staffing
UBS workforce
ued in growth markets such as Asia Pacific and Europe. The number of client advisors in Switzerland also increased. Staff levels in the US-based wealth management business rose by 790, after the February 2007 integration of the McDonald Investments private client network and related hiring (in support of divisional and home office growth initiatives). This was partly offset by staff reductions in certain business areas, mainly IT and operations. The Swiss commercial and retail banking business increased personnel numbers by 19, as more IT staff were required to support both growing business volumes and new hires in the Swiss domestic banking business. The asset management business raised staff levels across all areas, hiring a total of 189 new employees in the context of business growth and acquisitions. The increase was partly offset by declines re-
60
lated to the closure of Dillon Read Capital Management (DRCM) in second quarterpeople employed on 31 December 2008 at 77,783, down 5,777 or 7% from year-end 2007. The Investment Bank’s staff levels were essentially flat year-on-year, only increasing by 33. As announced in October, the Investment Bank reduced its personnel levels by 901 people during fourth quarter and informed around 430 employees that they will have to leave the bank in the course of first quarter 2008. This decrease was offset by the annual intake of graduates and reintegration of DRCM staff. In Corporate Center, personnel numbers were up by 2,142, mainly a result of converting former Perot staff members to permanent IT Infrastructure employees. Demand for offshoring services increased as well, driving up staff levels in the UBS Service Centre in Hyderabad.
Gender distribution by geographical region1
number of employees transferred from Switzerland, with 125143 going to Asia Pacific, 92 going to the Americas, 107 to Asia Pacific, 6763 to the UK and 5357 to locations in Europe, the Middle East & Africa. Overall,Cross-division mobility in the businesses was slightly lower in 20072008 than in 2006,2007, with 903784 employees transferring from one business group to anotherchanging divisions during the course of
Investing in employees
54
Strategy, performance and responsibility |
Personnel
Regional distribution
Business unit distribution
the year, versus 909903 in 2006. The highest number of2007. At 238 employees, transfers (at 184 employees) were betweenfrom the Investment Bank andto Global Wealth Management & Business Banking.
Recruiting staff
year to reduce personnel costs, increase personnel efficiency and soughtimprove the ratio of front-office to recruit specialistsback-office staff. As UBS believes the long-term trends for wealth and asset management remain positive, particular emphasis was placed on hiring client advisors in non-traditional markets such as India2008. Among other things, a new “Fast Forward” initiative was introduced to improve the hiring, retention and Poland.productivity of client advisors and front-office managers. More effective recruitment, integration, and skill and competency development processes are supported by line manager coaching.
to 830.2008, up 9% from 2007. In total, around 1,900 young people participated in vocational training in Switzerland in 2007.
61
UBS employees
Gender distribution by employee category1
On 31.12.08 | Officers | Non-officers | Total | |||||||||||||||||||||||||||||||||||||||||||||
Officers | Non-officers | Total | Number | % | Number | % | ||||||||||||||||||||||||||||||||||||||||||
As of 31.12.07 | Number | % | Number | % | ||||||||||||||||||||||||||||||||||||||||||||
Male | 34,622 | 73.5 | 18,204 | 47.8 | 52,826 | 62.0 | 30,788 | 75.0 | 18,337 | 48.1 | 49,125 | 62.1 | ||||||||||||||||||||||||||||||||||||
Female | 12,496 | 26.5 | 19,886 | 52.2 | 32,382 | 38.0 | 10,283 | 25.0 | 19,758 | 51.9 | 30,041 | 37.9 | ||||||||||||||||||||||||||||||||||||
Total | 47,118 | 100.0 | 38,090 | 100.0 | 85,208 | 100.0 | 41,071 | 100.0 | 38,095 | 100.0 | 79,166 | 100.0 |
Developing and sustaining a diverse workforce
62
Composition of UBS’s workforce by citizenship1
As of 31.12.07 | ||||||||||||
% change | Total % of | |||||||||||
Country | Number | from 2006 | citizenship | |||||||||
USA | 29,019 | (1.5 | ) | 34.1 | ||||||||
Switzerland | 23,412 | (1.6 | ) | 27.5 | ||||||||
United Kingdom | 8,008 | (0.2 | ) | 9.4 | ||||||||
Germany | 3,669 | 0.3 | 4.3 | |||||||||
India | 2,422 | 1.1 | 2.8 | |||||||||
Australia | 1,865 | 0.0 | 2.2 | |||||||||
Italy | 1,794 | 0.0 | 2.1 | |||||||||
Singapore | 1,536 | 0.2 | 1.8 | |||||||||
France | 1,372 | 0.1 | 1.6 | |||||||||
Hong Kong | 1,329 | 0.2 | 1.6 | |||||||||
Japan | 1,163 | 0.1 | 1.4 | |||||||||
China | 921 | 0.5 | 1.1 | |||||||||
Canada | 799 | 0.0 | 0.9 | |||||||||
Spain | 762 | 0.0 | 0.9 | |||||||||
Russia | 452 | 0.0 | 0.5 | |||||||||
Taiwan | 451 | 0.1 | 0.5 | |||||||||
Ireland | 339 | 0.0 | 0.4 | |||||||||
Austria | 298 | 0.0 | 0.4 | |||||||||
Malaysia | 259 | 0.0 | 0.3 | |||||||||
Belgium | 226 | 0.0 | 0.3 | |||||||||
Other countries | 5,112 | 0.6 | 6.0 | |||||||||
Total | 85,208 | 100.0 | ||||||||||
women,55
Strategy, performance and responsibility
UBS employees
Developing and sustaining a diverse workforce
Diversity and clients
Employee retention
Performance management
63
UBS employees
Compensation and incentives
– | use carefully selected performance measures, rigorous performance management and a strict pay-for-performance relationship to support UBS’s business strategy; | |
– | support | |
– | provide competitive total compensation opportunities to enable UBS to attract and retain talent; | |
– | balance | |
– | encourage employee share ownership to strengthen the alignment between employee and shareholder interests. |
Employee share ownership
64
56
Strategy, performance and responsibility |
Learning and development
Leadership development UBS invests in the career and skill development of its people. The firm recognizes that maintaining its leadership capabilities is an important factor in ensuring its long-term success and therefore takes a structured approach to both talent management and leadership development, understanding that both capabilities are important factors in ensuring high-quality client service and long-term business success.LeadershipUBS’s leadership development activities target peopleare separated into Group-wide and divisional initiatives. A new framework created in key positions, their succession candidates2008 centralizes development initiatives for managing directors and high potential employees acrossabove within a Group-level learning organization. An organizational development and culture change initiative for the company. UBS has defined Group-wide criteriaGEB, GMB and managing director populations, called “Leading our Future”, is being developed to help identifyengage and manage these talent pools. UBS is an integrated firmalign the firm’s leadership with diverseits vision, core values, strategy and leadership principles. A new leadership and management development needs. Learning and development teams in the business groups and the Leadership Institute, which is responsible for Group-wide senior leadership development, work togethercore curriculum will be designed to provide consistent leadership development offerings across the company.The key Group-wide leadership programs are the “Accelerated Leadership Experience” and the “Global Leadership Experience”. The Accelerated Leadership Experience is an 18-month process aimed at strengtheningstrengthen the capabilities of high-potential managers. A set of three Global Leadership Experience programs targetssenior leaders in their currentposition holderstalent core curriculum will build leadership capabilities among potential future senior leaders. Initiatives for all other employees are managed within the divisions but coordinated with the Group-wide initiatives to ensure consistency and focuses on understanding the organization, leveraging cross-busi-
Asia Pacific has produced UBS’s highest growth rate over the past few years. Between 2004 and 2006, UBS’s wealth management business in Asia Pacific doubled its invested assets to CHF 151 billion. As the leading wealth manager in the region, UBS has drawn accolades from the financial media in 2007 and was named best private bank in Asia for the sixth consecutive year. Additionally,Dealogicfigures confirm UBS as the most profitable investment bank in the region in 2007. This business growth necessitated substantial recruitment, together with strong retention and development efforts for experienced UBS employees in the region. To retain and attract wealth management professionals, the UBS Wealth Management Campus - Asia Pacific was launched in Singapore in April 2007. Following Switzerland, Singapore is UBS’s second largest
wealth management center for international clients, and this campus acts as the regional hub for employee and client education. Developed in close collaboration with Singapore’s government, the campus is accredited by the Singapore Institute of Banking and Finance.UBS anticipates that 5,000 wealth management staff will be trained at the campus by 2010. In addition to financial education, employees learn about the “UBS Client Experience” (a structured advisory process employed by client advisors), leadership principles, business strategy and values. Internal subject matter experts and external trainers deliver a comprehensive training offering with formal professional accreditation. Open dialog and constructive challenges fosterpromote the sharing of work experience and specialist knowledge. The campusbest practices.
Commitment
appeals to potential and existing employees who desire career advancement thatWhile meeting the needs of clients is supported by well-structured learning pathways and curricula for competency development.In addition, UBS’s wealth management clients, their children and grandchildren are able to participate in a range of specifically developed programs to enable them to remain well informed in a fast changing market. The most recent event, delivered on campus in December 2007, was the “UBS Young Generation Seminar”. It was the first of four modules designed to enhance clients’ understanding of investment fundamentals and wealth planning in a fun and inspiring way. Clients are thus enabled to take better advantage of UBS’s wealth management expertise and content, which, in turn, can deepen UBS’s relationship with them over time.
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UBS employees
Business training
Commitment
– | Focus on the client: The ultimate purpose of all UBS activities is to increase client satisfaction; | |
– | Lead yourself: Each individual takes responsibility for his or her own motivation, development and success; | |
– | Lead others: Everyone can lead others by being a role model, appreciating others’ successes and supporting one another’s endeavors. Leading others is about creating a collaborative environment and developing people on the basis of meritocracy and diversity; | |
– | Act with integrity: UBS upholds the law, respects regulations and behaves in a principled way. UBS is self-aware and has the courage to face the truth. UBS maintains the highest ethical standards. |
Measuring employee satisfactionperceptions
Launched in February 2008, this Group-wide initiative brings together senior client-facing employees from different divisions for a one-and-a-half-day workshop designed to improve UBS’s ability to meet the incorporationdiverse needs of its core values into dailyclients and to increase UBS’s share of business activities. While surveys are customized for
with them. Participants learn about relevant products and services in the other divisions, build cross-division partnerships and learn how to work more effectively across boundaries. Seventeen regional workshops, each business group,focusing on a specific client segment such as family offices, hedge funds
and financial institutions, or on a specific region such as Western Europe, brought nearly 500 senior client-facing participants together. Almost 400 cross-divisional client service opportunities were shared, ultimately bringing in more than USD 300 million in net new money to UBS.
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Strategy, performance and responsibility
UBS employees
core set of questions and themes are the same in order to provideacross all divisions provides a comprehensive view of employee responses across UBS.
Employee assistance
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support for child care, academic services and issues surrounding elder care, issues. The EAP program inwork performance and personal conflicts. In the UK, the program is part of a wider health and wellbeing program that includesincluding onsite medical specialists, and emergency childcare, in addition to counseling and referral services.
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Strategy, performance and responsibility |
Employee representation
Selected 2007Select 2008 awards
Top 10“100 Best Companies for Working Mothers in the US (WorkingUS”
(Working Mother magazine US) 2003–2008)
Top 50 Best Places to Launch a Career (Business Week)“No. 1 employer of choice for business graduates in Switzerland”
(Universum Switzerland 2008)
Top 50 Best Workplaces in the UK “Top 100 Employers for Lesbian, Gay and Bisexual People in Europe (Financial Times)
No.2 Employer in Japan (Hewitt Associates)
Top Leadership Award for Learning Programs (Corporate University Xchange)
CorporateBritain”
(Stonewall Workplace Equality Index (Perfect Score) (Human Rights Campaign Foundation, US) 2008)
“Best Graduate Recruitment and Development Program”
(UBS EXPLORE Graduate Program)
(Graduate Solutions 2008)
“UBS’s learning programs: awards in three categories”
(Corporate University Xchange 2008)
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Strategy, performance and responsibility
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Corporate responsibility–Corporate responsibility is integral to the way UBS does business–UBS helps clients consider corporate responsibility opportunities and risks, by providing relevant research, advisory services and product offerings–UBS actively maintains its strong track-record in managing environmental challenges–The firm seeks to positively influence the well-being of its local communities
UBS’s commitment
Milestones 2007
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Corporate responsibility
Corporate responsibility contributes to UBS’s goal of sustainable value creation.
As a leading global financial services firm, oneUBS is confronted with the concerns and expectations of UBS’s main purposes isa wide and diverse range of stakeholders. Along with clients, investors and employees, for example, various government regulators and suppliers can also be said to have a stake in the company to varying degrees. In a broader sense, the communities in which UBS has a presence are stakeholders too.
Adherence to the UNUnited Nations Global Compact initiative
In 2000, UBS wasbecame one of the first companies to joinsign the UNUnited Nations (UN) Global Compact, which comprises tenCompact. This global corporate responsibility initiative unites governments, business, labor
organizations and civil society, fostering adherence to 10 principles covering the areas of human rights, labor standards, the environment and corruption. Its geographic reach is now global, withanti-corruption. UBS considers the initiative, which had over 3,700 business5,200 corporate participants from 120 countries adhering to it at the end of 2007. Although it is2008, to be an important componentyardstick providing guidance for its key corporate responsibility initiatives and activities. In addition, by participating in any discussion with the public about the role of business in society, it is ultimately aimed at concrete actions. Key among these, from UBS’s point of view, is the “Who cares wins” initiative which, initiated by 20 financial institutions in June 2004, maps the progress made by different actors in
Labor standards and human rights
Operational corporate responsibility at UBS
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Strategy, performance and responsibility |
line. It also continued the development of industry sector guidelines to support the consistent identification and embraces key issues in a single document.
è | |||
è | Refer to the discussion on supply chain management and environmental risk management below for more information on the responsible supply chain guidelines and on industry sector guidelines |
Responsible procurement is a key aspect of UBS’s approach to human rights and the environment. Environment
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Environment
è |
Fighting corruption
against corruption by the business divisions is well under way, and training materials developed by the Group Money Laundering Prevention Unit (GMLPU) have formed the basis for business division training modules that raise awareness of new and revised topics. In some instances web-based training programs have also been developed.
è |
External recognition The firm’s corporate responsibility work has been widely recognized, and UBS has been included in many indexes that track such efforts, including beingefforts. It has, for example, been a component of the Dow Jones Sustainability indexesIndexes since their inception in 1999. TheThese indexes track the financial performance of the leading sustainability-driven companies worldwide. UBS is also included in the FTSE4Good Index, which measures the performance of global companies in the areas of environmental sustainability, stakeholder relations and support for human rights. The firm has been a member of the Climate Leadership Index (CLI) since its launch in 2004. The CLI discloses to investors which FT500 companies have the most comprehensive climate-change disclosure practices in place, judged on the basis of each company’s individual response to the Carbon Disclosure Project (CDP) questionnaire.
Corporate responsibility governance
The Corporate Responsibility Committee,corporate responsibility committee was established in 2001 and, as a Board of Directors (BoD) committee, it supports the BoD’s efforts to safeguard and advance UBS’s reputation for responsible conduct. As part of the governance changes introduced by UBS in 2008, the committee’s charter was created in 2001revised and assessesupdated. Under the revised charter, the committee is mandated to review and assess how toUBS should meet the evolving corporate responsibility expectations of UBS’s stakeholders in relation toits stakeholders. It also has responsibility for monitoring the firm’s corporate conduct. Ifresponsibility policies and regulations, as well as the Corporate Responsibility Committee concludes that there is a gap between what stakeholders expectimplementation of its corporate responsibility activities and what UBS practices – and that this gap represents either a risk or an opportunity tocommitments. Headed by the firm – it suggests appropriate actions to the Group Executive Board (GEB).
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Strategy, performance and that decides on specific corporate responsibility measures.
Corporate responsibility
The implementation of these measures is then undertaken within existing processes in the different business groups.
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Corporate responsibility
Corporate responsibility: training and UBS strives to increase employee awareness of ployee magazines. In 2008, 2,800 employees participated in
raising awarenessIt is important that employees are awareUBS’sits corporate responsibility effortsprocesses, activities and processes. Apart from the generalcommitments. General information is published on the firm’s intranet and website, in 2007, UBS directly provided nearly 3,000em- all businesses with information on the approach taken by the firm towards corporate responsibility through a range of training and awareness-raising activities. They extended from short presentations, in particular at new employee induction events, to longer presentations and workshops. In Global Wealth Management & Business Banking, for example, a module on ethics,activities dealing with corporate and personal responsibility forms part of the business group’s managementresponsibility. Specific training program.Training is also integralgiven to staff working in the more specialized areas of AML and environmental management and anti-money laundering (AML).management. It is mandatory for AML and compliance staff have to complete mandatorya training program every two years, and all new joiners go through an AML and compliancein all UBS business divisions receive training in the issue of anti-corruption as part of their induction training. In 2007, 6,000process. Furthermore, in 2008, 5,232 employees participated in training on environmental issues.
ContributingPreventing money laundering, corruption and
terrorist financing
UBS takes its responsibility to society – preventingpreserve the integrity of the financial system, and its own operations, very seriously. The firm has developed extensive policies intended to prevent, detect and report money laundering, corruption and terrorist financing
Extensive and constant effortsfinancing. These policies seek to prevent money laundering, corruption and terrorist financing are important contributions
UBS’s corporate responsibility governance process
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Strategy, performance and responsibility |
ample, the creation of a uniform country risk framework). UBS also seeks to ensure its employees adhere to recognize and then manage and report suspicious activities – in the firm’s strict know-your-customer regulations, while at the same time not treating clientsa way that neither treats all clients priorias criminals nor unduly hinders normal business. While doing so, the firm also remains completely committedor undermining their right to the respectprivacy. Employees regularly undergo training in AML-related issues and protection of its clients’ privacy, a cornerstone of the firm’s philosophy.
A particular focus in
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Community investment
Supply chain management
In 2008, UBS spent over CHF 6.9 billion purchasing a wide range of products and services from suppliers and contractors around the world. UBS has established processes to manage environmental and human rights issues in relevant areas of its supply chain such as client gifts, IT equipment and energy sourcing. In order to further incorporate these issues into procurement processes, UBS has developed a supply chain guideline, which provides Group-wide guidance on identifying, assessing and monitoring supplier practices in the areas of human and labor rights, the environment and corruption. Examples of human rights issues that have been included are avoidance of child and forced labor, non-discrimination, remuneration, hours of work, freedom of association, humane treatment, and health and safety. In 2008, the guideline was gradually applied to new contracts and contract renewals with suppliers. By the end of the year
around 100 suppliers had been screened according to the guideline’s social and environmental criteria, and responsible supply chain requirements were included in the contractual arrangement with those suppliers who were awarded contracts. Also, some 170 procurement and sourcing officers were trained on the relevance and application of the new guidelines.
Community investment
UBS, together with its employees, seeks to have a positive influence on the social and environmental well-being of the local communities in which it is active.operates. The firm does this through its well established community affairs program.
Client foundation
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Strategy, performance and responsibility
Corporate responsibility
Americas:In partnership with Northwestern University, UBS launched a program to identify and develop future leaders in the non-profit sector. According to the Donors Forum of Chicago, the non-profit sector will see a large turnover in its local and national executive leadership in the next five years, with nearly 60% of executive directors set to retire. This program produced its first graduates in 2008 and four UBS fellows took classes at Northwestern and were mentored by a UBS senior executive.
dialogue, discussion, sharing and learning. Modeled on UBS leadership programs, it gave 20 promising young leaders from the non-profit sector a chance to learn from UBS and external speakers about topics related to leadership, governance, strategic planning, communication and mentorship.
participants and donations collected.
è | Refer to www.ubs.com/ corporateresponsibility for more information on UBS’s community affairs program |
organizations, focusing on the key themes of children and of medical and biological research. The projects involve close collaboration with respected partner organizations and are selected by a team of specialists within the foundation, who also closely monitor their implementation. The costs of managing and administering the UBS Optimus Foundation are borne by UBS, so that the full contribution from the firm’s clientsof each client reaches the projects. In 2007,2008, the UBS Optimus Foundation spent almostover CHF 1117 million supporting 5571 projects in Africa, Asia Pacific, Europe and North and South America.
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Corporate responsibility
In theAsia Pacificregion, UBS supports the Child Welfare and Holistic Organization for Rural Development (CHORD) in Hyderabad, India. The organization provides a bridge education program and emotional support to child workers, helping them to return to normal schooling. As part of a “buddy” program, UBS employees assist the children with their schoolwork, and act as mentors, guiding them in their development and their efforts to return to school. Over the past year, the UBS India Service Centre (ISC) has organized a “Fun Day” for 420 CHORD children, a “Teachers’ Day” at the CHORD school as well as a field visit to the ISC itself, giving many students their first look inside a large corporation. One of the students at the CHORD school said: ”I was working in a shop previously. I have seen many customers and many faces. But no one ever bothered about me and my feelings. After I joined CHORD school I had the privilege of interacting with UBS. They bring smiles back on our sad faces.” In theUK, UBS is working in partnership with two other City firms to support the regeneration of Shoreditch. Situated in East London, Shoreditch is one of the most deprived areas in the UK with 82% of its population living in social housing and more than 30% of school leavers unable to find a job. Working directly with government and non-profit social regeneration agencies, the corporate collaboration known as Project Shoreditch focuses on matching the skills, expertise and enthusiasm of UBS employees to the needs of Shoreditch organizations. Since the project’s inception in April 2005, over 1,500 UBS volunteers have
supported a wide variety of Shoreditch-based community groups, charities and schools, through team challenges, business planning, mentoring, training, web design, workplace visits, the provision of employment advice and fundraising. Volunteers provide direct support for Shoreditch-based organizations while also assisting with the regeneration of the area. In 2007, Project Shoreditch was awarded the “Positive Impact on London” Award from Business in the Community. InSwitzerland, a notable volunteering project is the support of business training for students called “Fit for business”. The training is aimed at young people aged 14 to 16. UBS employees conduct the training sessions and support students with career guidance, help them write job applications and give them advice in managing their own money. UBS makes direct donations to charitable projects such as Swiss mountain aid, an organization that tries to stop the significant population outflows from poor mountainous areas in Switzerland by financing projects and businesses that help alpine communities achieve or maintain sustainable rates of economic subsistence. In addition, UBS helps Swisscontact, a Swiss foundation for technical cooperation, to give young girls and boys in Benin, Africa, training in various professions including carpentry, tailoring and hairdressing. The youths participating in the program learn how to read and write and are informed about important health issues they face, including AIDS and how to prevent it. In theAmericas, the wealth management business launched a new philanthropic focus “Education as a Pathway to a Better Future”, concen-
trating its charitable activities in the US on improving the education of students in kindergarten, elementary and high school in low-income areas. In conjunction with the new focus, a national volunteer initiative, called “Building Brighter Futures”, was launched in October 2007 with the goal of cultivating community, school and civic collaboration to help paint, garden and liven up schools and organizations related to education. During the month, over 2,100 UBS employees, family and friends volunteered in over 90 projects across the country. The Investment Bank launched a pilot education program in conjunction with Earthwatch International, a non- profit organization that engages people worldwide in scientific field research and education to promote the understanding and action necessary for a sustainable environment. Six UBS employees were selected as Earthwatch Fellows together with three public school teachers to participate in climate change expeditions in the northern reaches of Canada and on the coast of central Mexico. After the eight-day expeditions, the Fellows returned to share their experiences with colleagues and students from Medill Elementary school in Chicago, Illinois, the Hart Magnet School in Stamford, Connecticut; and the Manhattan Center for Science and Math in New York City. In 2008, the program will be expanded to include other UBS business areas in the Americas as employees work with their local schools to increase awareness of global environmental issues.
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UBS and the environment
UBS’sThrough its commitment to the environment, is underpinned by a globalembodied in its environmental management system certified underpolicy, UBS aims to create long-term value for the ISO 14001 standard since 1999.firm and its clients and the communities they live in. The system covers both banking activities and in-house operations and was successfully re-certified in 2005 by the firm’s auditor, SGS.
– | seeking to consider environmental risks in all UBS businesses, especially in lending, investment banking, advisory and research, and | |
– | seeking to pursue opportunities in the financial |
– | seeking ways to reduce UBS’s direct environmental impact on air, soil and water from in-house operations, with a primary focus on reducing greenhouse gas emissions. UBS | |
– | ensuring efficient implementation of UBS’s policy through a global environmental management system certified according to ISO 14001 | |
– | the international environmental management standard; | |
– | integrating environmental considerations into internal communications and training. |
Environmental management system
Environmental performance indicators
Every year, UBS provides a detailed description of its environmental performance using key performance indicators (KPIs), which allow for annual comparisons. They are based on in-
dustry standards such as the Global Reporting Initiative (GRI), the Greenhouse Gas Protocol and ISO 14064. The management indicators below provide an overview of the firm’sUBS’s environmental management system.
Environmental market opportunities
system covers both its banking activities and in-house operations and has been certified under the ISO 14001 standard since 1999. ISO 14001 requires that the system be audited annually and recertified every three years. UBS has strong expertisesuccessfully passed the extensive ISO 14001 recertification audit in incorporating environmental and social aspects into its research and advisory activities. A socially responsible investments (SRI) team was established in Global Asset Management as early as 1996. Socially responsible investments are sustainable investments that take ecological and social criteria into account alongside classical financial analysis. Today, SRI teams operate in all business groups and regions, allowing UBS to produce original SRI research and to offer a broad range of SRI investment products. Furthermore, the Investment Bank actively pursues related market opportunities, for example2008. Conducted by trading emissions on behalf of clients, or by arranging finance and providing advisory services to re-
Environmental management indicators
For the year ended | % change from | |||||||||||||||||||
Full-time equivalent, except where indicated | GRI1 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | |||||||||||||||
Financial businesses personnel2 | 83,560 | 78,140 | 69,569 | 7 | ||||||||||||||||
In specialized environmental units3 | 38 | 30 | 25 | 28 | ||||||||||||||||
Environmental awareness raising | ||||||||||||||||||||
Employees trained | F5 | 5,090 | 2,489 | 2,251 | 104 | |||||||||||||||
Training time (hours) | F5 | 2,133 | 1,498 | 1,214 | 42 | |||||||||||||||
Specialized environmental training | ||||||||||||||||||||
Employees trained | F5 | 976 | 977 | 1,010 | 0 | |||||||||||||||
Training time (hours) | F5 | 1,420 | 1,758 | 2,066 | (19 | ) | ||||||||||||||
External environmental audits4 | ||||||||||||||||||||
Employees audited | F6 | 37 | 30 | 147 | 23 | |||||||||||||||
Auditing time (days) | F6 | 8 | 6 | 17 | 40 | |||||||||||||||
Internal environmental audits5 | ||||||||||||||||||||
Employees audited | F6 | 121 | 154 | 216 | (21 | ) | ||||||||||||||
Auditing time (days) | F6 | 38 | 44 | 39 | (15 | ) | ||||||||||||||
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Strategy, performance and responsibility |
Corporate responsibility
The five principles of UBS’s environmental policy
Environmental products and services
During the last ten years UBS has developed a range of products and services that meet or anticipate clients’ needs in environmental and socially responsible investments (SRI). This offering currently stretches across UBS’s businesses in wealth management, investment banking, asset management, and retail and commercial banking. It includes SRI funds, research and advisory services provided to private and institutional clients, access to the world’s capital markets for renewable energy companies. Finally, Global Wealth Management & Business Banking has decidedfirms and, in Switzerland, “green” mortgages.
Investment products and advisory
Investment products and advisory
the launch of two new SRI products, in Japanthe UBS (Lux) Equity Sicav – Emerging Markets Innovators and Taiwan. Thethe UBS Strategy Certificate Energy Efficiency. UBS’s SRI offering is diversifieddiverse and includes products managed according to “best-in-class” practicepractices and theme-based approaches. “Best-in-class” is an active equity management approach that is based on stock selection of companies that generate above-average environmental, social and economic performance and offer significant growth potential.performance. The “best-in-class” offering includes a Global fund, a European fund, a Japaneseglobal fund and a TaiwaneseEuropean fund. The theme-based approach focuses investment around particular issues and themes such as energy,on segmented climate change, water and demographics. Products offered include a Global Innovators fund and segmented Climate Change, Water and Demographicsdemographics strategies.
Investment Bank: sell-side research
Socially responsible investments invested assets1
% change | ||||||||||||||||||||
For the year ended | from | |||||||||||||||||||
CHF billion, except where indicated | GRI2 | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | |||||||||||||||
UBS | 2,174 | 3,189 | 2,989 | (32 | ) | |||||||||||||||
UBS SRI3 products and mandates | ||||||||||||||||||||
positive criteria | FS11 | 2.12 | 5.20 | 1.84 | (59 | ) | ||||||||||||||
exclusion criteria | FS11 | 14.05 | 33.33 | 16.17 | (58 | ) | ||||||||||||||
Third-party | FS11 | 1.85 | 1.08 | N/A | 72 | |||||||||||||||
Total SRI invested assets | FS11 | 18.03 | 39.61 | 18.01 | (54 | ) | ||||||||||||||
Proportion of total invested assets (%)4 | 0.83 | % | 1.24 | % | 0.60 | % | ||||||||||||||
Positive criteria:apply to the active selection of companies, focusing on how a company’s strategies, processes and reportsproducts impact its financial success, the environment and society. This includes best-in-class or thematic investments.
Exclusion criteria:companies or sectors are excluded based on environmental, social or ethical criteria, for professional investors)example, companies involved in its equityweapons, tobacco, gambling, or companies with high negative environmental impacts. This also includes faith-based investing consistent with principles and values of a particular religion.
Third-party:UBS’s open product platform gives clients access to socially responsible investment products from third-party providers. This includes both positive and exclusion criteria, and microfinance investments.
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Strategy, performance and responsibility
Corporate responsibility
Research
Socially responsible investments invested assets
For the year ended | % change from | |||||||||||||||||||
CHF billion, except where indicated | GRI1 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | |||||||||||||||
UBS | 3,189 | 2,989 | 2,652 | 7 | ||||||||||||||||
UBS socially responsible investments (SRI) products and mandates | ||||||||||||||||||||
Positive criteria | F9 | 5.42 | 1.84 | 1.05 | 194 | |||||||||||||||
Exclusion criteria | F9 | 32.06 | 16.17 | 10.73 | 98 | |||||||||||||||
Third-party | F9 | 1.38 | N/A | 0.61 | N/A | |||||||||||||||
Total SRI invested assets | F9 | 38.86 | 18.01 | 12.39 | 116 | |||||||||||||||
Proportion of total invested assets (%)2 | 1.22 | % | 0.60 | % | 0.47 | % | ||||||||||||||
Positive criteria:applies to the active selection of companies, focusing on how a company’s strategies, processesbasic necessities, urbanization, and products impact its financial success, the environment and society. This includes “best-in-class” or thematic investments.
Exclusion criteria:companies or sectors are excluded based on environmental, social or ethical criteria. For example, 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. This includes both positive and exclusion critieria.
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Global Asset Management: buy-side research
Global Wealth Management & Business Banking: secondary research
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Carbon trading
Corporate responsibility
ing city governmentsIn cap and local building owners will retrofit buildings for increased energy efficiency. Participating cities include London, Paris, New York, Mexico City and Tokyo, among others. UBS has committed expertise and other resources to create financial structures capable of delivering capital effectively to public and private projects in this program.
Carbon trading
the amount of emissions their facilities are issued with permits that limit, or cap, their emissions.allowed to produce. Companies who are able to reduce their emissions at low costbelow their cap have the ability to sell their unused permitsquota to other companies, requiring them, thereby creating an emissions allowances market and ensuring that emission reductions are achieved in a cost-effective manner.market. Through the use of carbon financial instruments, UBS is able to help clients manage their exposure to the emissions markets.
Environmental risk management
For UBS it is importantseeks to identify, manage and control environmental risks in its business transactions. An exampleExamples of suchenvironmental risk include the impairment of a risk is when a counterparty’sclient’s cash flow or assets are impaired by environmental factors such(such as inefficient production processes or property that is polluted or contaminated property. Another iscontaminated) or through liability risk, such as when a bank takes over environmentally unsound collateral onto its own books.
Global Wealth Management & Business Banking
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Strategy, performance and responsibility |
writing, financial advisory services and lending. For its part, Global Asset Management has put environmental due diligence processes in place for its real estate and infrastructure funds. If significant potential environmental risks are identified in a transaction, the risks are assessed. Wherever possible, UBS seeks to engage with the client to discuss possible mitigating measures. Where this is not possible or successful, the firm may decline the transaction altogether.
Global Wealth Management & Business Banking
Investment Bank
Global Asset Management
ronmental risks that investments made by UBS on behalf of its clients might imply,imply. The matrix is reviewed annually for applicability and comprehensiveness. Itcomprehensiveness and forms part of the environmental management system employed within the business group.
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Environmental and CO2 footprints
The firmUBS directly impacts the environment in a number of ways. Itsways: its businesses consume electricity,electricity; employees travel for business purposes theyand use paper and generate waste in the course of their work,work; and offices require heating and cooling systems. Improving the use of these resources can boost operating marginsreduce costs and enhance environmental performance, and UBS therefore UBS has a series of measures thatto efficiently manage its environmental impact efficiently.
CO2 strategy and emission reduction
– | adopting in-house energy efficiency measures that reduce energy consumption in buildings it | |
– | increasing the proportion of renewable energy used to avoid emissions at source; | |
– | offsetting and neutralizing emissions that cannot be reduced by other means. |
UBS’s CO2 footprint
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Strategy, performance and responsibility
Corporate responsibility
These measures allowed UBS to further increase the share of renewable energy it purchases, and to reduce its 2008 CO2 emissions by 22%27% compared with 2004, an importantanother step toward achieving the 40% reduction target by 2012.
Energy consumption and energy efficiency
by the US Green Building Council’s Leadership in Energy and Environmental Design (LEED). The building incorporates many energy optimizing features, such as light harvesting where sensors detect levels of sunshine,project focused on consolidating applications sitting on multiple old servers to fewer, newer machines and the building automatically adjusts interior lighting depending ondecommissioning of old applications. The resulting energy savings of 17 GWh contributed significantly to the leveltotal of exterior light. Going forward, UBS has adopted a technical standard supporting worldwide oversight25 GWh of measures taken to improve energy efficiency in fields such as building operation, replacement investments and rehabilitations.savings from IT activities since 2007 (representing around 3% of UBS’s global power consumption).
Renewable energy
Environmental indicators per full-time employee (FTE)
Unit | 2007 | Trend | 2006 | 2005 | ||||||||||||||||
Total direct and intermediate energy | kWh / FTE | 11,942 | î | 12,736 | 12,925 | |||||||||||||||
Total indirect energy | kWh / FTE | 20,391 | ê | 23,974 | 26,024 | |||||||||||||||
Total business travel | Pkm / FTE | 12,685 | è | 12,544 | 10,659 | |||||||||||||||
Total paper consumption | kg / FTE | 190 | è | 188 | 197 | |||||||||||||||
Total waste | kg / FTE | 299 | è | 303 | 325 | |||||||||||||||
Total water consumption | m3 / FTE | 26.7 | è | 26.0 | 26.0 | |||||||||||||||
Total environmental footprint | kWh / FTE | 32,530 | ê | 38,148 | 41,129 | |||||||||||||||
CO2 footprint | t / FTE | 3.43 | ê | 3.93 | 5.24 | |||||||||||||||
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Corporate responsibility
Business travel and offsetting
Paper and waste
è |
82Environmental indicators per full-time employee
Unit | 2008 | Trend | 2007 | 2006 | ||||||||||||||||
Total direct and intermediate energy | kWh / FTE | 11,792 | è | 11,942 | 12,736 | |||||||||||||||
Total business travel | Pkm / FTE | 10,281 | ê | 12,685 | 12,544 | |||||||||||||||
Total paper consumption | kg / FTE | 167 | ê | 190 | 188 | |||||||||||||||
Total waste | kg / FTE | 298 | è | 299 | 303 | |||||||||||||||
Total water consumption | m3 / FTE | 28.1 | ì | 26.7 | 26.0 | |||||||||||||||
CO2 footprint | t / FTE | 3.07r | ê | 3.43 | 3.93 | |||||||||||||||
68
Environmental indicators1 | 20072 | 20062 | 20052 | |||||||||||||||||||||
Absolute | Absolute | Absolute | ||||||||||||||||||||||
GRI3 | normalized4 | Data quality5 | Trend6 | normalized4 | normalized4 | |||||||||||||||||||
Total direct and intermediate energy consumption7 | 981 GWh | *** | è | 951 GWh | 918 GWh | |||||||||||||||||||
Total direct energy consumption8 | EN3 | 130 GWh | ** | î | 154 GWh | 169 GWh | ||||||||||||||||||
natural gas | 83.3% | ** | è | 85.5% | 86.0% | |||||||||||||||||||
heating oil | 12.1% | *** | è | 11.8% | 11.0% | |||||||||||||||||||
fuels (petrol, diesel, gas) | 4.6% | *** | é | 2.7% | 3.0% | |||||||||||||||||||
renewable energy (solar power, etc.) | 0.03% | *** | ì | 0.03% | 0.02% | |||||||||||||||||||
Total intermediate energy purchased9 | EN4 | 851 GWh | *** | ì | 797 GWh | 749 GWh | ||||||||||||||||||
electricity from gas-fired power stations | 12.3% | ** | è | 13.2% | 14.3% | |||||||||||||||||||
electricity from oil-fired power stations | 4.2% | *** | è | 4.5% | 4.3% | |||||||||||||||||||
electricity from coal-fired power stations | 18.6% | ** | î | 21.7% | 22.9% | |||||||||||||||||||
electricity from nuclear power stations | 13.6% | ** | ê | 20.5% | 29.9% | |||||||||||||||||||
electricity from hydroelectric power stations | 25.5% | *** | é | 21.4% | 12.1% | |||||||||||||||||||
electricity from other renewable resources | 22.0% | *** | é | 12.7% | 11.1% | |||||||||||||||||||
district heating | 3.8% | *** | ê | 6.0% | 5.4% | |||||||||||||||||||
Total indirect energy consumption10 | EN4 | 1,674 GWh | *** | î | 1,790 GWh | 1,849 GWh | ||||||||||||||||||
Total business travel | EN29 | 1,042 m Pkm | *** | é | 936 m Pkm | 757 m Pkm | ||||||||||||||||||
rail travel11 | 3.3% | ** | î | 4.1% | 3.7% | |||||||||||||||||||
road travel11 | 0.5% | ** | ê | 0.6% | 0.7% | |||||||||||||||||||
air travel | 96.2% | *** | è | 95.3% | 95.6% | |||||||||||||||||||
Number of flights (segments) | 446,274 | *** | é | 402,629 | 358,992 | |||||||||||||||||||
Total paper consumption | EN1 | 15,593 t | *** | é | 14,013 t | 14,020 t | ||||||||||||||||||
post-consumer recycled | EN2 | 10.5% | *** | é | 6.2% | 7.1% | ||||||||||||||||||
new fibers FSC12 | 10.7% | *** | é | 0.0% | 0.0% | |||||||||||||||||||
new fibers ECF + TCF12 | 78.6% | *** | ê | 93.8% | 92.9% | |||||||||||||||||||
new fibers chlorine bleached | 0.2% | ** | é | 0.0% | 0.0% | |||||||||||||||||||
Total waste | EN22 | 24,589 t | *** | ì | 22,631 t | 23,073 t | ||||||||||||||||||
valuable materials separated and recycled | 56.3% | *** | è | 58.2% | 64.8% | |||||||||||||||||||
incinerated | 15.8% | *** | é | 12.7% | 9.3% | |||||||||||||||||||
landfilled | 27.9% | ** | è | 29.1% | 25.9% | |||||||||||||||||||
Total water consumption | EN8 | 2.19 m m | 3 | ** | ì | 1.94 m m | 3 | 1.84 m m | 3 | |||||||||||||||
Total environmental footprint13 | 2,671 GWh | ** | è | 2,848 GWh | 2,922 GWh | |||||||||||||||||||
Total CO2 footprint14 | 281,705 t | *** | è | 293,169 t | 372,184 t | |||||||||||||||||||
Total direct CO2 (GHG scope 1)15 | EN16 | 26,701 t | *** | ê | 31,519 t | 34,556 t | ||||||||||||||||||
Total indirect CO2 (GHG scope 2)15 | EN16 | 218,681 t | ** | è | 230,015 t | 225,854 t | ||||||||||||||||||
Total other indirect CO2 (GHG scope 3)15 | EN17 | 149,323 t | *** | é | 132,635 t | 111,773 t | ||||||||||||||||||
Total CO2e offsets (business air travel)16 | 113,000 t | *** | é | 101,000 t | – | |||||||||||||||||||
Strategy, performance and responsibility |
Environmental indicators1
20082 | 20072 | 20062 | |||||||||||||||||||||||
Absolute | Data | Absolute | Absolute | ||||||||||||||||||||||
GRI3 | normalized4 | quality5 | Trend6 | normalized4 | normalized4 | ||||||||||||||||||||
Total direct and intermediate energy consumption7 | 1,016 GWh | *** | è | 981 GWh | 951 GWh | ||||||||||||||||||||
Total direct energy consumption8 | EN3 | 127 GWh | ** | è | 130 GWh | 154 GWh | |||||||||||||||||||
natural gas | 83.3% | ** | è | 83.3% | 85.5% | ||||||||||||||||||||
heating oil | 12.2% | *** | è | 12.1% | 11.8% | ||||||||||||||||||||
fuels (petrol, diesel, gas) | 4.5% | *** | è | 4.6% | 2.7% | ||||||||||||||||||||
renewable energy (solar power, etc.) | 0.03% | *** | î | 0.03% | 0.03% | ||||||||||||||||||||
Total intermediate energy purchased9 | EN4 | 890 GWh | *** | è | 851 GWh | 797 GWh | |||||||||||||||||||
electricity from gas-fired power stations | 11.7% | ** | è | 12.3% | 13.2% | ||||||||||||||||||||
electricity from oil-fired power stations | 3.7% | *** | ê | 4.2% | 4.5% | ||||||||||||||||||||
electricity from coal-fired power stations | 18.4% | ** | è | 18.6% | 21.7% | ||||||||||||||||||||
electricity from nuclear power stations | 11.1% | ** | î | 13.6% | 20.5% | ||||||||||||||||||||
electricity from hydroelectric power stations | 25.8% | *** | è | 25.5% | 21.4% | ||||||||||||||||||||
electricity from other renewable resources | 23.1% | *** | è | 22.0% | 12.7% | ||||||||||||||||||||
district heating | 6.2% | *** | é | 3.8% | 6.0% | ||||||||||||||||||||
Share of renewable energy and district heating | 48% | *** | ì | 45% | 34% | ||||||||||||||||||||
Total business travel | EN29 | 886 m Pkm | *** | ê | 1,042 m Pkm | 936 m Pkm | |||||||||||||||||||
rail travel10 | 3.5% | ** | è | 3.3% | 4.1% | ||||||||||||||||||||
road travel10 | 0.6% | ** | é | 0.5% | 0.6% | ||||||||||||||||||||
air travel | 96.0% | *** | è | 96.2% | 95.3% | ||||||||||||||||||||
Number of flights (segments) | 398,369 | *** | ê | 446,274 | 402,629 | ||||||||||||||||||||
Total paper consumption | EN1 | 14,403 t | *** | î | 15,593 t | 14,013 t | |||||||||||||||||||
post-consumer recycled | EN2 | 16.2% | *** | é | 10.5% | 6.2% | |||||||||||||||||||
new fibers FSC11 | 16.6% | *** | é | 10.7% | 0.0% | ||||||||||||||||||||
new fibers ECF + TCF11 | 66.8% | *** | ê | 78.6% | 93.8% | ||||||||||||||||||||
new fibers chlorine bleached | 0.4% | ** | é | 0.2% | 0.0% | ||||||||||||||||||||
Total waste | EN22 | 25,644 t | *** | è | 24,589 t | 22,631 t | |||||||||||||||||||
valuable materials separated and recycled | 54.6% | *** | è | 56.3% | 58.2% | ||||||||||||||||||||
incinerated | 14.3% | *** | î | 15.8% | 12.7% | ||||||||||||||||||||
landfilled | 31.1% | ** | ì | 27.9% | 29.1% | ||||||||||||||||||||
Total water consumption | EN8 | 2.42 m m | 3 | ** | ì | 2.19 m m | 3 | 1.94 m m | 3 | ||||||||||||||||
Total CO2 footprint12 | 264,197 t | *** | î | 281,705 t | 293,169 t | ||||||||||||||||||||
total direct CO2 emissions (GHG scope 1)13 | EN16 | 26,490 t | *** | è | 26,701 t | 31,519 t | |||||||||||||||||||
total indirect CO2 emissions (GHG scope 2)13 | EN16 | 204,344 t | ** | è | 218,681 t | 230,015 t | |||||||||||||||||||
total other indirect CO2 emissions (GHG scope 3)13 | EN17 | 129,364 t | *** | ê | 149,323 t | 132,635 t | |||||||||||||||||||
total CO2e offsets (business air travel)14 | 96,000 t | *** | ê | 113,000 t | 101,000 t | ||||||||||||||||||||
Verification by SGS Société Générale de Surveillance SA
“We have verified the correctness of the statements in the 2007 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.
We have also conducted a third party verification of the CO2 emissions in the years 2004 to 2007 against the principles of ISO 14064-I (2006). In our opinion, the reported CO2 emissions are fair, accurate, transparent and free from material errors or misstatements and meet the materiality threshold.”
Elvira Bieri, Dr Erhard Hug and Dr Jochen Gross, Zurich, February 2008
8369
Strategy, performance and responsibility
Corporate responsibility
The importance UBS attaches to responsible corporate behavior is reflected in the various documents and policies defining the rules and principles the firm applies to the behavior of its employees. These guidelines define the way UBS does business and the firm regularly monitors compliance.
Employment of staff
Whistleblowing protection
Conflicts of interest
Anti-money laundering and bribery of public officials
Memberships and donations
Information security
Environmental management
Human rights
84
Global Wealth Management & Business Banking
Business description
Global Wealth Management & Business Banking comprises the following business units, which are reported separately:
Wealth Management International & Switzerland provides a comprehensive range of products and services, individually tailored for wealthy and affluent clients around the world (except domestic US clients), via its extensive global branch network and through financial intermediaries. An open product platform gives clients access to a wide array of pre-screened, top-quality products from third-party providers that complement UBS’s own lines
Wealth Management USoffers sophisticated products and services specifically designed to address the needs of emerging affluent, affluent, high net worth and ultra-high net worth domestic US clients
Business Banking Switzerlandoffers 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 in Switzerland
86
Business group / business unit reporting
Wealth Management | Global Wealth Management | |||||||||||||||||||||||||||||||
CHF million, except where indicated | International & Switzerland | Wealth Management US | Business Banking Switzerland | & Business Banking | ||||||||||||||||||||||||||||
As of or for the year ended | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||
Total operating income | 12,866 | 10,798 | 6,659 | 5,863 | 5,489 | 5,270 | 25,014 | 21,931 | ||||||||||||||||||||||||
Total operating expenses | 6,560 | 5,595 | 5,941 | 5,281 | 3,029 | 2,914 | 15,530 | 13,790 | ||||||||||||||||||||||||
Business group / business unit performance before tax | 6,306 | 5,203 | 718 | 582 | 2,460 | 2,356 | 9,484 | 8,141 | ||||||||||||||||||||||||
Additional information | ||||||||||||||||||||||||||||||||
Net new money (CHF billion) | 125.1 | 97.6 | 26.6 | 15.7 | 4.6 | 1.2 | 156.3 | 114.5 | ||||||||||||||||||||||||
Invested assets (CHF billion) | 1,294 | 1,138 | 840 | 824 | 164 | 161 | 2,298 | 2,123 | ||||||||||||||||||||||||
Personnel (full-time equivalents) | 15,811 | 13,564 | 19,347 | 18,557 | 15,932 | 15,913 | 51,090 | 48,034 | ||||||||||||||||||||||||
87
UBS’s businesses
Global Wealth Management & Business Banking
Global Wealth Management & Business Banking is the leading global provider of financial services for wealthy clients and the top bank for individual and corporate clients in Switzerland.
Business group reporting
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Income | 24,841 | 21,775 | 19,131 | 14 | ||||||||||||
Adjusted expected credit loss1 | 173 | 156 | 107 | 11 | ||||||||||||
Total operating income | 25,014 | 21,931 | 19,238 | 14 | ||||||||||||
Cash components | 10,535 | 9,043 | 8,252 | 16 | ||||||||||||
Share-based components2 | 357 | 306 | 237 | 17 | ||||||||||||
Total personnel expenses | 10,892 | 9,349 | 8,489 | 17 | ||||||||||||
General and administrative expenses | 3,141 | 3,028 | 2,845 | 4 | ||||||||||||
Services (to) / from other business units | 1,171 | 1,118 | 960 | 5 | ||||||||||||
Depreciation of property and equipment | 241 | 232 | 226 | 4 | ||||||||||||
Amortization of intangible assets | 85 | 63 | 56 | 35 | ||||||||||||
Total operating expenses | 15,530 | 13,790 | 12,576 | 13 | ||||||||||||
Business Group performance before tax | 9,484 | 8,141 | 6,662 | 16 | ||||||||||||
Key performance indicators | ||||||||||||||||
Cost / income ratio (%)3 | 62.5 | 63.3 | 65.7 | |||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)4 | 41.9 | 39.3 | 34.7 | |||||||||||||
BIS risk-weighted assets | 169,650 | 155,158 | 147,348 | 9 | ||||||||||||
Goodwill and excess intangible assets5 | 5,828 | 5,978 | 5,407 | (3 | ) | |||||||||||
Allocated regulatory capital6 | 22,793 | 21,494 | 20,142 | 6 | ||||||||||||
Additional information | ||||||||||||||||
Invested assets (CHF billion) | 2,298 | 2,123 | 1,887 | 8 | ||||||||||||
Net new money (CHF billion)7 | 156.3 | 114.5 | 98.5 | |||||||||||||
Client assets (CHF billion) | 3,554 | 3,337 | 2,895 | 7 | ||||||||||||
Personnel (full-time equivalents) | 51,090 | 48,034 | 44,612 | 6 | ||||||||||||
8870
Business
The global branch network delivers comprehensive financial services to wealthy private individuals around the world and to private and corporate clients in Switzerland. Global Wealth Management & Business Banking provides all its clients with the advice, financial products and tools that fit their individual needs.
Organizational structure
On 1 July 2005, the business group called Global Wealth Management & Business Banking was formed to encompass UBS’s global wealth management businesses, along with the Swiss corporate and retail banking unit. On this date, UBS also transferred the municipal finance unit, until then a part of the Wealth Management US unit, to the Investment Bank’s fixed income area.
89
90
Wealth Management International & Switzerland
– | As announced on 10 February 2009, Global Wealth Management & Business Banking has been divided into two business divisions: Wealth Management & Swiss Bank and | |
91
UBS’s businessesGlobal Wealth Management & Business Banking
Wealth Management International & SwitzerlandBusiness description
With more than 140 years of experience, an extensive global network and CHF 1,294 billion in invested assets on 31 December 2007, the 5,774 client advisors of this wealth management business deliver high-quality, individually tailored solutions to clients worldwide.
Business
The Wealth Management International & Switzerland business unit provides a comprehensive range of products and services, individually tailored for wealthy clients around the world, via its global branch network and through financial intermediaries.
Organizational structure
The Wealth Management International & Switzerland business unit comprises the following management areas:
– | The | |
Competitors
Major competitors for the business unit comprise all globally active wealth managers, such as the wealth management
operations of Credit Suisse, HSBC and Citigroup. Wealth Management International & Switzerland also competes with private banks that operate mainly within their respective domestic markets, such as Julius Baer and Pictet in Switzerland, Coutts in the UK, Deutsche Bank and Sal. Oppenheim in Germany and Unicredito in Italy and Swiss banks focused on international clients (such as Julius Baer and Pictet in Switzerland).
Clients and markets
Wealth management is a market with strong long-term growth prospects. According to an internal UBS estimate, the global growth rate of liquid assets held by wealthy individuals is expected to grow by 5.7% annually between 2006 and 2010.
92
Growth initiatives
Wealth management in Asia PacificOne of the main challenges for the wealth management business in the next few years will be to enhance its already strong business footprint in the Asia Pacific region. The region is very heterogeneous and, taken together, accounts for more than half the world’s population, while contributing a quarter of total global gross domestic product (GDP).
93
UBS’s businesses
Global Wealth Management & Business Banking
Given the strong demand for wealth management services in the region, UBS opened a regional training center for employees located in Singapore in 2007. It is the first institution to be accredited by the Financial Industry Competency Standards (FICS) as a financial training and assessment service provider in wealth management. Clients will also be able to take courses at the facility. UBS considers that its growth in Asia Pacific depends on much more than just hiring client advisors – the training and retaining of them is critical.
European on-shore businessThe European wealth management business was launched in early 2001 and is aimed at wealthy clients in the five target countries of France, Germany, Italy, Spain and the UK. Over the past seven years, the number of European domestic branches (now 56) has more than trebled, while invested assets have risen to CHF 167 billion from CHF 16 billion in 2001, corresponding to an annual growth rate of 48%. Much of the rise in invested assets was due to the CHF 93 billion in net new money taken in during the past six years. The European wealth management business currently has a total of 1,056 client advisors, up from 177 advisors at the beginning of 2001. After having successfully established a European physical presence and made the business profit-able, the European wealth management business has been profitable every quarter since first quarter 2006 and now forms an integral part of the business.
Products and services
Clients of Wealth Management International & Switzerland can count recorded apre-tax profitof CHF 3,601 million in 2008, a decrease from the record profit of CHF 6,310 million in 2007. This is partially due to a provision of CHF 917 million in connection with the US cross-border case. During this period:
Net new moneyoutflows were CHF 101.0 billion compared with inflows of CHF 125.1 billion.Invested assetsdeclined to CHF 870 billion from CHF 1,294 billion. Thegross margin on Wealth Management Net new moneyoutflows were CHF 10.6 billion compared with inflows of CHF 26.6 billion.Invested assetsdeclined to CHF 600 billion from CHF 840 billion. Thegross margin on invested assetsincreased seven basis points to 84 basis points. Thecost/income ratioincreased to 111.3% from 89.9%.Recurring incomedeclined 8% to CHF 3,835 million.Revenues per advisordecreased to CHF 735,000 from CHF 828,000. Business Banking Switzerland Net new moneyoutflows were CHF 11.4 billion compared with inflows of CHF 4.6 billion.Invested assetsdeclined to the expertise of 4,000 professionals worldwide dedicatedinvested assetsfell six basis points to developing wealth management solutions. In 2007, a new products and services consultancy group was formed97 basis points. Thecost/income ratioincreased to support client advisors in providing optimum solutions and capabilities to clients.This ensures its private clients have access to what 63.1% from 51.1%.International &USrecorded apre-tax lossof CHF 698 million in 2008, compared with a pre-tax profit of CHF 674 million in 2007. 2008 included auction rate securities-related charges of CHF 1,524 million. During this period: judgesrecorded a pre-tax profit of CHF 2,449 million, up CHF 182 million from 2007. During this period:be high-quality investments, sourcing internally whenCHF 129 billion compared with CHF 164 billion. Thecost/income ratiodecreased to 51.2% from 57.7%. Theloan portfoliodeclined 2% to CHF 143 billion. The ratio of the requisite expertise is considered impaired gross lending portfolioto be available within UBS and otherwise screening the market for the best products. By aggregating private investment flows into institutional-size flows, the business unit is in a positiontotal gross lending portfolio improved to offer its private clients access to investments that would otherwise only be available to institutional clients.Both discretionary and non-discretionary mandates are offered. Clients that opt for a discretionary mandate delegate the management of their assets, including investment decisions, to a team of professional portfolio managers who work according to an agreed investment strategy.Clients that prefer to be actively involved in the management of their assets can choose a non-discretionary mandate, where investment professionals provide analysis and monitoring of portfolios, together with tailor-made proposals to support investment decisions. In both cases,
UBS reporting structure in 2008 | ||||||||||||||||
Global Wealth Management & Business Banking | Global Asset Management | Investment Bank | Corporate Center | |||||||||||||
Wealth Management | ||||||||||||||||
International & Switzerland | ||||||||||||||||
Wealth Management US | ||||||||||||||||
Business Banking Switzerland | ||||||||||||||||
94
relative return programs that aim to outperform benchmarks are offered. For discretionary mandates, the business unit also offers absolute return programs that focus on preserving capital while still participating in market upturns. At the end of 2007, around 21% of assets invested with Wealth Management International & Switzerland were discretionary.
Performance from continuing operations before tax | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||
Wealth Management International & Switzerland | 3,601 | 6,310 | 5,197 | (43 | ) | |||||||||||
Wealth Management US | (698) | 674 | 542 | |||||||||||||
Business Banking Switzerland | 2,449 | 2,267 | 2,281 | 8 | ||||||||||||
Global Wealth Management & Business Banking | 5,352 | 9,251 | 8,020 | (42 | ) | |||||||||||
Global Asset Management | 1,333 | 1,454 | 1,320 | (8 | ) | |||||||||||
Investment Bank | (34,092) | (16,669 | ) | 5,568 | (105 | ) | ||||||||||
Corporate Center | 54 | 2,222 | (789 | ) | (98 | ) | ||||||||||
Distribution
The extensive wealth management branch network comprises 5,774 client advisors, 110 offices in Switzerland and 93 offices worldwide.
95
UBS’s businessesGlobal Wealth Management & Business Banking
Business performance
Business unit reporting
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Income | 12,893 | 10,827 | 9,024 | 19 | ||||||||||||
Adjusted expected credit loss1 | (27 | ) | (29 | ) | (13 | ) | (7 | ) | ||||||||
Total operating income | 12,866 | 10,798 | 9,011 | 19 | ||||||||||||
Cash components | 3,704 | 2,999 | 2,491 | 24 | ||||||||||||
Share-based components2 | 147 | 138 | 88 | 7 | ||||||||||||
Total personnel expenses | 3,851 | 3,137 | 2,579 | 23 | ||||||||||||
General and administrative expenses | 1,064 | 885 | 804 | 20 | ||||||||||||
Services (to) / from other business units | 1,531 | 1,479 | 1,371 | 4 | ||||||||||||
Depreciation of property and equipment | 95 | 84 | 89 | 13 | ||||||||||||
Amortization of intangible assets | 19 | 10 | 7 | 90 | ||||||||||||
Total operating expenses | 6,560 | 5,595 | 4,850 | 17 | ||||||||||||
Business unit performance before tax | 6,306 | 5,203 | 4,161 | 21 | ||||||||||||
Key performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 1,294 | 1,138 | 982 | 14 | ||||||||||||
Net new money (CHF billion)3 | 125.1 | 97.6 | 68.2 | |||||||||||||
Gross margin on invested assets (bps)4 | 103 | 103 | 102 | 0 | ||||||||||||
Cost / income ratio (%)5 | 50.9 | 51.7 | 53.7 | |||||||||||||
Cost / income ratio excluding the European wealth management business (%)5 | 46.7 | 47.5 | 47.7 | |||||||||||||
Client advisors (full-time equivalents) | 5,774 | 4,742 | 4,154 | 22 | ||||||||||||
Client advisor productivity | ||||||||||||||||
Revenues per advisor (CHF thousand)6 | 2,424 | 2,441 | 2,272 | (1 | ) | |||||||||||
Net new money per advisor (CHF thousand)7 | 23,516 | 22,008 | 17,173 | 7 | ||||||||||||
Invested assets per advisor (CHF thousand)8 | 234,504 | 236,879 | 222,474 | (1 | ) | |||||||||||
International clients | ||||||||||||||||
Income | 9,739 | 7,907 | 6,476 | 23 | ||||||||||||
Invested assets (CHF billion) | 1,013 | 862 | 729 | 18 | ||||||||||||
Net new money (CHF billion)3 | 115.6 | 90.8 | 64.2 | |||||||||||||
Gross margin on invested assets (bps)4 | 101 | 101 | 100 | 0 | ||||||||||||
European wealth management (part of international clients) | ||||||||||||||||
Income | 1,220 | 1,010 | 722 | 21 | ||||||||||||
Invested assets (CHF billion) | 167 | 144 | 114 | 16 | ||||||||||||
Net new money (CHF billion)3 | 18.4 | 18.2 | 21.8 | |||||||||||||
Client advisors (full-time equivalents) | 1,056 | 870 | 803 | 21 | ||||||||||||
96
Business unit reporting (continued)
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Swiss clients | ||||||||||||||||
Income | 3,154 | 2,920 | 2,548 | 8 | ||||||||||||
Invested assets (CHF billion) | 281 | 276 | 253 | 2 | ||||||||||||
Net new money (CHF billion)1 | 9.5 | 6.8 | 4.0 | |||||||||||||
Gross margin on invested assets (bps)2 | 111 | 110 | 109 | 1 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)3 | 80.7 | 81.2 | 78.9 | |||||||||||||
BIS risk-weighted assets | 63,125 | 51,485 | 43,369 | 23 | ||||||||||||
Goodwill and excess intangible assets4 | 1,761 | 1,740 | 1,566 | 1 | ||||||||||||
Allocated regulatory capital5 | 8,074 | 6,889 | 5,903 | 17 | ||||||||||||
Additional information | ||||||||||||||||
Recurring income6 | 9,617 | 8,143 | 6,635 | 18 | ||||||||||||
Client assets (CHF billion) | 1,651 | 1,436 | 1,235 | 15 | ||||||||||||
Personnel (full-time equivalents) | 15,811 | 13,564 | 11,555 | 17 | ||||||||||||
1 Excludes interest and dividend income. 2 Income / average invested assets. 3 Business unit performance before tax / average allocated regulatory capital. 4 Goodwill and intangible assets in excess of 4% of BIS Tier 1 capital. 5 10% of BIS risk-weighted assets plus goodwill and excess intangible assets. 6 Interest, asset-based revenues for portfolio management and account-based, distribution and advisory fees.
Components of operating income
Wealth Management International & Switzerland derives its operating income principally from:
These revenues 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 factors such as fluctuations in invested assets, changes in market conditions, investment performance, inflows and outflows of client funds and investor activity levels.
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2007
Key performance indicators
In 2007, net new money was a record CHF 125.1 billion, compared with CHF 97.6 billion in 2006, representing an annual growth rate of 11% of the underlying invested asset base at end-2006. This outstanding result reflected increases in all geographical regions throughout the year, particularly in Asia Pacific and Americas, both a result of the growth strategy.
Invested assets, at CHF 1,294 billion on 31 December 2007, were up 14% from CHF 1,138 billion a year earlier, mainly reflecting the strong inflow of net new money and rising financial markets. This increase was partially offset by negative currency effects. The 7% fall of the US dollar against the Swiss franc contributed to this decrease – approximately 36% of invested assets were denominated in US dollars at the end of 2007.
The gross margin on invested assets was 103 basis points in 2007, unchanged from a year earlier, as the increase in non-recurring margin following a sustained level of client
activity was partly offset by a lower recurring margin. Overall, recurring income made up 77 basis points of the margin in 2007, down from 78 basis points in 2006. Non-recurring income comprised 26 basis points of the margin in 2007, up 1 basis point from 2006.
The cost / income ratio improved to 50.9% in 2007 from 51.7% a year earlier. The cost / income ratio has improved for the fifth consecutive year despite the rise in costs in pursuit of the global expansion strategy. This improvement reflects the strong rise in income due to a higher asset base and higher volumes in lombard lending, which more than offset the increase in personnel expenses (mainly headcount increase and performance-related compensation) and general and administrative expenses.
Excluding the European wealth management business, the 2007 cost / income ratio fell to 46.7% from 47.5% a year earlier.
European wealth management
The European wealth management business continued to make good progress. In 2007, net new money intake into the domestic European network totaled CHF 18.4 billion, up
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1% from the 2006 inflow of CHF 18.2 billion, reflecting an annual net new money growth rate of 13% of the underlying asset base at year-end 2006. The strongest inflows were in Germany, the UK and Italy.
The level of invested assets was a record CHF 167 billion on 31 December 2007, a 16% increase compared with CHF 144 billion a year earlier. This reflected strong net new money inflows in all countries as well as positive market performance.
In 2007, income from the European wealth management business was CHF 1,220 million, up 21% from a year earlier, reflecting a growing asset and client base.
Results
In 2007 pre-tax profit, at a record CHF 6,306 million, rose 21% compared with 2006. Total operating income was up 19% in 2007, reflecting a higher asset base and increased collateralized lending volumes and more client activity. Operating expenses, up 17% in 2007 from 2006, also rose as the business expanded.
Operating incomeTotal operating income in 2007 was CHF 12,866 million, up 19% from CHF 10,798 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 18% on rising asset-based fees, benefiting from strong net new money inflows. This was accentuated by higher interest income due to the expansion of lombard lending activities. Non-recurring income rose by 22% due to higher brokerage fees, reflecting high client activity levels.
Operating expensesAt CHF 6,560 million, operating expenses in 2007 were up 17% from CHF 5,595 million a year earlier, reflecting higher personnel expenses and general and administrative expenses as a result of ongoing business growth. Personnel expenses rose 23% to CHF 3,851 million in 2007 compared with CHF 3,137 million a year earlier, reflecting the increase in salaries due to business expansion and higher performance-related
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UBS’s businessesGlobal Wealth Management & Business Banking
compensation. Share-based expenses in 2007 increased due to higher share and option awards and the increased fair value of options. General and administrative expenses, at CHF 1,064 million, were up 20% in 2007 from CHF 885 million a year earlier due to increased expenses for travel and entertainment, premises and professional fees – all a consequence of continuous business expansion. Expenses for services from other business units, at CHF 1,531 million in 2007, were up 4% from CHF 1,479 million the previous year, mainly reflecting increased consumption. Depreciation was CHF 95 million in 2007, up 13% from CHF 84 million a year earlier because of continued business growth. Amortization of intangible assets was CHF 19 million, up CHF 9 million from 2006.
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2006
Key performance indicators
In 2006, net new money totaled CHF 97.6 billion, compared with CHF 68.2 billion in 2005. This result reflected increases in all geographical regions throughout the year, particularly in Asia Pacific and Europe, both a result of the growth strategy.
European wealth management
In 2006, the European wealth management business made good progress. With a good performance in the UK and Germany, the inflow of net new money totaled CHF 18.2 billion, down 17% from the 2005 intake of CHF 21.8 billion. The result reflected an annual net new money growth rate of 16% of the underlying asset base at year-end 2005.
Results
Wealth Management International & Switzerland’s 2006 pre-tax profit, at CHF 5,203 million, increased 25% compared with 2005. This increase reflected higher asset-based fees as well as rising interest income, a reflection of higher volumes in the lombard lending business. At the same time, the business unit’s expenses, up 15% in 2006 from 2005, reflected its ongoing growth strategy.
Operating incomeTotal operating income in 2006 was CHF 10,798 million, up 20% from CHF 9,011 million in 2005. Recurring income increased 23% on rising asset-based fees, benefiting from a buoyant market and net new money inflows. This was accentuated by higher interest income due to the expansion of margin lending activities. Non-recurring income rose due to higher brokerage fees, a reflection of high client activity levels. These positive effects were offset by the depreciation of the US dollar against the Swiss franc.
Operating expensesAt CHF 5,595 million, operating expenses in 2006 were up 15% from CHF 4,850 million in 2005. This reflected higher personnel expenses and general and administrative expenses, as well as the ongoing investment in growth initiatives. Personnel expenses rose 22% to CHF 3,137 million in 2006 compared with CHF 2,579 million in 2005, a reflection of the increase in salaries due to business expansion and higher performance-related compensation. General and administrative expenses, at CHF 885 million, were up 10% in 2006 from CHF 804 million in 2005 due to investments in physical and information technology infrastructure, as well as travel and entertainment and marketing costs – all a consequence of continuous business expansion. Expenses for services from other business units, at CHF 1,479 million in 2006, were up 8% from CHF 1,371 million in 2005. Depreciation was CHF 84 million in 2006, down 6% from CHF 89 million in 2005, because of lower charges for information technology equipment. Amortization of intangible assets was CHF 10 million, practically unchanged from CHF 7 million in 2005.
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Wealth Management US
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Wealth Management USBusiness description
As one of the leading wealth managers in the US, the Wealth Management US unit provides a complete set of sophisticated wealth management services to private clients.
Business
Wealth Management US is one of the business units that make up Global Wealth Management & Business Banking. With CHF 840 billion in invested assets, its focus is on providing wealth management services to private clients. The business unit offers sophisticated products and services specifically designed to address the needs of the emerging affluent (less than USD 250,000 in investable assets), core affluent (USD 250,000 to USD 1 million in investable assets), high net worth (USD 1 million to USD 10 million in investable assets) and ultra-high net worth clients (more than USD 10 million in investable assets). More than 8,200 financial advisors in over 480 branch and satellite office locations in the US and Puerto Rico develop, build and maintain consultative relationships with clients.
Organizational structure
The business unit’s organizational structure comprises a national branch network in the US, consisting of financial advisors, branch office managers, market area managers, regional managers and administrative support staff. Most corporate and operational functions of the business unit are located in the home office in Weehawken, New Jersey.
2005In July, Wealth Management US became part of Global Wealth Management & Business Banking, while the municipal finance unit was transferred to the Investment Bank.
2006In June, the US-based bank branches of the Wealth Management International unit became part of Wealth Management US, giving clients the option of receiving services from both financial advisors and private bankers. The integration enhanced the Wealth Management US product offering while strengthening and broadening client services, enabling the business unit to further expand its market share within the ultra-high net worth segment. In August, Wealth Management US acquired the private client branch office network of Piper Jaffray. In December, a Delaware trust office was opened to offer clients the strategic benefits of establishing trusts in Delaware that may not be available in other states, including confidentiality, broad investment flexibility and potential tax advantages and asset protection.
2007In February, the McDonald Investments’ private client branch network was acquired. Following that, in August, Wealth Management US announced it would reorganize and streamline its client-facing organization. The restructuring positioned resources closer to clients, enhancing their relationship with UBS and their financial advisors, ultimately driving business growth. The reorganization, which came into effect on 1 January 2008, reduced the number of US regions from 13 to eight. Regional managers oversee 45 market area managers, who form a new structural level locally, together with the managers of the business unit’s private wealth management offices and several larger, free-standing offices. Each market area manager supervises six to eight branch managers in addition to managing a home branch. With fewer direct reports, regional managers will be more effective in recruiting and leading their regions. Under the new structure, branch managers also have improved access to UBS’s infrastructure and tools.
Legal structure
In the US, the business unit operates through direct and indirect subsidiaries of UBS. Securities activities are conducted primarily through three registered broker-dealers – UBS Financial Services Inc., UBS Financial Services Inc. of Puerto Rico and UBS Services USA LLC. Wealth Management US’s banking services include Federal Deposit Insurance Corporation (FDIC) insured deposit accounts and enhanced collateralized lending services, which are conducted through UBS Bank USA, a federally regulated Utah Bank.
Competitors
Major competitors include Citigroup’s Smith Barney business and the wealth management and private client group businesses of Morgan Stanley, Merrill Lynch and Wachovia. In addition, Wealth Management US competes with domestic and global private banks, regional broker-dealers, independent broker-dealers, registered investment advisors, commercial banks, trust companies and other financial services firms offering wealth management services to US private clients.
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Clients and strategy
UBS is one of the premier US wealth managers. The Wealth Management US unit aims to further increase its market share by improving the client experience and making use of the increased range of products and services available from its integration into Global Wealth Management & Business Banking. Growth will depend on a focused commitment to successfully recruiting, retaining and developing experienced and new financial advisors and providing them with the resources needed for increased asset growth.
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San Francisco (California) – dedicated to the specialized needs of clients and prospects with assets greater than USD 10 million. At these locations, areas of expertise include private planning, trust and estate planning, philanthropic services, concentrated stock management and tax optimization strategies.
Products and services
Wealth Management US offers clients a full array of wealth management services that focus on the individual investment needs of each client. Comprehensive planning supports clients through the various stages of their lives, including retirement, education funding, charitable giving, tax management strategies, estate strategies, insurance, trusts and foundations. Advisors work closely with consultants who are subject matter experts in areas such as: wealth planning, asset allocation, retirement and annuities, alternative investments, structured products, banking and lending. The size of Wealth Management US enables its clients to gain access to investments that would otherwise be available only to institutions.
maintain control over all transactions in the account, clients with discretionary advisory programs direct investment professionals to manage a portfolio on their behalf. Depending on the type of discretionary program, the client can give investment discretion to a qualified financial advisor, a team of UBS investment professionals or to a third-party investment manager. Separately, mutual fund advisory programs are also offered, where a financial advisor works with the client to create a diversified portfolio of mutual funds.
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Industry trends
Industry trends continue to support the development of Wealth Management US and its business. The demographic landscape is changing; the aging of the “baby boom” generation suggests an increased need for retirement and estate planning. The increasing concentration of wealth provides business opportunities with clients in the high-end segments. A shift towards the provision of comprehensive wealth management and financial planning services will increase the importance of fee-based accounts and continue to blur the line between banking and brokerage. Wealth Management US believes it is well positioned to exploit these market trends.
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Business performance
Business unit reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Income | 6,662 | 5,863 | 5,158 | 14 | ||||||||||||
Adjusted expected credit loss1 | (3 | ) | 0 | (2 | ) | |||||||||||
Total operating income | 6,659 | 5,863 | 5,156 | 14 | ||||||||||||
Cash components | 4,351 | 3,683 | 3,353 | 18 | ||||||||||||
Share-based components2 | 155 | 117 | 107 | 32 | ||||||||||||
Total personnel expenses | 4,506 | 3,800 | 3,460 | 19 | ||||||||||||
General and administrative expenses | 976 | 1,073 | 1,047 | (9 | ) | |||||||||||
Services (to) / from other business units | 314 | 281 | 223 | 12 | ||||||||||||
Depreciation of property and equipment | 79 | 74 | 65 | 7 | ||||||||||||
Amortization of intangible assets | 66 | 53 | 49 | 25 | ||||||||||||
Total operating expenses | 5,941 | 5,281 | 4,844 | 12 | ||||||||||||
Business unit performance before tax | 718 | 582 | 312 | 23 | ||||||||||||
Key performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 840 | 824 | 752 | 2 | ||||||||||||
Net new money (CHF billion)3 | 26.6 | 15.7 | 26.9 | |||||||||||||
Net new money including Interest and dividend income (CHF billion)4 | 51.5 | 37.9 | 45.2 | 36 | ||||||||||||
Gross margin on invested assets (bps)5 | 77 | 76 | 75 | 1 | ||||||||||||
Cost / income ratio (%)6 | 89.2 | 90.1 | 93.9 | |||||||||||||
Recurring income7 | 4,173 | 3,488 | 2,834 | 20 | ||||||||||||
Financial advisor productivity | ||||||||||||||||
Revenues per advisor (CHF thousand)8 | 828 | 776 | 690 | 7 | ||||||||||||
Net new money per advisor (CHF thousand)9 | 3,305 | 2,077 | 3,597 | 59 | ||||||||||||
Invested assets per advisor (CHF thousand)10 | 107,719 | 101,922 | 91,464 | 6 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)11 | 11.8 | 10.2 | 5.8 | |||||||||||||
BIS risk-weighted assets | 18,735 | 18,308 | 18,928 | 2 | ||||||||||||
Goodwill and excess intangible assets12 | 4,067 | 4,238 | 3,841 | (4 | ) | |||||||||||
Allocated regulatory capital13 | 5,941 | 6,069 | 5,734 | (2 | ) | |||||||||||
Additional information | ||||||||||||||||
Client assets (CHF billion) | 917 | 909 | 826 | 1 | ||||||||||||
Personnel (full-time equivalents) | 19,347 | 18,557 | 17,034 | 4 | ||||||||||||
Financial advisors (full-time equivalents) | 8,248 | 7,880 | 7,520 | 5 | ||||||||||||
Components of operating income
Wealth Management US principally derives its operating income from:
These revenues are based on the market value of invested assets, the level of transaction-related activity and the size of the loan book and deposits. 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.
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2007
Key performance indicators
The inflow of net new money in 2007 was CHF 26.6 billion, up from CHF 15.7 billion a year earlier, reflecting reduced out-flows from existing clients and the recruitment of experienced advisors. Including interest and dividends, net new money in 2007 was CHF 51.5 billion, up from CHF 37.9 billion in 2006.
Wealth Management US had CHF 840 billion in invested assets on 31 December 2007, up 2% from CHF 824 billion on 31 December 2006. This was a result of rising markets over the year, net new money inflows and the first-time inclusion of former McDonald Investments assets. These increases were partly offset by the negative impact of currency translation. In US dollar terms, invested assets increased 10% compared with a year earlier.
The cost / income ratio was 89.2% for 2007, compared with 90.1% in 2006. The improvement in the cost / income ratio reflects higher operating income due to strong growth in recurring income, partially offset by a rise in expenses mainly reflecting higher personnel expenses in support of growth initiatives and the integration of the McDonald Investments private client branch network.
In 2007, recurring income was a record CHF 4,173 million, up 20% from CHF 3,488 million a year earlier. Excluding the impact of currency fluctuations, recurring income was up 23% in 2007 from 2006. This increase mainly reflects higher levels of managed account fees on a year-end record level of invested assets, higher investment advisory fees and higher net interest income. Recurring income represented 63% of income in 2007, compared with 59% in 2006.
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Revenue per advisor increased in 2007 to CHF 828,000 from CHF 776,000 in 2006 as a higher average number of financial advisors was able to produce significantly higher recurring income than a year earlier. The number of financial advisors rose by 5% compared to 2006, increasing by 368 advisors to 8,248 at the end of 2007, while recurring income increased by 20%.
Results
In 2007, Wealth Management US reported a pre-tax profit of CHF 718 million, compared with CHF 582 million in 2006. Because this business unit is almost entirely conducted in US dollars, comparisons of results with prior periods are affected by the movements of the US dollar against the Swiss franc. In US dollar terms, performance in 2007 was up 26% from 2006. Performance in 2007 benefited from record levels of recurring income and lower general and administrative expenses. This was partly offset by higher personnel expenses.
Operating incomeIn 2007, total operating income was CHF 6,659 million, up 14% from CHF 5,863 million in 2006. Excluding currency effects, operating income increased by 16% from 2006. The increase in operating income reflects the record recurring income (driven by increased asset levels in managed account products) and increased transactional revenue.
Operating expensesTotal operating expenses rose 12% to CHF 5,941 million in 2007 from CHF 5,281 million in 2006. Excluding currency effects, operating expenses were 15% higher.
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2006
Key performance indicators
Results
In 2006, Wealth Management US reported a pre-tax profit of CHF 582 million, compared with CHF 312 million in 2005. This increase reflected record levels of recurring income, and lower litigation provisions.
Operating incomeIn 2006, total operating income was CHF 5,863 million, up 14% compared with CHF 5,156 million in 2005. Excluding currency effects, operating income also increased 14% from 2005. The increase in operating income was primarily due to strong growth in recurring income based on higher levels of assets.
Operating expensesTotal operating expenses rose 9% to CHF 5,281 million in 2006 from CHF 4,844 million in 2005. Excluding currency effects, operating expenses were also 9% higher due to higher personnel costs and general and administrative expenses, both related to strategic growth initiatives in support of the business, the inclusion of the Piper Jaffray private client branch network and the New Jersey office provision that was made after the decision to sublet unused office space instead having it be occupied by Wealth Management US itself. This was offset by a lower impact of litigation provisions compared with 2005.
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Business Banking Switzerland
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UBS’s businessesGlobal Wealth Management & Business Banking
Business Banking SwitzerlandBusiness description
Business Banking Switzerland, UBS’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 is the leading bank in Switzerland. At the end of 2007, clients had CHF 164 billion in invested assets with us. With a total loan book of CHF 145 billion on 31 December 2007, UBS leads the Swiss lending and retail mortgage markets.
Organizational structure
Business Banking Switzerland comprises the firm’s domestic branch network, for corporate and individual clients, and is organized into eight geographical regions.
Competitors
Business Banking Switzerland’s major competitors are banks active in the retail and corporate banking markets in Switzerland This group includes Credit Suisse, the country’s cantonal banks, Raiffeisen Bank, other regional or local Swiss banks and foreign bank branches in Switzerland.
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.
Individual clients
Corporate clients
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Financial institutions
Business Banking Switzerland
Swiss market share | ||||||||
in % | 31.12.06 | 31.12.07 | ||||||
Mortgages for individual clients | 23 | 23 | ||||||
Savings for individuals | 23 | 22 | ||||||
Credit card business | 32 | 32 | ||||||
Distribution
The needs of private clients have changed in recent years. Today, they want the flexibility of being able to access their accounts using the full range of modern communication technology when it is convenient for them, without restrictions imposed by regular business hours.
Total lending portfolio, gross
On 31 December 2007, Business Banking Switzerland’s total lending portfolio was CHF 145.5 billion, gross. Of the total, mortgages represented CHF 117 billion, of which 85% were residential mortgages. Continued discipline in implementing the risk-adjusted pricing model has resulted in a strengthened focus of origination efforts on higher quality exposures with an attractive risk / return relationship. Thanks to the introduction of this model, the risk pro-file of the business unit’s portfolio has clearly improved in recent years.
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Recovery portfolio
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Business performance
Business unit reporting
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Interest income | 3,470 | 3,339 | 3,317 | 4 | ||||||||||||
Non-interest income | 1,816 | 1,746 | 1,632 | 4 | ||||||||||||
Income | 5,286 | 5,085 | 4,949 | 4 | ||||||||||||
Adjusted expected credit loss1 | 203 | 185 | 122 | 10 | ||||||||||||
Total operating income | 5,489 | 5,270 | 5,071 | 4 | ||||||||||||
Cash components | 2,480 | 2,361 | 2,408 | 5 | ||||||||||||
Share-based components2 | 55 | 51 | 42 | 8 | ||||||||||||
Total personnel expenses | 2,535 | 2,412 | 2,450 | 5 | ||||||||||||
General and administrative expenses | 1,101 | 1,070 | 994 | 3 | ||||||||||||
Services (to) / from other business units | (674 | ) | (642 | ) | (634 | ) | (5 | ) | ||||||||
Depreciation of property and equipment | 67 | 74 | 72 | (9 | ) | |||||||||||
Amortization of intangible assets | 0 | 0 | 0 | |||||||||||||
Total operating expenses | 3,029 | 2,914 | 2,882 | 4 | ||||||||||||
Business unit performance before tax | 2,460 | 2,356 | 2,189 | 4 | ||||||||||||
Key performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 164 | 161 | 153 | 2 | ||||||||||||
Net new money (CHF billion)3 | 4.6 | 1.2 | 3.4 | |||||||||||||
Cost / income ratio (%)4 | 57.3 | 57.3 | 58.2 | |||||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross | 1.2 | 1.7 | 2.3 | |||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)5 | 28.2 | 27.5 | 25.6 | |||||||||||||
BIS risk-weighted assets | 87,790 | 85,365 | 85,051 | 3 | ||||||||||||
Goodwill and excess intangible assets6 | 0 | 0 | 0 | |||||||||||||
Allocated regulatory capital7 | 8,779 | 8,537 | 8,505 | 3 | ||||||||||||
Additional information | ||||||||||||||||
Deferral (included in adjusted expected credit loss)1 | 489 | 512 | 485 | (4 | ) | |||||||||||
Expected credit loss (included in adjusted expected credit loss)1 | (286 | ) | (327 | ) | (363 | ) | 13 | |||||||||
Client assets (CHF billion) | 986 | 992 | 834 | (1 | ) | |||||||||||
Personnel (full-time equivalents) | 15,932 | 15,913 | 16,023 | 0 | ||||||||||||
Components of operating income
Business Banking Switzerland derives its operating income principally from:
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.
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UBS’s businessesGlobal Wealth Management & Business Banking
2007
Key performance indicators
Net new money was CHF 4.6 billion in 2007, CHF 3.4 billion higher than the inflow of CHF 1.2 billion in 2006. This was due to an increase in inflows from existing clients.
Business Banking Switzerland’s gross lending portfolio was CHF 145.5 billion on 31 December 2007, up 1% from the previous year. This positive development was also reflect-
The return on allocated regulatory capital was 28.2% for 2007, up 0.7 percentage points from 27.5% a year earlier. This reflects the increased profitability of the business unit, outpacing the increase in risk-weighted assets.
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Results
Pre-tax profit in 2007 was a record CHF 2,460 million, CHF 104 million or 4% above the result achieved in 2006. This was mainly due to income growth. In 2007, interest income rose on higher volumes and margin for liabilities, while non-interest income rose due to higher asset-based and brokerage fees.
Operating income
Operating expenses
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UBS’s businessesGlobal Wealth Management & Business Banking
2006
Key performance indicators
Net new money was CHF 1.2 billion in 2006, CHF 2.2 billion lower than the inflow of CHF 3.4 billion in 2005.
Results
Pre-tax profit in 2006 was CHF 2,356 million, CHF 167 million or 8% above the result achieved in 2005. This was mainly due to income growth. In 2006, non-interest income rose due to higher asset-based and brokerage fees. The result also showed the tight management of the cost base and an
Operating income
Operating expenses
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Global Asset Management
Business description
Two principal client segments:
Institutionalincludes: corporate and public pension plans; endowments, municipalities, charities and private foundations; insurance companies; governments and their central banks; and supranationals
Wholesale intermediary:financial intermediaries including Global Wealth Management & Business Banking and third-parties
Broad range of investment capabilities and services:
PerformancePre-tax profit decreased 8% to CHF 1,333 million in 2007
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Business group reporting
As of or for the year ended | ||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | ||||||
Institutional fees | 2,370 | 1,803 | ||||||
Wholesale intermediary fees | 1,724 | 1,417 | ||||||
Total operating income | 4,094 | 3,220 | ||||||
Total operating expenses | 2,779 | 1,828 | ||||||
Business group performance before tax | 1,315 | 1,392 | ||||||
Additional information | ||||||||
Invested assets (CHF billion) | 891 | 866 | ||||||
Net new money (CHF billion) | (15.7 | ) | 37.2 | |||||
Personnel (full-time equivalents) | 3,625 | 3,436 | ||||||
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UBS’s businessesGlobal Asset Management
Global Asset ManagementBusiness description
Global Asset Management is one of the world’s leading investment managers, providing traditional, alternative, real estate and infrastructure investment solutions to private, institutional and corporate clients. The business group also provides services through financial intermediaries.
Business
Global Asset Management offers a wide range of investment capabilities across all major asset classes. This approach combines the expertise of investment professionals with sophisticated risk-management processes and systems, helping the business group provide clients with products and services that meet their needs.
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Clients and distribution
Global Asset Management’s integrated distribution model allows it to deliver an extensive range of investment capabilities to clients through offices in the Americas, Asia Pacific and Europe, Middle East & Africa.
Institutional
Wholesale intermediary
Organizational structure
Global Asset Management employs over 3,600 personnel in 25 countries. The main offices are located in Basel, Chicago,
Frankfurt, Grand Cayman, Hartford, Hong Kong, London, Luxembourg, New York, Rio de Janeiro, Sydney, Tokyo, Toronto and Zurich.
Significant recent acquisitions and business transfers
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UBS’s businessesGlobal Asset Management
Investment capabilities and services
fourth largest asset manager in Brazil, with invested assets of approximately CHF 40 billion on 31 December 2007.
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 across all major asset classes.
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funds, fund of funds, individually managed accounts and publicly traded real estate securities globally.
Investment performance
There was a distinct change in the direction of investment markets during 2007. The strong equities bull market that started in February 2003 faltered in mid-2007 and, after a strong beginning to the year, returns ended up a modest 4.7% for the developed world markets in local currency terms.
offset in part by selection in consumer discretionary. For the global (ex-US) growth capabilities, stock selection in the industrials and materials sectors was the primary contributor to the strong outperformance.
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UBS’s businessesGlobal Asset Management
O’Connor hedge fund strategies produced strong positive performance, with attractive volatility, correlation and liquidity attributes. On the multi-manager side, Global Asset Management’s core, broad-based multi-manager funds also generated positive returns for the year despite mixed performance in the third quarter.
Strategic opportunities
The investment environment and markets in which Global Asset Management operates are becoming ever more complex. Clients’ investment requirements are evolving and competition is likely to increase from both new and traditional sources. Key industry trends vary for each location, capability and client segment. There is a constant need to adapt and review products and services to meet future client needs.
Competitors
Global Asset Management has a range of global competitors in active investments, extending from firms organized on a global basis (such as Fidelity Investments, AllianceBernstein Investments, BlackRock, JP Morgan Asset Management, Deutsche Asset Management and Goldman Sachs Asset Management) to firms managed on a regional or local basis or specializing in a particular asset class. In the real estate, hedge funds and infrastructure investment sectors, competitors of the business group tend to be local or regional niche players.
128
Business performance
Business group reporting
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Institutional fees | 2,370 | 1,803 | 1,330 | 31 | ||||||||||||
Wholesale Intermediary fees | 1,724 | 1,417 | 1,157 | 22 | ||||||||||||
Total operating income | 4,094 | 3,220 | 2,487 | 27 | ||||||||||||
Cash components | 1,632 | 1,305 | 899 | 25 | ||||||||||||
Share-based components1 | 363 | 198 | 89 | 83 | ||||||||||||
Total personnel expenses | 1,995 | 1,503 | 988 | 33 | ||||||||||||
General and administrative expenses | 559 | 399 | 304 | 40 | ||||||||||||
Services (to) / from other business units | 153 | (105 | ) | 116 | ||||||||||||
Depreciation of property and equipment | 53 | 27 | 21 | 96 | ||||||||||||
Amortization of intangible assets | 19 | 4 | 1 | 375 | ||||||||||||
Total operating expenses | 2,779 | 2 | 1,828 | 1,430 | 52 | |||||||||||
Business group performance before tax | 1,315 | 1,392 | 1,057 | (6 | ) | |||||||||||
Key performance indicators | ||||||||||||||||
Cost / income ratio (%)3 | 67.9 | 56.8 | 57.5 | |||||||||||||
Institutional | ||||||||||||||||
Invested assets (CHF billion) | 522 | 519 | 441 | 1 | ||||||||||||
of which: money market funds | 32 | 28 | 16 | 14 | ||||||||||||
Net new money (CHF billion)4 | (16.3 | ) | 29.8 | 21.3 | ||||||||||||
of which: money market funds | 6.7 | 11.0 | (3.0 | ) | ||||||||||||
Gross margin on invested assets (bps)5 | 44 | 38 | 34 | 16 | ||||||||||||
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UBS’s businessesGlobal Asset Management
Business group reporting (continued)
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Wholesale Intermediary | ||||||||||||||||
Invested assets (CHF billion) | 369 | 347 | 324 | 6 | ||||||||||||
of which: money market funds | 70 | 59 | 62 | 19 | ||||||||||||
Net new money (CHF billion)1 | 0.6 | 7.4 | 28.2 | |||||||||||||
of which: money market funds | 4.8 | (2.5 | ) | (9.7 | ) | |||||||||||
Gross margin on invested assets (bps)2 | 47 | 43 | 40 | 9 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)3 | 60.7 | 84.8 | 69.9 | |||||||||||||
BIS risk-weighted assets | 3,784 | 2,723 | 1,570 | 39 | ||||||||||||
Goodwill and excess intangible assets4 | 2,058 | 1,677 | 1,438 | 23 | ||||||||||||
Allocated regulatory capital5 | 2,436 | 1,949 | 1,595 | 25 | ||||||||||||
Additional information | ||||||||||||||||
Invested assets (CHF billion) | 891 | 866 | 765 | 3 | ||||||||||||
Net new money (CHF billion)1 | (15.7 | ) | 37.2 | 49.5 | ||||||||||||
Personnel (full-time equivalents) | 3,625 | 3,436 | 2,861 | 6 | ||||||||||||
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.
130
2007
Key performance indicators
For 2007, the cost / income ratio was 67.9%, an increase of 11.1 percentage points from 2006, primarily due to the CHF 384 million charge related to the closure of Dillon Read Capital Management (DRCM) in second quarter 2007.
Institutional
Net new money outflows and negative currency translation impacts.
CHF 240 billion compared with CHF 369 billion. Thegross margin on institutional invested assets for 2007 was 44 basis points, up declined six basis points from 2006.to 38 basis points. The increase is due to higher performance fees, mainly in alternative and quantitative investments as well as inflows into higher margin products.
Wholesale intermediary
131
UBS’s businessesGlobal Asset Management
In 2007, net new money inflows were CHF 0.6 billion, compared with inflows of CHF 7.4 billion for 2006. Inflows, mainly into multi-asset and money market funds, were partly offset by outflows from fixed income funds.
The 2007 gross margin on wholesale intermediary invested assets was 47fell six basis points up by fourto 41 basis points from a year earlier, largely driven by higher performance fees (mainly in the Brazilian asset management business) as well as inflows into higher margin products.
Results
Pre-tax profit in 2007 points. Thecost/income ratiowas CHF 1,315 million, down from CHF 1,392 million a year earlier. The decrease reflects closure costs of CHF 384 million from DRCM in second quarter. This charge offset the positive impact of increased performance and management fees in all business areas coupled with the inclusion of acquisitions in Brazil and Korea.
Operating income
Operating expenses
132
2006
Key performance indicators
For 2006, the cost / income ratio was 56.8%, a decrease of 0.7 percentage points from 2005. A result of improved operating income, this change represented higher management fees across all businesses, combined with significantly higher performance fees in alternative and quantitative investments. This was partly offset by increased operating expenses from increased staff levels and higher variable personnel expenses.
Institutional
Wholesale intermediary
Results
Pre-tax profit in 2006 was CHF 1,392 million, up from CHF 1,057 million a year earlier. This increase reflected higher management fees in all businesses and alternative and quantitative investment performance fees. The result was partly offset by higher operating expenses, which reflected increased staffing, performance-related compensation and investments in strategic initiatives and information technology infrastructure projects.
Operating income
Operating expenses
133
Investment Bank
Pre-tax loss of CHF 34,092 million in 2008, compared with a pre-tax loss of CHF 16,669 million in 2007. During this period:
Thecost/income ratioandcompensation ratio remained not meaningful due to negative overall results in both years.Average regulatory Value at Risk (VaR)(10-day, 99% confidence, five years of historical data) was CHF 374 million compared with CHF 514 million. The ratio of theimpaired gross lending portfolioto the total gross lending portfolio was 3.6%, up from 0.4%.
Corporate Center
The Corporate Center produced a slightly positive result of CHF 54 million in 2008 from continuing operations, compared with a gain of CHF 2,222 million in 2007. During this period,total operating incomedecreased to CHF 1,083 million from CHF 3,562 million andtotal operating expensesdeclined to CHF 1,029 million from CHF 1,340 million.
UBS business divisions and Corporate Center
Global Wealth Management & Business Banking
Global Wealth Management & Business Banking
Global Wealth Management & Business Banking is a leading global provider of financial services for wealthy clients and the leading bank for individual and corporate clients in Switzerland.
Business division reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||
Income | 21,802 | 24,841 | 21,775 | (12 | ) | |||||||||||
Credit loss (expense)/recovery | (421) | 28 | 109 | |||||||||||||
Total operating income | 21,381 | 24,869 | 21,884 | (14 | ) | |||||||||||
Cash components | 9,191 | 10,564 | 9,074 | (13 | ) | |||||||||||
Share-based components1 | 187 | 444 | 377 | (58 | ) | |||||||||||
Total personnel expenses | 9,378 | 11,008 | 9,451 | (15 | ) | |||||||||||
General and administrative expenses | 5,367 | 3,178 | 3,078 | 69 | ||||||||||||
Services (to)/from other business units | 926 | 1,106 | 1,040 | (16 | ) | |||||||||||
Depreciation of property and equipment | 261 | 241 | 232 | 8 | ||||||||||||
Amortization of intangible assets | 98 | 85 | 63 | 15 | ||||||||||||
Total operating expenses | 16,030 | 15,618 | 13,864 | 3 | ||||||||||||
Business division performance before tax | 5,352 | 9,251 | 8,020 | (42 | ) | |||||||||||
Key performance indicators | ||||||||||||||||
Cost/income ratio (%)2 | 73.5 | 62.9 | 63.7 | |||||||||||||
Attributed equity and risk-weighted assets | ||||||||||||||||
Average attributed equity (CHF billion)3 | 17.3 | |||||||||||||||
Return on attributed equity (RoaE) (%)4 | 31.0 | |||||||||||||||
BIS risk-weighted assets (CHF billion)5 | 89.2 | 169.7 | 155.2 | |||||||||||||
Return on BIS risk-weighted assets (%)6 | 5.9 | 5.6 | 5.3 | |||||||||||||
Goodwill and intangible assets (CHF billion)7 | 6.2 | 5.8 | 6.0 | |||||||||||||
Additional information | ||||||||||||||||
Invested assets (CHF billion) | 1,599 | 2,298 | 2,123 | (30 | ) | |||||||||||
Net new money (CHF billion)8 | (123.0) | 156.3 | 114.5 | |||||||||||||
Client assets (CHF billion) | 2,393 | 3,554 | 3,337 | (33 | ) | |||||||||||
Personnel (full-time equivalents) | 49,541 | 51,243 | 48,200 | (3 | ) | |||||||||||
74
UBS business divisions and Corporate Center |
Global Wealth Management & Business Banking business portfolio
Business
A global branch network delivers comprehensive financial services to wealthy private individuals around the world and to private and corporate clients in Switzerland. All clients are provided with the advice, financial products and tools that fit their individual needs.
Strategy
The cornerstones of this business division’s strategy are:
– | ||
ultra-high net worth clients; | ||
– | ||
its full potential; and | ||
– |
America and the Middle East), UBS will continue to invest actively in order to tap their long-term growth potential. In addition, within the next seven to 10 years UBS plans to establish a significant domestic presence in select markets where its business is not yet mature.
Organizational structure
Formed on 1 July 2005, this business division encompassed UBS’s global wealth management businesses and the Swiss corporate and retail banking unit. Throughout 2008, until the recent reorganization, it comprised the following business units: Wealth Management International & Switzerland, serving wealthy and affluent clients around the world, except domestic clients in the US; Wealth Management US, serving wealthy and affluent domestic US clients; and Business Banking Switzerland, serving retail and corporate clients in Switzerland. Each of these business units is provided with infrastructure, products and services by the business division’s support functions, which also provide services to other UBS business divisions under a transfer pricing mechanism.
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UBS business divisions and Corporate Center
Global Wealth Management & Business Banking
Current reporting structure (on 31 December 2008)
financial report for first quarter 2009. UBS will provide separate segment reporting for Wealth Management & Swiss Bank and Wealth Management Americas. UBS has chosen to subdivide Wealth Management & Swiss Bank into Swiss and international business areas for reporting purposes (income data and key performance indicators):
– | “Swiss clients” will cover services provided to Swiss retail, wealth management and small businesses, as well as corporate and institutional clients. | |
– | “International clients” will encompass the international wealth management business conducted out of Switzerland and all wealth management businesses of UBS’s other booking centers in Asia and Europe. |
è | Prior to publication of first quarter 2009 results, UBS will publish restated business division results on www.ubs.com/investors showing quarterly and annual results for 2007 and 2008 under the new organizational structure announced on 10 February 2009. |
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UBS business divisions and Corporate Center |
Wealth Management International & Switzerland
Business description
Business
Wealth management solutions are delivered via this business unit’s global branch network and through financial intermediaries. In addition to the specific wealth management products and services outlined below, clients benefit from UBS’s entire range of resources, from asset management to estate planning and corporate finance advice. An open product platform gives clients access to a wide array of pre-screened, top-quality products from third-party providers that complement UBS’s own product lines. On 31 December 2008, invested assets were CHF 870 billion.
Organizational structure
Throughout 2008, until the recent reorganization, this business unit comprised the following areas: Asia Pacific; Latin America, the Mediterranean, the Middle East and Africa; North, East and Central Europe; and Switzerland. The extensive wealth management branch network consisted of 5,755 client advisors, around 110 offices in Switzerland and more than 100 offices worldwide.
Competitors
Major competitors of this business unit include globally active wealth managers, such as the wealth management operations of Credit Suisse, HSBC and Citigroup. The business unit also competes with private banks that operate mainly within their respective domestic markets, such as
Coutts in the UK, Deutsche Bank AG and Sal. Oppenheim in Germany, Unicredit in Italy, and Swiss banks focused on international clients (such as Julius Baer and Pictet).
Clients and markets
The following client segments are offered sophisticated products and services specifically designed to address their needs: international core affluent clients with investable assets of CHF 250,000 to CHF 2 million; high net worth clients with investable assets of up to CHF 5 million; private wealth management clients with investable assets of CHF 5 million to CHF 50 million; and ultra-high net worth clients with investable assets of more than CHF 50 million. The business unit also provides financial intermediaries, both inside and outside Switzerland, with UBS’s wealth management solutions, products and services.
Products and services
The business unit offers expert financial advice to support clients throughout the different stages of their lives. Wealth planning advice is also given on topics such as the funding of education, gift giving, inheritance and succession. Corporate finance advice is offered to support clients in the process of disposing of corporate assets. Clients can also trade a full range of financial instruments, from single securities, such as equities and bonds, to structured products and alternative investments. The business unit also fulfills the basic banking needs of private clients with a wide variety of products, rang-
Invested assets by asset class
Invested assets by currency
77
UBS business divisions and Corporate Center
Global Wealth Management & Business Banking
Loan penetration
ing from cash accounts and savings accounts to credit cards, mortgages and securities-backed lending.
Invested assets by client domicile
Invested assets by client wealth
78
UBS business divisions and Corporate Center |
As announced on 18 February 2009, UBS settled the US cross-border case with the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) by entering into a Deferred Prosecution Agreement (DPA) with the DOJ and a Consent Order with the SEC. As part of these settlement agreements:
– | UBS will pay a total of USD 780 million (CHF 917 million) to the United States, USD 380 million representing disgorgement of profits from maintaining the US cross-border business and USD 400 million representing US federal backup withholding tax required to be withheld by UBS, together with interest and penalties, and restitution for unpaid taxes associated with certain account relationships involving fraudulent sham and nominee offshore structures and otherwise as covered by the DPA. | |
– | UBS will complete the exit of the US cross-border business out of non-SEC registered entities, as announced in July 2008, which these settlements now allow UBS to do in a lawful, orderly and expeditious manner. | |
– | UBS will implement and maintain an effective program of internal controls with respect to compliance with its obligations under its Qualified Intermediary Agreement (QIA) with the Internal Revenue Service (IRS) as well as a revised |
legal and compliance governance structure in order to strengthen independent legal and compliance controls. | ||
– | Pursuant to an order issued by the Swiss Financial Market Supervisory Authority (FINMA), information has been transferred to the DOJ regarding accounts of certain US clients as set forth in the DPA, who, based on evidence available to UBS, appear to have committed tax fraud or the like within the meaning of the Swiss-US Double Taxation Treaty. |
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UBS business divisions and Corporate Center
Global Wealth Management & Business Banking
Business performance
Business unit reporting | |||||||||||||||||
As of or for the year ended | % change from | ||||||||||||||||
CHF million, except where indicated | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | |||||||||||||
Income | 10,819 | 12,893 | 10,827 | (16 | ) | ||||||||||||
Credit loss (expense) / recovery | (390 | ) | (1 | ) | 1 | ||||||||||||
Total operating income | 10,429 | 12,892 | 10,828 | (19 | ) | ||||||||||||
Cash components | 3,037 | 3,704 | 2,999 | (18 | ) | ||||||||||||
Share-based components1 | 75 | 169 | 174 | (56 | ) | ||||||||||||
Total personnel expenses | 3,112 | 3,873 | 3,173 | (20 | ) | ||||||||||||
General and administrative expenses | 2,001 | 1,064 | 885 | 88 | |||||||||||||
of which: impact from US cross-border settlement | 917 | ||||||||||||||||
Services (to) / from other business units | 1,581 | 1,531 | 1,479 | 3 | |||||||||||||
Depreciation of property and equipment | 97 | 95 | 84 | 2 | |||||||||||||
Amortization of intangible assets | 38 | 19 | 10 | 100 | |||||||||||||
Total operating expenses | 6,828 | 6,582 | 5,631 | 4 | |||||||||||||
Business unit performance before tax | 3,601 | 6,310 | 5,197 | (43 | ) | ||||||||||||
of which: impact from US cross-border settlement | (917 | ) | |||||||||||||||
of which: business unit performance before tax excluding US cross-border settlement | 4,518 | 6,310 | 5,197 | (28 | ) | ||||||||||||
Key performance indicators | |||||||||||||||||
Invested assets (CHF billion) | 870 | 1,294 | 1,138 | (33 | ) | ||||||||||||
Net new money (CHF billion)2 | (101.0 | ) | 125.1 | 97.6 | |||||||||||||
Gross margin on invested assets (bps)3 | 97 | 103 | 103 | (6 | ) | ||||||||||||
Cost/income ratio (%)4 | 63.1 | 51.1 | 52.0 | ||||||||||||||
Client advisors (full-time equivalents) | 5,755 | 5,774 | 4,742 | 0 | |||||||||||||
Client advisor productivity | |||||||||||||||||
Revenues per advisor (CHF thousand)5 | 1,824 | 2,424 | 2,441 | (25 | ) | ||||||||||||
Net new money per advisor (CHF thousand)6 | (17,029 | ) | 23,516 | 22,008 | |||||||||||||
Invested assets per advisor (CHF thousand)7 | 187,159 | 234,504 | 236,879 | (20 | ) | ||||||||||||
International clients | |||||||||||||||||
Income | 8,185 | 9,739 | 7,907 | (16 | ) | ||||||||||||
Invested assets (CHF billion) | 682 | 1,013 | 862 | (33 | ) | ||||||||||||
Net new money (CHF billion)2 | (71.3 | ) | 115.6 | 90.8 | |||||||||||||
Gross margin on invested assets (bps)3 | 94 | 101 | 101 | (7 | ) | ||||||||||||
Swiss clients | |||||||||||||||||
Income | 2,634 | 3,154 | 2,920 | (16 | ) | ||||||||||||
Invested assets (CHF billion) | 189 | 281 | 276 | (33 | ) | ||||||||||||
Net new money (CHF billion)2 | (29.7 | ) | 9.5 | 6.8 | |||||||||||||
Gross margin on invested assets (bps)3 | 110 | 111 | 110 | (1 | ) | ||||||||||||
80
UBS business divisions and Corporate Center |
Business unit reporting (continued) | |||||||||||||||||
As of or for the year ended | % change from | ||||||||||||||||
CHF million, except where indicated | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | |||||||||||||
Attributed equity and risk-weighted assets | |||||||||||||||||
Average attributed equity (CHF billion)1 | 6.1 | ||||||||||||||||
Return on attributed equity (RoaE) (%)2 | 59.0 | ||||||||||||||||
BIS risk-weighted assets (CHF billion)3 | 25.2 | 63.1 | 51.5 | ||||||||||||||
Return on BIS risk-weighted assets (%)4 | 12.3 | 10.5 | 10.8 | ||||||||||||||
Goodwill and intangible assets (CHF billion)5 | 1.9 | 1.8 | 1.7 | ||||||||||||||
Additional information | |||||||||||||||||
Recurring income6 | 8,194 | 9,617 | 8,143 | (15 | ) | ||||||||||||
Client assets (CHF billion) | 1,048 | 1,651 | 1,436 | (37 | ) | ||||||||||||
Personnel (full-time equivalents) | 15,271 | 15,811 | 13,564 | (3 | ) | ||||||||||||
2008
Key performance indicators
In 2008,net new money outflows amounted to CHF 101.0 billion, compared with inflows of CHF 125.1 billion in 2007. This occurred in the context of continuing credit market turbulence and its impact on the firm’s operating performance and reputation. Outflows of net new money were most pronounced in September and the first half of October.
Results
In 2008, pre-tax profit fell 43% to CHF 3,601 million, compared with the record CHF 6,310 million in 2007. This is partially due to a provision of CHF 917 million in connection with the US cross-border case. Excluding the impact of these costs, the pre-tax result would have fallen 28%, mainly reflecting the lower asset base and client transaction activity.
Operating income
Operating expenses
81
UBS business divisions and Corporate Center
Global Wealth Management & Business Banking
2007
Key performance indicators
In 2007,net new money was a record CHF 125.1 billion, compared with CHF 97.6 billion in 2006, representing an annual growth rate of 11% of the underlying invested asset base at year-end 2006. This outstanding result reflected increases in all geographical regions throughout the year, particularly in Asia Pacific and Americas, both a result of the growth strategy.
Results
In 2007, pre-tax profit, at a record CHF 6,310 million, rose 21% compared with 2006. Total operating income was up 19% in 2007, reflecting a higher asset base and increased collateralized lending volumes and more client activity. Operating expenses, up 17% in 2007 from 2006, also rose as the business expanded.
Operating income
Operating expenses
82
UBS business divisions and Corporate Center |
Wealth Management US
Business description
Business
Wealth Management US provides wealth management services to US private clients. On 31 December 2008, the business unit had CHF 600 billion in invested assets.
Organizational structure
Wealth Management US is headquartered in Weehawken, New Jersey, where most corporate and operational functions are located. The client-facing organization consists of the branch network in the US and Puerto Rico, with more than 8,100 financial advisors. The branch network is staffed by regional managers, market area managers, branch office managers, financial advisors and administrative support staff.
– | August 2006 acquisition of the private client services branch network of Piper Jaffray. | |
– | February 2007 acquisition of the McDonald Investments’ private client branch network. | |
– | October 2008 saw the Investment Bank’s municipal securities operations serving private clients transfer to Wealth Management US (following UBS’s decision in June 2008 that its Investment Bank |
Legal structure
Geographical presence in key markets
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Global Wealth Management & Business Banking
Competitors
Wealth Management US competes with national full-service brokerage firms, domestic and global private banks, regional broker-dealers, independent broker-dealers, registered investment advisors, commercial banks, trust companies and other financial services firms offering wealth management services to US private clients. In 2008, the financial crisis triggered consolidation within the industry that directly impacted the business unit’s major competitors: Citi Global Wealth Management, Merrill Lynch Global Wealth Management, Morgan Stanley Global Wealth Management Group and Wachovia Securities. Specifically, Merrill Lynch was acquired by Bank of America, effective 1 January 2009 and Wachovia Corporation was acquired by Wells Fargo, effective 31 December 2008. In January 2009, Morgan Stanley and Citi announced an agreement to combine Morgan Stanley’s Global Wealth Management Group and Citi’s Smith Barney unit into a joint venture called Morgan Stanley Smith Barney.
Clients and strategy
Wealth Management US is focused on the delivery of services tailored to meet the needs of four distinct client segments: ultra-high net worth (more than USD 10 million in investable assets), high net worth (USD 1 million to USD 10
million in investable assets), core affluent (USD 250,000 to USD 1 million in investable assets) and the emerging affluent (up to USD 250,000 in investable assets).
Invested assets by asset class
Invested assets by client wealth
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UBS business divisions and Corporate Center |
designed by UBS for advisors focused on the high net worth segment. In the first and third quarters of 2008, investment centers in New Jersey and North Carolina were opened to serve emerging affluent clients.
Products and services
Wealth Management US offers clients a full array of wealth management services that focus on the individual investment needs of each client. Comprehensive planning supports clients through the various stages of their lives, including education funding, charitable giving, tax management strategies, estate strategies, insurance, retirement, and trusts and foundations. Advisors work closely with consultants who are subject-matter experts in areas such as wealth planning, asset allocation, retirement and annuities, alternative investments, structured products, and banking and lending. They also have access to Wealth Management Research content to support investment decisions.
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UBS business divisions and Corporate Center
Global Wealth Management & Business Banking
Business performance
Business unit reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||
Income | 5,959 | 6,662 | 5,863 | (11 | ) | |||||||||||
of which: ARS settlement impact | (60 | ) | ||||||||||||||
Credit loss (expense) / recovery | (25 | ) | (2 | ) | (1 | ) | ||||||||||
Total operating income | 5,933 | 6,660 | 5,862 | (11 | ) | |||||||||||
Cash components | 3,806 | 4,352 | 3,686 | (13 | ) | |||||||||||
Share-based components1 | 85 | 199 | 153 | (57 | ) | |||||||||||
Total personnel expenses | 3,891 | 4,551 | 3,839 | (15 | ) | |||||||||||
General and administrative expenses | 2,348 | 976 | 1,073 | 141 | ||||||||||||
of which: ARS settlement impact | 1,464 | |||||||||||||||
Services (to) / from other business units | 238 | 314 | 281 | (24 | ) | |||||||||||
Depreciation of property and equipment | 94 | 79 | 74 | 19 | ||||||||||||
Amortization of intangible assets | 60 | 66 | 53 | (9 | ) | |||||||||||
Total operating expenses | 6,631 | 5,986 | 5,320 | 11 | ||||||||||||
Business unit performance before tax | (698 | ) | 674 | 542 | ||||||||||||
of which: ARS settlement impact | (1,524 | ) | ||||||||||||||
of which: business unit performance before tax excluding ARS settlement impact | 826 | 674 | 542 | 23 | ||||||||||||
Key performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 600 | 840 | 824 | (29 | ) | |||||||||||
Net new money (CHF billion)2 | (10.6 | ) | 26.6 | 15.7 | ||||||||||||
Net new money including interest and dividend income (CHF billion)3 | 11.7 | 51.5 | 37.9 | (77 | ) | |||||||||||
Gross margin on invested assets (bps)4 | 84 | 77 | 76 | 9 | ||||||||||||
Cost / income ratio (%)5 | 111.3 | 89.9 | 90.7 | |||||||||||||
Recurring income6 | 3,835 | 4,173 | 3,488 | (8 | ) | |||||||||||
Financial advisor productivity | ||||||||||||||||
Revenues per advisor (CHF thousand)7 | 735 | 828 | 776 | (11 | ) | |||||||||||
Net new money per advisor (CHF thousand)8 | (1,307 | ) | 3,305 | 2,077 | ||||||||||||
Invested assets per advisor (CHF thousand)9 | 87,876 | 107,719 | 101,922 | (18 | ) | |||||||||||
Attributed equity and risk-weighted assets | ||||||||||||||||
Average attributed equity (CHF billion)10 | 7.3 | |||||||||||||||
Return on attributed equity (RoaE) (%)11 | (9.5 | ) | ||||||||||||||
BIS risk-weighted assets (CHF billion)12 | 25.9 | 18.7 | 18.3 | |||||||||||||
Return on BIS risk-weighted assets (%)13 | (3.3 | ) | 3.6 | 3.0 | ||||||||||||
Goodwill and intangible assets (CHF billion)14 | 4.3 | 4.0 | 4.3 | |||||||||||||
Additional information | ||||||||||||||||
Client assets (CHF billion) | 636 | 917 | 909 | (31 | ) | |||||||||||
Personnel (full-time equivalents) | 18,929 | 19,347 | 18,557 | (2 | ) | |||||||||||
Financial advisors (full-time equivalents) | 8,182 | 8,248 | 7,880 | (1 | ) | |||||||||||
86
UBS business divisions and Corporate Center |
2008
In 2008,net new money outflows amounted to CHF 10.6 billion compared with inflows of CHF 26.6 billion in 2007, with net new money outflows concentrated in the second and third quarters. This reflects the credit market turbulence and its impact on the firm’s operating performance and reputation, which led to an increase in financial advisor attrition and clients diversifying assets away from the firm. Net new money improved to positive levels in the fourth quarter, with its strongest inflows occurring in December after financial advisor recruiting and retention. Including interest and dividends, net new money in 2008 was CHF 11.7 billion, down from CHF 51.5 billion in 2007.
Results
For full-year 2008, Wealth Management US recorded a pre-tax loss of CHF 698 million compared with a pre-tax profit of CHF 674 million in 2007. Driving the decline were total ARS-related charges of CHF 1,524 million taken during 2008. Excluding these charges, the pre-tax result would have increased 23%. In US dollar terms and excluding ARS-related charges, the pretax performance would have increased 41% driven by resilient operating income growth during a challenging environment, coupled with a decline in expenses, including lower performance-based compensation accruals.
Operating income
In 2008, total operating income was CHF 5,933 million, down 11% from CHF 6,660 million in 2007. Excluding currency effects and ARS related trading losses, operating income increased 4% from 2007. The increase in operating income reflects stronger net interest income related to an increase in deposit balances, and a positive impact of the new equity attribution framework introduced in first quarter 2008, partly offset by lower transactional revenue and an increase in credit losses.
Operating expenses
Total operating expenses rose 11% to CHF 6,631 million in 2008 from CHF 5,986 million in 2007. Excluding ARS-related expenses, operating expenses declined 14%. In US dollar terms and excluding ARS-related expenses, operating expenses declined 1%. On this basis, personnel expenses decreased 2% driven by lower performance-based compensation accruals, partly offset by higher severance costs related to staff reductions. Excluding ARS-related expenses, non-personnel costs (including general and administrative expenses, depreciation and amortization expenses, and services provided to and received from other business units), rose 2% in US dollar terms due to an increase in depreciation costs, while total general and administrative expenses were essentially flat from the prior year.
87
UBS business divisions and Corporate Center
Global Wealth Management & Business Banking
2007
Key performance indicators
The inflow ofnet new money in 2007 was CHF 26.6 billion, up from CHF 15.7 billion a year earlier, reflecting reduced outflows from existing clients and the recruitment of experienced advisors. Including interest and dividends, net new money in 2007 was CHF 51.5 billion, up from CHF 37.9 billion in 2006.
Results
In 2007, Wealth Management US reported a pre-tax profit of CHF 674 million, compared with CHF 542 million in 2006. In US dollar terms, performance in 2007 was up 27% from 2006. Performance in 2007 benefited from record levels of recurring income and lower general and administrative expenses. This was partly offset by higher personnel expenses.
Operating income
In 2007, total operating income was CHF 6,660 million, up 14% from CHF 5,862 million in 2006. Excluding currency effects, operating income increased 16% from 2006. The increase in operating income reflected the record recurring income (driven by increased asset levels in managed account products) and increased transactional revenue.
Operating expenses
Total operating expenses rose 13% to CHF 5,986 million in 2007 from CHF 5,320 million in 2006. Excluding currency effects, operating expenses were 15% higher.
88
UBS business divisions and Corporate Center |
Business Banking Switzerland
Business description
Business
Business Banking Switzerland is UBS’s retail and commercial banking unit and the leading bank in Switzerland. At the end of 2008, business banking Switzerland had CHF 129 billion in invested assets. UBS also leads the Swiss lending and retail mortgage markets, with a total loan book of CHF 143 billion on 31 December 2008.
Organizational structure
Business Banking Switzerland is home to the firm’s Swiss branch network for corporate and individual clients. It is organized in eight geographical regions. The customer services network includes e-banking services, customer service centers, 1,260 automated teller machines (ATMs) and 303 branches across Switzerland.
Competitors
UBS’s major competitors are the banks that are active in the retail and corporate banking market in Switzerland. This group includes Credit Suisse, the country’s cantonal banks, Raiffeisen Bank, other regional or local Swiss banks and foreign bank branches in Switzerland.
Clients and products
The business unit serves both retail and commercial clients, including financial institutions.
Invested assets by asset class
89
UBS business divisions and Corporate Center
Global Wealth Management & Business Banking
Total lending portfolio, gross
On 31 December 2008, the total lending portfolio was CHF 143 billion, gross. Of this amount, mortgages comprised CHF 116 billion, with 84% being residential mortgages. Continued discipline in implementing risk-adjusted pricing has resulted in a strengthened focus of origination efforts on higher-quality exposures with an attractive risk/return relationship. The introduction of this model has resulted in a clear improvement in the risk profile of the business unit’s lending portfolio.
è | Refer to the “Credit risk” section of this report for more information on |
Recovery portfolio
A dedicated team of recovery specialists assists clients that are unable to meet their financial obligations. Economic recovery can be achieved through restructuring or through liquidation of available collateral in order to limit the financial loss on the loan. The recovery portfolio amounted to CHF 2.3 billion on 31 December 2008. Since the end of 1998, successful recovery efforts have reduced the portfolio by more than 91% and non-performing loans have decreased from CHF 14.0 billion to CHF 1.5 billion, resulting in a ratio of non-performing loans to total lending portfolio of 0.9%.
Total lending portfolio by category, gross
Development of UBS’s recovery portfolio, 2000-2008
90
UBS business divisions and Corporate Center |
Business performance
Business unit reporting | |||||||||||||||||
As of or for the year ended | % change from | ||||||||||||||||
CHF million, except where indicated | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | |||||||||||||
Interest income | 3,234 | 3,470 | 3,339 | (7 | ) | ||||||||||||
Non-interest income | 1,790 | 1,816 | 1,746 | (1 | ) | ||||||||||||
Income | 5,024 | 5,286 | 5,085 | (5 | ) | ||||||||||||
Credit loss (expense) / recovery | (5 | ) | 31 | 109 | |||||||||||||
Total operating income | 5,019 | 5,317 | 5,194 | (6 | ) | ||||||||||||
Cash components | 2,348 | 2,508 | 2,389 | (6 | ) | ||||||||||||
Share-based components1 | 27 | 76 | 50 | (64 | ) | ||||||||||||
Total personnel expenses | 2,376 | 2,584 | 2,439 | (8 | ) | ||||||||||||
General and administrative expenses | 1,018 | 1,138 | 1,120 | (11 | ) | ||||||||||||
Services (to) / from other business units | (893 | ) | (739 | ) | (720 | ) | (21 | ) | |||||||||
Depreciation of property and equipment | 70 | 67 | 74 | 4 | |||||||||||||
Amortization of intangible assets | 0 | 0 | 0 | ||||||||||||||
Total operating expenses | 2,570 | 3,050 | 2,913 | (16 | ) | ||||||||||||
Business unit performance before tax | 2,449 | 2,267 | 2,281 | 8 | |||||||||||||
Key performance indicators | |||||||||||||||||
Invested assets (CHF billion) | 129 | 164 | 161 | (21 | ) | ||||||||||||
Net new money (CHF billion)2 | (11.4 | ) | 4.6 | 1.2 | |||||||||||||
Cost/income ratio (%)3 | 51.2 | 57.7 | 57.3 | ||||||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross | 1.0 | 1.2 | 1.7 | ||||||||||||||
Attributed equity and risk-weighted assets | |||||||||||||||||
Average attributed equity (CHF billion)4 | 3.8 | ||||||||||||||||
Return on attributed equity (RoaE) (%)5 | 64.0 | ||||||||||||||||
BIS risk-weighted assets (CHF billion)6 | 38.0 | 87.9 | 85.4 | ||||||||||||||
Return on BIS risk-weighted assets (%)7 | 6.1 | 2.6 | 2.7 | ||||||||||||||
Goodwill and intangible assets (CHF billion)8 | 0.0 | 0.0 | 0.0 | ||||||||||||||
Additional information | |||||||||||||||||
Client assets (CHF billion) | 709 | 986 | 992 | (28 | ) | ||||||||||||
Personnel (full-time equivalents) | 15,341 | 16,085 | 16,079 | (5 | ) | ||||||||||||
91
UBS business divisions and Corporate Center
Global Wealth Management & Business Banking
2008
Key performance indicators
Net new money outflows totaled CHF 11.4 billion in 2008, compared with an inflow of CHF 4.6 billion in 2007. This was mainly due to clients’ diversification of assets and reevaluation of banking relationships in the context of continuing global market turmoil.
Results
Pre-tax profit in 2008 was a record CHF 2,449 million, CHF 182 million, or 8% above the result achieved in 2007 due to a strong decrease in operating expenses reflecting stringent
cost-cutting measures as well as higher charges paid to this business unit for services provided to other businesses.
Operating income
Operating expenses
92
UBS business divisions and Corporate Center |
2007
Key performance indicators
Net new money was CHF 4.6 billion in 2007, CHF 3.4 billion higher than the inflow of CHF 1.2 billion in 2006. This was due to an increase in inflows from existing clients.
Results
Pre-tax profit in 2007 was CHF 2,267 million, CHF 14 million or 1% below the result achieved in 2006, as the increase in
Operating income
Operating expenses
93
UBS business divisions and Corporate Center
Global Asset Management
Global Asset Management
One of the world’s leading asset managers, Global Asset Management provides investment capabilities and services to private clients, financial intermediaries and institutional investors.
Business
This business division offers a wide range of investment capabilities and services across all major asset classes including equities, fixed income, asset allocation, currency, risk management, hedge funds, real estate, infrastructure, private equity and fund administration. Invested assets totaled CHF 575 billion on 31 December 2008, making Global Asset Management one of the largest institutional asset managers and hedge fund of funds managers in the world. This business division is also one of the largest mutual fund managers in Europe and the largest in Switzerland.
Strategy
The financial crisis of 2008 is likely to have a major adverse impact on the immediate growth prospects of the asset management industry. A key change that could depress
Key focus areas
94
UBS business divisions and Corporate Center |
tioned to capture opportunities with the move towards more tangible asset classes such as infrastructure, real estate and private equity. It will also continue to drive its third-party wholesale initiative forward, particularly in Europe and the Americas.
Organizational structure
This business division is headquartered in London, with other main offices in Chicago, Frankfurt, Hartford, Hong Kong, New York, Paris, Rio de Janeiro, Sydney, Tokyo, Toronto and Zurich, and employs around 3,800 persons in 25 countries.
Significant recent acquisitions and business transfers
– | In December 2006, UBS completed its acquisition of Banco Pactual and renamed the asset management business UBS Pactual Asset Management. It is currently the seventh largest asset manager in Brazil with invested assets of approximately CHF 19 billion on 31 December 2008. |
– | In May 2007, UBS announced the closure of Dillon Read Capital Management (DRCM). The business was formed in June 2005 and officially launched in June 2006. The business had two arms – one managing existing proprietary assets transferred from UBS Investment Bank, the other established to manage outside investor assets. As the development of the business did not meet original expectations, it was closed in May 2007. |
– | In July 2007, UBS purchased a 51% stake in Daehan Investment Trust Management Company Ltd. (DIMCO) from Hana Daetoo Securities (formerly Daehan Investment & Securities Company Ltd.), a wholly owned subsidiary of Hana Financial Group. DIMCO was renamed UBS Hana Asset Management Company Ltd. internationally |
and Hana UBS Asset Management in Korea and is one of the market leaders in the Korean asset management industry, with invested assets of CHF 13 billion on 31 December 2008. |
– | In February 2008, UBS acquired 100% of the Caisse Centrale de Réescompte (CCR) Group in France from Commerzbank. The businesses of the CCR Group are being combined into the asset management and wealth management businesses of UBS in France. CCR Group had invested assets of CHF 4 billion on 31 December 2008. |
– | In August 2008, UBS sold its 24.9% stake in Adams Street Partners to its remaining shareholders. The transaction closed on 6 August 2008. |
Competitors
Global Asset Management’s competitors range from global competitors in active investments (such as Fidelity Investments, AllianceBernstein Investments, BlackRock, JP Morgan Asset Management, Deutsche Asset Management and Goldman Sachs Asset Management) to those managed on a regional or local basis or specializing in particular asset classes. In the real estate, hedge fund, infrastructure and regional private equity investment areas, competitors tend to be specialist niche players who focus mainly on one asset class.
Invested assets by client type
Institutional/wholesale intermediary revenues
95
UBS business divisions and Corporate
Center Global Asset Management
Products and services
Investment management products and services are offered in the form of segregated, pooled and advisory mandates along with a range of more than 500 registered investment funds, exchange-traded funds and other investment vehicles across all major asset classes.
– | Equitiesoffers a full spectrum of investment styles with varying risk and return objectives. It has three investment pillars with distinct strategies – core/value (portfolios managed according to a price to intrinsic value philosophy), growth investors (a quality global growth manager) and structured equities (strategies that employ proprietary analytics and quantitative methods). |
– | Fixed incomeoffers a diverse range of global, regional and local market-based investment strategies that cover a wide range of benchmarks. Its capabilities include “core” government and corporate bond strategies, complemented by extended strategies such as high-yield and emerging market debt. |
– | Alternative and quantitative investmentshas two primary business lines – multi-manager (or fund of funds) and single manager. The former constructs portfolios of hedge funds and other alternative investments operated by third-party managers, allowing clients diversified exposure to a range of hedge funds, private equity and infrastructure strategies. O’Connor is a key provider of single manager global hedge funds. |
– | Global real estateactively manages real estate investments in Asia, Europe and the US across all major sectors. Its capabilities include core, value-added and opportunistic strategies on a global, regional and country basis, and are offered through open and closed-end private funds, |
funds of funds, individually managed accounts and publicly traded real estate securities globally. |
– | Global investment solutionsoffers asset allocation, currency, risk management and advisory services. It manages a wide array of domestic, regional and global balanced portfolios, currency mandates, structured portfolios and absolute return strategies which invest in internal and external portfolios. |
– | Infrastructure and private equityis involved in the origination and management of specialist funds that invest in infrastructure and other private assets globally. |
– | Fund services, the global fund administration business, provides professional services, including legal set up, reporting and accounting for retail and institutional investment funds, for hedge funds and for other alternative funds. |
Investment performance full-year 2008
The decline in almost all financial markets that began in the latter half of 2007 continued in 2008 and accelerated towards the end of the year. Investors became increasingly risk averse and sensitive to news flow thus creating very volatile market conditions, even in perceived lower risk sectors such as money markets. Across the asset management industry, this difficult environment led to a wide dispersion of investment performance.
Invested assets by region1
1 Assets represented are totals for the Global Asset Management business division worldwide. The regional split is based on the client servicing location.
Institutional invested assets by asset class
96
UBS business divisions and Corporate Center |
Investment capabilities and services
Alternative and | |||||||||||||||||||||||||||||
quantitative | Global | Global investment | Infrastructure and | ||||||||||||||||||||||||||
Equities | Fixed income | investments | real estate | solutions | private equity | Fund services | |||||||||||||||||||||||
Core/value | Global | Single manager hedge funds | Global | Global | Direct infrastructure investment | Alternative funds | |||||||||||||||||||||||
Global | Country and regional | Country and regional | Country and regional | Investment funds | |||||||||||||||||||||||||
Country and regional | Sector specific | Multi-manager hedge funds | Private strategies | Asset allocation | Listed infrastructure securities | ||||||||||||||||||||||||
Emerging markets | Emerging markets | Real estate securities | Currency management | ||||||||||||||||||||||||||
Specialist | High yield | Quantitative | Agriculture | Return and risk targeted | Direct private equity | ||||||||||||||||||||||||
investment | |||||||||||||||||||||||||||||
Growth investors | Structured credit | Infrastructure fund of funds | Structured portfolios | ||||||||||||||||||||||||||
Global | Liquidity/short duration | Risk management and | Global and regional | ||||||||||||||||||||||||||
advisory services | |||||||||||||||||||||||||||||
Country and regional | Indexed | Private equity fund of funds | |||||||||||||||||||||||||||
Structured equities | |||||||||||||||||||||||||||||
Systematic alpha | |||||||||||||||||||||||||||||
Quantitative equities | |||||||||||||||||||||||||||||
Portfolio construction | |||||||||||||||||||||||||||||
solutions | |||||||||||||||||||||||||||||
(including passive) | |||||||||||||||||||||||||||||
and in Canadian and Australian equities. European equities performance was particularly strong in the second half of the year and, overall, sector positioning contributed positively, especially overweights to telecoms and pharmaceuticals and an underweight to materials. Global equity strategies showed distinct performance improvement during the year, despite some setbacks in the fourth quarter where a range of positive contributors were insufficient to fully offset the drag on performance of only modest overweights to banks and diversified financials. US equity strategies had a very difficult first half, followed by a strong third quarter and a weaker fourth quarter. Contributors to performance varied quarter by quarter but, over the year as a whole, underweights to energy
and materials were the largest detractors. Overweights to utilities and telecoms were positives, although the latter was offset by weak stock selection in the sector.
Wholesale intermediary invested assets by asset class
97
UBS business divisions and Corporate
Center Global Asset Management
stocks and more than erased the outperformance of the first half of the year. Longer-term returns from growth strategies generally remain strong.
alpha strategies posted significantly negative returns in 2008 due to the overall long exposure in equities built up over the course of the year. Positive contributions came from the positioning within equity markets. Currency strategy performed very strongly across all strategies for the year. Currency strategy had been quite aggressively positioned against the large exchange rate misevaluations that had resulted from the popularity of carry trades (borrowing in a lower yielding currency to invest in a high yielding currency). The unwinding of carry trades in more risk-averse markets meant that this strategy paid off.
98
UBS business divisions and Corporate Center |
Business performance
Business division reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||
Institutional fees | 1,659 | 1 | 2,370 | 1,803 | (30 | ) | ||||||||||
Wholesale intermediary fees | 1,246 | 1,724 | 1,417 | (28 | ) | |||||||||||
Total operating income | 2,904 | 4,094 | 3,220 | (29 | ) | |||||||||||
Cash components | 922 | 1,632 | 1,305 | (44 | ) | |||||||||||
Share-based components2 | 4 | 224 | 270 | (98 | ) | |||||||||||
Total personnel expenses | 926 | 1,856 | 1,575 | (50 | ) | |||||||||||
General and administrative expenses | 434 | 559 | 399 | (22 | ) | |||||||||||
Services (to)/from other business units | 150 | 153 | (105 | ) | (2 | ) | ||||||||||
Depreciation of property and equipment | 29 | 53 | 27 | (45 | ) | |||||||||||
Amortization of intangible assets | 33 | 19 | 4 | 74 | ||||||||||||
Total operating expenses | 1,572 | 2,640 | 1,900 | (40 | ) | |||||||||||
Business division performance before tax | 1,333 | 1,454 | 1,320 | (8 | ) | |||||||||||
Key performance indicators | ||||||||||||||||
Cost/income ratio (%)3 | 54.1 | 64.5 | 59.0 | |||||||||||||
Institutional | ||||||||||||||||
Invested assets (CHF billion) | 335 | 522 | 519 | (36 | ) | |||||||||||
of which: money market funds | 42 | 32 | 28 | 31 | ||||||||||||
Net new money (CHF billion)4 | (55.6 | ) | (16.3 | ) | 29.8 | |||||||||||
of which: money market funds | 6.0 | 6.7 | 11.0 | |||||||||||||
Gross margin on invested assets (bps)5 | 38 | 44 | 38 | (14 | ) | |||||||||||
Wholesale intermediary | ||||||||||||||||
Invested assets (CHF billion) | 240 | 369 | 347 | (35 | ) | |||||||||||
of which: money market funds | 80 | 70 | 59 | 14 | ||||||||||||
Net new money (CHF billion)4 | (47.4 | ) | 0.6 | 7.4 | ||||||||||||
of which: money market funds | 15.2 | 4.8 | (2.5 | ) | ||||||||||||
Gross margin on invested assets (bps)5 | 41 | 47 | 43 | (13 | ) | |||||||||||
Attributed equity and risk-weighted assets | ||||||||||||||||
Average attributed equity (CHF billion)6 | 3.0 | |||||||||||||||
Return on attributed equity (RoaE) (%)7 | 44.4 | |||||||||||||||
BIS risk-weighted assets (CHF billion)8 | 8.5 | 3.8 | 2.7 | |||||||||||||
Return on BIS risk-weighted assets (%)9 | 18.9 | 49.5 | 62.5 | |||||||||||||
Goodwill and intangible assets (CHF billion)10 | 2.2 | 2.1 | 1.7 | |||||||||||||
Additional information | ||||||||||||||||
Invested assets (CHF billion) | 575 | 891 | 866 | (35 | ) | |||||||||||
Net new money (CHF billion)4 | (103.0 | ) | (15.7 | ) | 37.2 | |||||||||||
Personnel (full-time equivalents) | 3,786 | 3,625 | 3,436 | 4 | ||||||||||||
99
UBS business divisions and Corporate
Center Global Asset Management
2008
Key performance indicators
Net new money
Invested assets
Gross margin
Cost/income ratio
a minority stake in Adams Street Partners in 2008 and lower incentive compensation provisions combined with changes to the forfeiture provisions of future share-based awards.
Results
Pre-tax profit for full year 2008 was CHF 1,333 million, an 8% decrease from CHF 1,454 million in 2007. Excluding costs related to the closure of DRCM in 2007 and the gain from the sale of the minority stake in Adams Street Partners in 2008, full-year pre-tax profit would have decreased CHF 501 million.
Operating income
Operating expenses
100
UBS business divisions and Corporate Center |
2007
Key performance indicators
Net new money
Invested assets
Gross margin
Cost/income ratio
Results
Pre-tax profit increased to CHF 1,454 million from CHF 1,320 million in 2006, despite the CHF 212 million of DRCM-related closure costs in second quarter 2007. This charge partly offset the positive impacts of increased performance and management fees in all business areas and the inclusion of acquisitions in Brazil and Korea.
Operating income
Operating expenses
101
UBS business divisions and Corporate Center
Investment Bank
Investment Bank
UBS is a leading investment banking and securities firm, delivering comprehensive advice and execution to clients across the world’s capital markets.
Business description
The Investment Bank comprisesprovides a broad range of products and services to corporate and institutional clients, governments, financial intermediaries and alternative asset managers. The needs of private investors are met indirectly through working with UBS’s wealth management businesses and other private banks.
Strategy
The current crisis in the followingfinancial markets and the resulting dramatic changes in industry dynamics, and the losses incurred in 2007 and 2008, require the Investment Bank to recalibrate its business units:in order to generate profitable and sustainable growth. A number of senior leadership changes took place within the Investment Bank in 2008: Jerker Johansson joined UBS as Chairman and Chief Executive of the Investment Bank in March 2008, Carsten Kengeter and Jeffrey Mayer were appointed co-heads of the fixed income, currencies and commodities (FICC) business area and Tom Daula was appointed Chief Risk Officer to oversee credit risk and market risk on a combined basis as well as operational risk.
Organizational structure
Theequities Investment Bank is headquartered in London and employs approximately 17,000 people across 38 countries. It has three distinct business unitareas which are run functionally on a global basis: equities, FICC and the investment banking department. The investment banking department is an industry leader and provides advice on cross-border mergers and acquisitions in addition to raising capital for companies and governments. Traditionally one of the leaders in European corporate finance, the Investment Bank has built strong franchises in the US and Asia Pacific in recent years. An important partner for institutional clients, the Investment Bank’s market-leading equities business is complemented by its top-tier foreign exchange business and broad product capabilities across fixed income markets.
– | the September 2006 acquisition of the global futures and options business of ABN AMRO, which positioned UBS as a market leader in futures and options as well as a global provider of execution and clearing services. | |
– | the December 2006 acquisition of the Brazilian financial services firm Banco Pactual, which placed the Investment Bank as a leader in its field in the Brazilian market. | |
– | the April 2007 acquisition of a 20% stake in UBS Securities, China. |
102
UBS business divisions and Corporate Center |
Legal structure
Competitors
The competitive landscape changed significantly in 2008. Market dislocation led UBS and its competitors to take significant steps to strengthen their balance sheets, reduce costs and maintain client confidence. Some governments and investors also took significant stakes in select financial institutions in 2008. The Investment Bank competes against other major international players such as Bank of America / Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan Chase and Morgan Stanley.
Products and services
Equities
Thefixed income, currencies and commodities (FICC)business unit services corporate, institutional and public sector clients in all major markets globally. Major business areas include: credit, rates, foreign exchange and money markets, structured products, commodities, debt capital markets and emerging markets
Theinvestment bankingdepartment provides services to corporate clients, financial sponsors and hedge funds. Its advisory group assists on transactions and advises on strategic reviews and corporate restructuring solutions. Its capital markets and leveraged finance teams arrange the execution of primary and secondary equity, as well as debt issues worldwide
Performance in 2007
Recent developments
134
Business group reporting
As of or for the year ended | ||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | ||||||
Equities | 10,603 | 9,397 | ||||||
Fixed income, currencies and commodities (FICC) | (15,681 | ) | 9,056 | |||||
Investment banking | 4,540 | 3,273 | ||||||
Adjusted expected credit loss | (19 | ) | 61 | |||||
Total operating income | (557 | ) | 21,787 | |||||
Total operating expenses | 14,968 | 15,844 | ||||||
Business group performance before tax | (15,525 | ) | 5,943 | |||||
Personnel (full-time equivalents) | 21,932 | 21,899 | ||||||
Global fee pool market share
Year ended | ||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||
In % | 5.9 | 4.9 | 5.0 | |||||||||
Rank | 5 | 8 | 7 | |||||||||
135
UBS’s businessesInvestment Bank
Investment BankBusiness description
UBS is a leading investment banking and securities firm, providing a broad range of products and services to corporate and institutional clients, governments, financial intermediaries and alternative asset managers.
Business
The Investment Bank is a global investment banking and securities firm. Its investment bankers, salespeople and research analysts, supported by internal risk and logistics teams, deliver advice and execution to clients all over the world. In addition to serving the world’s key corporate and institutional clients, governments and financial intermediaries, the Investment Bank works with financial sponsors and hedge funds and indirectly meets the needs of private investors through both the UBS wealth management business and other private banks.
Organizational structure
The Investment Bank is headquartered in London and New York and employs approximately 22,000 people across 38 countries. The businesses of the Investment Bank are organized into three distinct business units, which are run functionally on a global basis. The business units are:
Although a strategy of organic development is pursued in the Investment Bank, its presence is enhanced through acquisitions when appropriate opportunities arise. Major acquisitions or internal transfers made over the last four years:
Legal structure
The Investment Bank operates through branches and subsidiaries of UBS AG. Securities activities in the US are conducted through UBS Securities LLC, a registered broker-dealer.
136
Vision
“Our goal is to be the Investment Bank with the fastest client-driven growth by building on our unique set of core strengths. We will create sustainable profits and value by prioritizing client service and providing seamless access to the capabilities of the whole firm to generate superior returns on allocated capital for our shareholders.”
Competitors
As UBS is a global investment banking and securities firm, its Investment Bank competes against other major international players such as Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Lehman Brothers, Merrill Lynch and Morgan Stanley.
Products and services
EquitiesThe Investment Bank’s equities business unit is a leading participant in the global primary and secondary markets for equity, equity-linked and equity derivative products. The business unit distributes, trades, finances and clears cash equity and equity-linked products. It also structures, originates and distributes new equity and equity-linked issues and provides research on companies, industry sectors, geographical markets and macro-economicmacroeconomic trends.
– | Cash equities provides clients with expert advisory and execution offerings with top-tier research, corporate access and tailored investment ideas. With market-leading trading execution for single stock and portfolio trading, UBS provides capital commitment, full service and block trading, advanced electronic trading strategies and tools, state-of-the-art analytics and value-enhancing commission management services. |
– | Derivatives provides standardized products and customized investment solutions to clients. In addition to products with returns linked to equities or equity indices, it also offers derivative products linked to hedge funds, mutual funds, real estate and commodity indices in a variety of formats such as over-the-counter, securitized, fund-wrapped and exchange-traded. |
– | Prime services provides integrated global services, including securities borrowing and lending, equity swaps execu- |
Selected deals
Mergers and acquisitions (M&A) | ||
Joint financial advisor, bookrunner and sponsor toLloyds TSB Group Plc on its GBP 14.7 billion acquisition of HBOS Plc and GBP 5.5 billion capital raising | ||
Lead financial advisor, joint lead arranger and joint bookrunner toGas Natural SDG, S.A. on its EUR 16.8 billion cash offer for Union Fenosa S.A. | ||
Lead financial advisor toEli Lilly and Company on its USD 6.5 billion acquisition of Imclone Systems Inc. | ||
Sole financial advisor toSt. George Bank Limited on its AUD 18.6 billion merger with Westpac Banking Corporation | ||
Equity capital markets | ||
Advisor and joint bookrunner on the USD 19.7 billion initial public offering (IPO) ofVisa Inc. This was a landmark transaction representing the largest IPO in US history, and the second largest IPO worldwide after the USD 21.9 billion IPO for Industrial & Commercial Bank of China in 2006 | ||
Joint bookrunner on the GBP 2.2 billion rights issue forCentrica Plc, the second-largest UK equity issue in 2008 outside the financial sector | ||
Joint lead manager and joint underwriter for the fully underwritten AUD 2.6 billion entitlement offer forWesfarmers Limited | ||
Debt capital markets | ||
Joint bookrunner on a USD 2.5 billion issue forWells Fargo & Co, its first institutional fixed income hybrid offering since November 2006 | ||
Joint bookrunner forChina Merchants Bank Co Ltd. on its USD 4.4 billion domestic lower tier 2 bond, the largest bank capital deal in Asia Pacific since 2005 and voted the Best Local Currency Bond by FinanceAsia in 2008 | ||
Joint bookrunner on a EUR 5 billion benchmark issue forKFW, the promotional bank of the Federal Republic of Germany, its first euro benchmark transaction in 2008 | ||
Joint lead arranger and joint bookrunner toVerizon Wireless on a USD 17.0 billion bridge facility to finance the acquisition of Alltel Corp. | ||
1Selected awards Pan-Europe is Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, Greece, Austria, Belgium, Cyprus, Luxembourg, and Iceland 2 Asia ex-Japan is China, Hong Kong, India, Indonesia, South Korea, Philippines, Singapore, Malaysia, Taiwan, Thailand, Bangladesh, Cambodia, Fiji, Guam, Laos, Myanmar, Pakistan, Sri Lanka, Togo, Vietnam and Papua New Guinea 3 Latin America is Brazil, Peru, Venezuala, Colombia, Panama, Chile, Argentina and Mexico
Investment Bank | ||
No. 1 M&A Financial Advisor (ECM roles) –Thomson Reuters 2008 | ||
Corporate Broker of the Year –Acquisitions Monthly 2009 | ||
Equities | ||
Asia Pacific Equity House of the Year –International Financial Review 2003, 2005–2008 | ||
No. 1 European Equity Research Firm –Institutional Investor 2002–2009 | ||
Fixed income currencies and commodities | ||
Financial Bond House of the Year –International Financial Review 2008 | ||
No. 2 Foreign Exchange House –Euromoney 2008 | ||
137103
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Center Investment Bank
tion, multi-asset-class prime brokerage and multi-asset-class exchange-traded derivatives execution and clearing. These services are provided to an expanding list of hedge funds, banks, asset management and commodity trading clients. | ||
– | Equity research provides independent assessments of the prospects for over 3,400 companies across most industry sectors and geographical regions (corresponding to 82% of world market capitalization), as well as economic, strategic and quantitative research. |
Fixed income, currencies and commodities
– | Macro consists of foreign exchange, money market and interest rate risk management activities. It provides a range of foreign exchange, treasury and liquidity management solutions to institutional and private clients. Interest rate activities include standardized rate-driven products and services such as interest rate derivatives trading, underwriting and trading of government and agency securities. |
– | Credit is active in the origination, underwriting, and distribution of primary cash and synthetic credit transactions. It is also active in secondary trading and market-making in high yield and investment grade bonds and loans in both cash and derivative products. |
– | Emerging markets has local market presence in Latin America through UBS Pactual, as well as in Asia and Cen- |
Foreign exchange: Euromoney-eligible volumes1
tral and Eastern Europe, enabling it to offer local investors access to international markets and international investors an opportunity for local exposure. | ||
– | Client services is the global sales effort, unifying product specialist sales groups, including foreign exchange, money market, rates and emerging markets products. | |
– | Quantitative analysis provides tailored solutions for clients as well as more broadly scalable solutions for the FICC flow platforms. | |
– | Research provides investors with analysis across a selected range of |
UBS gross capital market and corporate finance fees
CHF million | 2007 | 2006 | 2005 | |||||||||
M&A and corporate finance fees | 2,768 | 1,852 | 1,460 | |||||||||
Equity underwriting fees | 2,564 | 1,834 | 1,341 | |||||||||
Debt underwriting fees and fees on Global Syndicated Finance positions | 1,712 | 1,704 | 1,516 | |||||||||
debt underwriting fees | 1,178 | 1,279 | 1,264 | |||||||||
fees on Global Syndicated Finance positions1 | 534 | 425 | 252 | |||||||||
Other capital market revenues2 | 702 | 594 | 436 | |||||||||
Gross capital market and corporate finance fees | 7,746 | 5,984 | 4,753 | |||||||||
Capital market fees booked outside investment banking3 | 1,006 | 856 | 943 | |||||||||
Amount shared with equities and fixed income, currencies and commodities | 2,049 | 1,689 | 1,182 | |||||||||
Financing, hedging and risk adjustment costs | 151 | 166 | 122 | |||||||||
Net investment banking area revenues | 4,540 | 3,273 | 2,506 | |||||||||
138
Investment banking
139104
UBS’s businessesInvestment Bank
UBS business divisions and Corporate Center |
Strategic opportunities
140
Business performance
Business groupdivision reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Equities | 10,603 | 9,397 | 6,980 | 13 | ||||||||||||
Fixed income, currencies and commodities | (15,681 | ) | 9,056 | 7,962 | ||||||||||||
Investment banking | 4,540 | 3,273 | 2,506 | 39 | ||||||||||||
Income | (538 | ) | 21,726 | 17,448 | ||||||||||||
Adjusted expected credit loss1 | (19 | ) | 61 | 36 | ||||||||||||
Total operating income | (557 | ) | 21,787 | 17,484 | ||||||||||||
Cash components | 8,918 | 9,801 | 8,065 | (9 | ) | |||||||||||
Share-based components2 | 1,499 | 1,552 | 1,194 | (3 | ) | |||||||||||
Total personnel expenses | 10,417 | 11,353 | 9,259 | (8 | ) | |||||||||||
General and administrative expenses | 3,423 | 3,260 | 2,215 | 5 | ||||||||||||
Services (to) / from other business units | 746 | 956 | 640 | (22 | ) | |||||||||||
Depreciation of property and equipment | 210 | 203 | 136 | 3 | ||||||||||||
Amortization of intangible assets | 172 | 72 | 53 | 139 | ||||||||||||
Total operating expenses | 14,968 | 15,844 | 12,303 | (6 | ) | |||||||||||
Business group performance before tax | (15,525 | ) | 5,943 | 5,181 | ||||||||||||
Key performance indicators | ||||||||||||||||
Compensation ratio (%)3 | N/A | 4 | 52.3 | 53.1 | ||||||||||||
Cost / income ratio (%)5 | N/A | 4 | 72.9 | 70.5 | ||||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross | 0.4 | 0.1 | 0.2 | |||||||||||||
Average VaR (10-day, 99% confidence, 5 years of historical data) | 537 | 420 | 346 | 28 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)6 | (63.0 | ) | 29.4 | 28.6 | ||||||||||||
BIS risk-weighted assets | 190,763 | 174,599 | 151,313 | 9 | ||||||||||||
Goodwill and excess intangible assets7 | 5,300 | 5,465 | 4,309 | (3 | ) | |||||||||||
Allocated regulatory capital8 | 24,376 | 22,925 | 19,440 | 6 | ||||||||||||
Additional information | ||||||||||||||||
Deferral (included in adjusted expected credit loss)1 | 217 | 232 | 155 | (6 | ) | |||||||||||
Expected credit loss (included in adjusted expected credit loss)1 | (236 | ) | (171 | ) | (119 | ) | (38 | ) | ||||||||
Personnel (full-time equivalents) | 21,932 | 21,899 | 18,174 | 0 | ||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||
Investment banking | 2,880 | 6,636 | 4,999 | (57 | ) | |||||||||||
Advisory | 1,609 | 2,697 | 1,821 | (40 | ) | |||||||||||
Capital market revenues | 1,844 | 4,261 | 3,631 | (57 | ) | |||||||||||
equities | 977 | 2,783 | 2,095 | (65 | ) | |||||||||||
fixed income, currencies and commodities | 866 | 1,478 | 1,536 | (41 | ) | |||||||||||
Other fee income and risk management | (573 | ) | (322 | ) | (453 | ) | (78 | ) | ||||||||
Sales and trading | (26,504 | ) | (7,833 | ) | 16,727 | (238 | ) | |||||||||
Equities | 5,184 | 9,004 | 8,387 | (42 | ) | |||||||||||
Fixed income, currencies and commodities | (31,687 | ) | (16,837 | ) | 8,340 | (88 | ) | |||||||||
Total Investment Bank income | (23,624 | ) | (1,197 | ) | 21,726 | |||||||||||
Credit loss (expense) / recovery1 | (2,575 | ) | (266 | ) | 47 | (868 | ) | |||||||||
Total Investment Bank operating income excluding own credit | (26,199 | ) | (1,463 | ) | 21,773 | |||||||||||
Own credit2 | 2,032 | 659 | 0 | 208 | ||||||||||||
Total Investment Bank operating income as reported | (24,167 | ) | (804 | ) | 21,773 | |||||||||||
Cash components | 5,173 | 8,902 | 9,788 | (42 | ) | |||||||||||
Share-based components3 | (292 | ) | 2,384 | 1,898 | ||||||||||||
Total personnel expenses | 4,882 | 11,286 | 11,686 | (57 | ) | |||||||||||
General and administrative expenses | 3,399 | 3,386 | 3,210 | 0 | ||||||||||||
Services (to) / from other business units | 990 | 811 | 1,034 | 22 | ||||||||||||
Depreciation of property and equipment | 231 | 210 | 203 | 10 | ||||||||||||
Impairment of goodwill | 341 | 0 | 0 | |||||||||||||
Amortization of intangible assets | 83 | 172 | 72 | (52 | ) | |||||||||||
Total operating expenses | 9,925 | 15,865 | 16,205 | (37 | ) | |||||||||||
Business division performance before tax | (34,092 | ) | (16,669 | ) | 5,568 | (105 | ) | |||||||||
Key perfomance indicators | ||||||||||||||||
Compensation ratio (%)4 | N/A | 5 | N/A | 5 | 53.8 | |||||||||||
Cost / income ratio (%)6 | N/A | 5 | N/A | 5 | 74.6 | |||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross | 3.6 | 0.4 | 0.1 | |||||||||||||
Average VaR (10-day, 99% confidence, 5 years of historical data)7 | 374 | 514 | 410 | (27 | ) | |||||||||||
Attributed equity and risk-weighted assets | ||||||||||||||||
Average attributed equity (CHF billion)8 | 26.8 | |||||||||||||||
Return on attributed equity (RoaE) (%)9 | (127.4 | ) | ||||||||||||||
BIS risk-weighted assets (CHF billion)10 | 195.8 | 190.7 | 174.6 | |||||||||||||
Return on BIS risk-weighted assets (%)11 | (15.7 | ) | (8.7 | ) | 3.5 | |||||||||||
Goodwill and intangible assets (CHF billion)12 | 4.6 | 5.3 | 5.5 | |||||||||||||
Additional information | ||||||||||||||||
Personnel (full-time equivalents) | 17,171 | 21,779 | 21,733 | (21 | ) | |||||||||||
Components of operating income
The Investment Bank generates operating income from:
141105
UBS business divisions and Corporate Center
Investment Bank
2008
Key performance indicators
As in 2007, neither thecost/income ratio nor thecompensation ratiowere meaningful in 2008 due to negative total operating income.
Results
In 2008, the Investment Bank recorded a pre-tax loss of CHF 34,092 million compared with a pre-tax loss of CHF 16,669 million in 2007, primarily due to the losses on risk positions within the fixed income, currencies and commodities (FICC) area. For full-year 2008, equities and investment banking revenues were down from a record year in 2007. A credit loss expense of CHF 2,575 million was recorded in 2008, mainly due to impairment charges taken on reclassified financial assets, as mentioned above, compared with CHF 266 million in 2007. In 2008, the Investment Bank recorded a gain on own credit from financial liabilities designated at fair value of CHF 2,032 million, resulting from the widening of UBS’s credit spread, which was partly offset by the effects of redemptions and repurchases of such liabilities. Refer to “Note 27 Fair value of financial instruments” in the financial statements of this report for more information. Operating expenses for the Investment Bank in 2008 decreased sig-nificantly from 2007, mainly reflecting lower performance-related compensation.
Operating income
Equities
Fixed income, currencies and commodities
Investment banking
106
UBS business divisions and Corporate Center |
in 2007. However, UBS improved its rank from sixth in 2007 to fifth in 2008.
Operating expenses
107
UBS business divisions and Corporate Center
Investment Bank
2007
Key performance indicators
Neither the cost / cost/income ratio nor thecompensation ratio are was meaningful in 2007 due to the negative total operating income relating to the US sub-prime crisis.income. In 2006, the cost / income ratio was 72.9%74.6% and the full-year compensation ratio 52.3%53.8%.
The Investment Bank’sgross lending portfolio in the Investment Bank was CHF 148 billion, up from CHF 120 billion on 31 December 2006, reflecting the expanding prime brokerage and exchange tradedexchange-traded derivatives businesses. The gross impaired lending portfolio to total gross lending portfolio ratio rose to 0.4% in 2007 from 0.1% in 2006.
The return on allocated regulatory capital was negative 63%, a reflection of the losses mentioned previously. The extreme market volatility since the start of third quarter 2007, which pushed up 10-day 99% VaR, has increased market risk regulatory capital requirements. Continuous high volatility, especially in credit markets, resulted in an increase in risk-weighted assets on derivative products.
142
Results
In 2007 the Investment Bank recorded a pre-tax loss of CHF 15,52516,669 million compared with a profit of CHF 5,9435,568 million in 2006, primarily due to the losses totaling approximately USD 18.7 billion (CHF 21.3 billion) recorded on positions related to the US residential sub-prime and Alt-A real estate market which more than offset the solid performance in other areas.
tioncomposition of bonus between cash and shares. This was partially offset by higher salary and general and administrative costs, driven by increased average staff levels over the year.
Operating income
Operating income by segment
Investment banking
region, especially in the Americas. While the advisory and equity capital markets businesses reported significant gains over the prior year (up 48% and 33% respectively), the debt capital markets business declined 4% as it was impacted by challenging markets in the second half of 2007.
Sales and trading
Equities
Fixed income, currencies and commodities (FICC)
143
UBS’s businessesInvestment Bank
rates business was up, driven by higher results in European derivatives. FICC income was further helped by gains of CHF 397 million on credit default swaps hedging loan exposures, compared with a loss of CHF 245 million the previous year.
108
UBS business divisions and Corporate Center |
Operating expenses
144
2006
Key performance indicators
The cost / income ratio rose to 72.9% in 2006 from 70.5% in 2005. The increase in performance-related personnel expenses and higher general and administrative expenses was only partly offset by revenue growth in all three Investment Bank business units.
Results
Pre-tax profit in 2006 was CHF 5,943 million, up 15% from 2005. This result was driven by strong revenues in equities (up 35%) and in the investment banking department (up 31%), which saw strong performances across all regions. The increase in FICC (up 14%) reflected progress in the plan to expand global syndicated finance, asset-backed securities, structured credit and the commodities businesses, as well as strong revenues in foreign exchange and cash and collateral trading. Drum’s business activities managed on behalf of the Investment Bank achieved revenues at a level consistent with 2005. Investments were also made in information technology infrastructure and more professional fees were incurred.
Operating incomeTotal operating income in 2006 was CHF 21,787 million, up 25% from CHF 17,484 million a year earlier.
Operating expensesOperating expenses rose by CHF 3,541 million to CHF 15,844 million in 2006, a 29% increase from CHF 12,303 million in 2005.
145
UBS’s businessesInvestment Bank
146109
UBS’s businessesUBS business divisions and Corporate Center
Corporate Center
Corporate CenterBusiness description
The Corporate Center partners with the business groupsdivisions to ensure that UBS operates as an effective and integratedagile firm, responding effectively to trends in the financial industry according to a common vision and set of values. The functions of Corporate Center encompass risk, financial control, treasury, communication, legal and compliance, human resources, strategy, offshoring and technology.
Aims and objectives
The Corporate Center helpsassists UBS to managein managing its complementary businesses underpinningthrough provision of Group-level control in the bank’s commitment to the “one-firm” approach.areas of finance, risk, legal and compliance. It strives to maintain an appropriate balance between risk and return in the firm’s businesses while establishing and controlling UBS’s corporate governance processes, including compliance with relevant regulations. Each functional head in the Corporate Center has authority across UBS’s businesses for his or her area of responsibility, including the authority to issue Group-wide policies for that area, and is directly reported to by theirhis or her business groupdivision counterpart.
Organizational structure
The Corporate Center consists of its operational functions plus the information technology infrastructure and Group offshoring units. It is led by the Chief Operating Officer (COO) of the Corporate Center and its operational functions are managed by the Corporate Center Executive Committee.
Chief Operating Officer of the Corporate Center
Group Chief Financial Officer
Group Chief Risk Officer
Group General Counsel
147
UBS’s businessesCorporate Center
by the Headhead of Group Compliance, the Group General Counsel is responsible for ensuring that UBS meets relevant regulatory and professional standards in the conduct of its business. Other responsibilities include supervision of the General Counsels of the business groupsdivisions and working closely with the Group CRO with regard to the operational risk aspects of legal
110
UBS business divisions and Corporate Center |
and liability risk. Furthermore, the Group General Counsel represents UBS’s interests to the policy-makers and, in close cooperation with the Group CRO and Group CFO as appropriate, establishestablishes Group-wide management and control processes for the Group’s relationship with regulators.
Group Treasurer
Head of Group Controlling & Accounting
Head of Group Tax
Head of Group Accounting Policy
Chief Communication Officer
Head of Group Strategic Advisory &
Financial Communication
Group Head Human Resources
Chief Technology Officer (CTO)
111
UBS business divisions and Corporate
Center Corporate Center
tributed computing and servers, mainframes and data centers, market data services, user services and desktop computing. The unit focuses on serving all UBS’s businesses in a client-driven and cost-efficient way, as well as building towards a consistent technical architecture across UBS through the execution of the information technology infrastructure strategy.
Head of Group Offshoring
148112
UBS business divisions and Corporate Center |
Financial resultsResults
Business group reporting
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Income | 2,873 | 1 | 294 | 455 | 877 | |||||||||||
Credit loss (expense) / recovery2 | (392 | ) | (61 | ) | 232 | (543 | ) | |||||||||
Total operating income | 2,481 | 233 | 687 | 965 | ||||||||||||
Cash components | 1,215 | 1,133 | 1,059 | 7 | ||||||||||||
Share-based components3 | 168 | 131 | 108 | 28 | ||||||||||||
Total personnel expenses | 1,383 | 1,264 | 1,167 | 9 | ||||||||||||
General and administrative expenses | 1,298 | 1,242 | 1,084 | 5 | ||||||||||||
Services (to) / from other business units | (2,194 | ) | (1,978 | ) | (1,730 | ) | (11 | ) | ||||||||
Depreciation of property and equipment | 739 | 783 | 857 | (6 | ) | |||||||||||
Amortization of intangible assets | 0 | 9 | 17 | (100 | ) | |||||||||||
Total operating expenses4 | 1,226 | 1,320 | 1,395 | (7 | ) | |||||||||||
Business group performance from continuing operations before tax | 1,255 | (1,087 | ) | (708 | ) | |||||||||||
Business group performance from discontinued operations before tax | 7 | 4 | 4,564 | 75 | ||||||||||||
Business group performance before tax | 1,262 | (1,083 | ) | 3,856 | ||||||||||||
Additional information | ||||||||||||||||
BIS risk-weighted assets | 7,984 | 8,969 | 8,143 | (11 | ) | |||||||||||
Personnel (full-time equivalents) | 6,913 | 4,771 | 3,922 | 45 | ||||||||||||
Personnel excluding information technology infrastructure (ITI) (full-time equivalents) | 2,570 | 1,716 | 1,370 | 50 | ||||||||||||
Personnel for ITI (full-time equivalents) | 4,343 | 3,055 | 2,552 | 42 | ||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||
Total operating income | 1,083 | 3,562 | 607 | (70 | ) | |||||||||||
Cash components | 1,069 | 1,244 | 1,179 | (14 | ) | |||||||||||
Share-based components1 | 7 | 121 | 140 | (94 | ) | |||||||||||
Total personnel expenses | 1,076 | 1,365 | 1,319 | (21 | ) | |||||||||||
General and administrative expenses | 1,299 | 1,306 | 1,255 | (1 | ) | |||||||||||
Services (to)/from other business units | (2,066 | ) | (2,070 | ) | (1,969 | ) | 0 | |||||||||
Depreciation of property and equipment | 720 | 739 | 782 | (3 | ) | |||||||||||
Amortization of intangible assets | 0 | 0 | 9 | |||||||||||||
Total operating expenses2 | 1,029 | 1,340 | 1,396 | (23 | ) | |||||||||||
Performance from continuing operations before tax | 54 | 2,222 | (789 | ) | (98 | ) | ||||||||||
Performance from discontinued operations before tax | 198 | 145 | 888 | 37 | ||||||||||||
Performance before tax | 252 | 2,367 | 99 | (89 | ) | |||||||||||
Contributions from private equity/Industrial Holdings | ||||||||||||||||
Total operating income | 22 | 689 | 313 | (97 | ) | |||||||||||
Total operating expenses | 54 | 163 | 67 | (67 | ) | |||||||||||
Operating profit from continuing operations before tax | (32 | ) | 526 | 246 | ||||||||||||
Profit from discontinued operations before tax | 155 | 138 | 884 | 12 | ||||||||||||
Additional information | ||||||||||||||||
BIS risk-weighted assets (CHF billion)3 | 8.8 | 10.2 | 11.5 | |||||||||||||
Personnel (full-time equivalents)4 | 7,285 | 6,913 | 4,771 | 5 | ||||||||||||
Personnel for the Operational Corporate Center (full-time equivalents) | 1,572 | 1,622 | 1,452 | (3 | ) | |||||||||||
Personnel for ITI5 (full-time equivalents) | 4,066 | 4,343 | 3,055 | (6 | ) | |||||||||||
Personnel for Group Offshoring (full-time equivalents) | 1,646 | 948 | 264 | 74 | ||||||||||||
113
UBS business divisions and Corporate
Center Corporate Center
2008
Results
The Corporate Center recorded a result from continuing operations of CHF 54 million in full-year 2008, down from a gain of CHF 2,222 million in 2007. This decline was mainly related to a charge of CHF 3.5 billion following a transaction between UBS and the Swiss National Bank (SNB) in the fourth quarter. This charge reflects a net loss arising from the acquisition of the equity purchase option, and the impact of the contingent issuance of UBS shares in connection with the transaction. The total charge also includes the fair valuation impact of the mandatory convertible notes (MCNs) placed with the Swiss Confederation. The call component of the MCNs will be revalued each quarter and UBS expects a corresponding fluctuation in the results of the Corporate Center. This fluctuation is subject to the expected volatility of the UBS share price and will continue until the conversion of the MCNs into UBS shares. The loss from the SNB transaction is reported in the Corporate Center as it benefits the whole bank and not just the Investment Bank. At the 27 November 2008 extraordinary general meeting, shareholders approved for this purpose the creation of conditional capital in the maximum amount of 365 million shares. Furthermore, 2008 was impacted by losses resulting from cash flow hedge ineffectiveness, driven by the accelerated amortization of gains recorded until November 2007.
Operating income
Operating expenses
Information technology infrastructure
In 2008, the average ITI cost per UBS employee was CHF 25,178, a CHF 1,953 decrease from CHF 27,131 the previous year. This reflects an 8% cost reduction in ITI in 2008 compared to 2007, reflecting ongoing cost-cutting initiatives and foreign exchange movements. Average UBS staff levels decreased slightly to 81,382 in 2008 from 81,715 in 2007.
114
UBS business divisions and Corporate Center |
2007
Results
The Corporate Center recorded a pre-tax profit from continuing operations of CHF 1,2552,222 million in full-year 2007. This improvement, up from a loss of CHF 1,087789 million in 2006, was related mainly related to the CHF 1,950 million gained from theUBS’s sale of aits 20.7% stake in Julius Baer. In addition, positive cash flow hedges and higher treasury income from the investment of equity also assisted the 2007 result. While all these developments helped operating income to rise, higher levels of credit loss expenses in 2007 moderated the increase.
Operating income
Operating expenses
149
UBS’s businessesCorporate Center
Information technology infrastructure
In 2007, the average ITI cost per average number of financial business employeesUBS employee was CHF 27,131, a CHF 941 decrease from CHF 28,072 the previous year. This reflectsreflected a 12% increase in the average staff levels in financial businesses from 72,885 on 31 Decemberin 2006 to 81,715 at the end of 2007.in 2007, while ITI costs only increased byonly 8% during this period, supporting business growth plans.
2006
Results
Corporate Center recorded a pre-tax loss from continuing operations of CHF 1,087 million in full-year 2006, compared with a loss of CHF 708 million in 2005. The increased loss was mainly driven by a CHF 454 million decline in operating income.
Operating incomeTotal operating income decreased to CHF 233 million in 2006 from CHF 687 million in 2005. This reflected the credit loss expense recorded in 2006, which contrasted with the credit recovery reported in 2005. It was also a result of lower income from treasury activities.
Operating expensesTotal operating expenses were CHF 1,320 million in 2006, down CHF 75 million from CHF 1,395 million in 2005. At CHF 1,264 million in 2006, personnel expenses were up 8% from CHF 1,167 million in 2005, mainly a reflection of higher personnel numbers in ITI driven by higher business demand and the hiring of people to address the growing complexity of regulatory requirements. Personnel costs increased due to higher performance-related compensation and higher expenses for share-based components as the UBS share price increased compared with 2005. In the same period, general and administrative expenses increased 15% to CHF 1,242 million from CHF 1,084 million. In ITI, expenses for rent and maintenance of IT equipment, occupancy and communications increased with higher staff levels. Costs also increased as a small portion of the provision for sub-leasing office space in the US was booked in Corporate Center. Other businesses were charged CHF 1,978 million compared to CHF 1,730 million, reflecting the business driven cost increases of ITI. Depreciation of property and equipment decreased to CHF 783 million by CHF 74 million, or 9%, as several software components came to the end of their depreciation cycle. Amortization of intangible assets was CHF 9 million in 2006, CHF 8 million below the 2005 level.
Information technology infrastructure
In 2006, the ITI cost per average number of financial business employees was CHF 28,072, up CHF 1,341 from CHF 26,731 in 2005, reflecting the impact of supporting businesses in their growth plans. This was partially offset by cost savings from centrally managing the ITI.period.
150
UBS’s businessesIndustrial Holdings
Industrial Holdings
Income statement
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Continuing operations | ||||||||||||||||
Revenues from Industrial Holdings | 268 | 262 | 229 | 2 | ||||||||||||
Other income | 680 | 303 | 566 | 124 | ||||||||||||
Total operating income | 948 | 565 | 795 | 68 | ||||||||||||
Personnel expenses | 111 | 122 | 164 | (9 | ) | |||||||||||
General and administrative expenses | 44 | 51 | 56 | (14 | ) | |||||||||||
Services (to) / from other business units | 124 | 9 | 14 | |||||||||||||
Depreciation of property and equipment | 8 | 7 | 7 | 14 | ||||||||||||
Amortization of intangible assets | 6 | 5 | 6 | 20 | ||||||||||||
Goods and materials purchased | 119 | 116 | 97 | 3 | ||||||||||||
Total operating expenses | 412 | 310 | 344 | 33 | ||||||||||||
Operating profit from continuing operations before tax | 536 | 255 | 451 | 110 | ||||||||||||
Tax expense | 36 | 34 | 169 | 6 | ||||||||||||
Net profit from continuing operations | 500 | 221 | 282 | 126 | ||||||||||||
Discontinued operations | ||||||||||||||||
Profit from discontinued operations before tax | 128 | 875 | 530 | (85 | ) | |||||||||||
Tax expense | (8 | ) | (12 | ) | 93 | 33 | ||||||||||
Net profit from discontinued operations | 136 | 887 | 437 | (85 | ) | |||||||||||
Net profit | 636 | 1,108 | 719 | (43 | ) | |||||||||||
Net profit / (loss) attributable to minority interests | 50 | 104 | 207 | (52 | ) | |||||||||||
from continuing operations | 50 | 1 | (24 | ) | ||||||||||||
from discontinued operations | 0 | 103 | 231 | (100 | ) | |||||||||||
Net profit attributable to UBS shareholders | 586 | 1,004 | 512 | (42 | ) | |||||||||||
from continuing operations | 450 | 220 | 306 | 105 | ||||||||||||
from discontinued operations | 136 | 784 | 206 | (83 | ) | |||||||||||
Additional information | ||||||||||||||||
Private equity1 | ||||||||||||||||
Investments, at cost2 | 92 | 344 | 744 | (73 | ) | |||||||||||
Gains recognized directly in equity | 76 | 517 | 264 | (85 | ) | |||||||||||
Portfolio fair value | 168 | 861 | 1,008 | (80 | ) | |||||||||||
Cost / income ratio (%)3 | 43.5 | 54.9 | 43.3 | |||||||||||||
BIS risk-weighted assets | 117 | 443 | 2,035 | (74 | ) | |||||||||||
Personnel (full-time equivalents) | 3,843 | 4,241 | 21,636 | (9 | ) | |||||||||||
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UBS’s businessesIndustrial Holdings
Major participations
The private equity investments of UBS were moved to the Industrial Holdings segment in first quarter 2005, matching the strategy of de-emphasizing and reducing exposure to this asset class while capitalizing on orderly exit opportunities as they arise.
2007
In 2007, the Industrial Holdings segment reported a net profit of CHF 636 million, of which CHF 586 million was attributable to UBS shareholders.
2006
In 2006, the Industrial Holdings segment reported a net profit attributable to UBS shareholders of CHF 1,004 million. In 2006, it completed the sale of four fully consolidated investments. The realized divestment gains are presented as discontinued operations for Industrial Holdings.
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More about UBS
Sources of information
Annual report 2007
Four reports make up UBS’s fullAnnual Report 2007.They comply with the US disclosure requirements for foreign private issuers as defined by Form 20-F of the Securities and Exchange Commission (SEC) and combine audited and non-audited information. All four reports are available in English and German (SAP no.80531). The four reports are:
Strategy, Performance and Responsibility 2007This provides a description of our firm, its strategy, organizational structure and financial performance for the last two years. It also discusses our standards for corporate behavior and responsibility, outlines demographic trends in our workforce and describes the way our people learn and are led.
Risk, Treasury and Capital Management 2007In addition to outlining the principles by which we manage and control risk, this report provides an account of developments in credit risk, market risk, operational risk and treasury management during 2007. It also provides information on UBS shares.
Corporate Governance and Compensation Report 2007Comprehensive information on our governance arrangements is included in this report, which also explains how we manage our relationships with regulators and shareholders. Compensation of senior management and the Board of Directors (executive and non-executive members) is discussed here. This report can be ordered separately (SAP no. 82307).
Financial Statements 2007This comprises the audited financial statements of UBS for 2007, 2006 and 2005, prepared according to the International Financial Reporting Standards (IFRS). It also includes the audited financial statements of UBS AG (the parent bank) for 2007 and 2006, prepared according to Swiss banking law. Additional disclosure required by Swiss and US regulations is included where appropriate.
In addition to the four reports,Review 2007is distributed broadly to UBS shareholders and contains key information on our strategy and financials. This booklet summarizes the information in the four-part annual report.
Quarterly reports
We provide detailed quarterly financial reporting and analysis, including comment on the progress of our businesses and key strategic initiatives. These quarterly reports are available in English.
How to order reports
These reports are available in PDF format on the internet atwww.ubs.com/investors/topicsin the reporting section. Printed copies can be ordered from the same website by accessing the order / subscribe panel on the right-hand side of the screen. Alternatively, they can be ordered by quoting the SAP number and the language preference where applicable, from UBS AG, Information Center, P.O. Box, CH-8098 Zurich, Switzerland.
154
Information tools for investors
WebsiteOur Analysts & Investors website atwww.ubs.com/investorsoffers a wide range of information about UBS, financial information (including SEC filings), corporate information, share price graphs and data, an event calendar, dividend information and recent presentations given by senior management to investors at external conferences. Information on the internet is available in English and German, with some sections in French and Italian.
Messaging serviceOn the Analysts & Investors website, you can register to receive news alerts about UBS via Short Messaging System (SMS) or e-mail. Messages are sent in either English or German and users are able to state their preferences for the topics of the alerts received.
Results presentationsSenior management presents UBS’s results every quarter. These presentations are broadcast live over the internet, and can be downloaded on demand. The most recent result webcasts can be found in the financials section of our Analysts & Investors website.
Form 20-F and other submissions to the US Securities and Exchange Commission
We file periodic reports and submit other information about UBS to the US Securities and Exchange Commission (SEC). Principal among these filings is our annual report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934.
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.
UBS AG is incorporated and domiciled in Switzerland and operates under Swiss Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.
The addresses and telephone numbers of our two registered offices are:
UBS AG shares are listed on the SWX Swiss Exchange (traded through its trading platform virt-x), on the New York Stock Exchange (NYSE) and on the Tokyo Stock Exchange (TSE).More about UBS
155
More about UBS
Contacts
156115
Cautionary statement regarding forward-looking statements |This report contains statements that constitute “forward-looking statements”, including but not limited to statements relating to the risks arising from the current market crisis, other risks specific to our business and the implementation of strategic initiatives, as well as other statements relating to our future business development and economic performance and our intentions with respect to future returns of capital. 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) the extent and nature of future developments in the US sub-prime market and in other market segments that have been affected by the current market crisis; (2) other market and macro-economic developments, including movements in local and international securities markets, credit spreads, currency exchange rates and interest rates, whether or not arising directly or indirectly from the current market crisis; (3) the impact of these developments on other markets and asset classes; (4) changes in internal risk control and in the regulatory capital treatment of UBS’s positions, in particular those affected by the current market crisis; (5) limitations in the effectiveness of our internal risk management processes, of our risk measurement, control and modeling systems, and of financial models generally; (6) developments relating to UBS’s access to capital and funding, including any changes in our credit ratings; (7) changes in the financial position or creditworthiness of our customers, obligors and counterparties, and developments in the markets in which they operate; (8) management changes and changes to the structure of our Business Groups; (9) the occurrence of operational failures, such as fraud, unauthorized trading, systems failures; (10) legislative, governmental and regulatory developments; (11) competitive pressures; (12) technological developments; and (13) the impact of all such future developments on positions held by UBS, on our short-term and longer-term earnings, on the cost and availability of funding and on our BIS capital ratios. In addition, these results could depend on other factors that we have previously 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 2007. UBS is not under any obligation to (and expressly disclaims any such obligation 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, GermanOrder number Annual Report 2007: SAP-No. 80531E-0801
Risk and treasury management
Contents
1
2
Introduction
Introduction
This year we have changed the structure of our annual report. Based on feedback from users, our annual report now consists of four themed reports. These combine audited and non-audited information.
The four reports are:
Strategy, Performance and Responsibility 2007This provides a description of our firm, its strategy, organizational structure and financial performance for the last two years. It also discusses our standards for corporate behavior and responsibility, outlines demographic trends in our workforce and describes the way our people learn and are led.
Risk, Treasury and Capital Management 2007In addition to outlining the principles by which we manage and control risk, this report provides an account of developments in credit risk, market risk, operational risk and treasury management during 2007. It also provides information on UBS shares.
Corporate Governance and Compensation Report 2007Comprehensive information on our governance arrangements is included in this report, which also explains how we manage our relationships with regulators and shareholders. Compensation of senior management and the Board of Directors (executive and non-executive members) is discussed here.
Financial Statements 2007This comprises the audited financial statements of UBS for 2007, 2006 and 2005, prepared according to the International Financial Reporting Standards (IFRS). It also includes the audited financial statements of UBS AG (the parent bank) for 2007 and 2006, prepared according to Swiss banking law. Additional disclosure required by Swiss and US regulations is included where appropriate.
In addition to the four reports,Review 2007is distributed broadly to UBS shareholders and contains key information on our strategy and financials. This booklet summarizes the information in the four-part annual report.
If you only ordered specific reports in prior years, please note that the former Compensation Report is now calledCorporate Governance and Compensation Report 2007,and the former Annual Review is now calledReview 2007. Our contact details are listed in the final pages of this report – please be in contact with us so that we can arrange delivery of the reports you require.
This report contains information that is current as of the date of this report. We undertake no obligation to update this information or notify you if it should change or if new information should become available.
Our aim is to provide publications that are useful and informative. In order to ensure that UBS remains among the leading providers of corporate disclosure, we would like to hear your opinions on how we can improve the content and presentation of our products (see contact details on the final pages of this report).
UBS
Audited information according to IFRS 7 and IAS 1
Risk disclosures provided in line with the requirements of the International Financial Reporting Standard 7 (IFRS 7),Financial Instruments: Disclosures,and disclosures on capital required by the International Accounting Standard 1 (IAS 1),Financial Statements: Presentationform part of the financial statements audited by UBS’s independent registered public accounting firm Ernst & Young Ltd., Basel. This information (the audited texts, tables and graphs) is marked by a bar on the left-hand side throughout this report and is incorporated by cross-reference into UBS’sFinancial Statements 2007.the financial statements of this report.
3
Risk management
– | UBS entered 2008 with significant legacy risk positions which exceeded the firm’s risk bearing capacity. Risk reduction will remain a priority for UBS until risk exposure is commensurate with the firm’s targeted risk appetite. |
UBS incurred substantial writedowns on its risk positions and actively reduced exposures through sales.Significant transactions included the sale in May 2008 of US residential mortgage-backed securities to a fund managed by BlackRock for proceeds of USD 15 billion and the agreement reached in October 2008 to transfer illiquid securities and other positions from UBS’s balance sheet to a fund owned and controlled by the Swiss National Bank (SNB).
In order to address weaknesses identified in its risk management and control organization,UBS launched an extensive remediation plan which included: the overhaul of its risk governance; significant changes to risk management and control personnel; and improvements in risk capture, risk representation and risk monitoring.
Corporate governance and risk control
Treasury management
– | UBS’s treasury department is responsible for the management of the firm’s financial resources. This includes the management of: liquidity and funding; capital and balance sheet; and interest rate and currency risks arising from balance sheet and capital management responsibilities. |
Liquidity management
Liquidity management remained challenging throughout 2008, as the financial and credit market crisis, which had its origins in the US residential mortgage market in the second half of 2007, spread and gained in intensity throughout the year.
In anticipation of an extended period of market turbulence, UBS proactively undertook several measures, starting in 2007 and continuing in 2008, to further strengthen and safeguard its liquidity position, including adjustment of short-term funding targets and increased focus on balance sheet asset reduction. Combined with the broad diversity of its funding sources, its contingency planning processes and its global scope, these additional measures have enabled UBS to maintain a balanced asset/liability profile throughout the current market dislocation.
Funding management
Despite challenging market conditions in the second half of 2008, UBS was able to maintain access to funding, primarily as a result of its broadly diversified funding base.
Risk-weighted assets and eligible capital
In 2008, risk-weighted assets declined from CHF 374.4 billion (Basel I) to CHF 302.3 billion. In this period, eligible tier 1 capital decreased from CHF 34.1 billion to CHF 33.4 billion, reflecting the effects of losses incurred during 2008 and further negative impacts on equity, only partially offset by the positive effects from issues of capital instruments.
Capital instruments
The following events occurred in 2008: issuance of CHF 13 billion of mandatory convertible notes to two long-term financial investors in March; issuance of EUR 1 billion of perpetual preferred securities as hybrid tier 1 capital in April; net increase in capital of CHF 15.6 billion from the rights issue in June; and issuance of CHF 6 billion of mandatory convertible notes to the Swiss Confederation in December.
Capital adequacy | ||||||||||||
Basel II | Basel I | |||||||||||
CHF million, except where indicated | 31.12.08 | 31.12.08 | 31.12.07 | |||||||||
BIS tier 1 capital | 33,371 | 35,884 | 34,101 | |||||||||
of which hybrid tier 1 capital | 7,393 | 7,393 | 6,387 | |||||||||
BIS total capital | 45,588 | 46,233 | 45,797 | |||||||||
BIS tier 1 capital ratio (%) | 11.0 | 9.9 | 9.1 | |||||||||
BIS total capital ratio (%) | 15.1 | 12.7 | 12.2 | |||||||||
Credit risk | 222,563 | 326,608 | 323,345 | |||||||||
Non-counterparty related risk | 7,411 | 8,826 | 8,966 | |||||||||
Market risk | 27,614 | 27,614 | 42,110 | |||||||||
Operational risk | 44,685 | N/A | N/A | |||||||||
Total BIS risk-weighted assets | 302,273 | 363,048 | 374,421 | |||||||||
Risk and treasury management
Risk management and control
Risk management and control
UBS was severely affected by the financial crisis that unfolded in 2007 and worsened in 2008. UBS entered 2008 with significant legacy risk positions, particularly related to US real estate and other credit positions, which exceeded the firm’s risk bearing capacity. As reported during 2008, UBS incurred significant losses on these positions. Risk reduction will remain a priority for UBS until risk exposure is commensurate with the firm’s targeted risk appetite. UBS identified significant weaknesses in its risk management and control organization, as well as limitations in its traditional market risk, credit risk, liquidity risk and funding risk measures (including the interplay between these measures). As a result of these weaknesses, the firm failed to adequately assess correlated risks and risk concentrations. In order to address these weaknesses, UBS launched an extensive remediation plan, which included the overhaul of its risk governance, significant changes to risk management and control personnel, as well as improvements in risk capture, risk representation and risk monitoring. Implementation of this plan is ongoing and remains a high priority for UBS. In addition, in light of the continued dislocation in financial markets, UBS has placed less emphasis on statistical models for the identification and management of risks, and more on its stress-based measures, particularly to identify and manage those portfolios considered most at risk.
Market commentary in 2008
Market conditions deteriorated progressively in 2008 culminating with weak macroeconomic data in fourth quarter 2008 which confirmed the severe downturn in the global economy. Credit markets worsened considerably over the year with the market dislocation spreading from US real estate-related markets to broader asset-backed security and credit markets, especially after the market-wide liquidity concerns engendered following the collapse of a major US investment bank in September 2008. Levels of market volatility were high throughout the year and peaked in fourth quarter, as global deleveraging and a lack of liquidity in global markets continued to distort asset prices, reducing the effectiveness of some risk mitigation techniques. Extreme market moves throughout the year caused a breakdown in the relationship between a number of trading positions and related hedges, particularly in credit and equity markets. Hedge funds experienced significant redemptions in the second half of the year as performance suffered. In the last four months of the year, central banks and governments reacted with increasing urgency to the escalating financial crisis with a series of measures which attempted to stabilize financial markets and support specific financial institutions.
Summary of key developments in 2008
The important developments that took place in 2008 with regard to risk management and control include:
– | UBS incurred substantial writedowns on its risk positions and actively reduced exposures through sales. Significant |
transactions included the sale in May of US residential mortgage-backed securities to a fund managed by BlackRock for proceeds of USD 15 billion and the agreement reached in October to transfer illiquid securities and other positions from UBS’s balance sheet to a fund owned and controlled by the SNB. From an originally agreed USD 60 billion, the size of the transaction has been reduced to USD 38.6 billion. UBS will continue its program of active risk reduction. | ||
– | UBS strengthened the roles and responsibilities of its Board of Directors (BoD) and executive management with regard to risk management and control. The BoD has been allocated responsibility for setting the highest-level portfolio and concentration risk measures and limits, while the Group Chief Executive Officer (Group CEO) is authorized to apply these measures and limits to specific transactions, positions and exposures. A new BoD risk committee was established to take on some of the responsibilities of the former Chairman’s Office. | |
– | UBS integrated its approach to risk control by merging the market and credit risk functions of the Investment Bank into a single unit. A new Chief Risk Officer (CRO) was appointed in the Investment Bank to oversee credit risk and market risk on a combined basis as well as operational risk. Several other changes to senior personnel in the Investment Bank CRO organization were also made. The Corporate Center risk function was reorganized, resulting in the formation of a unit to focus on the control of portfolio and concentration risks and a combined function to determine methodologies to measure and assess market and credit risk. UBS also made a number of other changes to senior personnel in order to strengthen its risk management and control organization. These included |
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Developments in 2007
Many parts of UBS’s risk management and control framework were resilientin the face of 2007’s stressful market conditions
Credit risk:
the | ||||||
– | In the third quarter, the Swiss Financial Market Supervisory Authority (FINMA, until 31 December 2008 Swiss Federal Banking Commission) concluded its investigation into the causes of the significant writedowns incurred by UBS. It confirmed UBS’s own conclusions in all material aspects. UBS developed a comprehensive and detailed plan to eliminate the weaknesses it identified, including those related to risk management and control (for example UBS’s market and credit risk functions had failed to identify certain significant portfolio and concentration risks, and there were weaknesses identified in risk systems and infrastructure). Delivery against this plan remains broadly in line with expectations and is a high priority for UBS. | |||||
Risk management and control principles | ||||||
Market risk:
Recent enhancements to market risk management and control
Risk management:Repositioning of the Investment Bank’s fixed income, currencies and commodities (FICC) business:
Risk management and valuation models for products related to US residential mortgages have been refined and recalibrated to reflect current projections and market prices
Risk control:
4
Disclosed risk concentrations
US sub-prime residential mortgages:
US Alt-A residential mortgages:
US commercial real estate exposures:
US reference-linked note program
Monoline insurers
Auction rate certificates
Leveraged finance deals
Disclosure is detailed on pages 11-14 of this report
5
Risk managementRisk management and control
Risk management and control
| |||
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– | |||
– | |||
– | Disclosure of risk. Comprehensive, transparent and objectiverisk disclosure | ||
– | Earnings protection. UBS aims to protect earnings | ||
– | |||
The risk assessment and management performed by the BoD is in line with the statutory requirements and so is the related disclosure in this section. | ||||
Risk management and control responsibilities | ||||
Key roles and responsibilities related to risk management and control are outlined below: | ||||
– | The | |||
– | The GEB is responsible for the implementation of risk management and control principles. Its newly established Executive Committee (EC) allocates the Group’s total risk capacity amongst the business divisions, controls the firm’s overall risk profile and approves the core risk policies. | |||
– | In line with UBS’s dual board structure, the authority to control risk is split between the BoD and the Group CEO. The BoD has risk control authority for portfolio and concentration limits, while the Group CEO has risk control authority for the firm’s transactions, positions and exposures. These risk control authorities, however, are partially delegated to the Group CRO and the CEOs of each business division. Risk officers in the business divisions may also be delegated certain risk control authorities depending on their experience and portfolio responsibility. | |||
– | The CEO of each business division is accountable for the results and risks of his or her division as well as maintaining an appropriate risk management structure. | |||
– | The Group CRO is responsible for the development and implementation of appropriate control frameworks for credit, market and operational risks with support from the business divisions through their CROs. In addition, risk functions within the Corporate Center support the control of portfolio and concentration risks, the determination of methodologies to measure and assess risk, and the development and operation of appropriate risk infrastructure (including reporting). | |||
– | The CROs of the business divisions are responsible for the independent control of risk in their respective business divisions. | |||
– | The Group CFO is responsible for ensuring that UBS and its business divisions disclose their financial | |||
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Risk management and control
Corporate governance and risk control
– | TheGroup General Counselis responsible for implementing |
6
Risk management and control framework
| ||||||
| ||||||
UBS’s risk management and control principles are implemented via a detailed risk management and control framework. The framework comprises both qualitative elements such as policies and authorities, and quantitative components including limits. With the risk management and controls principles as its basis, the framework is continually adapted and enhanced as UBS’s businesses and the market environment evolve. | ||||||
There are five key | ||||||
– | ||||||
– |
– | ||
– | ||
– | Transparent |
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Risk and treasury management |
| ||||||
Risk categories | ||||||
The risks faced by UBS’s businesses can be broken down into different categories. | ||||||
On the most fundamental level there are | ||||||
Primary andoperational risks | ||||||
Primary risksare: | ||||||
– | Credit risk– | |||||
– | ||||||
– | ||||||
– | Operational riskis the risk of loss resulting from inadequate or failed internal processes, people and systems (for example failed IT systems, or fraud perpetrated by a UBS employee), or from external causes, whether deliberate, accidental or natural. | |||||
èRefer to the “Market risk”, “Credit risk”, “Operational risk” and “Liquidity and funding management” sections of this report for a description of the control frameworks for these risk categories | ||||||
Quantitative controls | ||||||
|
Expected lossis the loss that is expected to arise on average over time in connection with an | ||||
Statistical loss measures, such as Value at Risk (“VaR”), estimate the amount by which actual | ||||
Stress lossis the loss that could arise from extreme events, typically beyond the confidence level of the statistical loss estimate, and is normally a scenario-based measure. | ||||
These risk measures are typically applied at a portfolio level. They are complemented by controls such as targeted stress measures for concentrated exposures and vulnerable portfolios, sub-portfolios or positions. Concentration | ||||
| ||||
èRefer to the “Risk concentrations”, section of this report for more information on risk exposures and identified risk concentrations | ||||
| ||||
Although measurement of risk is clearly important, not all risks are quantifiable. Due diligence, sound judgment, common sense and an appreciation of a wide range of potential outcomes, including a willingness to challenge assumptions, are key components of a strong risk culture for both risk management and risk control. UBS has reinforced its qualitative risk controls through changes to its risk management and control organization, as described above in the summary of key developments in 2008 section, as well as through education programs. | ||||
Earnings-at-risk and capital-at-risk | ||||
To complement | ||||
Earnings-at-risk focuses on UBS’s ability to absorb losses through its current earnings. It is an integral part of the risk |
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Risk management and control
committee and the potential loss inherent in its business in the current economic cycle, across all business lines, and from all major sources, including primary risks, operational risks and business risks.
The pattern of UBS’s lossesreduction in risk exposure that was unexpected – a limited area experiencing extreme writedowns while other areas maintained strong or even record performance. In these circumstances, there was less flexibility to adjust performance-related compensation than had previously been assumed. This,achieved through sales (including transactions with BlackRock and the actual losses experienced, reduced measuredSNB) in addition to the significant writedowns incurred on risk capacity.
9
Risk managementRisk management and control
to UBS’s minimum regulatory capital requirement and is set at a 99% confidence level or a “once in 100 years event”. The second is in relation to the second in termssolvency of solvency.UBS and is set at a confidence level exceeding 99.9%.
Like Earnings-at-risk, Capital-at-riskearnings-at-risk, capital-at-risk also relies on the day-to-day risk control measures and will potentially underestimate aggregate exposure if these measures do not fully capture the risks. As the underlying systems are enhanced – a process which is already in hand – the measures of aggregate risk exposure will also improve, and in the meantime supplementary estimates will continue to be incorporated. Furthermore, as a result of the events of 2007, UBS has gained a better understanding of the dynamics of the risk capacity and exposure measures and of the interplay between differ-
ent measures of capacity – in particular the relationship between risk management, treasury management and capital management measures.
Qualitative controls
Although measurement of risk is clearly important, quantification does not always tell the whole story, and not all risks are quantifiable. Due diligence, sound judgment, common sense and an appreciation of a wide range of potential outcomes – including a willingness to challenge assumptions–are key components of a strong risk culture for both risk management and risk control. UBS’s risk measures did not adequately identify risks in the US residential mortgage markets in 2007, and qualitative assessments equally did not fully appreciate the range of potential outcomes and the deep tail risk in the portfolio. UBS will learn from this experience and will strive to strengthen its risk culture accordingly.
10124
Risk managementRisk concentrations
Risk and treasury management |
Risk concentrations
Risk concentrations | ||||
A concentration of risk exists | ||||
The identification of risk concentrations | ||||
UBS is exposed to price risk, basis risk, credit spread risk and default risk, other | ||||
port for more information on the risk | ||||
If a risk concentration is identified, it is assessed to determine whether it should be reduced or | ||||
Identified risk concentrations | ||||
Based on | ||||
UBS has significant lending, counterparty and country risk exposures that could sustain significant losses if the current economic conditions were to persist. Refer to the “Credit risk” section of this | ||||
It is |
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Exposure to monoline insurers, by rating1 | ||||||||||||||||||||||
USD million, unless otherwise stated | 31.12.08 | |||||||||||||||||||||
Fair value of CDSs | Fair value of CDSs | |||||||||||||||||||||
prior to credit | Credit valuation | after credit | ||||||||||||||||||||
Fair value of | valuation | adjustment on | valuation | |||||||||||||||||||
Notional amount3 | underlying CDOs4 | adjustment5 | 31.12.08 | adjustment | ||||||||||||||||||
Column 1 | Column 2 | Column 3 (=1–2) | Column 4 | Column 5 (=3–4) | ||||||||||||||||||
Credit protection on US RMBS CDOs2 | 9,111 | 1,695 | 7,415 | 4,659 | 2,756 | |||||||||||||||||
of which: from monolines rated AAA to A | 23 | 12 | 11 | 4 | 6 | |||||||||||||||||
on US sub-prime residential mortgage-backed securities (RMBS) CDOs high grade | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||
on US sub-prime RMBS CDOs mezzanine | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||
on other US RMBS CDOs | 23 | 12 | 11 | 4 | 6 | |||||||||||||||||
of which: from monolines rated BBB and below | 9,088 | 1,683 | 7,404 | 4,655 | 2,750 | |||||||||||||||||
on US sub-prime residential mortgage-backed securities (RMBS) CDOs high grade | 6,222 | 952 | 5,269 | 2,961 | 2,308 | |||||||||||||||||
on US sub-prime RMBS CDOs mezzanine | 1,092 | 28 | 1,064 | 897 | 167 | |||||||||||||||||
on other US RMBS CDOs | 1,774 | 703 | 1,071 | 797 | 275 | |||||||||||||||||
Credit protection on other assets2 | 12,424 | 7,509 | 4,914 | 2,335 | 2,579 | |||||||||||||||||
of which: from monolines rated AAA to A | 2,399 | 1,568 | 830 | 334 | 496 | |||||||||||||||||
of which: from monolines rated BBB and below | 10,025 | 5,941 | 4,084 | 2,001 | 2,083 | |||||||||||||||||
Total 31.12.08 | 21,535 | 9,204 | 12,329 | 6,994 | 5,335 | |||||||||||||||||
Total 31.12.07 (USD billion) | 24.2 | 19.7 | 4.5 | 0.9 | 3.6 | |||||||||||||||||
1 Excludes the benefit of credit protection purchased from unrelated third parties. 2 Categorization based on the lowest insurance financial strength rating assigned by external rating agencies. 3 Represents gross notional amount of credit default swaps (CDSs) purchased as credit protection. 4 Collateralized debt obligations (CDOs). 5 Credit default swaps. |
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Risk managementRisk concentrations
US reference-linked notes program exposure | ||||||||||||||
31.12.071 | ||||||||||||||
USD billion | Assets held | Credit protection remaining | Net exposures | |||||||||||
Market value | 13.2 | 2.0 | 11.2 | |||||||||||
Of which | ||||||||||||||
sub-prime and Alt-A | 4.4 | 0.6 | 3.8 | |||||||||||
commercial mortgage-backed securities (CMBS) | 3.6 | 0.6 | 3.0 | |||||||||||
other | 5.2 | 0.8 | 4.4 | |||||||||||
1 Equivalent positions at 31 December 2006 were: assets held USD 20.8 billion, of which sub-prime and Alt-A USD 9.9 billion, commercial mortgage-backed securities (CMBS) USD 3.7 billion; net exposure USD 17.2 billion, of which sub-prime and Alt-A USD 7.9 billion, CMBS USD 3.1 billion. |
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Exposure1 to monoline insurers, by rating | ||||||||||||||||||||||
31.12.07 | ||||||||||||||||||||||
Fair value of CDSs | ||||||||||||||||||||||
Fair value of CDSs5 | Credit valuation | after credit | ||||||||||||||||||||
Fair value of | prior to credit valu- | adjustment in | valuation | |||||||||||||||||||
USD billion | Notional amount3 | underlying CDOs4 | ation adjustment | 2007 | adjustment | |||||||||||||||||
Credit protection bought from monoline insurers rated2 | Column 1 | Column 2 | Column 3 (=1–2) | Column 4 | Column 5 (=3–4) | |||||||||||||||||
A or higher | ||||||||||||||||||||||
on US sub-prime residential mortgage-backed securities (RMBS) CDOs high grade | 7.1 | 4.7 | 2.4 | 0.2 | 2.2 | |||||||||||||||||
on US sub-prime RMBS CDOs mezzanine | 1.1 | 0.6 | 0.5 | 0.0 | 0.5 | |||||||||||||||||
on other US RMBS CDO | 1.0 | 0.8 | 0.2 | 0.0 | 0.2 | |||||||||||||||||
Total | 9.2 | 6.1 | 3.1 | 0.2 | 2.9 | |||||||||||||||||
Non-investment grade or unrated | ||||||||||||||||||||||
on US sub-prime RMBS CDOs high grade | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||||||||||
on US sub-prime RMBS CDOs mezzanine | 1.6 | 1.1 | 6 | 0.5 | 0.4 | 0.1 | ||||||||||||||||
on other US RMBS CDO | 0.8 | 0.6 | 6 | 0.2 | 0.2 | 0.0 | ||||||||||||||||
Total | 2.4 | 1.7 | 6 | 0.7 | 0.6 | 0.1 | ||||||||||||||||
Credit protection on US RMBS CDO | 11.6 | 7 | 7.8 | 3.8 | 0.8 | 3.0 | 7 | |||||||||||||||
Credit protection on other than US RMBS CDOs | 12.6 | 7 | 11.9 | 0.7 | 0.1 | 0.6 | 7 | |||||||||||||||
1 Excludes the benefit of credit protection purchased from unrelated third parties. 2 Categorization based on the lowest insurance financial strength rating assigned by external rating agencies. 3 Represents gross notional amount of credit default swaps (CDSs) purchased as credit protection. 4 Collateralized debt obligations (CDOs). 5 Credit default swaps (CDSs). 6 Remaining credit protection from non-investment grade monoline of USD 1.2 billion on sub-prime residential mortgage-backed securities (RMBS) CDOs and USD 0.6 billion on other RMBS CDOs is considered ineffective. 7 As of 31 December 2006, the notional amount of CDSs on US RMBS CDOs bought from monoline insurers was USD 6.7 billion and on other exposures USD 7.8 billion. The fair values of these CDSs were zero at that date. |
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The vast majority of UBS’s direct exposure to |
the monoline insurers during the year. | ||||||||
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Risk managementRisk concentrations
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The table on the previous page shows the CDS protection bought from monoline | ||||
Other than credit protection bought on the positions detailed in the table on the previous page, UBS held direct derivative exposure to monolines of USD 437 million after CVAs of USD 499 million on 31 December 2008. In its trading portfolio, UBS also programs. These |
Exposure to auction rate securities
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Auction rate | acted as broker-dealer for certain ARS programs. Although it is not obligated to do so, UBS has in the past provided liquidity, from time to time, to these markets by submitting bids to ARS auctions and acquired ARS inventory in the first half of 2008 as a result. As described in the “Changes in 2008” section of UBS’s fourth quarter report, UBS and the Swiss National Bank (SNB) agreed that UBS’s student loan ARS positions will not be sold to the SNB fund. UBS’s inventory of student loan ARS was reclassified from “held for trading” to “loans and receivables” on 31 December 2008 and the student loan ARS repurchased from clients in fourth quarter 2008 were also |
Auction rate securities exposure | ||||||||||
Net exposures on | Net exposures on | |||||||||
31.12.081,2 (USD million) | 31.12.071 (USD billion) | |||||||||
US student loan auction rate securities | 8,362 | 4.5 | ||||||||
US municipal auction rate securities | 451 | 1.4 | ||||||||
US taxable auction preferred securities | 782 | |||||||||
US tax-exempt auction preferred securities | 3,167 | |||||||||
Total | 12,763 | 5.9 | ||||||||
1 Net exposure represents market value of gross exposure net of short positions and hedges considered effective. 2 On 31 December 2008, USD 4.6 billion of the US student loan auction rate securities were monoline wrapped. |
classified as loans and receivables. Under their new classification, all student loan ARS positions held by UBS are subject to an impairment test which includes a detailed review of the quality of the underlying collateral. In fourth quarter 2008 UBS carried out a fundamental analysis of its student loan ARS inventory as well as client positions included in the buy-back program (refer to “Maximum exposure to client auction rate securities” on the next page for more information). The majority of the collateral backing the securities is backed by Federal Family Education Loan Program (FFELP) which is reinsured by the US Department of Education. Auction preferred stocks (APS) are issued by closed-end mutual funds with an underlying portfolio of tax-exempt municipal bonds, common stock, preferred stock, or taxable debt. A closed-end fund is a publicly traded investment company registered under the Investment Company Act of 1940. The Investment Company Act of 1940 requires significant over-collateralization which benefits the APS holders. |
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had a net market value of approximately USD 5.5 billion on 31 December 2008. Exposure to leveraged finance deals UBS defines leveraged finance deals according to internal credit ratings, which correspond with external corporate credit ratings of BB– or worse at the point of reporting and included underwritten positions that experienced a rating downgrade in 2008. The net exposure to leveraged finance commitments held by UBS was reduced significantly in 2008 to USD 4,009 million at 31 December 2008, of which USD 3,161 million was funded. Leveraged finance exposures on 31 December 2008 are shown net of cumulative gross writedowns and impairment charges, as well as effective hedges. Exposure to leveraged finance commitments, net of effective hedges, at 31 December 2007 was USD 11.4 billion, of which USD 7.4 billion was funded. The net exposure at this date, after deductions of cumulative gross markdowns, was USD 11 billion. |
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On 31 December 2008, UBS had student loan ARS positions with a carrying value totaling USD 8.4 billion, of which approximately 66% of the securities in the portfolio was backed by FFELP guaranteed collateral. On the same date, UBS had exposures to US auction preferred securities of USD 4.0 billion. Maximum exposure to client auction rate securities UBS has committed to restore liquidity to client holdings of ARS. This commitment is in line with previously announced agreements in principle with various US regulatory agencies, and the final settlements entered into |
with the Massachusetts Securities Division, the US Securities and Exchange Commission, and the New York Attorney General. On 7 October 2008, UBS filed a registration statement with the US Securities and Exchange Commission for Auction Rate Securities Rights necessary to offer clients the right to sell their ARS to UBS at par value during their buy-back period. The table below shows the maximum required repurchase amount at par of ARS, which would occur over various time periods between 31 October 2008 and 2 July 2012 according to client type and security. UBS anticipates that the maximum required repurchase |
amount is likely to decline over time as issuers refinance their debt obligations and UBS works with issuers, industry peers and US government officials on restructuring initiatives and redemption opportunities. Approximately 88% of the USD 11.8 billion student loan ARS held by clients are backed by FFELP guaranteed collateral. Following the start of the buy-back program in fourth quarter 2008, UBS repurchased approximately USD 0.5 billion of US student loan ARS, USD 0.2 billion of US municipal ARS, USD 0.6 billion of US taxable auction preferred securities (APS) and USD 3.2 billion of US tax exempt APS from clients. |
Client holdings: auction rate securities | ||||||||||||||||||
Buy-back period | ||||||||||||||||||
Par value of maximum required purchase on 31.12.08 | Private clients | Institutional clients | ||||||||||||||||
USD million | 31.10.08–4.1.11 | 2.1.09–4.1.11 | 30.6.10–2.7.12 | |||||||||||||||
US student loan auction rate securities | 11,775 | 41 | 3,196 | 8,538 | ||||||||||||||
US municipal auction rate securities | 2,041 | 144 | 1,589 | 308 | ||||||||||||||
US taxable auction preferred securities | 1,659 | 161 | 1,202 | 296 | ||||||||||||||
US tax-exempt auction preferred securities | 64 | 64 | – | – | ||||||||||||||
Total | 15,539 | 410 | 5,987 | 9,142 | ||||||||||||||
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Risk management and control
Market risk
Market risk is the risk of loss from changes in market variables. There are two broad categories of changes: general market risk factors and idiosyncratic components. General market risk factors are driven by macroeconomic, geopolitical and other market-wide considerations, independent of any instrument or single issuer or counterparty. They include such things as interest rates, the levels of equity market indices, exchange rates, commodities (including the price of energy and metals), as well as general credit spreads. The associated volatility of these risk factors and the correlations between them are also considered to be general market risk factors. Idiosyncratic components, on the other hand, are those that cannot be explained by general market moves. Broadly they are the elements of the prices of debt and equity instruments, as well as derivatives linked to them, which result from factors and events specific to individual companies or entities. Sources of market risk UBS takes both general and idiosyncratic market risks in its trading activities, and some non-trading businesses are also subject to general market risks. Trading Most of UBS’s trading activity is in the Investment Bank. During 2008 it included market-making, facilitation of client business and proprietary position taking in the cash and derivative markets for equities, fixed income, interest rates, foreign exchange, energy, metals and commodities. However, the Investment Bank is being | ||||
repositioned to focus primarily on client activities. In addition to the planned exit from municipals, proprietary trading and commodities (excluding precious metals) businesses, the Investment Bank will also largely exit its remaining real estate and securitization activities as well as the exotic structured products business. Refer to the “Investment Bank” section of this report for further information. | ||||
The largest contributor to market risk within the Investment Bank has been the fixed income trading area. This business area has been progressively reducing risk positions. Those that remain relate to corporate and consumer credit markets, US municipal and student loan markets, as well as significantly reduced positions in asset-backed securities (including residential and commercial real estate). | ||||
The relative contribution from a market risk perspective from equities, currencies and commodities has been modest compared to that seen in the fixed income trading area. | ||||
Trading businesses are subject to multiple market risk limits. Traders are required to manage their risks within these limits which in turn may involve employing hedging and risk |
mitigation strategies. These strategies can expose UBS to risk as the hedge instrument and the position being hedged may not always move in parallel (often referred to as “basis risk”). Senior management and risk controllers may also give instructions for risk to be reduced, even when limits are not exceeded, if particular positions or the general levels of exposure are considered inappropriate. | ||||
The asset management and wealth management businesses carry small trading positions, principally to support client activity. The market risk from these positions is not material to UBS as a whole. UBS has also bought and may be required to buy securities and units from funds that UBS has sold to clients, which may be exposed to market risk. These positions are managed as investment positions. Refer to the “Equity investments” section below for further information. Non-trading In the Investment Bank, significant non-trading interest rate risk and all non-trading foreign exchange risks are captured, controlled and reported under the same risk management and control framework as trading risk. | ||||
In the other business divisions, exposures to general market risk factors – primarily interest rates and exchange rates – also arise from non-trading activities (the largest items are the interest rate risks in Global Wealth Management & Business Banking). These market risks are generally transferred to the Investment Bank or Group Treasury, which manage the positions as part of their overall portfolios within their allocated limits. | ||||
Market risks that are retained by the other business divisions are not significant relative to UBS’s overall risk, and exposures are subject to market risk measures and controls. With the exception of structural currency exposures which arise from Group Treasury’s management of consolidated capital, non-trading currency and commodity positions are subject to market risk regulatory capital and are therefore captured in VaR, although such positions do not contribute significantly to overall VaR. | ||||
Group Treasury also assumes market risk from its funding, balance sheet and capital management responsibilities. For example, it finances non-monetary balance sheet items such as bank property and equity investments in associated companies. It also manages interest rate and foreign exchange risks resulting from the deployment of UBS’s consolidated equity, from structural foreign exchange positions and from non-Swiss franc revenues and costs. The market risk limits allocated to Group Treasury cover both the risks resulting from these responsibilities, and those transferred from other business divisions. | ||||
èRefer to the “Treasury management” section of this report for more information on Group Treasury’s risk management activities. |
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Measuring market risk UBS has two major portfolio measures of market risk – VaR and stress loss – which are common to all business divisions. They are complemented by concentration and other supplementary limits on portfolios, sub-portfolios, asset classes or products for specific purposes where standard limits are not considered to provide comprehensive control. They may also be applied to complex products for which not all model input parameters are observable, and which thus create challenges for valuation and risk measurement. Operational limits can take a variety of forms including values (market, nominal or notional) or risk sensitivities (a measure of exposure to a given risk factor such as interest rates or credit spreads). These “operational limits” are intended to address concerns about the | ||||
Market risk limits are set for each of the Value at Risk (VaR) VaR is a statistical estimate of potential loss from adverse movements in market risk factors. A single VaR model is used for | ||||
UBS measures VaR using a 10-day time horizon for regulatory and for internal purposes, while VaR backtesting is based on a 1-day time horizon (refer to the discussion on backtesting below for more information). VaR is calculated daily, based on end-of-day positions, and is not subsequently restated to reflect any retrospective adjustments to position valuations. VaR models are based on historical data and thus implicitly assume that market moves over the next 10 days or one day will follow a similar pattern to those that have occurred over 10-day and one-day periods in the past. UBS uses a look-back period of five years which generally captures the cyclical nature of financial markets but may be slow to react to periods of heightened volatility. UBS applies these historical changes directly to current positions, a method known as historical simulation. |
Realized market losses can differ from those implied by the VaR measure for many reasons. All VaR measures are subject to limitations and must be interpreted accordingly. The losses experienced by UBS in 2008 highlight the limitations of VaR as an absolute measure of risk and reinforce the need for multiple views of risk exposure. As an essential complement to VaR, UBS applies stress scenarios reflecting different combinations of market moves intended to capture a range of potential stress events, and more targeted stress tests for concentrated exposures and vulnerable portfolios. VaR developments in 2008 UBS made a number of | ||||
– | From 1 January 2008, UBS changed its approach to internal risk control for illiquid | |||
– | In second quarter 2008, positions in student | |||
– | Enhancements to the | |||
– | UBS | |||
– | In fourth quarter 2008, UBS introduced additional granularity between certain cost of funding measures – Libor |
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Risk management and control
and the overnight index swap (OIS) rate. In addition, UBS excluded positions | ||||
– | UBS continues to review the performance of its VaR implementation and will continue to enhance its VaR model to more accurately capture the relationships between market risks associated with certain risk positions, as well as the revenue of large market movements for some trading positions. | |||
Backtesting The accuracy of the | ||||
VaR based on a one-day horizon provides an estimate of the range of daily mark-to-market revenues on trading |
positions under normal market conditions similar to those experienced during the historical period used in the model. As UBS’s VaR model uses a look-back period of five years it does not respond quickly to periods of heightened volatility as experienced in 2008. When 1-day regulatory VaR is measured at a 99% confidence level, such an exception can be expected, on average, to occur on one in a hundred business days. More frequent backtesting exceptions may occur if market moves are greater than those seen in the look-back period, the frequency of large moves increases, or historical correlations and relationships between markets or variables break down (for example, in a period of extreme market disruption or an extreme stress event). Backtesting exceptions are also likely to arise if the way positions are represented in VaR does not adequately capture all their differentiating characteristics or the relationships between them. | ||||
UBS experienced 50 backtesting exceptions in 2008 compared with 29 backtesting exceptions in 2007. | ||||
The extreme market movements in a number of risk factors combined with a breakdown in traditional relationships between trading positions and their corresponding hedges (basis risk) were |
Investment Bank: backtesting revenue1 distribution
Investment Bank: analysis of negative backtesting revenues1
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Risk and treasury management |
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The first histogram on the previous page shows daily backtesting revenues in the Investment Bank for the whole of 2008. In the second histogram, the daily backtesting revenues are compared with the corresponding VaR over the same 12-month period for days when backtesting revenues were negative. A positive result in this histogram represents a loss less than VaR while a negative result represents a loss greater than VaR and therefore a backtesting exception. | ||||
All backtesting exceptions and any exceptional revenues on the profit side of the VaR distribution are investigated. In |
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Backtesting exceptions are also reported to internal and external auditors and relevant regulators. | ||||
Stress loss The purpose of stress testing is to quantify exposure to extreme and unusual market |
Investment Bank: Value-at-Risk (10-day, 99% confidence, 5 years of historical data)1 | ||||||||||||||||||||||||||||||||||||
Year ended 31.12.08 | Year ended 31.12.07 | |||||||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.08 | Min. | Max. | Average | 31.12.07 | ||||||||||||||||||||||||||||
Risk type | ||||||||||||||||||||||||||||||||||||
Equities | 82 | 185 | 131 | 117 | 147 | 415 | 209 | 164 | ||||||||||||||||||||||||||||
Interest rates (including credit spreads) | 217 | 659 | 397 | 544 | 260 | 858 | 450 | 548 | ||||||||||||||||||||||||||||
Foreign exchange | 12 | 58 | 28 | 30 | 9 | 73 | 28 | 21 | ||||||||||||||||||||||||||||
Energy, metals and commodities | 14 | 60 | 30 | 22 | 24 | 90 | 51 | 41 | ||||||||||||||||||||||||||||
Diversification effect | 2 | 2 | (212 | ) | (229 | ) | 2 | 2 | (225 | ) | (223 | ) | ||||||||||||||||||||||||
Total regulatory VaR | 240 | 601 | 374 | 485 | 276 | 820 | 514 | 552 | ||||||||||||||||||||||||||||
Diversification effect (%) | (36% | ) | (32% | ) | (30% | ) | (29% | ) | ||||||||||||||||||||||||||||
Management VaR1,3 | 239 | 499 | 316 | 424 | 291 | 836 | 537 | 614 | ||||||||||||||||||||||||||||
1 From 1 January 2008, excludes US residential sub-prime and Alt-A mortgage-related exposures, super senior RMBS CDOs and the US reference-linked note program, and related hedges. 2 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect. 3 Includes all positions subject to internal management VaR limits (including CVAs since 3Q 2008). | ||||||||||||||||||||||||||||||||||||
UBS Group: Value-at-Risk (10-day, 99% confidence, 5 years of historical data)1 | ||||||||||||||||||||||||||||||||||||
Year ended 31.12.08 | Year ended 31.12.07 | |||||||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.08 | Min. | Max. | Average | 31.12.07 | ||||||||||||||||||||||||||||
Business divisions | ||||||||||||||||||||||||||||||||||||
Investment Bank1 | 240 | 601 | 374 | 485 | 276 | 820 | 514 | 552 | ||||||||||||||||||||||||||||
Global Asset Management | 1 | 7 | 2 | 6 | 2 | 10 | 4 | 3 | ||||||||||||||||||||||||||||
Global Wealth Management & Business Banking | 1 | 17 | 4 | 16 | 2 | 5 | 3 | 2 | ||||||||||||||||||||||||||||
Corporate Center2 | 3 | 93 | 26 | 10 | 1 | 87 | 18 | 21 | ||||||||||||||||||||||||||||
Diversification effect | 3 | 3 | (34 | ) | (25 | ) | 3 | 3 | (29 | ) | (29 | ) | ||||||||||||||||||||||||
Total regulatory VaR | 246 | 609 | 373 | 492 | 273 | 814 | 509 | 548 | ||||||||||||||||||||||||||||
Diversification effect (%) | (8% | ) | (5% | ) | (5% | ) | (5% | ) | ||||||||||||||||||||||||||||
Management VaR1, 4 | 246 | 521 | 320 | 459 | 288 | 833 | 535 | 588 | ||||||||||||||||||||||||||||
1 From 1 January 2008, excludes US residential sub-prime and Alt-A mortgage-related exposures, super senior RMBS CDOs and the US reference-linked note program, and related hedges. 2 The Corporate Center regulatory VaR only includes FX risk of Group Treasury. 3 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect. 4 Includes all positions subject to internal management VaR limits (including CVAs since 3Q 2008). | ||||||||||||||||||||||||||||||||||||
UBS: Value-at-Risk (1-day, 99% confidence, 5 years of historical data)1 | ||||||||||||||||||||||||||||||||||||
Year ended 31.12.08 | Year ended 31.12.07 | |||||||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.08 | Min. | Max. | Average | 31.12.07 | ||||||||||||||||||||||||||||
Investment Bank | Regulatory VaR2 | 96 | 210 | 132 | 162 | 122 | 249 | 160 | 134 | |||||||||||||||||||||||||||
Management VaR3 | 101 | 171 | 125 | 160 | 124 | 253 | 164 | 149 | ||||||||||||||||||||||||||||
UBS | Regulatory VaR2 | 97 | 207 | 133 | 163 | 122 | 249 | 159 | 136 | |||||||||||||||||||||||||||
Management VaR3 | 101 | 169 | 125 | 159 | 126 | 254 | 165 | 152 | ||||||||||||||||||||||||||||
1 10-day and 1-day Value at Risk (VaR) results are separately calculated from underlying positions and historical market moves. They cannot be inferred from each other. From 1 January 2008, excludes US residential sub-prime and Alt-A mortgage-related exposures, super senior RMBS CDOs and the US reference-linked note program, and related hedges. 2 Backtesting is based on regulatory capital VaR. 3 Includes all positions subject to internal management VaR limits (including CVAs since 3Q 2008). |
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Risk and treasury managementCreditRisk management and control
stress testing are to explore a wide range of possible outcomes, to understand vulnerabilities, and to provide a control framework that is comprehensive, transparent and responsive to changing market conditions.
moves actually seen in a stress event, and actual events may differ significantly from those modeled in the stress scenarios. | ||||
Most major financial institutions employ stress tests, but their approaches differ widely and there is no benchmark or industry standard in terms of scenarios or the way they are applied to an institution’s positions. 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 that is relevant to one institution may have no relevance to another. Comparisons of stress results between institutions can therefore be highly misleading, and for this reason UBS, like most of its peers, does not publish quantitative stress results. Concentration limits and other controls | ||||
UBS applies concentration limits on exposures to general market risk factors and to single name exposures. The limits take account of variations in price volatility and market depth and liquidity. | ||||
In the Investment Bank, limits are placed on exposures to individual risk factors. They are applied to general market risk factors such as interest rates, credit spreads, equity indices and foreign exchange rates or groups of highly correlated factors based on assumed moves in the risk factors broadly consistent with the terms of UBS’s VaR measure. Each limit applies to exposures arising from all instrument types in all trading businesses of the Investment Bank. The assumed moves in risk factors are updated in line with the VaR historical time series and the limits are reviewed annually or as necessary to reflect market conditions.The effectiveness of risk factor limits in controlling concentrations of risk depends critically upon the way risk positions are represented. If long and short positions are considered to be sensitive to the same risk factor, potential gains and losses from changes in that factor are netted. The steps UBS has taken in 2008 to enhance the granularity of risk representation in its VaR measure are also relevant to its risk concentration controls as underlying relationships between risk factors are more clearly represented in VaR exposures. | ||||
UBS also applies volume-based limits to certain portfolios and sub-portfolios. Additionally, UBS measures and limits the potential impact of increased default rates on the value of its portfolio of single name exposures. | ||||
The Investment Bank carries exposure to single names, and therefore to event risk (including default risk). This risk is measured across all relevant instruments (debt and equity in physical form and from forwards, options, default swaps and other derivatives including basket securities) as the aggregate change in value resulting from an event affecting a single name or group. The maximum amount that could be lost if all underlying debt and equity of each name became worthless is also tracked. Positions are controlled in the con- |
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text of the liquidity of the market in which they are traded, and all material positions are monitored in light of changing market conditions and information on individual names. | ||||
This form of single name exposure measure is most appropriate to corporate issuers, financial institutions and other entities, the value of whose equity and debt instruments is dependent on their own assets, liabilities and capital resources. | ||||
Exposures arising from security underwriting commitments are subject to the same measures and controls as secondary market positions. There are also governance processes for the commitments themselves, generally including review by a commitment committee with representation from business and control functions. Underwriting commitments are approved under specific delegated risk management and risk control authorities. | ||||
Other applications of market risk measures Market risk measurement tools may be selectively applied to portfolios for which the primary controls are in other forms. VaR can, for example, provide additional insight into the sensitivity of investment positions to market risk factors, even though some of the assumptions of VaR – in particular the relatively short time horizon – may not be representative of their full risk. The results can be used by business management and risk controllers for information purposes or to trigger action or review. Equity investments | ||||
UBS makes investments for a variety of purposes. Some are made for revenue generation or as part of strategic initiatives, while others, such as exchange and clearing house memberships, are held in support of UBS’s business activities. Investments may also be made in funds managed by UBS to fund or “seed” them at inception or to demonstrate alignment of UBS’s interests with those of investors. UBS has also bought and may be required to buy securities and units from funds that UBS has sold to clients. These include purchases of illiquid assets such as interests in hedge funds. | ||||
UBS may make direct investments in a variety of entities or buy equity holdings in both listed and unlisted companies. Such investments tend to be illiquid. The fair values of equity investments are generally dominated by factors specific to the individual stocks, and the correlation of individual holdings to equity indices varies. Furthermore, equity investments are generally intended to be held for the medium- or long-term and may be subject to lock-up agreements. For these reasons, they are not directly controlled using the market risk measures applied to trading activities. They are, however, subject to controls, including pre-approval of new investments by business management and risk control, and regu- |
lar monitoring and reporting. They are also included in earnings-at-risk and capital-at-risk metrics. | ||||
Where investments are made as part of an ongoing business they are also subject to standard controls, including portfolio and concentration limits. Seed money and co-investments in UBS-managed funds made by Global Asset Management are, for example, subject to a portfolio limit. All investments must be explained and justified, approved according to delegated authorities, and monitored and reported to senior management throughout their life. | ||||
Private equity positions were, in the past, the major component of equity investments, but the portfolio has been managed down over recent years. | ||||
Under International Financial Reporting Standards (IFRS), equity investments may be classified as “financial investments available-for-sale”, “financial assets designated at fair value through profit or loss” or “investments in associates”. Composition of equity investments At 31 December 2008, UBS held equity investments totaling CHF 3,653 million, of which CHF 1,681 million were classified as “financial investments available-for-sale”, CHF 1,079 million as “financial assets designated at fair value” and CHF 892 million as “investments in associates”. Within “financial investments available-for-sale”, CHF 258 million are listed equities. | ||||
At 31 December 2007, UBS held equity investments totaling CHF 7,690 million, of which CHF 3,583 million were classified as “financial investments available-for-sale”, CHF 2,128 million as “financial assets designated at fair value” and CHF 1,979 million as “investments in associates”. Within “financial investments available-for-sale”, CHF 1,865 million are listed equities. | ||||
In December 2008, UBS disposed of its equity stake in Bank of China through a placing of approximately 3.4 billion Bank of China Limited H-shares to institutional investors for a cash consideration of approximately CHF 887 million (HKD 6,519 million). UBS acquired the shares in 2005 in preparation for Bank of China’s IPO to the international market. The investment in Bank of China was accounted for as a “financial investment available-for-sale”. The disposal resulted in a gain of approximately CHF 360 million. | ||||
Within the total of CHF 1,079 million “financial assets designated at fair value”, CHF 1,058 million represents the assets of trust entities associated with employee compensation schemes. They are broadly offset by liabilities to plan participants included in “other liabilities”. The equivalent positions at 31 December 2007 amounted to CHF 1,788 million. | ||||
èRefer to “Note 34 Significant subsidiaries and associates” in the financial statements of this report for details of significant associates |
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Credit risk
Credit risk is the risk of financial loss resulting from failure by a client or counterparty to meet its contractual obligations to UBS. This can be caused by factors directly related to the counterparty, such as business or management problems, or from failures in the settlement process, for example on foreign exchange transactions where UBS has honored its obligation but the counterparty fails to deliver the counter-value | ||||
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Many of the business activities of Global Wealth Management & Business Banking and the Investment Bank | ||||
| ||||
| ||||
| ||
| ||
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and counterparty levels. | ||||
At the level of the individual counterparty and |
15
Risk managementCredit risk
| ||||
capabilities. | ||||
The OTC derivatives business is generally conducted |
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required to provide collateral in the form of cash or marketable securities when exposure exceeds a |
| ||||||
The Investment Bank also recognized for the purposes of monitoring against limits. | ||||||
Buying credit protection creates credit exposure against the hedge provider. The exposure to credit protection providers and thus the effectiveness of credit | ||||||
| ||||||
Credit risk measurement | ||||||
|
16
portfolio risk also entails estimations of the likelihood of defaults occurring, of the associated loss ratios if they do, and of default correlations between counterparties. | ||||
UBS has developed tools to support the quantification of the credit risk of individual counterparties, applying the three generally accepted parameters: probability of default, |
Credit risk parameters | ||||
– | The | |||
– | ||||
– | Theloss given default is determined based on the likely recovery rate of defaulted claims, which is a function of the type of counterparty and any credit mitigation or support (such as security or guarantee). | |||
These parameters are the basis for most internal measures of credit risk. They are also key inputs to the regulatory capital calculation under the |
approach of the new Basel Capital Accord (Basel II), which UBS | ||||||
è | ||||||
Expected loss | ||||||
Expected |
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bility of default, | ||||
Expected loss is the | ||||
èRefer to the discussion on credit loss expense below for more information | ||||
| ||||
è |
Stress loss |
17
Risk managementCredit risk
typical for the chosen scenario. Stress tests are run regularly, and on an ad hoc basis as necessary, in order to identify adverse portfolio situations, particularly risk concentrations. All scenario results are monitored, and for certain portfolios and segments, stress loss is subject to limits. | |||
| |||
The measures of credit risk used by UBS may differ depending on the purpose for which exposures are |
Exposure to credit risk – UBS Group | ||||||||||||||||||||||||||||||
For the year ended | ||||||||||||||||||||||||||||||
31.12.2008 | 31.12.2007 | |||||||||||||||||||||||||||||
IFRS1 reported | Adjustments: | IFRS1 reported | ||||||||||||||||||||||||||||
values | Maximum | Credit | Credit | values | Credit | Credit | ||||||||||||||||||||||||
Maximum | exposure | exposure | exposure | Maximum | exposure | exposure | ||||||||||||||||||||||||
exposure to | to internal | before | after | exposure to | before | after | ||||||||||||||||||||||||
CHF million | credit risk2 | risk view | hedges3 | hedges4 | credit risk2 | hedges3 | hedges4 | |||||||||||||||||||||||
Balances with central banks | 29,156 | 29,156 | 16,433 | 16,434 | ||||||||||||||||||||||||||
Due from banks | 64,451 | (45,419) | 19,032 | 60,907 | 26,304 | |||||||||||||||||||||||||
Loans | 340,308 | (68,627) | 271,681 | 335,864 | 285,093 | |||||||||||||||||||||||||
Contingent claims | 19,699 | (807) | 18,892 | 20,824 | 20,347 | |||||||||||||||||||||||||
Undrawn irrevocable credit facilities | 60,316 | (3,326) | 56,990 | 83,980 | 80,971 | |||||||||||||||||||||||||
Banking products | 513,930 | (118,179) | 395,750 | 347,900 | 518,008 | 429,149 | 377,622 | |||||||||||||||||||||||
Derivative instruments3 | 854,100 | (626,448) | 227,652 | 428,217 | 184,809 | |||||||||||||||||||||||||
Securities lending/borrowing4 | 122,897 | } | (300,694) | 46,851 | 207,063 | } | 58,896 | |||||||||||||||||||||||
Repurchase/reverse repurchase agreements | 224,648 | 376,928 | ||||||||||||||||||||||||||||
Traded products | 1,201,645 | (927,142) | 274,503 | 263,677 | 1,012,208 | 243,704 | 237,790 | |||||||||||||||||||||||
Financial assets designated at fair value – debt instruments | 5,153 | 4,116 | ||||||||||||||||||||||||||||
Financial Investments available-for-sale – debt instruments | 3,567 | 1,383 | ||||||||||||||||||||||||||||
Trading portfolio assets – debt instruments | 224,862 | 376,928 | ||||||||||||||||||||||||||||
Accrued income | 3,238 | 9,200 | ||||||||||||||||||||||||||||
Other assets | 6,189 | 12,874 | ||||||||||||||||||||||||||||
Irrevocable commitments to acquire ARS | 16,571 | N/A | ||||||||||||||||||||||||||||
Other products | 259,580 | 404,501 | ||||||||||||||||||||||||||||
Total at the year-end | 1,975,155 | (1,304,902) | 670,253 | 611,577 | 1,934,717 | 672,853 | 615,412 | |||||||||||||||||||||||
1 International Financial Reporting Standards (IFRS). 2 These amounts are considered the best representation of “maximum exposure to credit risk” as defined by the IFRS, without taking into account credit conversion factors for off-balance sheet positions. 3 Includes temporary exposure, before risk transfer, deduction of collateral and risk mitigation. 4 Exposure after risk transfer, deduction of allowances, provisions, credit valuation adjustments, credit default swaps and credit linked notes. |
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In the tables in this section the internal management view of credit | ||||
In general, the exposures shown in the | ||||
– | Cash collateral posted by UBS against negative replacement values |
– | For internal management purposes netting is |
mary of significant accounting policies” in the financial statements of this report for further information on IFRS netting. | ||||
– | Under IFRS, securities | |||
– | All positions that were reclassified in fourth quarter from the “held for trading” to the “loans and receivables” category are included as loans under the IFRS reported exposures. Refer to the “Financial performance” section and “Note 29 Measurement categories of financial assets and liabilities” in the financial statements of this report for more information. However, for the purposes of providing a breakdown of UBS’s lending portfolios, only the loan underwriting positions are included in the internal management view of loan exposures. All reclassified positions are |
Gross credit exposure by UBS internal ratings – UBS Group | ||||||||||||||||||||||||||||||||||
CHF million | Banking products | Traded products | Total exposure | |||||||||||||||||||||||||||||||
UBS internal rating | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | ||||||||||||||||||||||||||||
0–1 | 27,462 | 21,367 | 55,729 | 60,463 | 83,191 | 81,830 | ||||||||||||||||||||||||||||
2–3 | 128,763 | 157,221 | 150,364 | 144,317 | 279,127 | 301,538 | ||||||||||||||||||||||||||||
4–5 | 108,963 | 121,940 | 42,055 | 23,394 | 151,018 | 145,334 | ||||||||||||||||||||||||||||
6–8 | 89,865 | 81,959 | 14,933 | 12,300 | 104,798 | 94,259 | ||||||||||||||||||||||||||||
9–13 | 27,327 | 40,913 | 2,852 | 2,123 | 30,180 | 43,036 | ||||||||||||||||||||||||||||
Total 0–13 (net of past due) | 382,380 | 423,400 | 265,933 | 242,597 | 648,313 | 665,997 | ||||||||||||||||||||||||||||
Defaulted | 7,622 | 2,468 | 6,909 | 1,013 | 14,531 | 3,481 | ||||||||||||||||||||||||||||
Past due but not defaulted | 3,526 | 2,268 | 3,526 | 2,268 | ||||||||||||||||||||||||||||||
Other1 | 2,222 | 1,013 | 1,661 | 94 | 3,883 | 1,107 | ||||||||||||||||||||||||||||
Total | 395,750 | 429,149 | 274,503 | 243,704 | 670,253 | 672,853 | ||||||||||||||||||||||||||||
1 Includes Global Asset Management and the Corporate Center. | ||||||||||||||||||||||||||||||||||
Gross credit exposure by business division | ||||||||||||||||||||||||||||||||||
Global Wealth Management | ||||||||||||||||||||||||||||||||||
& Business Banking | Investment Bank | Other1 | UBS | |||||||||||||||||||||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | ||||||||||||||||||||||||||
Balances with central banks | 17,629 | 9,992 | 11,528 | 6,441 | 0 | 1 | 29,157 | 16,434 | ||||||||||||||||||||||||||
Due from banks | 6,606 | 8,236 | 12,044 | 17,532 | 382 | 535 | 19,032 | 26,303 | ||||||||||||||||||||||||||
Loans | 226,183 | 240,643 | 37,230 | 39,725 | 730 | 466 | 264,143 | 280,834 | ||||||||||||||||||||||||||
Financial assets designated at fair value | 0 | 0 | 6,576 | 4,166 | 961 | 0 | 7,537 | 4,166 | ||||||||||||||||||||||||||
Contingent claims | 14,687 | 15,929 | 4,056 | 4,500 | 149 | 11 | 18,892 | 20,440 | ||||||||||||||||||||||||||
Undrawn irrevocable credit facilities | 2,789 | 2,081 | 54,201 | 78,890 | 0 | 0 | 56,990 | 80,971 | ||||||||||||||||||||||||||
Banking products | 267,893 | 276,881 | 125,636 | 151,254 | 2,222 | 1,013 | 395,750 | 429,149 | ||||||||||||||||||||||||||
Derivatives | 8,353 | 14,039 | 218,482 | 170,677 | 817 | 94 | 227,652 | 184,810 | ||||||||||||||||||||||||||
Securities financing transactions | 12,747 | 13,023 | 33,260 | 45,873 | 844 | 0 | 46,851 | 58,896 | ||||||||||||||||||||||||||
Traded products | 21,100 | 27,061 | 251,742 | 216,550 | 1,661 | 94 | 274,503 | 243,704 | ||||||||||||||||||||||||||
Total credit exposure, gross | 288,993 | 303,942 | 377,378 | 367,804 | 3,883 | 1,107 | 670,253 | 672,853 | ||||||||||||||||||||||||||
Net of impairment losses recognized | 287,774 | 302,974 | 370,494 | 366,882 | 3,883 | 1,107 | 662,151 | 670,963 | ||||||||||||||||||||||||||
1 Includes Global Asset Management and the Corporate Center. |
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subject to appropriate portfolio limits and risk controls, including earnings-at-risk and capital-at-risk metrics. | |||||
The redesignated assets comprised: monoline protected assets (USD 5.7 billion); US reference-linked program (USD 1.1 billion); US commercial real estate (USD 3.4 billion); leveraged finance (USD 2.3 billion); student loan auction rate securities (USD 7.9 billion); and other assets (USD 2.3 billion). Exposure amounts provided were the carrying values on 31 December 2008. The exposures relating to monoline-protected assets, leveraged finance and student loan auction rate securities are included in the respective asset class disclosures in the “Risk concentrations” section of this report. | |||||
Note that under US Generally Accepted Accounting Principles (GAAP), a greater degree of netting is permitted than under IFRS for OTC derivatives replacement values and for securities |
Exposure to credit risk | ||||||||||||||||||||||||||||||
31.12.2007 | 31.12.2006 | |||||||||||||||||||||||||||||
IFRS1 | Valuation | IFRS1 | ||||||||||||||||||||||||||||
reported | Adjustments: balance sheet | and other | reported | |||||||||||||||||||||||||||
values2 | to regulatory capital view | adjustments | values2 | |||||||||||||||||||||||||||
Maximum | Consolidation | Gross | Maximum | |||||||||||||||||||||||||||
exposure to | scope | Capital view | credit | exposure to | Gross credit | |||||||||||||||||||||||||
CHF million | credit risk | adjustment | adjustments | exposure3 | credit risk | exposure3 | ||||||||||||||||||||||||
Cash and balances with central banks | 18,793 | (1 | ) | 0 | (2,358 | ) | 16,434 | 3,495 | 1,311 | |||||||||||||||||||||
Due from banks | 60,907 | (293 | ) | (1,928 | ) | (32,383 | ) | 26,303 | 50,426 | 25,810 | ||||||||||||||||||||
Loans | 335,864 | (136 | ) | (3,910 | ) | (50,984 | ) | 280,834 | 297,842 | 274,830 | ||||||||||||||||||||
Financial assets designated at fair value | 4,116 | 0 | 0 | 50 | 4,166 | 2,252 | 2,348 | |||||||||||||||||||||||
Contingent claims | 20,824 | 0 | 0 | (384 | ) | 20,440 | 17,908 | 17,654 | ||||||||||||||||||||||
Undrawn irrevocable credit facilities | 83,980 | 51 | 846 | (3,906 | ) | 80,971 | 97,287 | 83,428 | ||||||||||||||||||||||
Banking products | 524,484 | (379 | ) | (4,992 | ) | (89,965 | ) | 429,148 | 469,210 | 405,381 | ||||||||||||||||||||
Derivatives4 | 428,217 | 3,171 | (39 | ) | (292,371 | ) | 138,978 | 292,975 | 110,732 | |||||||||||||||||||||
Securities lending / borrowing5 | 207,063 | 0 | 0 | (184,060 | ) | 23,003 | 351,590 | 37,851 | ||||||||||||||||||||||
Repurchase / reverse repurchase agreements | 376,928 | 0 | 0 | (372,937 | ) | 3,991 | 405,834 | 10,019 | ||||||||||||||||||||||
Traded products | 1,012,208 | 3,171 | (39 | ) | (849,368 | ) | 165,972 | 1,050,399 | 158,602 | |||||||||||||||||||||
Total at the end of the year | 1,536,692 | 2,792 | (5,031 | ) | (939,333 | ) | 595,120 | 1,519,609 | 563,983 | |||||||||||||||||||||
Less: contra assets allowances, provisions and credit valuation adjustments | (1,978 | ) | (1,477 | ) | ||||||||||||||||||||||||||
Net of impairment losses recognized | 593,142 | 562,506 | ||||||||||||||||||||||||||||
1 International Financial Reporting Standards (IFRS). 2 These amounts are considered the best representation of “maximum exposure to credit risk” as defined by IFRS, measured gross, without taking into account collateral held or other credit enhancements and only netting in accordance with IFRS. 3 Gross credit exposure is an internal view of credit risk. 4 Positive replacement values, netted in accordance with IFRS or internal view as applicable. 5 Cash collateral on securities borrowed. |
18
As explained in the | ||||
The credit risk exposure reported in the table |
The table “Gross credit exposure by business division” on the previous page shows the gross credit exposure (i.e. without recognition of credit hedges, collateral or other risk mitigation) by business division. | ||||
The largest contributor to gross credit exposure at CHF 291 billion is the lending portfolio (due from banks CHF 19 billion, loans CHF 264 billion, and “financial assets designated at fair value” CHF 8 billion) which represents 43% of total gross credit exposure and 73% of total banking products exposure. Within this lending portfolio, CHF 233 billion (80%) is attributable to Global Wealth Management & Business Banking. Traded products exposure is incurred predominantly by the Investment Bank. The sections below provide further details of products, industry and rating distributions in the business division portfolios. | ||||
The property financing portfolio is diversified and limits per counterparty ensure that no single property exposure presents an undue concentration. | ||||
Exposure to providers of credit protection, usually in the form of credit derivatives, is controlled by the overall credit limit for the counterparty, which is typically a high-grade financial institution. Composition of credit risk (business divisions) Global Wealth Management & Business Banking The total gross banking products exposure of Global Wealth Management & Business Banking was CHF 268 billion on 31 December 2008 down by CHF 9.0 billion or 3% from a year earlier. The high quality of the banking products exposure, with 64% in the investment grade category is demonstrated by the rating distribution on the next page. The introduction of a revised credit risk framework was aimed at improving statistical credit risk measurement and reinforcing the link between the credit assessment and pricing. This resulted in a decrease in counterparty rating on average by one rating class as shown in the table on the next page by the increase in category 6 sub-investment grade exposures. The distribution of the exposure across UBS’s internal rating and |
Global Wealth Management & Business Banking. The Investment Bank actively reduced credit risk, where possible, in lightBanking:
composition of its exposure to US residential mortgage-related products and in conjunction with its management of balance sheet and risk-weighted asset usage.
Gross credit exposure by UBS internal ratings | ||||||||||||||||||||||||||
CHF million | Banking products | Traded products | Total exposure | |||||||||||||||||||||||
UBS internal rating | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | ||||||||||||||||||||
0–1 | 30,540 | 5,265 | 42,852 | 34,148 | 73,392 | 39,413 | ||||||||||||||||||||
2–3 | 164,476 | 135,149 | 98,454 | 95,449 | 262,930 | 230,598 | ||||||||||||||||||||
4–5 | 113,955 | 119,926 | 15,210 | 19,973 | 129,165 | 139,899 | ||||||||||||||||||||
6–8 | 76,601 | 94,278 | 7,566 | 8,084 | 84,167 | 102,362 | ||||||||||||||||||||
9–12 | 38,875 | 44,711 | 915 | 760 | 39,790 | 45,471 | ||||||||||||||||||||
Total 0–12 (net of past due) | 424,447 | 399,329 | 164,997 | 158,414 | 589,444 | 557,743 | ||||||||||||||||||||
Impaired assets | 2,433 | 2,682 | 975 | 188 | 3,408 | 2,870 | ||||||||||||||||||||
Past due but not impaired | 2,268 | 3,370 | 2,268 | 3,370 | ||||||||||||||||||||||
Total | 429,148 | 405,381 | 165,972 | 158,602 | 595,120 | 563,983 | ||||||||||||||||||||
Gross credit exposure by business groups | ||||||||||||||||||||||||||||||||
Global Wealth Management & | ||||||||||||||||||||||||||||||||
Business Banking | Investment Bank | Other1 | UBS1 | |||||||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||
Cash and balances with central banks | 9,992 | 900 | 6,441 | 410 | 1 | 1 | 16,434 | 1,311 | ||||||||||||||||||||||||
Due from banks | 8,236 | 6,245 | 17,532 | 18,966 | 535 | 599 | 26,303 | 25,810 | ||||||||||||||||||||||||
Loans | 240,643 | 222,775 | 39,725 | 51,951 | 466 | 104 | 280,834 | 274,830 | ||||||||||||||||||||||||
Financial assets designated at fair value | 0 | 0 | 4,166 | 2,348 | 0 | 0 | 4,166 | 2,348 | ||||||||||||||||||||||||
Contingent claims | 15,929 | 13,138 | 4,500 | 4,516 | 11 | 0 | 20,440 | 17,654 | ||||||||||||||||||||||||
Undrawn irrevocable credit facilities | 2,081 | 2,064 | 78,890 | 81,364 | 0 | 0 | 80,971 | 83,428 | ||||||||||||||||||||||||
Banking products | 276,881 | 245,122 | 151,254 | 159,555 | 1,013 | 704 | 429,148 | 405,381 | ||||||||||||||||||||||||
Derivatives | 2,735 | 1,273 | 136,149 | 109,437 | 94 | 22 | 138,978 | 110,732 | ||||||||||||||||||||||||
Securities lending / borrowing | 63 | 307 | 22,940 | 37,544 | 0 | 0 | 23,003 | 37,851 | ||||||||||||||||||||||||
Repurchase / reverse repurchase | 162 | 234 | 3,829 | 9,785 | 0 | 0 | 3,991 | 10,019 | ||||||||||||||||||||||||
agreements | ||||||||||||||||||||||||||||||||
Traded products | 2,960 | 1,814 | 162,918 | 156,766 | 94 | 22 | 165,972 | 158,602 | ||||||||||||||||||||||||
Total credit exposure, gross | 279,841 | 246,936 | 314,172 | 316,321 | 1,107 | 726 | 595,120 | 563,983 | ||||||||||||||||||||||||
Net of impairment losses recognized | 278,873 | 245,705 | 313,162 | 316,075 | 1,107 | 726 | 593,142 | 562,506 | ||||||||||||||||||||||||
1 Includes Global Asset Management, Corporate Center and Industrial Holdings. |
19138
Risk managementCredit risk
Risk and treasury management |
at fair value CHF 4 billion) which represents 52% of total gross credit exposure and 73% of total banking products exposure. Within this lending portfolio, CHF 249 billion (80%) is attributable to Global Wealth Management & Business Banking. Traded products exposure is incurred predominantly by the Investment Bank. The sections below provide further details of products, industry and rating distributions in the business group portfolios.
Composition of credit risk (business groups)
Global Wealth Management & Business Banking
previous page shows that exposure to real estate is well diversified, with 38%40% of the gross lending portfolio being secured on single family homes and apartments, which historically,generally have exhibited a
low risk profile. The 11% of exposure secured by residential multi-family homes consists of rented apartment buildings. Loans and other credit engagements with individual clients, excluding mortgages, amounted to CHF 9991 billion and are predominantly extended against the pledge of marketable securities. The volume of collateralized lending to private individuals rosedecreased by CHF 1516 billion or 24%20% from the previous year. The increasing demand for this product, as in 2006, reflects the continuing low interest rate environment.
Global Wealth Management & Business Banking’sBanking: banking products, gross by UBS internal rating
Global Wealth Management & Business Banking: | ||||||||||||||||||||||||
distribution of banking products exposure across UBS internal rating and loss given default (LGD) buckets | ||||||||||||||||||||||||
On 31.12.08 | Weighted | |||||||||||||||||||||||
CHF million | Loss given default (LGD) buckets | average | ||||||||||||||||||||||
UBS internal rating | Gross exposure | 0–25% | 26–50% | 51–75% | 76–100% | LGD–(%) | ||||||||||||||||||
0 | 13,625 | 88 | 13,537 | 39 | ||||||||||||||||||||
1 | 5,232 | 19 | 5,193 | 20 | 39 | |||||||||||||||||||
2 | 39,937 | 37,521 | 2,115 | 301 | 20 | |||||||||||||||||||
3 | 34,717 | 26,127 | 8,064 | 526 | 22 | |||||||||||||||||||
4 | 25,135 | 20,837 | 3,659 | 639 | 14 | |||||||||||||||||||
5 | 51,347 | 45,059 | 5,597 | 691 | 13 | |||||||||||||||||||
6 | 44,727 | 40,617 | 3,371 | 736 | 3 | 13 | ||||||||||||||||||
7 | 18,870 | 16,281 | 2,395 | 193 | 1 | 15 | ||||||||||||||||||
8 | 16,892 | 14,224 | 2,090 | 567 | 11 | 17 | ||||||||||||||||||
9 | 9,458 | 6,757 | 1,671 | 13 | 1,017 | 23 | ||||||||||||||||||
10 | 1,997 | 1,591 | 402 | 3 | 1 | 20 | ||||||||||||||||||
11 | 2,252 | 2,045 | 206 | 1 | 19 | |||||||||||||||||||
12 | 155 | 119 | 36 | 19 | ||||||||||||||||||||
13 | 93 | 34 | 59 | 30 | ||||||||||||||||||||
Total non-defaulted | 264,437 | 211,319 | 48,395 | 3,690 | 1,033 | 18 | ||||||||||||||||||
Investment grade | 169,993 | 129,651 | 38,165 | 2,177 | ||||||||||||||||||||
Sub-investment grade | 94,444 | 81,668 | 10,230 | 1,513 | 1,033 | |||||||||||||||||||
Defaulted1 | 3,456 | |||||||||||||||||||||||
Total banking products | 267,893 | 211,319 | 48,395 | 3,690 | 1,033 | |||||||||||||||||||
139
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Risk management and control
Business Banking Switzerland: lending portfolio, is demonstratedgross (excluding mortgages) by the table below, which shows newly impairedindustry sector
than 80% of loans and related allowances and provisions in relation to the total gross lending portfolio at year-end for the last four years. Despite an increase in the total gross lending portfolio each year, the totals of new impairments and of new allowances and provisions have declined. Most of the newly impaired loans are secured by mortgages or other collateral so that new allowances are proportionately lower than the newly impaired positions.
Global Wealth Management & Business Banking: development of impaired loans portfolio
CHF million, except where indicated | 2007 | 2006 | 2005 | 2004 | ||||||||||||
Total lending portfolio, gross, at year-end | 248,878 | 229,021 | 217,327 | 180,718 | ||||||||||||
New impaired loans | 323 | 345 | 532 | 537 | ||||||||||||
New allowances / provisions | 91 | 128 | 138 | 239 | ||||||||||||
New impairments as a % of total lending portfolio, gross | 0.13 | 0.15 | 0.24 | 0.30 | ||||||||||||
New allowances / provisions as a % of total lending portfolio, gross | 0.04 | 0.06 | 0.06 | 0.13 | ||||||||||||
20
Global Wealth Management & Business Banking: distribution of banking productsexposure across UBS internal rating and loss given default buckets
As of 31.12.07 | Loss given default (LGD) buckets | Weighted average | ||||||||||||||||||||||
CHF million | Gross exposure | 0–25% | 26–50% | 51–75% | 76–100% | LGD (%) | ||||||||||||||||||
0 | 1,498 | 104 | 1,393 | 1 | 33 | |||||||||||||||||||
1 | 9,741 | 4 | 9,696 | 41 | 40 | |||||||||||||||||||
2 | 52,237 | 48,881 | 3,110 | 246 | 20 | |||||||||||||||||||
3 | 47,473 | 40,476 | 5,083 | 570 | 1,344 | 21 | ||||||||||||||||||
4 | 25,163 | 21,643 | 2,986 | 534 | 18 | |||||||||||||||||||
5 | 58,957 | 53,665 | 3,650 | 1,639 | 3 | 17 | ||||||||||||||||||
6 | 29,307 | 25,222 | 3,851 | 222 | 12 | 19 | ||||||||||||||||||
7 | 19,210 | 16,599 | 1,977 | 613 | 21 | 20 | ||||||||||||||||||
8 | 17,192 | 11,723 | 4,502 | 962 | 5 | 24 | ||||||||||||||||||
9 | 9,019 | 6,883 | 840 | 237 | 1,059 | 27 | ||||||||||||||||||
10 | 2,192 | 1,805 | 266 | 119 | 2 | 23 | ||||||||||||||||||
11 | 1,689 | 1,468 | 194 | 27 | 22 | |||||||||||||||||||
12 | 1,349 | 1,305 | 29 | 15 | 20 | |||||||||||||||||||
Total non-impaired | 275,027 | 229,778 | 37,577 | 5,226 | 2,446 | 21 | ||||||||||||||||||
Investment grade | 195,069 | 164,773 | 25,918 | 3,031 | 1,347 | |||||||||||||||||||
Sub-investment grade | 79,958 | 65,005 | 11,659 | 2,195 | 1,099 | |||||||||||||||||||
Impaired and defaulted1 | 1,854 | |||||||||||||||||||||||
Total banking products | 276,881 | 229,778 | 37,577 | 5,226 | 2,446 | |||||||||||||||||||
21
Risk managementCredit risk
Investment Bank
Banking products exposure
into account. Of this net amount, CHF 31.3 billion was considered temporaryfor 2007. The exposure held for distribution also reduced significantly as a consequence of the market deterioration, which resulted in mark downs of existing commitments and CHF 69.4 billion take and hold exposure.a substantial reduction in new lending. The table “Investment Bank: banking products” below shows the composition of the Investment Bank’s gross banking products exposure, the hedges and other risk mitigation and the net exposure in total and for the take and hold portfolio. Compared with the end of 2006, the net take and hold exposure fell by one-third as a result of active risk reduction and management of balance sheet and risk-weighted asset usage.total.
Investment Bank: banking products
CHF million | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||||||||
Sub- | Impaired | Sub- | Impaired | |||||||||||||||||||||||||||||
Investment | investment | and | Investment | investment | and | |||||||||||||||||||||||||||
grade | grade | defaulted | Total | grade | grade | defaulted | Total | |||||||||||||||||||||||||
Gross banking products exposure | 103,848 | 46,755 | 651 | 151,254 | 98,801 | 60,503 | 251 | 159,555 | ||||||||||||||||||||||||
Risk transfers1 | 2,901 | (2,864 | ) | (37 | ) | 2,576 | (2,551 | ) | (25 | ) | ||||||||||||||||||||||
Less: specific allowances for credit losses and loan loss provisions | 0 | 0 | (126 | ) | (126 | ) | 0 | 0 | (101 | ) | (101 | ) | ||||||||||||||||||||
Net banking products exposure | 106,749 | 43,891 | 488 | 151,128 | 101,377 | 57,952 | 125 | 159,454 | ||||||||||||||||||||||||
Less: credit protection bought (credit default swaps, | (43,012 | ) | (7,391 | ) | (29 | ) | (50,432 | ) | (28,245 | ) | (4,410 | ) | (1 | ) | (32,656 | ) | ||||||||||||||||
credit-linked notes)2 | ||||||||||||||||||||||||||||||||
Net banking products exposure, after application of credit hedges | 63,737 | 36,500 | 459 | 100,696 | 73,132 | 53,542 | 124 | 126,798 | ||||||||||||||||||||||||
Less: temporary exposure | (11,091 | ) | (20,160 | ) | (30 | ) | (31,281 | ) | (6,833 | ) | (21,354 | ) | (28,187 | ) | ||||||||||||||||||
Net take and hold banking products exposure | 52,646 | 16,340 | 429 | 69,415 | 66,299 | 32,188 | 124 | 98,611 | ||||||||||||||||||||||||
Investment Bank: banking products | ||||||||||||||||||||||||||||||||
On | 31.12.08 | 31.12.07 | ||||||||||||||||||||||||||||||
Sub- | Impaired | Sub- | Impaired | |||||||||||||||||||||||||||||
Investment | investment | and defaul- | Investment | investment | and defaul- | |||||||||||||||||||||||||||
CHF million | grade | grade | ted loans | Total | grade | grade | ted loans | Total | ||||||||||||||||||||||||
Gross banking products exposure | 96,244 | 25,280 | 4,112 | 125,636 | 103,848 | 46,755 | 651 | 151,254 | ||||||||||||||||||||||||
Risk transfers1 | 1,710 | (1,764 | ) | 54 | 2,901 | (2,864 | ) | (37 | ) | |||||||||||||||||||||||
less: specific allowances for credit losses and loan loss provisions | (1,526) | (1,526) | 0 | 0 | (126) | (126) | ||||||||||||||||||||||||||
Net banking products exposure | 97,953 | 23,516 | 2,640 | 124,110 | 106,749 | 43,891 | 488 | 151,128 | ||||||||||||||||||||||||
less: credit protection bought (credit default swaps, credit-linked notes)2 | (38,388) | (6,690) | (28) | (45,106) | (43,012) | (7,391) | (29) | (50,432) | ||||||||||||||||||||||||
Net banking products exposure, after application of credit hedges | 59,566 | 16,826 | 2,612 | 79,004 | 63,737 | 36,500 | 459 | 100,696 | ||||||||||||||||||||||||
of which: held for distribution | 3,685 | 2,808 | 11,091 | 20,160 | ||||||||||||||||||||||||||||
22140
Risk and treasury management |
a total of CHF 50 billion in credit hedges in place against banking products exposure.
aggregate was reduced by CHF 163.3 billion (–49%(21%) – decreased mainly in the 0–25% LGD bucket as exposure to US mortgage originators was wound down. At the end of the year UBS had no credit risk exposure to any sub-prime mortgage originators.. It should be noted that exposure distributions shown elsewhere in this section refer only to gross or net exposure and do not take recovery expectations into account.account (refer to the “UBS inter-
Investment Bank: distribution of net take and hold banking products
exposure acrossby UBS internal rating and loss given default buckets
As of 31.12.07 | Loss given default (LGD) buckets | Weighted | ||||||||||||||||||||||
CHF million | Exposure1 | 0–25% | 26–50% | 51–75% | 76–100% | average LGD (%) | ||||||||||||||||||
0 and 1 | 9,388 | 27 | 8,632 | 617 | 112 | 50 | ||||||||||||||||||
2 | 19,309 | 2,396 | 15,382 | 534 | 997 | 44 | ||||||||||||||||||
3 | 11,894 | 384 | 9,606 | 919 | 985 | 48 | ||||||||||||||||||
4 | 8,059 | 588 | 6,083 | 968 | 420 | 45 | ||||||||||||||||||
5 | 3,996 | 1,004 | 1,686 | 1,140 | 166 | 44 | ||||||||||||||||||
6 | 1,995 | 262 | 1,223 | 425 | 85 | 45 | ||||||||||||||||||
7 | 2,184 | 142 | 1,630 | 379 | 33 | 46 | ||||||||||||||||||
8 | 2,383 | 214 | 1,128 | 771 | 270 | 51 | ||||||||||||||||||
9 | 3,659 | 887 | 2,254 | 514 | 4 | 36 | ||||||||||||||||||
10 | 2,865 | 1,173 | 1,138 | 457 | 97 | 35 | ||||||||||||||||||
11 | 2,579 | 1,256 | 871 | 380 | 72 | 31 | ||||||||||||||||||
12 | 675 | 509 | 117 | 29 | 20 | 20 | ||||||||||||||||||
Total non-impaired | 68,986 | 8,842 | 49,750 | 7,133 | 3,261 | 43 | ||||||||||||||||||
Investment grade | 52,646 | 4,399 | 41,389 | 4,178 | 2,680 | 44 | ||||||||||||||||||
Sub-investment grade | 16,340 | 4,443 | 8,361 | 2,955 | 581 | 39 | ||||||||||||||||||
Impaired and defaulted | 429 | 360 | 54 | 15 | 0 | 12 | ||||||||||||||||||
Net take and hold exposure | 69,415 | 9,202 | 49,804 | 7,148 | 3,261 | 43 | ||||||||||||||||||
Investment Bank: banking products exposure1 by industry sector
23Investment Bank: banking products exposure1 by geographical region
141
Risk and treasury managementCredit riskRisk management and control
Investment Bank: distribution of net banking products exposure | ||||||||||||||||||||||||
across UBS internal rating and loss given default buckets | ||||||||||||||||||||||||
On 31.12.08 | Weighted | |||||||||||||||||||||||
CHF million | Loss given default (LGD) buckets | average | ||||||||||||||||||||||
UBS internal rating | Exposure | 0-25% | 26-50% | 51-75% | 76-100% | LGD (%) | ||||||||||||||||||
0 and 1 | 8,291 | 8,291 | 49 | |||||||||||||||||||||
2 | 16,292 | 3,201 | 10,675 | 776 | 1,641 | 45 | ||||||||||||||||||
3 | 22,223 | 11,083 | 9,360 | 630 | 1,150 | 30 | ||||||||||||||||||
4 | 9,068 | 1,213 | 6,604 | 943 | 307 | 35 | ||||||||||||||||||
5 | 3,692 | 341 | 2,306 | 821 | 224 | 48 | ||||||||||||||||||
6 | 2,254 | 1,017 | 732 | 427 | 78 | 32 | ||||||||||||||||||
7 | 2,321 | 334 | 1,499 | 388 | 100 | 37 | ||||||||||||||||||
8 | 1,419 | 133 | 948 | 285 | 53 | 34 | ||||||||||||||||||
9 | 3,811 | 1,930 | 1,473 | 223 | 184 | 19 | ||||||||||||||||||
10 | 1,682 | 598 | 707 | 293 | 85 | 34 | ||||||||||||||||||
11 | 4,430 | 1,303 | 2,705 | 205 | 217 | 21 | ||||||||||||||||||
12 | 687 | 473 | 128 | 82 | 3 | 23 | ||||||||||||||||||
13 | 221 | 122 | 99 | 21 | ||||||||||||||||||||
Total non-defaulted | 76,391 | 21,749 | 45,528 | 5,073 | 4,042 | 39 | ||||||||||||||||||
Investment grade | 59,566 | 15,839 | 37,237 | 3,169 | 3,321 | 39 | ||||||||||||||||||
Sub-investment grade | 16,826 | 5,910 | 8,291 | 1,903 | 721 | 26 | ||||||||||||||||||
Defaulted | 2,612 | 531 | 1,520 | 467 | 95 | 37 | ||||||||||||||||||
Net banking products exposure | 79,004 | 22,280 | 47,048 | 5,539 | 4,137 | 36 | ||||||||||||||||||
As reported in second quarter 2008, UBS sold a portfolio of US RMBSs for proceeds of USD 15 billion to the RMBS Opportunities Master Fund, LP (the “RMBS fund”), a special purpose entity managed by BlackRock, Inc. The RMBS fund was capitalized with approximately USD 3.75 billion in equity raised by BlackRock from third-party investors and an eight-year
amortizing USD 11.25 billion senior secured loan provided by UBS. Since its inception, the RMBS fund has amortized the loan through monthly payments in line with UBS’s original expectations. On 31 December 2008, the loan had a balance outstanding of USD 9.2 billion. UBS does not consolidate the RMBS fund into its balance sheet as the equity investors in the
RMBS fund continue to bear and receive the majority of the risks and rewards. UBS continues to monitor the development of the RMBS fund’s performance and would reassess the consolidation status if deterioration of the underlying mortgage pools related to the RMBSs were to indicate that UBS may not fully recover the loan granted to the RMBS fund.
142
Risk and treasury management |
Settlement risk
Settlement risk arises in transactions involving exchange of value when UBS must honor its obligation to deliver without first being able to determine that the counter-value has been received. Market volumes have continuedUBS continues to rise year-on-year but UBS has expandedreduce its own transactionactual settlement volume without increasing settlement risk by the same proportion,proportions as in previous years through the use of multilateral and bilateral arrangements. agreements.
Country risk
UBS assigns ratings to all countries to which it has exposure. Sovereign ratings express the probability of occurrence of a country risk event that would lead to impairment of UBS’s claims. The default probabilities and the mapping to theof external ratings of the major rating agencies are the same as for counterparty rating classes (as described under “Probability of default”). In the case of country ratings, rating the three lowest classes (12 10
Emerging markets exposure by
UBS internal rating category
to 14)13 are designated “distressed”.“very high risk” while the lowest rating class 14 contains countries in outright default.
Emerging markets exposure by major geographical area and product type | ||||||||||||||||||||||||||||||||||||||||
CHF million | Total | Banking products | Traded products | Financial investments | Tradable assets | |||||||||||||||||||||||||||||||||||
On | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | ||||||||||||||||||||||||||||||
Emerging Europe | 3,706 | 5,439 | 1,454 | 1,590 | 1,177 | 1,071 | 211 | 151 | 864 | 2,627 | ||||||||||||||||||||||||||||||
Emerging Asia | 16,460 | 22,039 | 3,594 | 5,653 | 7,059 | 6,210 | 879 | 2,123 | 4,928 | 8,053 | ||||||||||||||||||||||||||||||
Emerging America | 6,802 | 8,778 | 1,491 | 1,486 | 2,157 | 2,288 | 167 | 150 | 2,987 | 4,854 | ||||||||||||||||||||||||||||||
Middle East/Africa | 5,747 | 5,007 | 1,338 | 2,414 | 3,980 | 1,603 | 0 | 0 | 429 | 990 | ||||||||||||||||||||||||||||||
Total | 32,715 | 41,263 | 7,877 | 11,143 | 14,373 | 11,172 | 1,257 | 2,424 | 9,208 | 16,524 | ||||||||||||||||||||||||||||||
Temporary exposures1 | 738 | 3,049 | ||||||||||||||||||||||||||||||||||||||
24143
The potential financial impact of severe emerging markets crises is assessed by stress testing. This entails identifying countries that might be subject to a potential crisis eventRisk and determining potential loss, making conservative assumptions about potential recovery rates depending on the types of transaction involvedtreasury management
Risk management and their economic importance to the affected countries.
Country risk exposure
The potential financial impact of | ||||
Country risk exposure | ||||
Exposure to emerging market countries amounted to CHF 32.7 billion on 31 December 2008, compared with CHF 41.3 billion on 31 December 2007. Of this amount, CHF 24.6 billion or 75% was to investment grade countries based on UBS’s internal ratings-based approach. The reduction of CHF 8.5 billion in total emerging markets exposure arose to a large extent in Asia. | ||||
The pie chart on the previous page shows UBS’s emerging market country exposures (excluding those which are temporary exposures) on 31 December 2008, based on the main country rating categories. The table on the previous page analyzes emerging market country exposures by major geographical area and product type on 31 December 2008 compared with 31 December 2007. Temporary exposures arising from loan underwriting in these markets are shown separately in the table. | ||||
Impairment and default – distressed claims | ||||
UBS has a number of classifications for distressed claims. A loan carried at amortized cost is considered to be Any claim, regardless of accounting treatment, is classified as | ||||
The recognition of impairment in the financial statements depends on the accounting treatment of 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 such as derivatives, impairment is recognized through a credit valuation adjustment, which is charged to the income statement through the | ||||
UBS has policies and processes to ensure that the carrying values of impaired claims are determined in compliance with IFRS on a consistent and fair basis, especially for those |
Emerging markets exposure by major geographical area and product type
CHF million | Total | Banking products | Traded products | Financial investments | Tradable assets | |||||||||||||||||||||||||||||||||||
As of | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||||||||
Emerging Europe | 5,439 | 4,663 | 1,590 | 1,476 | 1,071 | 1,110 | 151 | 104 | 2,627 | 1,973 | ||||||||||||||||||||||||||||||
Emerging Asia | 22,039 | 15,904 | 5,653 | 4,266 | 6,210 | 3,401 | 2,123 | 1,325 | 8,053 | 6,912 | ||||||||||||||||||||||||||||||
Emerging America | 8,778 | 7,282 | 1,486 | 1,024 | 2,288 | 2,267 | 150 | 132 | 4,854 | 3,859 | ||||||||||||||||||||||||||||||
Middle East / Africa | 5,007 | 2,768 | 2,414 | 1,145 | 1,603 | 892 | 0 | 19 | 990 | 712 | ||||||||||||||||||||||||||||||
Total | 41,263 | 30,617 | 11,143 | 7,911 | 11,172 | 7,670 | 2,424 | 1,580 | 16,524 | 13,456 | ||||||||||||||||||||||||||||||
Temporary exposures1 | 3,049 | 2,160 | ||||||||||||||||||||||||||||||||||||||
25
Risk managementCredit risk
|
on its merits, and the workout strategy and estimation of cash flows considered recoverable are independently | ||||
Credit officers monitor derivative counterparties for default or impairment using generally the same principles and processes as used for loans. In the event that a derivatives counterparty defaults on its obligations a specific credit valuation adjustment (CVA) is established by the credit officer. | ||||
Portfolios of claims carried at amortized cost with similar credit risk characteristics are also assessed for collective impairment. A portfolio is considered impaired on a collective basis if there is objective evidence to suggest that it contains impaired obligations but the individual impaired items cannot yet be identified. | ||||
The assessment of collective impairment differs depending on the nature of the underlying obligations. In UBS’s retail businesses, where delayed payments are routinely seen, UBS typically reviews individual positions for impairment only after they have been in arrears for a certain time. To cover the time lag between the occurrence of an impairment event and its identification, collective loan loss allowances are established, based on the expected loss measured for the portfolio over the average period between trigger events and their identification for individual impairments. Collective loan loss allowances of this kind are not required for corporate and investment banking businesses because individual counterparties and exposures are continuously monitored and impairment events are identified at an early stage. | ||||
Additionally, for all portfolios, UBS assesses each quarter – or on an ad hoc basis if necessary – whether there | ||||
| ||||
| ||||
Compared with 31 December |
144
Risk and |
Past due but not impaired loans | ||||||||||
On | ||||||||||
CHF million | 31.12.08 | 31.12.07 | ||||||||
1–10 days | 1,226 | 515 | ||||||||
11–30 days | 475 | 1,381 | ||||||||
31–60 days | 320 | 74 | ||||||||
61–90 days | 795 | 36 | ||||||||
> 90 days | 772 | 262 | ||||||||
Total | 3,588 | 2,268 | ||||||||
Impaired loans, allowances and provisions | ||||
The gross impaired lending portfolio |
categories of financial assets and liabilities” in the financial statements and the “Financial performance” sections of this report for more information. | ||||
The ratio of the impaired lending portfolio to the total lending portfolio (both measured gross) | ||||
Loans or receivables with a carrying amount of CHF |
Allowances and provisions for credit losses1 | ||||||||||||||||||||||||||||||||
Global Wealth Management & | ||||||||||||||||||||||||||||||||
CHF million | Business Banking | Investment Bank | Other2 | UBS | ||||||||||||||||||||||||||||
On | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | ||||||||||||||||||||||||
Due from banks | 6,606 | 8,237 | 57,485 | 52,164 | 382 | 534 | 64,473 | 60,935 | ||||||||||||||||||||||||
Loans | 230,684 | 240,641 | 111,798 | 95,760 | 730 | 466 | 343,213 | 336,867 | ||||||||||||||||||||||||
Total lending portfolio, gross3 | 237,290 | 248,878 | 169,282 | 147,924 | 1,113 | 1,000 | 407,685 | 397,802 | ||||||||||||||||||||||||
Allowances for credit losses | (1,195 | ) | (908 | ) | (1,733 | ) | (123 | ) | 0 | 0 | (2,927 | ) | (1,031 | ) | ||||||||||||||||||
Total lending portfolio, net | 236,095 | 247,970 | 167,550 | 147,801 | 1,113 | 1,000 | 404,758 | 396,771 | ||||||||||||||||||||||||
Impaired lending portfolio, gross | 2,998 | 1,820 | 6,147 | 572 | 0 | 0 | 9,145 | 2,392 | ||||||||||||||||||||||||
Estimated liquidation proceeds of collateral for impaired loans | (1,594 | ) | (740 | ) | (2,336 | ) | (364 | ) | 0 | 0 | (3,930 | ) | (1,104 | ) | ||||||||||||||||||
Impaired lending portfolio, net of collateral | 1,404 | 1,080 | 3,811 | 208 | 0 | 0 | 5,215 | 1,288 | ||||||||||||||||||||||||
Allocated allowances for impaired lending portfolio | 1,171 | 874 | 1,733 | 123 | 0 | 0 | 2,904 | 997 | ||||||||||||||||||||||||
Other allowances and provisions | 24 | 34 | 0 | 0 | 0 | 0 | 24 | 34 | ||||||||||||||||||||||||
Total allowances and provisions for credit losses in lending portfolio | 1,195 | 908 | 1,733 | 123 | 0 | 0 | 2,927 | 1,031 | ||||||||||||||||||||||||
Allowances and provisions for credit losses outside of lending portfolio | 24 | 60 | 119 | 73 | 0 | 0 | 143 | 133 | ||||||||||||||||||||||||
Ratios | ||||||||||||||||||||||||||||||||
Allowances and provisions as a % of total lending portfolio, gross | 0.5 | 0.4 | 1.0 | 0.1 | 0.0 | 0.0 | 0.7 | 0.3 | ||||||||||||||||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross | 1.3 | 0.7 | 3.6 | 0.4 | 0.0 | 0.0 | 2.2 | 0.6 | ||||||||||||||||||||||||
Allocated allowances as a % of impaired lending portfolio, gross | 39.1 | 48.0 | 28.2 | 21.5 | 0.0 | 0.0 | 31.8 | 41.7 | ||||||||||||||||||||||||
Allocated allowances as a % of impaired lending portfolio, net of collateral | 83.4 | 80.9 | 45.5 | 59.1 | 0.0 | 0.0 | 55.7 | 77.4 | ||||||||||||||||||||||||
1 Figures reflect IFRS reported values. 2 Includes Global Asset Management and the Corporate Center. 3 Excludes loans designated at fair value. |
145
Risk and treasury management
Risk management and control
Impaired assets by type of financial instrument | ||||||||||||||||||
Specific | ||||||||||||||||||
Estimated | allowances, | |||||||||||||||||
liquidation | provisions and | |||||||||||||||||
proceeds of | credit valuation | Net impaired | ||||||||||||||||
CHF million | Impaired exposure | collateral | adjustments | exposure | ||||||||||||||
Impaired loans | 9,145 | (3,930 | ) | (2,916 | ) | 2,299 | ||||||||||||
Impaired contingent claims | 41 | (20 | ) | 21 | ||||||||||||||
Defaulted derivatives contracts | 6,163 | (4,205 | ) | 1,958 | ||||||||||||||
Defaulted securities financing transactions | 309 | (111 | ) | 198 | ||||||||||||||
Total 31.12.08 | 15,658 | (3,930 | ) | (7,252 | ) | 4,476 | ||||||||||||
Total 31.12.07 | 3,408 | (1,104 | ) | (1,914 | ) | 390 | ||||||||||||
such that future principal and interest are deemed to be fully collectible in accordance with the original contractual terms. | ||||
Collateral held against the impaired loans portfolio consists in most cases of real estate. It is UBS policy to dispose of foreclosed real estate as soon as practicable. The carrying amount of foreclosed property recorded in the balance sheet under | ||||
UBS seeks to liquidate collateral in the form of financial assets in the most expeditious manner, at prices considered fair. This may require that it purchases assets for its own account, where permitted by law, pending orderly liquidation. | ||||
The table “Impaired assets by type of financial instrument” above includes not only impaired loans, but also impaired off-balance sheet claims and defaulted derivatives and repurchase / reverse repurchase contracts, which are subject to the same workout and recovery processes. | ||||
The impaired assets of CHF 15.7 billion increased significantly as a consequence of the market turbulence in 2008. | ||||
After deducting allocated specific allowances, provisions and credit valuation adjustments of CHF 7.2 billion and the estimated liquidation proceeds of collateral of CHF 3.9 billion, net impaired assets amounted to CHF 4.5 billion in 2008. | ||||
Credit loss expense UBS’s financial statements are prepared in accordance with IFRS. Under IFRS the credit loss expense charged to the income statement in any period is the sum of net allowances and direct write-offs minus recoveries arising in that period, i.e. the credit losses actually experienced. | ||||
In 2008, UBS experienced a net credit loss expense of CHF 2,996 million, of which CHF 1,329 million was due to impairment charges taken on reclassified financial instruments in the Investment Bank. This was mainly due to an impairment charge taken against a client in the petrochemical industry, excluding any benefit from hedges. In comparison, UBS recorded a net credit loss expense of CHF 238 million in 2007. | ||||
The Investment Bank recorded a net credit loss expense of CHF 2,575 million for 2008, compared with a net credit loss expense of CHF 266 million in 2007. Excluding the credit loss expense from reclassified financial instruments of CHF 1,329 |
26
Past due but not impaired loans | ||||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||||
1–10 days | 515 | 942 | ||||||||
11–30 days | 1,381 | 410 | ||||||||
31–60 days | 74 | 544 | ||||||||
61–90 days | 36 | 463 | ||||||||
> 90 days | 262 | 1,011 | ||||||||
Total | 2,268 | 3,370 | ||||||||
Allowances and provisions for credit losses | ||||||||||||||||||||||||||||||||
Global Wealth Management & | ||||||||||||||||||||||||||||||||
CHF million | Business Banking | Investment Bank1 | Other2 | UBS1 | ||||||||||||||||||||||||||||
As of | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||
Due from banks | 8,237 | 6,245 | 52,164 | 43,612 | 507 | 506 | 60,908 | 50,363 | ||||||||||||||||||||||||
Loans | 240,641 | 222,776 | 95,760 | 76,188 | 466 | 104 | 336,867 | 299,068 | ||||||||||||||||||||||||
Total lending portfolio, gross | 248,878 | 229,021 | 147,924 | 119,800 | 973 | 610 | 397,775 | 3 | 349,431 | 3 | ||||||||||||||||||||||
Allowances for credit losses | (908 | ) | (1,159 | ) | (123 | ) | (97 | ) | 0 | 0 | (1,031 | ) | (1,256 | ) | ||||||||||||||||||
Total lending portfolio, net | 247,970 | 227,862 | 147,801 | 119,703 | 973 | 610 | 396,744 | 3 | 348,175 | 3 | ||||||||||||||||||||||
Impaired lending portfolio, gross | 1,820 | 2,507 | 572 | 121 | 0 | 0 | 2,392 | 2,628 | ||||||||||||||||||||||||
Estimated liquidation proceeds of collateral for impaired loans | (740 | ) | (1,034 | ) | (364 | ) | (25 | ) | 0 | 0 | (1,104 | ) | (1,059 | ) | ||||||||||||||||||
Impaired lending portfolio, net of collateral | 1,080 | 1,473 | 208 | 96 | 0 | 0 | 1,288 | 1,569 | ||||||||||||||||||||||||
Allocated allowances for impaired lending portfolio | 874 | 1,121 | 123 | 97 | 0 | 0 | 997 | 1,218 | ||||||||||||||||||||||||
Other allowances and provisions | 94 | 110 | 73 | 4 | 0 | 0 | 167 | 114 | ||||||||||||||||||||||||
Total allowances and provisions for credit losses | 968 | 1,231 | 196 | 101 | 0 | 0 | 1,164 | 1,332 | ||||||||||||||||||||||||
Of which collective loan loss provisions and allowances | 34 | 38 | 0 | 0 | 0 | 0 | 34 | 38 | ||||||||||||||||||||||||
Ratios | ||||||||||||||||||||||||||||||||
Allowances and provisions as a % of total lending portfolio, gross | 0.4 | 0.5 | 0.1 | 0.1 | 0.0 | 0.0 | 0.3 | 0.4 | ||||||||||||||||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross | 0.7 | 1.1 | 0.4 | 0.1 | 0.0 | 0.0 | 0.6 | 0.8 | ||||||||||||||||||||||||
Allocated allowances as a % of impaired lending portfolio, gross | 48.0 | 44.7 | 21.5 | 80.2 | N/A | N/A | 41.7 | 46.3 | ||||||||||||||||||||||||
Allocated allowances as a % of impaired lending portfolio, net of Collateral | 80.9 | 76.1 | 59.1 | 101.0 | N/A | N/A | 77.4 | 77.6 | ||||||||||||||||||||||||
1 Figures reflect International Financial Reporting Standards (IFRS) reported values and, for 31 December 2006, the reclassification of prime brokerage as explained Note 1 inFinancial Statements 2007. 2 Includes Global Asset Management and Corporate Center. 3 Excludes CHF 27 million and CHF 93 million gross loans from Industrial Holdings for the years ended 31 December 2007 and 31 December 2006. |
Impaired assets by type of financial instrument | ||||||||||||||||||
Allocated | ||||||||||||||||||
Estimated | allowances, | |||||||||||||||||
liquidation | provisions and | |||||||||||||||||
proceeds of | credit valuation | Net impaired | ||||||||||||||||
CHF million | Impaired exposure | collateral | adjustments | exposure | ||||||||||||||
Impaired loans | 2,392 | (1,104 | ) | (997 | ) | 291 | ||||||||||||
Impaired contingent claims | 41 | 0 | (33 | ) | 8 | |||||||||||||
Defaulted derivatives contracts | 905 | 0 | (814 | ) | 91 | |||||||||||||
Defaulted securities financing transactions | 70 | 0 | (70 | ) | 0 | |||||||||||||
Total 31.12.07 | 3,408 | (1,104 | ) | (1,914 | ) | 390 | ||||||||||||
Total 31.12.06 | 2,870 | (1,059 | ) | (1,399 | ) | 412 | ||||||||||||
27
Risk managementCredit risk
Impaired assets by region and time elapsed since impairment1
Time elapsed since impairment | ||||||||||||||||||||||||
CHF million | 0–90 days | 91–180 days | 181 days–1 year | 1 year–3 years | > 3 years | Total | ||||||||||||||||||
Switzerland | 135 | 41 | 89 | 326 | 1,306 | 1,897 | ||||||||||||||||||
Europe | 33 | 11 | 2 | 22 | 80 | 148 | ||||||||||||||||||
North America / Caribbean | 1,221 | 4 | 17 | 1 | 35 | 1,278 | ||||||||||||||||||
Latin America | 12 | 22 | 0 | 14 | 3 | 51 | ||||||||||||||||||
Asia Pacific | 0 | 5 | 0 | 1 | 12 | 18 | ||||||||||||||||||
Middle East / Africa | 0 | 0 | 0 | 0 | 16 | 16 | ||||||||||||||||||
Total 31.12.07 | 1,401 | 83 | 108 | 364 | 1,452 | 3,408 | ||||||||||||||||||
Allocated allowances, provisions and credit valuation adjustments | (813 | ) | (26 | ) | (40 | ) | (154 | ) | (881 | ) | (1,914 | ) | ||||||||||||
Carrying value | 588 | 57 | 68 | 210 | 571 | 1,494 | ||||||||||||||||||
Estimated liquidation proceeds of collateral | (436 | ) | (26 | ) | (55 | ) | (146 | ) | (441 | ) | (1,104 | ) | ||||||||||||
Net impaired assets | 152 | 31 | 13 | 64 | 130 | 390 | ||||||||||||||||||
The table above shows the geographical breakdown and aging of the impaired assets portfolio on 31 December 2007. This portfolio includes not only impaired loans, but also impaired off-balance sheet claims and defaulted derivatives and repurchase / reverse repurchase contracts, which are subject to the same workout and recovery processes.
Credit loss expense
UBS’s financial statements are prepared in accordance with IFRS, under which credit loss expense charged to the income statement in any period is the sum of net allowances and direct write-offs minus recoveries arising in that period, i.e. the credit losses actually incurred. By contrast, for internal management reporting, credit loss expense is based on the expected loss concept described under “Credit risk measurement”. To hold the business groups accountable for credit
losses actually incurred, they are additionally charged or refunded the difference between actual credit loss expense and expected credit loss, amortized over a three-year period. The difference between the amounts charged to the business groups in the management accounts (“adjusted expected credit loss”) and the credit loss expense recorded at Group level is reported in Corporate Center.
From first quarter 2008, as part of the transition to the new Capital Accord (Basel II), UBS will cease using the adjusted expected credit loss concept in management accounts and will no longer report adjusted expected credit losses in its quarterly reports. Expected loss as a risk measure will, however, continue to be a key part of the overall credit risk framework.
28
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External ratings, where available, are used to benchmark UBS’s internal default risk assessment. The ratings of the major rating agencies shown in the table are linked to the internal rating classes based on the long-term average |
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Risk and treasury management |
UBS internal rating scale and mapping of 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 | Ba2 | BB | ||||||
9 | Ba3 | BB– | ||||||
10 | B1 | B+ | ||||||
11 | B2 | B | ||||||
12 | B3 | B– | ||||||
13 | Caa to C | CCC to C | ||||||
14 | Defaulted | D | D | |||||
given period to equal the rating agency average. UBS monitors the long-term average default rates associated with external rating classes. If these long-term averages were | ||||
At the Investment Bank, rating tools are differentiated by broad segments. Current segments include banks, sovereigns, corporates, funds, hedge funds, commercial real estate and several more specialized businesses. The design of these tools follows a common approach. The selection and combination of relevant criteria (financial ratios and qualitative factors) are determined through a structured analysis by credit officers with expert knowledge of each segment, supported by statistical modeling techniques where sufficient data are available. | ||||
The Swiss banking portfolio includes exposures to both large and small- to medium-sized enterprises, and the rating tools vary accordingly. For segments where sufficient default data are available, rating tool development is primarily based on statistical models. Typically, these “score cards” consist of eight to 12 criteria combining financial ratios with qualitative and behavioral factors which have proven good indicators of default in the past, are accepted by credit officers and are easy to apply. For smaller risk segments with few observed defaults the approach relies more on judgment and expertise, similar to that applied at the Investment Bank. For the Swiss commercial real estate segment and for lombard lending, which is part of the retail segment, the probability of default is derived from simulation of potential changes in the value of the collateral and the probability that it will fall below the loan amount. | ||||
Default expectations for the Swiss residential mortgage segment are based on the internal default and loss history, where the major differentiating factor is the loan-to-value ratio (i.e. the amount of the outstanding obligation expressed as a percentage of the value of the collateral). |
Exposure at default Exposure at default represents the amounts UBS expects to be owed at the time of default. | ||||
For outstanding loans, the exposure at default is the drawn amount or face value. For loan commitments and for contingent liabilities, it includes any amount already drawn plus any additional amount which is expected to be drawn at the time of default, should it occur. This calculation is based on a “credit conversion factor” – a fixed percentage per product type derived from historical experience of drawings under commitments by counterparties within the year prior to their default. | ||||
For traded products, the estimation of exposure at default is more complex, since the current value of a contract or portfolio of contracts can change significantly over time and may, at the time of a future default, be considerably higher or lower than the current value. For repurchase and reverse repurchase agreements and for securities borrowing and lending transactions, the net amount which could be owed to or by UBS is assessed, taking into account the impact of market moves over the time it would take to close out all transactions (“closeout exposure”). For exchange-traded derivatives (ETDs), the exposure at default is derived from the difference between the initial margin and the current variation margin. Exposure at default on OTC derivative transactions is determined by modeling the potential evolution of the replacement value of the portfolio of trades with each counterparty over the lifetime of all transactions (“potential credit exposure”), taking into account legally enforceable closeout netting agreements where applicable. | ||||
For traded products, excluding ETDs, the exposure at default is derived from a Monte Carlo simulation (a statistical technique involving a large number of simulations) of potential market moves in all relevant risk factors, such as interest rates and exchange rates, based on estimated correlations between the risk factors. This ensures a scenario-consistent estimation of market value across all traded products at counterparty and portfolio level. The randomly simulated sets of risk factors are then used as inputs to product-specific valuation models to generate valuation paths, taking into account the impact of maturing contracts and changing collateral values. | ||||
The resultant distribution of future valuation paths supports various exposure measures. All portfolio risk measures are based on the expected exposure profile. By contrast, in controlling individual counterparty exposures UBS limits the potential “worst case” exposure over the full tenor of all transactions, and therefore applies the limits to the “maximum likely exposure” generated by the same simulations, measured to a specified high confidence level. | ||||
Cases where there is material correlation between the factors driving a counterparty’s credit quality and the factors driving the future path of traded products exposure (“wrong- |
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Risk and treasury management
Treasury management
way risk”) require special treatment. In such cases, the potential credit exposure generated by the standard model is overridden by a calculation from a customized exposure model that explicitly takes this correlation into account. For portfolios where this risk is inherently present, for instance for the hedge funds portfolio, UBS | |||||||
The performance of exposure models is monitored by backtesting and benchmarking whereby model outcomes are compared against actual outcomes, based on UBS’s internal as well as external historical experience. | |||||||
Loss given default Loss given default or loss severity represents UBS’s expectation of the extent of loss on a claim should default occur. It is expressed as a percentage loss per unit of exposure and typically varies by type of counterparty, type and seniority of claim and the availability of collateral or other credit mitigation. Loss given default estimates cover loss of principal, interest and other amounts due (including workout costs), and also consider the costs of carrying the impaired position during the workout process. | |||||||
served to have changed in a material and permanent way, their mapping to the Masterscale would be adjusted
Loss given default
29
Risk managementCredit risk
Exposure at default
For all traded products, the exposure at default is derived from the same Monte Carlo simulation of potential market moves in all relevant risk factors, such as interest rates and exchange rates, based on estimated correlations between the risk factors. This ensures a scenario-consistent estimation of exposure at default across all traded products at counterparty and portfolio level. The randomly simulated sets of risk factors are then used as inputs to product specific valuation models to generate valuation paths, taking into account the impact of maturing contracts and changing collateral values, including the ability to call additional collateral.
30
Risk managementMarket risk
Market risk
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Risk managementMarket risk
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Risk managementMarket risk
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The VaR measure is based on observed historical movements and correlations, whereas stress loss measures are informed but not constrained by past events. UBS’s objectives in stress testing are to explore a wide range of possible outcomes, to understand vulnerabilities, and to provide a control framework that is comprehensive, transparent and responsive to changing market conditions.
34
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35
Risk managementMarket risk
In 2007, UBS’s market risk measures underestimated the potential losses resulting from exposures to the previously deep and liquid US residential mortgage market – neither trading management nor market risk controllers foresaw the extreme rates of delinquency and default and low recovery levels now projected, or the breakdown in correlation within and between asset classes that emerged in the second half of 2007 and revealed the tail risk in UBS’s positions. With the accompanying drying up of liquidity in parts of the market, the size of UBS’s positions has proved excessive relative to the market. The size, frequency and pattern of market moves were exceptional and UBS suffered losses in excess of those predicted by statistical or even stress loss risk measures based on historical market movements. Other market risk management and control processes were, however, intended to identify risk concentrations and sources of potential loss in more extreme circumstances. UBS is therefore taking steps to address the gaps which these events have revealed.
Risk management
The models used in the risk management and valuation of US residential real estate-related products have been refined and recalibrated to reflect projections for lifetime cumulative losses consistent with market prices, where observable, and will continue to be updated as these projections and market parameters change. Even
Risk control
36
controlled.
37
Risk managementMarket risk
Market risk in 2007
The graphs below illustrate the relative calm of the first half of 2007, and the severe dislocation of markets and extreme volatility of the second half. Markets retreated in response to the first fall in the US sub-prime market, but by the end of first quarter the impact appeared to have been contained. Equities markets resumed their upward trend from late March through to May, but by June inflation fears and renewed concerns about wider contagion from the sub-prime market led to increased volatility. A flight to quality and rapid deleveraging by some market participants followed in third quarter, resulting in intra-market dislocations as participants exited “crowded trades”. Spreads between government yields and bank borrowing rates (“TED spread”) widened dramatically and central banks intervened to counter
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Investment Bank: Value at Risk (10-day, 99% confidence, 5 years of historical data) | ||||||||||||||||||||||||||||||||
Year ended 31.12.07 | Year ended 31.12.06 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.07 | Min. | Max. | Average | 31.12.06 | ||||||||||||||||||||||||
Risk type | ||||||||||||||||||||||||||||||||
Equities | 147 | 415 | 210 | 242 | 144 | 360 | 203 | 232 | ||||||||||||||||||||||||
Interest rates (including credit spreads) | 269 | 877 | 475 | 576 | 237 | 607 | 417 | 405 | ||||||||||||||||||||||||
Foreign exchange | 9 | 73 | 28 | 21 | 16 | 65 | 31 | 40 | ||||||||||||||||||||||||
Energy, metals and commodities1 | 24 | 90 | 51 | 41 | 26 | 102 | 49 | 44 | ||||||||||||||||||||||||
Diversification effect | 2 | 2 | (227 | ) | (266 | ) | 2 | 2 | (280 | ) | (248 | ) | ||||||||||||||||||||
Total | 291 | 836 | 537 | 614 | 331 | 559 | 420 | 473 | ||||||||||||||||||||||||
1Includes base metals and soft commodities risk from 15 March 2006. 2 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect. |
UBS: Value at Risk (10-day, 99% confidence, 5 years of historical data) | ||||||||||||||||||||||||||||||||||
Year ended 31.12.07 | Year ended 31.12.06 | |||||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.07 | Min. | Max. | Average | 31.12.06 | ||||||||||||||||||||||||||
Business groups | ||||||||||||||||||||||||||||||||||
Investment Bank1,2 | 291 | 836 | 537 | 614 | 331 | 559 | 420 | 473 | ||||||||||||||||||||||||||
Global Asset Management3 | 2 | 10 | 4 | 3 | 4 | 16 | 9 | �� | 10 | |||||||||||||||||||||||||
Global Wealth Management & Business Banking | 2 | 5 | 3 | 3 | 4 | 14 | 10 | 5 | ||||||||||||||||||||||||||
Corporate Center | 10 | 92 | 25 | 61 | 25 | 69 | 43 | 27 | ||||||||||||||||||||||||||
Diversification effect | 4 | 4 | (34 | ) | (93 | ) | 4 | 4 | (54 | ) | (52 | ) | ||||||||||||||||||||||
Total | 288 | 833 | 535 | 588 | 336 | 565 | 429 | 464 | ||||||||||||||||||||||||||
1 Includes UBS risk managed by Dillon Read Capital Management from June 2006 to 2 May 2007 and risk transferred from Dillon Read Outside Investor Fund from 3 May 2007. 2 Includes UBS Pactual from 1 December 2006. 3 Only covers UBS positions in alternative and quantitative investments. During first quarter 2007, seed money and coinvestments in these funds were reclassified as financial investments and they are not included in reported Value at Risk from that point. 4 As the 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, 5 years of historical data)1 | ||||||||||||||||||||||||||||||||
Year ended 31.12.07 | Year ended 31.12.06 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.07 | Min. | Max. | Average | 31.12.06 | ||||||||||||||||||||||||
Investment Bank2 | 124 | 253 | 164 | 149 | 129 | 230 | 172 | 160 | ||||||||||||||||||||||||
UBS | 126 | 254 | 165 | 152 | 131 | 233 | 173 | 162 | ||||||||||||||||||||||||
1 10-day and 1-day Value at Risk (VaR) results are separately calculated from underlying positions and historical market moves. They cannot be inferred from each other. 2 Positions in Investment Bank subject to market risk regulatory capital contributed average VaR of CHF 160 million in 2007 and CHF 169 million in 2006. |
39
Risk managementMarket risk
BacktestingAs a result of the severe market volatility and dislocation which prevailed from the end of July, UBS experienced 29 backtesting exceptions in 2007, its first since 1998. The multiplier by which the market risk regulatory capital requirement is derived from 10-day VaR has been increased accordingly.
Stress lossStress loss for Investment Bank is defined as the worst case outcome from the official stress scenarios, which now include the worst historical loss from each day’s VaR simulation. Stress loss, like VaR, is dominated by US residential mortgage-related positions, with a significant contribution from corporate credit spread exposure. Changing directional exposures to interest rates and equity markets have led to fluctuations in reported stress loss over the course of the year.
40
Value at Risk outlook
In its fourth quarter 2007 report, UBS indicated that it was considering changing the internal risk control and / or regulatory capital treatment of some US residential mortgage market-related positions. Decisions have now been taken to reclassify some of the legacy portfolios managed by the FICC workout group. The markets for these positions are not liquid and 10-day VaR is not an adequate measure of their risks or an appropriate risk control tool. They will no longer be subject to internal VaR limits, they will be subject to banking book, rather than trading book, regulatory capital, and they
41
Risk managementInvestment positions
Investment positions
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Debt investments | |||
Bank. | |||
The risk control framework applied to debt instruments classified as |
Where applicable, debt investments are reflected in reports to senior management of consolidated credit exposures and in FINMA. | ||||
The increase in money market instruments is due to UK Treasury Gilts held in UBS Ltd. | ||||
At 31 December |
43148
Risk and treasury management |
Risk Management
Operational risk
Operational risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems (for example failed IT systems, or fraud perpetrated by a UBS employee), or from external causes, whether deliberate, accidental or natural. It is inherent in all of UBS’s activities, not only in the business the firm conducts but dueactivities. Operational risks are monitored and, to the fact it is a business – because UBS is an employer, it ownsextent possible, controlled and occupies property and holds assets, including information, belonging to both the firm and its clients. Themitigated. UBS’s approach to operational risk is not designed to eliminate risk per sealtogether but, rather, to contain itrisks within acceptable levels as determineddeemed acceptable by senior management, and to ensure that the firm has sufficient information to make informed decisions about additional controls, adjustments to controls, or other risk responses.management. The Group Chief Risk Officer (Group CRO) and, supported by the Group Head of Operational Risk, (who reports to the Group CRO) areis responsible for the independence, objectivity and effectivenesseffective design of the operational risk framework.
Operational risk framework
All UBS functions, whether a front-end business, or a control or logistics unit,functions, must manage the operational risks that arise from its owntheir activities. Because theseOperational risks are all pervasive, withas a failure in one area potentially impacting many others, UBS’s framework is basedmay have a potential impact on mutual oversight across all functions.several other areas. Each business groupdivision has therefore established a cross-functional bodiesbody to actively manage operational risk as an integral part of its governance structure, to actively manage operational risk.
Operational risk measurement
UBS has developed a model for the quantification of operational risk which meets the regulatory capital standard underspecified by the Basel II Advanced Measurement Approach (AMA). ItThe model has two main components. The historical component is based on UBS’s own internal losses and is used primarily to determine the expected loss portion of the capital requirement. The firm has been collecting operational risk event data (both profits and losses) since 2002.
44
– | The historical component is based on UBS’s own internal losses and is used primarily to determine the expected loss portion of the capital requirement. UBS has been collecting operational risk event data (both profits and losses) since 2002. | |
– | The scenario component is used primarily to determine the unexpected loss portion of the capital requirement. It is based on a set of generic scenarios that represent categories of operational risks which UBS is exposed to. The scenarios themselves are generated from an analysis of internal and external event information, the current business environment and UBS’s own internal control environment. The scenarios are reviewed at least annually by experts to ensure their validity and may be updated based on material new information or events. During 2008, scenarios were adjusted for a number of industry-wide events including unauthorized trading losses and disputes over client practices. |
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Risk and treasury management
Treasury management
Treasury management
UBS: funding by currency
UBS: BIS capital ratios1
UBS: funding by product type
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Risk and treasury management |
TreasuryLiquidity and capitalfunding management
UBS |
Liquidity management
Funding management
Funding riskis the risk of being unable, on an ongoing basis, to borrow funds in the market at an acceptable price to fund actual or proposed commitments and thereby support UBS’s current business and desired strategy. Liquidity and funding are not the same, but they are closely related. Both are finite resources that are critical for a financial institution. | ||||
Market liquidity overview: 2008 The financial and credit market crisis, which had its origins in the US residential mortgage market in the second half of 2007, spread and gained in intensity throughout 2008, as a broader economic crisis developed and pointed towards a severe global downturn. A precipitous fall in trading volumes in some previously highly liquid markets accompanied a sharp reduction in asset market values. After the failure of one of the major US investment banks in mid-September, the tenor of the interbank lending market was dramatically reduced. Although other short-term funding remained available at this time, it was largely limited to tenors within one month, while in secured funding markets certain assets were subjected to significantly higher haircuts and in some cases were no longer accepted as collateral. Access to other longer-term wholesale funds was also severely constrained, as the level of credit spreads surged, and companies’ financing costs reached new heights. | ||||
In an attempt to contain the sustained and growing crisis, which resulted in significant bank failures or forced restructurings of several major financial institutions throughout the year, central banks and governments were induced to intervene on a large scale to support both specific institutions and the global financial system as a whole. These public sector initiatives included a series of restructurings, recapitalizations – both direct and indirect – and the introduction, then subsequent expansion, of broad-based credit and liquidity support facilities. New policies were implemented in many major economies to permit direct government investment in banks, loan and bank debt guarantees, as well as the provision of |
large volumes of additional liquidity to their financial systems via extraordinary financing facilities. Certain major banks became majority-owned by their governments. Several countries announced that they would insure all domestic bank deposits and others substantially increased the insurance protection for their deposits and bank debts, pressuring the deposits and debts of banks covered by weaker protection schemes. In the fourth quarter, the Swiss government announced a number of steps to support its banking system, including a strengthening of the country’s bank deposit insurance scheme and a willingness to guarantee interbank liabilities if and when deemed necessary. Throughout most of the fourth quarter, public bond market issuance was largely limited to banks whose debt was government-guaranteed. UBS’s response to the ongoing crisis Despite the very challenging conditions, UBS | ||||
Like many other major financial institutions, UBS saw decreased access to wholesale term funding and a decline in client deposits during 2008. This was counterbalanced by ongoing asset reductions – mostly in the Investment Bank – which reduced UBS’s overall funding needs. As part of these asset reductions, the trading portfolio was pared back by CHF 462 billion compared with year-end 2007. | ||||
The transaction with the SNB, which was announced in fourth quarter 2008, further bolsters the firm’s liquidity and funding position by reducing overall funding requirements. Liquidity and funding risk management framework A new liquidity and funding risk management framework was approved by the Board of Directors (BoD) of UBS in 2008. This new framework outlines the principles, roles and responsibilities, models, methodologies and tools UBS uses |
Capital management
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Risk-weighted assets in 2007
Risk and derivatives
Eligible capital in 2007
Capital improvement program
to manage liquidity and funding risk. The framework describes a target state; many of these measures have already been, or are in the process of being implemented. The benefits of the new framework are the following: | ||||
– | ||||
– |
Effective in first quarter 2008:
– | ||||
The approach taken by UBS will proceed in parallel: tactically addressing a number of | ||||
Liquidity approach | ||||
UBS’s approach to liquidity management, which covers all branches and subsidiaries, aims to ensure that it will always have sufficient liquidity to meet liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking sustained damage to its various business franchises. | ||||
Central to the integrated framework is an assessment of | ||||
The liquidity position and asset and liability profile are continuously tracked. This involves monitoring the balance sheet contractual and behavioral maturity profiles and projecting and modeling the liquidity exposures of the firm under a variety of potential scenarios – encompassing both normal and stressed market conditions. UBS considers the possibility that its access to markets could be impacted by a stress event |
affecting some part of its business or, in the extreme case, if it was to suffer a severe rating downgrade combined with a period of general market uncertainty. The results are factored into the overall contingency plans of UBS. | ||||
UBS’s major sources of liquidity are channeled through entities that are fully consolidated. | ||||
Liquidity management | ||||
UBS manages its liquidity position in order to be able to ride out a crisis without damaging the ongoing viability of its business. This is complemented by the firm’s funding risk management which aims to achieve the optimal liability structure to finance its businesses cost-efficiently and reliably. The long-term | ||||
The firm’s business activities generate asset and liability portfolios which are intrinsically highly diversified with respect to market, product and currency. This reduces UBS’s exposure to individual funding sources, and also provides a broad range of investment opportunities, which in turn reduces liquidity risk. | ||||
UBS adopts a centralized approach to liquidity and funding management to exploit these advantages to the full. The liquidity and funding process is undertaken jointly by Group Treasury and the foreign exchange and money market (FX&MM) unit within the Investment Bank’s fixed income, currencies and commodities (FICC) business area. Group Treasury establishes a comprehensive control framework, while FX&MM undertakes operational cash and collateral management within the established parameters. | ||||
This centralization permits close control of both UBS’s global cash position and its stock of highly liquid securities. The central treasury process also ensures that the firm’s general access to wholesale cash markets is concentrated in FX&MM. Funds raised externally are largely channeled into FX&MM including the proceeds of debt securities issued by UBS, an activity for which Group Treasury is responsible. FX&MM in turn meets all internal demands for funding by channeling funds from units generating surplus cash to those requiring finance. In this way, UBS reduces its external borrowing and use of available credit lines, and presents a consistent and coordinated face to the market. | ||||
Liquidity modeling and contingency planning | ||||
For the purpose of monitoring its liquidity situation, UBS employs the following main measures: | ||||
– | A cash ladder, which is used by FX&MM to manage the firm’s funding requirements on a daily basis within limits that are set by the BoD risk committee and controlled by Group Treasury. This cumulative cash ladder shows the daily liquidity position – the net cumulative funding requirement for a specific day – projected for each business day from the current day forward six months. |
Introduction of Basel II in 2008
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Capital adequacy | ||||||||||||
As of | ||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
BIS Tier 1 capital | 32,811 | 40,528 | 39,834 | |||||||||
of which hybrid Tier 1 capital | 6,387 | 5,633 | 4,975 | |||||||||
BIS total capital | 44,507 | 50,364 | 43,808 | |||||||||
BIS Tier 1 capital ratio (%) | 8.8 | 11.9 | 12.8 | |||||||||
BIS total capital ratio (%) | 12.0 | 14.7 | 14.1 | |||||||||
Balance sheet assets | 292,988 | 273,588 | 252,364 | |||||||||
Off-balance sheet and other positions | 37,200 | 48,444 | 37,010 | |||||||||
Market risk positions1 | 42,110 | 19,860 | 21,035 | |||||||||
Total BIS risk-weighted assets | 372,298 | 341,892 | 310,409 | |||||||||
Risk and treasury management |
– | A contractual maturity gap analysis of UBS’s assets and liabilities. | |||
– | A behavioral maturity gap analysis under an assumed severe liquidity crisis scenario. | |||
– | A cash capital model which measures the amount of stable funding in relation to the amount and composition of its assets. | |||
The breakdown of the contractual maturity of UBS’s assets and liabilities serves as a starting point for stress testing analyses. One such breakdown is shown in the “Maturity analysis” table at the end of this section. This maturity analysis is an accounting view. It does not fully represent a liquidity risk management perspective, which would also include behavioral stress analyses and a more detailed breakdown of asset and liability types. | ||||
The aforementioned liquidity crisis scenario combines a firm-specific crisis with market disruption and focuses on a time horizon starting with overnight and extending up to one year. This UBS-specific scenario envisages large draw-downs on otherwise stable client deposits, an inability to renew or replace maturing unsecured wholesale funding and limited capacity to generate liquidity from trading assets. Liquidity crisis scenario analysis supports the liquidity management process so that immediate corrective measures, such as the use of a liquidity buffer to absorb potential sudden liquidity shortfalls, can be put into effect. | ||||
Since a liquidity crisis could have a myriad of causes, UBS focuses on a scenario that encompasses all potential stress effects across all markets, currencies and products. | ||||
The assessment includes the likelihood of maturing assets and liabilities being rolled over in a UBS-specific crisis within an otherwise stressed market environment, and gauges the extent to which the potential crisis-induced shortfall could be covered by available funding. This would be raised on a secured basis against available collateral, which includes securities eligible for pledging at the major central banks, or by selling liquid inventory. In both cases UBS applies crisis-level discounts to the value of the assets. It assumes that it would be generally unable to renew any of the Group’s wholesale unsecured debt, including all its maturing money market paper (outstanding volume CHF 112 billion on 31 December 2008) and that no contingency funding could be raised on an unsecured basis. Since liquidity needs may also result from commitments and contingencies, including credit lines extended to secure the liquidity needs of customers, UBS regularly monitors undrawn committed credit facilities and other latent liquidity risks and factors these potential liquidity outflows into the scenario analysis. Particular emphasis is placed on potential drawdowns of committed credit lines. | ||||
If UBS’s credit rating were to be downgraded, “rating trigger” clauses, especially in derivative contracts, could result in an immediate cash outflow due to the unwinding of derivative positions, or the need to deliver additional collateral. UBS also analyzes the potential impact on its net liquidity position of ad- |
verse movements in the replacement value of its over-the-counter (OTC) derivative transactions which are subject to collateral arrangements and includes potential outflows in its crisis scenario. Given the diversity of UBS’s derivatives business and that of its counterparties, there is not necessarily a direct correlation between the factors influencing net replacement values with each counterparty and a firm-specific crisis scenario. Liquidity limits and controls | ||||
Liquidity and funding limits are set by senior management, taking into consideration UBS’s business model and strategy, the prevailing market conditions and the firm’s tolerance for risk. Structural limits focus on the composition and profile of the balance sheet, while supplementary limits are designed to drive the utilization and allocation of funding resources. The supplementary limits, which consist of three categories – operational, funding and regulatory – are monitored and performance is regularly communicated to senior management. Operational limits focus on structural liquidity risk for terms from intra-day out to one year including stress testing, while funding limits focus on the liability mix. The principles underlying UBS’s limit framework aim to maximize and sustain the value of its business franchise and appropriately balance the asset / liability structure in light of prevailing market conditions. Group Treasury is responsible for the control and oversight of the liquidity and funding limits. | ||||
To complement and support the limit framework, regional teams monitor the markets in which UBS operates for potential threats and regularly report any significant findings to Group Treasury. | ||||
UBS has also developed detailed contingency plans for liquidity crisis management, the cornerstone of which is the Group’s substantial liquidity reserves, including a large multi-currency portfolio of unencumbered high-quality and short-term assets as well as available and unutilized liquidity facilities at several major central banks. | ||||
The liquidity contingency plan is an integral part of the global crisis management concept, which covers all types of crisis events. Its implementation falls under the responsibility of a core crisis team with representatives from Group Treasury, from FX&MM and from related areas including the functions responsible for payments and settlements, market and credit risk control, collateral and margin management, and information technology and infrastructure. FX&MM’s centralized global management model lends itself naturally to efficient liquidity crisis management. Should a crisis require contingency funding measures to be invoked, Group Treasury takes responsibility for coordinating liquidity generation together with representatives from FX&MM and the relevant business areas. | ||||
UBS manages its relationships with the major central banks as part of its general policy, which is to base contingency plans on having sufficient liquidity reserves at its disposal and to raise contingency funding on a secured basis against provision of collateral. |
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Treasury management
Funding
UBS’s domestic retail and global wealth management businesses continue to be valuable, cost-efficient and reliable sources of funding. These businesses contributed CHF 340 billion, or 72% of the CHF 475 billion total customer deposits shown in the UBS asset funding diagram below. Compared with the CHF 340 billion of net loans as of 31 December 2008, customer deposits provided 140% coverage. In terms of secured funding, i.e. repurchase agreements and securities lent against cash collateral received, UBS borrows less cash on a collateralized basis than it lends, leading to a surplus of net securities sourced (and rehypothecable) – shown as the CHF 231 billion cash-equivalent surplus in the diagram below. Furthermore, through the establishment of short-, medium- and long-term funding programs in Europe, the US and Asia, UBS can provide specialized investments to its customers through which it can efficiently raise funds globally from both institutional and private investors, minimizing its dependence on any particular source. A maturity breakdown of UBS’s long-term straight debt portfolio of CHF 58 billion is shown further below.
UBS asset funding
Net replacement values (RVs)
Funding approach
Medium- and long-term funding activities are planned by assessing the overall funding profile of the balance sheet, taking due account of the effective maturity of the asset base and the amount of maturing debt that will have to be
replaced. The ability to continue to fund ongoing business activities through periods of difficult market conditions is also factored in. Prior to the outbreak of the current crisis, at the beginning of 2007, UBS decided to further strengthen its funding profile through public issuance of senior, straight, long-term debt and to thereby enhance the overall diversification of its funding sources. Despite the persistent turbulence prevailing in the capital managementmarkets throughout the year, UBS raised CHF 24 billion of proceeds through public senior debt issuance during 2008 (compared with CHF 15 billion during 2007). Two recent examples of this funding diversification effort were the inaugural Samurai domestic Japanese Yen issuance (totaling JPY 91.5 billion) in June 2008 and the approximately CHF 2 billion Swiss covered bond (Pfandbrief) issuance via the Swiss Mortgage Bond Bank in December 2008.
è | Refer to the “Shares and capital instruments” section of this report for more information about capital instruments |
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Risk and treasury management |
UBS: funding by product and currency
All currencies | CHF | EUR | USD | Others | ||||||||||||||||||||||||||||||||||||
In % | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | ||||||||||||||||||||||||||||||
Securities lending | 1.4 | 2.1 | 0.0 | 0.0 | 0.4 | 0.2 | 0.6 | 1.5 | 0.4 | 0.4 | ||||||||||||||||||||||||||||||
Repurchase agreements | 10.1 | 19.9 | 0.9 | 1.5 | 1.6 | 2.5 | 6.6 | 12.2 | 1.0 | 3.7 | ||||||||||||||||||||||||||||||
Interbank | 12.4 | 9.5 | 0.8 | 0.5 | 4.9 | 1.8 | 4.9 | 4.5 | 1.8 | 2.8 | ||||||||||||||||||||||||||||||
Money market paper | 11.0 | 9.9 | 0.3 | 0.3 | 1.0 | 0.9 | 8.5 | 7.3 | 1.2 | 1.3 | ||||||||||||||||||||||||||||||
Retail savings/deposits | 9.9 | 7.1 | 6.0 | 4.6 | 1.0 | 0.8 | 3.0 | 1.6 | 0.0 | – | ||||||||||||||||||||||||||||||
Demand deposits | 13.8 | 11.7 | 2.8 | 2.2 | 2.8 | 2.4 | 6.5 | 5.3 | 1.7 | 1.8 | ||||||||||||||||||||||||||||||
Fiduciary | 6.0 | 6.0 | 0.3 | 0.3 | 2.0 | 1.8 | 3.0 | 3.1 | 0.7 | 0.8 | ||||||||||||||||||||||||||||||
Time deposits | 17.0 | 16.9 | 1.6 | 2.3 | 2.9 | 1.9 | 9.1 | 9.5 | 3.5 | 3.1 | ||||||||||||||||||||||||||||||
Long-term debt1 | 18.4 | 17.0 | 2.7 | 1.4 | 5.9 | 4.7 | 5.0 | 6.2 | 4.8 | 4.7 | ||||||||||||||||||||||||||||||
Total | 100.0 | 100.0 | 15.3 | 13.2 | 22.4 | 17.0 | 47.2 | 51.2 | 15.1 | 18.6 | ||||||||||||||||||||||||||||||
Funding position and diversification
UBS continues to maintain a balanced portfolio of liabilities that is broadly diversified by market, product and currency. The vast product offerings and global scope of the firm’s business activities are the primary reasons for funding stability. Funding is provided through numerous short-, medium-, and long-term funding programs in Europe, the US and Asia, which provide specialized investments to institutional and private clients. UBS’s domestic retail and global wealth management businesses are also a valuable source of funding.
sets and reverse repurchases/securities borrowed that were financed through repurchase agreements).
UBS: funding by currency
UBS: funding by product type
155
Risk and treasury management
Treasury management
Credit ratings
As of 31.12.08 | Moody's | Standard & Poor's | Fitch Ratings | |||||||||
Rating | Outlook | Rating | Outlook | Rating | Outlook | |||||||
Long-term rating | Aa2 | stable | A+ | stable | A+ | stable | ||||||
Short-term rating | P–1 | stable | A–1 | stable | F1+ | stable | ||||||
Financial strength rating/Individual | B– | stable | B/C | stable1 | ||||||||
UBS Ratings
The table above summarizes UBS’s long- and short-term debt ratings as of 31 December 2008 (refer to the “Credit ratings” sidebar).
Maturity breakdown of long-term straight debt portfolio
The graph below shows a contractual maturity breakdown of the portion of UBS’s long-term debt portfolio consisting of straight debt (and therefore excluding all structured debt, which is predominately booked as “financial liabilities desig-
Long-term straight debt – contractual maturities
nated at fair value”). This amounted to CHF 58 billion on 31 December 2008, and is accounted for on the balance sheet as part of the CHF 197 billion shown on the “Debt issued” line (which in addition includes money market paper issued and the December 2008 MCN issuance). UBS’s long-term straight debt portfolio is composed of CHF 42 billion of senior debt (including both publicly and privately placed notes and bonds as well as Swiss cash bonds) and CHF 16 billion of subordinated debt. CHF 5 billion, or 9%, of the positions mature during 2009.
156
Risk and treasury management |
Maturity analysis | ||||||||||||||||||||||||||||||||||||||
On-demand and trading instruments | ||||||||||||||||||||||||||||||||||||||
Instruments | Due | Due | Due | |||||||||||||||||||||||||||||||||||
at cost and at | Instruments | Instruments | Due | between | between | between | ||||||||||||||||||||||||||||||||
fair value/ | at fair value/ | at fair value/ | within | 1 and 3 | 3 and 12 | 1 and 5 | Due after | |||||||||||||||||||||||||||||||
CHF billion | level 1 | level 2 | level 3 | 1 month | months | months | years | 5 years | Total | |||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||
Cash and balances with central banks | 32.7 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 32.7 | |||||||||||||||||||||||||||||
Due from banks | 54.6 | 0.0 | 0.0 | 5.3 | 1.1 | 1.4 | 1.7 | 0.4 | 64.5 | |||||||||||||||||||||||||||||
Cash collateral on securities borrowed | 77.8 | 0.0 | 0.0 | 43.7 | 1.4 | 0.0 | 0.0 | 0.0 | 122.9 | |||||||||||||||||||||||||||||
Reverse repurchase agreements | 28.0 | 0.0 | 0.0 | 179.6 | 8.7 | 6.8 | 0.8 | 0.7 | 224.6 | |||||||||||||||||||||||||||||
Trading portfolio assets1 | 128.1 | 128.4 | 15.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 271.8 | |||||||||||||||||||||||||||||
Trading portfolio assets pledged as collateral1 | 25.4 | 13.2 | 1.6 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 40.2 | |||||||||||||||||||||||||||||
Positive replacement values1 | 5.1 | 811.2 | 37.8 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 854.1 | |||||||||||||||||||||||||||||
Financial assets designated at fair value2 | 1.1 | 0.1 | 0.0 | 1.5 | 0.5 | 1.0 | 4.0 | 4.7 | 12.9 | |||||||||||||||||||||||||||||
Loans | 71.4 | 0.0 | 0.0 | 71.8 | 33.1 | 32.6 | 80.5 | 50.9 | 340.3 | |||||||||||||||||||||||||||||
Financial investments available-for-sale | 0.0 | 0.5 | 1.1 | 1.4 | 0.8 | 0.2 | 0.1 | 1.1 | 5.2 | |||||||||||||||||||||||||||||
Accrued income and prepaid expenses | 0.0 | 0.0 | 0.0 | 6.1 | 0.0 | 0.0 | 0.0 | 0.0 | 6.1 | |||||||||||||||||||||||||||||
Investments in associates | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.9 | 0.9 | |||||||||||||||||||||||||||||
Property and equipment | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 6.7 | 6.7 | |||||||||||||||||||||||||||||
Goodwill and other intangible assets | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 12.9 | 12.9 | |||||||||||||||||||||||||||||
Other assets | 0.0 | 0.0 | 0.0 | 19.1 | 0.0 | 0.0 | 0.0 | 0.0 | 19.1 | |||||||||||||||||||||||||||||
Total 31.12.08 | 424.1 | 953.5 | 55.9 | 328.5 | 45.5 | 42.1 | 87.1 | 78.3 | 2,015.1 | |||||||||||||||||||||||||||||
Total 31.12.07 | 676.4 | 787.5 | 75.7 | 438.5 | 80.9 | 76.1 | 79.9 | 59.8 | 2,274.9 | |||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||
Due to banks | 55.1 | 0.0 | 0.0 | 52.3 | 12.2 | 4.9 | 0.8 | 0.4 | 125.6 | |||||||||||||||||||||||||||||
Cash collateral on securities lent | 12.6 | 0.0 | 0.0 | 1.5 | 0.0 | 0.0 | 0.0 | 0.0 | 14.1 | |||||||||||||||||||||||||||||
Repurchase agreements | 8.6 | 0.0 | 0.0 | 82.6 | 5.7 | 5.1 | 0.3 | 0.3 | 102.6 | |||||||||||||||||||||||||||||
Trading portfolio liabilities1 | 33.9 | 27.5 | 1.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 62.4 | |||||||||||||||||||||||||||||
Negative replacement values1 | 4.9 | 812.0 | 34.9 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 851.8 | |||||||||||||||||||||||||||||
Financial liabilities designated at fair value3 | 0.0 | 0.0 | 0.0 | 0.6 | 7.8 | 20.7 | 37.2 | 35.3 | 101.5 | |||||||||||||||||||||||||||||
Due to customers | 208.6 | 0.0 | 0.0 | 206.1 | 34.3 | 16.2 | 0.5 | 9.1 | 474.8 | |||||||||||||||||||||||||||||
Accrued expenses and deferred income | 0.0 | 0.0 | 0.0 | 10.2 | 0.0 | 0.0 | 0.0 | 0.0 | 10.2 | |||||||||||||||||||||||||||||
Debt issued | 0.0 | 0.0 | 0.0 | 83.6 | 20.7 | 13.9 | 37.1 | 41.9 | 197.3 | |||||||||||||||||||||||||||||
Other liabilities | 13.1 | 0.0 | 0.0 | 21.0 | 0.0 | 0.0 | 0.0 | 0.0 | 34.0 | |||||||||||||||||||||||||||||
Total 31.12.08 | 336.7 | 839.5 | 35.9 | 457.8 | 80.6 | 60.7 | 75.9 | 87.0 | 1,974.3 | |||||||||||||||||||||||||||||
Total 31.12.07 | 501.9 | 465.0 | 16.8 | 671.4 | 190.7 | 167.8 | 106.5 | 111.0 | 2,231.1 | |||||||||||||||||||||||||||||
Off-balance sheet | ||||||||||||||||||||||||||||||||||||||
Undrawn irrevocable facilities4 | 59.9 | 0.0 | 0.0 | 0.2 | 0.0 | 0.1 | 0.1 | 0.0 | 60.3 | |||||||||||||||||||||||||||||
1 Trading and derivative positions are presented in the first three columns of the table: “Instruments at cost and fair value / Level 1,” “Instruments at fair value / Level 2” and “Instruments at fair value / Level 3.” Management believes that such presentation most accurately reflects the short-term nature of trading activities. The contractual maturity of the instruments may, however, extend over significantly longer periods. The breakdown of these positions into the fair value measurement categories of levels 1, 2 and 3 indicates the liquidity of the markets in which the financial instruments are traded and the availability of market observable inputs to measure these instruments (refer to “Note 27 Fair value of financial instruments” in the financial statements of this report). Contractual maturities of trading portfolio liabilities are: CHF 61.2 billion due within one month; and CHF 1.2 billion due between one month and one year. 2 The contractual redemption amount at maturity of financial assets designated at fair value approximates the carrying value as of 31 December 2008 and 31 December 2007. 3 Non-trading and non-derivative financial liabilities are categorized based on the earliest date on which UBS can be required to pay. 4 Excludes commitments from contingent claims (credit guarantees, performance guarantees and similar instruments, and documentary credits) of CHF 18,494 million and commitments to acquire auction rate securities (ARS) of CHF 16,571 million on 31 December 2008. Refer to the “Exposure to auction rate securities” sidebar in the “Risk concentrations” section of this report for more information. |
157
Risk and treasury management
Treasury management
Credit ratings
Despite a 2008 full-year loss of slightly above CHF 20 billion, UBS maintained a sound and strong capital position as it believes that this is a key part of its value proposition for both clients and investors.
pursued by major financial institutions.
position has, in our view, remained relatively robust, and is further enhanced by the cash received from the SNB transaction.”
158
Risk and treasury management |
Interest rate and currency management
Management of non-trading interest rate risk | ||||
| ||||
Risks from fixed-maturity, short-term Swiss franc and all non-Swiss franc transactions are generally transferred to FX&MM. Risks from Swiss franc transactions with fixed maturities greater than one year are transferred to Group Treasury by individual back-to-back transactions. These fixed-rate | ||||
Current and | ||||
A significant amount of interest rate risk also arises from the financing of non-monetary related balance sheet items, such as the financing of bank property and equity investments in associated companies. These risks are generally transferred to Group Treasury through replicating portfolios which, in this case, are designed to approximate the funding profile mandated by senior management. | ||||
Group Treasury manages its residual open interest rate exposures, |
for which there is a liquid and flexible market. All transactions are executed via the Investment Bank – Group Treasury does not directly access the external market. | ||||||
è | ||||||
Market risk arising from management of consolidated capital | ||||||
| ||||||
The majority of UBS’s capital and many of its assets are denominated in Swiss francs, but the Group also holds risk-weighted assets and some eligible capital in other currencies, primarily US dollar, euro, | ||||||
On an overall Group basis, Group Treasury’s target profile is based on a currency mix which broadly reflects the currency distribution of the consolidated risk-weighted assets, using products and tenors which generate the desired income stream. As the Swiss franc depreciates (or appreciates) against these currencies, the consolidated risk-weighted assets increase (or decrease) relative to UBS’s capital. These currency fluctuations also lead to translation gains (or losses) on consolidation, which are recorded through equity. Thus, UBS’s consolidated equity rises or falls in line with the fluctuations in the risk-weighted assets, protecting the | ||||||
The capital of the parent bank and its subsidiaries is placed in the form of |
48
Treasury: Value at Risk (10-day, 99% confidence, 5 years of historical data) | ||||||||||||||||||||||||||||||||
Year ended 31.12.07 | Year ended 31.12.06 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.07 | Min. | Max. | Average | 31.12.06 | ||||||||||||||||||||||||
Interest rates | 9 | 55 | 17 | 54 | 19 | 72 | 36 | 19 | ||||||||||||||||||||||||
Foreign exchange | 1 | 87 | 18 | 21 | 4 | 51 | 30 | 20 | ||||||||||||||||||||||||
Diversification effect | 1 | 1 | (10 | ) | (14 | ) | 1 | 1 | (23 | ) | (12 | ) | ||||||||||||||||||||
Total | 10 | 92 | 25 | 61 | 25 | 69 | 43 | 27 | ||||||||||||||||||||||||
1 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect. |
unit. Where necessary, Group Treasury also executes derivatives (mainly interest rate swaps) |
159
Risk and treasury management
Treasury management
business activities and, in the case of FX&MM, within the approved liquidity and funding risk framework. | ||||||
è | ||||||
For the purposes of measuring and managing Group Treasury’s market risk position, the Group’s consolidated equity is represented in the | ||||||
The structural foreign currency exposures are controlled by senior management but are not subject to internal market risk limits and are not included in Group Treasury’s reported VaR. | ||||||
|
On 31 December |
and a sensitivity of CHF | ||||
| ||||
UBS’s corporate currency management activities are designed to reduce the impact of adverse currency fluctuations on its reported financial results, given regulatory constraints. UBS specifically focuses on three principal areas of currency risk management: match |
Group Treasury: Value-at-Risk (10-day, 99% confidence, 5 years of historical data) | ||||||||||||||||||||||||||||||||
Year ended 31.12.08 | Year ended 31.12.07 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.08 | Min. | Max. | Average | 31.12.07 | ||||||||||||||||||||||||
Interest rates | 8 | 54 | 19 | 26 | 9 | 55 | 17 | 54 | ||||||||||||||||||||||||
Foreign exchange | 3 | 93 | 26 | 10 | 1 | 87 | 18 | 21 | ||||||||||||||||||||||||
Diversification effect | 1 | 1 | (10 | ) | (14 | ) | 1 | 1 | (10 | ) | (14 | ) | ||||||||||||||||||||
Total management VaR | 10 | 97 | 34 | 28 | 10 | 92 | 25 | 61 | ||||||||||||||||||||||||
1 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect. |
160
Risk and treasury management |
Match funding and investment of non-Swiss franc assets and liabilitiesAs far as it is practical and efficient to do so, UBS follows the principle of matching the currency of its assets with the currency of the liabilities which fund them – thus a US dollar asset is typically funded in US dollars, a euro liability is offset by an asset in euros, etc. This avoids profits and losses arising from retranslation at the prevailing exchange rates to the Swiss franc at each | ||||
quarter end. |
with a reporting currency other than the Swiss franc are managed as part of UBS’s consolidated equity, as described earlier. |
49
Treasury and capital managementInterest rate and currency management
| |||
The firm’s corporate currency management |
strategy on a portion of the profits or losses that UBS anticipates for the next three months, on a rolling one-month basis. | |||
Although intended to hedge future earnings, these transactions are considered open currency positions. They are therefore subject to internal market risk VaR and stress loss limits. | |||
In public segmental reporting, the profits and losses arising from the hedge strategy are shown as Corporate Center items, while the business |
50161
TreasuryRisk and capitaltreasury managementLiquidity and funding management
Liquidity and funding management
| ||
| ||
New funding framework
51
Treasury and capital managementLiquidity and funding management
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52
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Liquidity ratios | ||||||||||
in % | 31.12.07 | 31.12.06 | ||||||||
Ratio of trading assets to total assets | 52.92 | 49.93 | ||||||||
Ratio of level 1 trading assets to total assets | 15.02 | 20.88 | ||||||||
Ratio of customer savings and deposits to mortgages | 76.10 | 79.10 | ||||||||
53
Treasury and capital managementLiquidity and funding management
Funding
UBS’s domestic retail and global wealth management businesses have proven in the past to be valuable, cost-efficient and reliable sources of funding. Furthermore, through the establishment of short-, medium- and long-term funding programs in Europe, the US and Asia, UBS can provide specialized investments to its customers through which it can efficiently raise funds globally from both institutional and private investors, minimizing its dependence on any particular source.
Funding approach
| ||
54
Maturity analysis of assets and liabilities | ||||||||||||||||||||||||||||||||||||||||||
On demand and trading instruments | ||||||||||||||||||||||||||||||||||||||||||
Instruments | Due | Due | Due | |||||||||||||||||||||||||||||||||||||||
at cost and | Instruments | Instruments | Due | between | between | between | ||||||||||||||||||||||||||||||||||||
at fair | at fair | at fair | Subject to | within 1 | 1 and 3 | 3 and 12 | 1 and 5 | Due after | ||||||||||||||||||||||||||||||||||
CHF billion | value / level 1 | value / level 2 | value / level 3 | notice1 | month | months | months | years | 5 years | Total | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||
Cash and balances with central banks | 18.8 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 18.8 | ||||||||||||||||||||||||||||||||
Due from banks | 46.4 | 0.0 | 0.0 | 0.0 | 6.7 | 2.1 | 4.1 | 1.4 | 0.2 | 60.9 | ||||||||||||||||||||||||||||||||
Cash collateral on securities borrowed | 0.0 | 0.0 | 0.0 | 149.5 | 46.5 | 2.4 | 3.8 | 1.5 | 3.4 | 207.1 | ||||||||||||||||||||||||||||||||
Reverse repurchase agreements | 0.0 | 0.0 | 0.0 | 34.8 | 277.3 | 40.0 | 22.8 | 1.9 | 0.1 | 376.9 | ||||||||||||||||||||||||||||||||
Trading portfolio assets2 | 249.3 | 323.4 | 37.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 610.0 | ||||||||||||||||||||||||||||||||
Trading portfolio assets pledged as collateral2 | 85.3 | 55.8 | 23.2 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 164.3 | ||||||||||||||||||||||||||||||||
Positive replacement values2 | 6.8 | 407.4 | 14.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 428.2 | ||||||||||||||||||||||||||||||||
Financial assets designated at fair value3 | 1.8 | 0.3 | 0.0 | 0.0 | 1.9 | 1.7 | 0.8 | 2.2 | 3.1 | 11.8 | ||||||||||||||||||||||||||||||||
Loans | 72.5 | 0.0 | 0.0 | 42.0 | 61.5 | 20.0 | 38.6 | 72.7 | 28.6 | 335.9 | ||||||||||||||||||||||||||||||||
Financial investments available-for-sale | 0.4 | 0.5 | 1.0 | 0.0 | 0.3 | 0.0 | 1.8 | 0.3 | 0.7 | 5.0 | ||||||||||||||||||||||||||||||||
Accrued income and prepaid expenses | 0.0 | 0.0 | 0.0 | 0.0 | 12.0 | 0.0 | 0.0 | 0.0 | 0.0 | 12.0 | ||||||||||||||||||||||||||||||||
Investments in associates | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 2.0 | 2.0 | ||||||||||||||||||||||||||||||||
Property and equipment | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 7.2 | 7.2 | ||||||||||||||||||||||||||||||||
Goodwill and other intangible assets | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 14.5 | 14.5 | ||||||||||||||||||||||||||||||||
Other assets | 0.0 | 0.0 | 0.0 | 0.0 | 18.0 | 0.0 | 0.0 | 0.0 | 0.0 | 18.0 | ||||||||||||||||||||||||||||||||
Total 31.12.07 | 481.3 | 787.4 | 75.5 | 226.3 | 424.2 | 66.2 | 71.9 | 80.0 | 59.8 | 2,272.6 | ||||||||||||||||||||||||||||||||
Total 31.12.06 | 549.9 | 673.9 | 13.1 | 351.4 | 404.6 | 114.3 | 92.3 | 98.9 | 48.0 | 2,346.4 | ||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||
Due to banks | 39.1 | 0.0 | 0.0 | 1.0 | 77.8 | 15.1 | 11.8 | 0.4 | 0.5 | 145.7 | ||||||||||||||||||||||||||||||||
Cash collateral on securities lent | 0.0 | 0.0 | 0.0 | 30.5 | 1.1 | 0.0 | 0.0 | 0.0 | 0.0 | 31.6 | ||||||||||||||||||||||||||||||||
Repurchase agreements | 0.0 | 0.0 | 0.0 | 17.4 | 186.7 | 46.8 | 54.4 | 0.6 | 0.0 | 305.9 | ||||||||||||||||||||||||||||||||
Trading portfolio liabilities2 | 119.9 | 44.9 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 164.8 | ||||||||||||||||||||||||||||||||
Negative replacement values2 | 6.6 | 420.1 | 16.8 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 443.5 | ||||||||||||||||||||||||||||||||
Financial liabilities designated at fair value3 | 0.0 | 0.0 | 0.0 | 0.0 | 4.5 | 35.3 | 28.8 | 68.0 | 55.3 | 191.9 | ||||||||||||||||||||||||||||||||
Due to customers | 179.6 | 0.0 | 0.0 | 124.1 | 252.3 | 49.8 | 23.5 | 0.7 | 11.9 | 641.9 | ||||||||||||||||||||||||||||||||
Accrued expenses and deferred income | 0.0 | 0.0 | 0.0 | 0.0 | 21.8 | 0.0 | 0.0 | 0.0 | 0.0 | 21.8 | ||||||||||||||||||||||||||||||||
Debt issued | 0.0 | 0.0 | 0.0 | 0.0 | 52.2 | 63.6 | 49.0 | 22.6 | 34.7 | 222.1 | ||||||||||||||||||||||||||||||||
Other liabilities | 0.0 | 0.0 | 0.0 | 27.5 | 33.3 | 0.0 | 0.0 | 0.0 | 0.0 | 60.8 | ||||||||||||||||||||||||||||||||
Total 31.12.07 | 345.2 | 465.0 | 16.8 | 200.5 | 629.7 | 210.6 | 167.5 | 92.3 | 102.4 | 2,230.0 | ||||||||||||||||||||||||||||||||
Total 31.12.06 | 386.3 | 290.1 | 9.2 | 254.6 | 843.4 | 169.8 | 150.6 | 97.5 | 89.1 | 2,290.6 | ||||||||||||||||||||||||||||||||
1 Deposits without a fixed term, on which notice of withdrawal or termination has not been given (such funds may be withdrawn by the borrower subject to an agreed period of notice). 2 Trading and derivative positions are presented in the first three columns of this table: “Instruments at cost and fair value / level 1”, “Instruments at fair value / level 2” and “Instruments at fair value / level 3”. Management believes that such presentation most accurately reflects the short-term nature of trading activities. The contractual maturity of the instruments may, however, extend over significantly longer periods. The breakdown of these positions into the fair value measurement categories of levels 1, 2 and 3 indicates the liquidity of the markets in which the financial instruments are traded and the availability of market observable inputs to measure these instruments (refer to Note 26 inFinancial Statements 2007). 3 The contractual redemption amount at maturity of financial assets and liabilities designated at fair value approximates the carrying value as of 31 December 2007 and 31 December 2006. |
Contingent claims and commitments | ||||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||||
Contingent claims | 20,824 | 17,908 | ||||||||
Undrawn irrevocable facilities | 83,980 | 97,287 | ||||||||
The Group enters into commitments to extend credit lines to secure the liquidity needs of customers. From the outstanding undrawn irrevocable credit facilities, approximately one-fifth mature within 12 months while four-fifths mature beyond 12 months. |
55
Treasury and capital managementCapital management
Capital management
| ||||
UBS aims to maintain sound capital ratios at all times, and it therefore considers not only the current situation but also projected developments in both its capital base and capital requirements. The main tools by which UBS manages the supply side of its capital ratios are active management of shares, capital instruments and dividend payments. | ||||
Capital adequacy management | ||||
|
internal assessment of aggregate risk exposure in terms of | |||
| |||
| |||
To allow for comparability, published | |||
Capital improvement program
In fourth quarter 2007, the markets for US residential sub-prime mortgages and related securities, and the US residential housing market in general continued to deteriorate. In December, it became increasingly evident that substantial writedowns would be required.The reduction in the Tier 1 ratio resulting from the expected substantial overall loss in fourth quarter could, among other consequences, have led to rating agency downgrades of UBS’s top-tier financial ratings. This, in turn, could have damaged client confidence
in UBS’s financial strength and increased the Group’s borrowing costs in the international financial markets. UBS therefore decided to take immediate actions to strengthen its capital position.The most important element of the capital improvement program was the proposal to issue CHF 13 billion of mandatory convertible notes (MCN), which was approved at the extraordinary general meeting on 27 February 2008.Since the capital impact of the MCN issue would only become effective in
first quarter 2008, it was also decided in December 2007 to take additional measures that would have an immediate effect on the Tier 1 capital ratio. Firstly, the Board of Directors approved the rededication of 36.4 million shares that had previously been bought back and earmarked for cancellation. Secondly, it proposed to replace the cash dividend for 2007 with a stock dividend.
56
|
Risk-weighted assets (BIS) | ||||||||||||||||
Risk-weighted | Risk-weighted | |||||||||||||||
Exposure | amount | Exposure | amount | |||||||||||||
CHF million | 31.12.07 | 31.12.07 | 31.12.06 | 31.12.06 | ||||||||||||
Balance sheet exposures | ||||||||||||||||
Due from banks and other collateralized lendings1 | 463,796 | 7,450 | 452,821 | 10,438 | ||||||||||||
Net positions in securities2 | 12,721 | 9,510 | 10,262 | 8,447 | ||||||||||||
Positive replacement values3 | 138,978 | 34,800 | 110,732 | 24,161 | ||||||||||||
Loans, net of allowances for credit losses and other collateralized lendings1 | 710,564 | 210,493 | 887,694 | 206,359 | ||||||||||||
Accrued income and prepaid expenses | 10,383 | 5,255 | 9,302 | 4,920 | ||||||||||||
Property and equipment | 8,370 | 8,370 | 8,436 | 8,436 | ||||||||||||
Other assets | 27,234 | 17,110 | 15,976 | 10,827 | ||||||||||||
Off-balance sheet exposures | ||||||||||||||||
Contingent liabilities | 20,824 | 7,512 | 17,908 | 7,842 | ||||||||||||
Irrevocable commitments | 84,978 | 13,028 | 98,439 | 23,592 | ||||||||||||
Forward and swap contracts4 | 732,930 | 15,565 | 459,170 | 16,599 | ||||||||||||
Purchased options4 | 9,954 | 1,095 | 8,220 | 411 | ||||||||||||
Market risk positions5 | 42,110 | 19,860 | ||||||||||||||
Total risk-weighted assets | 372,298 | 341,892 | ||||||||||||||
57
Treasury and capital managementCapital management
Developments As publicly announced, in fourth quarter 2008 FINMA enhanced the capital requirements under Basel II, Pillar 2, for UBS and Credit Suisse. The new regulatory measures will have to be implemented progressively until full applicability on 1 January 2013. | ||||
First, FINMA will increase the capital buffer (the regulatory excess capital expected to be held over and above the regulatory minimum requirement) from 20% to 50%–100% over the cycle. At the same time, FINMA will allow for enlarged recognition of hybrid capital. | ||||
Second, FINMA will introduce a minimum leverage ratio, defining the minimum amount of tier 1 capital required for a given balance sheet size. For this calculation, the IFRS balance sheet is adjusted for a number of factors: replacement values determined according to the rules of IFRS are substituted by the corresponding values under Swiss Generally Accepted Accounting Principles (Swiss GAAP), allowing for increased recognition of netting benefits, similar to US GAAP. Moreover, the Swiss loan book, certain cash and balances with central banks and specified reverse repurchase agreements where the repurchase price is payable in Swiss francs will be excluded from the balance sheet. Furthermore, a number of adjustments will be made to avoid double-counting of assets that are already deducted from tier 1 capital, most notably goodwill and intangible assets. FINMA will require a minimum leverage ratio of 3% on Group level, with an expectation that the ratio will be well above the minimum requirements in normal times. | ||||
The table on the next page shows the calculation of the FINMA consolidated leverage ratio as of 31 December 2008. | ||||
In January 2009, the Basel Committee on Banking Supervision issued consultative documents on proposed revisions to the Basel II market risk framework. Broadly, the committee aims to address perceived shortcomings of the current Value at Risk (VaR) framework, most notably by enhancing capital requirements to incorporate effects of “stressed VaR” and by introducing new capital charges for price risks that are incremental to any default and event risks already captured by VaR models used by banks. Furthermore, the Basel Committee also plans to update – for regulatory capital purposes – the prudent valuation guidance for illiquid positions accounted for at fair value. It is envisaged that the revised requirements will have to be implemented by the end of 2009 and 2010, respectively. | ||||
Finally, in January 2009 the Basel Committee issued a consultative document on further enhancements to the Ba- |
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Risk and treasury management |
sel II framework, with revised requirements for securitization exposures and, in particular, higher risk weights for re-securitization positions. Capital ratios The BIS ratios compare the amount of eligible capital (in total and tier 1) with the total of risk-weighted assets. | ||||
At year-end 2008, the BIS tier 1 ratio amounted to 11.0% and the total capital ratio to 15.1%, compared with 9.1% and 12.2%, respectively, under Basel I rules at year-end 2007. In this period, risk-weighted assets declined from CHF 374.4 billion (Basel I) to CHF 302.3 billion, while tier 1 capital decreased from CHF 34.1 billion to CHF 33.4 billion. | ||||
Eligible capital and capital ratios were restated following a change in accounting policy on pension and other post-retirement benefit plans (refer to “Note 30 Pension and other post-retirement benefit plans” in the financial statements of this report for more information). Due to this restatement, tier 1 capital and total capital increased by approximately CHF 1.6 billion and the corresponding capital ratios by 40 basis points at year-end 2007. | ||||
Capital requirements UBS’s capital requirements are generally based on its consolidated financial statements in accordance with IFRS. Under | ||||
è Refer to the additional capital management disclosure in the “Basel II Pillar 3” section of this report |
UBS: BIS capital ratios1
On 31 December | ||||
Credit risk Risk-weighted assets for credit risk amounted to CHF 222.6 billion at | ||||
èRefer to the “Credit risk” section of this report for more information |
FINMA1 adjusted assets for leverage ratio calculation | ||||
CHF billion, except where indicated | Average fourth quarter 2008 | |||
Total assets (IFRS)2 prior to deductions | 2,212 | |||
Less: difference between IFRS and Swiss GAAP positive replacement values3 | (653 | ) | ||
Less: loans to Swiss clients (excluding banks) | (165 | ) | ||
Less: cash and balances with central banks | (27 | ) | ||
Less: Other4 | (23 | ) | ||
Total adjusted assets | 1,344 | |||
FINMA consolidated leverage ratio (%) | 2.48 | |||
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Treasury management
Non-counterparty related assets Risk-weighted assets for non-counterparty related assets amounted to CHF 7.4 billion at 31 December 2008, compared with CHF 9.0 billion under Basel I on 31 December 2007. Market risk In 2008, risk-weighted assets for market risk decreased by CHF 14.5 billion to CHF 27.6 billion on 31 December 2008, due to lower regulatory VaR. The decrease resulted primarily from the | ||||
èRefer to the “Market risk” section of this report for further information | ||||
| ||||
èRefer to the “Operational risk” section of this report for further information | ||||
Eligible capital The capital available to support risk-weighted assets – eligible capital – consists of |
| ||||
| ||||
| ||||
| ||||
interests. | ||||
|
Capital adequacy | ||||||||||||
Basel II | Basel I | |||||||||||
CHF million, except where indicated | 31.12.08 | 31.12.08 | 31.12.07 | |||||||||
BIS tier 1 capital | 33,371 | 35,884 | 34,101 | |||||||||
of which hybrid tier 1 capital | 7,393 | 7,393 | 6,387 | |||||||||
BIS total capital | 45,588 | 46,233 | 45,797 | |||||||||
BIS tier 1 capital ratio (%) | 11.0 | 9.9 | 9.1 | |||||||||
BIS total capital ratio (%) | 15.1 | 12.7 | 12.2 | |||||||||
Credit risk1 | 222,563 | 326,608 | 323,345 | |||||||||
Non-counterparty related risk | 7,411 | 8,826 | 8,966 | |||||||||
Market risk | 27,614 | 27,614 | 42,110 | |||||||||
Operational risk | 44,685 | N/A | N/A | |||||||||
Total BIS risk-weighted assets | 302,273 | 363,048 | 374,421 | |||||||||
1 Includes securitization exposures and equity exposures not part of the trading book and capital requirements for failed trades. |
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Risk and treasury management |
ments but is subordinated | ||||
è | ||||
Capital components | ||||||||||||||
% change from | ||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | |||||||||||
Gross Tier 1 capital | 50,147 | 57,713 | (13 | ) | ||||||||||
of which paid-in share capital | 207 | 211 | (2 | ) | ||||||||||
of which share premium, retained earnings, currency translation differences | 43,552 | 51,869 | (16 | ) | ||||||||||
of which innovative capital instruments | 6,047 | 5,267 | 15 | |||||||||||
of which non-innovative capital instruments | 340 | 366 | (7 | ) | ||||||||||
Less: goodwill1 | (13,203 | ) | (13,852 | ) | 5 | |||||||||
Less: other Tier 1 deductions2 | (4,133 | ) | (3,333 | ) | (24 | ) | ||||||||
Total eligible Tier 1 capital | 32,811 | 40,528 | (19 | ) | ||||||||||
Upper Tier 2 capital | 301 | 0 | ||||||||||||
Lower Tier 2 capital | 13,770 | 13,093 | 5 | |||||||||||
Tier 3 capital | 0 | 0 | ||||||||||||
Less: deductions3 | (2,375 | ) | (3,257 | ) | 27 | |||||||||
Total eligible capital | 44,507 | 50,364 | (12 | ) | ||||||||||
1 Includes intangible assets exceeding 4% of Tier 1 capital. 2 Consists of: i) net-long position in own shares held for trading purposes; ii) own shares bought for cancellation (second trading line) or for upcoming share awards; iii) other treasury share positions net of delta-weighted obligations out of employee stock options granted prior to August 2006. 3 Consists of the net-long position of non-consolidated participations in the finance sector and first loss protections out of securitizations. |
58
IFRS Equity to BIS Tier 1 capital
The key adjustments made to IFRS Equity attributable to shareholders to determine Tier
– | An increase in IFRS share premium of CHF 7.0 billion and retained earnings of CHF 3.8 billion from the |
BIS share premium) by CHF | ||||
– | The different treatment of MCNs placed with the Swiss Confederation in December 2008 for IFRS and regulatory capital purposes: IFRS equity attributable to UBS shareholders decreased overall by CHF 2.9 billion, which reflects the net effect of a reduction to share premium of CHF 3.6 billion and a positive impact on retained earnings of CHF 0.7 billion. In contrast, tier 1 capital increased by CHF 6.0 billion. Refer to “Note 26 Capital increases and mandatory convertible notes” in the financial statements of this report for more information. | |||
– | A negative impact on BIS share premium of CHF 0.9 billion from adjustments for the recognition of interest payments on both MCNs for capital purposes. | |||
– | The inability to recognize, for tier 1 capital, fair value changes recorded directly in equity under IFRS from financial investments available-for-sale and cash flow hedges (reduction of CHF |
1.1 billion). | ||||
– | Further corrections in retained earnings for gains on own credit of CHF 3.0 billion relating to the application of the fair value option under International Accounting Standard (IAS) 39 for capital adequacy |
Capital components | ||||||||||||||
Basel II | Basel I | |||||||||||||
CHF million | 31.12.08 | 31.12.08 | 31.12.07 | |||||||||||
Core capital prior to deductions | 48,971 | 48,971 | 51,437 | |||||||||||
of which: paid-in share capital | 293 | 293 | 207 | |||||||||||
of which: share premium, retained earnings, currency translation differences and other elements | 41,285 | 41,285 | 44,842 | |||||||||||
of which: non-innovative capital instruments | 1,810 | 1,810 | 340 | |||||||||||
of which: innovative capital instruments | 5,583 | 5,583 | 6,047 | |||||||||||
Less: treasury shares/deduction for own shares1 | (1,488 | )2 | (1,488 | ) | (4,133 | ) | ||||||||
Less: goodwill & intangible assets3 | (12,950 | ) | (11,600 | ) | (13,203 | ) | ||||||||
Less: other Basel II deductions4 | (1,163 | ) | – | |||||||||||
Total eligible tier 1 capital | 33,371 | 35,884 | 34,101 | |||||||||||
Upper tier 2 capital | 1,090 | 69 | 301 | |||||||||||
Lower tier 2 capital | 12,290 | 12,290 | 13,770 | |||||||||||
Less: other Basel I deductions5 | – | (2,010 | ) | (2,375 | ) | |||||||||
Less: other Basel II deductions4 | (1,163 | ) | – | |||||||||||
Total eligible capital | 45,588 | 46,233 | 45,797 | |||||||||||
1 Consists of: i) net long position in own shares held for trading purposes; ii) own shares bought for cancellation (second trading line) and for unvested or upcoming share awards; iii) other treasury share positions net of delta-weighted obligations out of employee stock options granted prior to August 2006. 2 Netting of own shares with share-based payment obligations is subject to a grandfathering agreement with the Swiss Financial Market Supervisory Authority. 3 Includes under Basel I only goodwill and the portion of intangible assets exceeding 4% of tier 1 capital. 4 Positions to be deducted as 50% from tier 1 and 50% from total capital mainly consist of: net long position of non-consolidated participations in the finance sector, first loss positions from securitization exposures, excess of expected losses above general provisions (AIRB), expected loss for equities (simple risk weight method). 5 Consists of the net long position of non-consolidated participations in the finance sector and first loss positions from securitization exposures. |
165
Risk and treasury management
Treasury management
– | Removing minority interests | |||
– | A positive adjustment of CHF 1.7 billion primarily for the ability to net, for capital purposes, treasury shares held as hedges against obligations from employee stock options granted prior to August 2006. | |||
In first quarter 2008, UBS implemented a new framework for attributing equity capital to its businesses. This reflects UBS’s overarching objectives of maintaining a strong capital base and guiding businesses towards activities with the best balance among profit potential, risk and capital usage. In this framework, the Group Executive Board (GEB) attributes equity to the businesses after considering their risk exposure, asset size, goodwill and intangible assets. | ||||
The design of the equity attribution framework enables UBS to: | ||||
– | Calculate and assess return on attributed equity (RoaE) in each of its businesses. With effect from first quarter 2008, RoaE and return on BIS risk-weighted assets (RoRWA) are disclosed for all business groups and units and replace the previously disclosed “return on allocated regulatory capital” measure. |
| ||||
Measure performance in a consistent manner across business divisions and business units. | ||||
– | Make better comparisons between the Group’s businesses and those of competitors. | |||
The framework operates as follows: First, each business is attributed an amount of equity equal to the average book value of goodwill and intangible assets, as reported for that business division or business unit according to IFRS. Next, the GEB considers a number of factors that drive required capital, including: | ||||
– | Equity requirements based on aggregated risk exposure, including the potential for losses exceeding UBS’s | |||
– | Regulatory capital requirements which are based on risk-weighted asset usage of | |||
– | The asset size of the businesses. | |||
After reviewing the results of this formulaic approach, the GEB makes adjustments to the final tangible equity attribution to reflect the amount of equity it believes is appropriate for each business. This assessment is based on the |
Reconciliation of IFRS1 Equity to BIS Tier 1 capital | ||||||||||||||
31.12.07 | ||||||||||||||
IFRS | Reconciliation | BIS | ||||||||||||
CHF million | view | items | view | |||||||||||
Share capital | 207 | 0 | 207 | |||||||||||
Share premium | 8,884 | (189 | ) | 8,695 | ||||||||||
Net income recognized directly in equity, net of tax | (1,188 | ) | (1,509 | ) | (2,697 | ) | ||||||||
Revaluation reserve from step acquisitions, net of tax | 38 | 0 | 38 | |||||||||||
Retained earnings | 38,081 | (564 | ) | 37,517 | ||||||||||
Equity classified as obligation to purchase own shares | (74 | ) | 74 | 0 | ||||||||||
Treasury shares / deduction for own shares | (10,363 | ) | 6,230 | 2 | (4,133 | ) | ||||||||
Equity attributable to UBS shareholders / gross Tier 1 net of own shares | 35,585 | 4,042 | 39,627 | |||||||||||
Equity attributable to minority interests | 6,951 | (564 | ) | 6,387 | ||||||||||
Total equity / gross Tier 1 including hybrid Tier 1 instruments | 42,536 | 3,478 | 46,014 | |||||||||||
Less: goodwill | (13,203 | )3 | ||||||||||||
Less: accrual for expected future dividend payment | 0 | |||||||||||||
Eligible Tier 1 capital | 32,811 | |||||||||||||
31.12.06 | ||||||||||||||
IFRS | Reconciliation | BIS | ||||||||||||
CHF million | view | items | view | |||||||||||
Total equity / gross Tier 1 including hybrid Tier 1 instruments | 55,775 | 3,187 | 58,962 | |||||||||||
Less: goodwill | (13,852 | )3 | ||||||||||||
Less: accrual for expected future dividend payment | (4,582 | ) | ||||||||||||
Eligible Tier 1 capital | 40,528 | |||||||||||||
1 International Financial Reporting Standards (IFRS). 2 Generally, treasury shares are fully deducted from Equity under IFRS, whereas for capital purposes only the following positions in own shares are deducted: i) net-long position in own shares held for trading purposes; ii) own shares bought for cancellation (second trading line) or for upcoming share awards and; iii) other treasury share positions net of delta-weighted obligations out of employee stock options granted prior to August 2006. 3 Includes intangible assets exceeding 4% of Tier 1 capital. |
Reconciliation of International Financial Reporting Standards equity to BIS tier 1 capital | ||||||||||||||||||||||||||||||||||
31.12.08 | ||||||||||||||||||||||||||||||||||
Basel II | Basel I | |||||||||||||||||||||||||||||||||
Reconciliation | ||||||||||||||||||||||||||||||||||
CHF million | IFRS1 view | items | BIS view | BIS view | ||||||||||||||||||||||||||||||
Share capital | 293 | 0 | 293 | 293 | ||||||||||||||||||||||||||||||
Share premium | 25,250 | 8,500 | 33,750 | 33,750 | ||||||||||||||||||||||||||||||
Net income recognized directly in equity, net of tax | (4,471 | ) | (1,129 | ) | (5,600 | ) | (5,600 | ) | ||||||||||||||||||||||||||
Revaluation reserve from step acquisitions, net of tax | 38 | 0 | 38 | 38 | ||||||||||||||||||||||||||||||
Retained earnings | 14,892 | (7,908 | ) | 6,984 | 6,984 | |||||||||||||||||||||||||||||
Equity classified as obligation to purchase own shares | (46 | ) | 46 | 0 | 0 | |||||||||||||||||||||||||||||
Equity attributable to minority interests | 8,002 | (495 | ) | 7,507 | 7,507 | |||||||||||||||||||||||||||||
Treasury shares/deduction for own shares | (3,156 | ) | 1,668 | 2 | (1,488 | ) | (1,488 | ) | ||||||||||||||||||||||||||
Mandatory convertible notes (MCNs) to the Swiss Confederation | 0 | 3 | 6,000 | 6,000 | 6,000 | |||||||||||||||||||||||||||||
Total equity/gross tier 1 including MCNs and hybrid tier 1 instruments | 40,802 | 6,682 | 47,484 | 47,484 | ||||||||||||||||||||||||||||||
Less: goodwill, intangible assets and other Basel II deduction items | (14,113 | )4 | (11,600 | )5 | ||||||||||||||||||||||||||||||
Eligible tier 1 capital | 33,371 | 35,884 | ||||||||||||||||||||||||||||||||
1 International Financial Reporting Standards (IFRS). 2 Generally, treasury shares are fully deducted from equity under IFRS, whereas for capital adequacy purposes only the following positions in own shares are deducted: i) net long position in own shares held for trading purposes; ii) own shares bought for cancellation (second trading line) and for unvested or upcoming share awards; and iii) other treasury share positions net of delta-weighted obligations out of employee stock options granted prior to August 2006, subject to an interim agreement with the Swiss Financial Market Supervisory Authority. 3 Under IFRS, the recognition of the MCNs to the Swiss Confederation reduced the share premium CHF 3.6 billion and increased retained earnings CHF 0.7 billion. 4 “Other Basel II deduction items” includes primarily 50% of the deductions for net long position of non-consolidated participations in the finance sector, first loss positions from securitization exposures, excess of expected losses above general provisions (AIRB), expected loss for equities (simple risk weight method). 5 Equals to goodwill and the intangible assets exceeding 4% of tier 1 capital. |
59166
Risk and treasury management |
expectations of the business’s clients and the business environment, including allowing for sufficient capital to support the business’s underlying risks and sustain extreme stress scenarios. The amount of equity attributed to all the businesses corresponds to the amount that UBS believes is required to maintain a strong capital base and support its businesses adequately. If the total equity attributed to the businesses differs from the Group’s actual equity during a particular period, the surplus or deficit is shown in the Corporate Center.
Average equity attributed | ||||||||||||||||||||
CHF billion | 2008 | 4Q08 | 3Q08 | 2Q08 | 1Q08 | |||||||||||||||
Wealth Management International & Switzerland | 6.1 | 6.0 | 5.9 | 6.2 | 6.3 | |||||||||||||||
Wealth Management US | 7.3 | 8.3 | 7.6 | 6.8 | 6.6 | |||||||||||||||
Business Banking Switzerland | 3.8 | 3.7 | 3.5 | 4.0 | 4.1 | |||||||||||||||
Global Wealth Management & Business Banking | 17.3 | 18.0 | 17.0 | 17.0 | 17.0 | |||||||||||||||
Global Asset Management | 3.0 | 3.0 | 3.0 | 3.0 | 3.0 | |||||||||||||||
Investment Bank | 26.8 | 26.0 | 26.0 | 27.0 | 28.0 | |||||||||||||||
Corporate Center | (10.7 | ) | (7.4 | ) | 0.2 | (15.0 | ) | (20.5 | ) | |||||||||||
Equity attributable to UBS shareholders | 36.3 | 39.6 | 46.2 | 32.0 | 27.5 | |||||||||||||||
167
Risk and treasury management
Treasury management
Shares and capital managementCapital management
Introduction of Basel II
Upon implementation of Basel II on 1 January 2008, UBS expects the overall impact on its BIS Tier 1 ratio to be negative, depending on the further development of the business mix, in particular the profile of the loan book. This expectation is based on a direct comparison between capital ratios under regulations effective at year-end 2007 and the corresponding ratios at the same date under Basel II rules.
the development of the credit quality of UBS’s obligors and counterparties; future issuances of capital instruments and the management of treasury shares; capital requirements for operational risk; and future changes in the regulatory frameworks.
Credit ratings
Despite significant writedowns in US sub-prime-related securities, UBS remains one of the best-capitalized financial institutions in the world. It believes that this is a key part of its value proposition for both clients and investors.In November 2007, Moody’s Investors Service downgraded from “A-” to “B+” the Bank Financial Strength Rating (BFSR) of UBS AG and affirmed the “Aaa” senior debt and deposit ratings. “The downgrade of the BFSR reflects Moody’s view that UBS’ sub-prime related exposures have a large loss content which negatively impacts the bank’s earnings stability and our understanding of the quality of their risk management,” Moody’s said in a related media release. At the end of January 2008, Moody’s
Investors Service changed the outlook to negative from stable on the B+ BFSR and Aaa senior debt and deposit ratings of UBS AG. “The change in outlook follows the announcement that UBS will take additional writedowns of approximately USD 4 billion on not only its positions related to the US sub-prime mortgage market, but also on positions related to US residential mortgage securities, contributing to a net loss of approximately CHF 4.4 billion in 2007”. In February 2008, following the fourth quarter 2007 earnings release, Moody’s affirmed the ratings of UBS AG, commenting: “UBS continues to enjoy a very strong and diversified franchise with solid earnings capability in a number of areas outside the affected fixed-income franchise, and
the bank maintains excellent liquidity and good asset quality. Its capitalization levels should be restored to past high levels over a reasonable time frame, benefiting from the planned capital increase of CHF 13 billion”. In October 2007, Standard & Poor’s Ratings Services lowered its long-term counterparty credit rating on UBS AG to “AA” from “AA+”, commenting that: “the downgrade primarily reflects concerns over the effectiveness of the bank’s risk management practices in allowing such a large sub-prime exposure to build”.In late January 2008, Standard & Poor’s revised UBS’s outlook to negative, commenting: “the outlook was revised to negative in recognition of the challenges to UBS’s future revenue generation from the current economic
60
Capital adequacy | ||||||||||||
As of | ||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
BIS Tier 1 capital | 32,811 | 40,528 | 39,834 | |||||||||
of which hybrid Tier 1 capital | 6,387 | 5,633 | 4,975 | |||||||||
BIS total capital | 44,507 | 50,364 | 43,808 | |||||||||
BIS Tier 1 capital ratio (%) | 8.8 | 11.9 | 12.8 | |||||||||
BIS total capital ratio (%) | 12.0 | 14.7 | 14.1 | |||||||||
Balance sheet assets | 292,988 | 273,588 | 252,364 | |||||||||
Off-balance sheet and other positions | 37,200 | 48,444 | 37,010 | |||||||||
Market risk positions1 | 42,110 | 19,860 | 21,035 | |||||||||
Total BIS risk-weighted assets | 372,298 | 341,892 | 310,409 | |||||||||
and market conditions, its large residual sub-prime-related exposure, and the strategic repositioning of the investment bank”. The ratings reflect “UBS’s continued strengths, including its diverse business position, strong liquidity, and robust capitalization once its capital strengthening measures are completed”. In December 2007, Fitch Ratings downgraded UBS AG’s long-term issuer default ratings (IDR) from “AA+” to “AA” and UBS’s Individual rating from “A/B” to “B”, commenting: “the additional writedowns announced by UBS on 10 December are significantly higher than previous guidance from the group and reflect ongoing valuation challenges in a still difficult market environment. UBS AG’s ratings reflect its excellent private
banking/wealth management franchise, diversified revenues, historically consistent profitability, strong liquidity and sound capitalization. The outlook on the long-term IDRs remains negative, reflecting continued uncertainty over future earnings, together with the challenges faced by a new management team in reshaping the group’s investment bank.”At the end of January 2008, Fitch Ratings affirmed UBS’s long-term issuer default rating at “AA” with negative outlook, and the individual rating at “B”.UBS’s long-term credit ratings are shown in the table. 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 rating agency. A security rating is not a recommendation to buy, sell or hold securities and each rating should be evaluated independently of any other rating. 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 ratings | ||||||||||||
As of | ||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||
Fitch, London | AA | AA+ | AA+ | |||||||||
Moody’s, New York | Aaa | Aa2 | Aa2 | |||||||||
Standard & Poor’s, New York | AA | AA+ | AA+ | |||||||||
61
Treasury and capital managementShares and capital instruments
Shares and capital instruments
Shares
UBS shares and Tiertier 1 capital
The majority of TierUBS’s tier 1 capital comprises share premium and retained earnings attributed to UBS shareholders. As perof 31 December 2007,2008, total International Financial Reporting Standard (IFRS)IFRS equity attributable to UBS shareholders amounted to CHF 35,58532,800 million and was represented by a total of 2,073,547,3442,932,580,549 issued UBS shares, of which 158,105,524 shares (7.6 %)61,903,121 (2.1%) were held by UBS. Each outstanding share has a par value of CHF 0.10 and entitles the holder to one vote at the shareholders’ meeting and to receive a proportionate share of the dividend that is distributed. There are no preferential rights for individual shareholders and no other classes of shares are issued by the parent bank (UBS AG) directly.
Additional future issuance this was equal to an increase of shares for mandatory convertible notes and stock dividend
As part of the measures to strengthen its capital base following the substantial writedowns related to the US residential sub-prime mortgage market, on 10 December 2007 UBS announced the issuance of mandatory convertible notesapproximately 4.8% in UBS’s tier 1 ratio.
Shares | |||||||
For the year ended | |||||||
Number of shares | |||||||
Balance at the beginning of the year | |||||||
Issue of | |||||||
Issue of shares for employee options | 39,270 | ||||||
Balance at the end of the year | |||||||
Shareholder-approved issuance of shares | ||||||||||||
Maximum number | Year approved by | % of shares issued | ||||||||||
of shares to be | shareholder | (including MCNs1) | ||||||||||
issued | general meeting | 31.12.08 | ||||||||||
Authorized capital | ||||||||||||
Stock dividend 2007 (not used) | 5,001,246 | 2008 | 13.99 | |||||||||
Conditional capital | ||||||||||||
March 2008 MCNs | 277,750,000 | 2008 | 7.77 | |||||||||
December 2008 MCNs | 365,000,000 | 2008 | 10.21 | |||||||||
Employee equity participation plans of UBS AG | 149,994,296 | 2006 | 4.20 | |||||||||
Employee stock ownership plan of former PaineWebber | 100,415 | 2000 | 0.00 | |||||||||
(MCNs) and the distribution of a stock dividend for 2007 instead of a cash dividend – see the “Capital management” section and pages 64, 65 and 67 of this report.
Capital dilution
Whether earnings per share will be higher or lower as a result of these measures depends on the effect they have in maintaining the strength, and therefore profits, of UBS in general and the wealth management business in particular. When there is excess capital available, UBS expects to also return to its normal policy, subject to regulatory requirements, of returning excess capital – that is, capital that
Shareholder approved issuance of shares | ||||||||||||
Year approved | ||||||||||||
Maximum number of | by shareholders' | % of shares issued | ||||||||||
shares to be issued | general meeting | 31.12.07 | ||||||||||
Authorized capital | ||||||||||||
Stock dividend 2007 | 103,700,000 | 2008 | 5.00 | |||||||||
Conditional capital | ||||||||||||
Mandatory convertible note | 277,750,000 | 2008 | 13.39 | |||||||||
Employee equity participation plans of UBS AG | 149,994,296 | 2006 | 7.23 | |||||||||
Employee stock ownership plan of the former PaineWebber | 144,338 | 2000 | ||||||||||
62168
Risk and treasury management |
exceeds the level that UBS believes to be reasonably appropriate in the context of its portfolio and business growth – to shareholders, through buyback and cash dividends.
Holding of UBS shares
UBS holds its own shares for three main purposes.purposes: Group Treasury holds shares to cover employee share and option programs; it repurchases shares on a second trading line, where they are earmarked for cancellation purposes. Shares are bought back by Treasury to cover employee share and option programs;purposes (the latter activity is temporarily suspended); and the Investment Bank holds shares, to a limited extent, for trading purposes where it engages in market-making activities in UBS shares and its related derivative products.
Share buyback programs
Under Swiss regulations, a company wishing to cancel shares must purchase them on the stock exchange under a special security code that clearly identifies to the market the time and quantity of shares repurchased for that specific purpose (the so-called second trading line). For each buy-back program to date, UBS has announced a maximum Swiss franc amount to be used for share purchases. The level of actual repurchases is determined by the capital management plan, which is adjusted throughout the year to reflect changes in business plans or acquisition opportunities. UBS publishes the number of shares repurchased and the average price paid on a weekly basis on the internet at www.ubs.com/investors.
Treasury shares earmarked for cancellation (share buyback program 2006 / 2007)
As part of the 2006 / 2007 share buyback program ending on 7 March 2007, 33,020,000 shares representing a total value of CHF 2.4 billion were cancelled on 29 June 2007.
were purchased for cancellation. As part of the capital measures announced on 10 December 2007, the BoD has used its discretion to rededicate for further use the 36.4 million treasury shares previously intended for cancellation. At year-end, no shares were held under the buyback program earmarked for cancellation.
Effect of second trading line program on basic earnings per share | ||||||||||||
For the year ended | ||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||
Weighted average shares for basic earnings per share (EPS) after treasury shares | 1,926,328,078 | 1,976,405,800 | 2,013,987,754 | |||||||||
Weighted average second trading line treasury shares1 | 625,684,926 | 598,982,426 | 544,339,510 | |||||||||
Basic EPS (CHF) | (2.28 | ) | 6.20 | 6.97 | ||||||||
Cumulative impact of treasury shares on basic EPS (CHF)1 | (0.56 | ) | 1.44 | 1.49 | ||||||||
Cumulative impact of treasury shares on basic EPS (%)1 | 24.6 | 23.2 | 21.4 | |||||||||
63
the table below shows the purchase of UBS shares by Group Treasury under buy-back programs at the stock exchange and capital managementShares and capital instruments
Treasury shares held by the Investment Bank
The Investment Bank, acting as liquidity provider to the equity index 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. To hedge the economic exposure, a limited number of UBS shares are held by the Investment Bank.
Capital Instruments
Mandatory convertible notesOn the 27 February 2008 the extraordinary general meeting (EGM) of shareholders approved the issuance of a maximum of 277,750,000 shares (corresponding approximately to 13.4% of the current share capital) to two long-term financial investors, Government of Singapore Investment Corporation Pte Ltd (GIC) and an investor from the Middle East without future dilutive effects. UBS expects to use a maximum of 252,525,253 shares of the available conditional capital. The share capital will be increased upon voluntary or
Treasury share activities | ||||||||||||||||||||||||||||||||
Treasury shares purchased | ||||||||||||||||||||||||||||||||
for employee share | ||||||||||||||||||||||||||||||||
and option participation | ||||||||||||||||||||||||||||||||
Share buyback program | plans and acquisitions1 | Total number of shares | ||||||||||||||||||||||||||||||
Remaining volume of | Remaining volume of | |||||||||||||||||||||||||||||||
2006/2007 share | 2007/2010 share | |||||||||||||||||||||||||||||||
Number of | Average | buyback program in | buyback program in | Average | Number of | Average | ||||||||||||||||||||||||||
Month of purchase | shares | price in CHF | CHF million | millions of shares | Number of shares | price in CHF | shares | price in CHF | ||||||||||||||||||||||||
January 2007 | 9,900,000 | 76.72 | 2 626 | 24,438 | 74.92 | 9,924,438 | 76.72 | |||||||||||||||||||||||||
February 2007 | 520,000 | 78.06 | 2 585 | 1,803,391 | 78.18 | 2,323,391 | 78.15 | |||||||||||||||||||||||||
March 2007 | 7,210,000 | 69.35 | 203 | 2 | 19,465,000 | 71.64 | 26,675,000 | 71.02 | ||||||||||||||||||||||||
April 2007 | 3,380,000 | 74.04 | 200 | 2,400,000 | 72.02 | 5,780,000 | 73.20 | |||||||||||||||||||||||||
May 2007 | 2,590,000 | 77.24 | 197 | 6,600,000 | 76.48 | 9,190,000 | 76.69 | |||||||||||||||||||||||||
June 2007 | 5,850,000 | 75.96 | 191 | 2,750,000 | 77.89 | 8,600,000 | 76.58 | |||||||||||||||||||||||||
July 2007 | 11,970,000 | 72.24 | 180 | 0 | 0.00 | 11,970,000 | 72.24 | |||||||||||||||||||||||||
August 2007 | 950,000 | 64.06 | 179 | 0 | 0.00 | 950,000 | 64.06 | |||||||||||||||||||||||||
September 2007 | 4,450,000 | 62.73 | 174 | 0 | 0.00 | 4,450,000 | 62.73 | |||||||||||||||||||||||||
October 2007 | 0 | 0.00 | 174 | 0 | 0.00 | 0 | 0.00 | |||||||||||||||||||||||||
November 2007 | 0 | 0.00 | 174 | 500,000 | 58.77 | 500,000 | 58.77 | |||||||||||||||||||||||||
December 2007 | 0 | 0.00 | 174 | 3 | 4,500,000 | 55.30 | 4,500,000 | 55.30 | ||||||||||||||||||||||||
Share buy-back programs | ||||||||||||||||||||||||||||||||||||||||||||
Maximum | Unutilized | |||||||||||||||||||||||||||||||||||||||||||
Maximum | volume | Average | Unutilized | volume | ||||||||||||||||||||||||||||||||||||||||
volume (in | (in millions | Amount | Total shares | price | volume | (in millions | ||||||||||||||||||||||||||||||||||||||
Program | Announcement | Beginning | Expiration | Cancellation | CHF billion) | of shares) | (CHF billion) | purchased | (in CHF) | (CHF billion) | of shares) | |||||||||||||||||||||||||||||||||
2000/2001 | 14.12.99 | 17.1.00 | 2.3.01 | 13.7.01 | 4.0 | 4.0 | 110,530,698 | 1,2 | 36.18 | 1, 2 | 0 | |||||||||||||||||||||||||||||||||
2001/2002 | 22.2.01 | 5.3.01 | 5.3.02 | 5.7.02 | 5.0 | 2.3 | 57,637,380 | 2 | 39.73 | 2 | 2.7 | |||||||||||||||||||||||||||||||||
2002/2003 | 14.2.01 | 6.3.02 | 8.10.02 | 10.7.03 | 5.0 | 5.0 | 135,400,000 | 2 | 36.92 | 2 | 0 | |||||||||||||||||||||||||||||||||
2002/2003 | 9.10.02 | 11.10.02 | 5.3.03 | 10.7.03 | 3.0 | 0.5 | 16,540,160 | 2 | 32.04 | 2 | 2.5 | |||||||||||||||||||||||||||||||||
2003/2004 | 18.2.03 | 6.3.03 | 5.3.04 | 30.6.04 | 5.0 | 4.5 | 118,964,000 | 2 | 37.97 | 2 | 0.5 | |||||||||||||||||||||||||||||||||
2004/2005 | 10.2.04 | 8.3.04 | 7.3.05 | 8.7.05 | 6.0 | 3.5 | 79,870,188 | 2 | 44.36 | 2 | 2.5 | |||||||||||||||||||||||||||||||||
2005/2006 | 8.2.05 | 8.3.05 | 7.3.06 | 13.7.06 | 5.0 | 4.0 | 74,200,000 | 2 | 54.26 | 2 | 1.0 | |||||||||||||||||||||||||||||||||
2006/2007 | 14.2.06 | 8.3.06 | 7.3.07 | 29.6.07 | 5.0 | 2.4 | 33,020,000 | 2 | 73.14 | 2 | 2.6 | |||||||||||||||||||||||||||||||||
2007/20105 | 13.2.07 | 8.3.07 | 8.3.10 | 210.5 | 3 | 2.6 | 4 | 36,400,000 | 4 | 71.41 | 4 | 174.1 | 3 | |||||||||||||||||||||||||||||||
Maximum | Unutilized | Unutilized | ||||||||||||||||||||||||||||||||||||||||||
Maximum | volume | Amount | Average | volume | volume | |||||||||||||||||||||||||||||||||||||||
Cancella- | volume (in | (in millions | (CHF | Total shares | price | (CHF | (in millions | |||||||||||||||||||||||||||||||||||||
Program | Announcement | Beginning | Expiration | tion | CHF billion) | of shares) | billion) | purchased | (in CHF) | billion) | of shares) | |||||||||||||||||||||||||||||||||
2000/2001 | 14/12/1999 | 17/01/2000 | 02/03/2001 | 13/07/2001 | 4.0 | 4.0 | 110,530,698 | 1,2 | 36.18 | 1,2 | 0 | |||||||||||||||||||||||||||||||||
2001/2002 | 22/02/2001 | 05/03/2001 | 05/03/2002 | 05/07/2002 | 5.0 | 2.3 | 57,637,380 | 2 | 39.73 | 2 | 2.7 | |||||||||||||||||||||||||||||||||
2002/2003 | 14/02/2001 | 06/03/2002 | 08/10/2002 | 10/07/2003 | 5.0 | 5.0 | 135,400,000 | 2 | 36.92 | 2 | 0 | |||||||||||||||||||||||||||||||||
2002/2003 | 09/10/2002 | 11/10/2002 | 05/03/2003 | 10/07/2003 | 3.0 | 0.5 | 16,540,160 | 2 | 32.04 | 2 | 2.5 | |||||||||||||||||||||||||||||||||
2003/2004 | 18/02/2003 | 06/03/2003 | 05/03/2004 | 30/06/2004 | 5.0 | 4.5 | 118,964,000 | 2 | 37.97 | 2 | 0.5 | |||||||||||||||||||||||||||||||||
2004/2005 | 10/02/2004 | 08/03/2004 | 07/03/2005 | 08/07/2005 | 6.0 | 3.5 | 79,870,188 | 2 | 44.36 | 2 | 2.5 | |||||||||||||||||||||||||||||||||
2005/2006 | 08/02/2005 | 08/03/2005 | 07/03/2006 | 13/07/2006 | 5.0 | 4.0 | 74,200,000 | 2 | 54.26 | 2 | 1 | |||||||||||||||||||||||||||||||||
2006/2007 | 14/02/2006 | 08/03/2006 | 07/03/2007 | 29/06/2007 | 5.0 | 2.4 | 33,020,000 | 2 | 73.14 | 2 | 2.6 | |||||||||||||||||||||||||||||||||
2007/2010 | 13/02/2007 | 08/03/2007 | 08/03/2010 | 210.5 | 3 | 2.6 | 4 | 36,400,000 | 4 | 71.41 | 4 | 174.1 | 3 | |||||||||||||||||||||||||||||||
64169
Risk and treasury management
Treasury management
Capital instruments
Mandatory convertible notes
As part of the measures taken to strengthen its capital base in 2008, UBS issued two mandatory convertible notes (MCNs), with principal amounts of CHF 13 billion (MCN1) and CHF 6 billion (MCN2) respectively, in private placements to large institutional investors and the Swiss Confederation. To allow for the delivery of shares upon conversion of the MCNs, separate extraordinary general meetings of UBS shareholders were held on 27 February and 27 November 2008 to approve the creation of conditional capital for this purpose. The shareholders approved a maximum number of 277.8 million UBS shares to be delivered under the first issued MCN and 365 million UBS shares to be delivered under the second MCN. The initial investors in the MCNs are allowed to sell or transfer the instruments without restrictions to other investors. The share capital will be increased upon voluntary or mandatory conversion of the MCNs due 2010.MCNs. The future mandatory capital increase allows the full proceeds of CHF 13 billion to be counted as Tiertier 1 capital for regulatory capital purposes forfrom the first time in first quarter 2008.date of issuance.
price”terms of the second issuance (the December 2008 MCNs or MCN2) holders will receive a variable number of shares. At or below a UBS share price of CHF 51.48. (This, in turn, was determined by18.21, the average of (i) CHF 57.2 and (ii) the average of the three daily volume-weighted average price on virt-x for the three days prior to the EGM, subject to a minimum of CHF 51.48 andDecember 2008 MCNs will be converted into a maximum of CHF 62.92). The total amount329.4 million UBS shares. Should the UBS share price rise above this level, the holders would receive a lower number of shares and the minimum would be reached with a share price
65
Treasury and capital managementShares and capital instruments
Hybrid Tiertier 1 capital
Hybrid Tiertier 1 instruments represent innovative and non-innovative perpetual instruments and accounted formade up approximately 19.5%21.4% of eligible Tier 1adjusted core capital on 31 December 2007.2008. They are accounted for under minority interestinterests in the bank’sIFRS equity. In 20072008, UBS raised EUR 600 million in the form1 billion of capital preferred securities issued by UBS Capital Securities (Jersey) Ltd. The instrument bears a 7.152%an 8.836% coupon and is callable in 2017.2013. As perof 31 December 31, 20072008, UBS had issued in various currencies a total of CHF 6,3877,393 million of such instruments.instruments in various currencies. Hybrid Tiertier 1 instruments are perpetual instruments which can only be redeemed if they are called by the issuer. If such a call is not exercised at the respective call date, the terms might include a change from fixed to floating coupon payments and, in the case of innovative instruments only, a limited step-up of the interest rate. Non-innovative instruments do not have a step-up of the interest rate and are therefore viewed as having a higher equity characteristic for regulatory capital purposes. The instruments are issued either through trusts or subsidiaries of UBS and rank senior to UBS shares in dissolution. Payments under the instruments are subject to the adherence to minimalminimum capital ratios by UBS. Any payment missed is non-cumulative.
Tier 2 capital
The major element in Tiertier 2 capital consists of subordinated long-term debt. Tier 2 instruments have been issued in various currencies and with a range of maturities across capital markets globally. They accountaccounted for CHF 13,77012,290 million in total capital as perof year-end 2007, representing 3.7 percentage points of the total capital ratio of 12.0%.2008. Tier 2 instruments rank
senior to both UBS shares and to hybrid Tiertier 1 instruments but are subordinated with respect to all senior obligations of UBS. In 2007 UBS raised GBP 250 million with a coupon of 6.375% maturing in 2024 callable by the issuer in 2019 and CHF 350 million with a 4.125% coupon maturing in 2017.
Distributions to shareholders
UBS normally pays an annualThe decision whether to pay a dividend to shareholders registered as ofand the date of the AGM (the record date). Payment is usually scheduled three business days thereafter.
Total distributions in 2007
Fromtheir approval at the results of ordinary business, UBS transferred a total of CHF 5.1 billion in equityannual general meeting. The BoD has decided not to its shareholders in 2007. This included CHF 0.8 billion in shares the bank repurchased during 2007 for purposes of cancellation and a total payout to shareholderspropose any dividend for the 2006 financial year of CHF 4.3 billion or CHF 2.20 per share with payment on 23 April 2007.
66
DistributionsDistribution to shareholders in 2008
Stock – stock dividend
At the extraordinary shareholders’general meeting held onof 27 February 2008, the shareholders approved distribution of a stock dividend to shareholders. The stock dividend is designed to provide shareholders withoffering the opportunity to obtain sale proceeds comparable towith the cash dividend paid in previous years. There will be one entitlementOne entitle-
170
Risk and treasury management |
of Swiss withholding tax. For Swiss income tax purposes, the taxable value of the stock dividend will approximately be equal to the par value of CHF 0.10 per share of the shares distributed as a stock dividend proportionately allocated to the entitlement distributed. For Swiss shareholders, this is a very small fraction of the taxable value of an equivalent cash dividend. The taxation of shareholders not resident in Switzerland depends on the laws in their tax jurisdiction. In many cases, the distribution of entitlements and the exercise thereof should be tax-free. Shareholders should consult with their own tax advisors to determine the tax treatment applicable to them.
Conversion price and number of shares
Amount | Conversion price per | Conversion into | ||||||||||||||||||||||||||
Coupon | (CHF billion) | Issuance date | Conversion period / maturity | UBS share (CHF) | numbers of UBS shares | |||||||||||||||||||||||
MCN 1 | 9 | % | 13.0 | 5.3.08 | 6.9.08 | 5.3.10 | 48.071 | 270,438,942 | ||||||||||||||||||||
MCN 2 | 12.50 | % | 6.0 | 9.12.08 | 9.6.09 | 9.6.11 | 18.212 | 329,447,681 | ||||||||||||||||||||
21.312 | 281,579,096 | |||||||||||||||||||||||||||
additional shares | ||||||||||||||||||||||||||||
if above 21.31 | 3 | |||||||||||||||||||||||||||
Number of shares to be delivered
Number of shares to be delivered
Value of shares
Value of shares
67171
Risk and treasury management
Treasury and capital managementUBS shares in 2007
UBS shares in 20072008
UBS share price versus Dow Jones Banks Titans 30 Index
UBS shares are listed on the SIX Swiss stock exchange (SWX), where they are tradedExchange (traded on virt-x (SWXSWX Europe), and on the New York Stock Exchange and the Tokyo stock exchanges.Stock Exchange.
è |
In 2007, despite continued
nearly collapsed in the second part of the year buoyed byyear. Capital injections, the continued high corporate earnings and high levelspartial or full nationalization of mergers and acquisitions activity, particularly in the leveraged finance space. Emerging markets outperformed on high commodity prices and strong economic activity. The S&P 500 and MSCI World indices were up 6% and 8% respectively.
significant dislocation in the US sub-prime market led to concerns of contagion and a worldwide credit crunch. In response, many banks andseveral financial institutions began to hoard liquidity, leading to an almost complete cessation of activityand sharp reductions in the world’s credit markets.
Market capitalization
Ticker symbols | ||||
Trading exchange | Bloomberg | Reuters | ||
UBSN VX | UBSN.VX | |||
New York Stock Exchange | UBS US | UBS.N | ||
Tokyo Stock Exchange | 8657 JP | 8657.T | ||
Security identification codes | ||||||
ISIN | CH0024899483 | |||||
Valoren | 2.489.948 | |||||
Cusip | CINS H89231 33 8 | |||||
68172
UBS share data | ||||||||||||
As of | ||||||||||||
Registered shares | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Total shares outstanding | 1,915,441,820 | 1,940,797,587 | 1,968,745,296 | |||||||||
Total shares ranking for dividend | 2,073,547,344 | 2,082,673,286 | 2,109,495,044 | |||||||||
Treasury shares | 158,105,524 | 164,475,699 | 208,519,748 | |||||||||
Weighted average shares (for basic earnings per share (EPS) calculations) | 1,926,328,078 | 1,976,405,800 | 2,013,987,754 | |||||||||
Weighted average shares (for diluted EPS calculations) | 1,927,698,732 | 2,058,834,812 | 2,097,191,540 | |||||||||
Risk and treasury management |
For the year ended | ||||||||||||
CHF | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Earnings per share | ||||||||||||
Basic EPS | (2.28 | ) | 6.20 | 6.97 | ||||||||
Basic EPS from continuing operations | (2.49 | ) | 5.80 | 4.84 | ||||||||
Diluted EPS | (2.28 | ) | 5.95 | 6.68 | ||||||||
Diluted EPS from continuing operations | (2.49 | ) | 5.57 | 4.65 | ||||||||
UBS shares and market capitalization | ||||||||||||||||
As of | % change from | |||||||||||||||
Number of shares, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Total ordinary shares issued | 2,073,547,344 | 2,105,273,286 | 2,177,265,044 | (2 | ) | |||||||||||
Second trading line treasury shares | ||||||||||||||||
2005 program | (67,770,000 | ) | ||||||||||||||
2006 program | (22,600,000 | ) | ||||||||||||||
Shares outstanding for market capitalization | 2,073,547,344 | 2,082,673,286 | 2,109,495,044 | 0 | ||||||||||||
Share price (CHF) | 52.40 | 74.05 | 62.55 | (29 | ) | |||||||||||
Market capitalization (CHF million) | 108,654 | 154,222 | 131,949 | (30 | ) | |||||||||||
Total treasury shares | 158,105,524 | 164,475,699 | 208,519,748 | (4 | ) | |||||||||||
Trading volumes | ||||||||||||
For the year ended | ||||||||||||
1000 shares | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
SWX total (virt-x) | 4,079,863 | 2,731,841 | 2,568,531 | |||||||||
SWX daily average (virt-x) | 16,451 | 10,884 | 10,073 | |||||||||
NYSE total | 304,446 | 214,912 | 167,231 | |||||||||
NYSE daily average | 1,213 | 853 | 664 | |||||||||
69
Treasury and capital managementUBS shares in 2007
First quarter 20072008
Equity markets got off2008 continued in the same vein as the closing months of 2007, with growing concerns over contagion from real estate losses to the real economy. At the end of January, UBS pre-announced its fourth quarter 2007 results as a positive startloss of CHF 12.5 billion. In March, UBS’s peer Bear Stearns approached bankruptcy as it suffered a liquidity crisis in 2007, but corrected downwards in later February and early March. After the US Federal Bank’s decision to leave its interest rates unchanged, investor confidence stabilized and markets closedwake of speculation over growing losses. This put further pressure on industry stock prices as the quarter slightly higher than they began.
Second quarter 2008
The Bear Stearns bankruptcy and acquisition by JPMorgan announced in March proved somewhat purgative for the markets in the second quarter, which remained steady as expectations of a positive note for UBS with a strong deal pipeline, high levels of market activity. UBSdeep global recession were tempered. In the banking sector, however, reported a strong full-year performance reporting record revenues, profits and net new money figures acrosslosses mounted leading to capital-raising by a number of business lines, leadinglarge international banks including UBS. Alongside the board to increasepre-anouncement of the total payout in 2006 by 16%, declaring a dividend CHF 2.20 per share. UBS shares declined by 2% compared with a flat performance in the DJ Stoxx Banks as the market favored businesses with greater fixed income and leveraged finance exposure.
Second quarter 2007
During the quarter stock markets recovered from the lows reached in mid-March. However, credit conditions deteriorated sharply from the middle of June onwards. UBS reported its first quarter results, which were strong and consistent with record profits in each business group and for the business as a whole. During the period UBS disposed of stake in Julius Baer, recording a post tax gain ofrights issue to raise approximately CHF 1,926 million. UBS shares recovered by 2% in the quarter compared15 billion was announced together with a flat performancenumber of measures to reduce risks and costs and stabilize performance. UBS performed in the DJ Stoxx Banks Index.
Third quarter 2007
Credit conditions deteriorated sharply from the middle of June onwards leading to extreme volatility in equity and credit markets over the course of the summer. Concerns over counterparty credit risk led banks to hoard liquidity leading to an almost complete cessation of credit market activity in late August.
results in the second half of 2007 if difficult markets conditions prevailed. UBS shares fell by 15% in the quarter comparedline with the broaderglobal banking sector, (DJ Stoxx Banks Europe) which lost 10%.
Fourth quarter 2007
Credit markets remained closed for large part of the quarter and only reopened after significant persistent injections of liquidity by many of the world’s central banks. Losses in the US sub-prime sector mounted for the banks, financial institutions and financial guarantors, putting capital ratios under strain and prompting capital raising.
Third quarter 2008
The third quarter of 2008 proved to be one of the most tumultuous in banking history. The collapse of Lehman Brothers in September triggered a series of banking failures and government rescues which brought the global banking system close to breaking point. Despite posting modest losses for the second quarter in August, UBS shares declined 14% in the quarter.
Fourth quarter 2008
The fourth quarter commenced with persistent concerted efforts by central banks to maintain liquidity and, shortly afterwards, a series of government-led programs to stabilize the banking system. As the prospect of a USdeep global recession loomed, central banks united to deliver their first ever coordinated rate cut. UBS announced a further material risk reduction of its balance sheet through the transfer of risk assets to the Swiss National Bank as well as further strengthening its capital base through the issue of CHF 6 billion in mandatory convertible notes to the Swiss Confederation. UBS reported a modest profit for the third quarter. Market volatility remained extreme with a slew of profit warnings and losses reported across the banking sector. UBS shares closed the quarter down 20%, outperforming the global slowdown. Thebanking sector which fell 41% as well as the broader indices which declined by more than 20% on average.
Share liquidity
During 2007,2008, daily average volume in UBS shares on virt-xSWX Europe was 13.128.5 million shares. On the New York Stock Exchange (NYSE), it was 2.42.1 million shares.
70173
Risk and treasury management
Treasury management
UBS share data | |||||||||||||
As of | |||||||||||||
Registered shares | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||
Total ordinary shares issued | 2,932,580,549 | 2,073,547,344 | 2,105,273,286 | ||||||||||
Treasury shares | 61,903,121 | 158,105,524 | 164,475,699 | ||||||||||
Weighted average shares (for basic EPS1 calculations) | 2,769,575,922 | 2,165,301,597 | 2,221,591,786 | ||||||||||
Weighted average shares (for diluted EPS calculations) | 2,770,727,478 | 2,166,768,923 | 2,309,834,516 | ||||||||||
For the year ended | ||||||||||||
CHF | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||
EPS | ||||||||||||
Basic EPS | (7.54 | ) | (2.42 | ) | 5.19 | |||||||
Basic EPS from continuing operations | (7.60 | ) | (2.61 | ) | 4.83 | |||||||
Diluted EPS | (7.55 | ) | (2.43 | ) | 4.99 | |||||||
Diluted EPS from continuing operations | (7.60 | ) | (2.61 | ) | 4.64 | |||||||
UBS shares and market capitalization | ||||||||||||||||
As of | % change from | |||||||||||||||
31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | |||||||||||||
Share price (CHF)1 | 14.84 | 46.60 | 65.86 | (68 | ) | |||||||||||
Market capitalization (CHF million)2 | 43,519 | 108,654 | 154,222 | (60 | ) | |||||||||||
Source: Bloomberg
Trading volumes | ||||||||||||
For the year ended | ||||||||||||
1000 shares | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||
SWX total (SWX Europe) | 7,174,486 | 4,079,863 | 2,731,841 | |||||||||
SWX daily average (SWX Europe) | 28,584 | 16,451 | 10,884 | |||||||||
NYSE total | 539,856 | 304,446 | 214,912 | |||||||||
NYSE daily average | 2,134 | 1,213 | 853 | |||||||||
Source: Reuters |
Source: Reuters
174
Stock exchange prices | ||||||||||||||||||||||||
SWX Swiss Exchange | New York Stock Exchange | |||||||||||||||||||||||
High (CHF) | Low (CHF) | Period end (CHF) | High (USD) | Low (USD) | Period end (USD) | |||||||||||||||||||
2007 | 80.90 | 48.00 | 52.40 | 66.26 | 43.50 | 46.00 | ||||||||||||||||||
Fourth quarter 2007 | 68.65 | 48.00 | 52.40 | 58.01 | 43.50 | 46.00 | ||||||||||||||||||
December | 59.10 | 51.85 | 52.40 | 51.89 | 44.73 | 46.00 | ||||||||||||||||||
November | 61.70 | 48.00 | 57.20 | 51.26 | 43.50 | 50.48 | ||||||||||||||||||
October | 68.65 | 59.90 | 61.95 | 58.01 | 52.19 | 53.69 | ||||||||||||||||||
Third quarter 2007 | 75.20 | 60.35 | 62.60 | 62.34 | 49.84 | 53.25 | ||||||||||||||||||
September | 65.85 | 60.35 | 62.60 | 55.18 | 50.85 | 53.25 | ||||||||||||||||||
August | 68.85 | 61.25 | 63.00 | 57.72 | 49.84 | 52.24 | ||||||||||||||||||
July | 75.20 | 64.55 | 67.55 | 62.34 | 53.34 | 55.07 | ||||||||||||||||||
Second quarter 2007 | 80.45 | 71.65 | 73.60 | 66.26 | 58.73 | 60.01 | ||||||||||||||||||
June | 80.45 | 71.95 | 73.60 | 65.18 | 58.73 | 60.01 | ||||||||||||||||||
May | 80.45 | 74.60 | 79.90 | 65.75 | 61.75 | 65.24 | ||||||||||||||||||
April | 79.95 | 71.65 | 79.15 | 66.26 | 59.01 | 64.90 | ||||||||||||||||||
First quarter 2007 | 80.90 | 67.20 | 72.20 | 64.30 | 55.40 | 59.43 | ||||||||||||||||||
March | 73.80 | 67.20 | 72.20 | 60.74 | 55.40 | 59.43 | ||||||||||||||||||
February | 80.90 | 70.30 | 72.25 | 64.30 | 57.65 | 59.04 | ||||||||||||||||||
January | 78.95 | 73.85 | 77.80 | 63.33 | 59.35 | 63.01 | ||||||||||||||||||
2006 | 79.90 | 59.85 | 74.05 | 63.39 | 48.34 | 60.33 | ||||||||||||||||||
Fourth quarter | 79.90 | 70.70 | 74.05 | 63.39 | 58.50 | 60.33 | ||||||||||||||||||
Third quarter | 74.80 | 59.85 | 74.80 | 59.77 | 48.34 | 59.31 | ||||||||||||||||||
Second quarter | 75.65 | 61.35 | 67.00 | 61.70 | 49.36 | 54.85 | ||||||||||||||||||
First quarter | 72.35 | 62.80 | 71.60 | 55.55 | 48.66 | 54.99 | ||||||||||||||||||
2005 | 63.50 | 46.75 | 62.55 | 49.02 | 38.60 | 47.58 | ||||||||||||||||||
Fourth quarter | 63.50 | 52.75 | 62.55 | 49.02 | 41.22 | 47.58 | ||||||||||||||||||
Third quarter | 56.15 | 50.40 | 55.00 | 43.40 | 38.92 | 42.75 | ||||||||||||||||||
Second quarter | 51.40 | 47.23 | 50.00 | 42.93 | 38.60 | 38.93 | ||||||||||||||||||
First quarter | 52.30 | 46.75 | 50.50 | 44.71 | 39.70 | 42.20 | ||||||||||||||||||
2004 | 49.18 | 40.80 | 47.68 | 42.19 | 32.47 | 41.92 | ||||||||||||||||||
Fourth quarter | 48.18 | 42.00 | 47.68 | 42.19 | 35.05 | 41.92 | ||||||||||||||||||
Third quarter | 45.50 | 40.80 | 43.95 | 36.19 | 32.47 | 35.17 | ||||||||||||||||||
Second quarter | 49.18 | 44.13 | 44.13 | 38.03 | 34.45 | 35.53 | ||||||||||||||||||
First quarter | 48.53 | 42.85 | 47.05 | 39.63 | 33.96 | 37.25 | ||||||||||||||||||
2003 | 42.70 | 24.90 | 42.35 | 34.08 | 19.00 | 34.00 | ||||||||||||||||||
Fourth quarter | 42.70 | 37.43 | 42.35 | 34.08 | 28.77 | 34.00 | ||||||||||||||||||
Third quarter | 40.25 | 36.75 | 37.05 | 29.63 | 27.19 | 28.12 | ||||||||||||||||||
Second quarter | 37.88 | 29.45 | 37.68 | 29.18 | 21.79 | 27.70 | ||||||||||||||||||
First quarter | 36.05 | 24.90 | 28.75 | 25.93 | 19.00 | 21.35 | ||||||||||||||||||
Risk and treasury management |
Stock exchange prices1 | ||||||||||||||||||||||||
SIX Swiss Exchange | New York Stock Exchange | |||||||||||||||||||||||
High (CHF) | Low (CHF) | Period end (CHF) | High (USD) | Low (USD) | Period end (USD) | |||||||||||||||||||
2008 | 45.98 | 10.67 | 14.84 | 46.40 | 8.33 | 14.30 | ||||||||||||||||||
Fourth quarter 2008 | 24.00 | 10.67 | 14.84 | 21.30 | 8.33 | 14.30 | ||||||||||||||||||
December | 16.28 | 12.63 | 14.84 | 14.30 | 10.89 | 14.30 | ||||||||||||||||||
November | 19.90 | 10.67 | 15.15 | 17.85 | 8.33 | 12.74 | ||||||||||||||||||
October | 24.00 | 14.20 | 19.35 | 21.30 | 12.28 | 16.90 | ||||||||||||||||||
Third quarter 2008 | 25.76 | 15.18 | 18.46 | 23.07 | 12.22 | 17.54 | ||||||||||||||||||
September | 25.76 | 15.18 | 18.46 | 22.59 | 12.22 | 17.54 | ||||||||||||||||||
August | 24.40 | 19.43 | 24.14 | 22.17 | 18.62 | 21.89 | ||||||||||||||||||
July | 24.44 | 17.52 | 20.38 | 23.07 | 17.90 | 19.39 | ||||||||||||||||||
Second quarter 2008 | 35.11 | 20.96 | 21.44 | 36.02 | 20.41 | 20.66 | ||||||||||||||||||
June | 27.14 | 20.96 | 21.44 | 25.72 | 20.41 | 20.66 | ||||||||||||||||||
May | 35.11 | 24.60 | 25.10 | 35.21 | 23.58 | 23.66 | ||||||||||||||||||
April | 34.48 | 25.44 | 32.68 | 36.02 | 30.87 | 33.59 | ||||||||||||||||||
First quarter 2008 | 45.98 | 21.52 | 25.67 | 46.40 | 22.33 | 28.80 | ||||||||||||||||||
March | 30.65 | 21.52 | 25.67 | 32.24 | 22.33 | 28.80 | ||||||||||||||||||
February | 41.16 | 30.10 | 30.56 | 42.42 | 32.20 | 32.34 | ||||||||||||||||||
January | 45.98 | 33.65 | 39.42 | 46.40 | 38.05 | 41.29 | ||||||||||||||||||
2007 | 71.95 | 42.69 | 46.60 | 66.26 | 43.50 | 46.00 | ||||||||||||||||||
Fourth quarter 2007 | 61.05 | 42.69 | 46.60 | 58.01 | 43.50 | 46.00 | ||||||||||||||||||
Third quarter 2007 | 66.88 | 53.67 | 55.67 | 62.34 | 49.84 | 53.25 | ||||||||||||||||||
Second quarter 2007 | 71.55 | 63.72 | 65.46 | 66.26 | 58.73 | 60.01 | ||||||||||||||||||
First quarter 2007 | 71.95 | 59.76 | 64.21 | 64.30 | 55.40 | 59.43 | ||||||||||||||||||
2006 | 71.06 | 53.23 | 65.86 | 63.39 | 48.34 | 60.33 | ||||||||||||||||||
Fourth quarter 2006 | 71.06 | 62.88 | 65.86 | 63.39 | 58.50 | 60.33 | ||||||||||||||||||
Third quarter 2006 | 66.52 | 53.23 | 66.52 | 59.77 | 48.34 | 59.31 | ||||||||||||||||||
Second quarter 2006 | 66.97 | 54.31 | 59.32 | 61.70 | 49.36 | 54.85 | ||||||||||||||||||
First quarter 2006 | 64.05 | 55.60 | 63.39 | 55.55 | 48.66 | 54.99 | ||||||||||||||||||
2005 | 56.39 | 41.19 | 55.38 | 49.30 | 38.47 | 47.58 | ||||||||||||||||||
Fourth quarter 2005 | 56.39 | 46.52 | 55.38 | 49.30 | 40.73 | 47.58 | ||||||||||||||||||
Third quarter 2005 | 49.84 | 43.60 | 48.69 | 43.49 | 38.55 | 42.75 | ||||||||||||||||||
Second quarter 2005 | 45.68 | 41.37 | 44.27 | 43.06 | 38.47 | 38.93 | ||||||||||||||||||
First quarter 2005 | 46.70 | 41.19 | 44.71 | 45.10 | 39.61 | 42.20 | ||||||||||||||||||
2004 | 43.76 | 35.52 | 42.21 | 42.29 | 32.31 | 41.92 | ||||||||||||||||||
Fourth quarter 2004 | 42.81 | 37.09 | 42.21 | 42.29 | 34.94 | 41.92 | ||||||||||||||||||
Third quarter 2004 | 40.68 | 35.52 | 38.91 | 36.28 | 32.31 | 35.17 | ||||||||||||||||||
Second quarter 2004 | 43.76 | 39.06 | 39.06 | 38.09 | 34.05 | 35.53 | ||||||||||||||||||
First quarter 2004 | 43.14 | 37.40 | 41.65 | 39.70 | 33.35 | 37.25 | ||||||||||||||||||
71175
Risk and treasury management
Basel II Pillar 3
72Basel II Pillar 3
UBS publishes Basel II Pillar 3 disclosures on a semi-annual basis. Year-end disclosures are contained within this report. Disclosure elements not covered in the “Risk management and control” and “Treasury management” sections are shown below.
Introduction
On 1 January 2008, UBS adopted the revised capital framework of the Basel Committee on Banking Supervision – Basel II – which introduced new and amended capital requirements for the different risk types and revised the calculation of eligible capital.
This section presents UBS’s Basel II Pillar 3 disclosures as of 31 December 2008 and consists mainly of quantitative disclosures complemented with explanatory text where needed.
è | Qualitative disclosures related to the bank’s risk management and control, definitions and risk exposures as well as capital management can be found in the “Risk management and control” and “Treasury management” sections of this report |
Overview of disclosures
The following table provides an overview of UBS’s Basel II Pillar 3 disclosures:
Basel II Pillar 3 requirement | Disclosure in the annual report | ||||
Capital structure | “Capital management” section of this report | ||||
Capital adequacy | “Capital management” and “Basel II Pillar 3” sections of this report | ||||
Risk management objectives, policies and methodologies (qualitative disclosures) | “Risk management and control” section of this report | ||||
Credit risk | “Basel II Pillar 3” section of this report | ||||
Investment positions | “Basel II Pillar 3” section of this report | ||||
Market risk | “Risk management and control” section of this report | ||||
Securitization | “Basel II Pillar 3” section of this report | ||||
Operational risk | “Risk management and control” section of this report | ||||
General description of risk exposure measures and capital requirements
Measures of risk exposure may differ depending on the purpose for which exposures are calculated: financial accounting under International Financial Reporting Standards (IFRS) determination of regulatory capital, or UBS’s internal management. UBS’s Basel II Pillar 3 disclosures are based on the measures of risk exposure that are used to calculate the regulatory capital that is required to underpin those risks.
176
Risk and treasury management |
Detailed segmentation of required capital | ||||||||||||
Basel II | ||||||||||||
31.12.08 | ||||||||||||
CHF million | Advanced | Standardized | Total | |||||||||
Credit risk | 156,187 | 1 | 52,309 | 2 | 208,496 | |||||||
Sovereigns | 9,393 | 803 | 10,196 | |||||||||
Banks | 23,924 | 4,286 | 28,209 | |||||||||
Corporates | 104,180 | 43,882 | 3 | 148,062 | ||||||||
Residential mortgages | 13,150 | 1,499 | 14,650 | |||||||||
Other retail | 5,510 | 1,833 | 7,342 | |||||||||
Failed trades from non-delivery-versus-payment (non-DvP) transactions | 30 | 7 | 37 | |||||||||
Securitization exposures | 6,202 | 6,202 | ||||||||||
Non-counterparty related risk | 7,411 | 7,411 | ||||||||||
Equity exposures outside trading book | 7,646 | 4 | 7,646 | |||||||||
Settlement risk | 219 | 219 | ||||||||||
Market risk | 27,614 | 5 | 27,614 | |||||||||
Operational risk | 44,685 | 6 | 44,685 | |||||||||
Total BIS risk weighted assets | 242,334 | 59,939 | 302,273 | |||||||||
Additional risk-weighted assets according to FINMA regulations7 | 32,620 | |||||||||||
Total FINMA8 risk weighted assets | 334,893 | 9 | ||||||||||
weights based on external ratings. Non-counterparty related assets such as UBS premises, other properties and equipment require capital underpinning according to prescribed regulatory risk weights.
Additional capital management disclosures
Although UBS determines published risk-weighted assets (RWA) according to the Basel II Capital Accord (BIS guide-
lines), the calculation of UBS’s regulatory capital requirement is based on the regulations of FINMA, leading to higher RWA.
– | Real estate and commercial companies as well as collective investment schemes are not consolidated for regulatory capital purposes but are risk-weighted. |
– | Insurance companies are not consolidated for regulatory capital purposes but are deducted from capital. |
– | Securitization vehicles are not consolidated for regulatory capital purposes but are treated under the securitization framework. |
– | Joint ventures that are controlled by two ventures are fully consolidated for regulatory capital purposes, whereas they are valued under equity method accounting for IFRS. |
177
Risk and treasury management
Basel II Pillar 3
Credit risk
UBS’s Pillar 3 disclosure presents the details on the parameters and input data used in its regulatory capital calculation. Although the parameters applied under the advanced IRB approach are generally determined using the same methodologies, data and systems as UBS uses for internal risk quantification, there are nevertheless several differences due to regulatory floors, multipliers, eligibility criteria and exposure definitions that cause the figures presented in this section to deviate from the information disclosed within the “Risk management and control” section of this report. The regulatory capital calculation of credit risk exposure also differs from that required under IFRS.
Derivation of risk-weighted assets | ||||||||||||||||||||
Average regulatory | Risk-weighted | |||||||||||||||||||
Exposure | risk-weighting2 | assets3 | ||||||||||||||||||
Less: regulatory | ||||||||||||||||||||
Regulatory gross | credit risk offsets | Regulatory net | ||||||||||||||||||
CHF million | credit exposure | and adjustments1 | credit exposure | |||||||||||||||||
Cash and balances with central banks | 22,872 | (70 | ) | 22,802 | 6 | % | 1,349 | |||||||||||||
Due from banks | 33,884 | (5,125 | ) | 28,759 | 25 | % | 7,066 | |||||||||||||
Loans | 295,395 | (21,117 | ) | 274,278 | 24 | % | 66,547 | |||||||||||||
Financial assets designated at fair value | 11,803 | (6,153 | ) | 5,649 | 20 | % | 1,123 | |||||||||||||
Off-balance sheet4 | 45,589 | (581 | ) | 45,008 | 34 | % | 15,105 | |||||||||||||
Banking products | 409,542 | (33,046 | ) | 376,496 | 24 | % | 91,191 | |||||||||||||
Derivatives | 190,047 | 190,047 | 42 | % | 79,663 | |||||||||||||||
Securities financing | 63,825 | 63,825 | 16 | % | 10,404 | |||||||||||||||
Traded products | 253,872 | 253,872 | 35 | % | 90,067 | |||||||||||||||
Trading portfolio assets | 32,916 | (68 | ) | 32,848 | 40 | % | 13,255 | |||||||||||||
Financial investments available-for-sale5 | 3,027 | 3,027 | 15 | % | 467 | |||||||||||||||
Accrued income and prepaid expenses | 5,011 | 26 | 5,036 | 93 | % | 4,665 | ||||||||||||||
Other assets | 10,696 | (28 | ) | 10,668 | 82 | % | 8,814 | |||||||||||||
Other products | 51,650 | (70 | ) | 51,579 | 53 | % | 27,201 | |||||||||||||
Total 31.12.08 | 715,064 | (33,116 | ) | 681,947 | 31 | % | 208,459 | |||||||||||||
178
Risk and treasury management |
ing products in that cash balances in margin accounts are not offset with the corresponding traded products exposures. This section also presents information on impaired and defaulted assets in a segmentation which is consistent with the regulatory capital calculation.
Regulatory gross credit exposure by geographical region | ||||||||||||||||||||||||||||||||
Africa / | Total regulatory | |||||||||||||||||||||||||||||||
Switzer- | Other | North | Latin | Asia / | Middle | gross credit | Total regulatory | |||||||||||||||||||||||||
CHF million | land | Europe | America1 | America | Pacific | East | exposure | net exposure | ||||||||||||||||||||||||
Cash and balances with central banks | 6,015 | 8,957 | 2,309 | 35 | 5,555 | 22,872 | 22,802 | |||||||||||||||||||||||||
Due from banks | 898 | 15,253 | 12,512 | 126 | 4,648 | 448 | 33,884 | 28,759 | ||||||||||||||||||||||||
Loans | 163,351 | 31,579 | 76,661 | 5,312 | 15,251 | 3,242 | 295,395 | 274,278 | ||||||||||||||||||||||||
Financial assets designated at fair value | 73 | 2,317 | 9,144 | 24 | 219 | 25 | 11,803 | 5,649 | ||||||||||||||||||||||||
Off-balance sheet | 6,000 | 10,533 | 25,791 | 905 | 1,884 | 475 | 45,589 | 45,008 | ||||||||||||||||||||||||
Banking products | 176,337 | 68,639 | 126,417 | 6,402 | 27,556 | 4,190 | 409,542 | 376,496 | ||||||||||||||||||||||||
Derivatives | 10,659 | 79,629 | 80,127 | 1,468 | 15,423 | 2,740 | 190,047 | 190,047 | ||||||||||||||||||||||||
Securities financing | 16,645 | 18,033 | 26,030 | 124 | 2,931 | 62 | 63,825 | 63,825 | ||||||||||||||||||||||||
Traded products | 27,304 | 97,662 | 106,157 | 1,592 | 18,354 | 2,803 | 253,872 | 253,872 | ||||||||||||||||||||||||
Trading portfolio assets | 48 | 12,485 | 17,977 | 658 | 1,542 | 206 | 32,916 | 32,848 | ||||||||||||||||||||||||
Financial investments available-for-sale 2 | 30 | 2,226 | 570 | 8 | 3 | 190 | 3,027 | 3,027 | ||||||||||||||||||||||||
Accrued income and prepaid expenses | 464 | 1,429 | 2,797 | 82 | 218 | 20 | 5,011 | 5,036 | ||||||||||||||||||||||||
Other assets | 4,593 | 1,852 | 3,736 | 145 | 363 | 6 | 10,696 | 10,668 | ||||||||||||||||||||||||
Other products | 5,135 | 17,992 | 25,080 | 893 | 2,126 | 422 | 51,650 | 51,579 | ||||||||||||||||||||||||
Total regulatory gross credit exposure 31.12.08 | 208,777 | 184,294 | 257,654 | 8,887 | 48,037 | 7,415 | 715,064 | 681,947 | ||||||||||||||||||||||||
Regulatory gross credit exposure by counterparty type | ||||||||||||||||||||||||
Public entities | ||||||||||||||||||||||||
(including | Banks and | Total regulatory | ||||||||||||||||||||||
sovereigns and | multilateral | gross credit | Total regulatory | |||||||||||||||||||||
CHF million | Private individuals | Corporates1 | central banks) | institutions | exposure | net exposure | ||||||||||||||||||
Cash and balances with central banks | 22,402 | 470 | 22,872 | 22,802 | ||||||||||||||||||||
Due from banks | 758 | 33,127 | 33,884 | 28,759 | ||||||||||||||||||||
Loans | 157,265 | 129,701 | 8,430 | 295,395 | 274,278 | |||||||||||||||||||
Financial assets designated at fair value | 6,484 | 29 | 5,290 | 11,803 | 5,649 | |||||||||||||||||||
Off-balance sheet | 2,905 | 40,003 | 1,057 | 1,623 | 45,589 | 45,008 | ||||||||||||||||||
Banking products | 160,170 | 176,188 | 32,675 | 40,510 | 409,542 | 376,496 | ||||||||||||||||||
Derivatives | 1,422 | 115,140 | 27,929 | 45,555 | 190,047 | 190,047 | ||||||||||||||||||
Securities financing | 882 | 31,458 | 5,256 | 26,229 | 63,825 | 63,825 | ||||||||||||||||||
Traded products | 2,304 | 146,598 | 33,185 | 71,784 | 253,872 | 253,872 | ||||||||||||||||||
Trading portfolio assets | 11,301 | 21,168 | 448 | 32,916 | 32,848 | |||||||||||||||||||
Financial investments available-for-sale2 | 5 | 536 | 2,304 | 181 | 3,027 | 3,027 | ||||||||||||||||||
Accrued income and prepaid expenses | 742 | 4,033 | 30 | 205 | 5,011 | 5,036 | ||||||||||||||||||
Other assets | 1,795 | 5,356 | 265 | 3,280 | 10,696 | 10,668 | ||||||||||||||||||
Other products | 2,542 | 21,226 | 23,767 | 4,114 | 51,650 | 51,579 | ||||||||||||||||||
Total regulatory gross credit exposure 31.12.08 | 165,016 | 344,012 | 89,627 | 116,408 | 715,064 | 681,947 | ||||||||||||||||||
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The “Regulatory gross credit exposure by geographical region” table on the previous page provides a breakdown of UBS’s portfolio by major types of credit exposure according to classes of financial instruments and also by geographical regions. The latter distribution is based on the legal domicile of the customer.
– | Corporates: consists of all exposures that do not fit into any of the other exposure segments below. Mostly, it includes private commercial entities such as corporations, partnerships or proprietorships, insurance companies, funds, exchanges and clearing houses. | |
– | Sovereigns (“Central governments and central banks” under Swiss and EU regulations): consists of exposures relating to sovereign states and their central banks, the Bank for International Settlement (BIS), the International |
Monetary Fund (IMF), the European Union including the European Central Bank and eligible multilateral development banks (MDB). | ||
– | Banks (“Institutions” under Swiss and EU regulations): consists of exposures towards banks, i. e. legal entities holding a banking license. It also includes those securities firms that are subject to supervisory and regulatory arrangements comparable to those applied to banks according to the Basel II Revised Framework, including, in particular, risk-based capital requirements. Basel II also defines this regulatory exposure segment such that it contains exposures to public sector entities with tax raising power or whose liabilities are fully guaranteed by a public entity. | |
– | Residential mortgages (“Claims secured on residential real estate” under Swiss and EU regulations): consists of residential mortgages, regardless of exposure size, if the obligor owns and occupies or rents out the mortgaged property. | |
– | Other retail: consists of exposures to small businesses, private clients and other retail customers without mortgage financing. Notably, this includes the lombard loan portfolio. |
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Regulatory gross credit exposure by residual contractual maturity | ||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||
regulatory | regulatory | |||||||||||||||||||||||
Due in | Due over | Due over | gross credit | net credit | ||||||||||||||||||||
CHF million | 1 year or less | 1-5 years | 5 years | Other1 | exposure | exposure | ||||||||||||||||||
Cash and balances with central banks | 22,872 | 22,872 | 22,802 | |||||||||||||||||||||
Due from banks | 2,240 | 1,638 | 377 | 29,629 | 33,884 | 28,759 | ||||||||||||||||||
Loans | 118,100 | 78,699 | 44,905 | 53,690 | 295,395 | 274,278 | ||||||||||||||||||
Financial assets designated at fair value | 2,677 | 3,987 | 4,664 | 475 | 11,803 | 5,649 | ||||||||||||||||||
Off-balance sheet | 10,541 | 32,112 | 1,859 | 1,077 | 45,589 | 45,008 | ||||||||||||||||||
Banking products | 133,559 | 116,436 | 51,805 | 107,743 | 409,542 | 376,496 | ||||||||||||||||||
Derivatives | 73,386 | 47,130 | 69,412 | 120 | 190,047 | 190,047 | ||||||||||||||||||
Securities financing | 17,511 | 8 | 719 | 45,586 | 63,825 | 63,825 | ||||||||||||||||||
Traded products | 90,897 | 47,138 | 70,131 | 45,706 | 253,872 | 253,872 | ||||||||||||||||||
Trading portfolio assets | 21,051 | 7,891 | 3,043 | 931 | 32,916 | 32,848 | ||||||||||||||||||
Financial investments available-for-sale2 | 2,312 | 94 | 621 | 3,027 | 3,027 | |||||||||||||||||||
Accrued income and prepaid expenses | 5,011 | 5,011 | 5,036 | |||||||||||||||||||||
Other assets | 85 | 10,611 | 10,696 | 10,668 | ||||||||||||||||||||
Other products | 23,448 | 7,985 | 3,664 | 16,553 | 51,650 | 51,579 | ||||||||||||||||||
Total regulatory gross credit exposure 31.12.08 | 247,904 | 171,558 | 125,600 | 170,001 | 715,064 | 681,947 | ||||||||||||||||||
Regulatory gross credit exposure covered by guarantees and credit derivatives | ||||||||||||
Total regulatory | Of which: exposure | Of which: exposure | ||||||||||
gross credit | covered by | covered by credit | ||||||||||
CHF million | exposure | guarantees1 | derivatives | |||||||||
Exposure segment | ||||||||||||
Corporates | 338,370 | 3,373 | 28,156 | |||||||||
Sovereigns | 71,953 | 183 | 6 | |||||||||
Banks | 121,776 | 563 | 206 | |||||||||
Residential mortgages | 118,703 | 13 | ||||||||||
Other retail | 64,262 | 169 | ||||||||||
Total regulatory gross credit exposure 31.12.08 | 715,064 | 4,302 | 28,368 | |||||||||
Derivation of regulatory net credit exposure | ||||||||||||
Advanced IRB1 | Standardized | Total | ||||||||||
CHF million | approach | approach | 31.12.08 | |||||||||
Total regulatory gross credit exposure | 618,333 | 96,731 | 715,064 | |||||||||
Less: regulatory credit risk offsets and adjustments2 | (26,226 | ) | (6,891 | ) | (33,116 | ) | ||||||
Total regulatory net credit exposure | 592,107 | 89,841 | 681,947 | |||||||||
Breakdown of the regulatory net credit exposure by exposure segment | ||||||||||||
Corporates | 237,704 | 48,618 | 286,321 | |||||||||
Sovereigns | 45,270 | 24,818 | 70,089 | |||||||||
Banks | 130,493 | 11,979 | 142,473 | |||||||||
Residential mortgages | 116,539 | 2,001 | 118,540 | |||||||||
Other retail | 62,101 | 2,424 | 64,525 | |||||||||
Total regulatory net credit exposure | 592,107 | 89,841 | 681,947 | |||||||||
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Advanced IRB approach
The upper part of the table “Advanced internal ratings-based approach: regulatory net credit exposure by UBS-internal rating” below provides a breakdown of the regulatory net credit exposure of UBS’s credit portfolio using the advanced IRB approach according to UBS-internal rating classes.
Advanced internal ratings-based approach: regulatory net credit exposure by UBS-internal rating | ||||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||
UBS-internal rating | regulatory | |||||||||||||||||||||||||||
Investment grade | Sub-investment grade | Defaulted1 | net credit | |||||||||||||||||||||||||
exposure | ||||||||||||||||||||||||||||
CHF million | 0/1 | 2/3 | 4/5 | 6–8 | 9–13 | 31.12.08 | ||||||||||||||||||||||
Regulatory net credit exposure-weighted average PD | 0.011% | 0.064% | 0.269% | 0.929% | 5.376% | 0.484% | ||||||||||||||||||||||
Exposure segment | ||||||||||||||||||||||||||||
Corporates | 19,978 | 102,563 | 47,706 | 43,562 | 17,694 | 6,202 | 237,704 | |||||||||||||||||||||
Sovereigns | 30,321 | 14,730 | 86 | 88 | 37 | 8 | 45,270 | |||||||||||||||||||||
Banks | 11,390 | 89,216 | 27,330 | 1,748 | 509 | 299 | 130,493 | |||||||||||||||||||||
Residential mortgages | 3 | 6,803 | 51,922 | 52,723 | 4,883 | 206 | 116,539 | |||||||||||||||||||||
Other retail | 47,797 | 7,039 | 4,529 | 1,807 | 928 | 62,101 | ||||||||||||||||||||||
Total 31.12.08 | 61,691 | 261,108 | 134,083 | 102,651 | 24,929 | 7,644 | 592,107 | |||||||||||||||||||||
Advanced internal ratings-based approach: exposure-weighted average loss given default by UBS-internal rating | ||||||||||||||||||||||||
UBS-internal rating | Regulatory net credit exposure-weighted | |||||||||||||||||||||||
Investment grade | Sub-investment grade | average LGD1 (%) | ||||||||||||||||||||||
CHF million | 0/1 | 2/3 | 4/5 | 6–8 | 9–13 | 31.12.08 | ||||||||||||||||||
Regulatory net credit exposure-weighted average LGD (%) | ||||||||||||||||||||||||
Corporates | 24 | 33 | 42 | 34 | 32 | 35 | ||||||||||||||||||
Sovereigns | 26 | 61 | 36 | 37 | 20 | 37 | ||||||||||||||||||
Banks | 22 | 25 | 32 | 36 | 15 | 26 | ||||||||||||||||||
Residential mortgages | 10 | 10 | 10 | 11 | 11 | 11 | ||||||||||||||||||
Other retail | 15 | 22 | 13 | 15 | 16 | |||||||||||||||||||
Average 31.12.08 | 25 | 28 | 26 | 21 | 26 | 26 | ||||||||||||||||||
Advanced internal ratings-based approach: exposure-weighted average risk-weight by UBS-internal rating | ||||||||||||||||||||||||
Regulatory net credit | ||||||||||||||||||||||||
UBS-internal rating | exposure-weighted | |||||||||||||||||||||||
Investment grade | Sub-investment grade | average risk-weight (%) | ||||||||||||||||||||||
CHF million | 0/1 | 2/3 | 4/5 | 6–8 | 9–13 | 31.12.08 | ||||||||||||||||||
Regulatory net credit exposure-weighted average risk-weight (%) | ||||||||||||||||||||||||
Corporates | 11 | 14 | 53 | 61 | 108 | 39 | ||||||||||||||||||
Sovereigns | 5 | 47 | 38 | 69 | 81 | 19 | ||||||||||||||||||
Banks | 9 | 11 | 29 | 100 | 125 | 17 | ||||||||||||||||||
Residential mortgages | 1 | 2 | 5 | 13 | 30 | 10 | ||||||||||||||||||
Other retail | 3 | 15 | 16 | 30 | 8 | |||||||||||||||||||
Average 31.12.08 | 8 | 13 | 28 | 35 | 87 | 24 | ||||||||||||||||||
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Standardized approach
The standardized approach is generally applied where it is not possible – usually for technical reasons – to use the advanced IRB approach and/or where an exemption from the advanced IRB has been granted by FINMA. The standardized approach requires banks to use risk assessments prepared by External Credit Assessment Institutions (ECAI) or Export Credit Agencies to determine the risk weightings applied to rated counterparties.
– | Central governments and central banks; | |
– | Regional governments and local authorities; | |
– | Multilateral development banks; | |
– | Institutions; and | |
– | Corporates. |
Regulatory gross and net credit exposure by risk weight under the standardized approach1 | ||||||||||||||||||||||||
Total exposure | ||||||||||||||||||||||||
CHF million | 0% | >0%–35% | 36%–75% | 76%–100% | 150% | 31.12.08 | ||||||||||||||||||
Regulatory gross credit exposure | ||||||||||||||||||||||||
Corporates | 6,538 | 671 | 44,840 | 1,602 | 53,651 | |||||||||||||||||||
Sovereigns | 23,884 | 149 | 26 | 825 | 1 | 24,885 | ||||||||||||||||||
Banks | 8,086 | 4,492 | 1,068 | 8 | 13,654 | |||||||||||||||||||
Residential mortgages | 1,068 | 997 | 2,065 | |||||||||||||||||||||
Other retail | 2,476 | 2,476 | ||||||||||||||||||||||
Total 31.12.08 | 23,884 | 14,773 | 8,732 | 47,731 | 1,612 | 96,731 | ||||||||||||||||||
Regulatory net credit exposure2 | ||||||||||||||||||||||||
Corporates | 6,538 | 671 | 39,807 | 1,602 | 48,618 | |||||||||||||||||||
Sovereigns | 23,884 | 149 | 26 | 758 | 1 | 24,818 | ||||||||||||||||||
Banks | 7,478 | 3,425 | 1,068 | 8 | 11,979 | |||||||||||||||||||
Residential mortgages | 1,004 | 997 | 2,001 | |||||||||||||||||||||
Other retail | 2,424 | 2,424 | ||||||||||||||||||||||
Total 31.12.08 | 23,884 | 14,165 | 7,550 | 42,630 | 1,611 | 89,841 | ||||||||||||||||||
Eligible financial collateral recognized under standardized approach | ||||||||
Eligible financial collateral | ||||||||
Regulatory net credit exposure | recognized in capital | |||||||
CHF million | under standardized approach | calculation1 | ||||||
Exposure segment | ||||||||
Corporates | 48,618 | 8,911 | ||||||
Sovereigns | 24,818 | 1,148 | ||||||
Banks | 11,979 | 5,942 | ||||||
Residential mortgages | 2,001 | 64 | ||||||
Other retail | 2,424 | 648 | ||||||
Total 31.12.08 | 89,841 | 16,713 | ||||||
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Impairment, default and credit loss
The “Impaired assets by geographical region” table below provides a breakdown of credit exposures arising from impaired assets and allowances/provisions by geographical region, based on the legal domicile of the customer. Impaired asset exposures include loans, off-balance sheet claims, securities financing transactions and derivative contracts.
Impaired assets by geographical region | ||||||||||||||||||||||||
Exposure net | Total | |||||||||||||||||||||||
Specific | of specific | allowances, | ||||||||||||||||||||||
allowances, | allowances, | provision and | ||||||||||||||||||||||
provisions and | provisions and | Collective | specific credit | |||||||||||||||||||||
Regulatory gross | credit valuation | credit valuation | allowances and | valuation | ||||||||||||||||||||
CHF million | credit exposure | Impaired assets1 | adjustments | adjustments | provisions | adjustments | ||||||||||||||||||
Switzerland | 208,777 | 1,534 | (849 | ) | 684 | (23 | ) | (873 | ) | |||||||||||||||
Other Europe | 184,294 | 2,334 | (1,138 | ) | 1,196 | (1,138 | ) | |||||||||||||||||
North America2 | 257,654 | 10,053 | (4,808 | ) | 5,245 | (4,808 | ) | |||||||||||||||||
Latin America | 8,887 | 206 | (56 | ) | 150 | (56 | ) | |||||||||||||||||
Asia/Pacific | 48,037 | 1,387 | (361 | ) | 1,027 | (361 | ) | |||||||||||||||||
Africa/Middle East | 7,415 | 145 | (41 | ) | 104 | (41 | ) | |||||||||||||||||
Total 31.12.08 | 715,064 | 15,658 | (7,252 | ) | 8,406 | (23 | ) | (7,275 | ) | |||||||||||||||
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Impaired assets by exposure segment | ||||||||||||||||||||||||
Total | ||||||||||||||||||||||||
allowances, | ||||||||||||||||||||||||
Specific | provisions | |||||||||||||||||||||||
allowances, | and specific | |||||||||||||||||||||||
provisions | Collective | credit | ||||||||||||||||||||||
Regulatory | Of which | and credit | allowances | valuation | ||||||||||||||||||||
gross credit | impaired | valuation | and | adjust- | ||||||||||||||||||||
CHF million | exposure | assets1 | adjustments | provisions2 | ments2 | Write-offs3 | ||||||||||||||||||
Corporates | 338,370 | 13,855 | (6,777 | ) | (6,777 | ) | (714 | ) | ||||||||||||||||
Sovereigns | 71,953 | 16 | (12 | ) | (12 | ) | (2 | ) | ||||||||||||||||
Banks | 121,776 | 139 | (20 | ) | (20 | ) | (122 | ) | ||||||||||||||||
Residential mortgages | 118,703 | 352 | (103 | ) | (103 | ) | ||||||||||||||||||
Other retail | 64,262 | 1,296 | (340 | ) | (340 | ) | (30 | ) | ||||||||||||||||
Not allocated segment4 | (23 | ) | (23 | ) | ||||||||||||||||||||
Total 31.12.08 | 715,064 | 15,658 | (7,252 | ) | (23 | ) | (7,275 | ) | (868 | ) | ||||||||||||||
Changes in allowances, provisions and specific credit valuation adjustments | ||||||||||||||||||||
Specific allowances | Total specific | |||||||||||||||||||
and provisions for | Specific credit | allowances, | ||||||||||||||||||
banking products | valuation | provisions and | Collective | |||||||||||||||||
and securities | adjustments for | credit valuation | allowances and | |||||||||||||||||
CHF million | financing | derivatives | adjustments | provisions2 | Total | |||||||||||||||
Balance at the beginning of 2008 | 1,130 | 818 | 1,948 | 34 | 1,981 | |||||||||||||||
Write-offs | (868 | ) | (868 | ) | (868 | ) | ||||||||||||||
Recoveries (on written-off positions) | 44 | 44 | 44 | |||||||||||||||||
Increase/(decrease) in credit loss allowances, provisions and specific credit valuation adjustments1 | 3,006 | 4,550 | 7,556 | (11 | ) | 7,545 | ||||||||||||||
Foreign currency translations and other adjustments | (42 | ) | (825 | ) | (867 | ) | (867 | ) | ||||||||||||
Transfers | (223 | ) | (337 | ) | (561 | ) | (561 | ) | ||||||||||||
Balance at year-end 2008 | 3,047 | 4,205 | 7,252 | 23 | 7,276 | |||||||||||||||
Total credit loss at year-end 2008 | ||||||||||||
Specific credit valuation | ||||||||||||
adjustmens for | ||||||||||||
CHF million | Credit loss expense | defaulted derivates | Total credit loss | |||||||||
Corporates1 | 2,564 | 4,117 | 6,681 | |||||||||
Sovereigns | ||||||||||||
Banks | 114 | 433 | 547 | |||||||||
Residential mortgages | (1 | ) | (1 | ) | ||||||||
Other retail | 342 | 342 | ||||||||||
Not specified2 | (24 | ) | (24 | ) | ||||||||
Total | 2,996 | 4,550 | 7,545 | |||||||||
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Other credit risk tables
Credit exposure of derivative instruments | ||
CHF million | 31.12.08 | |
Gross positive replacement values | 860,943 | |
Netting benefits recognized1 | (651,756) | |
Collateral held | (51,765) | |
Net current credit exposure | 157,422 | |
Regulatory net credit exposure (total counterparty credit risk)2 | 190,047 | |
of which treated with internal models (effective expected positive exposure (EPE))2 | 164,707 | |
of which treated with supervisory approaches (current exposure method)2 | 25,340 | |
Breakdown of the collateral held | ||
Cash collateral | 46,967 | |
Securities collateral and debt instruments collateral (excluding equity) | 4,246 | |
Equity instruments collateral | 121 | |
Other collateral | 430 | |
Total collateral held | 51,765 | |
Credit derivatives | ||||||||||||||||||||||||||||
Regulatory banking book | Regulatory trading book | Total | ||||||||||||||||||||||||||
Protection | Protection | Protection | Protection | |||||||||||||||||||||||||
Notional amounts, CHF million | bought | sold | Total | bought | sold | Total | 31.12.08 | |||||||||||||||||||||
Credit default swaps | 26,297 | 1,030 | 27,326 | 2,120,407 | 1,469,723 | 3,590,130 | 3,617,457 | |||||||||||||||||||||
Total return swaps | 1,166 | 1,166 | 15,060 | 7,819 | 22,879 | 24,044 | ||||||||||||||||||||||
Total 31.12.08 | 26,297 | 2,196 | 28,492 | 2,135,468 | 1,477,542 | 3,613,009 | 3,641,502 | |||||||||||||||||||||
186
Risk and treasury management |
Investment positions
The “Equities disclosure for banking book positions” table below provides an overview of UBS equity investments held in the banking book for regulatory capital purposes. The calculation of equity investment exposure for financial accounting under IFRS differs from that required for regulatory capital purposes. The table illustrates these two measures of exposure as well as the key differences between them.
is used for regulatory capital purposes; (ii) positions that may be treated under a different framework for regulatory capital purposes, for example tradable assets treated under Market Risk VaR; and (iii) differences in the scope of consolidation for IFRS, for example, special purpose entities consolidated for IFRS but not for regulatory capital purposes.
Equities disclosure for banking book positions | ||||
CHF million | Book value 31.12.08 | |||
Equity investments | ||||
Financial investments available-for-sale | 1,681 | |||
Financial assets designated at fair value | 1,079 | |||
Investments in associates | 892 | |||
Total equity investments under IFRS | 3,653 | |||
Realized gains and (losses), net | 815 | |||
Unrealized gains and (losses), net | 421 | |||
Consolidation scope adjustment | (80 | ) | ||
Capital view adjustments | 405 | |||
Total equity exposure regulatory capital view under BIS | 3,978 | |||
of which: to be risk weighted | ||||
publicly traded | 1,423 | |||
privately held | 1,681 | |||
of which: deducted from equity | 874 | |||
Capital requirement | ||||
Total simple risk weight method | 612 | |||
Unrealized gains included in tier 2 | 69 | |||
187
Risk and treasury management
Basel II Pillar 3
Securitization
Sources and control of risks resulting from
securitization structures
Regulatory treatment of securitization
Accounting Policies
Good practice guidelines
188
Risk and treasury management |
Securitization activity during 2008
Total outstanding exposures securitized –
synthetic securitizations
Amount of impaired/past due assets securitized –
synthetic securitizations
Securitization activity during 2008 – traditional securitizations | ||||||||
Amount of exposures | Recognized gain or loss | |||||||
CHF million | securitized | on sale | ||||||
For year ended | 31.12.08 | 31.12.08 | ||||||
Residential mortgages | 577 | (13 | ) | |||||
Commercial mortgages | 964 | 13 | ||||||
Other | 0 | 0 | ||||||
Total | 1,541 | 0 | ||||||
Total outstanding exposures – synthetic securitizations | ||||
CHF million | Amount of exposures securitized | |||
For year ended | 31.12.08 | |||
Residential mortgages | 433 | |||
Commercial mortgages | 596 | |||
Other1 | 9,657 | |||
Total | 10,686 | |||
Amount of impaired/past due assets securitized – synthetic securitizations | ||||
CHF million | Amount of exposures impaired/past due | |||
For year ended | 31.12.08 | |||
Residential mortgages | 22 | |||
Commercial mortgages | 0 | |||
Other | 190 | |||
Total | 212 | |||
189
Risk and treasury management
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Losses recognized on originated transactions in 2008
Securitization exposures retained or purchased
Capital charge for securitization exposures retained or purchased
Losses recognized on originated transactions in 2008 | ||||
CHF million | Amounts of losses recognized | |||
For year ended | 31.12.08 | |||
Residential mortgages | 789 | |||
Commercial mortgages | 153 | |||
Other | 291 | |||
Total | 1,233 | |||
Securitization exposures retained or purchased | ||||
Exposure type | Exposure amount | |||
CHF million | ||||
For year ended | 31.12.08 | |||
Residential mortgages | 592 | |||
Commercial mortgages | 583 | |||
Other1 | 33,960 | |||
Total | 35,135 | |||
Capital charge for securitization exposures retained or purchased | ||||||||
Exposure amount | Capital charge | |||||||
CHF million | 31.12.08 | |||||||
> 0–20% | 32,576 | 332 | ||||||
> 20–35% | 464 | 13 | ||||||
> 35–50% | 253 | 11 | ||||||
> 50–75% | 321 | 19 | ||||||
> 75–100% | 1,181 | 100 | ||||||
> 100–150% | – | – | ||||||
> 150–250% | 24 | 5 | ||||||
> 250–300% | – | – | ||||||
> 300–350% | – | – | ||||||
> 350–375% | – | – | ||||||
> 375–400% | – | – | ||||||
> 400–625% | 10 | 4 | ||||||
> 625–1250% | – | 13 | ||||||
Deducted from capital | 306 | 306 | ||||||
Total | 35,135 | 803 | ||||||
190
Corporate governance and compensation |
More about UBS
73
Corporate governance and compensation
More about UBS
Sources Information according to articles 663bbis and 663c (paragraph three)
of information
Annual report 2007
Four reports make up UBS’s fullAnnual Report 2007.They complyDisclosures provided in line with the US disclosure requirements for foreign private issuers as defined by Form 20-Fof articles 663bbis and 663c (paragraph three) of the SecuritiesSwiss Code of Obligations’“Supplementary disclosures for companies whose shares are listed on a stock exchange: compensations and Exchange Commission (SEC) and combine audited and non-audited information. All four reportsparticipations” are available in English and German (SAP no.80531). The four reports are:
Strategy, Performance and Responsibility 2007This provides a description of our firm, its strategy, organizational structure and financial performance for the last two years. It also discusses our standards for corporate behavior and responsibility, outlines demographic trends in our workforce and describes the way our people learn and are led.
Risk, Treasury and Capital Management 2007In addition to outlining the principles by which we manage and control risk, this report provides an account of developments in credit risk, market risk, operational risk and treasury management during 2007. It also provides information on UBS shares.
Corporate Governance and Compensation Report 2007Comprehensive information on our governance arrangements is included in this report, which also explains how we manage our relationships with regulators and shareholders. Compensation of senior management and the Board of Directors (executive and non-executive members) is discussed here. This report can be ordered separately (SAP no. 82307).
Financial Statements 2007This comprises the audited financial statements of UBS for 2007, 2006 and 2005, prepared according to the International Financial Reporting Standards (IFRS). It also includes the audited financial statements of UBS AG (the parent bank) for 2007 and 2006, prepared according to Swiss banking law. Additional disclosure requiredthis report. This information is marked by Swiss and US regulations is included where appropriate.
In addition to the four reports,Review 2007is distributed broadly to UBS shareholders and contains key information on our strategy and financials. This booklet summarizes the information in the four-part annual report.
Quarterly reports
We provide detailed quarterly financial reporting and analysis, including commenta bar on the progress of our businesses and key strategic initiatives. These quarterly reports are available in English.left-hand side throughout this section.
How to order reports
These reports are available in PDF format on the internet atwww.ubs.com/investors/topicsin the reporting section. Printed copies can be ordered from the same website by accessing the order / subscribe panel on the right-hand side of the screen. Alternatively, they can be ordered by quoting the SAP number and the language preference where applicable, from UBS AG, Information Center, P.O. Box, CH-8098 Zurich, Switzerland.
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Information tools for investorsCorporate governance
– | UBS implemented new corporate governance guidelines in 2008, actively reinforcing a clear separation of the roles and responsibilities of the Board of Directors and its committees from those of the Group Executive Board |
WebsiteOur Analysts & Investors website atwww.ubs.com/investorsoffers
The dual-board structure achieves a wide rangeclear
separation of information about UBS, financial information (including SEC filings), corporate information, share price graphs and data, an event calendar, dividend information and recent presentations given by senior management to investors at external conferences. Information on the internetpower:
The Board of Directors (BoD) is available in English and German, with some sections in French and Italian.
Messaging serviceOn the Analysts & Investors website, you can register to receive news alerts about UBS via Short Messaging System (SMS) or e-mail. Messages are sent in either English or German and users are able to state their preferencesresponsible for the topicsfirm’s strategic direction as well as the monitoring and supervision of the alerts received.business. All members are independent with the exception of its full-time Chairman. Dissolution of the Chairman’s Office in 2008 streamlined the management process, with its duties and responsibilities spread amongst existing and newly established committees.
Results presentationsSeniorThe Group Executive Board is responsible for the executive management presentsof the firm and must account to the BoD for the firm’s financial results. It is led by the Group Chief Executive Officer and supported by the newly established Executive Committee.
The following events strengthened UBS’s results every quarter. These presentations
leadership capacity during 2008:
The position of senior independent director was established to facilitate direct communication between shareholders and the BoD, as well as between BoD members and their Chairman.
The term of office for all BoD members was reduced to one year. This was approved at the annual general meeting held in April and is effective for all elections and re-elections held from 2008 onwards.
The firm believes that shareholder interests are broadcast live over
served by good corporate governance. At the internet, and can be downloaded on demand. The most recent result webcasts can be found
extraordinary general meetings (EGM) held in 2008,
shareholders approved the following:
On 27 February, shareholders approved the creation of a maximum of CHF 10,370,000 in authorized capital, allowing the distribution of a stock dividend. Shareholders also approved the creation of conditional capital allowing two financial investors to subscribe to an issue of CHF 13 billion of mandatory convertible notes (MCNs).
On 27 November, shareholders approved the creation of conditional share capital for the issuance of MCNs in the financials sectionamount of our Analysts & Investors website.
Form 20-F and other submissionsCHF 6 billion to the US Securities and Exchange Commission
We file periodic reports and submit other information about UBS to the US Securities and Exchange Commission (SEC). Principal among these filings is our annual report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934.
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.
UBS AG is incorporated and domiciled in Switzerland and operates under Swiss Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.
The addresses and telephone numbers of our two registered offices are:Bahnhofstrasse 45, CH-8001 Zurich, Switzerland, phone +41-44-234 11 11; and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, phone +41-61-288 20 20.
UBS AG shares are listed on the SWX Swiss Exchange (traded through its trading platform virt-x), on the New York Stock Exchange (NYSE) and on the Tokyo Stock Exchange (TSE).
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More about UBS
Compensation, shareholdings and loans
– | UBS’s compensation principles for senior executives were extensively reviewed in 2008 | |
– | New compensation principles are effective from 2009 onwards | |
Contacts
Compensation for 2008
Total senior executive compensation decreased 77% in 2008.
No incentive award or discretionary stock options were granted to the Chairman and executive members of the Board of Directors nor to the members of the Group Executive Board in reflection of UBS’s negative financial performance for the year.
Compensation principles 2009
These will align compensation with the creation of sustainable shareholder returns through sound risk taking; promote a performance-driven culture with a long-term view to results and shareholder interests; and support the firm’s focused business strategy.
These principles include a “malus” system for cash awards as well as performance conditions for equity awards.
A non-binding vote on executive compensation will be held at the annual general meeting to be held in April 2009.
Compensation recommendations | ||||||||
Communicated by | ||||||||
Chairman of the HRCC1 | HRCC | |||||||
HRCC | ||||||||
Chairman of the BoD | HRCC | |||||||
HRCC | ||||||||
Group CEO | HRCC | |||||||
Group CEO | ||||||||
(remuneration system and fees) | Chairman of the BoD/HRCC | BoD | ||||||
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Cautionary statement regarding forward-looking statements |This report contains statements that constitute “forward-looking statements”, including but not limited to statements relating to the risks arising from the current market crisis, other risks specific to our business and the implementation of strategic initiatives, as well as other statements relating to our future business development and economic performance and our intentions with respect to future returns of capital. 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) the extent and nature of future developments in the US sub-prime market and in other market segments that have been affected by the current market crisis; (2) other market and macro-economic developments, including movements in local and international securities markets, credit spreads, currency exchange rates and interest rates, whether or not arising directly or indirectly from the current market crisis; (3) the impact of these developments on other markets and asset classes; (4) changes in internal risk control and in the regulatory capital treatment of UBS’s positions, in particular those affected by the current market crisis; (5) limitations in the effectiveness of our internal risk management processes, of our risk measurement, control and modeling systems, and of financial models generally; (6) developments relating to UBS’s access to capital and funding, including any changes in our credit ratings; (7) changes in the financial position or creditworthiness of our customers, obligors and counterparties, and developments in the markets in which they operate; (8) management changes and changes to the structure of our Business Groups; (9) the occurrence of operational failures, such as fraud, unauthorized trading, systems failures; (10) legislative, governmental and regulatory developments; (11) competitive pressures; (12) technological developments; and (13) the impact of all such future developments on positions held by UBS, on our short-term and longer-term earnings, on the cost and availability of funding and on our BIS capital ratios. In addition, these results could depend on other factors that we have previously 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 2007. UBS is not under any obligation to (and expressly disclaims any such obligation 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, GermanOrder numberAnnual Report 2007:SAP-No. 80531E-0801
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Corporate governance and compensation
Corporate governance
Contents
1
Introduction
Introduction
Corporate governance
This year we have changed the structure of our annual report. Based on feedback from users, our annual report now consists of four themed reports. These combine audited and non-audited information.
The four reports are:
Strategy, Performance and Responsibility 2007
Risk, Treasury and Capital Management 2007
Corporate Governance and Compensation Report 2007
Financial Statements 2007
In addition to the four reports,Review 2007is distributed broadly to UBS shareholders and contains key information on our strategy and financials. This booklet summarizes the information in the four-part annual report.
If you only ordered specific reports in prior years, please note that the former Compensation Report is now calledCorporate Governance and Compensation Report 2007,and the former Annual Review is now calledReview 2007. Our contact details are listed in the final pages of this report – please be in contact with us so that we can arrange delivery of the reports you require.
This report contains information that is current as of the date of this report. We undertake no obligation to update this information or notify you if it should change or if new information should become available.
Our aim is to provide publications that are useful and informative. In order to ensure that UBS remains among the leading providers of corporate disclosure, we would like to hear your opinions on how we can improve the content and presentation of our products (see contact details on the final pages of this report).
UBS
Information according to Art. 663bbisand Art. 663c paragraph three of the Swiss Code of Obligations
Disclosures provided in line with the requirements of Art. 663bbis and Art. 663c paragraph three of the Swiss Code of Obligations’ “Supplementary disclosures for companies whose shares are listed on a stock exchange: Compensations and Participations” are also included in the audited reportFinancial Statements 2007.This information is marked by a bar on the left-hand side throughout this report.
2
Corporate governance
Key features
Strict dual board structure
TheBoard of Directors (BoD)is the most senior body in the firm with ultimate responsibility for its mid- and long-term strategic direction and supervision of executive management. The majority of its members are independent
TheGroup Executive Board (GEB)has business management responsibility for UBS. Its members account to the BoD for the firm’s results
Separation of powersis achieved by limiting membership to one board and assigning the functions of Chairman of the BoD and Group Chief Executive Officer to different people
Shareholder participation rights
Recent developments
Extraordinary general meeting on 27 February 2008 approved capital strengthening program
Annual general meeting on 23 April 2008 to vote on reduced terms of office for members of the Board of Directors
3
Corporate GovernanceIntroduction and principles
Introduction and principles
Corporate governance – the way that the leadership and management of a firm are organized and how they operate in practice – ultimately aims to lead UBS towards sustainable growth and protect the interests of its shareholders, andas well as to create value for both themshareholders and all stakeholders. Good corporate governance seeksUBS uses the term “corporate governance” to balance entrepreneurship, controlrefer to the organizational structure and transparency, while supporting the firm’s success by ensuring efficient decision-making processes.operational practices of its leadership and management.
UBS is subject to, and fully complies with, the SWXfollowing regulatory requirements regarding corporate governance: the SIX Swiss Exchange’s (SWX) regulatory requirement(SIX) “Directive on Information Relating to Corporate Governance” (revised directive as of 1 January 2007), as well as; the amended Swiss Code of Obligations(CO) with the newly introduced articles Art. 663bbis and Art. 663c paragraph three(paragraph three) regarding transparency inof compensation paid to members of the Board of Directors (BoD) and senior management. In addition, UBS fully complies withmanagement; and the standards established in the “SwissSwiss Code of Best Practice for Corporate Governance”Governance, including the recently adopted appendix on executive compensation.
– |
control and defense | ||
– | ||
– | The NYSE “Corporate Governance Listing Standards” with regard to foreign listed companies, independence of directors, |
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Corporate Governance
Group structure and shareholders
Group structure and shareholders
Under Swiss company law, UBS is organized as a limited company, 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 its businesses within an efficient legal, tax, regulatory and funding framework. Neither the business groups of UBS nor its Corporate Center are separate legal entities: they operate out of the parent bank, UBS AG, through its branches worldwide. This structure is designed to capitalize on the increased business opportunities and cost efficiencies offered by the use of a single legal platform and to enable the flexible and efficient use of capital.
Operational group structure
The three business groups – Global Wealth Management & Business Banking, Global Asset Management and the Investment Bank – together with Corporate Center form the operational structure of the Group’s financial businesses. Performance
UBS Group legal entity structure | ||||
Under Swiss company law, UBS is organized as a limited company, a corporation that has issued shares of common stock to investors. UBS AG is the parent company of the UBS Group (Group). | ||||
The legal entity structure of UBS is designed to support its businesses within an efficient legal, tax, regulatory and funding framework. Neither the business divisions of UBS nor its Corporate Center are separate legal entities: they primarily operate out of the parent bank, UBS AG, through its branches worldwide. This structure is designed to capitalize on the increased business opportunities and cost efficiencies offered by the use of a single legal platform and to enable the flexible and efficient use of capital. Where it is neither possible nor efficient to operate out of the parent bank, businesses operate through local subsidiaries. Instances of this are usually due to local legal, tax or regulatory rules or a result of additional legal entities joining the Group through acquisition. | ||||
Operational Group structure | ||||
On 31 December 2008, the operational structure of the Group comprised the Corporate Center and the three business divisions: Global Wealth Management & Business Banking, Global Asset Management and the Investment Bank. In this report, performance is reported according to this structure. However, on 10 February 2009, UBS announced that Global Wealth Management & Business Banking had been divided into two new business divisions: Wealth Management & Swiss Bank and Wealth Management Americas. Refer to the “Strategy and structure” section of this report for more information on the restructuring of the business divisions. | ||||
Listed and non-listed companies belonging to the Group (consolidated entities) | ||||
The Group includes a number of subsidiaries, none of which, however, are listed companies. | ||||
è | Refer to “Note 34 Significant subsidiaries and associates” in the financial statements of this report for details of significant operating subsidiary companies of the Group | |||
Significant shareholders | ||||
Chase Nominees Ltd., London, acting in its capacity as a nominee for other investors, was registered with 7.19% of |
all shares issued on 31 December 2008, compared with 7.99% at year-end 2007 and 8.81% at year-end 2006. | ||||
DTC (Cede & Co.), New York, The | ||||
According to UBS’s “Regulation on the Registration of Shares”, voting rights of nominees are restricted to 5%, but clearing and settlement organizations are exempt from this restriction. On 31 December 2008, no other shareholder had reported holding 3% or more of all voting rights. Ownership of UBS shares is widely spread. The tables on the next page provide information about the distribution of UBS shareholders by category and geography. This information relates only to registered shareholders and cannot be assumed to be representative of the entire UBS investor base. Only shareholders registered in |
Listed and non-listed companies belonging to the Group (consolidated entities)
The UBS Group includes a great number of subsidiaries, none of which, however, are listed companies. For details of significant operating subsidiary companies of the Group, see Note 35 inFinancial Statements 2007.
Significant shareholders
Chase Nominees Ltd., London, acting in its capacity as a nominee for other investors, was registered with 7.99% of all shares issued as of 31 December 2007, compared to 8.81% at year-end 2006 and 8.55% at year-end 2005. DTC (Cede & Co.), New York, The Depository Trust Company, a US securities clearing organization, was registered as a shareholder for a great number of beneficial owners with 14.15% of all shares
issued as of 31 December 2007 (13.21% as of 31 December 2006). According to “UBS’s Regulation on the Registration of Shares”, voting rights of nominees are restricted to 5%, while clearing and settlement organizations are exempt from this restriction. As of 31 December 2007, no other shareholders had reported holding 3% or more of all voting rights. Ownership of UBS shares is widely spread. The tables on the next page provide information about the distribution of shareholders by category and geography. This information relates only to registered shareholders and cannot be assumed to be representative of the entire UBS investor base. Only shareholders registered in the share register as shareholders with voting rights are entitled to exercise voting rights.
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Corporate governance and
compensation Corporate governance
notify, without undue delay, such change simultaneously to UBS and the German Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht; BaFin). The detailed disclosure requirements and the methodology for calculating the thresholds are defined in the “Ordinanceparagraphs 21 et seq. of the Swiss Federal Banking Commission on the Stock Exchanges and Securities Trading” (disclosure of shareholdings). In particular, the ordinance prohibits the netting of so-called acquisition positions (i.e. in particular shares, conversion rights and acquisition rights or obligations) with disposal positions (i.e. rights or obligations to sell). It further requires that each such position be calculated separately and reported simultaneously as soon as it reaches a threshold. Since 13 September 2002, UBS’s holdings of its own shares have been above the 3% threshold requiring disclosure under the Swiss stock exchange laws. UBS’s position in its own shares remained between 3% and 10% throughout 2007.
sisted mainly of 8.91% of voting rights) relatingrights attached to employee options, 9.22% of voting rights attached to the mandatory convertible notes issued by UBS registered shares.
Cross shareholdings
UBS has no cross shareholdings in excess of a reciprocal 5% of capital or voting rights with any other company.
5
Corporate GovernanceGroup structure and shareholders
Distribution of UBS shares | Distribution of UBS shares | Distribution of UBS shares | ||||||||||||||||||||||||||||||
As of 31.12.07 | Shareholders registered | Shares registered | ||||||||||||||||||||||||||||||
On 31 December 2008 | Shareholders registered | Shares registered | ||||||||||||||||||||||||||||||
Number of shares registered | Number | % | Number | % of shares issued | Number | % | Number | % of shares issued | ||||||||||||||||||||||||
1–100 | 33,819 | 16.2 | 1,982,968 | 0.1 | 39,458 | 11.6 | 2,279,778 | 0.1 | ||||||||||||||||||||||||
101–1,000 | 124,749 | 59.6 | 52,269,332 | 2.5 | 200,945 | 59.1 | 89,228,454 | 3.0 | ||||||||||||||||||||||||
1,001–10,000 | 46,603 | 22.3 | 123,861,673 | 6.0 | 92,559 | 27.2 | 242,151,755 | 8.2 | ||||||||||||||||||||||||
10,001–100,000 | 3,577 | 1.7 | 87,704,010 | 4.2 | 6,280 | 1.9 | 145,370,413 | 5.0 | ||||||||||||||||||||||||
100,001–1,000,000 | 384 | 0.2 | 112,916,436 | 5.5 | 500 | 0.2 | 148,881,546 | 5.1 | ||||||||||||||||||||||||
1,000,001–5,000,000 | 70 | 0.0 | 148,229,789 | 7.2 | 99 | 0.0 | 200,105,606 | 6.8 | ||||||||||||||||||||||||
5,000,001–20,735,473 (1%) | 18 | 0.0 | 147,702,880 | 7.1 | ||||||||||||||||||||||||||||
5,000,001–29,325,805 (1%) | 31 | 0.0 | 324,972,121 | 11.1 | ||||||||||||||||||||||||||||
1–2% | 6 | 0.0 | 194,124,566 | 9.4 | 1 | 0.0 | 38,551,136 | 1.3 | ||||||||||||||||||||||||
2–3% | 0 | 0.0 | 0 | 0.0 | 3 | 0.0 | 202,408,105 | 6.9 | ||||||||||||||||||||||||
3–4% | 0 | 0.0 | 0 | 0.0 | 0 | 0.0 | 0 | 0.0 | ||||||||||||||||||||||||
4–5% | 0 | 0.0 | 0 | 0.0 | 0 | 0.0 | 0 | 0.0 | ||||||||||||||||||||||||
Over 5% | 2 | 1 | 0.0 | 459,135,393 | 22.0 | 2 | 1 | 0.0 | 500,789,047 | 17.1 | ||||||||||||||||||||||
Total registered | 209,228 | 100.0 | 1,327,927,047 | 64.0 | 339,878 | 100.0 | 1,894,737,961 | 64.6 | ||||||||||||||||||||||||
Unregistered2 | 745,620,297 | 36.0 | 1,037,842,588 | 35.4 | ||||||||||||||||||||||||||||
Total shares issued | 2,073,547,344 | 3 | 100.0 | 2,932,580,549 | 3 | 100.0 |
Shareholders: category and geographical location | ||||||||||||||||||||||||||||||||
Shareholders: type and geographical distribution | Shareholders: type and geographical distribution | |||||||||||||||||||||||||||||||
Shareholders | Shares | |||||||||||||||||||||||||||||||
As of 31.12.07 | Number | % | Number | % | ||||||||||||||||||||||||||||
Shareholders | Shares | |||||||||||||||||||||||||||||||
On 31 December 2008 | Number | % | Number | % | ||||||||||||||||||||||||||||
Individual shareholders | 202,019 | 96.6 | 244,744,640 | 11.8 | 330,226 | 97.1 | 460,037,591 | 15.7 | ||||||||||||||||||||||||
Legal entities | 6,713 | 3.2 | 247,068,373 | 11.9 | 9,063 | 2.7 | 433,384,170 | 14.8 | ||||||||||||||||||||||||
Nominees, fiduciaries | 496 | 0.2 | 836,114,034 | 40.3 | 589 | 0.2 | 1,001,316,200 | 34.1 | ||||||||||||||||||||||||
Unregistered | 745,620,297 | 36.0 | 1,037,842,588 | 35.4 | ||||||||||||||||||||||||||||
Total | 209,228 | 100.0 | 2,073,547,344 | 100.0 | 339,878 | 100.0 | 2,932,580,549 | 100.0 | ||||||||||||||||||||||||
Switzerland | 186,725 | 89.2 | 460,203,410 | 22.2 | 310,284 | 91.3 | 802,619,576 | 27.4 | ||||||||||||||||||||||||
Europe | 15,205 | 7.3 | 425,716,963 | 20.5 | 20,060 | 5.9 | 625,650,671 | 21.3 | ||||||||||||||||||||||||
North America | 2,390 | 1.1 | 398,561,800 | 19.2 | 2,505 | 0.7 | 400,179,323 | 13.6 | ||||||||||||||||||||||||
Other countries | 4,908 | 2.4 | 43,444,874 | 2.1 | 7,029 | 2.1 | 66,288,391 | 2.3 | ||||||||||||||||||||||||
Unregistered | 745,620,297 | 36.0 | 1,037,842,588 | 35.4 | ||||||||||||||||||||||||||||
Total | 209,228 | 100.0 | 2,073,547,344 | 100.0 | 339,878 | 100.0 | 2,932,580,549 | 100.0 |
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Corporate GovernanceCapital structure
Corporategovernanceandcompensation |
Capital structure
UBS is committed to capital management that is driven by shareholder value considerations. At the same time, UBS is dedicated to maintaining its strong capital position.
Capital
Under Swiss company law, shareholders have tomust approve in a shareholders’ meeting any increase in the total number of issued shares, which may bearise from an ordinary share capital increase or the creation of conditional or authorized capital. At year-end 2007, the2008, 2,932,580,549 shares were issued with a par value of CHF 0.10 each, leading to ordinary share capital wasof CHF 207,354,734.40293,258,054.90 (including shares issued for the capital increase out of authorized and conditional capital during 2007).
Conditional share capital
shares of CHF 6 billion in MCNs with maturity 9 June 2011 issued to the Swiss Confederation.
Authorized share capital
Changes of shareholders’ equity
è |
Shares, participation and bonus certificates,
capital securities
UBS shares are issued in registered form, traded and settled as so-called global registered shares. Each registered share
Ordinary share capital | ||||||||||||
Share capital | Number | Par value | ||||||||||
in CHF | of shares | in CHF | ||||||||||
As of 31 December 2006 | 210,527,329 | 2,105,273,286 | 0.10 | |||||||||
Share repurchase programs 2006 / 2007: | ||||||||||||
cancellation of shares upon annual general meeting decision of 18 April 2007 | (3,302,000 | ) | (33,020,000 | ) | 0.10 | |||||||
options excercised from conditional capital | 129,405 | 1,294,058 | 0.10 | |||||||||
As of 31 December 2007 | 207,354,734 | 2,073,547,344 | 0.10 | |||||||||
7
Corporate GovernanceCapital structure
has a par value of CHF 0.10 and carries one vote. Voting rights may, however, only be exercised if the holder expressly declares havingthat he or she acquired these shares in his or her own name and for his or her own account. Global registered shares provide direct and equal ownership for all shareholders, irrespective of the country and stock exchange in which they are traded at.
traded. Refer to the “Shareholders’ participation rights” section of this report for more information.
Ordinary share capital | ||||||||||||
Share capital | Number | Par value | ||||||||||
in CHF | of shares | in CHF | ||||||||||
On 31 December 2007 | 207,354,734 | 2,073,547,344 | 0.10 | |||||||||
Issue of shares for stock dividend | 9,869,875 | 98,698,754 | 0.10 | |||||||||
Issue of shares for capital increase (rights offering) | 76,029,518 | 760,295,181 | 0.10 | |||||||||
Issue of shares out of employee options exercised from conditional capital | 3,927 | 39,270 | 0.10 | |||||||||
On 31 December 2008 | 293,258,055 | 2,932,580,549 | 0.10 | |||||||||
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Corporate governance and compensation
Corporate governance
paid up and rankedeligible for dividends. There are no preferential rights for individual shareholders.
Limitation on transferability and nominee registration
UBS does not apply any restrictions or limitations on the transferability of its shares. Shares registered in the share register with voting rights may be voted without any restrictions, according to the provisions of the “Articles of Association of UBS AG” (which require an express declaration of beneficial ownership) may be voted without any limit in scope..
Convertible bonds and options
On 31 December 2007,2008, there were 236 million employee options outstanding, amounted to 185,993,330, of which a total of 90,453,625124 million were exercisable. UBS satisfies share delivery obligations under its option-based participation plans either by purchasing UBS shares in the market on grant date or shortly thereafter, or through the issuance of new shares out of conditional capital. At exercise, shares held in treasury or newly issued shares are delivered to the employee against receipt of the strike price. As ofOn 31 December 2007,2008, UBS was holdingheld approximately 14148.9 million shares in treasury and an additional 150 million unissued shares in conditional share capital, which arewere available and canto be used for future employee option exercises. The shares available cover all vested (i.e. exercisable) employee options.
è |
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Corporategovernanceandcompensation |
Corporate Governance
Board of Directors
Board of Directors
The Board of Directors (BoD) is the most senior body with ultimate responsibilityultimately responsible for the firm’s strategy and management of the company and for the supervision of its executive management. The shareholdersIt also approves the financial statements for issue. Shareholders elect each member of the Board of Directors,BoD, which in turn appoints its Chairman, at least one Vice Chairmanvice chairman and the members of its various committees.
Members of the Board of Directors
The text in the boxes belowThis section provides information on the composition of the Board of Directors (BoD) as ofBoD on 31 December 2007.2008. It shows each member’s functions in UBS, nationality, year of initial appointment to the BoD 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.
elected to their first term on the BoD, and Peter Kurer replaced Marcel Ospel as partfull-time Chairman of the changes in management announced inBoD. Stephan Haeringer, Rolf Meyer, Peter Spuhler and Lawrence A. Weinbach tendered their resignations effective 2 October 2007, Marco Suter stepped down from2008. At the extraordinary general meeting (EGM) held on 2 October 2008, Sally Bott, Rainer-Marc Frey, Bruno Gehrig and William G. Parrett were elected to the BoD to take upfor the positionfirst time.
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Chairman | ||
Professional history, education and date of birthMarcel Ospel has been Chairman of the Board of Directors (BoD) of UBS AG since 2001. Prior to this, he served as Group Chief Executive Officer (Group CEO) of UBS. He was the President and Group CEO of Swiss Bank Corporation (SBC) from 1996 to 1998. He was appointed 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 and holds an “Honorary Doctor of Laws Degree” of the University of Rochester. He was born on 8 February 1950.
Other activities and functionsMandates on boards of important corporations, organizations and foundations:Marcel Ospel is a member of the Monetary Authority of Singapore’s International Advisory Panel. 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.
Stephan Haeringer
Nationality | Swiss | |
Year of initial appointment | ||
Current term of office runs until | 2009 | |
Address | Fiat S.p.A. | |
Via Nizza 250 | ||
I-10126 Turin | ||
Function(s) in UBS | Independent vice chairman and senior independent director / member of the governance and nominating committee/member of the strategy committee | |
Nationality | Canadian and Italian | |
Year of initial appointment | 2007 | |
Current term of office runs until | 2010 | |
17 June 1952.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:foundations or interest groups:Stephan HaeringerSergio Marchionne is a member of the Board of the Helmut Horten Foundation, Croglio (Ticino, Switzerland), Chairman of the Foundation Board of the UBS Pension Fund, a member of the Board Committee of the Zurich Chamber of Commerce, a member of the German-Swiss Chamber of Commerce, a member of the “Institut International D’Etudes Bancaires”SGS and a member of the BoardBoD of TrusteesPhilip Morris International Inc., New York. He is also a member of the Goethe Business School, Frankfurt.Acea (European Automobile Manufacturers Association) and Chairman of CNH Case New Holland Global N.V.
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Address | Bemido SA | |
Avenue Giuseppe- | ||
Motta 31–33 | ||
PO Box 145 | ||
CH-1211 Geneva 20 | ||
Member of the | ||
Nationality | Swiss | |
Year of initial appointment | 2002 | |
Current term of office runs until | 2009 | |
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:foundations or interest groups:
Ernesto Bertarelli is Chairman of Team Alinghi SA (winner of the America’s Cup 2003 and 2007), Ecublens (Switzerland), and of Alinghi Holdings Ltd. Jersey. He is the Chairman of Kedge Capital Partners Ltd., Jersey of Team Alinghi SA, Ecublens (Switzerland), and of AlinghiKedge Capital Holdings Ltd, Jersey.(Jersey) Ltd., Switzerland. He was awarded two extraordinary national honors: the Légion d’honneur by President Chirac of France, and the Cavaliere di Gran Croce by Carlo Azeglio Ciampi, former President of the Italian Republic. He is a member of the strategic advisory board of Ecole Polytechnique Fédérale de Lausanne (EPFL) and holds various board mandates in professional organizations of the biotech and pharmaceutical industries.
Address | BP p.l.c. | |
1 St. James's Square | ||
GB-London SW1Y 4PD | ||
Function(s) in UBS | Member of the human resources and compensation committee / member of the corporate responsibility committee | |
Nationality | American (US) | |
Year of initial appointment | 2008 | |
Current term of office runs until | 2009 | |
Address | Horizon21 | |
Poststrasse 4 | ||
CH-8808 Pfaeffikon | ||
Function(s) in UBS | Member of the risk committee / member of the strategy committee | |
Nationality | Swiss | |
Year of initial appointment | 2008 | |
Current term of office runs until | 2009 | |
Address | Swiss Life | |
General-Guisan-Quai 40 | ||
Postfach | ||
CH-8022 Zurich | ||
Function(s) in UBS | Member of the audit committee | |
Nationality | Swiss | |
Year of initial appointment | 2008 | |
Current term of office runs until | 2009 | |
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Address | Lévy Kaufmann-Kohler | |
3-5, rue du | ||
Conseil-Général | ||
CH-1205 Geneva | ||
Nationality | Swiss | |
Year of initial appointment | 2006 | |
Current term of office runs until | 2009 | |
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:foundations or interest groups:
Gabrielle Kaufmann-Kohler is a member of the board of the American Arbitration Association.
Sergio Marchionne
Professional history, education and date of birthSergio Marchionne serves as CEO of Fiat S.p.A., Turin, and Fiat Group Automobiles. Sergio Marchionne began his professional career in 1983 as a Chartered Accountant and Tax Specialist for Deloitte & Touche in Canada. Two years later, he became Group Controller and then Director of Corporate Development at Lawson Mardon Group of Toronto. In 1989 and 1990, he served as Executive Vice President of Glenex Industries. In the following two years Sergio Marchionne acted as Vice President of Finance and Chief Financial Officer (CFO) at Acklands Ltd. He returned to Lawson Mardon Group in 1992 as Vice President of Legal and Corporate Development and CFO. The company was acquired by Alusuisse Lonza (Algroup) in 1994. After the acquisition he held various positions of increasing responsibility until 2000, after having become CEO in 1996. After completing the merger of Alusuisse with Alcan, he acted as CEO and Chairman of the spin-off Lonza Group Ltd. In 2002, Sergio Marchionne was appointed CEO of the Société Générale de Surveillance (SGS) Group of Geneva, and in early 2006 he became Chairman of the same company. He has been a member of the BoD of Fiat S.p.A. since 2003 and served as CEO of the company from June 2004 onwards. Sergio Marchionne studied philosophy at the University of Toronto, Canada, business at the University of Windsor, Canada, and law at Osgoode Hall Law School in Toronto, Canada, and is a lawyer and chartered accountant. He was born on 17 June 1952.
Other activities and functionsMandates on boards of important corporations, organizations and foundations:Sergio Marchionne is a member of the Supervisory Board of Hochtief AG.
Rolf A. Meyer
Professional history, education and date of birthRolf A. Meyer has been a member of the BoD of UBS and its predecessor, Union Bank of Switzerland, since 1992. He was Chairman and CEO of Ciba Specialty Chemicals Ltd. until November 2000. Today, he holds several board memberships. 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 CFO of the Group. After the merger of Ciba-Geigy and Sandoz to create Novartis, he led the spin-off of Ciba Specialty Chemicals. Mr Meyer graduated in Political Science (Ph.D.) and holds a Master of Business Administration (lic. oec. HSG). He was born on 31 October 1943.
Other activities and functionsMandates on boards of important corporations, organizations and foundations:Rolf A. Meyer is a member of the Board of Directors of DKSH AG (Diethelm Keller Siber Hegner), Zurich, and is the Chairman of its Audit and Finance Committee. He is also a member of the Board of Directors of Ascom (Switzerland) Ltd., Bern.
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Helmut Panke
Address | BMW AG | |
Petuelring 130 | ||
D-80788 Munich | ||
Nationality | German | |
Year of initial appointment | 2004 | |
Current term of office runs until | 2010 | |
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:foundations or interest groups:
Helmut Panke is a member of the Board of DirectorsBoD of Microsoft Corporation, Redmond, WA (USA) and is also a member of the supervisory board of Bayer AG (Germany).Permanent functions for important interest groups:Helmut Panke He is a member of the BoardBoD of Directors ofthe American Chamber of Commerce in Germany and a member of the International Advisory Boardinternational advisory board for Dubai International Capital’s “Global Strategic Equities Fund”.
Address | ||
New Canaan, | ||
Ct. 06840 USA | ||
Member of the | ||
Nationality | ||
Year of initial appointment | ||
Current term of office runs until | ||
4 June 1945.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:foundations or interest groups:Peter SpuhlerWilliam Parrett is an independent director of Eastman Kodak Co., Blackstone Group LP, and Thermo Fisher Scientific Inc., USA. He is also the Chairman of Stadler Rail AGthe BoD of the United States Council for International Business and of Stadler Bussnang AG, as well asUnited Way of various companies within the Stadler Rail Group. In addition, he isAmerica, a member of the Boardboard of Directorstrustees of Kühne Holding, Switzerland,Carnegie Hall, and Walo Bertschinger Central AG, Switzerland.Permanent functions for important interest groups:He is Vice President of LITRA, a Swiss organization based in Berne that provides informational services in the interests of public transport.Official functions and political mandates:Peter Spuhler is a member of the National CouncilExecutive Committee of the Swiss Parliament (lower house).International Chamber of Commerce.
Address | Apartment 26-O | |
25 Central Park West | ||
New York | ||
N.Y. 10023 USA | ||
Function(s) in UBS | Chair of the risk committee / member of the corporate responsibility committee | |
Nationality | American (US) and British | |
Year of initial appointment | 2008 | |
Current term of office runs until | 2009 | |
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Corporate governance
Address | Royal Dutch Shell plc | |
2501 AN NL-The Hague | ||
Nationality | Swiss | |
Year of initial appointment | 2005 | |
Current term of office runs until | ||
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:foundations or interest groups:PeterMr. Voser is a board member of the Federal Auditor Oversight Authority.
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Corporate GovernanceBoard of Directors
Lawrence A. Weinbach
Professional history, education and date of birthLawrence A. Weinbach is a partner of the Yankee Hill Capital Management LLC, a private equity firm based in Southport, CT (USA). He was Executive Chairman of Unisys Corporation until January 2006. From 1997 to 2004 he was Chairman, President and CEO of Unisys Corporation. 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 functionsMandates on boards of important corporations, organizations and foundations:Lawrence A. Weinbach is a member of the Board of Directors of Avon Products Inc., New York, where he is the ChairmanBoD of the Audit Committee. He is a trustee and member of the audit committee of Carnegie Hall, New York and a member of the Board of Directors of Quadra Realty Trust, Inc., New York and Discover Financial Services, Riverwoods, Illinois.Swiss Federal Auditor Oversight Authority.Permanent functions for important interest groups:Lawrence A. Weinbach is a member of the New York Stock Exchange Listed Company Advisory Committee and of the National Security Telecommunications Advisory Committee.
Address | DKSH Holding AG | |
Wiesenstrasse 8 | ||
CH-8034 Zurich | ||
Nationality | German and Swiss | |
Year of initial appointment | 2006 | |
Current term of office runs until | 2009 | |
Elections and terms of office
AllIn accordance with the membersnew article 19 (paragraph one) of the BoD are elected individually by the AGM for a term of office of three years. The initial term of each member is fixed in such a way as to ensure that about one-third of the membership have to be newly elected or reelected every year.
The boxes on the previous pages list the following for all BoD members: year of first appointment to |
Changes in 2008
The BoD will propose to the AGM on 23 April 2008 that Marcel Ospel, Peter Voser and Larry Weinbach, whose terms expire on the date of the AGM, be re-elected for a one-year term.
Organizational principles
The BoD has ultimate responsibility for the mid- and long-term strategic direction of the UBS Group (Group), for appointments and
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dismissals at top management levelslevel and for the definition of the firm’s risk principles and risk capacity. While the majority of members are always non-executive and independent, the Chairman of the BoD and at least one Vice Chairman have executive roles, in line with Swiss banking laws, and assume supervisory and leadership responsibilities.
Organizational structure
Internal organization, Board of Directors’committees and meetings in 2007
AfterFollowing each AGM, the BoD electsmeets to elect or appoint its Chairman, and one or more Vice Chairmenvice chairmen, the senior independent director and the members and chairs of its committees. The BoD appoints a company secretary who acts as secretary to the BoD and its Secretary. Itcommittees.
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total of 47 meetings were held together within 2008, of which 17 included Group Executive Board (GEB) members, 26 were without GEB participation, and four were independent BoD meetings held without the memberspresence of the GEB, as well as one telephone conference and a full-day strategy seminar. The BoD met nine times without participation of executive management.its Chairman. On average, 96%91% of the BoD members were present at theBoD meetings and 91%83% at private board meetings (i.e. without participation of executive management). In addition, the BoD held five ad-hoc meetings without GEB participation.
The BoD is organized as follows:
Chairman’s OfficeThe Chairman operates
the full BoD. In exceptional cases, and in consideration of the non-transferable and inalienable duties of the BoD under mandatory corporate law, urgent decisions falling within the authority of the BoD may be taken by the Chairman’s Office. Such decisions have to be reported to the full BoD as soon as possible.Audit committee
Audit CommitteeThe BoD appoints an Audit Committee withaudit committee comprises at least three independent BoD members, from among the non-executive, independent directors. The Audit Committee assists the BoD in monitoring the integrity of the financial statements of the firm, compliance with legal and regulatory requirements, the qualification, independence and performance of UBS’s external auditors and their lead partners, and the integrity of the systems of internal controls for financial reporting. Allall members of the Audit Committee havehaving been determined by the BoD as being fully independent and financially literate. Lawrence A. Weinbach,Peter R. Voser, the Audit Committee’s Chairman,committee’s chair, as well as Rolf A. Meyer and Peter Voserthe other two members, have accounting orand financial management expertise and are therefore considered “financial experts”, according to the rules established by the US Sarbanes-Oxley Act of 2002.
Group Controlling &and Accounting Headand the head of Group Accounting Policies and the Head Group Internal AuditPolicy participating. The sevensix meetings included regular separate sessions with these representatives.
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Corporate GovernanceBoard of Directors
In addition, the Group General Counsel attended one meeting. A special session was organized with the Group CEOCFO to discuss the annual financial results. All three membersParticipation at the meetings averaged 94% and all were held with external auditors present.
Corporate responsibility committee
Compensation Committee
BoD in fulfilling its duty to safeguard and advance the Group’s reputation for responsible corporate conduct and to assess developments in stakeholder expectations and their possible consequences for UBS. The Compensation Committee, comprisingcommittee comprises at least three non-executive, independentBoD members and, on 31 December 2008, Peter Kurer chaired the committee with Sally Bott, Gabrielle Kaufmann-Kohler and David Sidwell as its additional members. The committee is advised and supported by a number of senior business representatives. The committee met twice in 2008, with an average participation of 63%.
è | Refer to the “Corporate responsibility” section of this report for more information on corporate responsibility |
Governance and nominating committee
Human resources and compensation policy for submissioncommittee
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Corporate governance
and approve the succession planning for all executives (other than the Group CEO). The Compensation Committeehuman resources and compensation committee also reviews the compensation disclosure included in this report. The committee operates under the human resources and compensation committee charter, as described in the organization regulations and its annexes.
è | Refer to the “Compensation, shareholdings and loans” section of this report for more information on the BoD human resources and compensation committee’s decision-making procedures |
Risk committee
Nominating CommitteeThe Nominating Committee comprises at least three non- executive, independent directors. It assumes responsibility for defining the principles governing the selection of candidates for BoD membership, reviewing possible candidates and proposing to the full BoD those to be submitted for election to the BoD by the AGM. The committee supports the Chairman’s Office and the full BoD in evaluating the performance of the BoD and executive management.
Corporate Responsibility CommitteeUBS has a Corporate Responsibility Committee, normally consisting of six to ten members appointed by the BoD from among its members, the members of the GEB and the Group Managing Board (GMB). On an exceptional basis, external specialists may also be appointed as members of the committee.
The committee’s mandate is to discuss and judge the relevance of current or anticipated developments in stakeholder expectations related to responsible corporate conduct and their possible consequences for UBS. The committee suggests appropriate action to the GEB or other bodies in UBS. As of 31 December 2007, Stephan Haeringer chaired the committee. Additional members were Gabrielle Kaufmann-Kohler, representing the BoD, Peter Kurer, Group General Counsel, Marco Suter, Group CFO, Maria Bentley, Global Head Human Resources, Investment Bank, Gabriel Herrera, Head of Europe, Middle East & Africa, Global Asset Management, Thomas R. Hill, Chief Communication Officer, Corporate Center, Marten Hoekstra, Head Wealth Management Americas, Global Wealth Management & Business Banking, Jeremy Palmer, CEO Investment Bank in Europe, Middle East & Africa, Investment Bank and Kathryn Shih, Head Wealth Management Asia Pacific and CEO UBS Hong Kong, Global Wealth Management & Business Banking. The Corporate Responsibility Committee met twice during 20071 July 2008, with an average participation of 78%87%.
Strategy committee
decisions on the Group’s strategy; (ii) to monitor the implementation of the Group’s current strategy and report results to the BoD; (iii) to consider, in conjunction with the risk committee, the Group’s strategy to deal with anticipated or existing high-level risks; and (iv) to validate the Group’s current strategy with external experts where the committee considers such external advice to be appropriate.
Roles and responsibilities of executive members ofthe Board of Directors
Marcel Ospel and Stephan Haeringer, the Chairman of the BoD andBoard of Directors
Peter Kurer, the executive Vice Chairman, havehas entered into a full-time employment contractscontract with UBS AG in connection with their serviceshis service on the BoD and areis entitled to receive pension benefits upon retirement. They assumeHe assumes clearly defined management responsibilities.
Roles and responsibilities of the senior independent director
At least once per year, the senior independent director organizes and leads a meeting of the independent BoD members without the presence of the Chairman. The senior independent director reports to the Chairman of the BoD on the evaluation of the Chairman’s performance. The senior independent director acts as a contact point for shareholders wishing to engage in discussions with major clients.
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Non-executive members of the Board of Directors
Important business connections of non-executiveindependent members of the Board of Directors with UBS
UBS, as a global financial services provider and thea major bank in Switzerland, has business relationships with many large companies including those in which UBS BoD members assume management or non-executiveindependent board responsibilities. NoneThe nature of the relationships withbetween UBS and companies represented on the BoD by their chairmanwhose chair or chief executive is a member of a magnitude that jeopardizesUBS’s BoD is not considered to compromise the BoD members’ capacity for independent judgment; furthermore,judgment. Furthermore, no non-executive directorindependent BoD member has personal business relationships with UBS that could infringe oncompromise his or her independence.
Checks and balances: Board of Directors and Group Executive Board
Effective 1 July 2008, the separation of responsibilities between the BoD and executive management has been clarified. The BoD has a clear strategy-setting responsibility and will supervise and monitor the business, whereas the GEB, headed by the Group CEO, has executive management responsibility. UBS operates under a strict dual board structure, as mandated by Swiss banking law. The functions of Chairman of the BoD and Group Chief Executive Officer (Group CEO)CEO are assigned to two different people, thus providingensuring a separation of powers. This structure establishes checks and balances and creates anpreserves the institutional independence of the BoD from the day-to-day management of the firm, for which responsibility is delegated to the GEB.GEB under the leadership of the Group CEO. No member of one board may be a member of the other.
è |
Information and control instruments vis-à-vis the Group Executive Board
The BoD is kept informed of the activities of the GEB in various ways. The Chairman or the executive Vice Chairman participates in each meeting of the GEB in an advisory capacity, thus keeping the Chairman’s Office appraised of all current developments. The minutes of the GEB meetings are filed with the executive BoD members and made available for inspection to the non-executiveBoD members. At BoD meetings, the Group CEO and the GEB members of the GEB regularly update the BoD on important issues.
è |
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Corporate Governancegovernance and compensationGroup Executive BoardCorporate governance
Group Executive Board
Members of the Group Executive Board on
28 February 2009
The text in the boxes below provides information on the composition of the Group Executive Board (GEB) as of 31 December 2007.GEB on 28 February 2009. 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 andas well as official functions and political mandates.
Changes in 2008
On 23 April 2008, Peter Kurer stepped down as Group General Counsel (Group GC) and was replaced by Markus U. Diethelm on 1 September 2008. In the meantime, David Aufhauser, Neil Stocks and Bernhard Schmid acted as interim co-General Counsels while Peter Kurer retained an overall supervisory role over the team of the three General Counsels. This was accepted by the Swiss Financial Market Supervisory Authority as a transitional arrangement.
Changes in 2009
Francesco Morra and Juerg Zeltner have been appointed as CEOs of Wealth Management & Swiss Bank and as CEO Switzerland and CEO Wealth Management Global, respectively. They assumed their roles on 10 February 2009 and became members of the GEB at this date. As CEO Switzerland, Francesco Morra will head the wealth management business for domestic Swiss wealth management and private clients. As CEO Wealth Management Global, Juerg Zeltner will lead all UBS domestic wealth management businesses outside of Switzerland and the Americas. Marten Hoekstra heads the business division Wealth Management Americas and no longer assumes the role of deputy Chairman and CEO of Global Wealth Management & Business Banking. Clive Standish,Oswald J. Gruebel was named Group Chief Financial Officer, retiredCEO on 30 September 2007 and was replaced by Marco Suter,26 February 2009, replacing Marcel Rohner who stepped down from the Board of Directors (BoD). At the same time Huw Jenkins stepped down from the GEB and Marcel Rohner additionally assumed his position as Chairman andGroup CEO Investment Bank. Walter Stuerzinger was appointed Chief Operating Officer (COO) of Corporate Center and Joe Scoby Group Chief Risk Officer as of 1 October 2007.
Oswald J. Gruebel1 | M | Professional history, education and date of birth Oswald J. Gruebel was named UBS Group Chief Executive Officer (Group CEO) on 26 February 2009. Before joining UBS he was the CEO of Credit Suisse Group and of Credit Suisse and stepped down from this role in May 2007. He was CEO of Credit Suisse Financial Services from 2002 to 2004 and was additionally Co-CEO of Credit Suisse Group from 2003 until 2004. Mr. Gruebel was a member of the Credit Suisse Group Executive Board (GEB) between 1997 and 2001 and again from 2002 to 2007. From 1991 until 1997 he was member of the Executive Board of Credit Suisse, responsible for equities, fixed income, global foreign exchange, money markets and asset/liability management in Zurich. Before that he was a member of the GEB, Financière Credit Suisse First Boston in Zug. In 1970 Mr. Gruebel joined White Weld Securities and became its CEO in 1978. From 1961 to 1970 he worked for Deutsche Bank AG. He was born on 23 November 1943. | ||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | |||
Function(s) in UBS | Group Chief Executive | |||
Officer | ||||
Nationality | German | |||
Year of initial appointment | 2009 | |||
1 Oswald J. Gruebel was named Group CEO on 26 February 2009, replacing Marcel Rohner who stepped down as Group CEO on that date. |
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John Cryan | M | Professional history, education and date of birth John Cryan, formerly global head of the financial institutions group at UBS’s Investment Bank, was appointed Group CFO in September 2008. As an alumnus of Arthur Andersen & Co, Mr. Cryan joined S.G. Warburg in London in 1987. Since 1992, he has specialized in providing strategic and financial advice to a wide range of companies in the financial services sector globally. In recent months, he has played an active role in advising UBS’s Board of Directors (BoD) and Group Executive Board (GEB) on issues related to the current financial crisis. Mr. Cryan graduated in 1981 and holds an MA Hons from the University of Cambridge. He was born on 16 December 1960. | ||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | |||
Function(s) in UBS | Group Chief Financial Officer (Group CFO) | |||
Nationality | British | |||
Year of initial appointment | 2008 | |||
Markus U. Diethelm | M | Professional history, education and date of birth Markus U. Diethelm was appointed Group General Counsel of UBS on 1 September 2008. From 1998 to 2008, he worked for Swiss Re. He started his career in 1983 with Bär & Karrer, a Zurich law firm. In 1988, he joined Paul, Weiss, Rifkind, Wharton & Garrison in New York as a foreign associate. As of 1989, he practiced with New York’s Shearman & Sterling, specializing in mergers and acquisitions. In 1992 he joined the Los Angeles-based law firm Gibson, Dunn & Crutcher, focusing on corporate matters, securities transactions, litigation and regulatory investigations while operating out of the firm’s Brussels and Paris offices. He joined Swiss Re in 1998 as Group Chief Legal Officer and was appointed to its GEB effective 1 January 2007. Mr. Diethelm holds a law degree from the University of Zurich and a Masters degree and PhD from the law school at Stanford University. He is a qualified attorney-at-law in Switzerland and admitted to the New York Bar. He was born on 22 October 1957. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Markus U. Diethelm is the Chairman of the legal committee of the Swiss American Chamber of Commerce. | ||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | |||
Function(s) in UBS | Group General Counsel | |||
Nationality | Swiss | |||
Year of initial appointment | 2008 | |||
John A. Fraser | M | Professional history, education and date of birth John A. Fraser was appointed Chairman and CEO of the Global Asset Management division in late 2001. Prior to that, he was President and COO of UBS Asset Management and Head of Asia Pacific. In 2008, he became Chairman of UBS Saudi Arabia. From 1994 to 1998, he was Executive Chairman and CEO of The Australia Funds Management business. Before joining UBS, Mr. Fraser spent over 20 years in various positions at the Australian Treasury, including two international postings to Washington D.C., 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 from 1990 to 1993. 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. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: John A. Fraser is a member of the Board of Governors of the Marymount International School at Kingston-upon-Thames in the UK. | ||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | |||
CEO Global Asset Management | ||||
Nationality | ||||
Year of initial appointment | 2002 | |||
Professional history, education and date of birthMarcel Rohner was appointed Group Chief Executive Officer (Group CEO) on 6 July 2007 and Chairman & CEO Investment Bank on 1 October 2007. He became a member of the Group Executive Board (GEB) in 2002. Between 2002 and 2007, he was CEO of Wealth Management & Business Banking and additionally named Chairman in 2004. Before that, in 2001 and 2002, he was Chief Operating Officer (COO) and Deputy CEO of the Private Banking unit of UBS Switzerland. In 1999, he was named Group Chief Risk Officer (Group CRO), 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 and 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 functionsPermanent functions for important interest groups:Marcel Rohner is Vice Chairman of the Swiss Bankers Association, Basel and the Vice Chairman of the Board of Trustees of the Swiss Finance Institute.
Marten Hoekstra | M | Professional history, education and date of birth On 12 November 2008, Marten Hoekstra assumed the duties of Raoul Weil, as Chairman and CEO Global Wealth Management & Business Banking, on an interim basis. He was appointed head of Wealth Management US in July 2005 and Deputy CEO Global Wealth Management & Business Banking in November 2007. Between 2001 and 2005, he assumed different management roles in Global Wealth Management & Business Banking, including head of market strategy and development, and in July 2002 became a member of the Group Managing Board. Previously, from 1983 to 2000, he held various roles with PaineWebber, including that of financial advisor. Mr. Hoekstra graduated with a BA in political science from the University of North Dakota and received his MBA from the Kellogg Graduate School of Management at Northwestern University. He was born on 21 May 1961. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Marten Hoekstra is a member of the BoD of Prisoner Fellowship Ministries and of the Zurich International School Foundation, both non-profit organizations. He is also a member of the BoD of the Securities Industry & Financial Markets Association (SIFMA). | ||
Address | UBS AG | |||
Bahnhofstrasse 45 | ||||
CH-8098 Zurich | ||||
Professional history, education and date of birthJohn A. Fraser was appointed as Chairman and CEO of the Global Asset Management Business Group in late 2001. 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.
Other activities and functionsMandates on boards of important corporations, organizations and foundations:John A. Fraser is a member of the board of the Marymount International School at Kingston-upon-Thames.
16
Professional history, education and date of birthPeter 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 the Zurich office of Baker & McKenzie law firm, first as associate, later as partner, 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 functionsPermanent functions for important interest groups:Peter Kurer is a member of the Visiting Committee to the Law School of The University of Chicago, a member of the Board of Trustees of a foundation which acts as an advisory board to the University of St. Gallen Program for law and economics, and a member of the Committee of Continuing Education, Executive School of Management, Technology and Law, University of St. Gallen.
Professional history, education and date of birthJoe Scoby was appointed Group CRO and became a member of the GEB in October 2007. Prior to this appointment, he was Global Head of Alternative and Quantitative Investments (A&Q), an alternative investment platform in UBS’s asset management business between 2003 and 2007. Previously, between 2000 and 2003, he headed O’Connor, a specialist hedge fund provider within the same alternative investment platform. From 1995-1999, he was the Joint Head of US Equities at UBS’s Investment Bank. Joseph Scoby began his career with O’Connor and Associates in 1987 and became a Managing Director in 1993. He has a Bachelor’s degree in Finance from Wharton School and a Master’s degree in Regional Science from the University of Pennsylvania. He was born on 23 April 1965.
Other activities and functionsMandates on boards of important corporations, organizations and foundations:Joe Scoby is a member of the Wharton School Undergraduate Executive Board, a member of the Board of Chicago’s After School Matters and a member of the Board of Children’s Memorial Hospital. He was the founder of St. Joseph Club in Chicago.
Professional history, education and date of birthWalter Stuerzinger became a member of the GEB in 2005. He was appointed COO, Corporate Center in October 2007. Prior to that, he was Group CRO from 2001 until 2007 and Head Group Internal Audit from 1998 until 2001. Before the merger, he was Head Group Internal Audit at the former Union Bank of Switzerland. Previously, he worked with Credit Suisse on various assignments in the controlling and auditing areas. Walter Stuerzinger holds a Swiss banking diploma and is a member of the Institute of Chartered Accountants. He was born on 6 July 1955.
Other activities and functionsPermanent functions for important interest groups:Walter Stuerzinger is a member of the Foundation Board of the UBS Pension Fund.
Professional history, education and date of birthMarco Suter was appointed Group Chief Financial Officer and became a member of the GEB in October 2007. Prior to this appointment, he was elected as a member of the Board of Directors at the annual general meeting in April 2005 and thereafter appointed as Executive Vice Chairman. Marco Suter has been with UBS and its predecessor, Swiss Bank Corporation (SBC), since 1974. Between 1999 and 2005, he was Group Chief Credit Officer and a member of the Group Managing Board. From 1996 until the merger of SBC and Union Bank of Switzerland in 1998 he served as regional manager of the Zurich-Eastern Switzerland-Ticino area for the corporate and commercial banking activities of SBC. Prior to that, he held various management positions in SBC’s investment banking operations, first as the Continental European Head of Merchant Banking and later as the Chief Credit Officer for EMEA. Mr Suter graduated from the Commercial School in St. Gallen. He was born on 7 May 1958.
Other activities and functionsMandates on boards of important corporations, organizations and foundations:Marco Suter is a member of the Swiss Institute of International Studies (SIAF), the Latin-American Chamber of Commerce (Switzerland), the Swiss-Chinese Chamber of Commerce and the IIF Special Committee on Crises Prevention and Resolution in Emerging Markets.
17
Corporate GovernanceGroup Executive Board
Professional history, education and date of birthRory Tapner became a member of the GEB in January 2006. He was appointed Chairman and CEO Asia Pacific in May 2004. Previously, he was Joint Global Head of Investment Banking. From 1983 to 1998, he was with S.G. Warburg and Warburg Dillon Read as Global Head of Equity Capital Markets, Joint Head of UK Corporate Finance and Head of UK Capital Markets Team. He also was a member of the Warburg Dillon Read Executive Board. Rory Tapner has a law degree from Kings College, London University and went to Lancaster Gate Law School. Mr Tapner was born on 30 September 1959.
Other activities and functionsMandates on boards of important corporations, organizations and foundations:Rory Tapner is the treasurer and Chairman of the Financial Committee of Council of Kings College University, London.
Professional history, education and date of birthRaoul Weil was appointed Chairman and CEO Global Wealth Management & Business Banking on 6 July 2007. He was Head of Wealth Management International between 2002 and 2007 and was appointed to the GEB in July 2005. Previous to that, he assumed different management roles in the Private Banking Division in Asia and Europe. Between 1984 and 1998, Mr Weil was with SBC, holding various assignments within the Private Banking Division in Basel, Zurich, Monaco and New York. He graduated with a degree in economics from the University of Basel and was born on 13 November 1959.
18
Changes in 2008
Jerker Johannsson has been appointed as Chairman and CEO of the Investment Bank. He took on the role on 17 March 2008, joining UBS from Morgan Stanley, where he was Vice Chairman Europe. He will become a member of the GEB at this date.
Nationality | American (US) | ||
Year of initial appointment | 2008 | ||
207
M | ||||
Jerker Johansson | M | Professional history, education and date of birth Jerker Johansson joined UBS and was named Chairman and CEO of the UBS Investment Bank on 13 February 2008. Previously he was vice chairman of Morgan Stanley Europe, and a member of its management committee. From 2005 to 2007, he was head of Morgan Stanley’s institutional equity division. In 2005, he was also named co-head of the combined sales and trading business, consisting of the institutional equity division and the fixed income division. In 2007, he became co-head of sales and trading with responsibility for clients and services, continuing his responsibility for prime brokerage and becoming solely responsible for the sales and trading side of capital markets. Mr. Johansson joined Morgan Stanley in 1985 as a summer associate and held various positions including head of equity capital markets Europe before being promoted in 1997 to COO, institutional equity division Europe. He was also a member of the European management committee. From 2002 to 2005, he was head of the institutional equity division in Europe. Before joining Morgan Stanley, Mr. Johansson was part of Bankers Trust’s Graduate Training Program, and also worked for Chase Manhattan Bank. He holds a Masters degree in economics from Stockholm University and an MBA from Stanford. He was born on 19 May 1956. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Jerker Johansson is a member of the Stanford Business School advisory board, a trustee of Tower Hamlets Educational Business Partnership and a Business Leader at Community Links, London. | ||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | |||
Function(s) in UBS | Chairman and CEO of the UBS Investment Bank | |||
Nationality | Swedish | |||
Year of initial appointment | 2008 | |||
Philip J. Lofts | M | Professional history, education and date of birth Philip J. Lofts, formerly deputy Group CRO and Group risk Group chief operating officer, was appointed Group CRO as of November 2008. He has been with UBS for over 20 years. In 2008, he became Group risk chief operating officer after having previously been Group chief credit officer for three years. Before this, Mr. Lofts worked for the Investment Bank in a number of business and risk control positions in Europe, Asia Pacific and the US. He was born on 9 April 1962. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Lofts is a member of the foundation board of the University of Connecticut. | ||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | |||
Function(s) in UBS | Group CRO | |||
Nationality | British | |||
Year of initial appointment | 2008 | |||
Francesco Morra | M | Professional history, education and date of birth Francesco Morra was appointed CEO Switzerland and became a member of the GEB in February 2009. In November 2007, he was appointed Head of Wealth Management | ||
Address | Bahnhofstrasse 45 CH-8098 Zurich | |||
Function(s) in UBS | CEO Switzerland | |||
Nationality | Swiss and Italian | |||
Year of initial appointment | 20091 | |||
1 Appointed on 10 February 2009. | ||||
Walter H. Stuerzinger | M | Professional history, education and date of birth Walter H. Stuerzinger was appointed COO Corporate Center in October 2007. Prior to that, he was Group CRO from 2001 until 2007 and head of Group Internal Audit from 1998 until 2001. Before the merger with SBC, he was head of Group Internal Audit at the former Union Bank of Switzerland. Previously he worked with Credit Suisse on various assignments in the controlling and auditing areas. Mr. Stuerzinger holds a Swiss banking diploma and is a member of the Institute of Chartered Accountants. He was born on 6 July 1955. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Walter H. Stuerzinger is a member of the foundation board of the UBS Pension Fund. | ||
Address | UBS AG | |||
Bahnhofstrasse 45 | ||||
CH-8098 Zurich | ||||
Function(s) in UBS | COO Corporate Center | |||
Nationality | Swiss | |||
Year of initial appointment | 2005 | |||
Rory Tapner | M | Professional history, education and date of birth Rory Tapner was appointed Chairman and CEO Asia Pacific in May 2004. Previously he was Joint Global Head of Investment Banking. From 1983 to 1998 he was with S.G. Warburg and Warburg Dillon Read as global head of equity capital markets, joint head of UK corporate finance and head of the UK capital markets team. He was also a member of the Warburg Dillon Read executive board. Mr. Tapner has a law degree from Kings College, London University and went to Lancaster Gate Law School. Mr. Tapner was born on 30 September 1959. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Rory Tapner is the treasurer and Chairman of the financial committee of Council of Kings College, London University. | ||
Address | UBS AG | |||
Bahnhofstrasse 45 | ||||
CH-8098 Zurich | ||||
Function(s) in UBS | Chairman and CEO Asia Pacific | |||
Nationality | British | |||
Year of initial appointment | 2006 | |||
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Corporate governance and compensation |
Alexander Wilmot-Sitwell | M | Professional history, education and date of birth In January 2008, Alexander Wilmot-Sitwell became Joint Global Head of Investment Banking Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Alexander Wilmot-Sitwell is vice president of the “Save the Children Fund”, London. | ||
Address | ||||
Bahnhofstrasse 45 | ||||
CH-8098 Zurich | ||||
Function(s) in UBS | Joint Global Head of Investment Banking, Chairman and CEO of UBS Group | |||
Nationality | British | |||
Year of initial appointment | 2008 | |||
Robert Wolf | M | Professional history, education and date of birth Robert Wolf was appointed President of the UBS Investment Bank in 2007 and was COO of the UBS Investment Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Robert Wolf is a member of the undergraduate executive board of Wharton School, of the athletics board of overseers of UPENN and of the Financial Services Round Table. Mr. Wolf is a member of the Council on Foreign Relations and of the committee encouraging corporate philanthropy. He is in the executive leadership council of the Multiple Myeloma Research Foundation, Norwalk, CT, and on the board of trustees of the Children’s Aid Society, New York. | ||
Address | UBS AG | |||
Bahnhofstrasse 45 | ||||
CH-8098 Zurich | ||||
Function(s) in UBS | Chairman and CEO of UBS Group Americas, President of the UBS Investment Bank | |||
Nationality | American (US) | |||
Year of initial appointment | 2008 | |||
Juerg Zeltner | M | Professional history, education and date of birth Juerg Zeltner was appointed CEO Wealth Management Global and became a member of the GEB in February 2009. In November 2007, he was appointed Head of Wealth Management North, East & Central Europe and became a member of the Group Managing Board in the same year. From 2005 to 2008, he was CEO of UBS Deutschland AG, Frankfurt and became CEO of all UBS business in Benelux, Germany and Central Europe in 2007. Prior to that, he held various management positions in the Private Banking Division of UBS. Between 1987 and 1998, Juerg Zeltner was with SBC in various roles within the Private and Corporate Client Division in Bern, New York and Zurich. He graduated from the School of Economics and Business Administration in Bern and completed the Advanced Management Program at Harvard Business School. He was born on 4 May 1967. | ||
Address | UBS AG | |||
Bahnhofstrasse 45 | ||||
CH-8098 Zurich | ||||
Function(s) in UBS | CEO Wealth Management Global | |||
Nationality | Swiss | |||
Year of initial appointment | 20091 | |||
1 Appointed on 10 February 2009. |
Establishment of the Executive Committee
The Executive Committee (EC) was established on 1 January 2009. The EC consists of the Group CEO, the Group CFO, the Group CRO and the Group GC. Under the leadership of the Group CEO, the EC is responsible for the allocation of the UBS Group’s financial resources to the business divisions – i.e. the capital, the terms and availability of funding and the risk capacity and parameters, in each case within the limits set by the BoD. Additionally, the EC sets the performance targets of the business divisions and then monitors and evaluates them. Under the auspices of the Group CEO, the EC prepares proposals for approval by the BoD and supports the BoD in its decision-making process. The EC has overall responsibility for implementing UBS’s risk management and control principles, allocating risk capacity to the business divisions and controlling the firm’s overall risk profile.
Responsibilities, authorities and organizational
principles of the GEB
TheUnder the leadership of the Group CEO, the GEB has executive management responsibility for the Group and is accountable to the BoD for the firm’s results. Together with the Chairman’s Office, theits business. The GEB assumes overall responsibility for the development and implementation of UBS’s strategies.strategies for the Group and business divisions. The GEB, in particular the Group 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. Through its Risk Subcommittee, the GEB assumes responsibility for the Group’s risk control standards, concepts, methodologies and limits.strategies. The GEB plays a key role in defining the human resources policy and the compensation principles of the Group. It also fosters an entrepreneurial leadership spirit throughout the firm.
è | Refer to the |
Management contracts
UBS has not entered into management contracts with any third parties.
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Principles
RigorousCorporate governance and approval processto ensure that no one participates in any decision affecting his or her own compensation
Corporate governance
Senior leadership
Shareholder alignment:a minimum
The Group Managing Board (GMB) comprises members of business division and Corporate Center management and individuals assuming special Group functions. In the first half of 2009, the annual incentive compensation is paid inGMB will be dissolved and replaced by a new group of senior leaders reflecting the form of UBS shares. Stock options are awarded with a 10% price hurdle. In addition, UBS has the highest share ownership requirements for senior executives in its peer group
Pay-for-performance:performance is the primary driver of compensation decisions
Transparent decision-making process,based onresponsibilities at Group, divisional and business group performance as well as individual performance and contribution to pre-defined targetsregional levels.
Compensation in 2007
67% decrease in total senior executive compensation.This reflects the losses occurred on specific trading positions in 2007, which led to an overall net loss for the Group as a whole, but also the strong performance in UBS’s client-driven businesses
No stock optionswere awarded to senior executives for the 2007 performance year
No incentive awardwas granted to executive members of the Board of Directors as their incentive award is dependent on overall Group financial performance
20210
21
Corporate GovernanceCompensation, shareholdings and loans
Compensation, shareholdings and loans
UBS’s competitive strength depends on its ability to attract, retain and motivate the most talented people in financial services. The policies established by the Board of Directors’ Compensation Committee create incentives to promote a performance-driven culture, adhere to ethical values and support the firm’s integrated business strategy. Compensation of senior executives is linked to the creation of long-term value and sustainable shareholder returns.
Compensation Committee
The Compensation Committee is made up of three non-executive, independent members of the Board of Directors (BoD). As of 31 December 2007, these were Rolf A. Meyer (Chairman of the Compensation Committee), Sergio Marchionne and Peter Spuhler.
Governance, authorities and responsibilitiesUBS has long been committed to the highest standards of corporate governance. The approval of senior executive compensation follows a rigorous process designed to ensure that no one participates in any decision affecting his or her own compensation.
members of the Group Executive Board (GEB) (senior executives) – the Compensation Committee has responsibilities in five key areas:
22
ActivitiesDuring 2007, the Compensation Committee carried out:
Senior executive compensation policy
PrinciplesTwo related principles govern the firm’s senior executive compensation framework (and, indeed, the compensation of all UBS employees): creation of shareholder value and pay-for-performance. Specifically:
quired to execute UBS’s integrated business strategy. In addition, the Compensation Committee verifies whether the senior executive fulfilled their objectives and key performance indicators (KPIs), including the importance of maintaining and spreading UBS’s ethical values throughout the firm.
Shareholder alignmentThe Compensation Committee structures senior executive compensation to ensure alignment with shareholder interests and long-term value creation. Specifically:
23
Corporate GovernanceCompensation, shareholdings and loans
Corporate governance and | ||
Employment agreements and contractual paymentsThe Compensation Committee regularly reviews the individual employment agreements of senior executives. To protect UBS’s franchise and competitive position, these contracts provide for a general 12-month notice period, in compliance with leading corporate governance guidelines and international best-practice procedures. During the notice period, the senior executive is generally prohibited from working in any competitive position in the financial services industry and from soliciting UBS staff or clients. In recognition of these restrictions, the senior executive is entitled to receive base salary, pro rata incentive and certain employment benefits until expiry of the notice period, unless the senior executive has been terminated for cause.
Pay-for-performancePerformance is the primary driver of compensation decisions. UBS is committed to providing superior compensation in return for superior performance and continually develops the benchmarks and processes that support informed compensation decision-making.
focus on clients, economics, technical expertise, leadership, cross-business cooperation, strategic impact, risk management and personal contribution. KPIs vary by business and by individual and typically include such measures as revenue growth, net profit, return on equity, return on assets, cost / income ratio, net new money, progress on strategic initiatives and adherence to UBS values.
Elements of compensationThe total compensation framework for senior executives comprises four elements: base salary, annual incentive, discretionary stock option awards and benefits.
24
Base salaries
Base salaries are established in a manner consistent with the role of each senior executive. Base salary adjustments are limited to significant changes in job responsibility.
Annual incentive awards
Each annual incentive award is assessed according to the individual’s achievement of his or her personal objectives and key performance indicators. All senior executives are considered for an annual incentive award provided performance targets are achieved, but with a few rare exceptions (for example, competitive practice or business strategy), annual incentives are completely discretionary and can vary considerably, both from individual-to-individual and from year-to-year.
Discretionary stock option awards
Stock options help align executive performance with long-term shareholder interests, since they deliver value only to the degree the share price appreciates more than 10% after grant.At UBS, discretionary stock option awards reward the individual’s contribution to the overall success of the firm. They are complementary to the annual incentive award, a reflection of the success of UBS’s integrated business model.
Benefits
UBS provides benefits to help attract and retain the best employees in each local market. Changes, terminations and the introduction of new benefits are governed by the procedures contained in the “Organization Regulations of UBS AG”. Benefits are a supplemental element of total compensation and vary substantially from location to location. Retirement plan benefits: in Switzerland, senior executives participate in the firm’s general pension plan made up of three elements: (1) a basic component operated on the defined contribution principle; (2) a savings plan to bridge the income gap between UBS retirement age and the age defined for the start of social security payments; and (3) a defined contribution bonus plan.
25
Corporate GovernanceCompensation, shareholdings and loans
Senior executive equity ownership plan (SEEOP)Under SEEOP, senior executives typically receive a minimum of 50% of their annual incentive award in the form of UBS shares. (The amount is subject to the discretion of the Compensation Committee). Wherever practical, senior executives receive actual UBS shares with the same rights as ordinary shareholders. Shares are denominated either in Swiss francs or US dollars depending on the currency of the executive’s incentive.
Senior executive stock option plan (SESOP)Discretionary stock option awards are a long-term incentive recognizing individual contributions to Group and business group performance, exceptional contribution to cross-business cooperation and integration, outstanding achievement, personal performance or commitment to UBS, outstanding professional and technical expertise and Group-wide strategic leadership skills and potential.
Key elements for decision-making processwithin the Compensation Committee
Actual process and decisions takenThe Compensation Committee makes decisions on individual senior executive compensation based on:
Key competitorsCompensation and benefit levels are primarily result-driven and further benchmarked against appropriate key competitors. These companies are selected for the similarity of their core business to that of UBS, as well as for comparable size, geographic distribution, business strategy and performance.
26
Typically, these are also the companies from which UBS is most likely to hire and to which it is most likely to lose senior employees. Competitive compensation at a senior level is therefore a vital element in preventing the loss of leadership talent and experience from UBS to its competitors. Generally nine key competitors are considered to represent the most relevant labor market for senior executive compensation: Credit Suisse, Deutsche Bank, Bear Stearns, Citigroup, Gold-man Sachs, JPMorgan Chase, Lehman Brothers, Merrill Lynch and Morgan Stanley. In the view of the Compensation Committee, UBS’s compensation systems are positioned appropriately relative to these nine key competitors. For certain positions and for purposes of other analysis (including the best practice review), additional competitors may be taken into account (such as other major international banks, the large Swiss private banks, private equity firms and hedge funds, which are increasingly becoming attractive alternatives for UBS employees).
Determination of 2007 incentive targetsIn February 2007, the Compensation Committee defined personal incentive targets for each senior executive. Beginning with the individual incentive award for 2006, the Compensation Committee then applied the following steps:
Determination of 2007 actual incentivesIn early February 2008, actual 2007 results were assessed against the 2007 forecast (UBS’s Group and business group financial targets) as well as against similar metrics of key competitors. Incentive awards of senior executives in Global Wealth Management & Business Banking, Global Asset Management and the Investment Bank were based equally on the financial performance of the Group overall and the results of the respective business group (on a 50:50 ratio). Incentive awards for executives at Group level and in Corporate Center were based fully on Group performance. These measurements and assessments resulted in afixed theoreticalincentive award for each senior executive.
27
Corporate GovernanceCompensation, shareholdings and loans
Performance factors used to determine 2007senior executive compensationThe Compensation Committee considered the following factors when determining incentive awards for senior executives:
Performance factors exceeding 2007 target
Performance factors below target
Other performance factors taken into account
28
29
Corporate GovernanceCompensation, shareholdings and loans
Actual 2007 compensation for members of the Board of Directors and the Group Executive Board
Actual 2007 compensation for members of theBoard of Directors
Compensation of the Chairman of the Board of Directors
Total compensation for Chairman of the BoD, Marcel Ospel, the highest-paid member of the BoD, amounted to CHF 2,568,379 for the 2007 financial year, a decrease of 90% over his total compensation in 2006.
Compensation for executive members of theBoard of Directors
Compensation details and additional information for executive members of the Board of Directors1
CHF, except where indicateda | ||||||||||||||||||||||||||||||||
Annual incentive | Discretionary | Contributions | ||||||||||||||||||||||||||||||
Annual incentive | award (shares; | award (options; | Benefits | to retirement | ||||||||||||||||||||||||||||
Name, function2 | For the year | Base salary | award (cash) | fair value)b | fair value)c | in kindd | benefits planse | Total | ||||||||||||||||||||||||
Marcel Ospel, Chairman | 2007 | 2,000,000 | 0 | 0 | 0 | 307,310 | 261,069 | 2,568,379 | ||||||||||||||||||||||||
Stephan Haeringer, Executive Vice Chairman | 2007 | 1,500,000 | 0 | 0 | 0 | 111,808 | 261,069 | 1,872,877 | ||||||||||||||||||||||||
Marco Suter, Executive Vice Chairman | 2007 | 1,125,000 | 0 | 0 | 0 | 70,820 | 155,252 | 1,351,072 | ||||||||||||||||||||||||
Remuneration details and additional information for non-executive members of the Board of Directors1
CHF, except where indicateda | ||||||||||||||||||||||||||||||||||||||||||||||||
Corporate | For the | |||||||||||||||||||||||||||||||||||||||||||||||
Audit | Compensation | Nominating | Responsibility | period AGM | Committee | Benefits | Additional | Share | Number of | |||||||||||||||||||||||||||||||||||||||
Name, function2 | Committee | Committee | Committee | Committee | 2007 / 2008 | Base fee | retainer | in kind | payments | Total | percentage | shares3 | ||||||||||||||||||||||||||||||||||||
Ernesto Bertarelli, member | M | 2007/2008 | 325,000 | 150,000 | 0 | 0 | 475,000 | 100 | 14,677 | |||||||||||||||||||||||||||||||||||||||
Gabrielle Kaufmann- Kohler, member | M | M | 2007/2008 | 325,000 | 250,000 | 0 | 0 | 575,000 | 50 | 9,349 | ||||||||||||||||||||||||||||||||||||||
Sergio Marchionne, member | M | 2007/2008 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 16,226 | |||||||||||||||||||||||||||||||||||||||
Rolf A. Meyer, member | M | C | 2007/2008 | 325,000 | 650,000 | 0 | 0 | 975,000 | 50 | 15,853 | ||||||||||||||||||||||||||||||||||||||
Helmut Panke, member | C | 2007/2008 | 325,000 | 250,000 | 0 | 0 | 575,000 | 50 | 9,349 | |||||||||||||||||||||||||||||||||||||||
Peter Spuhler, member | M | 2007/2008 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 16,226 | |||||||||||||||||||||||||||||||||||||||
Peter Voser, member | M | 2007/2008 | 325,000 | 300,000 | 0 | 0 | 625,000 | 50 | 10,162 | |||||||||||||||||||||||||||||||||||||||
Lawrence A. Weinbach, member | C | 2007/2008 | 325,000 | 600,000 | 0 | 0 | 925,000 | 50 | 15,040 | |||||||||||||||||||||||||||||||||||||||
Joerg Wolle, member | M | 2007/2008 | 325,000 | 150,000 | 0 | 0 | 475,000 | 100 | 14,677 | |||||||||||||||||||||||||||||||||||||||
Legend:C = Chairman of the respective committee; M = Member of the respective committee
1 Individual compensation figures for the previous period will be disclosed from 2008 onwards. 2 There are nine non-executive members of the Board of Directors in office as of 31 December 2007. Sergio Marchionne was appointed to the Board of Directors at the 2007 annual general meeting. 3 Number of shares is reduced in case of the 100% election to deduct social security contribution. All remuneration payments are submitted to social security contribution / taxes at source.
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Total payments to all members of the Board of Directors1
CHF, except where indicateda | For the year2 | Total | ||||||
Aggregate of all (executive and non-executive) members of the Board of Directors | 2007 | 11,467,328 | ||||||
Payments to non-executive members of theBoard of Directors
Actual 2007 compensation for members of theGroup Executive Board
ner was appointed Group CEO with effect from 6 July 2007, while Raoul Weil became Chairman and CEO of Global Wealth Management & Business Banking on the same date. On 1 October 2007, Walter Stuerzinger was appointed Chief Operating Officer of Corporate Center, Marco Suter stepped down from the BoD to take up the position of Chief Financial Officer, and Joseph Scoby was appointed to the GEB as Group Chief Risk Officer.
Highest total compensation for a Group ExecutiveBoard member
Total compensation for all members of the Group Executive Board1
CHF, except where indicateda | ||||||||||||||||||||||||||||||||
Annual | Discretionary | Contributions | ||||||||||||||||||||||||||||||
Annual | incentive | award | to retirement | |||||||||||||||||||||||||||||
incentive | award (shares; | (options; | Benefits in | benefits | ||||||||||||||||||||||||||||
Name, function | For the year | Base salary | award (cash) | fair value)b | fair value)c | kindd | planse | Total | ||||||||||||||||||||||||
Rory Tapner, Chairman and Chief Executive | ||||||||||||||||||||||||||||||||
Officer Asia Pacific (highest-paid) | 2007 | 1,291,960 | 4,501,900 | 4,501,904 | 0 | 10,256 | 900 | 10,306,920 | ||||||||||||||||||||||||
Aggregate of all members of the Group Executive Board (GEB) who were in office as of 31 December 20072 | 2007 | 6,995,885 | 15,305,667 | 15,305,708 | 0 | 532,706 | 912,974 | 39,052,939 | ||||||||||||||||||||||||
Aggregate of all members of the GEB who stepped down during 20073 | 2007 | 2,511,947 | 23,042,376 | 6,750,036 | 0 | 406,567 | 275,635 | 32,986,561 | ||||||||||||||||||||||||
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Corporate GovernanceCompensation, shareholdings and loans
Under Rory Tapner’s leadership, UBS has become a dominant participant in the Asia Pacific financial sector. In 2007, UBS’s businesses in Asia Pacific made a record contribution to the Group’s global revenues. UBS is the pre-eminent wealth manager in the region and won a number of significant regional awards during 2007. The level of compensation awarded, which is appropriately positioned relative to key competitors in the region, reflects his exceptional ambassadorial skills, strong cross-business group leadership and cooperation and the unique skills needed to continue to grow UBS’s substantial presence in Asia Pacific, while maintaining high standards of corporate governance and managing a complex risk profile.
Actual 2007 compensation for former members of the Board of Directors and Group Executive Board
Compensation paid to former members of the Board of Directors and Group Executive Board1
CHF, except where indicateda | ||||||||||||
Name, function | Compensation | Benefits in kind | Total | |||||||||
Alberto Togni, former member of the Board of Directors (BoD) | 318,401 | 502,478 | 820,879 | |||||||||
Philippe de Weck, former member of the BoD (Union Bank of Switzerland) | 0 | 129,701 | 129,701 | |||||||||
Robert Studer, former member of the BoD (Union Bank of Switzerland) | 0 | 260,162 | 260,162 | |||||||||
Georges Blum, former member of the BoD (Swiss Bank Corporation) | 0 | 90,803 | 90,803 | |||||||||
Aggregate of all former members of the Group Executive Board (GEB)2 | 0 | 257,791 | 257,791 | |||||||||
Aggregate of all former members of the BoD and GEB | 318,401 | 1,240,935 | 1,559,336 | |||||||||
Explanations of compensation details for executive members of the BoD and members of the GEB:
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Share and option ownership
Senior executive share ownership policy
gets. Missed targets may lead the Compensation Committee to deny the grant of discretionary stock option awards.
Share and option ownership of members of the Board of Directors as of 31 December 2007
Potentially | ||||||||||||||||||||||||||||
conferred | Type and | |||||||||||||||||||||||||||
Number of | Voting rights | Number of | voting rights | quantity | ||||||||||||||||||||||||
Name, function1 | For the year | shares held | in % | options held | in %2 | of options3 | ||||||||||||||||||||||
xii: | 390,000 | |||||||||||||||||||||||||||
xiv: | 300,000 | |||||||||||||||||||||||||||
Marcel Ospel, Chairman | 2007 | 769,483 | 0.068 | 940,000 | 0.083 | xv: | 250,000 | |||||||||||||||||||||
vii: | 80,000 | |||||||||||||||||||||||||||
ix: | 80,000 | |||||||||||||||||||||||||||
x: | 80,000 | |||||||||||||||||||||||||||
xii: | 120,000 | |||||||||||||||||||||||||||
xiv: | 100,000 | |||||||||||||||||||||||||||
Stephan Haeringer, Executive Vice Chairman | 2007 | 487,053 | 0.043 | 535,000 | 0.047 | xv: | 75,000 | |||||||||||||||||||||
Ernesto Bertarelli, member | 2007 | 48,411 | 0.004 | 0 | 0 | |||||||||||||||||||||||
Gabrielle Kaufmann-Kohler, member | 2007 | 3,303 | 0.000 | 0 | 0 | |||||||||||||||||||||||
Sergio Marchionne, member | 2007 | 45,800 | 0.004 | 0 | 0 | |||||||||||||||||||||||
Rolf A. Meyer, member | 2007 | 50,562 | 0.004 | 0 | 0 | |||||||||||||||||||||||
Helmut Panke, member | 2007 | 13,206 | 0.001 | 0 | 0 | |||||||||||||||||||||||
Peter Spuhler, member | 2007 | 67,092 | 0.006 | 0 | 0 | |||||||||||||||||||||||
Peter Voser, member | 2007 | 11,580 | 0.001 | 0 | 0 | |||||||||||||||||||||||
Lawrence A. Weinbach, member | 2007 | 45,520 | 0.004 | 0 | 0 | |||||||||||||||||||||||
Joerg Wolle, member | 2007 | 7,709 | 0.001 | 0 | 0 | |||||||||||||||||||||||
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Corporate GovernanceCompensation, shareholdings and loans
Share and option ownership of members of the Group Executive Board as of 31 December 2007
Potentially | Type and | |||||||||||||||||||||||||||
Number of | Voting rights | Number of | conferred voting | quantity | ||||||||||||||||||||||||
Name, function1 | For the year | shares held | in % | options held | rights in %2 | of options3 | ||||||||||||||||||||||
ix: | 30,000 | |||||||||||||||||||||||||||
x: | 200,000 | |||||||||||||||||||||||||||
xii: | 260,000 | |||||||||||||||||||||||||||
Marcel Rohner, Group Chief Executive Officer | xiv: | 300,000 | ||||||||||||||||||||||||||
(CEO) and Chairman & CEO Investment Bank | 2007 | 501,846 | 0.044 | 990,000 | 0.088 | xv: | 200,000 | |||||||||||||||||||||
i: | 52,560 | |||||||||||||||||||||||||||
iv: | 71,672 | |||||||||||||||||||||||||||
vi: | 120,000 | |||||||||||||||||||||||||||
viii: | 120,000 | |||||||||||||||||||||||||||
xi: | 160,000 | |||||||||||||||||||||||||||
xiii: | 190,000 | |||||||||||||||||||||||||||
John A. Fraser, Chairman and | xiv: | 200,000 | ||||||||||||||||||||||||||
CEO Global Asset Management | 2007 | 461,764 | 0.041 | 1,074,232 | 0.095 | xv: | 160,000 | |||||||||||||||||||||
x: | 80,000 | |||||||||||||||||||||||||||
xii: | 90,000 | |||||||||||||||||||||||||||
xiv: | 90,000 | |||||||||||||||||||||||||||
Peter Kurer, Group General Counsel | 2007 | 292,762 | 0.026 | 350,000 | 0.031 | xv: | 90,000 | |||||||||||||||||||||
ii: | 4,000 | |||||||||||||||||||||||||||
iv: | 57,590 | |||||||||||||||||||||||||||
v: | 40,000 | |||||||||||||||||||||||||||
viii: | 100,000 | |||||||||||||||||||||||||||
xi: | 133,092 | |||||||||||||||||||||||||||
xiii: | 52,000 | |||||||||||||||||||||||||||
xiv: | 66,000 | |||||||||||||||||||||||||||
Joseph Scoby, Group Chief Risk Officer | 2007 | 509,571 | 0.045 | 533,682 | 0.047 | xv: | 81,000 | |||||||||||||||||||||
vii: | 30,000 | |||||||||||||||||||||||||||
x: | 60,000 | |||||||||||||||||||||||||||
xii: | 80,000 | |||||||||||||||||||||||||||
xiv: | 90,000 | |||||||||||||||||||||||||||
Walter Stuerzinger, Chief Operating Officer Corporate Center | 2007 | 209,442 | 0.019 | 350,000 | 0.031 | xv: | 90,000 | |||||||||||||||||||||
x: | 60,000 | |||||||||||||||||||||||||||
xii: | 120,000 | |||||||||||||||||||||||||||
xiv: | 100,000 | |||||||||||||||||||||||||||
Marco Suter, Group Chief Financial Officer | 2007 | 235,757 | 0.021 | 355,000 | 0.031 | xv: | 75,000 | |||||||||||||||||||||
iii: | 264,486 | |||||||||||||||||||||||||||
vi: | 200,000 | |||||||||||||||||||||||||||
ix: | 200,000 | |||||||||||||||||||||||||||
x: | 160,000 | |||||||||||||||||||||||||||
xii: | 150,000 | |||||||||||||||||||||||||||
xiv: | 160,000 | |||||||||||||||||||||||||||
Rory Tapner, Chairman and CEO Asia Pacific | 2007 | 514,365 | 0.046 | 1,294,486 | 0.115 | xv: | 160,000 | |||||||||||||||||||||
vi: | 50,000 | |||||||||||||||||||||||||||
xii: | 95,976 | |||||||||||||||||||||||||||
Raoul Weil, Chairman and CEO Global | xiv: | 120,000 | ||||||||||||||||||||||||||
Wealth Management & Business Banking | 2007 | 212,934 | 0.019 | 405,752 | 0.036 | xv: | 139,776 | |||||||||||||||||||||
Total of all vested and unvested shares held by executive members of the Board of Directorsand members of the Group Executive Board1
Shares held as of 31 December 2007 | 6,396,479 | |||||||||||||||||||
Of which | ||||||||||||||||||||
vested | vesting 2008 | vesting 2009 | vesting 2010 | vesting 2011 | vesting 2012 | |||||||||||||||
3,831,550 | 796,533 | 653,726 | 526,425 | 362,709 | 225,536 | |||||||||||||||
No individual BoD or GEB member holds 1% or more of all shares issued.
34
Total of all blocked and unblocked shares held by non-executive members of the Board of Directors1
Shares held as of 31 December 2007: | 296,533 | |||||||||||||||
Of which | ||||||||||||||||
non-restricted | blocked until 2008 | blocked until 2009 | blocked until 2010 | blocked until 2011 | ||||||||||||
134,808 | 30,602 | 43,096 | 35,874 | 52,153 | ||||||||||||
No individual board member holds 1% or more of all shares issued.
Vested and unvested options held by executive members of the Board of Directorsand by members of the Group Executive Board as of 31 December 2007
Type | Number of options | Year of grant | Vesting date | Expiry date | Subscription ratio | Strike price | ||||||||||||||||||
i | 52,560 | 2001 | 20/02/2004 | 20/02/2009 | 1:1 | CHF 50.00 | ||||||||||||||||||
ii | 4,000 | 2002 | 28/02/2005 | 28/02/2012 | 1:1 | USD 23.12 | ||||||||||||||||||
iii | 264,486 | 2002 | 20/02/2005 | 31/01/2012 | 1:1 | CHF 38.88 | ||||||||||||||||||
iv | 129,262 | 2002 | 31/01/2005 | 31/01/2012 | 1:1 | USD 22.63 | ||||||||||||||||||
v | 40,000 | 2002 | 28/06/2005 | 28/06/2012 | 1:1 | USD 24.85 | ||||||||||||||||||
vi | 370,000 | 2002 | 28/06/2005 | 28/06/2012 | 1:1 | CHF 40.38 | ||||||||||||||||||
vii | 110,000 | 2002 | 28/06/2005 | 28/12/2012 | 1:1 | CHF 40.38 | ||||||||||||||||||
viii | 220,000 | 2003 | 31/01/2006 | 31/01/2013 | 1:1 | USD 24.00 | ||||||||||||||||||
ix | 310,000 | 2003 | 31/01/2006 | 31/07/2013 | 1:1 | CHF 32.50 | ||||||||||||||||||
x | 640,000 | 2004 | 28/02/2007 | 28/02/2014 | 1:1 | CHF 51.88 | ||||||||||||||||||
xi | 293,092 | 2004 | 28/02/2007 | 28/02/2014 | 1:1 | USD 40.63 | ||||||||||||||||||
xii | 1,305,976 | 2005 | 01/03/2008 | 28/02/2015 | 1:1 | CHF 55.75 | ||||||||||||||||||
xiii | 242,000 | 2005 | 01/03/2008 | 28/02/2015 | 1:1 | USD 47.75 | ||||||||||||||||||
xiv | 1,526,000 | 2006 | 01/03/2009 | 28/02/2016 | 1:1 | CHF 77.33 | ||||||||||||||||||
xv | 1,320,776 | 2007 | 01/03/2010 | 28/02/2017 | 1:1 | CHF 78.50 | ||||||||||||||||||
Unvested shares and options as well as vested options are at risk of forfeiture in the event that a senior executive’s employment is terminated.
Disclosure of management transactions
chases. Blackout periods and synchronized dates for unblocking or vesting of shares or options granted as compensation may lead to transactions being concentrated in short periods.
Loans
UBS – as a global financial services provider as well as the major bank in Switzerland – typically has business relationships with most large companies. In many of these companies, members of the UBS BoD often assume management or non-executive board responsibilities. Moreover granting loans – both to individuals and to companies – is part of the ordinary business of UBS. Executive members of the BoD and the members of the GEB are granted loans, fixed advances and mortgages on the same terms and conditions as other employees, based on third-party conditions adjusted for reduced credit risk.
35
Corporate GovernanceCompensation, shareholdings and loans
Loans granted to members of the Board of Directors as of 31 December 2007
CHF, except where indicateda | ||||||||||||
Name, function1 | Mortgages | Other loans granted | Total | |||||||||
Marcel Ospel, Chairman | 11,000,000 | 0 | 11,000,000 | |||||||||
Stephan Haeringer, Executive Vice Chairman | 0 | 0 | 0 | |||||||||
Ernesto Bertarelli, member | 0 | 0 | 0 | |||||||||
Gabrielle Kaufmann-Kohler, member | 0 | 0 | 0 | |||||||||
Sergio Marchionne, member | 0 | 0 | 0 | |||||||||
Rolf A. Meyer, member | 480,000 | 0 | 480,000 | |||||||||
Helmut Panke, member | 0 | 0 | 0 | |||||||||
Peter Spuhler, member | 0 | 0 | 0 | |||||||||
Peter Voser, member | 0 | 0 | 0 | |||||||||
Lawrence A. Weinbach, member | 0 | 0 | 0 | |||||||||
Joerg Wolle, member | 0 | 0 | 0 | |||||||||
Aggregate of all members of the Board of Directors | 11,480,000 | 0 | 11,480,000 | |||||||||
Loans granted to members of the Group Executive Board
CHF, except where indicateda | ||||||||||||
Name, function1 | Mortgages | Other loans granted | 2 | Total | ||||||||
Joseph Scoby, Group Chief Risk Officer | 0 | 3,145,796 | 3,145,796 | |||||||||
Aggregate of all members of the Group Executive Board | 3,487,000 | 3,145,796 | 6,632,796 | |||||||||
Loans and advances to non-executive BoD members and related parties are made on terms comparable to those prevailing at the time for transactions with non-affiliated persons.
Loans granted to former members of the Board of Directors and Group Executive Board
36
Corporate GovernanceShareholders’ participation rights
Shareholders’ participation rights
UBS is committed to making itshareholder participation in its decision-making process and aims to make such participation as easy as possible for shareholders to take part in its decision-making processes.possible. More than 200,000300,000 directly registered shareholders, andas well as some 75,00090,000 US shareholders registered via nominee companies, regularly receive written information about the firm’s activities and performance and are personally invited to shareholder meetings. Refer to the “Information policy” section of this report for further information on these documents.
Relationships with shareholders
UBS fully subscribes to the principle of equal treatment of all shareholders, rangingwho range 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 places no restrictions on share ownership and voting rights. Nominee companies and trustees, whowhich normally represent a greatlarge number of individual shareholders, may hold 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 intoin the share register. Securities clearing organizations, such as The Depository Trust Company in New York, are exempt fromnot subject to the 5% voting limit.
panies 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 members of the BoD and the appointment of the Group and statutory auditors are decided at the AGM by an absolute majority of the votes cast, excluding blank and invalid ballots. Swiss 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, among others, 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
The annual general meeting of shareholdersAGM normally takes place in April each year, but in any case within six months of 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 and on the internet atwww.ubs.com/shareholder-meeting.
37
agm.
Corporate GovernanceShareholders’ participation rights
Extraordinary general meetings (EGMs) may be convened whenever the BoD or the statutory auditors consider it necessary. Shareholders individually or jointly representing at least 10% of the share capital may, at any time, ask in writing that an EGM be convened to deal with a specific issue put forward by them. Such a request may also be brought forward during the AGM.
211
Placing of items on the agenda
Shareholders individually or jointly representing shares with an aggregate par value of CHF 62,500 may submit proposals for matters to be placed on the agenda for consideration byat the shareholders’ meeting.
Registrations in the share register
The general rules for being entered with voting rights in the Swiss or US Share Registershare registers of UBS also apply before general meetings of shareholders (for details see previous page).shareholders. 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, normally until two days before the meeting.
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Corporate governance and compensation |
Corporate Governance
Change of control and defense measures
Change of control and defense measures
UBS refrains from restrictions that would hinder developments initiated in or supported by the financial markets. It also does not have any specific defenses in place to prevent hostile takeovers.
Duty to make an offer
An investor who acquires more than 331/3% of all voting rights (directly, indirectly or in concert with third parties), whether they are exercisable or not, has to submit a take-over offer for all shares outstanding, according to Swiss 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 executiveChairman of the Board of DirectorDirectors (BoD) members,and of the members of the Group Executive Board (GEB) and of the Group Managing Board (GMB) do not generally contain clauses triggered by a change of control. UBS does not offer “golden parachutes” to its senior executives. EmploymentFor 2008, employment contracts contain employment notice of termination periods of 12-months12 months for GEB members and six to 12-months12 months for GMB members, depending on local market practice. From 2009, employment contracts for GEB members will have a reduced notice period of six months. During this notice period they are entitled to salary and bonuses.pro rata discretionary incentive awards.
39213
Corporate Governancegovernance and compensationAuditorsCorporate governance
Auditors
External, independent auditors
At the annual general meeting (AGM) in 2008, Ernst & Young Ltd., Basel, (Ernst & Young) have been assigned the mandate to servewere re-elected as global auditors for the UBS Group. TheyGroup (Group) for a further one-year term of office. Ernst & Young assume all auditing functions according to laws, regulatory requests and the “Articles of Association of UBS AG” (“Articles of Association”; see also the paragraph about auditors’ responsibilities in the regulation and supervision section on pages 44–46). The Audit Committee of the Board of Directors (BoD) annually assesses the independence of Ernst & Young and has determined that they meet all independence requirements established by the US Securities and Exchange Commission (SEC). Authority for pre-approval of all additional audit, audit-related and non-audit mandates to the principal auditors lies with the Audit Committee, ensuring that independencelead partners in charge of the auditors is not jeopardized by conflicts of interest through additional mandates.UBS audit are Andrew McIntyre and Andreas Blumer (since 2005 and 2004, respectively). Ernst & Young informwill be proposed for re-election at the Audit Committee annually of the measures they are taking to ensure their own and their employees’ independence from UBS. The Audit Committee assesses this information on behalf of the BoD and informs the BoD accordingly.AGM in 2009.
Duration of the mandate and term ofoffice of the lead partners
Fees paid to principal external auditorsUBS paid the fees (including expenses) listed in the table below to its principal external auditors Ernst & Young.
Fees paid to external independent auditors
UBS paid the following
The fees (including expenses) paid by UBS to its principal external auditors Ernst & Young Ltd.:
For the year ended | ||||||||
in CHF thousand | 31.12.07 | 31.12.06 | ||||||
Audit | ||||||||
Global audit fees | 49,000 | 48,925 | ||||||
Additional services classified as audit (services required by law or statute, including work of non-recurring nature mandated by regulators) | 12,718 | 14,766 | ||||||
Total audit | 61,718 | 63,691 | ||||||
Non-audit | ||||||||
Audit-related fees | 9,779 | 7,843 | ||||||
Tax advisory | 1,892 | 1,249 | ||||||
Other | 1,699 | 3,043 | ||||||
Total non-audit | 13,370 | 12,135 | ||||||
40
agreed upon procedures reports required by contract and audits performed at the request of management. It also includes due diligence work on acquisitions and initial work relating to the eventual attestation as to UBS’s compliance with section 404 of the US Sarbanes-Oxley Act of 2002.
Pre-approval procedures and policiesAllTo ensure their independence, all services provided by Ernst & Young have to be pre-approved by the Audit Committeeaudit committee of the BoD. A pre-approval may be granted either for a specific mandate or in the form of a general pre-approval authorizing a limited and well-defined type and amount of services.
Fees paid to external auditors
UBS paid the Chairman of the Audit Committeefollowing fees (including expenses) to its external auditors Ernst & Young Ltd.:
For the year ended | ||||||||
In CHF thousand | 31.12.08 | 31.12.07 | ||||||
Audit | ||||||||
Global audit fees | 45,848 | 49,000 | ||||||
Additional services classified as audit (services required by law or statute, including work of a non-recurring nature mandated by regulators) | 9,918 | 12,718 | ||||||
Total audit | 55,766 | 61,718 | ||||||
Non-audit | ||||||||
Audit-related fees | 8,430 | 9,779 | ||||||
Tax advisory | 504 | 1,892 | ||||||
Other | 1,246 | 1,699 | ||||||
Total non-audit | 10,180 | 13,370 | ||||||
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Corporate governance and compensation |
audit committee for approval. At each quarterly meeting, the Audit Committeecommittee is informed onof the approvals granted by its Chairman.
Group Internal Audit
With 314331 staff members worldwide at 31 December 2007,2008, Group Internal Audit supports the BoD and its committees by independently assessing the effectiveness of UBS’s system of internal controls and compliance of the firmfirm’s compliance with statutory, legal and regulatory requirements. All key issues raised by Group Internal Audit are communicated to the management responsible, to the Group Chief Executive Officer (Group CEO) and to the executive membersChairman of the BoD via formal audit reports. The Chairman’s OfficeIn addition, the BoD’s risk and the Audit Committee of the BoDaudit committees are regularly informed of important
findings.informed about important issues. Group Internal Audit closely cooperates with internal and external legal advisors and risk control units on investigations into major control issues.
Supervisory and control instruments vis-à-visthe external auditors
The Audit Committee, on behalf of the BoD, monitors the qualification, independence and performance of the Group Auditors and their lead partners. It prepares proposals for appointment or removal of the external auditors for review by the full BoD, which then submits the proposal to the AGM.
41215
Corporate Governancegovernance and compensationInformation policyCorporate governance
Information policy
UBS’s financial disclosure policies aim at achieving a fair market value for UBS shares through open, transparent and consistent communication with investors and financial markets.
UBS provides regular information to its shareholders and to the financial community.
Financial results will be published as follows
First | 2009 | |||
Second | 2009 | |||
Third | 2009 | |||
Fourth | 2010 | |||
The annual general meeting of shareholders will take place as follows
2009 | 15 April 2009 | |||
2010 | 14 April 2010 | |||
UBS meets with institutional investors worldwide throughout the year. It regularly holds results presentations, specialistspecial investor seminars, road shows, individual and group meetings. Where possible, meetings involve senior management as well as members of the Investor Relationsinvestor relations team. UBS makes use of diverse technologies such as webcasting, audio links and cross-location video-conferencing to widen its audience and maintain contact with shareholders around the world.
è | Refer to www.ubs.com/investors for a complete set of published reporting documents, access to recent webcasts and a selection of senior management industry conference presentations |
Financial disclosure principles
Based on discussions with analysts and investors, UBS believes that the market rewards companies that provide clear, consistent and informative disclosure about their business. Therefore, UBS aims to communicate its strategy and results in a manner that allows shareholders and investors to gain a full and accurate understanding of how the company works, what its growth prospects are and what risks the strategy
and results might entail.
– |
– |
– |
– |
– |
Financial reporting policies
UBS reports its results after the end of every quarter, including a breakdown of results by business groups and business unitsdivisions and extensive disclosures relating to credit and market risk.
42
are restated for previous periods when required by applicable accounting standards to show how they would have been reported according to the new basis and provide clear explanations of all relevant changes. Prior to publication of first quarter 2009 results, UBS will publish restated business division results on www.ubs.com/investors showing quarterly and annual results for 2007 and 2008 under the new organizational structure announced on 10 February 2009.
US regulatory disclosure requirements
As a Swissreporting company listed onunder the New York Stock Exchange (NYSE)US federal securities laws (a foreign private issuer), UBS compliesmust file or submit certain reports and other information, including certain financial re-
216
Corporate governance and compensation |
the Group Chief Executive Officer (CEO) and Group Chief Financial Officer (CFO), of the effectiveness of UBS’s disclosure controls and procedures (as defined in Rule 13a–15e) under the US Securities Exchange Act of 1934. Based upon that evaluation, the Group CEO and Group CFO concluded that these disclosure controls and procedures were effective as of the end of the period covered by this annual report. No significant changes were made in UBS’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
è | These reports and filings, as well as materials sent to shareholders in connection with annual and extraordinary general meetings, are all available at www.ubs.com/investors |
43217
Corporate GovernanceRegulationgovernance and supervisioncompensation
Corporate governance
Regulation and supervision
UBS aims to comply with all applicable provisions and to work closely and maintain good relations with regulators in all jurisdictions where the firm conducts business.
As a Swiss-registered company, UBS’s home country regulator is the Swiss Federal Banking Commission (SFBC)Financial Market Supervisory Authority (FINMA).
Regulation and supervision in Switzerland
GeneralFINMA, the successor organization of the Swiss Federal Banking Commission (SFBC), commenced operations on 1 January 2009. On that date, the Federal Act on the Swiss Financial Market Supervisory Authority, which the Swiss Parliament approved on 22 June 2007, went into full legal force. The effect of the Act is to merge three bodies – the Swiss Federal Banking Commission (SFBC), the Federal Office of Private Insurance, and the Anti-Money Laundering Control Authority – into FINMA. In addition to a new organizational framework which will also impact supervisory activity, the Act streamlines and harmonizes the sanctions regime applicable to financial institutions.
Swiss federal legislation
The legislation most relevant to UBS is that enacted by the Swiss Parliament and the Swiss Federal Council.
è | Refer to the “Capital management” section of this report for more details about capital requirements |
Capital requirements for the two large banks, UBS and Credit Suisse, exceed the Swiss minimum due to a mandatory capital buffer under Pillar 2 of Basel II. The revised decree on capital
requirements issued at the end of 2008 increased the risk-based buffer and complemented it with a leverage ratio requirement, i.e. a minimum ratio of capital and balance sheet.
Regulation by FINMA
FINMA is strongly involved in the Parliament adoptedshaping of the new Integrated Financial Supervision Act (FINMAG) which will come into effect on 1 January 2009. Its aim is to create a new market supervisory authority (FINMA)legislative framework for banks, especially through the following mechanisms:
– | First, FINMA has substantial influence on the drafting of Swiss federal legislation (for example, the specific ordinance concerning the prevention of money laundering of 18 December 2002, as amended). |
– | On a more technical level, FINMA is empowered to issue circulars, 44 of which are presently effective. These include, for example, FINMA circular 08/38 on market behavior and FINMA circular 08/24 on supervision and internal controls at banks. |
Self-regulation by merging the SFBC, the Office of Private Insurance (BPV) and the Federal Money Laundering Control Authority. In addition to a new organizational framework, FINMAG streamlines and harmonizes the sanctions regime applicable to financial institutions.
Regulatory policy
SIX Swiss regulatory policies are formulated on three levels. The first two are the statutory levels of primary and secondary legislation issued by ParliamentExchange and the Swiss Federal Council. The SFBC has substantial influence onBankers Association
Certain aspects of securities brokering, such as the draftingorganization of these regulatory statutes (for example,trading, are subject to self-regulation through the specific ordinance concerningSIX Swiss Exchange (SIX), under the prevention of money laundering of 18 December 2002, amended in 2003). On a more technical level, the SFBC is empowered to issue so-called circulars, 27 of which are presently effective. These include a circular ruling on the supervision and internal controls at banks, issued on 27 September 2006, and a circular ruling on theoverall supervision of large banking groups, issued on 21 April 2004. The latter prescribes what information UBS is required to provide to the SFBC, the structure of UBS’s regular interaction with them and the scope of on-site reviews (prudential independent controls) and extended audits by the SFBC. In an effort to streamline regulation, the SFBC decided on 1 December 2006, in consultation with the industry, to rescind five circulars. In certain fields, the SFBCFINMA. Examples are:
– | the Listing Regulations of 24 January 1996, as amended, and the General Conditions dated 7 September 2007 (the Listing Regulations are currently under review and amendments may go into force on 1 July 2009); and | |
– | the Directive on the Disclosure of Management Transactions of 1 July 2005. |
– | Agreement on the Swiss banks’ code of conduct with regard to the exercise of due diligence, |
– | Directives on the |
– | Guidelines on the simplified prospectus for structured products, 2007. |
– | Agreement of Swiss Banks on Deposit Insurance, 2005. |
– | Guidelines on the handling of dormant accounts, custody accounts and safe-deposit boxes held in Swiss banks, 2000. |
Self regulationCertain aspects of securities broking, such as the organization of trading, are subject to self-regulation through the SWX Swiss Exchange (SWX) (for example, the Listing regulation of 24 January 1996, as amended and the General Conditions dated 7 September 2007) and the Swiss Bankers’ Association (for example, the code of conduct for securities brokers, 1997), under the overall supervision of the SFBC. As
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Corporate governance and compensation |
a meansTwo-tier system of improving information flows to investors, the SWX enacted an amendment on 1 July 2005 requiring the disclosure of management transactions.
Role of external auditorssupervision and direct supervision
of large banking groups
Reporting requirements and capital requirementsUBS reports financial, capital, legal and risk information to the SFBC. The SFBC also reviews the bank’s riskinvestment banking, wealth management and control principles and procedures in all areas of risk, including “know your customer” rules and anti-money laundering practices.
Disclosures to the Swiss National Bank
While Switzerland’s banks according to Swiss banking law, are primarily supervised by the SFBC whileFINMA, compliance with liquidity rules is monitored by the Swiss National Bank (SNB). UBS sendsThe SNB also takes a direct interest in the SNB detailed monthly interim balance sheets, capital adequacy and liquidity statements. UBS also submits an annual statement of condition and quarterly stress testing results and cooperates with the Financial Stability and Oversight unitpractice of the SNB whenever required. The SNB can also
require UBS to make additional disclosures of financial condition and other information relevant to its regulatory oversight.both big banks. Liquidity regulation is currently being reformed.
Regulation and supervision in the US
Banking regulation
UBS’s operations in the US are subject to a variety of regulatory regimes. It maintains branches in California, Connecticut, Illinois, New York and Florida. UBS’s branches located in California, New York and Florida are federally licensed by the Office of the Comptroller of the Currency. US branches located in Connecticut and Illinois are licensed by the state banking authority of the state in which the branch is located. Each US branch is subject to regulation and examination by its licensing authority. In addition, the Board of Governors of the Federal Reserve System exercises examination and regulatory authority over UBS’s state-licensed US branches. The firmUBS also maintains state and federally chartered trust companies and other limited purpose banks, which are regulated by state regulators or the Office of the Comptroller of the Currency. In addition, the Board of Governors of the Federal Reserve System exercises examination and regulatory authority over UBS’s state-licensed US branches. Only the deposits of UBS’s subsidiary bank located in the
state of Utah are insured by the Federal Deposit Insurance Corporation. The regulation of the firm’s US branches and subsidiaries imposes restrictions on the activities of those branches and subsidiaries, as well as prudential restrictions, such as limits on extensions of credit to a single borrower, including UBS subsidiaries and affiliates.
45
Corporate GovernanceRegulation and supervision
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Corporate governance and compensation
Corporate governance
US regulation of other US operations
In the US, UBS Securities LLC and UBS Financial Services Inc., as well as UBS’s other US registeredUS-registered broker-dealer entities, are subject to regulations that cover all aspects of the securities business, including:
sales methods; trade practices among broker-dealers; use and safekeeping of customers’ funds and securities; capital structure; record-keeping; the financing of customers’ purchases; and | ||
the conduct of directors, officers and employees. |
ties; and administering a dispute resolution forum for investors and registered firms. It also performs market regulation under contract for the NASDAQ Stock Market, the American Stock Exchange and the Chicago Climate Exchange.
Regulation and supervision in the UK
UBS’s operations in the UK are regulated by the Financial Services Authority (FSA), the UK’s single regulator, which establishes a regime of rules and guidance governing all relevant aspects of financial services businesses.
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Corporate |
Compliance with New York Stock Exchange
listing standards on corporate governance
UBS aims to comply with all relevant standards on corporate governance.
As a foreignSwiss company listed on the New York Stock Exchange the firm is only required to comply(NYSE), UBS complies with the rules relating to audit committees and annual certifications.NYSE corporate governance standards for foreign private issuers. In addition, UBS however, has voluntarily adopted the overwhelming majority of the New York Stock ExchangeNYSE governance rules for US companies.
Introduction
On 4 November 2003, the Securities and Exchange Commission (SEC) approved the revised New York Stock Exchange (NYSE) corporate governance rules. Foreign private issuers – such as UBS – were required to comply with the rules on Audit Committees by 31 July 2005 and had to also disclose significant differences and material non-compliance with all other NYSE standards by the first annual shareholders meeting after 15 January 2004. UBS fully complies with the SEC requirements 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 different legal system in Switzerland and are explained in detail in this section.
Independence of directors
The Board of Directors (BoD), basedBased on the listing standards of the NYSE, approved “CriteriaUBS’s BoD has established specific criteria for defining the independence of its external Board members’ independence”, which are published on the firm’s website under www.ubs.com/corporate-governance.members. Each external director has to personally confirm his or her compliance with the criteria. Thecriteria, which are published on the firm’s website underwww.ubs.com/governance.
itycapacity as directors. They do notdirectors; hold, directly or indirectly, UBS shares in excess of 5% of the outstanding capital, and none of them servescapital; or serve on the audit committees of more than two other public companies. The BoD determined thatThese members are Peter R. Voser, William G. Parrett and Bruno Gehrig and all three Audit Committee members arehave been determined by the BoD as financially literate and that Lawrence A. Weinbach, Rolf A. Meyer and Peter Voser are “financial experts” according to the definitions established by the US Sarbanes-Oxley Act of 2002, Lawrence A. Weinbach being a certified public accountant2002. The NYSE guidelines allow for an exemption for audit committee members to sit on more than three audit committees, provided that all members of the BoD determine that the candidate has the time and having been in the auditavailability to fulfill his or her obligations. Considering the credentials of William G. Parrett, and accounting business during mostthe fact that he has retired from his executive functions, the BoD granted this exemption.
Board of his professional career, Rolf A. Meyer through his former responsibility as Chief Financial Officer (CFO) of a large listed company,Directors and Peter Voser being the CFO of Royal Dutch Shell plc.
UBS operates under a strict dual board structure mandated by Swiss banking law. No member of the Group Executive Board (GEB) may also be a member of the BoD and vice versa. This structure ensures anthe institutional independence of the entire BoD from the day-to-day management. Therefore all BoD members are considered non-management directors, although the three executive members of the Chairman’s Office are former members of the executive management and are performing their mandate on a full-time basis. The BoD meets regularly without executive management, but including the executive members of the BoD.
Board committees
UBS has established audit, compensation, nominatingcommittees for the following BoD mandates: audit; human resources and compensation; governance and nominating; risk; strategy and corporate responsibility committees. The chartersresponsibility. Refer to the “Board of Directors” section of this report for all BoD committees are published on www.ubs.com/corporate-governance. Additionalfurther information on the BoD committees’these committees – including their mandates, responsibilities and authorities and– as well as their activities during 20072008. In addition, the BoD elects at least one vice chairman who must be independent and who acts as the senior independent director. Sergio Marchionne has assumed this role. The BoD may elect another vice chairman who need not be independent, but has not done so at this time. More details about the vice chairman function can be found on pages 9–15 of this report.
Differences from corporate governance standards relevant to US listed companies
47
Corporate GovernanceCompliance withAccording to the NYSE listing standards on 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 BoD has determined the following differences:
Responsibility of the Audit Committeeaudit committee for appointment,
compensation, retention and oversight of the independent
auditors
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Compensation, shareholdings and loans
tee assesses the performance and qualification of the external auditors and submits its proposal for appointment, re-appointmentreappointment or removal to the full BoD, which brings this proposal to the shareholders for vote at the annual general meetingmeetings (AGM).
Discussion of risk assessment and risk management policies
by Audit Committeethe audit committee
viewingmonitoring whether the business and control units run appropriate systems for the management and control of risks. The Audit Committee is regularly updated by Group Internal Audit on specific risk issues.
Assistance by Audit Committeeaudit committee of the internal audit function
Responsibility of the Nominating Committeehuman resources and compensation committee for oversight
of management and evaluation by the Board of Directors
the GEB, – is doneare completed by the Chairman’s OfficeChairman of the BoD and the human resources and compensation committee and reported to the full BoD. All BoD committees perform a self-assessment of their activities and report back to the full BoD. The BoD has direct responsibility and authority to evaluate its own performance, without preparation by a BoD committee.
Proxy statement reports of the Auditaudit and CompensationCommitteeshuman resources and compensation committees
48
Shareholders’ votes on equity compensation plans
222
Non-management directors
Corporate governance and compensation |
Compensation, shareholdings and loans
The principles of compensation for UBS senior executives are designed to meet at least once per year separately, without any directors participating whoalign their interests with those of shareholders – the creation of long-term value and sustainable shareholder returns. These principles are not independent because of their employmentestablished by the companyhuman resources and compensation committee of the Board of Directors.
Dear shareholders,
The global financial services industry is facing challenges of a magnitude not allowed to assume any day-to-day management responsibility.seen for decades. These challenges had a clear and widespread impact on the industry in 2008 and UBS therefore considers alland its BoD members as “non-management directors”, despite the fact that two “executive” BoD members perform their mandate onpeers were no exception. Executive compensation is always a full-time basishigh-profile issue and, are remuneratedduring 2008, this was debated by the company for their services.public, media and regulators to a greater extent than ever before.
During 2008, UBS was very proactive in addressing the current issues surrounding executive compensation. The BoD meets regularly without executive management, but including the two executive BoD members.
Committee requirements and the requirement to provide a statement of significant corporate governance differences. UBS filed the requested affirmation forms and exhibits in mid-July 2005succession planning for the first time. Since 2006, the annual written affirmation has been submitted no later than 30 days after filing the annual report on Form 20-F with the SEC.
“Corporate Governance Guidelines”, “Codeof Business Conduct and Ethics” and“Whistleblowing Protection for Employees”
The BoD has adopted corporate governance guidelines, which are published on the UBS website at www.ubs.com/corporate-governance.
The Audit Committeemembers of the BoD has established rulesand the Group Executive Board (GEB). Shortly after its creation, the committee commissioned an extensive review of all incentive systems used throughout the UBS Group (Group). The review was accelerated following UBS’s transaction with the Swiss National Bank in October and the principles of UBS’s new compensation model were published the following month for implementation in 2009. In parallel with this review, UBS held extensive discussions with the Swiss
Financial Market Supervisory Authority (FINMA) on a range of compensation matters, including the new compensation model and the amount of variable compensation to be paid to employees for 2008.
Although the financial services industry is facing a difficult period, competition for the handlingvery best talent remains fierce and competitive pay remains a vital tool in attracting and retaining executives. Variable compensation, in both a cash and equity form, remains a core component of complaints relatedUBS’s new compensation model, though the final amount awarded to accountingexecutives depends on their achievement of performance targets linked to long-term, risk-adjusted value creation. As part of this change, awards granted under the performance equity plan will be directly linked to company performance for an initial period of three years. In addition, executives will be required to keep a minimum of 75% of all shares awarded to them (after taxes) for a further five years. To strengthen this clear and auditing mattersdirect link between shareholder value and compensation expense, UBS has announced the implementation of a three-year deferral period and a bonus-malus, or “claw-back”, structure for all executive cash awards for 2009 and beyond.
The firm explicitly sought to “alter the UBS corporate culture” through its design of the new compensation model. All members of the human resources and compensation committee strongly believe the new compensation model will play a central role in additionthe firm’s future success. Furthermore, due to its explicit goals for long-term value creation, the internal policiesmodel inherently considers and promotes the best interests of both shareholders and the Group alike. Given its commitment to shareholder input, the BoD will introduce a non-binding vote on “Whistle-blowing Protectionthe principles of executive compensation for Employees”senior executives at its annual general meeting for 2009. Materials relating to this vote are located in the “Compensation principles 2009 and on “Compliance with Attorney Standardsbeyond for UBS senior executives” section of Professional Conduct”.
Joerg Wolle
Chair of the human resources
and compensation committee
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Corporate Governancegovernance and compensationSenior leadershipCompensation, shareholdings and loans
Senior leadership
Compensation governance
Human resources and compensation committee
The human resources and compensation committee is composed of four independent members of the Board of Directors (BoD). On 31 December 2008, the members were Joerg Wolle (committee chair), Ernesto Bertarelli, Sally Bott and Helmut Panke. The following external advisors supported the committee in 2008: Hostettler & Partner with regard to the design of UBS’s new senior leadershipexecutive compensation program, PricewaterhouseCoopers for the design of the performance equity plan and Towers Perrin for market data.
Authorities and responsibilities
UBS is committed to the highest standards of corporate governance. The human resources and compensation committee is responsible for reviewing UBS’s principles on total compensation and benefits for submission to the BoD. Additionally, on behalf of the BoD, the committee oversees five key areas of responsibility:
– | reviewing and approving the design of the total compensation framework, including compensation programs and plans; | |
– | determining the relationship between pay and performance; | |
– | approving base salaries and annual incentive awards for senior executives; | |
– | reviewing and approving individual employment agreements; and | |
– | reviewing and approving the terms and conditions for GEB members who relinquish their positions. |
nex B – Responsibilities and authorities”, and “Annex C – Charter for the committees of the Board of Directors of UBS AG”. The structure is shown below.
Grant policy and decision-making process
The committee decides the target amount of variable cash and equity compensation to be awarded to each senior executive based on Group, business division and individual performance, combined with market data.
The 2009 non-binding vote on executive compensation
UBS places value upon the opinions of its shareholders. At the annual general meeting (AGM) to be held in additionApril 2009, the firm will provide shareholders with an opportunity to express their views through a vote on the compensation principles for senior executives for 2009 and beyond. Refer to the “Compensation principles 2009 and beyond for UBS senior executives” section of this report for the relevant materials. As the ultimate decision on executive compensation is legally within the powers of the BoD, such a vote is non-binding and advisory in nature. UBS believes that this vote presents an innovative and sensible means of including shareholder participation in compensation matters.
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Corporate governance and compensation |
2008 compensation for the Board of Directors and
Group Executive Board
Board of Directors remuneration
Chairman of the Board of Directors and executive members of the Board of Directors
The new compensation model was not yet applicable in 2008 and the Chairman of the Board of Directors (BoD) was therefore eligible, in principle, to receive a variable incentive award fully dependent on the Group’s financial performance. However, as announced in the compensation report published on 17 November 2008, the human resources and compensation committee decided against granting any variable compensation award to the Chairman of the BoD for 2008. The total compensation awarded to the Chairman of the BoD, Peter Kurer, for the 2008 financial year was CHF 1,565,647. This amount made him the highest-paid member of the BoD for 2008 and consisted of eight months salary as Chairman of the BoD. This amount does not include the four months of salary he received as a member of the Group Executive Board (GEB).
Remuneration for former executive members and the former Chairman of the Board of Directors
Marcel Ospel, former Chairman of the BoD, did not stand for re-election at the AGM of 23 April 2008. Stephan Haeringer, former executive vice chairman of the BoD, retired from the BoD on 2 October 2008. Marco Suter, formerly an executive member of the BoD, stepped down from the BoD on 1 October 2007
and thereafter acted as Group Chief Financial Officer (Group CFO) and as a member of the GEB until his stepping down from this role on 31 August 2008. While Marcel Ospel has retired from UBS as of April 2008, Stephan Haeringer and Marco Suter agreed with UBS to continue their services for UBS until their termination dates of 30 September 2009 and 31 August 2009 respectively.
Independent members of the Board of Directors
Reflecting their independent status, the remuneration of independent members of the BoD includes no variable component and is therefore not dependent on the financial performance of the UBS Group Managing Board(Group). Fees for independent
Compensation details and additional information for executive members of the BoD | ||||||||||||||||||||||||||||||||
CHF, except where indicateda | ||||||||||||||||||||||||||||||||
Annual incentive | Discretionary | Contributions | ||||||||||||||||||||||||||||||
For the | Annual incentive | award (shares | award (options | Benefits | to retirement | |||||||||||||||||||||||||||
Name, function1 | year ended | Base salary | award (cash) | — fair value)b | — fair value)c | in kindd | benefits planse | Total | ||||||||||||||||||||||||
Peter Kurer, Chairman | 2008 | 1,333,333 | 0 | 0 | 0 | 58,267 | 174,047 | 1,565,647 | ||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||||||||
Marcel Ospel, Chairman | 2008 | 666,667 | 0 | 0 | 0 | 80,755 | 87,023 | 834,445 | ||||||||||||||||||||||||
2007 | 2,000,000 | 0 | 0 | 0 | 307,310 | 261,069 | 2,568,379 | |||||||||||||||||||||||||
Stephan Haeringer, | 2008 | 1,125,000 | 0 | 0 | 0 | 108,846 | 195,802 | 1,429,648 | ||||||||||||||||||||||||
Executive Vice Chairman | 2007 | 1,500,000 | 0 | 0 | 0 | 111,808 | 261,069 | 1,872,877 | ||||||||||||||||||||||||
Marco Suter, | 2008 | |||||||||||||||||||||||||||||||
Executive Vice Chairman | 2007 | 1,125,000 | 0 | 0 | 0 | 70,820 | 155,252 | 1,351,072 | ||||||||||||||||||||||||
1 2008: Peter Kurer was the only executive member in office on 31 December; Marcel Ospel did not stand for re-election in April 2008 and Stephan Haeringer stepped down during the year as a member of the BoD. Both their payments are pro-rata for the four respective nine-month periods served in their functions. 2007: Marco Suter stepped down during the year as a member of the BoD. His 2007 payment was pro-rata for the nine-month period served as Executive Vice Chairman. |
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Remuneration details and additional information for independent members of the BoD | ||||||||||||||||||||||||||||||||||||||||||||
CHF, except where indicateda | ||||||||||||||||||||||||||||||||||||||||||||
For the | ||||||||||||||||||||||||||||||||||||||||||||
HR & | Governance & | Corporate | period | Share | ||||||||||||||||||||||||||||||||||||||||
Audit | compensation | nominating | responsibility | Risk | Strategy | AGM to | Committee | Benefits | Additional | percent- | Number of | |||||||||||||||||||||||||||||||||
Name, function1 | committee | committee | committee | committee | committee | committee | AGM | Base fee | retainer(s) | in kind | payments | Total | age3 | shares4,5 | ||||||||||||||||||||||||||||||
Ernesto Bertarelli, member | M | M | 2008/2009 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 51,596 | ||||||||||||||||||||||||||||||||||
M | 2007/2008 | 325,000 | 150,000 | 0 | 0 | 475,000 | 100 | 14,677 | ||||||||||||||||||||||||||||||||||||
Sally Bott, member2 | M | M | 2008/2009 | 162,500 | 75,000 | 0 | 0 | 237,500 | 50 | 12,280 | ||||||||||||||||||||||||||||||||||
2007/2008 | ||||||||||||||||||||||||||||||||||||||||||||
Rainer-Marc Frey, member2 | M | M | 2008/2009 | 162,500 | 150,000 | 0 | 0 | 312,500 | 50 | 16,158 | ||||||||||||||||||||||||||||||||||
2007/2008 | ||||||||||||||||||||||||||||||||||||||||||||
Bruno Gehrig, member2 | M | 2008/2009 | 162,500 | 100,000 | 0 | 0 | 262,500 | 50 | 13,572 | |||||||||||||||||||||||||||||||||||
2007/2008 | ||||||||||||||||||||||||||||||||||||||||||||
Gabrielle Kaufmann- Kohler, member | C | M | 2008/2009 | 325,000 | 250,000 | 0 | 0 | 575,000 | 50 | 29,731 | ||||||||||||||||||||||||||||||||||
M | M | 2007/2008 | 325,000 | 250,000 | 0 | 0 | 575,000 | 50 | 9,349 | |||||||||||||||||||||||||||||||||||
Sergio Marchionne, senior independent director, vice chairman | M | M | 2008/2009 | 325,000 | 200,000 | 0 | 250,000 | 6 | 775,000 | 100 | 76,228 | |||||||||||||||||||||||||||||||||
M | 2007/2008 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 16,226 | ||||||||||||||||||||||||||||||||||||
Rolf A. Meyer, member2 | M | M | 2008/2009 | 162,500 | 150,000 | 0 | 0 | 312,500 | 50 | 16,158 | ||||||||||||||||||||||||||||||||||
M | C | 2007/2008 | 325,000 | 650,000 | 0 | 0 | 975,000 | 50 | 15,853 | |||||||||||||||||||||||||||||||||||
Helmut Panke, member | M | M | 2008/2009 | 325,000 | 300,000 | 0 | 0 | 625,000 | 50 | 32,316 | ||||||||||||||||||||||||||||||||||
C | 2007/2008 | 325,000 | 250,000 | 0 | 0 | 575,000 | 50 | 9,349 | ||||||||||||||||||||||||||||||||||||
William G. Parrett, member2 | M | 2008/2009 | 162,500 | 100,000 | 0 | 0 | 262,500 | 50 | 13,572 | |||||||||||||||||||||||||||||||||||
2007/2008 | ||||||||||||||||||||||||||||||||||||||||||||
David Sidwell, member | M | C | 2008/2009 | 325,000 | 450,000 | 0 | 0 | 775,000 | 50 | 40,072 | ||||||||||||||||||||||||||||||||||
2007/2008 | ||||||||||||||||||||||||||||||||||||||||||||
Peter Spuhler, member2 | 2008/2009 | 162,500 | 0 | 0 | 0 | 162,500 | 100 | 15,945 | ||||||||||||||||||||||||||||||||||||
M | 2007/2008 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 16,226 | ||||||||||||||||||||||||||||||||||||
Peter R. Voser, member | C | M | 2008/2009 | 325,000 | 400,000 | 0 | 0 | 725,000 | 50 | 37,487 | ||||||||||||||||||||||||||||||||||
M | 2007/2008 | 325,000 | 300,000 | 0 | 0 | 625,000 | 50 | 10,162 | ||||||||||||||||||||||||||||||||||||
Lawrence A. Weinbach, member2 | M | 2008/2009 | 162,500 | 100,000 | 0 | 0 | 262,500 | 50 | 13,572 | |||||||||||||||||||||||||||||||||||
C | 2007/2008 | 325,000 | 600,000 | 0 | 0 | 925,000 | 50 | 15,040 | ||||||||||||||||||||||||||||||||||||
Joerg Wolle, member | C | M | 2008/2009 | 325,000 | 300,000 | 0 | 0 | 625,000 | 50 | 32,316 | ||||||||||||||||||||||||||||||||||
M | 2007/2008 | 325,000 | 150,000 | 0 | 0 | 475,000 | 100 | 14,677 | ||||||||||||||||||||||||||||||||||||
Total 2008 | 6,437,500 | |||||||||||||||||||||||||||||||||||||||||||
Total 2007 | 5,675,000 | |||||||||||||||||||||||||||||||||||||||||||
Legend: C = Chairman of the respective committee; M = Member of the respective committee | ||||||||||||||||||||||||||||||||||||||||||||
1 There were 11 independent BoD members in office on 31 December 2008. David Sidwell was appointed at the AGM on 23 April 2008 and Rolf A. Meyer, Peter Spuhler and Lawrence A. Weinbach stepped down from the BoD at the EGM on 2 October 2008. Sally Bott, Rainer-Marc Frey, Bruno Gehrig and Bill G. Parrett were appointed at the EGM on 2 October 2008.2 Remunerations is for six months only, as such members either stepped down or were appointed on 2 October 2008. 3 Fees are paid 50% in cash and 50% in restricted UBS shares. However, independent BoD members can elect to have 100% of their remuneration paid in restricted UBS shares. 4 For 2008, shares valued at CHF 11.38 (average price of UBS shares at SWX Europe over the last 10 trading days of February 2009), attributed with a price discount of 15%, discount price CHF 9.67. The shares are blocked for four years. For 2007, shares valued at CHF 36.15 (average price of UBS shares at SWX Europe over the last 10 trading days of February 2008), attributed with a price discount of 15%, discount price CHF 30.75. The shares are blocked for four years. 5 Number of shares is reduced in case of the 100% election to deduct social security contribution. All remuneration payments are submitted to social security contribution/taxes at source. 6 This payment is associated with the newly created function of a senior independent director. | ||||||||||||||||||||||||||||||||||||||||||||
In addition, one-off cash payments were made to the chair of the risk committee (CHF 500,000), the governance and nominating committee (CHF 300,000) and the human resources and compensation committee (CHF 200,000). These payments reflect the substantial workload of setting up the new risk committee, and expanding the mandate of the governance and nominating committee and the human resources and compensation committee. |
Total payments to all members of the BoD | ||||||||
For the | ||||||||
CHF, except where indicateda | year ended | Total | ||||||
Aggregate of all members of the BoD | 2008 | 10,267,240 | ||||||
Aggregate of all members of the BoD | 2007 | 11,467,328 | ||||||
Corporate governance and compensation |
members are reviewed annually by the Chairman of the BoD and the Vice Chairmenhuman resources and compensation committee for approval by the BoD. None of the independent members of the BoD has any contract with UBS providing for benefits upon the termination of their term of office at the BoD.
Group Executive Board compensation
In 2008, total compensation for members of the GEB was reduced significantly from the prior year. The reduction occurred because, due to the overall negative Group result, no variable compensation was granted to GEB members for the performance year 2008. The total compensation for the highest-paid member of the GEB, Marcel Rohner, amounted to CHF 1,814,702 for the financial year 2008.
Base salary
Base salaries are established to be appropriate for the role of each senior executive on an individual basis. Base salaries consist of a fixed amount of compensation and any adjustments are limited to significant changes in job responsibility.
Benefits
In order to help attract and retain the best employees in each local market where it operates, UBS provides employee benefits that are competitive within each of these markets. Changes, terminations and the introduction of new benefits are governed by the procedures contained in the “Organization Regulations of UBS AG”. UBS considers benefits to be a supplemental element of total compensation and the benefits offered may vary substantially from location to location.
è | Refer to “Note 30 Pension and other post-retirement benefit plans” in the financial statements of this report for details on the various retirement benefit plans established in Switzerland and other major markets |
Total compensation for all members of the GEB | ||||||||||||||||||||||||||||||||
CHF, except where indicateda | ||||||||||||||||||||||||||||||||
Annual | ||||||||||||||||||||||||||||||||
incentive | Discretionary | Contributions | ||||||||||||||||||||||||||||||
Annual | award | award | to retirement | |||||||||||||||||||||||||||||
For the | incentive | (shares; | (options; | Benefits | benefits | |||||||||||||||||||||||||||
Name, function | year ended | Base salary | award (cash) | fair value)b | fair value)c | in kindd | planse | Total | ||||||||||||||||||||||||
Marcel Rohner, Group Chief Executive Officer | ||||||||||||||||||||||||||||||||
(highest-paid) | 2008 | 1,500,000 | 0 | 0 | 0 | 161,768 | 152,934 | 1,814,702 | ||||||||||||||||||||||||
Rory Tapner, Chairman & | ||||||||||||||||||||||||||||||||
CEO Asia Pacific (highest-paid) | 2007 | 1,291,960 | 4,501,900 | 4,501,904 | 0 | 10,256 | 900 | 10,306,920 | ||||||||||||||||||||||||
Aggregate of all members of the GEB who | ||||||||||||||||||||||||||||||||
were in office on 31 December 20081 | 2008 | 7,815,943 | 0 | 0 | 0 | 457,652 | 817,315 | 9,090,911 | ||||||||||||||||||||||||
Aggregate of all members of the GEB who | ||||||||||||||||||||||||||||||||
were in office on 31 December 20071 | 2007 | 6,995,885 | 15,305,667 | 15,305,708 | 0 | 532,706 | 912,974 | 39,052,939 | ||||||||||||||||||||||||
Aggregate of all members of the GEB who | ||||||||||||||||||||||||||||||||
stepped down during 20082 | 2008 | 1,614,871 | 0 | 0 | 0 | 234,838 | 258,423 | 2,108,132 | ||||||||||||||||||||||||
Aggregate of all members of the GEB who | ||||||||||||||||||||||||||||||||
stepped down during 20072 | 2007 | 2,511,947 | 23,042,376 | 6,750,036 | 0 | 406,567 | 275,635 | 32,986,561 | ||||||||||||||||||||||||
1 Number and distribution to senior executives: 2008: 12 GEB members in office on 31 December. 2007: eight GEB members in office on 31 December. 2 Number and distribution of senior executives: 2008: includes four months in office as a GEB member for Peter Kurer, eight months in office for Marco Suter and 10 months for Joe Scoby. 2007: includes nine months in office for Huw Jenkins and Clive Standish and six months for Peter Wuffli. |
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Compensation, shareholdings and loans
Cash and equity incentives
“Pay for performance” is the guiding principle of the UBS executive compensation policy. As discussed above, the human resources and compensation committee decided not to grant any variable cash or equity compensation to GEB members for 2008. This decision recognizes the overall poor performance of the Group and the failure to achieve key performance targets despite some highly successful businesses within each of the business groups.divisions.
Replacement of forfeited awards for former employer compensation
Group Managing Boardprice of CHF 28.10, as well as a cash amount of CHF 370,000. In line with market practice, these awards were granted as a replacement for compensation and benefits forfeited from their previous employment as a result of joining UBS.
TheEmployment contracts
There were no material changes to employment agreements for existing GEB members during 2008 and the 12-month notice period remained unchanged for the financial year 2008.
Compensation to former members of the Board of
Directors and Group ManagingExecutive Board (GMB)
Compensation and benefits in kind paid to former members of the BoD and the GEB reflect legacy agreements still honored by UBS.
Compensation paid to former members of the BoD and GEB1 | |||||||||||||||||||||||||||||||
CHF, except where indicateda | |||||||||||||||||||||||||||||||
For the | Benefits in | ||||||||||||||||||||||||||||||
Name, function | year ended | Compensation | kind | Total | |||||||||||||||||||||||||||
Georges Blum, former member of the BoD | 2008 | 101,579 | 101,579 | ||||||||||||||||||||||||||||
(Swiss Bank Corporation) | 2007 | 90,803 | 90,803 | ||||||||||||||||||||||||||||
Franz Galliker, former member of the BoD | 2008 | 69,596 | 69,596 | ||||||||||||||||||||||||||||
(Swiss Bank Corporation) | 2007 | 62,174 | 62,174 | ||||||||||||||||||||||||||||
Walter G. Frehner, former member of the BoD | 2008 | 74,663 | 74,663 | ||||||||||||||||||||||||||||
(Swiss Bank Corporation) | 2007 | 73,061 | 73,061 | ||||||||||||||||||||||||||||
Hans (Liliane) Strasser, former member of the BoD | 2008 | 32,673 | 32,673 | ||||||||||||||||||||||||||||
(Swiss Bank Corporation) | 2007 | 42,311 | 42,311 | ||||||||||||||||||||||||||||
Robert Studer, former member of the BoD | 2008 | 126,208 | 126,208 | ||||||||||||||||||||||||||||
(Union Bank of Switzerland) | 2007 | 260,162 | 260,162 | ||||||||||||||||||||||||||||
Alberto Togni, former member of the BoD | 2008 | 318,461 | 427,949 | 746,410 | |||||||||||||||||||||||||||
(UBS) | 2007 | 318,401 | 502,478 | 820,879 | |||||||||||||||||||||||||||
Philippe de Weck, former member of the BoD | 2008 | 109,703 | 109,703 | ||||||||||||||||||||||||||||
(Union Bank of Switzerland) | 2007 | 129,701 | 129,701 | ||||||||||||||||||||||||||||
Aggregate of all former members of the GEB2 | 2008 | 0 | 171,180 | 171,180 | |||||||||||||||||||||||||||
2007 | 0 | 257,791 | 257,791 | ||||||||||||||||||||||||||||
Aggregate of all former members of the BoD and GEB | 2008 | 318,461 | 1,113,551 | 1,432,012 | |||||||||||||||||||||||||||
2007 | 318,401 | 1,418,481 | 1,736,882 | ||||||||||||||||||||||||||||
1 Compensation or remuneration that is connected with the former members’ activity on the BoD or GEB, or that is not at market conditions. 2 Includes two former GEB members. |
228
Corporate governance and compensation |
Explanations of compensation details for executive members of the BoD and members of the GEB: | ||||
a. | Local currencies are converted into CHF using the exchange rates as detailed in “Note 39 Currency translation rates” in the financial statements of this report. | |||
b. | Values per share at grant: CHF 36.15/USD 33.55 for shares granted in 2008 related to the performance year 2007. CHF prices are the average price of UBS shares at SWX Europe over the last 10 trading days of February, and USD prices are the average price of UBS shares at the NYSE over the last 10 trading days of February in the year in which they are granted. | |||
c. | No options were granted in 2009 for the performance year 2008. | |||
d. | Benefits in kind – car leasing, company car allowance, staff discount on banking products and services, health and welfare benefits and general expense allowances – are all valued at market price. | |||
e. | Swiss senior executives participate in the same pension plan as all other employees. Under this plan, employees receive a company contribution to the plan which covers compensation up to CHF 820,800. The retirement benefits consist of a pension, a bridging pension and a one-off payout of accumulated capital. Employees must also contribute to the plan. This figure excludes the mandatory employer’s social security contributions (AHV, ALV) but includes the portion attributed to the employer’s portion of the legal BVG requirement. The employee contribution is included in the base salary and annual incentive award components. | |||
In both the US and the UK, senior executives participate in the same plans as all other employees. In the US there are two different plans, one of which operates on a cash balance basis, which entitles the participant to receive a company contribution based on compensation limited to USD 250,000. This plan is no longer available to new hires. US senior executives may also participate in the UBS 401K-defined contribution plan (open to all employees), which provides a company matching contribution for employee contributions. In the UK, senior executives participate in either the principal pension plan, which is limited to an earnings cap of GBP 100,000, or a grandfathered defined benefit plan which provides a pension on retirement based on career average base salary (uncapped). |
229
Corporate governance and compensation
Compensation, shareholdings and loans
Shares, options and loans for the Board of Directors and Group Executive Board (at end of 2008) | ||||||||||||||||||||||||||
Share and option ownership of members of the BoD at 31 December 2007/2008 | ||||||||||||||||||||||||||
For the | Number of | Voting rights | Number of | Potentially conferred | Type and quantity | |||||||||||||||||||||
Name, function1 | year ended | shares held | in % | options held | voting rights in %2 | of options3 | ||||||||||||||||||||
Peter Kurer, Chairman | 2008 | 416,088 | 0.025 | 372,995 | 0.022 | xxx: | 85 256 | |||||||||||||||||||
xxxv: | 95 913 | |||||||||||||||||||||||||
xli: | 95 913 | |||||||||||||||||||||||||
xlv: | 95 913 | |||||||||||||||||||||||||
2007 | 292,762 | 0.026 | 350,000 | 0.031 | xxx: | 80 000 | ||||||||||||||||||||
xxxv: | 90 000 | |||||||||||||||||||||||||
xli: | 90 000 | |||||||||||||||||||||||||
xlv: | 90 000 | |||||||||||||||||||||||||
Sergio Marchionne, | 2008 | 87,926 | 0.005 | 0 | 0.000 | |||||||||||||||||||||
senior independent director, vice chairman | 2007 | 45,800 | 0.004 | 0 | 0.000 | |||||||||||||||||||||
Ernesto Bertarelli, member | 2008 | 89,434 | 0.005 | 0 | 0.000 | |||||||||||||||||||||
2007 | 48,411 | 0.004 | 0 | 0.000 | ||||||||||||||||||||||
Sally Bott, member | 2008 | 1 | 0.000 | 0 | 0.000 | |||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Rainer-Marc Frey, member | 2008 | 0 | 0.000 | 0 | 0.000 | |||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Bruno Gehrig, member | 2008 | 3,000 | 0.000 | 0 | 0.000 | |||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Gabrielle Kaufmann-Kohler, member | 2008 | 18,713 | 0.001 | 0 | 0.000 | |||||||||||||||||||||
2007 | 3,303 | 0.000 | 0 | 0.000 | ||||||||||||||||||||||
Helmut Panke, member | 2008 | 31,971 | 0.002 | 0 | 0.000 | |||||||||||||||||||||
2007 | 13,206 | 0.001 | 0 | 0.000 | ||||||||||||||||||||||
William G. Parrett, member | 2008 | 4,000 | 0.000 | 0 | 0.000 | |||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
David Sidwell, member | 2008 | 1 | 0.000 | 0 | 0.000 | |||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Peter R. Voser, member | 2008 | 30,823 | 0.002 | 0 | 0.000 | |||||||||||||||||||||
2007 | 11,580 | 0.001 | 0 | 0.000 | ||||||||||||||||||||||
Joerg Wolle, member | 2008 | 41,509 | 0.002 | 0 | 0.000 | |||||||||||||||||||||
2007 | 7,709 | 0.001 | 0 | 0.000 | ||||||||||||||||||||||
1This table includes vested, unvested, blocked and unblocked shares and options held by members of the BoD including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation and other compensation plans” in the financial statements of this report for more information. |
Group Executive Board
Senior executive share ownership policy
plus cash incentive award). Due to changes in the compensation model, the share ownership policy will be changed from 2009 onwards (refer to the “Compensation principles 2009 and beyond for UBS senior executives” section of this report for more information). Senior executives are not permitted to enter into any transaction which hedges, mitigates or otherwise transfers the risk of price movements of unvested UBS shares, notional shares or stock options granted under UBS compensation plans.
230
Corporate governance and compensation |
Share and option ownership of members of the GEB at 31 December 2007/2008 | ||||||||||||||||||||||||||
For the | Number of | Voting rights | Number of | Potentially conferred | Type and quantity | |||||||||||||||||||||
Name, function1 | year ended | shares held | in % | options held | voting rights in %2 | of options3 | ||||||||||||||||||||
Marcel Rohner, | 2008 | 711,366 | 0.042 | 1,055,043 | 0.063 | xxv: | 31,971 | |||||||||||||||||||
Group Chief Executive Officer | xxx: | 213,140 | ||||||||||||||||||||||||
xxxv: | 277,082 | |||||||||||||||||||||||||
xli: | 319,710 | |||||||||||||||||||||||||
xlv: | 213,140 | |||||||||||||||||||||||||
2007 | 501,846 | 0.044 | 990,000 | 0.088 | xxv: | 30,000 | ||||||||||||||||||||
xxx: | 200,000 | |||||||||||||||||||||||||
xxxv: | 260,000 | |||||||||||||||||||||||||
xli: | 300,000 | |||||||||||||||||||||||||
xlv: | 200,000 | |||||||||||||||||||||||||
John Cryan, | 2008 | 235,929 | 0.014 | 382,673 | 0.023 | v: | 21,362 | |||||||||||||||||||
Group Chief Financial Officer | vi: | 20,731 | ||||||||||||||||||||||||
vii: | 20,725 | |||||||||||||||||||||||||
xii: | 5,454 | |||||||||||||||||||||||||
xiii: | 5,294 | |||||||||||||||||||||||||
xiv: | 5,292 | |||||||||||||||||||||||||
xvii: | 23,626 | |||||||||||||||||||||||||
xviii: | 23,620 | |||||||||||||||||||||||||
xix: | 23,612 | |||||||||||||||||||||||||
xxi: | 5,526 | |||||||||||||||||||||||||
xxii: | 5,524 | |||||||||||||||||||||||||
xxiii: | 5,524 | |||||||||||||||||||||||||
xxvii: | 17,072 | |||||||||||||||||||||||||
xxviii: | 17,068 | |||||||||||||||||||||||||
xxix: | 17,063 | |||||||||||||||||||||||||
xxxii: | 14,210 | |||||||||||||||||||||||||
xxxiii: | 14,210 | |||||||||||||||||||||||||
xxxiv: | 14,207 | |||||||||||||||||||||||||
xxxviii: | 5,330 | |||||||||||||||||||||||||
xxxix: | 5,328 | |||||||||||||||||||||||||
xl: | 5,326 | |||||||||||||||||||||||||
xlii: | 17,762 | |||||||||||||||||||||||||
xliii: | 17,762 | |||||||||||||||||||||||||
xliv: | 17,760 | |||||||||||||||||||||||||
xlvi: | 53,285 | |||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Markus U. Diethelm, | 2008 | 112,245 | 0.007 | 0 | 0.000 | 0 | ||||||||||||||||||||
Group General Counsel | 2007 | |||||||||||||||||||||||||
John A. Fraser, | 2008 | 583,812 | 0.035 | 1,144,808 | 0.068 | i: | 56,013 | |||||||||||||||||||
Chairman and CEO | viii: | 76,380 | ||||||||||||||||||||||||
Global Asset Management | xv: | 127,884 | ||||||||||||||||||||||||
xx: | 127,884 | |||||||||||||||||||||||||
xxxi: | 170,512 | |||||||||||||||||||||||||
xxxvi: | 202,483 | |||||||||||||||||||||||||
xli: | 213,140 | |||||||||||||||||||||||||
xlv: | 170,512 | |||||||||||||||||||||||||
2007 | 461,764 | 0.041 | 1,074,232 | 0.095 | i: | 52,560 | ||||||||||||||||||||
viii: | 71,672 | |||||||||||||||||||||||||
xv: | 120,000 | |||||||||||||||||||||||||
xx: | 120,000 | |||||||||||||||||||||||||
xxxi: | 160,000 | |||||||||||||||||||||||||
xxxvi: | 190,000 | |||||||||||||||||||||||||
xli: | 200,000 | |||||||||||||||||||||||||
xlv: | 160,000 | |||||||||||||||||||||||||
Marten Hoekstra, | 2008 | 245,397 | 0.015 | 684,168 | 0.041 | ii: | 8,679 | |||||||||||||||||||
Deputy CEO Global Wealth | iii: | 8,421 | ||||||||||||||||||||||||
Management & Business Banking | iv: | 8,421 | ||||||||||||||||||||||||
and Head Wealth Management US | ix: | 8,823 | ||||||||||||||||||||||||
x: | 12,825 | |||||||||||||||||||||||||
xi: | 8,561 | |||||||||||||||||||||||||
xxvi: | 42,628 | |||||||||||||||||||||||||
xxxi: | 53,285 | |||||||||||||||||||||||||
xxxvi: | 53,285 | |||||||||||||||||||||||||
xli: | 85,256 | |||||||||||||||||||||||||
xlv: | 154,931 | |||||||||||||||||||||||||
xlvii: | 239,053 | |||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Jerker Johansson, | 2008 | 521,544 | 0.031 | 753,410 | 0.045 | xlviii: | 745,990 | |||||||||||||||||||
Chairman and CEO Investment Bank | xlix: | 7,420 | ||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
1This table includes vested and unvested shares and options held by members of the GEB including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation and other compensation plans” in the financial statements of this report for more information. |
231
Corporate governance and compensation
Compensation, shareholdings and loans
Share and option ownership of members of the GEB on 31 December 2007/2008 (continued) | ||||||||||||||||||||||||||
For the | Number of | Voting rights | Number of | Potentially conferred | Type and quantity | |||||||||||||||||||||
Name, function1 | year ended | shares held | in % | options held | voting rights in %2 | of options3 | ||||||||||||||||||||
Philip J. Lofts, | 2008 | 186,434 | 0.011 | 577,723 | 0.034 | v: | 11,445 | |||||||||||||||||||
Group Chief Risk Officer | vi: | 11,104 | ||||||||||||||||||||||||
vii: | 11,098 | |||||||||||||||||||||||||
xii: | 1,240 | |||||||||||||||||||||||||
xiii: | 5,464 | |||||||||||||||||||||||||
xiv: | 1,199 | |||||||||||||||||||||||||
xvii: | 9,985 | |||||||||||||||||||||||||
xviii: | 9,980 | |||||||||||||||||||||||||
xix: | 9,974 | |||||||||||||||||||||||||
xxi: | 1,833 | |||||||||||||||||||||||||
xxii: | 1,830 | |||||||||||||||||||||||||
xxiii: | 1,830 | |||||||||||||||||||||||||
xxvii: | 35,524 | |||||||||||||||||||||||||
xxviii: | 35,524 | |||||||||||||||||||||||||
xxix: | 35,521 | |||||||||||||||||||||||||
xxxv: | 117,090 | |||||||||||||||||||||||||
xli: | 117,227 | |||||||||||||||||||||||||
xlv: | 85,256 | |||||||||||||||||||||||||
xlvii: | 74,599 | |||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Walter Stuerzinger, | 2008 | 296,886 | 0.018 | 372,995 | 0.022 | xvi: | 31,971 | |||||||||||||||||||
Chief Operating Officer, | xxx: | 63,942 | ||||||||||||||||||||||||
Corporate Center | xxxv: | 85,256 | ||||||||||||||||||||||||
xli: | 95,913 | |||||||||||||||||||||||||
xlv: | 95,913 | |||||||||||||||||||||||||
2007 | 209,442 | 0.019 | 350,000 | 0.031 | xvi: | 30,000 | ||||||||||||||||||||
xxx: | 60,000 | |||||||||||||||||||||||||
xxxv: | 80,000 | |||||||||||||||||||||||||
xli: | 90,000 | |||||||||||||||||||||||||
xlv: | 90,000 | |||||||||||||||||||||||||
Rory Tapner, | 2008 | 827,809 | 0.049 | 1,379,533 | 0.082 | vii: | 281,862 | |||||||||||||||||||
Chairman and CEO Asia Pacific | xv: | 213,140 | ||||||||||||||||||||||||
xxiv: | 213,140 | |||||||||||||||||||||||||
xxx: | 170,512 | |||||||||||||||||||||||||
xxxv: | 159,855 | |||||||||||||||||||||||||
xli: | 170,512 | |||||||||||||||||||||||||
xlv: | 170,512 | |||||||||||||||||||||||||
2007 | 514,365 | 0.046 | 1,294,486 | 0.115 | vii: | 264,486 | ||||||||||||||||||||
xv: | 200,000 | |||||||||||||||||||||||||
xxiv: | 200,000 | |||||||||||||||||||||||||
xxx: | 160,000 | |||||||||||||||||||||||||
xxxv: | 150,000 | |||||||||||||||||||||||||
xli: | 160,000 | |||||||||||||||||||||||||
xlv: | 160,000 | |||||||||||||||||||||||||
Raoul Weil, | 2008 | 315,698 | 0.019 | 432,409 | 0.026 | xv: | 53,285 | |||||||||||||||||||
Chairman and CEO Global Wealth | xxxv: | 102,281 | ||||||||||||||||||||||||
Management & Business Banking, | xli: | 127,884 | ||||||||||||||||||||||||
relinquished his duties on | xlv: | 148,959 | ||||||||||||||||||||||||
an interim basis | 2007 | 212,934 | 0.019 | 405,752 | 0.036 | xv: | 50,000 | |||||||||||||||||||
xxxv: | 95,976 | |||||||||||||||||||||||||
xli: | 120,000 | |||||||||||||||||||||||||
xlv: | 139,776 | |||||||||||||||||||||||||
Alexander Wilmot-Sitwell, | 2008 | 304,655 | 0.018 | 353,807 | 0.021 | xxxiv: | 53,282 | |||||||||||||||||||
Chairman and CEO, UBS Group EMEA | xxxvii: | 2,130 | ||||||||||||||||||||||||
and Joint Global Head IB Department | xxxviii: | 35,524 | ||||||||||||||||||||||||
xxxix: | 35,524 | |||||||||||||||||||||||||
xl: | 35,521 | |||||||||||||||||||||||||
xlv: | 106,570 | |||||||||||||||||||||||||
xlvii: | 85,256 | |||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Robert Wolf, | 2008 | 827,307 | 0.049 | 948,473 | 0.056 | xx: | 287,739 | |||||||||||||||||||
Chairman and CEO, UBS Group | xxxi: | 213,140 | ||||||||||||||||||||||||
Americas/President Investment Bank | xxxvi: | 127,884 | ||||||||||||||||||||||||
xli: | 106,570 | |||||||||||||||||||||||||
xlv: | 106,570 | |||||||||||||||||||||||||
xlvii: | 106,570 | |||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
1This table includes vested and unvested shares and options held by members of the GEB including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation and other compensation plans” in the financial statements of this report for more information. |
232
Corporate governance and compensation |
Total of all blocked and unblocked shares held by non-executive members of the BoD1 | ||||||||||||||||||||||||||
Total | Of which non-restricted | Of which blocked until | ||||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | |||||||||||||||||||||||
Shares held on 31 December 2008 | 307,378 | 177,027 | 12,126 | 13,592 | 30,193 | 74,440 | ||||||||||||||||||||
2008 | 2009 | 2010 | 2011 | |||||||||||||||||||||||
Shares held on 31 December 2007 | 296,533 | 134,808 | 30,602 | 43,096 | 35,874 | 52,153 | ||||||||||||||||||||
1 Includes related parties. | ||||||||||||||||||||||||||
No individual board member holds 1% or more of all shares issued. |
Total of all vested and unvested shares held by the executive members of the BoD and members of the GEB1 | ||||||||||||||||||||||||||||||
Total | Of which vested | Of which vesting | ||||||||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | ||||||||||||||||||||||||||
Shares held on 31 December 2008 | 5,585,170 | 2,977,807 | 1,058,881 | 595,638 | 461,376 | 319,776 | 171,692 | |||||||||||||||||||||||
2008 | 2009 | 2010 | 2011 | 2012 | ||||||||||||||||||||||||||
Shares held on 31 December 2007 | 6,396,479 | 3,831,550 | 796,533 | 653,726 | 526,425 | 362,709 | 225,536 | |||||||||||||||||||||||
1 Includes related parties. | ||||||||||||||||||||||||||||||
No individual BoD or GEB member holds 1% or more of all shares issued. |
233
Corporate governance and compensation
Compensation, shareholdings and loans
Vested and unvested options held by independent members of the BoD and by members of the GEB on 31 December 2007 / 2008 | ||||||||||||||||||||||||||
Type | Number of options | Year of grant | Vesting date | Expiry date | Subscription ratio | Strike price | ||||||||||||||||||||
i | 56,013 | 2001 | 20.02.2004 | 20.02.2009 | 1:1 | CHF 46.92 | ||||||||||||||||||||
ii | 8,679 | 2002 | 31.01.2002 | 31.07.2012 | 1:1 | USD 21.24 | ||||||||||||||||||||
iii | 8,421 | 2002 | 31.01.2004 | 31.07.2012 | 1:1 | USD 21.24 | ||||||||||||||||||||
iv | 8,421 | 2002 | 31.01.2005 | 31.07.2012 | 1:1 | USD 21.24 | ||||||||||||||||||||
v | 32,807 | 2002 | 31.01.2003 | 31.01.2012 | 1:1 | CHF 36.49 | ||||||||||||||||||||
vi | 31,835 | 2002 | 31.01.2004 | 31.01.2012 | 1:1 | CHF 36.49 | ||||||||||||||||||||
vii | 313,685 | 2002 | 31.01.2005 | 31.01.2012 | 1:1 | CHF 36.49 | ||||||||||||||||||||
viii | 76,380 | 2002 | 31.01.2005 | 31.01.2012 | 1:1 | USD 21.24 | ||||||||||||||||||||
ix | 8,823 | 2002 | 28.02.2002 | 28.08.2012 | 1:1 | USD 21.70 | ||||||||||||||||||||
x | 12,825 | 2002 | 29.02.2004 | 28.08.2012 | 1:1 | USD 21.70 | ||||||||||||||||||||
xi | 8,561 | 2002 | 28.02.2005 | 28.08.2012 | 1:1 | USD 21.70 | ||||||||||||||||||||
xii | 6,694 | 2002 | 28.02.2003 | 28.02.2012 | 1:1 | CHF 36.65 | ||||||||||||||||||||
xiii | 10,758 | 2002 | 28.02.2004 | 28.02.2012 | 1:1 | CHF 36.65 | ||||||||||||||||||||
xiv | 6,491 | 2002 | 28.02.2005 | 28.02.2012 | 1:1 | CHF 36.65 | ||||||||||||||||||||
xv | 394,309 | 2002 | 28.06.2005 | 28.06.2012 | 1:1 | CHF 37.90 | ||||||||||||||||||||
xvi | 31,971 | 2002 | 28.06.2005 | 28.12.2012 | 1:1 | CHF 37.90 | ||||||||||||||||||||
xvii | 33,611 | 2003 | 01.03.2004 | 31.01.2013 | 1:1 | CHF 27.81 | ||||||||||||||||||||
xviii | 33,600 | 2003 | 01.03.2005 | 31.01.2013 | 1:1 | CHF 27.81 | ||||||||||||||||||||
xix | 33,586 | 2003 | 01.03.2006 | 31.01.2013 | 1:1 | CHF 27.81 | ||||||||||||||||||||
xx | 415,623 | 2003 | 31.01.2006 | 31.01.2013 | 1:1 | USD 22.53 | ||||||||||||||||||||
xxi | 7,359 | 2003 | 01.03.2004 | 28.02.2013 | 1:1 | CHF 26.39 | ||||||||||||||||||||
xxii | 7,354 | 2003 | 01.03.2005 | 28.02.2013 | 1:1 | CHF 26.39 | ||||||||||||||||||||
xxiii | 7,354 | 2003 | 01.03.2006 | 28.02.2013 | 1:1 | CHF 26.39 | ||||||||||||||||||||
xxiv | 213,140 | 2003 | 31.01.2006 | 31.01.2013 | 1:1 | CHF 30.50 | ||||||||||||||||||||
xxv | 31,971 | 2003 | 31.01.2006 | 31.07.2013 | 1:1 | CHF 30.50 | ||||||||||||||||||||
xxvi | 42,628 | 2003 | 31.01.2006 | 31.07.2013 | 1:1 | USD 22.53 | ||||||||||||||||||||
xxvii | 52,596 | 2004 | 01.03.2005 | 27.02.2014 | 1:1 | CHF 44.32 | ||||||||||||||||||||
xxviii | 52,592 | 2004 | 01.03.2006 | 27.02.2014 | 1:1 | CHF 44.32 | ||||||||||||||||||||
xxix | 52,584 | 2004 | 01.03.2007 | 27.02.2014 | 1:1 | CHF 44.32 | ||||||||||||||||||||
xxx | 532,850 | 2004 | 28.02.2007 | 27.02.2014 | 1:1 | CHF 48.69 | ||||||||||||||||||||
xxxi | 436,937 | 2004 | 01.03.2007 | 27.02.2014 | 1:1 | USD 38.13 | ||||||||||||||||||||
xxxii | 14,210 | 2005 | 01.03.2006 | 28.02.2015 | 1:1 | CHF 47.58 | ||||||||||||||||||||
xxxiii | 14,210 | 2005 | 01.03.2007 | 28.02.2015 | 1:1 | CHF 47.58 | ||||||||||||||||||||
xxxiv | 67,489 | 2005 | 01.03.2008 | 28.02.2015 | 1:1 | CHF 47.58 | ||||||||||||||||||||
xxxv | 837,477 | 2005 | 01.03.2008 | 28.02.2015 | 1:1 | CHF 52.32 | ||||||||||||||||||||
xxxvi | 383,652 | 2005 | 01.03.2008 | 28.02.2015 | 1:1 | USD 44.81 | ||||||||||||||||||||
xxxvii | 2,130 | 2005 | 04.03.2007 | 04.03.2015 | 1:1 | CHF 47.89 | ||||||||||||||||||||
xxxviii | 40,854 | 2006 | 01.03.2007 | 28.02.2016 | 1:1 | CHF 65.97 | ||||||||||||||||||||
xxxix | 40,852 | 2006 | 01.03.2008 | 28.02.2016 | 1:1 | CHF 65.97 | ||||||||||||||||||||
xl | 40,847 | 2006 | 01.03.2009 | 28.02.2016 | 1:1 | CHF 65.97 | ||||||||||||||||||||
xli | 1,332,125 | 2006 | 01.03.2009 | 28.02.2016 | 1:1 | CHF 72.57 | ||||||||||||||||||||
xlii | 17,762 | 2007 | 01.03.2008 | 28.02.2017 | 1:1 | CHF 67.00 | ||||||||||||||||||||
xliii | 17,762 | 2007 | 01.03.2009 | 28.02.2017 | 1:1 | CHF 67.00 | ||||||||||||||||||||
xliv | 17,760 | 2007 | 01.03.2010 | 28.02.2017 | 1:1 | CHF 67.00 | ||||||||||||||||||||
xlv | 1,348,276 | 2007 | 01.03.2010 | 28.02.2017 | 1:1 | CHF 73.67 | ||||||||||||||||||||
xlvi | 53,285 | 2008 | 01.03.2011 | 28.02.2018 | 1:1 | CHF 32.45 | ||||||||||||||||||||
xlvii | 505,478 | 2008 | 01.03.2011 | 28.03.2018 | 1:1 | CHF 35.66 | ||||||||||||||||||||
xlviii | 745,990 | 2008 | 01.03.2011 | 07.04.2018 | 1:1 | CHF 36.46 | ||||||||||||||||||||
xlix | 7,420 | 2008 | 01.03.2011 | 06.06.2018 | 1:1 | CHF 28.10 | ||||||||||||||||||||
234
Corporate governance and compensation |
Transactions in 2008
In accordance with applicable rules and regulations, management transactions in UBS shares by members of the Board of Directors (BoD) and the Group Executive Board (GEB) are publicly disclosed. On 16 May 2008, persons closely associated with them also have such reporting obligations. Transactions which require reporting are those involving all types of financial instruments whose price is primarily influenced by UBS shares. As a consequence of the issuance of new UBS shares in connection with the stock dividend approved by the extraordinary general meeting on 27 February 2008, the grandfathering of Swiss rules ended on 16 May 2008, and the EU requirements (paragraph 15a of the German Securities Trading Act) regarding the reporting of management transactions are now applicable.
235
Corporate governance and compensation
Compensation, shareholdings and loans
Loans As a global financial services provider and major Swiss domestic bank, UBS typically has business relationships with many large companies. Members of UBS’s BoD often assume management or independent board responsibilities in many of these companies. Moreover, the granting of loans to both individuals and companies is part of UBS’s ordinary business. The members of UBS’s BoD and GEB are granted loans, fixed advances and mortgages at arm’s length market terms. |
In 2008, loans granted to companies related to seven independent members of the BoD amounted to CHF 667.3 million, including guarantees, contingent liabilities and unused committed credit facilities. Refer to “Note 32 Related parties” in the financial statements of this report for more information. | ||||
Loans granted to former members of the Board of Directors and to the Group Executive Board In 2008, all loans granted to former members of the BoD and GEB, or to their related parties, were on at arm’s length market terms. |
Loans granted to members of the BoD at 31 December 2007/2008 | ||||||||||||||||
CHF, except where indicateda | ||||||||||||||||
For the | Other loans | |||||||||||||||
Name, function1 | year ended | Secured loans | granted | Total | ||||||||||||
Peter Kurer, Chairman2 | 2008 | 1,261,000 | 0 | 1,261,000 | ||||||||||||
2007 | ||||||||||||||||
Sergio Marchionne, Senior Independent Director, Vice Chairman | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | 0 | 0 | 0 | |||||||||||||
Ernesto Bertarelli, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | 0 | 0 | 0 | |||||||||||||
Sally Bott, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | ||||||||||||||||
Rainer-Marc Frey, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | ||||||||||||||||
Bruno Gehrig, member2 | 2008 | 798,000 | 0 | 798,000 | ||||||||||||
2007 | ||||||||||||||||
Gabrielle Kaufmann-Kohler, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | 0 | 0 | 0 | |||||||||||||
Helmut Panke, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | 0 | 0 | 0 | |||||||||||||
William G. Parrett, member2 | 2008 | 1,167,659 | 0 | 1,167,659 | ||||||||||||
2007 | ||||||||||||||||
David Sidwell, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | ||||||||||||||||
Peter R. Voser, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | 0 | 0 | 0 | |||||||||||||
Joerg Wolle, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | 0 | 0 | 0 | |||||||||||||
Aggregate of all members of the BoD | 3,226,659 | 0 | 3,226,659 | |||||||||||||
1 No loans have been granted to related parties of the members of the BoD at conditions not customary in the market. 2 Secured loans granted prior to their election to the BoD. | ||||||||||||||||
Loans granted to members of the GEB at 31 December 2007/2008 | ||||||||||||||||
CHF, except where indicateda | ||||||||||||||||
For the | Other loans | |||||||||||||||
Name, function1 | year ended | Secured loans | granted2 | Total | ||||||||||||
Markus U. Diethelm, Group General Counsel | 2008 | 3,900,000 | 0 | 3,900,000 | ||||||||||||
Joe Scoby, Group Chief Risk Officer3 | 2007 | 0 | 3,145,796 | 3,145,796 | ||||||||||||
Aggregate of all members of the GEB4 | 2008 | 7,740,562 | 0 | 7,740,562 | ||||||||||||
Aggregate of all members of the GEB | 2007 | 3,487,000 | 3,145,796 | 6,632,796 | ||||||||||||
1 No loans have been granted to related parties of the members of the GEB at conditions not customary in the market. 2 Guarantees. 3 Joe Scoby stepped down as Group Chief Risk Officer on 4 November 2008. 4 Including those members of the GEB who stepped down during 2008. |
236
Corporate governance and compensation |
Advisory vote
Compensation principles 2009 and beyond
for UBS senior executives
During 2008, the UBS Board of Directors (BoD) reviewed the incentive systems of the UBS Group (Group) and examined their level of alignment with the firm’s values and long-term orientation. Towards the end of the year, UBS announced that a new compensation model would apply from 2009 onwards. At the annual general meeting (AGM) to be held in 2009, shareholders will be invited to participate in an advisory vote on the principles of this new compensation model. This section of this report outlines these principles and explains how the new model will apply to the Chairman of the BoD, independent BoD members and Group Executive Board (GEB) members.
Compensation policy
TheChairman of the UBS BoD receives a fixed base salary that comprises cash and a pre-determined, fixed number of shares.1 The Chairman is not entitled to any variable compensation.
– | is based on long-term performance: Variable compensation remains an important component of the new model, but it is based on clear, long-term performance measures that take business risk into account. Two variable compensation schemes – one in cash (“cash balance plan”), one in equity (“performance equity plan”) – have been defined for the members of the GEB. The results of the senior executive’s business division will be a key factor in determining the amount of variable cash compensation to be awarded. In unprofitable years no new variable cash compensation will be paid. In the performance equity plan, the final number of shares that each senior executive will receive can be determined only after three years, and will be |
based on achievement against two performance measures: economic profit and relative total shareholder return. | ||
– | addresses risk management: Pay that depends upon long-term performance increases risk awareness. Economic profit used to determine vesting of the performance equity plan is a market-recognized standard for measuring risk-adjusted profit taking into account the cost of equity capital, while the new cash plan no longer pays out immediately, but holds compensation at risk, subject to future business performance. | |
– | incorporates a “malus” system: A maximum of one-third of a senior executive’s variable cash incentive will be paid out at the beginning of the following year. Should certain material adverse events occur, a “malus” or negative award may be applied to the cash balance plan. Separately, the performance equity plan will deliver between zero and two times each senior executive’s target award. Failure to achieve threshold economic profit targets or a reasonable level of total shareholder return can result in a share delivery that is considerably below target or even zero. |
Compensation components
Chairman of the Board of Directors
From January 2009, the Chairman of the BoD receives a fixed base salary comprising cash and a pre-determined fixed number of UBS shares. These shares vest after four years and are subject to a “malus” in loss-making years over the vesting period. This compensation package does not include any variable, performance-dependent component, but does keep the Chairman’s pay aligned with long-term, sustainable value creation through its share component.
Independent members of the Board of Directors
The independent members of the BoD receive fixed remuneration only. Fees are paid 50% in cash and 50% in blocked
Compensation structure
Element of compensation | Chairman of the BoD | Independent members of BoD | Members of the GEB | ||||||||||||
Fixed pay | Base salary in cash and a fixed number of restricted share awards | Fixed fee (min. 50%; max. 100% in restricted share awards) | Base salary in cash | ||||||||||||
Variable cash compensation | No | No | Cash balance plan | ||||||||||||
Variable equity compensation | No | No | Performance equity plan | ||||||||||||
Share retention policy | Yes (vesting four years after grant) | Yes (blocked for 4 years) | Yes | ||||||||||||
237
Advisory vote
Corporate governance and compensation
Compensation, shareholdings and loans
UBS shares. However, members can elect to have 100% of their remuneration paid in blocked UBS shares. These shares are attributed with a price discount of 15% and restricted from sale for four years from the management teamsdate they are granted.
Group Executive Board
Members of the GEB are entitled to a fixed salary. In addition, they may receive variable compensation under either the cash balance plan or the performance equity plan or a combination of both (these plans are discussed below).
Base salary
Members of the GEB receive a fixed base salary that is determined according to the skills, experience and knowledge they bring to their role in the relevant market segment.
Cash balance plan
The cash balance plan rewards long-term profitability by linking variable cash compensation to sustained business groupsperformance. The plan allows for a maximum of one-third of a senior executive’s variable cash incentive to be paid out at the beginning of the following year, with the entire cash incentive in question to be paid out over a three-year period. As such, the plan provides a multi-year reflection of performance and compensation. This is designed to ensure that the financial impact of decisions and actions taken in one period impacts the variable compensation over a longer period of time. The system is significantly strengthened through inclusion of a bonus – malus system, which allows for the application of a “malus” or negative award to the balance of variable compensation. Circumstances in which this could occur include: incurring of a financial loss; material restatement of the Group’s financial statements; substantial underachievement of individual performance targets; or the taking of excessive risk or causing of harm to UBS. If a senior executive leaves UBS, the cash balance will be kept at risk for the remaining life of the plan in order to capture any tail risk events.
Performance equity plan
The performance equity plan is forward-looking and dependent on results produced over a three-year time period. At the
start of each performance period, senior executives are advised of a potential quantity of restricted performance shares that, subject to the achievement of pre-defined business targets, is expected to vest after three years. A final decision on the actual number of shares that will vest and transfer to the senior executive is only possible after the end of the three-year period, depending upon the level of performance achieved. If UBS’s performance over the three-year period is below target, the number of shares that vest is reduced and may be zero. Should UBS’s performance over the three-year period be above target, the actual number of shares may be adjusted up to two times the original target. Performance measurement for the first award will begin in 2009, with the first possible vesting in 2012. Performance shares are not eligible for dividends during the three-year measurement period.
– | Economic profit (EP) is an internal measure for value creation that reflects both profitability and the equity required to support business risk. It is calculated by subtracting the cost of equity capital from the annual net profit attributable to UBS shareholders. EP is only realized when the return on capital achieved is greater than the firm’s cost of capital. In order to offset accounting entries which distort the economic perspective, the EP calculation is adjusted for items not reflected in business performance. The three-year EP targets for the performance equity plan are based on the UBS strategic business plan and analyst expectations. Threshold, target and stretch performance goals have been defined for the 2009 – 2011 performance period based on expected EP performance and consideration of the expected market value associated with those EP performance levels. However, the human resources and compensation committee may revise the performance target if an exceptional event occurs that makes this either necessary or advisable. |
– | Total shareholder return (TSR) is an external measurement of value creation that measures the total return on a UBS share, i.e. both the dividend yield and the capital appreciation of the share price. UBS measures TSR over a three-year period relative to banking industry performance as |
Performance Equity Plan: basic design
238
Corporate governance and compensation |
Historic TSR ranking | |||||||||||||||
UBS rank/ | |||||||||||||||
Performance period | UBS TSR | # peer companies1 | |||||||||||||
1.4.99–1.4.02 | 4 | % | 16/27 | ||||||||||||
1.4.00–1.4.03 | (4 | %) | 11/27 | ||||||||||||
1.4.01–1.4.04 | 6 | % | 9/28 | ||||||||||||
1.4.02–1.4.05 | 10 | % | 9/30 | ||||||||||||
1.4.03–1.4.06 | 39 | % | 10/30 | ||||||||||||
1.4.04–1.4.07 | 18 | % | 19/30 | ||||||||||||
1.4.05–1.4.08 | (14 | %) | 28/30 | ||||||||||||
Vesting matrix
indicated by the components of the Dow Jones Banks Titans 30 Index©. This global index comprises the top 30 companies in the banking sector, as defined by Dow Jones, and has been chosen for its relevance to UBS (banking), for transparency (known listed companies), for sector coverage (30 leading global banks assessed by market capitalization, revenues, and net profit) and for independence (managed by Dow Jones). For greater transparency and consistent with best practice, the TSR for all companies in the index will be measured in a common currency (Swiss franc). |
inal target award. If a senior executive leaves UBS before the vesting of an award, the quantity of shares received will be pro-rated to the actual service period as well as being dependent upon the full three-year performance conditions. Awards may be forfeited under certain circumstances.
Employment contracts
All GEB members will receive new employment agreements during 2009, under which notice periods will be reduced from 12 months to six months. Furthermore, any discretionary variable compensation paid to senior executives who leave UBS will, as per the new employment agreements, be based on Group, business division and personal performance. Any amounts paid would be pro-rated to the end of the notice period and would use only variable cash compensation as a basis. Furthermore, any payments would generally be made under the cash balance plan, with two-thirds of any variable cash award being kept “at risk” for the remainder of the three-year performance cycle in order to capture any tail risk events. “Golden parachutes” (in the sense of ex gratia payments made to senior executives due to termination of employment) do not exist at UBS.
239
Advisory vote
Corporate Center or assume special Group functions. The GMB playsgovernance and compensation
Compensation, shareholdings and loans
Share retention policy
Effective 1 January 2009, the Chairman of the BoD and all GEB members are required to retain 75% of all vested shares (after payment of taxes) during their time in office and for a crucial roleperiod of eight years from the date of grant. This rule applies for all mandatory share-based compensation plans, in-
cluding the performance equity plan. For example, performance equity plan shares granted in achieving UBS’s onefirm vision and promoting2009 will continue to be restricted after vesting until 2017 unless the UBS agenda. Its role isexecutive leaves UBS.
Members asShare retention policy
240
Financial information
Table of 31 December 2007 and announced changescontents
244 | Introduction | |
245 | Accounting principles | |
246 | Critical accounting policies | |
251 |
251 | Management’s report on internal control over financial reporting | |
252 | Report of independent registered public accounting firm on internal control over financial reporting | |
254 | Report of the statutory auditor and the independent registered public accounting firm on the consolidated financial statements | |
256 | Income statement | |
257 | Balance sheet | |
258 | Statement of changes in equity | |
260 | Statement of recognized income and expense | |
261 | Statement of cash flows | |
263 | ||
263 | 1 Summary of significant accounting policies | |
281 | 2a Segment reporting | |
288 | 2b Segment reporting by geographic location | |
289 | ||
289 | 3 Net interest and trading income | |
291 | 4 Net fee and commission income | |
291 | 5 Other income | |
292 | 6 Personnel expenses | |
292 | 7 General and administrative expenses | |
293 | 8 Earnings per share (EPS) and shares outstanding | |
294 | ||
294 | ||
295 | ||
295 | ||
296 | ||
297 | ||
298 | ||
298 | ||
299 | ||
300 | ||
intangible assets |
302 | ||
17 Other assets | ||
303 | ||
303 | ||
303 | ||
305 | ||
306 | ||
310 | 22 Income taxes | |
312 | 23 Derivative instruments and hedge accounting | |
319 | ||
319 | ||
319 | ||
321 | ||
321 | ||
322 | ||
330 | ||
331 | ||
333 | ||
339 | ||
344 | ||
347 | 33 Post-balance-sheet events | |
347 | 34 Significant subsidiaries and associates | |
351 | 35 Invested assets and net new money | |
352 | 36 Business combinations | |
356 | 37 Discontinued operations | |
358 | 38 Reorganizations and disposals | |
360 | 39 Currency translation rates | |
360 | 40 Swiss banking law requirements | |
362 |
50242
Financial information |
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 GMB.
Members as of 31 December 2007
51243
52
More about UBS
Sources of informationIntroduction
Annual report 2007
Four reports make up UBS’s fullAnnual Report 2007. They comply with the US disclosure requirements for foreign private issuers as defined by Form 20-F of the Securities and Exchange Commission (SEC) and combine audited and non-audited information. All four reports are available in English and German (SAP no.80531). The four reports are:
Strategy, Performance and Responsibility 2007This provides a description of our firm, its strategy, organizational structure and financial performance for the last two years. It also discusses our standards for corporate behavior and responsibility, outlines demographic trends in our workforce and describes the way our people learn and are led.
Risk, Treasury and Capital Management 2007In addition to outlining the principles by which we manage and control risk, this report provides an account of developments in credit risk, market risk, operational risk and treasury management during 2007. It also providesFinancial information on UBS shares.
Corporate Governance and Compensation Report 20072008Comprehensive information on our governance arrangements is included in this report, which also explains how we manage our relationships with regulators and shareholders. Compensation of senior management and the Board of Directors (executive and non-executive members) is discussed here. This report can be ordered separately (SAP no. 82307).
Financial Statements 2007
This comprises the audited consolidated financial statements of UBS Group for 2008, 2007 2006 and 2005,2006, prepared according to the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). It
In addition to the four reports,Review 2007is distributed broadly to UBS shareholders and contains key information on our strategy and financials. This booklet summarizes the information in the four-part annual report.
Quarterly reports
We provide detailed quarterly financial reporting and analysis, including comment on the progress of our businesses and key strategic initiatives. These quarterly reports are available in English.
How to order reports
These reports are available in PDF format on the internet atwww.ubs.com/investors/topicsin the reporting section. Printed copies can be ordered from the same website by accessing the order / subscribe panel on the right-hand side of the screen. Alternatively, they can be ordered by quoting the SAP number and the language preference where applicable, from UBS AG, Information Center, P.O. Box, CH-8098 Zurich, Switzerland.
54
Information tools for investors
WebsiteOur Analysts & Investors website atwww.ubs.com/investorsoffers a wide range of information about UBS, financial information (including SEC filings), corporate information, share price graphs and data, an event calendar, dividend information and recent presentations given by senior management to investors at external conferences. Information on the internet is available in English and German, with some sections in French and Italian.
Messaging serviceOn the Analysts & Investors website, you can register to receive news alerts about UBS via Short Messaging System (SMS) or e-mail. Messages are sent in either English or German and users are able to state their preferences for the topics of the alerts received.
Results presentationsSenior management presents UBS’s results every quarter. These presentations are broadcast live over the internet, and can be downloaded on demand. The most recent result webcasts can be found in the financials section of our Analysts & Investors website.
Form 20-F and other submissions to the US Securities and Exchange Commission
We file periodic reports and submit other information about UBS to the US Securities and Exchange Commission (SEC). Principal among these filings is our annual report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934.
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.
UBS AG is incorporated and domiciled in Switzerland and operates under Swiss Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.
The addresses and telephone numbers of our two registered offices are: Bahnhofstrasse 45, CH-8001 Zurich, Switzerland, phone +41-44-234 11 11; and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, phone +41-61-288 20 20.
UBS AG shares are listed on the SWX Swiss Exchange (traded through its trading platform virt-x), on the New York Stock Exchange (NYSE) and on the Tokyo Stock Exchange (TSE).
55
More about UBS
Contacts
56
Cautionary statement regarding forward-looking statements |This report contains statements that constitute “forward-looking statements”, including but not limited to statements relating to the risks arising from the current market crisis, other risks specific to our business and the implementation of strategic initiatives, as well as other statements relating to our future business development and economic performance and our intentions with respect to future returns of capital. 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) the extent and nature of future developments in the US sub-prime market and in other market segments that have been affected by the current market crisis; (2) other market and macro-economic developments, including movements in local and international securities markets, credit spreads, currency exchange rates and interest rates, whether or not arising directly or indirectly from the current market crisis; (3) the impact of these developments on other markets and asset classes; (4) changes in internal risk control and in the regulatory capital treatment of UBS’s positions, in particular those affected by the current market crisis; (5) limitations in the effectiveness of our internal risk management processes, of our risk measurement, control and modeling systems, and of financial models generally; (6) developments relating to UBS’s access to capital and funding, including any changes in our credit ratings; (7) changes in the financial position or creditworthiness of our customers, obligors and counterparties, and developments in the markets in which they operate; (8) management changes and changes to the structure of our Business Groups; (9) the occurrence of operational failures, such as fraud, unauthorized trading, systems failures; (10) legislative, governmental and regulatory developments; (11) competitive pressures; (12) technological developments; and (13) the impact of all such future developments on positions held by UBS, on our short-term and longer-term earnings, on the cost and availability of funding and on our BIS capital ratios. In addition, these results could depend on other factors that we have previously 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 2007. UBS is not under any obligation to (and expressly disclaims any such obligation 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. 82307E-0801
Contents
1
Introduction
Introduction
This year we have changed the structure of our annual report. Based on feedback from users, our annual report now consists of four themed reports. These combine audited and non-audited information.
The four reports are:
Strategy, Performance and Responsibility 2007This provides a description of our firm, its strategy, organizational structure and financial performance for the last two years. It also discusses our standards for corporate behavior and responsibility, outlines demographic trends in our workforce and describes the way our people learn and are led.
Risk, Treasury and Capital Management 2007In addition to outlining the principles by which we manage and control risk, this report provides an account of developments in credit risk, market risk, operational risk and treasury management during 2007. It also provides information on UBS shares.
Corporate Governance and Compensation Report 2007Comprehensive information on our governance arrangements is included in this report, which also explains how we manage our relationships with regulators and shareholders. Compensation of senior management and the Board of Directors (executive and non-executive members) is discussed here.
Financial Statements 2007This comprises the audited financial statements of UBS for 2007, 2006 and 2005, prepared according to the International Financial Reporting Standards (IFRS). It also includes the audited financial statements of UBS AG (the parent bank) for 2007 and 2006, prepared according to Swiss banking law. Additional disclosure required by Swiss and US regulations is included where appropriate.
In addition to the four reports,Review 2007is distributed broadly to UBS shareholders and contains key information on our strategy and financials. This booklet summarizes the information in the four-part annual report.
If you only ordered specific reports in prior years, please note that the former Compensation Report is now calledCorporate Governance and Compensation Report 2007,and the former Annual Review is now calledReview 2007. Our contact details are listed in the final pages of this report – please be in contact with us so that we can arrange delivery of the reports you require.
This report contains information that is current as of the date of this report. We undertake no obligation to update this information or notify you if it should change or if new information should become available.
Our aim is to provide publications that are useful and informative. In order to ensure that UBS remains among the leading providers of corporate disclosure, we would like to hear your opinions on how we can improve the content and presentation of our products (see contact details on the final pages of this report).
UBS
2244
Financial Information |
Accounting Standards and Policies
3
Accounting Standards and PoliciesAccounting Principles
Accounting Principles
UBSUBS’s consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and stated in Swiss francs (CHF). Until 2006, UBS also reconciled its Financial Statements to US Generally Accepted Accounting Principles (US GAAP). It will now no longer do so after the SEC released a final rule on 21 December 2007 under which financial statements from foreign private issuers in the US will be accepted without reconciliation to GAAP if they are prepared in accordance with IFRS as issued by the International Accounting Standards Board. As a US listed company, we had provided in the Annual Financial Statements until and including 31 December 2006 a description of the significant differences which would have arisen if our accounts had been presented under US GAAP, a detailed reconciliation of equity and net profit attributable to UBS shareholders under IFRS to US GAAP, and additional disclosures required under US GAAP.
All references to 2008, 2007 2006 and 20052006 refer to the UBS Group and the Parent Bank’s fiscal years ended 31 December 2008, 2007 2006 and 2005.2006. The Financial Statements for the UBS Group and the Parent Bank have been audited by Ernst & Young Ltd. An explanation of the critical accounting policies applied in the preparation of ourUBS’s Financial Statements is provided in the next section. The basis of ourUBS’s accounting is givendescribed in Note 1 to the Financial Statements.
Standards for management accounting
Our management reporting systems and policies determine the revenues and expenses directly attributable to each business unit. The presentation of the business segments reflects UBS’s organizational structure and management responsibilities. Internal charges and transfer pricing adjustments are reflected in the performance of each business unit.
revenues to business units on a reasonable basis. Inter-business unit charges are predominantly reported in the line “Services (to) / from other business units” for both Business units concerned. Transactions between Business units are conducted at internally agreed transfer prices or at arm’s length. Corporate Center expenses are allocated to the operating Business units to the extent appropriate.
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Accounting Standards and Policies
Financial information
Critical accounting policies
Critical accounting policies
Basis of preparation and selection of policies
We prepare ourUBS prepares its Financial Statements in accordance with IFRS as issued by the International Accounting Standards Board. The application of certain of these accounting principles requires considerable 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 ourthe reported results. A broader and more detailed description of the accounting policies we employUBS employs is shown in Note 1 to the Financial Statements.
Fair value of financial instruments
Financial assets and financial liabilities in ourUBS’s trading portfolio, financial assets and liabilities designated at fair value, and derivative instruments, and financial assets available-for-sale are recorded at fair value on the balance sheet, with changessheet. Changes in the fair value of these financial instruments are recorded in netNet trading income in the income statement.statement, except for financial assets available-for-sale, for which changes in fair value are recorded directly in equity until realized or the assets are considered impaired. Key judgments affecting this accounting policy relate to how we determineUBS determines fair value for such assets and liabilities.
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Financial Information |
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Accounting Standards and PoliciesCritical accounting policies
– | Scaling the model reserve amounts upward in line with less favorable assumptions would reduce fair value by approximately CHF | |
– | Scaling the model reserve amounts downward in line with more favorable assumptions would increase fair value by approximately CHF |
Recognition of deferred day 1 profit or lossGoodwill impairment test
A closely related issue to determining fair value of financial instruments is the recognition of deferred day 1 profit or loss. We have entered into transactions, some of which will matureThe ongoing crisis in the long-term, where we determine fairfinancial markets dramatically changed industry dynamics and the related decrease in market capitalization of UBS made it necessary to monitor closely whether there was indication that goodwill allocated to its cash-generating units was impaired. At 31 December 2008, equity attributable to UBS shareholders stood at CHF 33 billion. UBS’s market capitalization, excluding the shares to be issued upon conversion of the MCNs, amounted to CHF 44 billion at 31 December 2008. On the basis of the impairment testing methodology described in Note 16, UBS concluded that the year-end 2008 balances of goodwill allocated to all its segments remain recoverable. Goodwill allocated to the Investment Bank at 31 December 2008 amounted to CHF 4.3 billion (CHF 5.2 billion at 31 December 2007), to Wealth Management US CHF 3.7 billion, Wealth Management International & Switzerland CHF 1.6 billion and Global Asset Management CHF 2.0 billion. The assessment of the goodwill in the Investment Bank, which is most affected by the financial market crises, was a key focus.
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Financial information
Reclassification of financial instruments
The International Accounting Standards Board published an amendment to International Accounting Standard 39 (IAS 39 Financial Instruments: Recognition and Measurement) on 13 October 2008, under which eligible financial assets, subject to certain conditions being met, may be amortized over the lifereclassified out of the transaction,“held for trading” category if the firm has the intent and ability to hold them for the foreseeable future or deferred until fair value can be determined using market observable inputs, or realized through settlement. In all instances, any unrecognized daymaturity.
Consolidation of Special Purpose Entities
UBS sponsors the formation of Special Purpose Entities (SPEs) primarily to allow clients to hold investments in separate legal entities, to allow clients to jointly invest in alternative assets, for asset securitization transactions and for buying or selling credit protection. In accordance with IFRS, we do
6
rewards of the assets held by the SPE reside with the clients. Typically, weUBS will receive service and commission fees for creation of the SPE, or because we actit acts as investment manager, custodian or in some other function. Many of these SPEs are single-investor or family trusts while others allow a broad number of investors to invest in a diversified asset base through a single share or certificate. These latter SPEs range from mutual funds to trusts investing in real estate. The majority of ourUBS’s SPEs isare created for client investment purposes and isare not consolidated. However, we consolidateUBS consolidates investment funds in cases where we provideit provides or have a moral obligation to provide financial support to a fund. In these instances weUBS generally assumeassumes the majority or a significant portion of the risks of the fund, which, combined with ourUBS’s role as investment manager, makes us the party that can exercise control over the entity.
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Financial Information |
Equity compensation
IFRS 2Share-based Paymentsaddresses the accounting for share-based employee compensation and was adopted by UBS on 1 January 2005 on a fully retrospective basis. The effect of applying IFRS 2 is disclosed in Note 1b) to the Financial Statements, and further information on UBS equity compensation plans, including inputs used to determine the fair value of options, is disclosed in Note 30 to the Financial Statements.
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Financial information
Deferred taxes
Deferred tax assets arise from a variety of sources, the most significant being: a) tax losses that can be carried forward to be utilized against profits in future years; and b) expenses recognized in the books but disallowed in the tax return until the associated cash flow occurs; and c) valuation changes of assets which need to be tax effected for book purposes but are taxable only when the valuation change is realized.occurs.
7
Accounting Standards and PoliciesCritical accounting policies
tax asset recognition is influenced by management’s assessment of UBS’s historic and future profitability profile. At each balance sheet date, existing assessments are reviewed and, if necessary, revised to reflect changed circumstances. In a situation where recent losses have been incurred, the relevant accountingac-
notAt 31 December 2008, recognized a significant amount of the potential deferred tax assets amount to CHF 8.9 billion. Recognized deferred tax assets include an amount related to tax loss carry-forwards of CHF 8.1 billion, mainly relating to thetax losses incurred in UBS AG, Switzerland, that we incurred and which are availablecan be utilized to offset against future taxable income duein Switzerland in future years. The losses mainly resulted from the write-down of investments in US subsidiaries. At 31 December 2007, recognized deferred tax assets amounted to CHF 3.2 billion.
Swiss tax losses can be carried forward for seven years. The deferred tax assets recognized at 31 December 2008 have been based on future profitability assumptions over a five year horizon. The level of assets recognized may, however, need to be adjusted in the recognition criteria set byfuture in the accounting standards. Seeevent of changes to those profitability assumptions. Refer to Note 22 to the Financial Statements for further details.
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Financial StatementsTable of Contents
Financial StatementsTable of Contents
Information |
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Financial StatementsinformationTable of Contents
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Financial StatementsManagement’s Report on Internal Control over Financial ReportingConsolidated financial statements
Consolidated financial statements
– | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; | |
– | Provide reasonable assurance that transactions are recorded as necessary to permit preparation and fair presentation of financial statements, and that receipts and expenditures of the company are being made only in accordance with authorizations of UBS management; and | |
– | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
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Financial Statementsinformation
Consolidated financial statements
Financial StatementsIncome statement
Income Statement | ||||||||||||||||||||||||||||||||||||||||
For the year ended | % change from | For the year ended | % change from | |||||||||||||||||||||||||||||||||||||
CHF million, except per share data | Note | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | Note | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||||||||||||||||||||
Continuing operations | ||||||||||||||||||||||||||||||||||||||||
Interest income | 3 | 109,112 | 87,401 | 59,286 | 25 | 3 | 65,890 | 109,112 | 87,401 | (40 | ) | |||||||||||||||||||||||||||||
Interest expense | 3 | (103,775 | ) | (80,880 | ) | (49,758 | ) | 28 | 3 | (59,687 | ) | (103,775 | ) | (80,880 | ) | (42 | ) | |||||||||||||||||||||||
Net interest income | 3 | 5,337 | 6,521 | 9,528 | (18 | ) | 3 | 6,203 | 5,337 | 6,521 | 16 | |||||||||||||||||||||||||||||
Credit loss (expense) / recovery | (238 | ) | 156 | 375 | (2,996 | ) | (238 | ) | 156 | |||||||||||||||||||||||||||||||
Net interest income after credit loss expense | 5,099 | 6,677 | 9,903 | (24 | ) | 3,207 | 5,099 | 6,677 | (37 | ) | ||||||||||||||||||||||||||||||
Net fee and commission income | 4 | 30,634 | 25,456 | 21,184 | 20 | 4 | 22,929 | 30,634 | 25,456 | (25 | ) | |||||||||||||||||||||||||||||
Net trading income | 3 | (8,353 | ) | 13,743 | 8,248 | 3 | (25,818 | ) | (8,353 | ) | 13,743 | (209 | ) | |||||||||||||||||||||||||||
Other income | 5 | 4,332 | 1,598 | 1,127 | 171 | 5 | 884 | 4,341 | 1,608 | (80 | ) | |||||||||||||||||||||||||||||
Revenues from industrial holdings | 268 | 262 | 229 | 2 | ||||||||||||||||||||||||||||||||||||
Total operating income | 31,980 | 47,736 | 40,691 | (33 | ) | 1,201 | 31,721 | 47,484 | (96 | ) | ||||||||||||||||||||||||||||||
Personnel expenses | 6 | 24,798 | 23,591 | 20,067 | 5 | 6 | 16,262 | 25,515 | 24,031 | (36 | ) | |||||||||||||||||||||||||||||
General and administrative expenses | 7 | 8,465 | 7,980 | 6,504 | 6 | 7 | 10,498 | 8,429 | 7,942 | 25 | ||||||||||||||||||||||||||||||
Depreciation of property and equipment | 15 | 1,251 | 1,252 | 1,247 | 0 | 15 | 1,241 | 1,243 | 1,244 | 0 | ||||||||||||||||||||||||||||||
Impairment of goodwill | 16, 38 | 341 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Amortization of intangible assets | 16 | 282 | 153 | 133 | 84 | 213 | 276 | 148 | (23 | ) | ||||||||||||||||||||||||||||||
Goods and materials purchased | 119 | 116 | 97 | 3 | ||||||||||||||||||||||||||||||||||||
Total operating expenses | 34,915 | 33,092 | 28,048 | 6 | 28,555 | 35,463 | 33,365 | (19 | ) | |||||||||||||||||||||||||||||||
Operating profit from continuing operations before tax | (2,935 | ) | 14,644 | 12,643 | (27,353 | ) | (3,742 | ) | 14,119 | (631 | ) | |||||||||||||||||||||||||||||
Tax expense | 22 | 1,311 | 2,785 | 2,465 | (53 | ) | 22 | (6,837 | ) | 1,369 | 2,998 | |||||||||||||||||||||||||||||
Net profit from continuing operations | (4,246 | ) | 11,859 | 10,178 | (20,517 | ) | (5,111 | ) | 11,121 | (301 | ) | |||||||||||||||||||||||||||||
Discontinued operations | ||||||||||||||||||||||||||||||||||||||||
Operating profit from discontinued operations before tax | 36 | 135 | 879 | 5,094 | (85 | ) | ||||||||||||||||||||||||||||||||||
Profit from discontinued operations before tax | 37 | 198 | 145 | 888 | 37 | |||||||||||||||||||||||||||||||||||
Tax expense | 22 | (266 | ) | (12 | ) | 582 | 22 | 1 | (258 | ) | (11 | ) | ||||||||||||||||||||||||||||
Net profit from discontinued operations | 401 | 891 | 4,512 | (55 | ) | 198 | 403 | 899 | (51 | ) | ||||||||||||||||||||||||||||||
Net profit | (3,845 | ) | 12,750 | 14,690 | (20,319 | ) | (4,708 | ) | 12,020 | (332 | ) | |||||||||||||||||||||||||||||
Net profit attributable to minority interests | 539 | 493 | 661 | 9 | 568 | 539 | 493 | 5 | ||||||||||||||||||||||||||||||||
from continuing operations | 539 | 390 | 430 | 38 | 520 | 539 | 390 | (4 | ) | |||||||||||||||||||||||||||||||
from discontinued operations | 0 | 103 | 231 | (100 | ) | 48 | 0 | 103 | ||||||||||||||||||||||||||||||||
Net profit attributable to UBS shareholders | (4,384 | ) | 12,257 | 14,029 | (20,887 | ) | (5,247 | ) | 11,527 | (298 | ) | |||||||||||||||||||||||||||||
from continuing operations | (4,785 | ) | 11,469 | 9,748 | (21,037 | ) | (5,650 | ) | 10,731 | (272 | ) | |||||||||||||||||||||||||||||
from discontinued operations | 401 | 788 | 4,281 | (49 | ) | 150 | 403 | 796 | (63 | ) | ||||||||||||||||||||||||||||||
Earnings per share | ||||||||||||||||||||||||||||||||||||||||
Basic earnings per share (CHF) | 8 | (2.28 | ) | 6.20 | 6.97 | 8 | (7.54 | ) | (2.42 | ) | 5.19 | (212 | ) | |||||||||||||||||||||||||||
from continuing operations | (2.49 | ) | 5.80 | 4.84 | (7.60 | ) | (2.61 | ) | 4.83 | (191 | ) | |||||||||||||||||||||||||||||
from discontinued operations | 0.21 | 0.40 | 2.13 | (48 | ) | 0.05 | 0.19 | 0.36 | (74 | ) | ||||||||||||||||||||||||||||||
Diluted earnings per share (CHF) | 8 | (2.28 | ) | 5.95 | 6.68 | 8 | (7.55 | ) | (2.43 | ) | 4.99 | (211 | ) | |||||||||||||||||||||||||||
from continuing operations | (2.49 | ) | 5.57 | 4.65 | (7.60 | ) | (2.61 | ) | 4.64 | (191 | ) | |||||||||||||||||||||||||||||
from discontinued operations | 0.21 | 0.38 | 2.03 | (45 | ) | 0.05 | 0.19 | 0.34 | (74 | ) |
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Balance Sheet | ||||||||||||||||
% change from | ||||||||||||||||
CHF million | Note | 31.12.07 | 31.12.06 | 31.12.06 | ||||||||||||
Assets | ||||||||||||||||
Cash and balances with central banks | 18,793 | 3,495 | 438 | |||||||||||||
Due from banks | 9 | 60,907 | 50,426 | 21 | ||||||||||||
Cash collateral on securities borrowed | 10 | 207,063 | 351,590 | (41 | ) | |||||||||||
Reverse repurchase agreements | 10 | 376,928 | 405,834 | (7 | ) | |||||||||||
Trading portfolio assets | 11 | 610,061 | 627,036 | (3 | ) | |||||||||||
Trading portfolio assets pledged as collateral | 11 | 164,311 | 251,478 | (35 | ) | |||||||||||
Positive replacement values | 23 | 428,217 | 292,975 | 46 | ||||||||||||
Financial assets designated at fair value | 12 | 11,765 | 5,930 | 98 | ||||||||||||
Loans | 9 | 335,864 | 297,842 | 13 | ||||||||||||
Financial investments available-for-sale | 13 | 4,966 | 8,937 | (44 | ) | |||||||||||
Accrued income and prepaid expenses | 11,953 | 10,361 | 15 | |||||||||||||
Investments in associates | 14 | 1,979 | 1,523 | 30 | ||||||||||||
Property and equipment | 15 | 7,234 | 6,913 | 5 | ||||||||||||
Goodwill and intangible assets | 16 | 14,538 | 14,773 | (2 | ) | |||||||||||
Other assets | 17, 22 | 18,000 | 17,249 | 4 | ||||||||||||
Total assets | 2,272,579 | 2,346,362 | (3 | ) | ||||||||||||
Liabilities | ||||||||||||||||
Due to banks | 18 | 145,762 | 203,689 | (28 | ) | |||||||||||
Cash collateral on securities lent | 10 | 31,621 | 63,088 | (50 | ) | |||||||||||
Repurchase agreements | 10 | 305,887 | 545,480 | (44 | ) | |||||||||||
Trading portfolio liabilities | 11 | 164,788 | 204,773 | (20 | ) | |||||||||||
Negative replacement values | 23 | 443,539 | 297,063 | 49 | ||||||||||||
Financial liabilities designated at fair value | 19 | 191,853 | 145,687 | 32 | ||||||||||||
Due to customers | 18 | 641,892 | 555,886 | 15 | ||||||||||||
Accrued expenses and deferred income | 21,848 | 21,527 | 1 | |||||||||||||
Debt issued | 19 | 222,077 | 190,143 | 17 | ||||||||||||
Other liabilities | 20, 21, 22 | 60,776 | 63,251 | (4 | ) | |||||||||||
Total liabilities | 2,230,043 | 2,290,587 | (3 | ) | ||||||||||||
Equity | ||||||||||||||||
Share capital | 207 | 211 | (2 | ) | ||||||||||||
Share premium | 8,884 | 9,870 | (10 | ) | ||||||||||||
Net income recognized directly in equity, net of tax | (1,188 | ) | 815 | |||||||||||||
Revaluation reserve from step acquisitions, net of tax | 38 | 38 | 0 | |||||||||||||
Retained earnings | 38,081 | 49,151 | (23 | ) | ||||||||||||
Equity classified as obligation to purchase own shares | (74 | ) | (185 | ) | 60 | |||||||||||
Treasury shares | (10,363 | ) | (10,214 | ) | (1 | ) | ||||||||||
Equity attributable to UBS shareholders | 35,585 | 49,686 | (28 | ) | ||||||||||||
Equity attributable to minority interests | 6,951 | 6,089 | 14 | |||||||||||||
Total equity | 42,536 | 55,775 | (24 | ) | ||||||||||||
Total liabilities and equity | 2,272,579 | 2,346,362 | (3 | ) | ||||||||||||
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Financial Statements
Financial information |
Balance sheet
Statement of Changes in Equity | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Share capital | ||||||||||||
Balance at the beginning of the year | 211 | 871 | 901 | |||||||||
Issue of share capital | 0 | 1 | 2 | |||||||||
Capital repayment by par value reduction | 0 | (631 | ) | 0 | ||||||||
Cancellation of second trading line treasury shares | (4 | ) | (30 | ) | (32 | ) | ||||||
Balance at the end of the year attributable to UBS shareholders | 207 | 211 | 871 | |||||||||
Share premium | ||||||||||||
Balance at the beginning of the year | 9,870 | 9,992 | 9,231 | |||||||||
Premium on shares issued and warrants exercised | 12 | 46 | 36 | |||||||||
Net premium / (discount) on treasury share and own equity derivative activity | (560 | ) | (271 | ) | (309 | ) | ||||||
Employee share and share option plans | 139 | (508 | ) | 768 | ||||||||
Tax benefits from deferred compensation awards | (577 | ) | 611 | 266 | ||||||||
Balance at the end of the year attributable to UBS shareholders | 8,884 | 9,870 | 9,992 | |||||||||
Balance at the end of the year attributable to minority interests | 556 | 461 | 2,415 | |||||||||
Balance at the end of the year | 9,440 | 10,331 | 12,407 | |||||||||
Net income recognized directly in equity, net of tax | ||||||||||||
Foreign currency translation | ||||||||||||
Balance at the beginning of the year | (1,618 | ) | (432 | ) | (2,520 | ) | ||||||
Movements during the year | (1,009 | ) | (1,186 | ) | 2,088 | |||||||
Subtotal – balance at the end of the year attributable to UBS shareholders1 | (2,627 | ) | (1,618 | ) | (432 | ) | ||||||
Balance at the end of the year attributable to minority interests | (480 | ) | (208 | ) | (26 | ) | ||||||
Subtotal – balance at the end of the year | (3,107 | ) | (1,826 | ) | (458 | ) | ||||||
Net unrealized gains / (losses) on financial investments available-for-sale, net of tax | ||||||||||||
Balance at the beginning of the year | 2,876 | 931 | 761 | |||||||||
Net unrealized gains / (losses) on financial investments available-for-sale | 1,213 | 2,574 | 463 | |||||||||
Impairment charges reclassified to the income statement | 14 | 19 | 96 | |||||||||
Realized gains reclassified to the income statement | (2,638 | ) | (649 | ) | (396 | ) | ||||||
Realized losses reclassified to the income statement | 6 | 1 | 7 | |||||||||
Subtotal – balance at the end of the year attributable to UBS shareholders | 1,471 | 2,876 | 931 | |||||||||
Balance at the end of the year attributable to minority interests | 32 | 30 | 21 | |||||||||
Subtotal – balance at the end of the year | 1,503 | 2,906 | 952 | |||||||||
Changes in fair value of derivative instruments designated as cash flow hedges, net of tax | ||||||||||||
Balance at the beginning of the year | (443 | ) | (681 | ) | (322 | ) | ||||||
Net unrealized gains / (losses) on the revaluation of cash flow hedges | 239 | 1 | (474 | ) | ||||||||
Net realized (gains) / losses reclassified to the income statement | 172 | 237 | 115 | |||||||||
Subtotal – balance at the end of the year attributable to UBS shareholders | (32 | ) | (443 | ) | (681 | ) | ||||||
Balance at the end of the year attributable to minority interests | 0 | 0 | 0 | |||||||||
Subtotal – balance at the end of the year | (32 | ) | (443 | ) | (681 | ) | ||||||
Net income recognized directly in equity, net of tax – attributable to UBS shareholders | (1,188 | ) | 815 | (182 | ) | |||||||
Net income recognized directly in equity – attributable to minority interests | (448 | ) | (178 | ) | (5 | ) | ||||||
Balance at the end of the year | (1,636 | ) | 637 | (187 | ) | |||||||
Revaluation reserve from step acquisitions, net of tax | ||||||||||||
Balance at the beginning of the year | 38 | 101 | 90 | |||||||||
Movements during the year | 0 | (63 | ) | 11 | ||||||||
Balance at the end of the year attributable to UBS shareholders | 38 | 38 | 101 | |||||||||
Retained earnings | ||||||||||||
Balance at the beginning of the year | 49,151 | 44,105 | 36,692 | |||||||||
Net profit attributable to UBS shareholders for the year | (4,384 | ) | 12,257 | 14,029 | ||||||||
Dividends paid2 | (4,275 | ) | (3,214 | ) | (3,105 | ) | ||||||
Cancellation of second trading line treasury shares | (2,411 | ) | (3,997 | ) | (3,511 | ) | ||||||
Balance at the end of the year attributable to UBS shareholders | 38,081 | 49,151 | 44,105 | |||||||||
Balance at the end of the year attributable to minority interests | 16 | (25 | ) | 170 | ||||||||
Balance at the end of the year | 38,097 | 49,126 | 44,275 | |||||||||
% change from | ||||||||||||||||
CHF million | Note | 31.12.08 | 31.12.07 | 31.12.07 | ||||||||||||
Assets | ||||||||||||||||
Cash and balances with central banks | 32,744 | 18,793 | 74 | |||||||||||||
Due from banks | 9 | 64,451 | 60,907 | 6 | ||||||||||||
Cash collateral on securities borrowed | 10 | 122,897 | 207,063 | (41 | ) | |||||||||||
Reverse repurchase agreements | 10 | 224,648 | 376,928 | (40 | ) | |||||||||||
Trading portfolio assets | 11 | 271,838 | 660,182 | (59 | ) | |||||||||||
Trading portfolio assets pledged as collateral | 11 | 40,216 | 114,190 | (65 | ) | |||||||||||
Positive replacement values | 23 | 854,100 | 428,217 | 99 | ||||||||||||
Financial assets designated at fair value | 12 | 12,882 | 11,765 | 9 | ||||||||||||
Loans | 9 | 340,308 | 335,864 | 1 | ||||||||||||
Financial investments available-for-sale | 13 | 5,248 | 4,966 | 6 | ||||||||||||
Accrued income and prepaid expenses | 6,141 | 11,953 | (49 | ) | ||||||||||||
Investments in associates | 14 | 892 | 1,979 | (55 | ) | |||||||||||
Property and equipment | 15 | 6,706 | 7,234 | (7 | ) | |||||||||||
Goodwill and intangible assets | 16 | 12,935 | 14,538 | (11 | ) | |||||||||||
Other assets | 17, 22 | 19,094 | 20,312 | (6 | ) | |||||||||||
Total assets | 2,015,098 | 2,274,891 | (11 | ) | ||||||||||||
Liabilities | ||||||||||||||||
Due to banks | 18 | 125,628 | 145,762 | (14 | ) | |||||||||||
Cash collateral on securities lent | 10 | 14,063 | 31,621 | (56 | ) | |||||||||||
Repurchase agreements | 10 | 102,561 | 305,887 | (66 | ) | |||||||||||
Trading portfolio liabilities | 11 | 62,431 | 164,788 | (62 | ) | |||||||||||
Negative replacement values | 23 | 851,803 | 443,539 | 92 | ||||||||||||
Financial liabilities designated at fair value | 19 | 101,546 | 191,853 | (47 | ) | |||||||||||
Due to customers | 18 | 474,774 | 641,892 | (26 | ) | |||||||||||
Accrued expenses and deferred income | 10,196 | 22,150 | (54 | ) | ||||||||||||
Debt issued | 19 | 197,254 | 222,077 | (11 | ) | |||||||||||
Other liabilities | 20, 21, 22 | 34,040 | 61,496 | (45 | ) | |||||||||||
Total liabilities | 1,974,296 | 2,231,065 | (12 | ) | ||||||||||||
Equity | ||||||||||||||||
Share capital | 293 | 207 | 42 | |||||||||||||
Share premium | 25,250 | 12,433 | 103 | |||||||||||||
Net income recognized directly in equity, net of tax | (4,471 | ) | (1,161 | ) | (285 | ) | ||||||||||
Revaluation reserve from step acquisitions, net of tax | 38 | 38 | 0 | |||||||||||||
Retained earnings | 14,892 | 35,795 | (58 | ) | ||||||||||||
Equity classified as obligation to purchase own shares | (46 | ) | (74 | ) | 38 | |||||||||||
Treasury shares | (3,156 | ) | (10,363 | ) | 70 | |||||||||||
Equity attributable to UBS shareholders | 32,800 | 36,875 | (11 | ) | ||||||||||||
Equity attributable to minority interests | 8,002 | 6,951 | 15 | |||||||||||||
Total equity | 40,802 | 43,826 | (7 | ) | ||||||||||||
Total liabilities and equity | 2,015,098 | 2,274,891 | (11 | ) | ||||||||||||
20
257
Statement of Changes in Equity (continued) | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Equity classified as obligation to purchase own shares | ||||||||||||
Balance at the beginning of the year | (185 | ) | (133 | ) | (96 | ) | ||||||
Movements during the year | 111 | (52 | ) | (37 | ) | |||||||
Balance at the end of the year attributable to UBS shareholders | (74 | ) | (185 | ) | (133 | ) | ||||||
Treasury shares | ||||||||||||
Balance at the beginning of the year | (10,214 | ) | (10,739 | ) | (11,105 | ) | ||||||
Acquisitions | (7,169 | ) | (8,314 | ) | (8,375 | ) | ||||||
Disposals | 4,605 | 4,812 | 5,198 | |||||||||
Cancellation of second trading line treasury shares | 2,415 | 4,027 | 3,543 | |||||||||
Balance at the end of the year attributable to UBS shareholders | (10,363 | ) | (10,214 | ) | (10,739 | ) | ||||||
Minority interests – preferred securities | 6,827 | 5,831 | 5,039 | |||||||||
Total equity attributable to UBS shareholders | 35,585 | 49,686 | 44,015 | |||||||||
Total equity attributable to minority interests | 6,951 | 6,089 | 7,619 | |||||||||
Total equity | 42,536 | 55,775 | 51,634 | |||||||||
Financial information
Consolidated financial statements
Statement of changes in equity
For the year ended | |||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||
Share capital | |||||||||||||
Balance at the beginning of the year | 207 | 211 | 871 | ||||||||||
Issue of share capital | 86 | 0 | 1 | ||||||||||
Capital repayment by par value reduction | 0 | 0 | (631 | ) | |||||||||
Cancellation of second trading line treasury shares | 0 | (4 | ) | (30 | ) | ||||||||
Balance at the end of the year attributable to UBS shareholders | 293 | 207 | 211 | ||||||||||
Share premium | |||||||||||||
Balance at the beginning of the year | 8,884 | 9,870 | 9,992 | ||||||||||
Change in accounting policy | 3,549 | 2,770 | 2,325 | ||||||||||
Premium on shares issued and warrants exercised | 20,003 | 12 | 46 | ||||||||||
Net premium / (discount) on treasury share and own equity derivative activity | (4,626 | ) | (560 | ) | (271 | ) | |||||||
Employee share and share option plans | (1,961 | ) | 898 | (56 | ) | ||||||||
Tax benefits from deferred compensation awards | (176 | ) | (557 | ) | 604 | ||||||||
Transaction costs related to share issuances, net of tax | (423 | ) | 0 | 0 | |||||||||
Balance at the end of the year attributable to UBS shareholders | 25,250 | 12,433 | 12,640 | ||||||||||
Balance at the end of the year attributable to minority interests | 417 | 556 | 461 | ||||||||||
Balance at the end of the year | 25,667 | 12,989 | 13,101 | ||||||||||
Net income recognized directly in equity, net of tax | |||||||||||||
Foreign currency translation | |||||||||||||
Balance at the beginning of the year | (2,627 | ) | (1,618 | ) | (432 | ) | |||||||
Change in accounting policy | 27 | 4 | (14 | ) | |||||||||
Movements during the year | (3,901 | ) | (986 | ) | (1,168 | ) | |||||||
Subtotal – balance at the end of the year attributable to UBS shareholders1 | (6,501 | ) | (2,600 | ) | (1,614 | ) | |||||||
Balance at the end of the year attributable to minority interests | (1,095 | ) | (480 | ) | (208 | ) | |||||||
Subtotal – balance at the end of the year | (7,596 | ) | (3,080 | ) | (1,822 | ) | |||||||
Net unrealized gains / (losses) on financial investments available-for-sale, net of tax | |||||||||||||
Balance at the beginning of the year | 1,471 | 2,876 | 931 | ||||||||||
Net unrealized gains / (losses) on financial investments available-for-sale | (648 | ) | 1,213 | 2,574 | |||||||||
Impairment charges reclassified to the income statement | 42 | 14 | 19 | ||||||||||
Realized gains reclassified to the income statement | (524 | ) | (2,638 | ) | (649 | ) | |||||||
Realized losses reclassified to the income statement | 6 | 6 | 1 | ||||||||||
Subtotal – balance at the end of the year attributable to UBS shareholders | 347 | 1,471 | 2,876 | ||||||||||
Balance at the end of the year attributable to minority interests | 2 | 32 | 30 | ||||||||||
Subtotal – balance at the end of the year | 349 | 1,503 | 2,906 | ||||||||||
Changes in fair value of derivative instruments designated as cash flow hedges, net of tax | |||||||||||||
Balance at the beginning of the year | (32 | ) | (443 | ) | (681 | ) | |||||||
Net unrealized gains / (losses) on the revaluation of cash flow hedges | 1,836 | 239 | 1 | ||||||||||
Net realized (gains) / losses reclassified to the income statement | (121 | ) | 172 | 237 | |||||||||
Subtotal – balance at the end of the year attributable to UBS shareholders | 1,683 | (32 | ) | (443 | ) | ||||||||
Balance at the end of the year attributable to minority interests | 0 | 0 | 0 | ||||||||||
Subtotal – balance at the end of the year | 1,683 | (32 | ) | (443 | ) | ||||||||
Net income recognized directly in equity, net of tax – attributable to UBS shareholders | (4,471 | ) | (1,161 | ) | 819 | ||||||||
Net income recognized directly in equity – attributable to minority interests | (1,093 | ) | (448 | ) | (178 | ) | |||||||
Balance at the end of the year | (5,564 | ) | (1,609 | ) | 641 | ||||||||
Revaluation reserve from step acquisitions, net of tax | |||||||||||||
Balance at the beginning of the year | 38 | 38 | 101 | ||||||||||
Movements during the year | 0 | 0 | (63 | ) | |||||||||
Balance at the end of the year attributable to UBS shareholders | 38 | 38 | 38 | ||||||||||
258
Financial information |
2Statement of changes in equity (continued) Dividends
For the year ended | |||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||
Retained earnings | |||||||||||||
Balance at the beginning of the year | 38,081 | 49,151 | 44,105 | ||||||||||
Change in accounting policy | (2,286 | ) | (1,423 | ) | (693 | ) | |||||||
Net profit attributable to UBS shareholders for the year | (20,887 | ) | (5,247 | ) | 11,527 | ||||||||
Dividends paid1 | (16 | ) | (4,275 | ) | (3,214 | ) | |||||||
Cancellation of second trading line treasury shares | 0 | (2,411 | ) | (3,997 | ) | ||||||||
Balance at the end of the year attributable to UBS shareholders | 14,892 | 35,795 | 47,728 | ||||||||||
Balance at the end of the year attributable to minority interests | 234 | 16 | (25 | ) | |||||||||
Balance at the end of the year | 15,126 | 35,811 | 47,703 | ||||||||||
Equity classified as obligation to purchase own shares | |||||||||||||
Balance at the beginning of the year | (74 | ) | (185 | ) | (133 | ) | |||||||
Movements during the year | 28 | 111 | (52 | ) | |||||||||
Balance at the end of the year attributable to UBS shareholders | (46 | ) | (74 | ) | (185 | ) | |||||||
Treasury shares | |||||||||||||
Balance at the beginning of the year | (10,363 | ) | (10,214 | ) | (10,739 | ) | |||||||
Acquisitions | (367 | ) | (7,169 | ) | (8,314 | ) | |||||||
Disposals | 7,574 | 4,605 | 4,812 | ||||||||||
Cancellation of second trading line treasury shares | 0 | 2,415 | 4,027 | ||||||||||
Balance at the end of the year attributable to UBS shareholders | (3,156 | ) | (10,363 | ) | (10,214 | ) | |||||||
Minority interests – preferred securities | 8,444 | 6,827 | 5,831 | ||||||||||
Total equity attributable to UBS shareholders | 32,800 | 36,875 | 51,037 | ||||||||||
Total equity attributable to minority interests | 8,002 | 6,951 | 6,089 | ||||||||||
Total equity | 40,802 | 43,826 | 57,126 | ||||||||||
Additional information: Equity attributable to minority interests | Additional information: Equity attributable to minority interests | Additional information: Equity attributable to minority interests | |||||||||||||||||||||||||||
For the year ended | For the year ended | ||||||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||||||||||
Balance at the beginning of the year | 6,089 | 7,619 | 5,426 | 6,951 | 6,089 | 7,619 | |||||||||||||||||||||||
Issuance of preferred securities | 996 | 1,219 | 1,539 | 1,618 | 996 | 1,219 | |||||||||||||||||||||||
Other increases | 101 | 131 | 44 | 12 | 101 | 131 | |||||||||||||||||||||||
Decreases and dividend payments | (502 | ) | (3,191 | ) | (595 | ) | (532 | ) | (502 | ) | (3,191 | ) | |||||||||||||||||
Foreign currency translation | (272 | ) | (182 | ) | 544 | (615 | ) | (272 | ) | (182 | ) | ||||||||||||||||||
Minority interest in net profit | 539 | 493 | 661 | 568 | 539 | 493 | |||||||||||||||||||||||
Balance at the end of the year | 6,951 | 6,089 | 7,619 | 8,002 | 6,951 | 6,089 | |||||||||||||||||||||||
Shares issued | |||||||||||||||||||||||||||||
For the year ended | % change from | ||||||||||||||||||||||||||||
Number of shares | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | |||||||||||||||||||||||||
Balance at the beginning of the year | 2,105,273,286 | 2,177,265,044 | 2,253,716,354 | (3 | ) | ||||||||||||||||||||||||
Issuance of share capital | 1,294,058 | 2,208,242 | 3,418,878 | (41 | ) | ||||||||||||||||||||||||
Cancellation of second trading line treasury shares | (33,020,000 | ) | (74,200,000 | ) | (79,870,188 | ) | 55 | ||||||||||||||||||||||
Balance at the end of the year | 2,073,547,344 | 2,105,273,286 | 2,177,265,044 | (2 | ) | ||||||||||||||||||||||||
Treasury shares | |||||||||||||||||||||||||||||
For the year ended | % change from | ||||||||||||||||||||||||||||
Number of shares | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | |||||||||||||||||||||||||
Balance at the beginning of the year | 164,475,699 | 208,519,748 | 249,326,620 | (21 | ) | ||||||||||||||||||||||||
Acquisitions | 102,074,942 | 117,160,339 | 156,436,070 | (13 | ) | ||||||||||||||||||||||||
Disposals | (75,425,117 | ) | (87,004,388 | ) | (117,372,754 | ) | 13 | ||||||||||||||||||||||
Cancellation of second trading line treasury shares | (33,020,000 | ) | (74,200,000 | ) | (79,870,188 | ) | 55 | ||||||||||||||||||||||
Balance at the end of the year | 158,105,524 | 164,475,699 | 208,519,748 | (4 | ) | ||||||||||||||||||||||||
259
During the year a total
Financial information
Consolidated financial statements
Statement of 33,020,000 shares acquired under the second trading line buyback program 2006 were cancelled. The 36,400,000 shares purchased under the buy back program 2007 (CHF 2,599 million) previously intended for cancellation have been rededicated for further use.changes in equity (continued)
For the year ended | % change from | |||||||||||||||
Number of shares | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||
Shares issued | ||||||||||||||||
Balance at the beginning of the year | 2,073,547,344 | 2,105,273,286 | 2,177,265,044 | (2 | ) | |||||||||||
Issuance of share capital | 859,033,205 | 1,294,058 | 2,208,242 | |||||||||||||
Cancellation of second trading line treasury shares | (33,020,000 | ) | (74,200,000 | ) | 100 | |||||||||||
Balance at the end of the year | 2,932,580,549 | 2,073,547,344 | 2,105,273,286 | 41 | ||||||||||||
Treasury shares | ||||||||||||||||
Balance at the beginning of the year | 158,105,524 | 164,475,699 | 208,519,748 | (4 | ) | |||||||||||
Acquisitions | 13,398,118 | 102,074,942 | 117,160,339 | (87 | ) | |||||||||||
Disposals | (109,600,521 | ) | (75,425,117 | ) | (87,004,388 | ) | (45 | ) | ||||||||
Cancellation of second trading line treasury shares | (33,020,000 | ) | (74,200,000 | ) | 100 | |||||||||||
Balance at the end of the year | 61,903,121 | 158,105,524 | 164,475,699 | (61 | ) | |||||||||||
are shown as conditional share capital in the UBS AG (Parent Bank) disclosure. In addition, duringDuring 2006, shareholders approved the creation of conditional capital of up to a maximum of 150 million shares to fund UBS’s employee share option programs. AsIn 2008 and 2007, zero and 5,704 shares had been issued under this program. The remaining conditional capital to fund UBS’s employee share option programs amounts to 149,994,296 shares.
Statement of recognized income and expense
For the year ended | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||||||||||||||||||||||
Attributable to | Attributable to | Attributable to | ||||||||||||||||||||||||||||||||||||
UBS | UBS | UBS | ||||||||||||||||||||||||||||||||||||
Share- | Minority | Share- | Minority | Share- | Minority | |||||||||||||||||||||||||||||||||
CHF million | holders | interests | Total | holders | interests | Total | holders | interests | Total | |||||||||||||||||||||||||||||
Net unrealized gains / (losses) on financial investments available-for-sale, before tax | (1,465 | ) | (30 | ) | (1,495 | ) | (1,825 | ) | 2 | (1,823 | ) | 2,610 | 9 | 2,619 | ||||||||||||||||||||||||
Changes in fair value of derivative instruments designated as cash flow hedges, before tax | 2,236 | 0 | 2,236 | 541 | 0 | 541 | 332 | 0 | 332 | |||||||||||||||||||||||||||||
Foreign currency translation | (3,884 | ) | (615 | ) | (4,499 | ) | (1,025 | ) | (272 | ) | (1,297 | ) | (1,251 | ) | (182 | ) | (1,433 | ) | ||||||||||||||||||||
Tax on items transferred to / (from) equity | (196 | ) | 0 | (196 | ) | 329 | 0 | 329 | (676 | ) | 0 | (676 | ) | |||||||||||||||||||||||||
Net income recognized directly in equity, net of tax | (3,309 | ) | (645 | ) | (3,954 | ) | (1,980 | ) | (270 | ) | (2,250 | ) | 1,015 | (173 | ) | 842 | ||||||||||||||||||||||
Net income recognized in the income statement | (20,887 | ) | 568 | (20,319 | ) | (5,247 | ) | 539 | (4,708 | ) | 11,527 | 493 | 12,020 | |||||||||||||||||||||||||
Total recognized income and expense | (24,196 | ) | (77 | ) | (24,273 | ) | (7,227 | ) | 269 | (6,958 | ) | 12,542 | 320 | 12,862 | ||||||||||||||||||||||||
260
Financial information |
Statement of cash flows
For the year ended | |||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||
Cash flow from / (used in) operating activities | |||||||||||||
Net profit | (20,319 | ) | (4,708 | ) | 12,020 | ||||||||
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 | 1,241 | 1,253 | 1,325 | ||||||||||
Impairment / amortization of goodwill and intangible assets | 554 | 282 | 196 | ||||||||||
Credit loss expense (recovery) | 2,996 | 238 | (156 | ) | |||||||||
Share of net profits of associates | 6 | (120 | ) | (117 | ) | ||||||||
Deferred tax expense / (benefit) | (7,020 | ) | (371 | ) | (303 | ) | |||||||
Net loss / (gain) from investing activities | (797 | ) | (4,085 | ) | (2,092 | ) | |||||||
Net loss / (gain) from financing activities | (47,906 | ) | 3,779 | 3,659 | |||||||||
Net (increase) / decrease in operating assets: | |||||||||||||
Net due from / to banks | (16,588 | ) | (60,762 | ) | 80,269 | ||||||||
Reverse repurchase agreements and cash collateral on securities borrowed | 236,497 | 173,433 | (61,382 | ) | |||||||||
Trading portfolio, net replacement values and financial assets designated at fair value | 350,094 | 60,729 | (177,087 | ) | |||||||||
Loans / due to customers | (174,443 | ) | 47,955 | 64,029 | |||||||||
Accrued income, prepaid expenses and other assets | 7,229 | (2,408 | ) | (4,263 | ) | ||||||||
Net increase / (decrease) in operating liabilities: | |||||||||||||
Repurchase agreements, cash collateral on securities lent | (220,935 | ) | (271,060 | ) | 66,370 | ||||||||
Accrued expenses and other liabilities | (32,550 | ) | 7,430 | 14,755 | |||||||||
Income taxes paid | (887 | ) | (3,663 | ) | (2,607 | ) | |||||||
Net cash flow from / (used in) operating activities | 77,172 | (52,078 | ) | (5,384 | ) | ||||||||
Cash flow from / (used in) investing activities | |||||||||||||
Investments in subsidiaries and associates | (1,502 | ) | (2,337 | ) | 2,856 | ||||||||
Disposal of subsidiaries and associates | 1,686 | 885 | 1,154 | ||||||||||
Purchase of property and equipment | (1,217 | ) | (1,910 | ) | (1,793 | ) | |||||||
Disposal of property and equipment | 69 | 134 | 499 | ||||||||||
Net (investment in) / divestment of financial investments available-for-sale | (712 | ) | 5,981 | 1,723 | |||||||||
Net cash flow from / (used in) investing activities | (1,676 | ) | 2,753 | 4,439 | |||||||||
Cash flow from / (used in) financing activities | |||||||||||||
Net money market paper issued / (repaid) | (40,637 | ) | 32,672 | 16,921 | |||||||||
Net movements in treasury shares and own equity derivative activity | 623 | (2,771 | ) | (3,179 | ) | ||||||||
Capital issuance | 23,135 | 0 | 1 | ||||||||||
Capital repayment by par value reduction | 0 | 0 | (631 | ) | |||||||||
Dividends paid | 0 | (4,275 | ) | (3,214 | ) | ||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 103,087 | 110,874 | 97,675 | ||||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (92,894 | ) | (62,407 | ) | (59,740 | ) | |||||||
Increase in minority interests1 | 1,661 | 1,094 | 1,331 | ||||||||||
Dividends paid to / decrease in minority interests | (532 | ) | (619 | ) | (1,072 | ) | |||||||
Net cash flow from / (used in) financing activities | (5,557 | ) | 74,568 | 48,092 | |||||||||
Effects of exchange rate differences | (39,378 | ) | (12,228 | ) | (2,099 | ) | |||||||
Net increase / (decrease) in cash and cash equivalents | 30,561 | 13,015 | 45,048 | ||||||||||
Cash and cash equivalents, beginning of the year | 149,105 | 136,090 | 91,042 | ||||||||||
Cash and cash equivalents, at the end of the year | 179,666 | 149,105 | 136,090 | ||||||||||
Cash and cash equivalents comprise: | |||||||||||||
Cash and balances with central banks | 32,744 | 18,793 | 3,495 | ||||||||||
Money market paper2 | 86,732 | 77,215 | 87,144 | ||||||||||
Due from banks with original maturity of less than three months | 60,190 | 53,097 | 45,451 | ||||||||||
Total | 179,666 | 149,105 | 136,090 | ||||||||||
21
Financial Statements
Statement of Recognized Income and Expense | ||||||||||||||||||||||||||||||||||||
For the year ended | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||||||||||||||||||||||||||
Attributable to | Attributable to | Attributable to | ||||||||||||||||||||||||||||||||||
UBS | UBS | UBS | ||||||||||||||||||||||||||||||||||
share- | Minority | share- | Minority | share- | Minority | |||||||||||||||||||||||||||||||
CHF million | holders | interests | Total | holders | interests | Total | holders | interests | Total | |||||||||||||||||||||||||||
Net unrealized gains / (losses) on financial investments available-for-sale, before tax | (1,825 | ) | 2 | (1,823 | ) | 2,610 | 9 | 2,619 | 152 | (58 | ) | 94 | ||||||||||||||||||||||||
Change in fair value of derivative instruments designated as cash flow hedges, before tax | 541 | 0 | 541 | 332 | 0 | 332 | (479 | ) | 0 | (479 | ) | |||||||||||||||||||||||||
Foreign currency translation | (1,009 | ) | (272 | ) | (1,281 | ) | (1,186 | ) | (182 | ) | (1,368 | ) | 2,088 | 544 | 2,632 | |||||||||||||||||||||
Tax on items transferred to / (from) equity | 290 | 0 | 290 | (759 | ) | 0 | (759 | ) | 138 | 0 | 138 | |||||||||||||||||||||||||
Net income recognized directly in equity | (2,003 | ) | (270 | ) | (2,273 | ) | 997 | (173 | ) | 824 | 1,899 | 486 | 2,385 | |||||||||||||||||||||||
Net income recognized in the income statement | (4,384 | ) | 539 | (3,845 | ) | 12,257 | 493 | 12,750 | 14,029 | 661 | 14,690 | |||||||||||||||||||||||||
Total recognized income and expense | (6,387 | ) | 269 | (6,118 | ) | 13,254 | 320 | 13,574 | 15,928 | 1,147 | 17,075 | |||||||||||||||||||||||||
22
Statement of Cash Flows | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Cash flow from / (used in) operating activities | ||||||||||||
Net profit | (3,845 | ) | 12,750 | 14,690 | ||||||||
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 | 1,253 | 1,325 | 1,556 | |||||||||
Amortization of intangible assets | 282 | 196 | 340 | |||||||||
Credit loss expense / (recovery) | 238 | (156 | ) | (374 | ) | |||||||
Equity in income of associates | (120 | ) | (117 | ) | (152 | ) | ||||||
Deferred tax expense / (benefit) | (437 | ) | (517 | ) | (382 | ) | ||||||
Net loss / (gain) from investing activities | (4,085 | ) | (2,092 | ) | (5,062 | ) | ||||||
Net loss / (gain) from financing activities | 3,779 | 3,659 | 4,025 | |||||||||
Net (increase) / decrease in operating assets: | ||||||||||||
Net due from / to banks | (60,762 | ) | 80,269 | (1,690 | ) | |||||||
Reverse repurchase agreements and cash collateral on securities borrowed | 173,433 | (61,382 | ) | (125,097 | ) | |||||||
Trading portfolio, net replacement values and financial assets designated at fair value | 60,729 | (177,087 | ) | (74,799 | ) | |||||||
Loans / due to customers | 47,955 | 64,029 | 47,265 | |||||||||
Accrued income, prepaid expenses and other assets | (2,467 | ) | (4,536 | ) | (1,227 | ) | ||||||
Net increase / (decrease) in operating liabilities: | ||||||||||||
Repurchase agreements, cash collateral on securities lent | (271,060 | ) | 66,370 | 64,558 | ||||||||
Accrued expenses and other liabilities | 7,494 | 14,975 | 15,536 | |||||||||
Income taxes paid | (3,663 | ) | (2,607 | ) | (2,394 | ) | ||||||
Net cash flow from / (used in) operating activities | (51,276 | ) | (4,921 | ) | (63,207 | ) | ||||||
Cash flow from / (used in) investing activities | ||||||||||||
Investments in subsidiaries and associates | (2,337 | ) | 2,856 | (1,540 | ) | |||||||
Disposal of subsidiaries and associates | 885 | 1,154 | 3,240 | |||||||||
Purchase of property and equipment | (1,910 | ) | (1,793 | ) | (1,892 | ) | ||||||
Disposal of property and equipment | 134 | 499 | 270 | |||||||||
Net (investment in) / divestment of financial investments available-for-sale | 5,981 | 1,723 | (2,487 | ) | ||||||||
Net cash flow from / (used in) investing activities | 2,753 | 4,439 | (2,409 | ) | ||||||||
Cash flow from / (used in) financing activities | ||||||||||||
Net money market paper issued / (repaid) | 32,672 | 16,921 | 23,221 | |||||||||
Net movements in treasury shares and own equity derivative activity | (3,550 | ) | (3,624 | ) | (2,416 | ) | ||||||
Capital issuance | 0 | 1 | 2 | |||||||||
Capital repayment by par value reduction | 0 | (631 | ) | 0 | ||||||||
Dividends paid | (4,275 | ) | (3,214 | ) | (3,105 | ) | ||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 110,874 | 97,675 | 76,307 | |||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (62,407 | ) | (59,740 | ) | (30,457 | ) | ||||||
Increase in minority interests1 | 1,094 | 1,331 | 1,572 | |||||||||
Dividend payments to / purchase from minority interests | (619 | ) | (1,072 | ) | (575 | ) | ||||||
Net cash flow from / (used in) financing activities | 73,789 | 47,647 | 64,549 | |||||||||
Effects of exchange rate differences | (12,251 | ) | (2,117 | ) | 5,018 | |||||||
Net increase / (decrease) in cash and cash equivalents | 13,015 | 45,048 | 3,951 | |||||||||
Cash and cash equivalents, beginning of the year | 136,090 | 91,042 | 87,091 | |||||||||
Cash and cash equivalents, end of the year | 149,105 | 136,090 | 91,042 | |||||||||
Cash and cash equivalents comprise: | ||||||||||||
Cash and balances with central banks | 18,793 | 3,495 | 5,359 | |||||||||
Money market paper2 | 77,215 | 87,144 | 57,826 | |||||||||
Due from banks with original maturity of less than three months | 53,097 | 45,451 | 27,857 | |||||||||
Total | 149,105 | 136,090 | 91,042 | |||||||||
23
261
Financial Statementsinformation
Consolidated financial statements
Statement of cash flows (continued)
Statement of Cash Flows (continued) | |||||||||||||||||||||||||
For the year ended | For the year ended | ||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||||||
Additional information | |||||||||||||||||||||||||
Cash received as interest | 103,828 | 79,805 | 53,117 | 68,450 | 103,828 | 79,805 | |||||||||||||||||||
Cash paid as interest | 97,358 | 76,109 | 44,392 | 61,681 | 97,358 | 76,109 | |||||||||||||||||||
Cash received as dividends on equities (including associates, see Note 14) | 5,313 | 4,839 | 3,869 | ||||||||||||||||||||||
Cash received as dividends on equities (incl. Associates, see Note 14) | 2,779 | 5,313 | 4,839 | ||||||||||||||||||||||
Significant non-cash investing and financing activities | |||||||||||||||||||||||||
Private Banks and GAM, deconsolidation | |||||||||||||||||||||||||
Financial investments available-for-sale | 60 | ||||||||||||||||||||||||
Property and equipment | 180 | ||||||||||||||||||||||||
Goodwill and intangible assets | 362 | ||||||||||||||||||||||||
Debt issued | 5 | ||||||||||||||||||||||||
Private equity investments, deconsolidation | |||||||||||||||||||||||||
Property and equipment | 24 | 264 | 248 | 33 | 24 | 264 | |||||||||||||||||||
Goodwill and intangible assets | 3 | 22 | |||||||||||||||||||||||
Minority interests | 62 | 27 | 62 | ||||||||||||||||||||||
Acquisitions of businesses | |||||||||||||||||||||||||
Financial investments available-for-sale | 35 | ||||||||||||||||||||||||
Property and equipment | 112 | ||||||||||||||||||||||||
Goodwill and intangible assets | 377 | ||||||||||||||||||||||||
Minority interests | 6 | ||||||||||||||||||||||||
Motor-Columbus , deconsolidation | |||||||||||||||||||||||||
Motor-Columbus, deconsolidation | |||||||||||||||||||||||||
Financial investments available-for-sale | 178 | 178 | |||||||||||||||||||||||
Property and equipment | 2,229 | 2,229 | |||||||||||||||||||||||
Goodwill and intangible assets | 951 | 951 | |||||||||||||||||||||||
Debt issued | 718 | 718 | |||||||||||||||||||||||
Minority interests | 2,057 | 2,057 | |||||||||||||||||||||||
Acquisition of ABN AMRO’s Global Futures and Options Business | |||||||||||||||||||||||||
Property and equipment | 13 | 13 | |||||||||||||||||||||||
Goodwill and intangible assets | 428 | 428 | |||||||||||||||||||||||
Acquisition of Banco Pactual | |||||||||||||||||||||||||
Financial investments available-for-sale | 36 | 36 | |||||||||||||||||||||||
Property and equipment | 9 | 9 | |||||||||||||||||||||||
Goodwill and intangible assets | 2,218 | 2,218 | |||||||||||||||||||||||
Debt issued | 1,496 | 1,496 | |||||||||||||||||||||||
Acquisition of Piper Jaffray | |||||||||||||||||||||||||
Goodwill and intangible assets | 605 | 605 | |||||||||||||||||||||||
Acquisition of McDonald Investments branch network | |||||||||||||||||||||||||
Property and equipment | 3 | 3 | |||||||||||||||||||||||
Goodwill and intangible assets | 262 | 262 | |||||||||||||||||||||||
Acquisition of Daehan Investment Trust Management Company | |||||||||||||||||||||||||
Property and equipment | 2 | 2 | |||||||||||||||||||||||
Goodwill and intangible assets | 224 | 224 | |||||||||||||||||||||||
Minority interests | 60 | 60 | |||||||||||||||||||||||
Acquisition of Caisse Centrale de Réescompte Group (CCR) | |||||||||||||||||||||||||
Property and equipment | 5 | ||||||||||||||||||||||||
Goodwill and intangible assets | 405 | ||||||||||||||||||||||||
Debt issued | 114 | ||||||||||||||||||||||||
Acquisition of VermogensGroep | |||||||||||||||||||||||||
Property and equipment | 2 | ||||||||||||||||||||||||
Goodwill and intangible assets | 173 | ||||||||||||||||||||||||
24
262
Financial information |
Financial Statementsinformation
Notes to the Financial Statementsconsolidated financial statements
Notes to the Financial Statementsconsolidated financial statements
Note 1 Summary of significant accounting policies
a) Significant Accounting Policiesaccounting policies
a) Significant Accounting Policies
1) Basis of accounting
2) Use of estimates in the preparation of
Financial Statements
3) Subsidiaries, associates and jointly controlled entities
Equity attributable to minority interests is presented in the consolidated balance sheet within equity, separately from equity attributable to UBS shareholders. Net incomeprofit attributable to minority interests is shown separately in the income statement.
263
Financial information
Notes to the consolidated financial statements
principally through a period of 12 months.sale transaction rather than through continuing use – see parts 17) and 26). Major lines of business and subsidiaries that were acquired exclusively with the intent for resale are presented as discontinued operations in the income statement in the period wherewhen the sale occurred or it becomes clearhighly probable that a sale will occur within
25
Financial StatementsNotes to the Financial Statements
4) Recognition and derecognition of financial instruments
5) Determination of fair value
For details on the determination of fair value, including those on fair value measurements for US student loan auction rate securities, monolines, leveraged finance transactions, US and non-US reference linked notes, US commercial mortgage backed securities and other instruments linked to the US residential mortgage market,which were determined relevant for specific disclosure refer to Note 26.
264
Financial information |
A breakdown of fair values of financial instruments measured on the basis of quoted market prices in active markets (level 1), valuation techniques reflecting market observable inputs (level 2), and valuation techniques reflecting significant non-market-observable inputs (level 3) is provided in Note 26b).
6) Trading portfolio assets and liabilities
26
gationsobligations to deliver financial instruments such as money market paper, other debt instruments and equity instruments which the Group has sold to third parties but does not own (“short” positions). The trading portfolio includes non-derivative financial instruments (including those with embedded derivatives) and commodities. Financial instruments which are considered derivatives in their entirety are presented on balance sheet as Positive and Negative replacement values, refer to part 14).
sified on UBS‘sUBS’s balance sheet from Trading portfolio assets to Trading portfolio assets pledged as collateral, if the transferee has received the right to sell or repledge them.
7) Financial assets and Financial liabilities designated at fair value through profit or loss (“Fair Value Option”)
a) | they are hybrid instruments which consist of a debt host and an embedded derivative component, or | |
b) | they are items that are part of a portfolio which is risk managed on a fair value basis and reported to senior management on that basis, or | |
c) | the application of the fair value option reduces or eliminates an accounting mismatch that would otherwise arise. |
beddedembedded derivative components which refer to an underlying, e. g.e.g. equity price, interest rate, commodities price or index. UBS has designated almost allmost of its issued hybrid debt instruments as Financial liabilities designated at fair value through profit or loss.
265
Financial information
Notes to the consolidated financial statements
value basis. Fair value changes related to financial instruments designated at fair value through profit or loss are recognized in Net trading income.
8) Financial investments available-for-sale
27
Financial StatementsNotes to the Financial Statements
expected within the foreseeable future. For a non-quoted financial instrumentsinvestment available-for-sale (debt and equity instruments), the recoverable amount is determined by applying recognized valuation techniques. The standard method applied for non-quoted equity investments available-for-saleinstruments is based on the multiple of earnings observed in the market for comparable companies. Management may adjust valuations determined in this way based on its judgment. For non-quoted debt instruments, UBS typically determines the recoverable amount by applying the discounted cash flow method.
9) Loans and receivables
266
Financial information |
Commitments
10) Allowance and provision for credit losses
28
reasonable assurance of timely collection of principal and interest in accordance with the original contractual terms of the claim or equivalent value.
11) Securitizations
267
Financial information
Notes to the consolidated financial statements
ceivables” and several student loan auction rate securities, which are considered securitized instruments, are classified as loans and receivables after acquiring them from clients.
12) Securities borrowing and lending
29
Financial StatementsNotes to the Financial Statements
Consideration exchanged in financing transactions (i. e.(i.e. interest received or paid) is recognized on an accrual basis and recorded as Interest income or Interest expense.
13) Repurchase and reverse repurchase transactions
14) Derivative instruments and hedge accounting
268
Financial information |
into derivatives for trading purposes, realized and unrealized gains and losses are recognized in Net trading income.
Hedge accounting
30
Fair value hedges
statement. The fair value change of the hedged item in a portfolio hedge of interest rate risks is reported separately from the hedged portfolio in Other assets or Other liabilities as appropriate. If the hedge relationship is terminated for reasons other than the derecognition of the hedged item, the difference between the carrying value of the hedged item at that point and the value at which it would have been carried had the hedge never existed (the “unamortized fair value adjustment”) is, in the case of interest-bearing instruments, amortized to the income statement over the remaining term of the original hedge, while for non-interest-bearing instruments that amount is immediately recognized in earnings. If the hedged item is derecognized, e. g.e.g. due to sale or repayment, the unamortized fair value adjustment is recognized immediately in the income statement.profit or loss.
Cash flow hedges
Economic hedges which do not qualify for hedge accounting
269
Financial information
Notes to the consolidated financial statements
Embedded derivatives
15) Cash and cash equivalents
16) Physical commodities
31
Financial StatementsNotes to the Financial Statements
17) Property and equipment
Classification for own-used property
capital appreciation, the classification is based on whether or not these portions can be sold separately. If the portions of the property can be sold separately, they are separately accounted for as own-used property and investment property. If the portions cannot be sold separately, the whole property is classified as own-used property unless the portion used by the Group is minor. The classification of property is reviewed on a regular basis to account for major changes in its usage.
Leasehold improvements
Software
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 | |
Property held for sale
Investment property
270
Financial information |
change. UBS employs internal real estate experts to determine the fair value of investment property by applying recognized valuation techniques. In cases where prices of recent market transactions of comparable properties are available, fair value is determined by reference to these transactions.
18) Goodwill and intangible assets
32
whether their carrying amount is fully recoverable. A write-downAn impairment loss is maderecognized if the carrying amount exceeds the recoverable amount.
19) Income taxes
tax purposes, which will result in taxable amounts in future periods. Deferred tax assets are recognized for temporary differences that will result in deductible amounts in future periods, but only to the extent it is probable that sufficient taxable profits will be available against which these differences can be utilized.
20) Debt issuedDebt
Subsequent measurement is at amortized cost, using the effective interest rate method to amortize cost at inception to the redemption value over the life of the debt. Refer to Note 28.
Long-term senior and subordinated
debt without embedded derivative
Long-term debt with embedded derivatives with referencesderivative
(related to foreign exchange rates and precious metal prices and which are not hedged by derivative instruments. Those hybrids are still subject to bifurcation of the embedded derivative.
271
Financial information
Notes to the consolidated financial statements
date if they require physical settlement. When the hybrid debt instrument is issued, a portion of the net proceeds is allocated to the debt component based on its fair value. The determination of fair value is generally based on quoted market prices for UBS debt instruments with comparable terms. The debt component is subsequently measured at amortized cost.cost or at fair value through profit or loss, if the fair value option is applied. The remaining amount of the net proceeds is allocated to the equity component and reported in Share premium. Subsequent changes in fair value of the separated equity component are not recognized. However, if the hybrid debt instrument or the embedded derivative related to UBS AG shares is to be cash settled or if it contains a settlement alternative, then the separated derivative is accounted for as a freestanding derivative, with changes in fair value recorded in Net trading income unless the entire hybrid debt instrument is designated at fair value through profit or loss (refer(“Fair Value Option”) – refer to part 7).
Other long-term debt with embedded derivative (not
related to hedge the fixed interest rate risk onUBS AG shares)
33
Financial StatementsNotes to the Financial Statements
21) RetirementPost-employment benefits
UBS uses the projected unit credit actuarial method to determine the present value of its defined benefit plansobligations and the related current service cost and, where applicable, past service cost.
a) | 10% of present value of the defined benefit obligation at that date | |
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.
22) Equity participation and other compensation plans
272
Financial information |
ically have a three-year tiered vesting structure which means awards vest in one-third increments over that period. Such awards may contain provisions that shorten the required service period which generally is equaldue to retirement eligibility. In such instances, UBS recognizes compensation expense over the shorter of the legal vesting period and the period from grant to the vesting period. retirement eligibility date of the employee. Forfeiture of these awards results in a reversal of compensation expense.
Other compensation plans
23) Amounts due under unit-linked investment contracts
Note 20) on the balance sheet. These contracts allow investors to invest in a pool of assets through investment units issued by a UBS subsidiary. The unit holders receive all rewards and bear all risks associated with the reference asset pool. The financial liability represents the amount due to unit holders and is equal to the fair value of the reference asset pool.
24) Provisions
25) Equity, treasury shares and contracts on UBS shares
Contracts with gross physical settlement
34
Contracts with net cash settlement or settlement option for counterparty
Physically settled written put options and forward share purchase contractsExceptions to the accounting treatments described on this and previous page are physically
273
Financial information
Notes to the consolidated financial statements
ity is subsequently accreted, using the effective interest rate method, over the life of the contract to the nominal purchase obligation by recognizing interest expense. Upon settlement of athe contract, the liability is derecognized, and the amount of equity originally transferred torecognized as a liability is reclassified within Equity to Treasury shares. The premium received for writing put options is recognized directly in Share premium.
Minority interests
Trust preferred securities issued
26) Discontinued operations and non-current assets held for sale
amount and fair value less costs to sell and presented in Other assets and Other liabilities (see Notes 17 and 20). Netting of assets and liabilities is not permitted.
cludes the net total of operating profit and loss before tax from discontinued operations and theincluding net gain or loss recognized on sale before tax or measurement to fair value less costs to sell of the net assets constituting theand discontinued operations.operations tax expense. A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of UBS’s operations and cash flows. If an entity or a component of an entity is classified as a discontinued operation, UBS restates prior periods in the income statement – see part 3). Refer to Note 3637 for details.
27) Leasing
28) Fee income
35
Financial StatementsNotes to the Financial Statements
basis, and income earned from providing transaction-type services. Fees earned from services that are provided over a certain period of time are recognized ratably over the service period. Fees earned from providing transaction-type services are recognized when
274
Financial information |
the service has been completed. Performance-linked fees or fee components are recognized when the recognition criteria are fulfilled. Loan commitment fees on lending arrangements where the initial expectation is that the loan will be drawn down at some point, are deferred until the loan is drawn down, and then recognized as an adjustment to the effective yield over the life of the loan.
29) Foreign currency translation
30) Earnings per share (EPS)
warrants, convertiblevertible debt securities or other contracts to issue ordinary shares were converted or exercised into ordinary shares.
31) Segment reporting
275
Financial information
Notes to the consolidated financial statements
Segment assets and Segment liabilities:Both segment assets and segment liabilities are reported in the management reporting system and shown before the elimination of inter-company balances. Due to the central treasury approach, equity must be allocated to the segments. The allocation basis is average equity attributed, a concept which was introduced in 2008 (for a detailed discussion on the equity attribution framework, refer to the section “Capital management” of this report). Total segment assets and total segment liabilities are derived by taking into account any remaining funding surplus or requirements in each business division. Prior to 2008, the equity was allocated to the segments based pri-
marily on regulatory capital requirements. Refer to Note 2a.
32) Netting
Effective in 2008
the year ended 31 December 2006 by CHF 0.33 and CHF 0.31, respectively. In order to provide comparative information, these amounts also reflect the retrospective adjustments to shares outstanding in 2007 due to the capital increase and the share dividend paid in 2008.
Reclassifications of financial instruments
276
Financial information |
Recognition of a defined benefit asset for the Swiss pension plan
Revenues from Industrial Holdings and Goods and materials purchased
Changes to segment reporting
Trading portfolio assets pledged as collateral
IFRIC 13Customer Loyalty Programmes
b) ChangesIFRIC 14The Limit on a Defined Benefit Asset Minimum Funding Requirements and their Interaction –IAS 19
IAS 23Borrowing Costs
Effective in 2007
and earlier
277
Financial information
Notes to the consolidated financial statements
to the audited sections inRisk Treasury and Capital Management 2007treasury management). The disclosure principles of IFRS 7 complement the principles for recognizing, measuring and presenting financial assets and financial liabilities in IAS 32
36
Financial Instruments: Presentationand IAS 39Financial Instruments: Recognition and MeasurementMeasurement..
Netting
Syndicated finance revenues
IFRIC 7Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary EconomiesInterpretationinterpretation provides guidance on how to apply the requirements of IAS 29 in a reporting period in which an entity (this could be a subsidiary) identifies the existence of hyperinflation in the economy of its functional currency, when that economy was not hyperinflationary in the prior period, and the entity therefore restates its financial statements in accordance with IAS 29. UBS has no subsidiaries operating in a hyperinflationary economy.
IFRIC 8Scope of IFRS 2Interpretationinterpretation requires that IFRS 2 be applied to transactions in which goods or services are received, such as transactions in which an entity receives goods or services as consideration for equity instrumentsinstru-
ments of the entity. This includes transactions in which the
entity cannot identify specifically some or all of the goods or services received. The unidentifiable goods or services received (or to be received) should be measured as the difference between the fair value of the share-based payment and the fair value of any identifiable goods or services received (or to be received). Measurement of the unidentifiable goods or services received should take place at the grant date. However, for cash-settled transactions, the liability should be remeasured at each reporting date until it is settled.
IFRIC 9Reassessment of Embedded DerivativesInterpretationinterpretation clarifies that an entity should not reassess whether an embedded derivative needs to be separated from the host contract after the initial hybrid contract is recognized, unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. This interpretation did not have an impact on UBS’s Financial Statements.
IFRIC 10Interim Financial Reporting and ImpairmentInterpretationinterpretation of IAS 39 and IAS 36 requires that impairment losses recognized in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost must not be reversed at a subsequent balance sheet date. This interpretation did not have an impact on UBS’s Financial Statements.
IFRIC 11 IFRS 2:Group and Treasury Share TransactionsInterpretationinterpretation requires that share-based payment transactions in which an entity receives services as consideration for its own equity instruments be accounted for as an equity-settled transaction. This applies regardless of whether the entity chooses or is required to buy those equity instruments from another party to satisfy its obligations to its employees under the share-based payment arrangement.
Effective in 2006 and earlier
IAS 39Financial Instruments: Recognition and Measurement – Amendment to the Fair Value OptionJanuary 2006. Under the amended guidance, the use of the fair value option requires that at least one of three defined criteria is satisfied, which is more restrictive than the previousJanu-
37278
Financial StatementsNotes to the Financial Statements
Financial information |
guidance. All financial instruments designated at fair value through profit or loss at 31 December 2005 continued to qualify for the use of the fair value option under the revised fair value option.ary 2006. On the transition date of the revised standard, 1 January 2006, UBS did not apply the fair value option to any previously recognized financial asset or financial liability for which the fair value option had not been used under the previous fair value option guidance. Therefore, the initial adoption of the revised standard did not have an impact on UBS’s Financial Statements. See part 7) for details on the use of the revised fair value option during 2006 and 2007. In addition, effective 1 January 2006, the disclosure requirements for financial instruments designated at fair value through profit or loss (refer to Notes 12 and 19) have been amended due to the revision of IAS 32Financial Instruments: Presentation.
Staff Accounting Bulletin (SAB) 108
sidering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,UBS elected to adopt a modified quantitative framework for assessing whether the financial statement effect of a misstatement is material because it renders a better evaluation of those effects. This method, which UBS adopted in December 2006, uses a dual approach for quantifying the effect of a misstatement. Prior to 2006, UBS applied only one of those methods, the “roll-over” method, which focused on the current year income-statement impact of a misstatement. Under this policy, UBS applies a dual approachmisstatement that considers both the carryover and reversing effects of prior year misstatements.
c) International Financial Reporting Standards and Interpretations to be adopted in 2009 and later
Effective in 2009
IAS 1 (revised)Presentation of Financial Statementsand IAS 32 (revised)Financial Instruments: Presentation
changes in equity and of comprehensive income: UBS will continue presenting owner changes in equity in the statement of changes in equity, but the detailed information related to non-owner changes in equity will be removed from the statement of changes in equity and presented in the statement of comprehensive income. The revised standard does not change the recognition, measurement or disclosure of specific transactions addressed in other IFRSs.
Amendments to IFRS 1First-time Adoption of International Financial Reporting Standardsand IAS 27Consolidated and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate
279
Financial information
Notes to the consolidated financial statements
IFRIC 15Agreements for the Construction of Real Estate
IFRIC 16Hedges of a Net Investment in a Foreign Operation
Effective in 2010, if not adopted early
IFRIC 17Distributions of Non-cash Assets to Owners
IFRIC 18Transfers of Assets from Customers
Private equity investmentsOnceived on or after 1 January 2005,July 2009. The IFRIC clarifies how to account for transfers of items of property, plant and equipment by entities that receive such transfers from their customers. The interpretation also applies to agreements in which an entity receives cash from a customer when that amount of cash must be used only to construct or acquire an item of property, plant and equipment and the entity must then use that item to provide the customer with ongoing access to a supply of goods and/or services. UBS adopted revisedis currently assessing the impact of this interpretation on its Financial Statements.
IFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial Statements
IFRS 2 Share-based PaymentUBS adopted IFRS 2Share-based Paymenton 1 January 2005 and fully restated the two comparative prior years. IFRS 2 requires share-based payments made to employees and non-employees to be recognized in the financial statements based on the fair value of these awards measured at the date of grant.
38
Goodwill and Intangible AssetsOn 31 March 2004, the IASB issued IFRS 3Business Combinations,revised IAS 36Impairment of Assetsand revised IAS 38Intangible Assets.UBS prospectively adopted the standards for goodwill and intangible assets existing at 31 March 2004 on 1 January 2005, whereas goodwill and intangible assets recognized from business combinations entered into after 31 March 2004 were accounted for immediately in accordance with IFRS 3. Refer to a18) for details.
Non-current Assets Held for Sale and Discontinued OperationsUBS adopted IFRS 5Non-current Assets Held for Sale and Discontinued Operationson 1 January 2005. Refer to a26) for details.
Presentation of minority interests and earnings per shareWith the adoption of revised IAS 1Presentation of Financial Statementson 1 January 2005, Net profit and Equity were presented including minority interests. Refer to a3) and a25) for details.
c) International Financial Reporting Standards and Interpretations to be adopted in 2008 and later
IFRS 2 Share-based PaymentIn January 2008, the International Accounting Standards Board (IASB) issued an amendment to IFRS 2Share-based Payment.The amended standard, entitled IFRS 2Share-based Payment: Vesting Conditions and Cancellations,is effective 1 January 2009 (early adoption permitted). The new standard clarifies the definition of vesting conditions and the accounting treatment of cancellations. UBS has early adopted this amended standard as of 1 January 2008. Under the amended standard, UBS is required to distinguish between vesting conditions (such as service and performance conditions) and non-vesting conditions. The amended standard no longer considers vesting conditions to include certain non-compete provisions and transfer restrictions. Prior to adopting this amendment, UBS treated non-compete provisions as vesting conditions. The impact of this change will be that, from 1 January 2008, most of UBS’s share and certain option awards will be expensed in the performance year rather than over the period through
which the non-compete conditions are applicable. Restrictions remaining effective after the employee becomes entitled to the share-based award will be considered when determining grant date fair value. Following adoption of this amendment, UBS will fully restate the two comparative prior years (2006 and 2007).
IFRS 8 Operating SegmentsThe new standard on segment reporting, IFRS 8Operating Segments,comes into force on 1 January 2009, replacing IAS 14Segment Reporting.It sets out requirements for disclosure of information about a firm’s operating segments, its products and services, the geographical areas in which it operates, and its major customers. The new standard introduces changes to previous requirements for identification of segments, measurement of segment information and disclosures. Specifically, it requires a firm to provide financial and descriptive information about its reportable segments – the operating segments or aggregations of operating segments based on which the senior management of the firm (the “chief operating decision maker”) regularly evaluates separate financial information in deciding how to allocate resources and how to assess performance. Generally, under IFRS 8, the information to be reported will be the same information that is used internally, which might differ from amounts reported in the financial statements. The new standard therefore requires an explanation of the basis on which the segment information is prepared, and recon-
39
Financial StatementsNotes to the Financial Statements
ciliations to the amounts presented in the income statement and the balance sheet. UBS is currently assessing the impact of IFRS 8 on the structure and content of the segment reporting in its Financial Statements.
IAS 1 (revised) Presentation of Financial Statements and IAS 32 (revised) Financial Instruments: PresentationIAS 1 (revised),Presentation of Financial Statements,was issued in September 2007 and is effective on 1 January 2009. The revised standard affects the presentation of owner changes in equity and of comprehensive income: UBS will continue presenting owner changes in equity in the statement of changes in equity, but the detailed information related to non-owner changes in equity will be removed from the statement of changes in equity and presented in the statement of comprehensive income. The revised standard does not change the recognition, measurement or disclosure of specific transactions addressed in other IFRSs. The amended requirements will have an impact on the presentation and disclosure of the items in UBS’s Financial Statements.
IFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial StatementsIn January 2008, the IASB issued a revised Standard of IFRS 3Business Combinationsand amendments to IAS 27Consolidated and Separate Financial Statements.The most significant changes under revised IFRS 3 are as follows:
– | Contingent consideration will be recognized at fair value as part of the consideration transferred at the acquisition date. Currently contingent consideration is only recognized once it meets the probability and reliably measurable criteria. | |
– | Non-controlling interests in an acquiree will either be measured at fair value or as the non-controlling interest’s proportionate share of the fair value of net identifiable assets of the entity acquired. The option is available on a transaction-by-transaction basis. |
– | Transaction costs incurred by the acquirer will no longer be part of the acquisition cost but will have to be expensed as incurred. |
IFRIC 13 Customer Loyalty ProgrammesIFRIC 13 was issued on 28 June 2007 and is effective for annual periods beginning on or after 1 July 2008. IFRIC 13 addresses how companies that grant their customers loyalty award credits when buying goods or services should account for their obligation to provide free or discounted goods and services, if and when the customers redeem the points. IFRIC 13 requires entities to allocate some of the proceeds of the initial sale to the award credits and recognize these proceeds as revenue only when they have fulfilled their obligations to provide goods or services. UBS is currently assessing the impact of this interpretation on its Financial Statements.
IFRIC 14 The Limit on a Defined Benefit Asset Minimum Funding Requirements and their Interaction – IAS 19IFRIC 14 was issued on 5 July 2007 and is effective for annual periods beginning on or after 1 January 2008. IFRIC 14 provides guidance regarding the circumstances under which refunds and future reductions in contributions from a defined benefit plan can be regarded as available to an entity for the purpose recognizing a net defined benefit asset. Additionally, in jurisdictions where there is both a minimum funding requirement and restrictions over the amounts that companies can recover from the plan, either as refunds or reductions in contributions, additional liabilities may need to be recognized. UBS is currently assessing the impact of this interpretation on its Financial Statements.2010.
40280
Financial information |
Note 2a Segment Reporting by Business Group
In 2008, UBS’s financial businesses arewere organized on a worldwide basis into three Business Groupsbusiness divisions and thea Corporate Center. The business division Global Wealth Management & Business Banking consists of three segments: Wealth Management International & Switzerland, Wealth Management US and Business Banking Switzerland. The Business Groupsbusiness divisions Investment Bank and Global Asset Management constitute one segment each. In addition, the Industrial Holdings segment holds all industrial operations controlled by the Group. In total, UBS now reports sixfive business segments and a Corporate Center.Center in 2008. The Corporate Center includes all corporate functions, and elimination items as well as the remaining industrial holdings activities and is not considered a business segment. Refer to Note 1 of this report for information about UBS’s new segment structure, effective as of first quarter 2009.
Global Wealth Management & Business Banking
vestment policy and strategy. Refer to Note 1 of this report for the changes to the structure of this business division, effective first quarter 2009.
Global Asset Management
Investment Bank
Industrial HoldingsThe Industrial Holdings segment comprises the non-financial businesses of UBS, including the private equity business which primarily invests UBS and third-party funds in unlisted companies. The most significant business in this segment, Motor-Columbus, was sold on 23 March 2006 and is presented as discontinued operations. Additionally, certain private equity investments sold in 2007 and prior years are presented as discontinued operations.
Corporate Center
DRCM closureGlobal Asset Management performanceholds the remaining activities from continuing operations before tax in 2007 includes costs of CHF 384 million for the DRCM closure. These costs are reflected in Personnel expenses (CHF 318 million), General and administrative expenses (CHF 38 million) and impairments reflected in Depreciation of property and equipment (CHF 28 million). More than 50% of the Personnel expenses recorded relate to accelerated recognition of deferred compensation of former DRCM employees leaving UBS.industrial holding business, mainly financial investments available-for-sale.
41281
Financial Statementsinformation
Notes to the Financial Statementsconsolidated financial statements
Note 2a Reporting by Business GroupSegment reporting (continued)
For the year ended 31 December 2007
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 internally agreed transfer prices or at arm’s length.
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 division on a reasonable basis. Transactions between business divisions are conducted at internally agreed transfer prices or 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 of property and equipment | ||||
Impairment of goodwill | ||||
Amortization of intangible assets2 | ||||
Total operating expenses | ||||
Performance from continuing operations before tax | ||||
Performance from discontinued operations before tax | ||||
Performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit | ||||
Additional information | ||||
Total assets | ||||
Total liabilities | ||||
Capital expenditure | ||||
282
Financial information |
UBS | ||||||||||||||||||||||||||||
Global Wealth Management & | Global Asset | |||||||||||||||||||||||||||
Business Banking | Management | Investment Bank | Corporate Center | |||||||||||||||||||||||||
Wealth Management | ||||||||||||||||||||||||||||
International & | Wealth | Business Banking | ||||||||||||||||||||||||||
Switzerland | Management US | Switzerland | ||||||||||||||||||||||||||
10,819 | 5,959 | 5,024 | 2,904 | (21,592 | ) | 1,083 | 4,197 | |||||||||||||||||||||
(390 | ) | (25 | ) | (5 | ) | 0 | (2,575 | ) | 0 | (2,996 | ) | |||||||||||||||||
10,429 | 5,933 | 5,019 | 2,904 | (24,167 | ) | 1,083 | 1,201 | |||||||||||||||||||||
3,112 | 3,891 | 2,376 | 926 | 4,882 | 1,076 | 16,262 | ||||||||||||||||||||||
2,001 | 2,348 | 1,018 | 434 | 3,399 | 1,299 | 10,498 | ||||||||||||||||||||||
1,581 | 238 | (893 | ) | 150 | 990 | (2,066 | ) | 0 | ||||||||||||||||||||
97 | 94 | 70 | 29 | 231 | 720 | 1,241 | ||||||||||||||||||||||
0 | 0 | 0 | 0 | 341 | 0 | 341 | ||||||||||||||||||||||
38 | 60 | 0 | 33 | 83 | 0 | 213 | ||||||||||||||||||||||
6,828 | 6,631 | 2,570 | 1,572 | 9,925 | 1,029 | 28,555 | ||||||||||||||||||||||
3,601 | (698 | ) | 2,449 | 1,333 | (34,092 | ) | 54 | (27,353 | ) | |||||||||||||||||||
198 | 198 | |||||||||||||||||||||||||||
3,601 | (698 | ) | 2,449 | 1,333 | (34,092 | ) | 252 | (27,155 | ) | |||||||||||||||||||
(6,837 | ) | |||||||||||||||||||||||||||
1 | ||||||||||||||||||||||||||||
(20,319 | ) | |||||||||||||||||||||||||||
248,355 | 61,433 | 240,212 | 33,684 | 1,752,783 | (321,369 | ) | 2,015,098 | |||||||||||||||||||||
242,390 | 53,106 | 236,504 | 30,684 | 1,726,783 | (315,171 | ) | 1,974,296 | |||||||||||||||||||||
83 | 135 | 34 | 95 | 33 | 929 | 1,309 | ||||||||||||||||||||||
283
Financial information
Notes to the consolidated financial statements
Note 2a Segment reporting (continued)
For the year ended 31 December 2007
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 division on a reasonable basis. Transactions between business divisions are conducted at internally agreed transfer prices or 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 of property and equipment | ||||
Amortization of intangible assets3 | ||||
Total operating expenses | ||||
Performance from continuing operations before tax | ||||
Performance from discontinued operations before tax | ||||
Performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit | ||||
Additional information4 | ||||
Total assets | ||||
Total liabilities | ||||
Capital expenditure | ||||
284
42
Financial information |
UBS | |||||||||||||||||||||||||||||||||
Global Wealth Management & | Global Asset | Investment | |||||||||||||||||||||||||||||||
Business Banking | Management | Bank | Corporate Center | ||||||||||||||||||||||||||||||
Wealth Management | Wealth | ||||||||||||||||||||||||||||||||
International & | Management | Business Banking | |||||||||||||||||||||||||||||||
Switzerland | US | Switzerland | Corporate Center | Industrial Holdings | |||||||||||||||||||||||||||||
12,893 | 6,662 | 5,286 | 4,094 | (538 | ) | 2,873 | 689 | 31,959 | |||||||||||||||||||||||||
(1 | ) | (2 | ) | 31 | 0 | (266 | ) | 0 | 0 | (238 | ) | ||||||||||||||||||||||
12,892 | 6,660 | 5,317 | 4,094 | (804 | ) | 2,873 | 689 | 31,721 | |||||||||||||||||||||||||
3,873 | 4,551 | 2,584 | 1,856 | 11,286 | 1,334 | 31 | 25,515 | ||||||||||||||||||||||||||
1,064 | 976 | 1,138 | 559 | 3,386 | 1,298 | 8 | 8,429 | ||||||||||||||||||||||||||
1,531 | 314 | (739 | ) | 153 | 811 | (2,194 | ) | 124 | 0 | ||||||||||||||||||||||||
�� | |||||||||||||||||||||||||||||||||
95 | 79 | 67 | 53 | 210 | 2 | 739 | 0 | 1,243 | |||||||||||||||||||||||||
19 | 66 | 0 | 19 | 172 | 0 | 0 | 276 | ||||||||||||||||||||||||||
6,582 | 5,986 | 3,050 | 2,640 | 15,865 | 1,177 | 163 | 35,463 | ||||||||||||||||||||||||||
6,310 | 674 | 2,267 | 1,454 | (16,669) | 1,696 | 526 | (3,742 | ) | |||||||||||||||||||||||||
7 | 138 | 145 | |||||||||||||||||||||||||||||||
6,310 | 674 | 2,267 | 1,454 | (16,669) | 1,703 | 664 | (3,597 | ) | |||||||||||||||||||||||||
1,369 | |||||||||||||||||||||||||||||||||
(258 | ) | ||||||||||||||||||||||||||||||||
(4,708 | ) | ||||||||||||||||||||||||||||||||
349,849 | 71,570 | 296,199 | 51,471 | 1,984,134 | (478,833 | ) | 501 | 2,274,891 | |||||||||||||||||||||||||
344,662 | 66,637 | 291,001 | 49,099 | 1,965,773 | (487,766 | ) | 1,659 | 2,231,065 | |||||||||||||||||||||||||
106 | 254 | 26 | 319 | 88 | 1,326 | 19 | 2,138 | ||||||||||||||||||||||||||
Financial Businesses | Industrial Holdings | UBS | ||||||||||||||||||||||||||||||
Global Wealth Management & | Global Asset | Investment | Corporate | |||||||||||||||||||||||||||||
Business Banking | Management | Bank | Center | |||||||||||||||||||||||||||||
Wealth Management | Wealth | |||||||||||||||||||||||||||||||
International & | Management | Business Banking | ||||||||||||||||||||||||||||||
Switzerland | US | Switzerland | ||||||||||||||||||||||||||||||
12,893 | 6,662 | 5,286 | 4,094 | (538 | ) | 2,873 | 948 | 32,218 | ||||||||||||||||||||||||
(1 | ) | (2 | ) | 31 | 0 | (266 | ) | 0 | 0 | (238 | ) | |||||||||||||||||||||
12,892 | 6,660 | 5,317 | 4,094 | (804 | ) | 2,873 | 948 | 31,980 | ||||||||||||||||||||||||
3,851 | 4,506 | 2,535 | 1,995 | 10,417 | 1,383 | 111 | 24,798 | |||||||||||||||||||||||||
1,064 | 976 | 1,101 | 559 | 3,423 | 1,298 | 44 | 8,465 | |||||||||||||||||||||||||
1,531 | 314 | (674 | ) | 153 | 746 | (2,194 | ) | 124 | 0 | |||||||||||||||||||||||
95 | 79 | 67 | 53 | 210 | 2 | 739 | 8 | 1,251 | ||||||||||||||||||||||||
19 | 66 | 0 | 19 | 172 | 0 | 6 | 282 | |||||||||||||||||||||||||
119 | 119 | |||||||||||||||||||||||||||||||
6,560 | 5,941 | 3,029 | 2,779 | 14,968 | 1,226 | 412 | 34,915 | |||||||||||||||||||||||||
6,332 | 719 | 2,288 | 1,315 | (15,772 | ) | 1,647 | 536 | (2,935 | ) | |||||||||||||||||||||||
7 | 128 | 135 | ||||||||||||||||||||||||||||||
6,332 | 719 | 2,288 | 1,315 | (15,772 | ) | 1,654 | 664 | (2,800 | ) | |||||||||||||||||||||||
1,311 | ||||||||||||||||||||||||||||||||
(266 | ) | |||||||||||||||||||||||||||||||
(3,845 | ) | |||||||||||||||||||||||||||||||
349,731 | 71,560 | 295,657 | 51,471 | 1,984,045 | (480,386 | ) | 501 | 2,272,579 | ||||||||||||||||||||||||
344,661 | 66,334 | 290,999 | 49,049 | 1,965,465 | (488,124 | ) | 1,659 | 2,230,043 | ||||||||||||||||||||||||
106 | 254 | 26 | 319 | 88 | 1,326 | 19 | 2,138 | |||||||||||||||||||||||||
12,893 | 6,662 | 5,286 | 4,094 | (538 | ) | 2,873 | 948 | 32,218 | ||||||||||||||||||||||||
(27 | ) | (3 | ) | 203 | 0 | (19 | ) | (392 | ) | 0 | (238 | ) | ||||||||||||||||||||
12,866 | 6,659 | 5,489 | 4,094 | (557 | ) | 2,481 | 948 | 31,980 | ||||||||||||||||||||||||
3,851 | 4,506 | 2,535 | 1,995 | 10,417 | 1,383 | 111 | 24,798 | |||||||||||||||||||||||||
1,064 | 976 | 1,101 | 559 | 3,423 | 1,298 | 44 | 8,465 | |||||||||||||||||||||||||
1,531 | 314 | (674 | ) | 153 | 746 | (2,194 | ) | 124 | 0 | |||||||||||||||||||||||
95 | 79 | 67 | 53 | 210 | 2 | 739 | 8 | 1,251 | ||||||||||||||||||||||||
19 | 66 | 0 | 19 | 172 | 0 | 6 | 282 | |||||||||||||||||||||||||
119 | 119 | |||||||||||||||||||||||||||||||
6,560 | 5,941 | 3,029 | 2,779 | 14,968 | 1,226 | 412 | 34,915 | |||||||||||||||||||||||||
6,306 | 718 | 2,460 | 1,315 | (15,525 | ) | 1,255 | 536 | (2,935 | ) | |||||||||||||||||||||||
7 | 128 | 135 | ||||||||||||||||||||||||||||||
6,306 | 718 | 2,460 | 1,315 | (15,525 | ) | 1,262 | 664 | (2,800 | ) | |||||||||||||||||||||||
1,311 | ||||||||||||||||||||||||||||||||
(266 | ) | |||||||||||||||||||||||||||||||
(3,845 | ) | |||||||||||||||||||||||||||||||
43
285
Financial Statementsinformation
Notes to the Financial Statementsconsolidated financial statements
Note 2a Reporting by Business GroupSegment reporting (continued)
For the year ended 31 December 2006
CHF million
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 division on a reasonable basis. Transactions between business divisions are conducted at internally agreed transfer prices or 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 of property and equipment | ||||
Amortization of intangible assets | ||||
Total operating expenses | ||||
Performance from continuing operations before tax | ||||
Performance from discontinued operations before tax | ||||
Performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit | ||||
Additional information3 | ||||
Total assets | ||||
Total liabilities | ||||
Capital expenditure | ||||
Management reporting based on expected credit loss
44
286
Financial information |
Financial Businesses | Industrial Holdings | UBS | ||||||||||||||||||||||||||||||
Global Wealth Management & | Global Asset | Investment | Corporate | |||||||||||||||||||||||||||||
Business Banking | Management | Bank | Center | |||||||||||||||||||||||||||||
Wealth Management | Wealth | |||||||||||||||||||||||||||||||
International & | Management | Business Banking | ||||||||||||||||||||||||||||||
Switzerland | US | Switzerland | ||||||||||||||||||||||||||||||
10,827 | 5,863 | 5,085 | 3,220 | 21,726 | 294 | 565 | 47,580 | |||||||||||||||||||||||||
1 | (1 | ) | 109 | 0 | 47 | 0 | 0 | 156 | ||||||||||||||||||||||||
10,828 | 5,862 | 5,194 | 3,220 | 21,773 | 294 | 565 | 47,736 | |||||||||||||||||||||||||
3,137 | 3,800 | 2,412 | 1,503 | 11,353 | 1,264 | 122 | 23,591 | |||||||||||||||||||||||||
885 | 1,073 | 1,070 | 399 | 3,260 | 1,242 | 51 | 7,980 | |||||||||||||||||||||||||
1,479 | 281 | (642 | ) | (105 | ) | 956 | (1,978 | ) | 9 | 0 | ||||||||||||||||||||||
84 | 74 | 74 | 27 | 203 | 2 | 783 | 7 | 1,252 | ||||||||||||||||||||||||
10 | 53 | 0 | 4 | 72 | 9 | 5 | 153 | |||||||||||||||||||||||||
116 | 116 | |||||||||||||||||||||||||||||||
5,595 | 5,281 | 2,914 | 1,828 | 15,844 | 1,320 | 310 | 33,092 | |||||||||||||||||||||||||
5,233 | 581 | 2,280 | 1,392 | 5,929 | (1,026 | ) | 255 | 14,644 | ||||||||||||||||||||||||
4 | 875 | 879 | ||||||||||||||||||||||||||||||
5,233 | 581 | 2,280 | 1,392 | 5,929 | (1,022 | ) | 1,130 | 15,523 | ||||||||||||||||||||||||
2,785 | ||||||||||||||||||||||||||||||||
(12 | ) | |||||||||||||||||||||||||||||||
12,750 | ||||||||||||||||||||||||||||||||
286,241 | 63,249 | 211,123 | 48,616 | 2,058,679 | (323,434 | ) | 1,888 | 2,346,362 | ||||||||||||||||||||||||
281,327 | 57,681 | 205,747 | 46,589 | 2,038,991 | (343,152 | ) | 3,404 | 2,290,587 | ||||||||||||||||||||||||
257 | 273 | 14 | 498 | 593 | 1,385 | 97 | 3,117 | |||||||||||||||||||||||||
10,827 | 5,863 | 5,085 | 3,220 | 21,726 | 294 | 565 | 47,580 | |||||||||||||||||||||||||
(29 | ) | 0 | 185 | 0 | 61 | (61 | ) | 0 | 156 | |||||||||||||||||||||||
10,798 | 5,863 | 5,270 | 3,220 | 21,787 | 233 | 565 | 47,736 | |||||||||||||||||||||||||
3,137 | 3,800 | 2,412 | 1,503 | 11,353 | 1,264 | 122 | 23,591 | |||||||||||||||||||||||||
885 | 1,073 | 1,070 | 399 | 3,260 | 1,242 | 51 | 7,980 | |||||||||||||||||||||||||
1,479 | 281 | (642 | ) | (105 | ) | 956 | (1,978 | ) | 9 | 0 | ||||||||||||||||||||||
84 | 74 | 74 | 27 | 203 | 2 | 783 | 7 | 1,252 | ||||||||||||||||||||||||
10 | 53 | 0 | 4 | 72 | 9 | 5 | 153 | |||||||||||||||||||||||||
116 | 116 | |||||||||||||||||||||||||||||||
5,595 | 5,281 | 2,914 | 1,828 | 15,844 | 1,320 | 310 | 33,092 | |||||||||||||||||||||||||
5,203 | 582 | 2,356 | 1,392 | 5,943 | (1,087 | ) | 255 | 14,644 | ||||||||||||||||||||||||
4 | 875 | 879 | ||||||||||||||||||||||||||||||
5,203 | 582 | 2,356 | 1,392 | 5,943 | (1,083 | ) | 1,130 | 15,523 | ||||||||||||||||||||||||
2,785 | ||||||||||||||||||||||||||||||||
(12 | ) | |||||||||||||||||||||||||||||||
12,750 | ||||||||||||||||||||||||||||||||
UBS | ||||||||||||||||||||||||||||||||||
Global Wealth Management & | Global Asset | Investment | ||||||||||||||||||||||||||||||||
Business Banking | Management | Bank | Corporate Center | |||||||||||||||||||||||||||||||
Wealth Management | Wealth | |||||||||||||||||||||||||||||||||
International & | Management | Business Banking | ||||||||||||||||||||||||||||||||
Switzerland | US | Switzerland | Corporate Center | Industrial Holdings | ||||||||||||||||||||||||||||||
10,827 | 5,863 | 5,085 | 3,220 | 21,726 | 294 | 313 | 47,328 | |||||||||||||||||||||||||||
1 | (1 | ) | 109 | 0 | 47 | 0 | 0 | 156 | ||||||||||||||||||||||||||
10,828 | 5,862 | 5,194 | 3,220 | 21,773 | 294 | 313 | 47,484 | |||||||||||||||||||||||||||
3,173 | 3,839 | 2,439 | 1,575 | 11,686 | 1,273 | 46 | 24,031 | |||||||||||||||||||||||||||
885 | 1,073 | 1,120 | 399 | 3,210 | 1,242 | 13 | 7,942 | |||||||||||||||||||||||||||
1,479 | 281 | (720 | ) | (105 | ) | 1,034 | (1,978 | ) | 9 | 0 | ||||||||||||||||||||||||
84 | 74 | 74 | 27 | 203 | 2 | 783 | (1 | ) | 1,244 | |||||||||||||||||||||||||
10 | 53 | 0 | 4 | 72 | 9 | 0 | 148 | |||||||||||||||||||||||||||
5,631 | 5,320 | 2,913 | 1,900 | 16,205 | 1,329 | 67 | 33,365 | |||||||||||||||||||||||||||
5,197 | 542 | 2,281 | 1,320 | 5,568 | (1,035 | ) | 246 | 14,119 | ||||||||||||||||||||||||||
4 | 884 | 888 | ||||||||||||||||||||||||||||||||
5,197 | 542 | 2,281 | 1,320 | 5,568 | (1,031 | ) | 1,130 | 15,007 | ||||||||||||||||||||||||||
2,998 | ||||||||||||||||||||||||||||||||||
(11 | ) | |||||||||||||||||||||||||||||||||
12,020 | ||||||||||||||||||||||||||||||||||
286,334 | 63,260 | 211,837 | 48,616 | 2,059,019 | (322,221 | ) | 1,888 | 2,348,733 | ||||||||||||||||||||||||||
281,328 | 58,007 | 205,749 | 46,672 | 2,039,225 | (342,778 | ) | 3,404 | 2,291,607 | ||||||||||||||||||||||||||
257 | 273 | 14 | 498 | 593 | 1,385 | 97 | 3,117 | |||||||||||||||||||||||||||
45
Financial StatementsNotes to the Financial Statements
Note 2a Reporting by Business Group (continued)
For the year ended 31 December 2005
CHF million
287
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 internally agreed transfer prices or at arm’s length.
Management reporting based on expected credit loss
46
Industrial | ||||||||||||||||||||||||||||||||||||
Financial Businesses | Holdings | UBS | ||||||||||||||||||||||||||||||||||
Global Wealth Management & | Global Asset | Investment | Corporate | |||||||||||||||||||||||||||||||||
Business Banking | Management | Bank | Center | |||||||||||||||||||||||||||||||||
Wealth Management | Wealth | |||||||||||||||||||||||||||||||||||
International & | Management | Business Banking | Private Banks | Corporate | ||||||||||||||||||||||||||||||||
Switzerland | US | Switzerland | & GAM | Functions | ||||||||||||||||||||||||||||||||
9,024 | 5,158 | 4,949 | 2,487 | 17,448 | 455 | 795 | 40,316 | |||||||||||||||||||||||||||||
(8 | ) | 0 | 231 | 0 | 152 | 0 | 0 | 375 | ||||||||||||||||||||||||||||
9,016 | 5,158 | 5,180 | 2,487 | 17,600 | 455 | 795 | 40,691 | |||||||||||||||||||||||||||||
2,579 | 3,460 | 2,450 | 988 | 9,259 | 1,167 | 164 | 20,067 | |||||||||||||||||||||||||||||
804 | 1,047 | 994 | 304 | 2,215 | 1,084 | 56 | 6,504 | |||||||||||||||||||||||||||||
1,371 | 223 | (634 | ) | 116 | 640 | (1,730 | ) | 14 | 0 | |||||||||||||||||||||||||||
89 | 65 | 72 | 21 | 136 | 857 | 7 | 1,247 | |||||||||||||||||||||||||||||
7 | 49 | 0 | 1 | 53 | 17 | 6 | 133 | |||||||||||||||||||||||||||||
97 | 97 | |||||||||||||||||||||||||||||||||||
4,850 | 4,844 | 2,882 | 1,430 | 12,303 | 1,395 | 344 | 28,048 | |||||||||||||||||||||||||||||
4,166 | 314 | 2,298 | 1,057 | 5,297 | (940 | ) | 451 | 12,643 | ||||||||||||||||||||||||||||
4,556 | 8 | 530 | 5,094 | |||||||||||||||||||||||||||||||||
4,166 | 314 | 2,298 | 1,057 | 5,297 | 4,556 | (932 | ) | 981 | 17,737 | |||||||||||||||||||||||||||
2,465 | ||||||||||||||||||||||||||||||||||||
582 | ||||||||||||||||||||||||||||||||||||
14,690 | ||||||||||||||||||||||||||||||||||||
223,790 | 64,896 | 176,837 | 40,782 | 1,706,670 | (226,069 | ) | 11,549 | 1,998,455 | ||||||||||||||||||||||||||||
219,140 | 59,567 | 170,668 | 39,191 | 1,689,041 | (242,600 | ) | 11,814 | 1,946,821 | ||||||||||||||||||||||||||||
81 | 84 | 58 | 16 | 138 | 25 | 1,264 | 299 | 1,965 | ||||||||||||||||||||||||||||
9,024 | 5,158 | 4,949 | 2,487 | 17,448 | 455 | 795 | 40,316 | |||||||||||||||||||||||||||||
(13 | ) | (2 | ) | 122 | 0 | 36 | 232 | 0 | 375 | |||||||||||||||||||||||||||
9,011 | 5,156 | 5,071 | 2,487 | 17,484 | 687 | 795 | 40,691 | |||||||||||||||||||||||||||||
2,579 | 3,460 | 2,450 | 988 | 9,259 | 1,167 | 164 | 20,067 | |||||||||||||||||||||||||||||
804 | 1,047 | 994 | 304 | 2,215 | 1,084 | 56 | 6,504 | |||||||||||||||||||||||||||||
1,371 | 223 | (634 | ) | 116 | 640 | (1,730 | ) | 14 | 0 | |||||||||||||||||||||||||||
89 | 65 | 72 | 21 | 136 | 857 | 7 | 1,247 | |||||||||||||||||||||||||||||
7 | 49 | 0 | 1 | 53 | 17 | 6 | 133 | |||||||||||||||||||||||||||||
97 | 97 | |||||||||||||||||||||||||||||||||||
4,850 | 4,844 | 2,882 | 1,430 | 12,303 | 1,395 | 344 | 28,048 | |||||||||||||||||||||||||||||
4,161 | 312 | 2,189 | 1,057 | 5,181 | (708 | ) | 451 | 12,643 | ||||||||||||||||||||||||||||
4,508 | 56 | 530 | 5,094 | |||||||||||||||||||||||||||||||||
4,161 | 312 | 2,189 | 1,057 | 5,181 | 4,508 | (652 | ) | 981 | 17,737 | |||||||||||||||||||||||||||
2,465 | ||||||||||||||||||||||||||||||||||||
582 | ||||||||||||||||||||||||||||||||||||
14,690 | ||||||||||||||||||||||||||||||||||||
47
Financial Statementsinformation
Notes to the Financial Statementsconsolidated financial statements
Note 2b Segment Reportingreporting by Geographic Location
The geographic analysis of total assets is based on customer domicile, whereas operating income and capital expenditure are 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,business division, as shown in Note 2a, is a more meaningful representation of the way in which the Group is managed.
For the year ended 31 December 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||
For the year ended 31 December 2008 | For the year ended 31 December 2008 | |||||||||||||||||||||||||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||||||||||||||||||||||||||
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 | 18,787 | 59 | 222,539 | 10 | 436 | 20 | 11,564 | 963 | 230,554 | 11 | 556 | 43 | ||||||||||||||||||||||||||||||||||||
Rest of Europe / Middle East / Africa | 1,042 | 3 | 776,882 | 34 | 380 | 18 | ||||||||||||||||||||||||||||||||||||||||||
United Kingdom | (8,814 | ) | (734 | ) | 466,600 | 23 | 71 | 5 | ||||||||||||||||||||||||||||||||||||||||
Americas | 5,758 | 18 | 1,015,167 | 45 | 1,004 | 47 | ||||||||||||||||||||||||||||||||||||||||||
Rest of Europe | 6,132 | 511 | 341,107 | 17 | 138 | 11 | ||||||||||||||||||||||||||||||||||||||||||
United States | (10,519 | ) | (876 | ) | 637,302 | 32 | 407 | 31 | ||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 6,393 | 20 | 257,991 | 11 | 318 | 15 | 3,122 | 260 | 201,743 | 10 | 105 | 8 | ||||||||||||||||||||||||||||||||||||
Rest of the world | (284 | ) | (24 | ) | 137,792 | 7 | 32 | 2 | ||||||||||||||||||||||||||||||||||||||||
Total | 31,980 | 100 | 2,272,579 | 100 | 2,138 | 100 | 1,201 | 100 | 2,015,098 | 100 | 1,309 | 100 |
For the year ended 31 December 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||
For the year ended 31 December 2007 | For the year ended 31 December 2007 | |||||||||||||||||||||||||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | 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 | 12,964 | 27 | 211,565 | 9 | 650 | 21 | 18,787 | 59 | 224,679 | 10 | 436 | 20 | ||||||||||||||||||||||||||||||||||||
Rest of Europe / Middle East / Africa | 12,512 | 26 | 699,516 | 30 | 385 | 12 | ||||||||||||||||||||||||||||||||||||||||||
United Kingdom | (1,671 | ) | (5 | ) | 404,506 | 18 | 261 | 12 | ||||||||||||||||||||||||||||||||||||||||
Americas | 17,272 | 36 | 1,229,254 | 52 | 1,754 | 56 | ||||||||||||||||||||||||||||||||||||||||||
Rest of Europe | 2,541 | 8 | 358,504 | 16 | 117 | 5 | ||||||||||||||||||||||||||||||||||||||||||
United States | 880 | 3 | 822,825 | 36 | 923 | 44 | ||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 4,988 | 11 | 206,027 | 9 | 328 | 11 | 6,393 | 20 | 257,991 | 11 | 318 | 15 | ||||||||||||||||||||||||||||||||||||
Rest of the world | 4,791 | 15 | 206,386 | 9 | 83 | 4 | ||||||||||||||||||||||||||||||||||||||||||
Total | 47,736 | 100 | 2,346,362 | 100 | 3,117 | 100 | 31,721 | 100 | 2,274,891 | 100 | 2,138 | 100 |
For the year ended 31 December 2005 | ||||||||||||||||||||||||||||||||||||||||||||||||
For the year ended 31 December 2006 | For the year ended 31 December 2006 | |||||||||||||||||||||||||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | 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 | 13,798 | 34 | 203,907 | 10 | 973 | 49 | 12,964 | 27 | 213,689 | 9 | 650 | 21 | ||||||||||||||||||||||||||||||||||||
Rest of Europe / Middle East / Africa | 8,976 | 22 | 628,070 | 32 | 467 | 24 | ||||||||||||||||||||||||||||||||||||||||||
United Kingdom | 6,863 | 14 | 373,219 | 16 | 314 | 10 | ||||||||||||||||||||||||||||||||||||||||||
Americas | 14,284 | 35 | 1,004,230 | 50 | 386 | 20 | ||||||||||||||||||||||||||||||||||||||||||
Rest of Europe | 5,553 | 12 | 314,642 | 13 | 70 | 2 | ||||||||||||||||||||||||||||||||||||||||||
United States | 15,295 | 32 | 1,066,647 | 46 | 723 | 23 | ||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 3,633 | 9 | 162,248 | 8 | 139 | 7 | 4,988 | 11 | 206,027 | 9 | 328 | 11 | ||||||||||||||||||||||||||||||||||||
Rest of the world | 1,821 | 4 | 174,509 | 7 | 1,032 | 33 | ||||||||||||||||||||||||||||||||||||||||||
Total | 40,691 | 100 | 1,998,455 | 100 | 1,965 | 100 | 47,484 | 100 | 2,348,733 | 100 | 3,117 | 100 |
48
288
Financial information |
Income Statementstatement notes
Note 3 Net Interestinterest and Trading Income
Accounting standards require separate disclosure of net interest income and net trading income (see the tables on this and the next page). This required disclosure, however, does not take into account that net interest and trading income are generated by a range of different businesses. In many cases, a particular business 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 according to the businesses that drive it. The sec-
it. The secondond table below (labeled Breakdown by businesses) provides information that corresponds to this management view. Net income from trading businesses includes both interest and trading income generated by the Group’s trading businesses and the Investment Bank’s lending activities. Net income from interest margin businesses comprises interest income from the Group’s loan portfolio. Net income from treasury and other activities reflects all income from the Group’s centralized treasury function.
For the year ended | % change from | ||||||||||||||||||||||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | |||||||||||||||||||||||||||||
Net interest and trading income | Net interest and trading income | ||||||||||||||||||||||||||||||||
For the year ended | % change from | ||||||||||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | |||||||||||||||||||||||||||||
Net interest income | 5,337 | 6,521 | 9,528 | (18 | ) | 6,203 | 5,337 | 6,521 | 16 | ||||||||||||||||||||||||
Net trading income | (8,353 | ) | 13,743 | 8,248 | (25,818 | ) | (8,353 | ) | 13,743 | (209 | ) | ||||||||||||||||||||||
Total net interest and trading income | (3,016 | ) | 20,264 | 17,776 | (19,615 | ) | (3,016 | ) | 20,264 | (550 | ) | ||||||||||||||||||||||
Breakdown by businesses | |||||||||||||||||||||||||||||||||
Net income from trading businesses1 | (26,883 | ) | (10,658 | ) | 13,730 | (152 | ) | ||||||||||||||||||||||||||
Net income from interest margin businesses | 6,160 | 6,230 | 5,718 | (1 | ) | ||||||||||||||||||||||||||||
Net income from treasury activities and other | 1,107 | 1,412 | 816 | (22 | ) | ||||||||||||||||||||||||||||
Total net interest and trading income | (19,615 | ) | (3,016 | ) | 20,264 | (550 | ) | ||||||||||||||||||||||||||
Net interest income2 | |||||||||||||||||||||||||||||||||
Interest income | |||||||||||||||||||||||||||||||||
Interest earned on loans and advances3 | 20,424 | 21,263 | 15,266 | (4 | ) | ||||||||||||||||||||||||||||
Interest earned on securities borrowed and reverse repurchase agreements | 22,521 | 48,274 | 39,771 | (53 | ) | ||||||||||||||||||||||||||||
Interest and dividend income from trading portfolio | 22,397 | 39,101 | 32,211 | (43 | ) | ||||||||||||||||||||||||||||
Interest income on financial assets designated at fair value | 404 | 298 | 25 | 36 | |||||||||||||||||||||||||||||
Interest and dividend income from financial investments available-for-sale | 145 | 176 | 128 | (18 | ) | ||||||||||||||||||||||||||||
Total | 65,890 | 109,112 | 87,401 | (40 | ) | ||||||||||||||||||||||||||||
Interest expense | |||||||||||||||||||||||||||||||||
Interest on amounts due to banks and customers | 18,150 | 29,318 | 20,024 | (38 | ) | ||||||||||||||||||||||||||||
Interest on securities lent and repurchase agreements | 16,123 | 40,581 | 34,021 | (60 | ) | ||||||||||||||||||||||||||||
Interest and dividend expense from trading portfolio | 9,162 | 15,812 | 14,533 | (42 | ) | ||||||||||||||||||||||||||||
Interest on financial liabilities designated at fair value | 7,298 | 7,659 | 4,757 | (5 | ) | ||||||||||||||||||||||||||||
Interest on debt issued | 8,954 | 10,405 | 7,545 | (14 | ) | ||||||||||||||||||||||||||||
Total | 59,687 | 103,775 | 80,880 | (42 | ) | ||||||||||||||||||||||||||||
Net interest income | 6,203 | 5,337 | 6,521 | 16 | |||||||||||||||||||||||||||||
Breakdown by businesses | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Net income from trading businesses1 | (10,658 | ) | 13,730 | 11,795 | ||||||||||||
Net income from interest margin businesses | 6,230 | 5,718 | 5,292 | 9 | ||||||||||||
Net income from treasury activities and other | 1,412 | 816 | 689 | 73 | ||||||||||||
Total net interest and trading income | (3,016 | ) | 20,264 | 17,776 | ||||||||||||
Net interest income1 | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Interest income | ||||||||||||||||
Interest earned on loans and advances2 | 21,263 | 15,266 | 11,678 | 39 | ||||||||||||
Interest earned on securities borrowed and reverse repurchase agreements | 48,274 | 39,771 | 23,362 | 21 | ||||||||||||
Interest and dividend income from trading portfolio | 39,101 | 32,211 | 24,134 | 21 | ||||||||||||
Interest income on financial assets designated at fair value | 298 | 25 | 26 | |||||||||||||
Interest and dividend income from financial investments available-for-sale | 176 | 128 | 86 | 38 | ||||||||||||
Total | 109,112 | 87,401 | 59,286 | 25 | ||||||||||||
Interest expense | ||||||||||||||||
Interest on amounts due to banks and customers | 29,318 | 20,024 | 11,226 | 46 | ||||||||||||
Interest on securities lent and repurchase agreements | 40,581 | 34,021 | 20,480 | 19 | ||||||||||||
Interest and dividend expense from trading portfolio | 15,812 | 14,533 | 10,736 | 9 | ||||||||||||
Interest on financial liabilities designated at fair value | 7,659 | 4,757 | 2,390 | 61 | ||||||||||||
Interest on debt issued | 10,405 | 7,545 | 4,926 | 38 | ||||||||||||
Total | 103,775 | 80,880 | 49,758 | 28 | ||||||||||||
Net interest income | 5,337 | 6,521 | 9,528 | (18 | ) | |||||||||||
49289
Financial Statementsinformation
Notes to the Financial Statementsconsolidated financial statements
Note 3 Net interest and trading income (continued)
Note 3 Net Interest and Trading Income (continued) | ||||||||||||||||||||||||||||||||
Net trading income1 | Net trading income1 | Net trading income1 | ||||||||||||||||||||||||||||||
For the year ended | % change from | For the year ended | % change from | |||||||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | ||||||||||||||||||||||||
Equities | 9,048 | 7,064 | 3,900 | 28 | 4,694 | 9,048 | 7,064 | (48 | ) | |||||||||||||||||||||||
Fixed income | (20,949 | ) | 2,755 | 1,240 | (37,252 | ) | (20,949 | ) | 2,755 | (78 | ) | |||||||||||||||||||||
Foreign exchange and other2 | 3,548 | 3,924 | 3,108 | (10 | ) | 6,739 | 3,548 | 3,924 | 90 | |||||||||||||||||||||||
Net trading income | (8,353 | ) | 13,743 | 8,248 | (25,818 | ) | (8,353 | ) | 13,743 | (209 | ) | |||||||||||||||||||||
thereof net gains / (losses) from financial assets designated at fair value | (30 | ) | (397 | ) | 70 | |||||||||||||||||||||||||||
thereof net gains/(losses) from financial assets designated at fair value | (974 | ) | (30 | ) | (397 | ) | ||||||||||||||||||||||||||
thereof net gains / (losses) from financial liabilities designated at fair value | (3,779 | ) | (3,659 | ) | (4,024 | ) | ||||||||||||||||||||||||||
thereof net gains/(losses) from financial liabilities designated at fair value3 | 44,284 | (3,779 | ) | (3,659 | ) | |||||||||||||||||||||||||||
thereof net gains/(losses) from own credit changes of financial liabilities designated at fair value4 | 3,993 | 659 | 0 | 506 | ||||||||||||||||||||||||||||
For the year ended 31 December 2007, the Group recorded a gain of CHF 659 million in Net trading income from changes in the fair value of financial3 Financial liabilities designated at fair value attributableare to changes in the Group’s own credit risk. The change applies to those financial liabilities designated at fair value where the Group’s own credit risk would be con-
sidered by market participants and excludes fully collateralized transactionsa large extent economically hedged with derivatives and other instruments for which itwhose change in fair value is established market practice notalso reported in Net trading income. 4 Refer to include an entity-specific adjustment for own credit. It was calculated based on a yield curve generated from observed external pricing for funding associated with new senior debt issued by the Group.
Positions with significant impact on net trading income1,2 | ||||||||
For the year ended 31 December 2007 | USD billion | CHF billion3 | ||||||
US Super Senior RMBS CDO | (9.2 | ) | (10.5 | ) | ||||
US Residential mortgage-backed securities (RMBS) | (2.6 | ) | (2.9 | ) | ||||
US Warehouse and retained RMBS CDO | (2.8 | ) | (3.2 | ) | ||||
US Reference linked notes (RLN)4 | (1.3 | ) | (1.5 | ) | ||||
US Alt-A, AAA – rated RMBS backed by first lien mortgages | (0.8 | ) | (0.9 | ) | ||||
US Alt-A residental mortgage instruments, other | (1.2 | ) | (1.4 | ) | ||||
Credit valuation adjustments for monoline credit protection on US RMBS CDO | (0.8 | ) | (0.9 | ) | ||||
Total | (18.7 | ) | (21.3 | ) | ||||
Significant impacts on net trading income1 | ||||||||||||||||
For the year ended 31.12.08 | For the year ended 31.12.07 | |||||||||||||||
USD billion | CHF billion | USD billion | CHF billion | |||||||||||||
US sub-prime residential mortgage market | (8.1 | ) | (8.2 | ) | (14.6 | ) | (16.6 | ) | ||||||||
US Alt-A residential mortgage market | (7.4 | ) | (7.6 | ) | (2.0 | ) | (2.3 | ) | ||||||||
US prime residential mortgage market | (1.8 | ) | (1.9 | ) | ||||||||||||
Credit valuation adjustments for monoline credit protection | (7.6 | ) | (8.2 | ) | (0.8 | ) | (0.9 | ) | ||||||||
US commercial mortgage market | (0.3 | ) | (0.4 | ) | ||||||||||||
US reference linked notes (RLN) | (2.6 | ) | (2.7 | ) | (1.3 | ) | (1.5 | ) | ||||||||
Leveraged finance | (1.2 | ) | (1.3 | ) | ||||||||||||
US student loans | (1.6 | ) | (1.6 | ) | ||||||||||||
Subtotal | (30.6 | ) | (31.9 | ) | (18.7 | )2 | (21.3 | )2 | ||||||||
Mandatory convertible notes3 | 4.6 | |||||||||||||||
SNB transaction4 | (5.2 | ) | ||||||||||||||
Total | (32.6 | ) | (21.3 | ) | ||||||||||||
50
290
Financial information |
Note 5 Other Income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Associates and subsidiaries | ||||||||||||||||
Net gains from disposals of consolidated subsidiaries | (70 | ) | (11 | ) | 1 | (536 | ) | |||||||||
Net gains from disposals of investments in associates | 28 | 21 | 26 | 33 | ||||||||||||
Equity in income of associates | 145 | 106 | 57 | 37 | ||||||||||||
Total | 103 | 116 | 84 | (11 | ) | |||||||||||
Financial investments available-for-sale | ||||||||||||||||
Net gains from disposals | 3,338 | 921 | 231 | 262 | ||||||||||||
Impairment charges | (71 | ) | (12 | ) | (26 | ) | (492 | ) | ||||||||
Total | 3,267 | 909 | 205 | 259 | ||||||||||||
Net income from investments in property1 | 108 | 61 | 42 | 77 | ||||||||||||
Net gains from investment properties2 | 31 | 5 | 12 | 520 | ||||||||||||
Other | 143 | 204 | 218 | (30 | ) | |||||||||||
Total other income from Financial Businesses | 3,652 | 1,295 | 561 | 182 | ||||||||||||
Other income from industrial holdings | 680 | 303 | 566 | 124 | ||||||||||||
Total other income | 4,332 | 1,598 | 1,127 | 171 | ||||||||||||
Additional information about Net gains from disposals on Financial investments available-for-saleIn late June 2007, UBS disposed of its 20.7% stake in Julius Baer for a total consideration of CHF 3,951 million. UBS received the Julius Baer shares as part of the consideration in connection with the sale of Private Banks & GAM to Julius Baer in December 2005. UBS had agreed to certain lock-up obligations which expired on 25 May 2007. The
291
interest in Julius Baer was accounted for as a Financial investment available-for-sale, and the sale resulted in a realized gain, which was previously deferred in Equity, of CHF 1,950 million pre-tax in 2007. On a post-tax basis, the gain on sale was CHF 1,926 million.
51
Financial Statementsinformation
Notes to the Financial Statementsconsolidated financial statements
Note 6 Personnel Expenses | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Salaries and bonuses | 20,057 | 19,011 | 15,867 | 6 | ||||||||||||
Contractors | 630 | 822 | 823 | (23 | ) | |||||||||||
Insurance and social security contributions | 1,221 | 1,376 | 1,257 | (11 | ) | |||||||||||
Contribution to retirement plans | 922 | 802 | 712 | 15 | ||||||||||||
Other personnel expenses | 1,968 | 1,580 | 1,408 | 25 | ||||||||||||
Total personnel expenses | 24,798 | 23,591 | 20,067 | 5 | ||||||||||||
Note 7 General and Administrative Expenses | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Occupancy | 1,583 | 1,429 | 1,271 | 11 | ||||||||||||
Rent and maintenance of IT and other equipment | 702 | 650 | 601 | 8 | ||||||||||||
Telecommunications and postage | 950 | 907 | 839 | 5 | ||||||||||||
Administration | 1,002 | 794 | 716 | 26 | ||||||||||||
Marketing and public relations | 587 | 603 | 517 | (3 | ) | |||||||||||
Travel and entertainment | 1,032 | 937 | 731 | 10 | ||||||||||||
Professional fees | 1,108 | 922 | 622 | 20 | ||||||||||||
Outsourcing of IT and other services | 1,234 | 1,090 | 869 | 13 | ||||||||||||
Other | 267 | 648 | 338 | (59 | ) | |||||||||||
Total general and administrative expenses | 8,465 | 7,980 | 6,504 | 6 | ||||||||||||
52
292
Financial information |
As of | % change from | |||||||||||||||
31.12.08 | 31.12.07 | 31.12.06 | 31.12.07 | |||||||||||||
Shares outstanding | ||||||||||||||||
Total ordinary shares issued | 2,932,580,549 | 2,073,547,344 | 2,105,273,286 | 41 | ||||||||||||
Second trading line treasury shares | ||||||||||||||||
2006 program | 22,600,000 | |||||||||||||||
Other treasury shares | 61,903,121 | 158,105,524 | 141,875,699 | (61 | ) | |||||||||||
Total treasury shares | 61,903,121 | 158,105,524 | 164,475,699 | (61 | ) | |||||||||||
Shares outstanding | 2,870,677,428 | 1,915,441,820 | 1,940,797,587 | 50 | ||||||||||||
Retrospective adjustments for stock dividend3 | 95,772,091 | 97,039,879 | ||||||||||||||
Retrospective adjustments for rights issue2 | 141,850,917 | 143,728,676 | ||||||||||||||
Mandatory convertible notes and exchangeable shares4 | 600,557,453 | 518,711 | 139,561 | |||||||||||||
Shares outstanding for EPS | 3,471,234,881 | 2,153,583,539 | 2,181,705,703 | 61 | ||||||||||||
Shares outstanding | ||||||||||||||||
As of | % change from | |||||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | |||||||||||||
Total ordinary shares issued | 2,073,547,344 | 2,105,273,286 | 2,177,265,044 | (2 | ) | |||||||||||
Second trading line treasury shares | ||||||||||||||||
2005 program | 67,770,000 | |||||||||||||||
2006 program | 22,600,000 | |||||||||||||||
Other treasury shares | 158,105,524 | 141,875,699 | 140,749,748 | 11 | ||||||||||||
Total treasury shares | 158,105,524 | 164,475,699 | 208,519,748 | (4 | ) | |||||||||||
Shares outstanding | 1,915,441,820 | 1,940,797,587 | 1,968,745,296 | (1 | ) | |||||||||||
53293
Financial Statementsinformation
Notes to the Financial Statementsconsolidated financial statements
Balance Sheet: Assetssheet notes: assets
Note 9a Due from Banks and Loans (Held at Amortized Cost) | ||||||||
By type of exposure | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Banks1 | 60,935 | 50,456 | ||||||
Allowance for credit losses | (28 | ) | (30 | ) | ||||
Net due from banks | 60,907 | 50,426 | ||||||
Loans1 | ||||||||
Residential mortgages | 122,435 | 124,548 | ||||||
Commercial mortgages | 21,058 | 19,989 | ||||||
Other loans | 193,374 | 154,531 | ||||||
Subtotal | 336,867 | 299,068 | ||||||
Allowance for credit losses | (1,003 | ) | (1,226 | ) | ||||
Net loans | 335,864 | 297,842 | ||||||
Net due from banks and loans (held at amortized cost) | 396,771 | 348,268 | ||||||
1 IncludesNote 9a Due from banks and loans from industrial holdings in the amount(held at amortized cost)
By type of exposure | |||||||||
CHF million | 31.12.08 | 31.12.07 | |||||||
Banks | 64,473 | 60,935 | |||||||
Allowance for credit losses | (22 | ) | (28 | ) | |||||
Net due from banks | 64,451 | 60,907 | |||||||
Loans | |||||||||
Residential mortgages | 121,811 | 122,435 | |||||||
Commercial mortgages | 21,270 | 21,058 | |||||||
Other loans | 170,099 | 193,374 | |||||||
Debt instruments traditionally not classified as loans and receivables1 | 30,033 | – | |||||||
Subtotal | 343,213 | 336,867 | |||||||
Allowance for credit losses | (2,905 | ) | (1,003 | ) | |||||
of which: Debt instruments traditionally not classified as loans and receivables | (1,329 | ) | – | ||||||
Net loans | 340,308 | 335,864 | |||||||
Net due from banks and loans (held at amortized cost) | 404,759 | 396,771 | |||||||
By geographical region (based on the location of the borrower) | |||||||||
Switzerland | 166,798 | 166,435 | |||||||
United Kingdom | 30,540 | 29,796 | |||||||
Rest of Europe | 47,724 | 43,966 | |||||||
United States | 105,907 | 70,962 | |||||||
Asia Pacific | 23,279 | 27,843 | |||||||
Rest of the world | 38,590 | 62,916 | |||||||
Subtotal | 412,838 | 401,918 | |||||||
Allowance for credit losses | (2,927 | ) | (1,031 | ) | |||||
Net due from banks, loans (held at amortized cost) and loans designated at fair value2 | 409,911 | 400,887 | |||||||
By type of collateral | |||||||||
Secured by real estate | 145,491 | 145,927 | |||||||
Collateralized by securities | 56,312 | 96,306 | |||||||
Guarantees and other collateral | 124,543 | 79,936 | |||||||
Unsecured | 86,492 | 79,749 | |||||||
Subtotal | 412,838 | 401,918 | |||||||
Allowance for credit losses | (2,927 | ) | (1,031 | ) | |||||
Net due from banks, loans (held at amortized cost) and loans designated at fair value2 | 409,911 | 400,887 | |||||||
Additional information about due from banks, loans (held at amortized cost) and loans designated at fair value | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Net due from banks and loans (held at amortized cost) | 396,771 | 348,268 | ||||||
Loans designated at fair value2 | 4,116 | 2,252 | ||||||
Total | 400,887 | 350,520 | ||||||
By geographical region (based on the location of the borrower) | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Switzerland | 166,435 | 163,090 | ||||||
Rest of Europe / Middle East / Africa | 79,322 | 67,584 | ||||||
Americas | 128,318 | 102,768 | ||||||
Asia Pacific | 27,843 | 18,334 | ||||||
Subtotal | 401,918 | 351,776 | ||||||
Allowance for credit losses | (1,031 | ) | (1,256 | ) | ||||
Net due from banks, loans (held at amortized cost) and loans designated at fair value | 400,887 | 350,520 | ||||||
By type of collateral | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Secured by real estate | 145,927 | 146,518 | ||||||
Collateralized by securities | 133,912 | 85,200 | ||||||
Guarantees and other collateral | 42,330 | 27,000 | ||||||
Unsecured | 79,749 | 93,058 | ||||||
Subtotal | 401,918 | 351,776 | ||||||
Allowance for credit losses | (1,031 | ) | (1,256 | ) | ||||
Net due from banks, loans (held at amortized cost) and loans designated at fair value | 400,887 | 350,520 | ||||||
54
294
Note 9b Allowances and Provisions for Credit Losses | ||||||||||||||||
Collective loan | ||||||||||||||||
Specific allowances | loss allowances | |||||||||||||||
CHF million | and provisions | and provisions | Total 31.12.07 | Total 31.12.06 | ||||||||||||
Balance at the beginning of the year | 1,294 | 38 | 1,332 | 1,776 | ||||||||||||
Write-offs | (321 | ) | 0 | (321 | ) | (363 | ) | |||||||||
Recoveries | 55 | 0 | 55 | 62 | ||||||||||||
Increase / (decrease) in credit loss allowances and provisions | 242 | (4 | ) | 238 | (156 | ) | ||||||||||
Disposals | (131 | ) | 0 | (131 | ) | 0 | ||||||||||
Foreign currency translation and other adjustments | (9 | ) | 0 | (9 | ) | 13 | ||||||||||
Balance at the end of the year | 1,130 | 34 | 1,164 | 1,332 | 1 | |||||||||||
Collective loan | ||||||||||||||||
Specific allowances | loss allowances | |||||||||||||||
CHF million | and provisions | and provisions | Total 31.12.07 | Total 31.12.06 | ||||||||||||
As a reduction of Due from banks | 28 | 0 | 28 | 30 | ||||||||||||
As a reduction of Loans | 969 | 34 | 1,003 | 1,226 | ||||||||||||
As a reduction of other balance sheet positions | 70 | 0 | 70 | 0 | ||||||||||||
Subtotal | 1,067 | 34 | 1,101 | 1,256 | ||||||||||||
Included in Other liabilities related to provisions for contingent claims | 63 | 0 | 63 | 76 | ||||||||||||
Total allowances and provisions for credit losses | 1,130 | 34 | 1,164 | 1,332 | ||||||||||||
Note 9c Impaired Due from Banks and Loans | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Total gross impaired due from banks and loans1 | 2,392 | 2,628 | ||||||
Allowance for impaired due from banks | 28 | 30 | ||||||
Allowance for impaired loans | 969 | 1,188 | ||||||
Total allowances for credit losses related to impaired due from banks and loans | 997 | 1,218 | ||||||
Average total gross impaired due from banks and loans2 | 2,483 | 3,003 | ||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Total gross impaired due from banks and loans | 2,392 | 2,628 | ||||||
Estimated liquidation proceeds of collateral | (1,104 | ) | (1,059 | ) | ||||
Net impaired due from banks and loans | 1,288 | 1,569 | ||||||
Total allowances for credit losses related to impaired due from banks and loans | 997 | 1,218 | ||||||
55
Financial StatementsNotes to the Financial Statements
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 it will be made good by later payments or the
liquidation of collateral; or 2) when insolvency proceedings have commenced; or 3) when obligations have been restructured on concessionary terms.
CHF million | 31.12.07 | 31.12.06 | ||||||
Total gross non-performing due from banks and loans | 1,481 | 1,918 | ||||||
Total allowances for credit losses related to non-performing due from banks and loans | 873 | 1,112 | ||||||
Average total gross non-performing due from banks and loans1 | 1,820 | 2,135 | ||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Non-performing due from banks and loans at the beginning of the year | 1,918 | 2,363 | ||||||
Net additions / (reductions) | (165 | ) | (157 | ) | ||||
Write-offs and disposals | (272 | ) | (288 | ) | ||||
Non-performing due from banks and loans at the end of the year | 1,481 | 1,918 | ||||||
By type of exposure | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Banks | 26 | 29 | ||||||
Loans | ||||||||
Secured by real estate | 428 | 561 | ||||||
Other | 1,027 | 1,328 | ||||||
Total loans | 1,455 | 1,889 | ||||||
Total non-performing due from banks and loans | 1,481 | 1,918 | ||||||
By geographical region (based on the location of borrower) | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Switzerland | 1,349 | 1,744 | ||||||
Rest of Europe / Middle East / Africa | 78 | 106 | ||||||
Americas | 51 | 62 | ||||||
Asia Pacific | 3 | 6 | ||||||
Total non-performing due from banks and loans | 1,481 | 1,918 | ||||||
Financial information |
Note 9b Allowances and provisions for credit losses | ||||||||||||||||
Collective loan | ||||||||||||||||
Specific allowances | loss allowances | |||||||||||||||
CHF million | and provisions | and provisions | Total 31.12.08 | Total 31.12.07 | ||||||||||||
Balance at the beginning of the year | 1,130 | 34 | 1,164 | 1,332 | ||||||||||||
Write-offs | (868 | ) | 0 | (868 | ) | (321 | ) | |||||||||
Recoveries | 44 | 0 | 44 | 55 | ||||||||||||
Increase/(decrease) in credit loss allowances and provisions | 3,007 | (11 | ) | 2,996 | 238 | |||||||||||
Disposals | (223 | ) | 0 | (223 | ) | (131 | ) | |||||||||
Foreign currency translation and other adjustments | (43 | ) | 0 | (43 | ) | (9 | ) | |||||||||
Balance at the end of the year | 3,047 | 23 | 3,070 | 1,164 | ||||||||||||
Collective loan | ||||||||||||||||
Specific allowances | loss allowances | |||||||||||||||
CHF million | and provisions | and provisions | Total 31.12.08 | Total 31.12.07 | ||||||||||||
As a reduction of due from banks | 22 | 0 | 22 | 28 | ||||||||||||
As a reduction of loans | 2,882 | 23 | 2,905 | 1,003 | ||||||||||||
As a reduction of securities borrowed | 112 | 0 | 112 | 70 | ||||||||||||
Subtotal | 3,016 | 23 | 3,039 | 1,101 | ||||||||||||
Included in other liabilities related to provisions for contingent claims | 31 | 0 | 31 | 63 | ||||||||||||
Total allowances and provisions for credit losses | 3,047 | 23 | 3,070 | 1,164 | ||||||||||||
Note 10 Securities Borrowing, Securities Lending, Repurchaseborrowing, 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 credit
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 | Balance sheet assets | Balance sheet assets | ||||||||||||||||||||||||||||||
Cash collateral on | Reverse repurchase | Cash collateral on | Reverse repurchase | Cash collateral on | Reverse repurchase | Cash collateral on | Reverse repurchase | |||||||||||||||||||||||||
securities borrowed | agreements | securities borrowed | agreements | securities borrowed | agreements | securities borrowed | agreements | |||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.07 | 31.12.06 | 31.12.06 | 31.12.08 | 31.12.08 | 31.12.07 | 31.12.07 | ||||||||||||||||||||||||
By counterparty | ||||||||||||||||||||||||||||||||
Banks | 48,480 | 221,575 | 53,538 | 209,606 | 17,523 | 110,254 | 48,480 | 221,575 | ||||||||||||||||||||||||
Customers | 158,583 | 155,353 | 298,052 | 196,228 | 105,374 | 114,393 | 158,583 | 155,353 | ||||||||||||||||||||||||
Total | 207,063 | 376,928 | 351,590 | 405,834 | 122,897 | 224,648 | 207,063 | 376,928 |
Balance sheet liabilities | ||||||||||||||||
Cash collateral on | Repurchase | Cash collateral on | Repurchase | |||||||||||||
securities lent | agreements | securities lent | agreements | |||||||||||||
CHF million | 31.12.08 | 31.12.08 | 31.12.07 | 31.12.07 | ||||||||||||
By counterparty | ||||||||||||||||
Banks | 12,181 | 36,088 | 29,512 | 139,156 | ||||||||||||
Customers | 1,881 | 66,473 | 2,109 | 166,731 | ||||||||||||
Total | 14,063 | 102,561 | 31,621 | 305,887 | ||||||||||||
56295
Note 10 Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements (continued) | ||||||||||||||||
Balance sheet liabilities | ||||||||||||||||
Cash collateral on | Repurchase | Cash collateral on | Repurchase | |||||||||||||
securities lent | agreements | securities lent | agreements | |||||||||||||
CHF million | 31.12.07 | 31.12.07 | 31.12.06 | 31.12.06 | ||||||||||||
By counterparty | ||||||||||||||||
Banks | 29,512 | 139,156 | 44,118 | 274,910 | ||||||||||||
Customers | 2,109 | 166,731 | 18,970 | 270,570 | ||||||||||||
Total | 31,621 | 305,887 | 63,088 | 545,480 | ||||||||||||
Financial information
Notes to the consolidated financial statements
Note 11 Trading Portfolio
The Group trades in debt instruments (including money market paper and tradable loans), equity instruments, precious metals, other commodities and derivatives to meet the
financial needs of its customers and to generate revenue.
Refer to Note 23 providesfor derivative instruments. The table below represents a descriptionpure accounting view. It does not reflect hedges and other risk-mitigating factors and the amounts must therefore not be considered risk exposures.
CHF million | 31.12.08 | 31.12.07 | ||||||
Trading portfolio assets | ||||||||
Debt instruments | ||||||||
Government and government agencies | ||||||||
Switzerland | 121 | 437 | ||||||
United States | 31,366 | 86,684 | ||||||
Japan | 46,049 | 51,137 | ||||||
Other | 38,160 | 52,993 | ||||||
Banks | ||||||||
Listed1 | 12,450 | 28,923 | ||||||
Unlisted | 10,725 | 13,594 | ||||||
Corporates | ||||||||
Listed1 | 41,690 | 153,416 | ||||||
Unlisted | 44,301 | 150,768 | ||||||
Total debt instruments | 224,862 | 537,952 | ||||||
thereof pledged as collateral with central banks | 5,541 | 3,252 | ||||||
thereof pledged as collateral (excluding central banks) | 56,612 | 152,704 | ||||||
thereof pledged as collateral and can be repledged or resold by counterparty | 30,903 | 88,866 | ||||||
Equity instruments | ||||||||
Listed1 | 70,713 | 181,034 | ||||||
Unlisted | 6,545 | 25,968 | ||||||
Total equity instruments | 77,258 | 207,002 | ||||||
thereof pledged as collateral | 15,849 | 26,870 | ||||||
thereof can be repledged or resold by counterparty | 9,312 | 25,325 | ||||||
Precious metals and other commodities2 | 9,934 | 29,418 | ||||||
Total trading portfolio assets | 312,054 | 774,372 | ||||||
Trading portfolio liabilities | ||||||||
Debt instruments | ||||||||
Government and government agencies | ||||||||
Switzerland | 129 | 171 | ||||||
United States | 18,914 | 50,659 | ||||||
Japan | 2,344 | 13,557 | ||||||
Other | 12,656 | 27,335 | ||||||
Banks | ||||||||
Listed1 | 4,235 | 8,806 | ||||||
Unlisted | 119 | 873 | ||||||
Corporates | ||||||||
Listed1 | 8,961 | 15,076 | ||||||
Unlisted | 1,984 | 3,949 | ||||||
Total debt instruments | 49,342 | 120,426 | ||||||
Equity instruments | 13,089 | 44,362 | ||||||
Total trading portfolio liabilities | 62,431 | 164,788 | ||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Trading portfolio assets | ||||||||
Money market paper | 76,866 | 86,790 | ||||||
thereof pledged as collateral with central banks | 198 | 20,053 | ||||||
thereof pledged as collateral (excluding central banks) | 35,604 | 45,356 | ||||||
thereof pledged as collateral and can be repledged or resold by counterparty | 32,239 | 38,173 | ||||||
Debt instruments | ||||||||
Swiss government and government agencies | 304 | 340 | ||||||
US Treasury and government agencies | 75,137 | 114,714 | ||||||
Other government agencies | 57,864 | 71,170 | ||||||
Corporate listed | 127,990 | 214,129 | ||||||
Other – unlisted | 152,669 | 111,001 | ||||||
Total | 413,964 | 511,354 | ||||||
thereof pledged as collateral | 170,276 | 244,697 | ||||||
thereof can be repledged or resold by counterparty | 106,747 | 158,549 | ||||||
Equity instruments | ||||||||
Listed | 181,034 | 183,731 | ||||||
Unlisted | 25,968 | 27,938 | ||||||
Total | 207,002 | 211,669 | ||||||
thereof pledged as collateral | 26,870 | 56,760 | ||||||
thereof can be repledged or resold by counterparty | 25,325 | 54,756 | ||||||
Traded loans | 47,122 | 47,630 | ||||||
Precious metals and other commodities1 | 29,418 | 21,071 | ||||||
Total trading portfolio assets | 774,372 | 878,514 | ||||||
Trading portfolio liabilities | ||||||||
Debt instruments | ||||||||
Swiss government and government agencies | 85 | 129 | ||||||
US Treasury and government agencies | 50,187 | 81,385 | ||||||
Other government agencies | 40,610 | 58,538 | ||||||
Corporate listed | 24,722 | 21,788 | ||||||
Other – unlisted | 4,822 | 2,101 | ||||||
Total | 120,426 | 163,941 | ||||||
Equity instruments | 44,362 | 40,832 | ||||||
Total trading portfolio liabilities | 164,788 | 204,773 | ||||||
57296
Financial StatementsNotes to the Financial Statements
Financial information |
Note 12 Financial Assets Designated at Fair Value | |||||||||||||||||
Note 12 Financial assets designated at fair value | Note 12 Financial assets designated at fair value | ||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | |||||||||||||
Loans | 3,633 | 2,104 | 4,500 | 3,633 | |||||||||||||
Structured loans | 483 | 148 | 653 | 483 | |||||||||||||
Reverse repurchase and securities borrowing agreements | |||||||||||||||||
Banks | 4,289 | 2,942 | 4,321 | 4,289 | |||||||||||||
Customers | 1,232 | 307 | 2,329 | 1,232 | |||||||||||||
Other financial assets | 2,128 | 429 | 1,079 | 2,128 | |||||||||||||
Total financial assets designated at fair value | 11,765 | 5,930 | 12,882 | 11,765 |
The maximum exposure to credit loss of all items in the above table except for Other financial assets is equal to the fair value (CHF 11,803 million at 31 December 2008 and CHF 9,637 million at 31 December 2007 and CHF 5,501 million at 31 December 2006)2007). Other financial assets are generally comprised of equity investments and are not directly exposed to credit risk. The maximum exposure to
credit loss at 31 December 20072008 and 31 December 20062007 is mitigated by collateral of CHF 5,8306,335 million and CHF 3,7125,830 million, respectively.
CHF million | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | ||||||||||||
Notional amount of loans and structured loans | 4,166 | 2,348 | 6,186 | 4,166 | ||||||||||||
Credit derivatives related to loans and structured loans – notional amounts1 | 3,351 | 663 | 4,314 | 3,351 | ||||||||||||
Credit derivatives related to loans and structured loans – fair value1 | 59 | 2 | 547 | 59 |
Additional Information | Additional Information | Additional Information | |||||||||||||||||||||||||||
Cumulative from | Cumulative from inception until | ||||||||||||||||||||||||||||
inception until | For the year ended | the year ended | |||||||||||||||||||||||||||
For the year ended | the year ended | ||||||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 2 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | |||||||||||||||||||||
Change in fair value of loans and structured loans designated at fair value, attributable to changes in credit risk3 | (87 | ) | (8 | ) | (98 | ) | |||||||||||||||||||||||
Change in fair value of loans and structured loans designated at fair value, attributable to changes in credit risk2 | (668 | ) | (87 | ) | (659 | ) | (98 | ) | |||||||||||||||||||||
Change in fair value of credit derivatives and similar instruments which mitigate the maximum exposure to credit loss of loans and structured loans designated at fair value3 | 58 | 2 | 59 | ||||||||||||||||||||||||||
Change in fair value of credit derivatives and similar instruments which mitigate the maximum exposure to credit loss of loans and structured loans designated at fair value2 | 486 | 58 | 547 | 59 |
Note 13 Financial Investments Available-for-Sale | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Money market paper | 349 | 354 | ||||||
Other debt instruments | ||||||||
Listed | 317 | 260 | ||||||
Unlisted | 717 | 261 | ||||||
Total | 1,034 | 521 | ||||||
Equity instruments | ||||||||
Listed | 1,865 | 5,880 | ||||||
Unlisted | 1,718 | 2,182 | ||||||
Total | 3,583 | 8,062 | ||||||
Total financial investments available-for-sale | 4,966 | 8,937 | ||||||
Net unrealized gains / (losses) – before tax | 1,900 | 3,723 | ||||||
Net unrealized gains / (losses) – after tax | 1,503 | 2,906 | ||||||
58297
Financial information
Notes to the consolidated financial statements
Note 14 Investments in Associates | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Carrying amount at the beginning of the year | 1,523 | 2,956 | ||||||
Additions | 1,656 | 542 | ||||||
Disposals | (846 | ) | (2,043 | ) | ||||
Transfers | (367 | ) | 13 | |||||
Income1 | 137 | 156 | ||||||
Impairments2 | (17 | ) | (27 | ) | ||||
Dividends paid | (42 | ) | (33 | ) | ||||
Foreign currency translation | (65 | ) | (41 | ) | ||||
Carrying amount at the end of the year | 1,979 | 1,523 | ||||||
Note 13 Financial investments available-for-sale | |||||||||
CHF million | 31.12.08 | 31.12.07 | |||||||
Money market paper | 2,165 | 349 | |||||||
Other debt instruments | |||||||||
Listed1 | 322 | 317 | |||||||
Unlisted | 1,080 | 717 | |||||||
Total | 1,402 | 1,034 | |||||||
Equity instruments | |||||||||
Listed1 | 258 | 1,865 | |||||||
Unlisted | 1,423 | 1,718 | |||||||
Total | 1,681 | 3,583 | |||||||
Total financial investments available-for-sale | 5,248 | 4,966 | |||||||
Net unrealized gains (losses) – before tax | 403 | 1,900 | |||||||
Net unrealized gains (losses) – after tax | 349 | 1,503 | |||||||
Note 14 Investments in associates | |||||||||
CHF million | 31.12.08 | 31.12.07 | |||||||
Carrying amount at the beginning of the year | 1,979 | 1,523 | |||||||
Additions | 807 | 1,656 | |||||||
Disposals | (1,307 | ) | (846 | ) | |||||
Transfers | (422 | ) | (367 | ) | |||||
Income | 12 | 137 | |||||||
Impairments | (18 | ) | (17 | ) | |||||
Dividends paid | (34 | ) | (42 | ) | |||||
Foreign currency translation | (125 | ) | (65 | ) | |||||
Carrying amount at the end of the year | 892 | 1,979 | |||||||
Significant associated companies of the Group had the following balance sheet and income statement totals on an aggregated basis, not adjusted for the Group’s proportionate interest. SeeRefer to Note 3334 for a list of significant associates.
CHF million | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | ||||||||||||
Assets | 9,189 | 27,299 | 4,272 | 9,189 | ||||||||||||
Liabilities | 2,524 | 22,831 | 3,448 | 2,524 | ||||||||||||
Revenues | 1,228 | 1,888 | 1,211 | 1,228 | ||||||||||||
Net profit | 321 | 318 | 198 | 321 |
298
Financial information |
Note 15 Property and equipment
Note 15 Property and Equipment | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At historical cost less accumulated depreciation | At historical cost less accumulated depreciation | At historical cost less accumulated depreciation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | Plant and | Plant and | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leasehold | IT, software | machines | manu- | Leasehold | IT, software | Other | manu- | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Own-used | improve- | and com- | and | facturing | Projects in | Own-used | improve- | and com- | machines and | facturing | Projects in | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million | properties | ments | munication | equipment | equipment | progress | 31.12.07 | 31.12.06 | properties | ments | munication | equipment | equipment | progress | 31.12.08 | 31.12.07 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Historical cost | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 9,286 | 3,210 | 4,477 | 893 | 53 | 558 | 18,477 | 21,670 | 9,242 | 3,297 | 4,604 | 885 | 29 | 666 | 18,723 | 18,477 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Additions | 90 | 287 | 477 | 205 | 2 | 666 | 1,727 | 1,793 | 196 | 265 | 334 | 75 | 0 | 311 | 1,181 | 1,727 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Additions from acquired companies | 0 | 4 | 0 | 2 | 0 | 0 | 6 | 29 | 0 | 1 | 6 | 0 | 0 | 0 | 7 | 6 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Disposals / write-offs1 | (80 | ) | (382 | ) | (317 | ) | (204 | ) | (25 | ) | 0 | (1,008 | ) | (4,915 | ) | (21 | ) | (138 | ) | (523 | ) | (80 | ) | (31 | ) | 0 | (792 | ) | (1,008 | ) | |||||||||||||||||||||||||||||||||||||
Reclassifications | (28 | ) | 314 | 136 | 31 | 0 | (529 | ) | (76 | ) | (26 | ) | (28 | ) | 289 | 84 | 53 | 0 | (620 | ) | (222 | ) | (76 | ) | |||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | (26 | ) | (136 | ) | (169 | ) | (42 | ) | (1 | ) | (29 | ) | (403 | ) | (74 | ) | (101 | ) | (321 | ) | (419 | ) | (67 | ) | 2 | (40 | ) | (945 | ) | (403 | ) | ||||||||||||||||||||||||||||||||||||
Balance at the end of the year | 9,242 | 3,297 | 4,604 | 885 | 29 | 666 | 18,723 | 18,477 | 9,289 | 3,393 | 4,086 | 867 | 0 | 317 | 17,952 | 18,723 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated depreciation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 4,930 | 2,096 | 3,887 | 623 | 42 | 0 | 11,578 | 12,275 | 5,121 | 1,969 | 4,022 | 540 | 27 | 0 | 11,679 | 11,578 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation2,3 | 231 | 299 | 608 | 110 | 5 | 0 | 1,253 | 1,325 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation2 | 332 | 312 | 497 | 100 | 0 | 0 | 1,241 | 1,253 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disposals / write-offs1 | (28 | ) | (342 | ) | (310 | ) | (174 | ) | (19 | ) | 0 | (873 | ) | (1,942 | ) | (7 | ) | (88 | ) | (520 | ) | (54 | ) | (28 | ) | 0 | (697 | ) | (873 | ) | |||||||||||||||||||||||||||||||||||||
Reclassifications | (10 | ) | 0 | (4 | ) | 0 | 0 | 0 | (14 | ) | (10 | ) | (160 | ) | (4 | ) | 0 | 0 | 0 | 0 | (164 | ) | (14 | ) | |||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | (2 | ) | (85 | ) | (159 | ) | (19 | ) | (1 | ) | 0 | (266 | ) | (70 | ) | (14 | ) | (159 | ) | (387 | ) | (40 | ) | 2 | 0 | (598 | ) | (266 | ) | ||||||||||||||||||||||||||||||||||||||
Balance at the end of the year | 5,121 | 1,968 | 4,022 | 540 | 27 | 0 | 11,678 | 11,578 | 5,272 | 2,031 | 3,612 | 546 | 0 | 0 | 11,461 | 11,678 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net book value at the end of the year4 | 4,121 | 1,329 | 582 | 345 | 2 | 666 | 7,045 | 6,899 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net book value at the end of the year3 | 4,017 | 1,362 | 475 | 321 | 0 | 317 | 6,491 | 7,045 |
Investment properties at fair value | |||||||||
CHF million | 31.12.08 | 31.12.07 | |||||||
Balance at the beginning of the year | 189 | 14 | |||||||
Additions | 37 | 182 | |||||||
Sales | 0 | 0 | |||||||
Revaluations | (6 | ) | 7 | ||||||
Foreign currency translation | (5 | ) | (14 | ) | |||||
Balance at the end of the year | 215 | 189 | |||||||
59299
Financial Statementsinformation
Notes to the Financial Statements
Note 15 Property and Equipment (continued) | ||||||||
At fair value | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Balance at the beginning of the year | 14 | 28 | ||||||
Additions | 182 | 0 | ||||||
Sales | 0 | (14 | ) | |||||
Revaluations | 7 | 0 | ||||||
Foreign currency translation | (14 | ) | 0 | |||||
Balance at the end of the year | 189 | 14 | ||||||
Note 16 Goodwill and Intangible Assets
At year-end 2007, five out of six31 December 2008, the following four segments carry goodwill, of which Industrial Holdings has less than 1% of the total balance. Business Bankingcarried goodwill: Wealth Management International & Switzerland carries no goodwill.(CHF 1.6 billion), Wealth Management US (CHF 3.7 billion), Global Asset Management (CHF 2.0 billion), and Investment Bank (CHF 4.3 billion). For the purpose of testing goodwill for impairment, UBS considers each of these segments as a separate cash-generating unit, and determines the recoverable amount of its segmentsa segment on the basis of value in use.
Methodology for goodwill impairment testing
The recoverable amount is determined using a proprietary model based on the discounted cash flow method,flows, which has been adapted to give effect to the special features of the banking business and its regulatory environment. The recoverable amount is determined by estimating streams of earnings available to shareholders in the next four quarters based on a rolling forecast process,five years, discounted to their present values. The terminal value reflecting all periods
beyond the firstfifth year is calculated on the basis of the estimated individual return on equity for each segment, which is derived from the forecast first-yearfifth-year profit, the underlying equity, the cost of equity and the long-term growth rate. The recoverable amount of the segmentsa segment is the sum of earnings available to shareholders from the first yearfive years and the terminal value. In 2007, the recoverable amount was based on the discounted estimated streams of earnings determined in a rolling forecast process for the next four quarters and the terminal value. The five-year period for the cash flow projections applied in 2008 is considered a more appropriate measure, given the currently volatile market environment and the uncertainties in the short-term outlook.
Assumptions
The model is most sensitive to changes in the forecast earnings available to shareholders in yearyears one to five, the estimated
return on equity, the underlying equity, the cost of equity and to changes in the long-term growth rate. The applied long-term growth rate is based on long-term risk-free interest rates. Earnings available to shareholders are estimated based on forecast results, which takes into account business initiatives and planned capital investments, and returns to shareholders. Valuation parameters used within the Group’s impairment test model are linked to external market information, where applicable. Discount rates applied are 9% for Wealth Management International & Switzerland and for Business Banking Switzer-land, 10.5% for Wealth Management US and Global Asset Management and 11.5% for Investment Bank.
Discount rate | |||||||||
In % | 31.12.08 | 31.12.07 | |||||||
Wealth Management International & Switzerland | 9.5 | 9.0 | |||||||
Wealth Management US | 11.5 | 10.5 | |||||||
Business Banking Switzerland | 9.5 | 9.0 | |||||||
Global Asset Management | 11.0 | 10.5 | |||||||
Investment Bank | 13.0 | 11.5 | |||||||
300
Financial information |
Investment Bank
On 31 December 2008, the reassessment of the goodwill of UBS’s Investment Bank, which has been most affected by the implications of the financial market crises, was a key focus. Goodwill allocated to the significant losses incurred by the Investment Bank amounted to CHF 4.3 billion at 31 December 2008 (CHF 5.2 billion at 31 December 2007). The reduction is due to an impairment of CHF 341 million of goodwill related to the US Municipal Securities Business, which was closed in June 2008 (refer to Note 38 for details) and foreign currency translation effects.
60
Note 16 Goodwill and Intangible Assets (continued) | ||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | Intangible assets | Goodwill | Intangible assets | |||||||||||||||||||||||||||||||||||||||||||||
Customer | Customer | |||||||||||||||||||||||||||||||||||||||||||||||
relationships, | relationships, | |||||||||||||||||||||||||||||||||||||||||||||||
contractual | contractual | |||||||||||||||||||||||||||||||||||||||||||||||
CHF million | Total | Infrastructure | rights and other | Total | 31.12.07 | 31.12.06 | Total | Infrastructure | rights and other | Total | 31.12.08 | 31.12.07 | ||||||||||||||||||||||||||||||||||||
Historical cost | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 12,464 | 942 | 2,087 | 3,029 | 15,493 | 14,385 | 12,829 | 876 | 1,619 | 2,495 | 15,324 | 15,493 | ||||||||||||||||||||||||||||||||||||
Additions and reallocations | 940 | 0 | (328 | ) | (328 | ) | 612 | 3,336 | 495 | 0 | 90 | 90 | 585 | 612 | ||||||||||||||||||||||||||||||||||
Disposals | 0 | 0 | (3 | ) | (3 | ) | (3 | ) | (1,373 | ) | (20 | ) | 0 | (13 | ) | (13 | ) | (33 | ) | (3 | ) | |||||||||||||||||||||||||||
Write-offs1 | 0 | 0 | (175 | ) | (175 | ) | (175 | ) | (28 | ) | (356 | ) | 0 | (116 | ) | (116 | ) | (472 | ) | (175 | ) | |||||||||||||||||||||||||||
Foreign currency translation | (575 | ) | (66 | ) | 38 | (28 | ) | (603 | ) | (827 | ) | (1,364 | ) | (52 | ) | (272 | ) | (324 | ) | (1,688 | ) | (603 | ) | |||||||||||||||||||||||||
Balance at the end of the year | 12,829 | 876 | 1,619 | 2,495 | 15,324 | 15,493 | 11,585 | 824 | 1,308 | 2,131 | 13,716 | 15,324 | ||||||||||||||||||||||||||||||||||||
Accumulated amortization | ||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated amortization and impairment | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 291 | 429 | 720 | 720 | 899 | 0 | 315 | 471 | 786 | 786 | 720 | |||||||||||||||||||||||||||||||||||||
Amortization2 | 46 | 236 | 282 | 282 | 196 | |||||||||||||||||||||||||||||||||||||||||||
Amortization | 0 | 42 | 152 | 193 | 193 | 282 | ||||||||||||||||||||||||||||||||||||||||||
Impairment of goodwill and intangible assets | 341 | 0 | 20 | 20 | 361 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Disposals | 0 | (3 | ) | (3 | ) | (3 | ) | (301 | ) | 0 | 0 | (7 | ) | (7 | ) | (7 | ) | (3 | ) | |||||||||||||||||||||||||||||
Write-offs1 | 0 | (175 | ) | (175 | ) | (175 | ) | (28 | ) | (356 | ) | 0 | (116 | ) | (116 | ) | (472 | ) | (175 | ) | ||||||||||||||||||||||||||||
Foreign currency translation | (22 | ) | (16 | ) | (38 | ) | (38 | ) | (46 | ) | 15 | (19 | ) | (76 | ) | (95 | ) | (80 | ) | (38 | ) | |||||||||||||||||||||||||||
Balance at the end of the year | 315 | 471 | 786 | 786 | 720 | 0 | 337 | 444 | 781 | 781 | 786 | |||||||||||||||||||||||||||||||||||||
Net book value at the end of the year | 12,829 | 561 | 1,148 | 1,709 | 14,538 | 14,773 | 11,585 | 487 | 864 | 1,350 | 12,935 | 14,538 |
301
Financial information
Notes to discontinued operations for 2006.
Note 16 Goodwill and intangible assets (continued)
The following table presents the disclosure of goodwill and intangible assets by Businessbusiness unit for the year ended 31 December 2007.2008.
Balance at | Balance at | |||||||||||||||||||||||
the beginning | Additions and | Foreign currency | the end | |||||||||||||||||||||
CHF million | of the year | reallocations | Disposals | Amortization | translation | of the year | ||||||||||||||||||
Goodwill | ||||||||||||||||||||||||
Wealth Management International & Switzerland | 1,645 | 125 | 0 | (73 | ) | 1,697 | ||||||||||||||||||
Wealth Management US | 4,006 | 193 | 0 | (292 | ) | 3,907 | ||||||||||||||||||
Business Banking Switzerland | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
Global Asset Management | 1,531 | 495 | 0 | (26 | ) | 2,000 | ||||||||||||||||||
Investment Bank | 5,262 | 127 | 0 | (182 | ) | 5,207 | ||||||||||||||||||
Corporate Center | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
Industrial Holdings | 20 | 0 | 0 | (2 | ) | 18 | ||||||||||||||||||
UBS | 12,464 | 940 | 0 | (575 | ) | 12,829 | ||||||||||||||||||
Intangible assets | ||||||||||||||||||||||||
Wealth Management International & Switzerland | 325 | (22 | ) | 0 | (19 | ) | 4 | 288 | ||||||||||||||||
Wealth Management US | 793 | 58 | 0 | (66 | ) | (56 | ) | 729 | ||||||||||||||||
Business Banking Switzerland | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Global Asset Management | 498 | (262 | ) | 0 | (19 | ) | 47 | 264 | ||||||||||||||||
Investment Bank | 688 | (110 | ) | 0 | (172 | ) | 16 | 422 | ||||||||||||||||
Corporate Center | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Industrial Holdings | 5 | 8 | 0 | (6 | ) | (1 | ) | 6 | ||||||||||||||||
UBS | 2,309 | (328 | ) | 0 | (282 | ) | 10 | 1,709 | ||||||||||||||||
61
Financial StatementsNotes to the Financial Statements
Note 16 Goodwill and Intangible Assets (continued)
Balance at | Additions | Foreign | Balance | |||||||||||||||||||||||||
the beginning | and | currency | at the end | |||||||||||||||||||||||||
CHF million | of the year | reallocations | Disposals | Amortization | Impairment | translation | of the year | |||||||||||||||||||||
Goodwill | ||||||||||||||||||||||||||||
Wealth Management International & Switzerland | 1,697 | 157 | 0 | 0 | (205 | ) | 1,648 | |||||||||||||||||||||
Wealth Management US | 3,907 | 0 | 0 | 0 | (228 | ) | 3,678 | |||||||||||||||||||||
Business Banking Switzerland | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||
Global Asset Management | 2,000 | 338 | 0 | 0 | (356 | ) | 1,982 | |||||||||||||||||||||
Investment Bank | 5,207 | 1 | 0 | (341 | ) | (590 | ) | 4,277 | ||||||||||||||||||||
Corporate Center | 18 | 0 | (20 | ) | 0 | 1 | 0 | |||||||||||||||||||||
UBS | 12,829 | 495 | (20 | ) | (341 | ) | (1,379 | ) | 11,585 | |||||||||||||||||||
Intangible assets | ||||||||||||||||||||||||||||
Wealth Management International & Switzerland | 288 | 58 | 0 | (18 | ) | (20 | ) | (57 | ) | 251 | ||||||||||||||||||
Wealth Management US | 729 | 0 | 0 | (60 | ) | 0 | (43 | ) | 626 | |||||||||||||||||||
Business Banking Switzerland | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Global Asset Management | 264 | 32 | 0 | (33 | ) | 0 | (77 | ) | 186 | |||||||||||||||||||
Investment Bank | 422 | 0 | 0 | (83 | ) | 0 | (52 | ) | 286 | |||||||||||||||||||
Corporate Center | 6 | 0 | (6 | ) | 0 | 0 | 0 | 0 | ||||||||||||||||||||
UBS | 1,709 | 90 | (6 | ) | (193 | ) | (20 | ) | (229 | ) | 1,350 | |||||||||||||||||
The estimated, aggregated amortization expenses for intangible assets are as follows:
CHF million | Intangible assets | Intangible assets | ||||||
Estimated, aggregated amortization expenses for: | ||||||||
2008 | 198 | |||||||
2009 | 195 | 168 | ||||||
2010 | 179 | 153 | ||||||
2011 | 166 | 145 | ||||||
2012 | 141 | 125 | ||||||
2013 and thereafter | 830 | |||||||
2013 | 103 | |||||||
2014 and thereafter | 656 | |||||||
Total | 1,709 | 1,350 |
Note 17 Other Assets
Note 17 Other assets | Note 17 Other assets | ||||||||||||||||||||||||
CHF million | Note | 31.12.07 | 31.12.06 | Note | 31.12.08 | 31.12.07 | |||||||||||||||||||
Deferred tax assets | 22 | 3,031 | 3,686 | 22 | 8,880 | 3,220 | |||||||||||||||||||
Settlement and clearing accounts | 6,370 | 3,159 | 1,203 | 6,370 | |||||||||||||||||||||
VAT and other tax receivables | 454 | 318 | 330 | 454 | |||||||||||||||||||||
Prepaid pension costs | 886 | 814 | 2,922 | 3,009 | |||||||||||||||||||||
Properties held for sale | 1,145 | 1,254 | 981 | 1,145 | |||||||||||||||||||||
Accounts receivable trade | 28 | 114 | |||||||||||||||||||||||
Inventory – industrial holdings | 44 | 68 | |||||||||||||||||||||||
Other receivables | 6,042 | 7,836 | 4,778 | 6,114 | |||||||||||||||||||||
Total other assets | 18,000 | 17,249 | 19,094 | 20,312 |
62302
Financial information |
Balance Sheet: Liabilitiessheet notes: liabilities
Note 18 Due to Banks and Customers | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Due to banks | 145,762 | 203,689 | ||||||
Due to customers in savings and investment accounts | 109,128 | 114,264 | ||||||
Other amounts due to customers | 532,764 | 441,622 | ||||||
Total due to customers | 641,892 | 555,886 | ||||||
Total due to banks and customers | 787,654 | 759,575 | ||||||
Note 19 Financial Liabilities Designated at Fair Value and Debt Issued
Financial liabilities designated at fair value | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Bonds and compound debt instruments issued | 183,143 | 135,646 | ||||||
Compound debt instruments – OTC | 8,251 | 9,967 | ||||||
Loan commitments1 | 459 | 74 | ||||||
Total | 191,853 | 145,687 | ||||||
The
At 31 December 2008, the contractual redemption amount at maturity of Financial liabilities designated at fair value through profit or loss approximateswas CHF 12.2 billion higher than the
carrying value atvalue. At 31 December 2007, and 31 December 2006.the contractual redemption amount at maturity of such liabilities approximated the carrying value. Refer to Note 1a7)1a) 7) for details.
Debt issued (held at amortized cost) | Debt issued (held at amortized cost) | Debt issued (held at amortized cost) | ||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | ||||||||||||
Short-term debt: Money market paper issued | 152,256 | 119,584 | 111,619 | 152,256 | ||||||||||||
Long-term debt: | ||||||||||||||||
Bonds | ||||||||||||||||
Senior | 52,265 | 53,509 | 64,099 | 52,265 | ||||||||||||
Subordinated | 14,129 | 14,774 | 15,968 | 14,129 | ||||||||||||
Shares in bond issues of the Swiss Regional or Cantonal Banks’ Central Bond Institutions | 199 | 38 | ||||||||||||||
Shares in bond issues of the Swiss Regional or Cantonal Bank’ Central Bond Institutions | 2,418 | 199 | ||||||||||||||
Medium-term notes | 3,228 | 2,238 | 3,150 | 3,228 | ||||||||||||
Subtotal long-term debt | 69,821 | 70,559 | 85,635 | 69,821 | ||||||||||||
Total | 222,077 | 190,143 | 197,254 | 222,077 |
63
303
Financial Statementsinformation
Notes to the Financial Statementsconsolidated financial statements
Note 19 Financial Liabilities Designatedliabilities designated at Fair Valuefair value and Debt Issueddebt issued (continued)
The Group uses interest rate and foreign exchange derivatives to manage the risks inherent in certain debt issues (held at amortized cost). In the case of interest rate risk management, the Group applies hedge accounting as discussed in Note 1 a14)1a) 14) and Note 23 – Derivative Instruments and Hedge Accounting. As a result of applying hedge accounting, at 31 December 20072008 and 31 December 2006,2007, the carrying value of debt issued was CHF 138904 million higher and CHF 256138 million higher, respectively, reflecting changes in fair value due to interest rate movements.
14,129 million, respectively, in subordinated debt. Subordinated debt usually pays fixed interest annually or floating-ratefloating rate interest based on the three-month or six-month London Interbank Offered Rate (LIBOR) and provides for single principal payments upon maturity.
Contractual maturity dates | Contractual maturity dates | Contractual maturity dates | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | Total | Total | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 2008 | 2009 | 2010 | 2011 | 2012 | 2013–2017 | Thereafter | 31.12.07 | 31.12.06 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014–2018 | Thereafter | 31.12.08 | 31.12.07 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
UBS AG (Parent Bank) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed rate | 94,098 | 12,357 | 14,030 | 8,136 | 10,835 | 11,969 | 4,007 | 155,432 | 109,987 | 49,415 | 11,706 | 6,041 | 6,626 | 10,994 | 17,170 | 1,627 | 103,579 | 155,432 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rates (range in %) | 0–36.5 | 0–13.5 | 0–13.25 | 0–10.25 | 0–10 | 0–11.55 | 0–15 | 0–9.90 | 0–9.70 | 0–9.955 | 0–9.66375 | 0–9.75 | 0–9.90 | 0–9.75 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Floating rate | 64,189 | 15,526 | 13,456 | 2,276 | 7,205 | 8,217 | 20,845 | 131,714 | 93,904 | 33,808 | 4,939 | 3,979 | 6,455 | 4,683 | 4,682 | 19,255 | 77,801 | 131,714 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed rate | 0 | 515 | 0 | 0 | 0 | 6,109 | 3,165 | 9,789 | 9,414 | 465 | 5,665 | 2,745 | 8,875 | 9,789 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rates (range in %) | 5.875 | 2.375–7.375 | 3.385–8.75 | 6.0-6.0 | 2.375–8.622 | 4.5–8.75 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Floating rate | 0 | 0 | 0 | 0 | 0 | 4,340 | 0 | 4,340 | 5,360 | 7,019 | 7,019 | 4,340 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 158,287 | 28,398 | 27,486 | 10,412 | 18,040 | 30,635 | 28,017 | 301,275 | 218,665 | 83,688 | 16,645 | 10,020 | 13,081 | 15,677 | 34,536 | 23,627 | 197,274 | 301,275 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Subsidiaries | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed rate | 46,259 | 887 | 1,802 | 1,166 | 412 | 1,913 | 24,424 | 76,863 | 86,862 | 60,092 | 2,904 | 8,459 | 813 | 377 | 1,010 | 9,348 | 83,003 | 76,863 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rates (range in %) | 0–12.25 | 0–10.5 | 0–12 | 0–20 | 0–11.885 | 0–35 | 0–35 | 0–9.03 | 0–9.0 | 0–8.375 | 0–8.495 | 0–9.0 | 0–9.494 | 0–9.829 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Floating rate | 5,945 | 4,006 | 6,511 | 4,312 | 1,454 | 6,394 | 7,170 | 35,792 | 30,303 | 3,505 | 2,548 | 2,000 | 1,033 | 783 | 4,303 | 4,277 | 18,449 | 35,792 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed rate | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 74 | 74 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rates (range in %) | 6.25–6.25 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Floating rate | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 52,204 | 4,893 | 8,313 | 5,478 | 1,866 | 8,307 | 31,594 | 112,655 | 117,165 | 63,671 | 5,452 | 10,459 | 1,846 | 1,160 | 5,313 | 13,625 | 101,526 | 112,655 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 210,491 | 33,291 | 35,799 | 15,890 | 19,906 | 38,942 | 59,611 | 413,930 | 335,830 | 147,359 | 22,097 | 20,479 | 14,927 | 16,837 | 39,849 | 37,252 | 298,800 | 413,930 |
The table above indicates fixed interest rate coupons ranging from 0 up to 36.5%9.955% on the Group’s bonds. The high or low coupons generally relate to structured debt issues prior to the separation of embedded derivatives. As a result, the statedstat-
ed interest rate on such debt issues generally does not reflect the effective interest rate the Group is paying to service its debt after the embedded derivative has been separated and, where applicable, the application of hedge accounting.
64304
Financial information |
Note 20 Other Liabilities | ||||||||||||||||||||||||
Note 20 Other liabilities | Note 20 Other liabilities | |||||||||||||||||||||||
CHF million | Note | 31.12.07 | 31.12.06 | Note | 31.12.08 | 31.12.07 | ||||||||||||||||||
Provisions | 21 | 1,673 | 1,672 | 21 | 2,727 | 1,716 | ||||||||||||||||||
Provisions for contingent claims | 9b | 63 | 76 | 9b | 31 | 63 | ||||||||||||||||||
Current tax liabilities | 2,000 | 4,258 | 1,192 | 2,000 | ||||||||||||||||||||
Deferred tax liabilities | 22 | 2,069 | 2,674 | 22 | 1,470 | 2,429 | ||||||||||||||||||
VAT and other tax payables | 1,079 | 931 | 1,022 | 1,079 | ||||||||||||||||||||
Settlement and clearing accounts | 7,476 | 3,715 | 3,089 | 7,476 | ||||||||||||||||||||
Amounts due under unit-linked investment contracts | 27,455 | 33,645 | 13,051 | 27,455 | ||||||||||||||||||||
Accounts payable | 15 | 91 | ||||||||||||||||||||||
Other payables | 18,946 | 16,189 | ||||||||||||||||||||||
Other payables1 | 11,459 | 19,278 | ||||||||||||||||||||||
Total other liabilities | 60,776 | 63,251 | 34,040 | 61,496 |
Note 21 Provisions | ||||||||||||||||||||
Total | Total | |||||||||||||||||||
CHF million | Operational1 | Litigation2 | Other3 | 31.12.07 | 31.12.063 | |||||||||||||||
Balance at the beginning of the year | 185 | 699 | 788 | 1,672 | 2,072 | |||||||||||||||
Additions from acquired companies | 0 | 0 | 0 | 0 | 26 | |||||||||||||||
Increase in provisions recognized in the income statement | 302 | 318 | 110 | 730 | 630 | |||||||||||||||
Release of provisions recognized in the income statement | (41 | ) | (117 | ) | (58 | ) | (216 | ) | 5 | |||||||||||
Provisions used in conformity with designated purpose | (123 | ) | (386 | ) | (61 | ) | (570 | ) | (466 | ) | ||||||||||
Capitalized reinstatement costs | 0 | 0 | 6 | 6 | 22 | |||||||||||||||
Disposal of subsidiaries | 0 | 0 | (16 | ) | (16 | ) | (607 | ) | ||||||||||||
Reclassifications | (6 | ) | 6 | 155 | 155 | 36 | ||||||||||||||
Foreign currency translation | (19 | ) | (46 | ) | (23 | ) | (88 | ) | (46 | ) | ||||||||||
Balance at the end of the year | 298 | 474 | 901 | 1,673 | 1,672 | |||||||||||||||
305
Financial information
Notes to the consolidated financial statements
Litigation
Litigation
ment,management, it is probable that a liability exists, and the amount can be reasonably estimated (see table above).estimated. No provision is made for claims asserted against the Group that in the opinion of management are without merit and where it is not likely that UBS will be found liable.
65
Financial StatementsNotes to the Financial Statements
Note 21 Provisions (continued)
At 31 December 2007,2008, UBS is involved in the following legal proceedings which could be material to the Group in a given reporting period:Group:
a) | Tax | ||
b) | Municipal |
issuances. Both investigations are ongoing, and UBS is cooperating. In addition, various state Attorneys General have issued subpoenas seeking similar information. In the SEC investigation, on 4 February 2008, UBS received a “Wells notice” advising that the SEC staff is considering recommending that the SEC bring a civil action against UBS AG in connection with the bidding of various financial instruments associated with municipal securities. Under the SEC’s Wells process, UBS will have the opportunity to set forth reasons of law, policy or fact why such an action should not be brought. | |||
c) | HealthSouth: UBS is defending itself in two | ||
d) | Parmalat: UBS has been facing multiple proceedings arising out of the Parmalat insolvency. In June 2008, UBS settled all civil claims brought by Parmalat in its capacity as Assumptor in composition with creditors and Mr. Bondi (Extraordinary Commissioner of Parmalat S.p.A. and other Parmalat companies under extraordinary administration) for EUR 185 million. Other civil claims by third parties have automatically terminated as a result of termination of criminal proceedings in Milan (with the exception of some costs issues which are the subject of appeals to Court of Cassation) and will also do so in Parma when the time for filing an appeal expires, unless an appeal has been lodged in the meantime. |
306
Financial information |
Note 21 Provisions and litigation (continued)
e) | Auction Rate Securities: UBS was sued by three state regulatory authorities and was the subject of investigations by the SEC and other regulators, relating to the marketing and sale of Auction Rate Securities (ARS) to clients and to UBS’s role and participation in ARS auctions. UBS also has been named in several putative class actions and individual civil suits and a large number of individual arbitrations. The regulatory actions and investigations and the class actions followed the disruption in the markets for these securities and related auction failures since mid-February 2008. Plaintiffs and the regulators are generally seeking rescission, i.e., for UBS to purchase the ARS that UBS sold to them at par value, as well as compensatory damages, disgorgement of profits and in some cases penalties. In May 2008, UBS entered into a settlement with the Massachusetts Attorney General in which UBS agreed to buy back USD 36 million in auction rate securities that had been sold to general purpose municipal accounts but were impermissible investments for those accounts. On 8 August 2008, UBS entered into settlements in principle with the SEC, the New York Attorney General (NYAG) and other state agencies represented by the North American Securities Administrators Association (NASAA), including the Massachusetts Securities Division (MSD), whereby UBS agreed to offer to buy back ARS from eligible customers within certain time frames, and to pay penalties of USD 150 million (USD 75 million to the NYAG, USD 75 million to the other states). On 2 October 2008, UBS finalized its settlement with the MSD, on 11 December 2008 with the SEC and the NYAG, and UBS is continuing to finalize agreements with the other state regulators. UBS’s offer to purchase back ARS was done by a registered securities offering effective 7 October 2008. UBS’s settlement is largely in line with similar industry regulatory settlements; however, UBS is the only firm of its major competitors that offered to purchase ARS from institutional clients before a date certain. UBS’s settlement with the SEC and MSD requires UBS to offer to buy eligible ARS from eligible institutional clients by no later than 30 June 2010. Settlements with the other NASAA states are being worked out. The NYAG settlement does not reference a date certain, but contains language similar to other industry settlements requiring that UBS make ‘best efforts’ to provide liquidity solutions for institutional investors. The NYAG and SEC continue to investigate individuals affiliated with UBS who traded in ARS or who had responsibility for disclosures. On 7 October 2008, the NYAG announced a settlement with the former Investment Bank Global General Counsel relating to his trading of ARS allegedly in violation of New York’s Martin Act. The former Investment Bank Global General Counsel neither admitted nor denied the state’s allegations, but agreed to certain penalties and sanctions. |
f) | US Cross-Border: UBS AG has been responding to a number of governmental inquiries and investigations relating to its cross-border private banking services to US private clients during the years 2000–2008. In particular, the US Department of Justice (DOJ) has been examining whether certain US clients sought, with the assistance of UBS client advisors, to evade their US tax obligations by avoiding restrictions on their securities investments imposed by the Qualified Intermediary Agreement (QIA) UBS entered into with the US Internal Revenue Service (IRS) in 2001. DOJ and IRS are also have been examining whether UBS AG has been compliant with withholding obligations in relation to sales of non-US securities under the Deemed Sales and Paid In US tax regulations. A former UBS AG client advisor pleaded guilty to one count of conspiracy to defraud the United States and the IRS in connection with providing investment and other services to a US person who is alleged to have evaded US income taxes on income earned on assets maintained in, among other places, a former UBS AG account in Switzerland. In November 2008, the CEO of Global WM&BB was indicted by a US federal grand jury sitting in the Southern District of Florida on one count of conspiring to defraud the IRS in violation of US law. Among other things, the indictment alleges that the CEO of Global WM&BB had involvement in the operation and maintenance of the US cross-border business while knowing that such business was being conducted in violation of certain US laws. The District Attorney for the County of New York has issued a request for information seeking information located in the US concerning UBS’s cross-border business, including any information located in the US relating to clients of that business. Further, the IRS has delivered to UBS AG a notice concerning alleged violations of the QIA which UBS is responding to under the applicable cure process. The SEC has been examining whether Swiss-based UBS client advisors engaged in activities in relation to their US-domiciled clients that triggered an obligation for UBS Switzerland to register with the SEC as a broker-dealer and/or investment adviser. Finally, the Swiss Financial Market Supervisory Authority (FINMA) investigated UBS’s cross-border servicing of US private clients under Swiss Banking Supervisory legislation. The investigations also have been focused on the management supervision and control of the US cross-border business and the practices at issue. UBS has been working to respond in an appropriate and responsible manner to all of these investigations in an effort to achieve a satisfactory resolution of these matters. As announced on 17 July 2008, UBS will no longer provide securities and banking services to US-resident private clients (including non-operating entities with US beneficiaries) except through its SEC-registered affiliates. On |
307
Financial information
Notes to the consolidated financial statements
Note 21 Provisions and litigation (continued)
18 February 2009, UBS announced that it had entered into a Deferred Prosecution Agreement (DPA) with the DOJ and a Consent Order with the SEC. These agreements resolve the above-described criminal and regulatory investigations by these authorities. As part of these settlement agreements, among other things: (i) UBS will pay a total of USD 780 million to the United States, USD 380 million representing disgorgement of profits from maintaining the US cross-border business and USD 400 million representing US federal backup withholding tax required to be withheld by UBS, together with interest and penalties, and restitution for unpaid taxes associated with certain account relationships involving fraudulent sham and nominee offshore structures and otherwise as covered by the DPA; (ii) UBS will complete the exit of the US cross-border business out of non-SEC registered entities, as announced in July 2008, which these settlements permit UBS to do in a lawful, orderly and expeditious manner; (iii) UBS will implement and maintain an enhanced program of internal controls with respect to compliance with its obligations under its Qualified Intermediary (QI) Agreement with the Internal Revenue Service (IRS), as well as a revised Legal and Compliance governance structure in order to strengthen independent legal and compliance controls; and (iv) pursuant to an order issued by FINMA, information was transferred to the DOJ regarding accounts of certain US clients as set forth in the DPA who, based on evidence available to UBS, appear to have committed tax fraud or the like within the meaning of the Swiss-US Double Taxation Treaty. Pursuant to the DPA, DOJ has agreed that any further prosecution of UBS will be deferred for a period of at least 18 months, subject to extension under certain circumstances such as UBS needing more time to complete the implementation of the exit of its US cross-border business. If UBS satisfies all of its obligations under the DPA, the DOJ will refrain permanently from pursuing charges against UBS relating to the investigation of its US cross-border business. As part of the SEC resolution, the SEC filed a Complaint against UBS in Federal District Court in Washington, D.C., charging UBS with acting as an unregistered broker-dealer and investment advisor in connection with maintaining its US cross-border business. Pursuant to the Consent Order, UBS did not admit or deny the allegations in that Complaint, and consented to the entry of a final judgment that provides, among other things, that: (i) UBS will pay USD 200 million to the SEC, representing disgorgement of profits from the US cross-border business (this amount is included within, and not in addition to, the USD 780 million UBS is paying to the United States as described above); and (ii) UBS will complete its exit of the US cross-border business and will be permanently |
enjoined from violating the SEC registration requirements by providing broker-dealer or investment advisory services to US persons through UBS entities not registered with the SEC. | ||
The DOJ and SEC agreements do not resolve issues concerning the pending “John Doe” summons which the IRS served on UBS in July 2008. In this regard, on 19 February 2009, the Civil Tax Division of the DOJ filed a civil petition for enforcement of this summons in US Federal District Court in Miami, through which it seeks an order directing UBS to produce information located in Switzerland regarding US clients who have maintained accounts with UBS in Switzerland without providing a Form W-9. On 24 February 2009, the District Court issued a scheduling order pursuant to which a hearing will be held on 13 July 2009. The DPA preserves UBS’s ability to defend fully its rights in connection with the IRS’s enforcement effort. UBS believes that it has substantial defenses, including that complying with the summons would constitute a violation of Swiss financial privacy laws, and intends to vigorously contest the enforcement of the summons. The resolution of the summons litigation could result in the imposition of substantial fines, penalties and / or other remedies. In addition, pursuant to the DPA, should UBS fail to comply with a final US court order directing it to comply with the summons after fully exhausting all rights to appeal, the DOJ may, after certain conditions have been satisfied, choose to pursue various remedies available for breach of the DPA. This may include charging UBS with conspiracy to commit tax fraud. Also on 18 February 2009, the FINMA published the results of the now concluded investigation conducted by the Swiss Federal Banking Commission (SFBC). The SFBC concluded, among other things, that UBS violated the requirements for proper business conduct under Swiss banking law and issued an order barring UBS from providing services to US resident private clients out of non-SEC registered entities. Further, the SFBC ordered UBS to enhance its control framework around its cross-border businesses, and announced that the effectiveness of such framework will be audited. | ||
g) | Sub-prime-related Matters: UBS is responding to a number of governmental inquiries and investigations, and is involved in a number of |
308
Financial information |
Note 21 Provisions and litigation (continued)
h) | Madoff: In relation to |
inquiries concerning two third party funds established under Luxembourg law the assets of which were managed by Bernard L. Madoff Investment Securities LLC, and which now face severe losses. The documentation establishing both funds suggests that UBS entities act in various capacities including custodian, administrator, manager, distributor and promoter, and that UBS employees serve as board members. On 25 February 2009, the CSSF issued a communiqué with respect to |
66
309
Financial information
Notes to the consolidated financial statements
Note 22 Income Taxes | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Tax expense from continuing operations | ||||||||||||
Domestic | ||||||||||||
Current | 409 | 1,759 | 1,403 | |||||||||
Deferred | 2 | (87 | ) | 86 | ||||||||
Foreign | ||||||||||||
Current | 1,064 | 1,534 | 1,427 | |||||||||
Deferred | (164 | ) | (421 | ) | (451 | ) | ||||||
Total income tax expense from continuing operations | 1,311 | 2,785 | 2,465 | |||||||||
Tax expense from discontinued operations | ||||||||||||
Domestic | (258 | ) | (12 | ) | 554 | |||||||
Foreign | (8 | ) | 0 | 28 | ||||||||
Total income tax expense from discontinued operations | (266 | ) | (12 | ) | 582 | |||||||
Total income tax expense | 1,045 | 2,773 | 3,047 | |||||||||
Of the deferred tax benefit in the income statement of CHF 7,020 million, CHF 6,126 million relates to the recognition of incremental net deferred tax assets in respect of available tax losses. The incremental deferred tax assets mainly relate to Swiss tax losses incurred during the year (primarily due to the writedown of investments in US subsidiaries). The tax benefit was reduced by a decrease in the deferred tax asset recognized for US tax losses.
estimated basis during the year, part of which are expected to be repaid because the final tax liability for the year is anticipated to be less than the amounts paid.
benefits related to prior years of CHF 44 million giving total tax benefits relating to prior years of CHF 490 million.
For the year ended | For the year ended | ||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||||||
Operating profit from continuing operations before tax | (2,935 | ) | 14,644 | 12,643 | (27,353 | ) | (3,742 | ) | 14,119 | ||||||||||||||||
Domestic | 10,379 | 5,564 | 5,854 | 3,269 | 10,337 | 5,503 | |||||||||||||||||||
Foreign | (13,314 | ) | 9,080 | 6,789 | (30,622 | ) | (14,079 | ) | 8,616 | ||||||||||||||||
Income taxes at Swiss statutory rate of 22% for 2007, 2006 and 2005 | (646 | ) | 3,222 | 2,781 | |||||||||||||||||||||
Income taxes at Swiss statutory rate of 22% for 2008, 2007 and 2006 | (6,018 | ) | (823 | ) | 3,106 | ||||||||||||||||||||
Increase / (decrease) resulting from: | |||||||||||||||||||||||||
Applicable tax rates differing from Swiss statutory rate | (3,019 | ) | 829 | 388 | (7,018 | ) | (3,054 | ) | 799 | ||||||||||||||||
Tax effects of losses not recognized | 6,327 | 21 | 71 | 7,327 | 6,327 | 21 | |||||||||||||||||||
Previously unrecorded tax losses now recognized | (257 | ) | (676 | ) | (97 | ) | |||||||||||||||||||
Previously unrecorded tax losses now utilized | (10 | ) | (257 | ) | (676 | ) | |||||||||||||||||||
Lower taxed income | (1,587 | ) | (941 | ) | (551 | ) | (773 | ) | (1,587 | ) | (941 | ) | |||||||||||||
Non-deductible intangible asset amortization | 15 | 21 | 20 | ||||||||||||||||||||||
Non-deductible goodwill and intangible asset amortization | 160 | 15 | 21 | ||||||||||||||||||||||
Other non-deductible expenses | 227 | 183 | 212 | 695 | 227 | 183 | |||||||||||||||||||
Adjustments related to prior years | (72 | ) | 316 | (283 | ) | (490 | ) | (72 | ) | 316 | |||||||||||||||
Change in deferred tax valuation allowance | 5 | (548 | ) | (156 | ) | (692 | ) | 279 | (192 | ) | |||||||||||||||
Other items | 318 | 358 | 80 | (17 | ) | 314 | 361 | ||||||||||||||||||
Income tax expense from continuing operations | 1,311 | 2,785 | 2,465 | (6,837 | ) | 1,369 | 2,998 |
67310
Financial StatementsNotes to the Financial Statements
Financial information |
Note 22 Income Taxestaxes (continued)
Significant components of the Group’s gross deferred income tax assets and liabilities are as follows:
CHF million | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | ||||||||||||
Deferred tax assets | ||||||||||||||||
Compensation and benefits | 2,223 | 2,611 | 1,534 | 3,370 | ||||||||||||
Net operating loss carry-forwards | 10,385 | 1,508 | ||||||||||||||
Tax loss carry-forwards | 32,749 | 10,385 | ||||||||||||||
Trading assets | 163 | 768 | 608 | 163 | ||||||||||||
Other | 859 | 598 | 211 | 859 | ||||||||||||
Total | 13,630 | 5,485 | 35,103 | 14,777 | ||||||||||||
Valuation allowance | (10,599 | ) | (1,799 | ) | (26,222 | ) | (11,557 | ) | ||||||||
Deferred tax assets recognized | 3,031 | 3,686 | 8,880 | 3,220 | ||||||||||||
Deferred tax liabilities | ||||||||||||||||
Compensation and benefits | 109 | 122 | 111 | 470 | ||||||||||||
Property and equipment | 175 | 201 | 29 | 175 | ||||||||||||
Financial investments and associates | 690 | 1,221 | 206 | 690 | ||||||||||||
Trading assets | 498 | 684 | 244 | 498 | ||||||||||||
Goodwill and intangible assets | 173 | 55 | 289 | 173 | ||||||||||||
Other | 424 | 391 | 591 | 424 | ||||||||||||
Deferred tax liabilities | 2,069 | 2,674 | 1,470 | 2,429 |
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 effects of exchange rate changes on tax assets and liabilities denominated in currencies other than CHF and the booking of some of the tax benefits related to deferred compensation through Equity.CHF. For the above purposes, the valuation allowance represents amounts that are not expected to provide future benefits, either because they are offset against potential tax adjustments or due to insufficiency of future taxable income. The deferred tax assets recognized at 31 December 20072008 were as follows: Compensation and benefits: CHF 385 million, Net operating321 million; Tax loss carry-forwards: CHF 2,419 million,8,126 million; Trading assets: CHF 77 million243 million; and Other: CHF 150190 million.
Certain foreign
wardscarry-forwards and other items. Because the realization of these assets is uncertain, the Group has established valuation allowances of CHF 10,59926,222 million (CHF 1,79911,557 million at 31 December 2006).2007) mainly relating to US tax losses. For companiesentities that suffered taxincurred losses in either the current or preceding year, an amount of CHF 2,3638,463 million (CHF 212 million at 31 December 2006) has beenis recognized as deferred tax assets at 31 December 2008 (CHF 2,363 million at 31 December 2007). These deferred tax assets mainly relate to Swiss tax losses (primarily due to the
writedown of investments in US subsidiaries) and US tax losses. Swiss tax losses can be carried forward for seven years and US federal tax losses for 20 years. The agreement which UBS entered into to transfer certain illiquid securities and other positions to a fund owned and controlled by the Swiss National Bank (refer to Note 38) materially reduced the Group’s exposures to US real estate related assets and hence provided additional evidence that future US taxable profits will be available against which part of the Group’s unused US tax losses can be utilized. A deferred tax asset has been recognized in respect of that portion of the US tax losses.
311
Financial information
Notes to the consolidated financial statements
Note 22 Income taxes (continued)
At 31 December 2007, net operating loss carry-forwards2008, tax losses totalling CHF 19,28371,001 million (notwhich are not recognized as a deferred tax asset)assets are available to be offset against potential tax adjustments or future taxable income.
The tax losses expire as follows:
Within 1 year | 1 | |||
From 2 to 4 years | ||||
After 4 years | ||||
Total | ||||
68
Note 23 Derivative Instrumentsinstruments and Hedge Accounting
A derivative is a financial instrument, the value of which is derived from the value of another (“underlying”) financial instrument, an index or some other variable. Typically, the underlying is a share, commodity or bond price, an index value or an exchange or interest rate.
if the transactions are with the same counterparty, are denominated in the same currency, and the cash flows will be settled on a net basis. Changes in replacement values of derivative instruments are recognized in the income statement unless they meet the criteria for certain hedge accounting relationships, as explained in Note 1a14)1a) 14) Derivative instruments and hedge accounting.
Types of derivative instruments
at a specified price. Forward contracts are tailor-made agreements that are transacted between counterparties on the OTC market, whereas futures are standardized contracts transacted on regulated exchanges.
– | Interest rate swap contracts generally entail the contractual exchange of fixed-rate and floating-rate interest payments in a single currency, based on a notional amount and a reference interest rate, | ||
– | 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 a credit derivative, under which the party buying |
312
Financial information |
Note 23 Derivative instruments and hedge accounting (continued)
tection 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 credit entity (as defined in the contract). 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 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, | ||
– |
69
Financial StatementsNotes to the Financial Statements
Note 23 Derivative Instrumentsseller for this right. Options involving more complex payment structures are also transacted. Options may be traded OTC or on a regulated exchange and Hedge Accounting (continued)may be traded in the form of a security (warrant).
Credit derivatives
Commitment to acquire auction rate securities
chase, the restructuring of the securities as well as the fair values of such securities.
Derivatives transacted for trading purposes
Derivatives transacted for hedging purposes
spondingcorresponding headings in this note. The Group’s accounting policies for derivatives designated and accounted for as hedging instruments are explained in Note 1a14)1a) 14) Derivative instruments and hedge accounting, where terms used in the following sections are explained.
313
Financial information
Notes to the consolidated financial statements
Note 23 Derivative instruments and hedge accounting (continued)
The Group has also entered into CDSs that provide economic hedges for credit risk exposures in the loan and traded product portfolios but do not meet the requirements for hedge accounting treatment.
Fair value hedges
Fair value hedges of interest rate risk
Fair value hedges of interest rate risk | Fair value hedges of interest rate risk | |||||||||||||||||||
For the year ended | ||||||||||||||||||||
For the year ended | ||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||
Gains / (losses) on hedging instruments | 15 | (28 | ) | 778 | 15 | (28 | ) | |||||||||||||
Gains / (losses) on hedged items attributable to the hedged risk | (11 | ) | (11 | ) | (796 | ) | (11 | ) | 11 | |||||||||||
Net gains / (losses) representing ineffective portions of fair value hedges | 4 | (17 | ) | (18 | ) | 4 | (17 | ) |
In addition, the Group has entered into a fair value hedge accounting relationship in 2005 using foreign exchange derivatives to protect a certain portion of equity investments available-for-sale from foreign currency exposure. The time value associated with the FX derivatives is excluded from the evalua-
tionevaluation of hedge ineffectiveness. The hedging relation-
ship was terminated in 2008 as a result of UBS’s disposal of its foreign currency investment, which was the hedged item in this hedge accounting relationship. The fair value of outstanding FX derivatives designated as fair value hedges at 31 December 2008 and 31 December 2007 was a CHF 0 million at 31 December 2007 and CHF 1 million net positive replacement value at 31 December 2006.for both years.
Fair value hedges of foreign exchange risk
For the year ended | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Gains / (losses) on hedging instruments | 42 | 49 | ||||||
Gains / (losses) on hedged items attributable to the hedged risk | (44 | ) | (44 | ) | ||||
Net gains / (losses) representing ineffective portions of fair value hedges | (2 | ) | 5 | |||||
70
Note 23 Derivative Instruments and Hedge Accounting (continued)
Fair value hedges of foreign exchange risk | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||
Gains / (losses) on hedging instruments | 0 | 42 | 49 | |||||||||
Gains / (losses) on hedged items attributable to the hedged risk | 0 | (44 | ) | (44 | ) | |||||||
Net gains / (losses) representing ineffective portions of fair value hedges | 0 | (2 | ) | 5 | ||||||||
Fair value hedges of portfolio interest rate risk
balance sheet. The fair value of derivatives designated for this hedge method at 31 December 20072008 was a
CHF 58765 million net positivenegative replacement value and at 31 December 20062007 was a CHF 2141 million net positivenegative replacement value.
Fair value hedges
Fair value hedge of portfolio of interest rate risk | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||
Gains / (losses) on hedging instruments | (644 | ) | (37 | ) | (7 | ) | ||||||
Gains / (losses) on hedged items attributable to the hedged risk | 688 | 30 | 7 | |||||||||
Net gains / (losses) representing ineffective portions of fair value hedges | 44 | (7 | ) | 0 | ||||||||
314
For the year ended | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Gains / (losses) on hedging instruments | 37 | 15 | ||||||
Gains / (losses) on hedged items attributable to the hedged risk | (30 | ) | (23 | ) | ||||
Net gains / (losses) representing ineffective portions of fair value hedges | 7 | (8 | ) | |||||
Financial information |
Note 23 Derivative instruments and hedge accounting (continued)
Cash flow hedges of forecast transactions
mates of prepayments and defaults. The aggregate principal balances and interest cash flows across all portfolios over time form the basis for identifying the non-trading interest rate risk of the Group, which is hedged with interest rate swaps, the maximum maturity of which is 2219 years.
Forecast cash flows | ||||||||||||||||||||||||||||||||||||||||
Forecasted cash flows | Forecasted cash flows | |||||||||||||||||||||||||||||||||||||||
CHF billion | < 1 year | 1–3 years | 3–5 years | 5–10 years | over 10 years | < 1 year | 1–3 years | 3–5 years | 5–10 years | over 10 years | ||||||||||||||||||||||||||||||
Cash inflows (assets) | 218 | 395 | 285 | 273 | 15 | 247 | 443 | 309 | 250 | 19 | ||||||||||||||||||||||||||||||
Cash outflows (liabilities) | 84 | 147 | 106 | 102 | 2 | 69 | 129 | 101 | 85 | 2 | ||||||||||||||||||||||||||||||
Net cash flows | 134 | 248 | 179 | 171 | 13 | 178 | 314 | 208 | 165 | 17 |
Gains and losses on the effective portions of derivatives designated as cash flow hedges of forecast transactions are initially recorded in Equity as Net income recognized directly in equity and are transferred to current period earnings when the forecast cash flows affect net profit or loss. The gains and losses on ineffective portions of such derivatives are recognized immediately in the income statement. A CHF 164 million loss, a CHF 443 million gain and a CHF 36 million loss and a CHF 35 million gain were recognized in 2008, 2007 2006 and 2005,2006, respectively, due to hedge ineffectiveness.
replacement value and a CHF 46299 million net negativepositive replacement value, respectively. No Swiss franc hedging interest rate swaps were terminated during 2007 or 2006. At the end of 20072008 and 2006,2007, unrecognized income of CHF 13586 million and CHF 214135 million associated with terminatedde-designated hedging swaps remained deferred in Equity. It will be removed from Equity when the hedged cash flows have an impact on net profit or loss.loss, or when the forecasted cash flows are no longer expected to take place. In fourth quarter 2008, due to reductions in the volume of short term financial instruments, some of the forecasted cash flows previously included in the hedge relationships have been determined to no longer be expected to occur. Amounts reclassified from Net income recognized directly in Equity to current period earnings due to discontinuation of hedge accounting were a CHF 49 million net gain in 2008, a CHF 79 million net gain in 2007 and a CHF 132 millionmil-
lion net gain in 2006 and a CHF 243 million net gain in 2005.2006. These amounts were recorded in Net interest income.
71
Financial StatementsNotes to the Financial Statements
Note 23 Derivative Instruments and Hedge Accounting (continued)
Risks of derivative instruments
315
Financial information
Notes to the consolidated financial statements
Note 23 Derivative instruments and hedge accounting (continued)
requirements imposed by regulators reflect these additional factors. There are addi-
tional capital requirements shown in the in the Risk-weighted assets (BIS) table in the “Capital management” section inRisk, Treasury and Capital Management 2007under Off-balanceThe replacement values presented on UBS’s balance sheet exposures as Forward and swap contracts and Purchased options, which reflect the additional potential future exposure.
which are enforceable in case of insolvency. The impact of such netting agreements on the gross replacement values shown in the tables on the next two pages is to reduce both positive and negative replacement values by CHF 292,371 million652 billion and CHF 219,820 million292 billion at 31 December 20072008 and 20062007, respectively. As a result, positive replacement values after netting for UBS Group were CHF 135,846 million202 billion at 31 December 20072008 and CHF 73,155 million136 billion at 31 December 2006. These figures differ from those shown in the sections mentioned above inRisk, Treasury and Capital Management 2007because they cover the whole UBS Group, whereas the relevant tables inRisk, Treasury and Capital Management 2007cover only those entities which are subject to consolidation for regulatory capital purposes.
72
316
Note 23 Derivative Instruments and Hedge Accounting1 (continued) | ||||||||||||||||||||||||||||||||||||||||||||
As of 31 December 2007 | Term to maturity | Total | ||||||||||||||||||||||||||||||||||||||||||
within 3 months | 3-12 months | 1-5 years | over 5 years | Total | Total | notional | ||||||||||||||||||||||||||||||||||||||
CHF million | PRV2 | NRV3 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | NRV | CHF bn | |||||||||||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 686 | 760 | 129 | 131 | 31 | 48 | 846 | 939 | 1,534.8 | |||||||||||||||||||||||||||||||||||
Swaps | 4,852 | 5,351 | 7,864 | 8,137 | 52,447 | 55,061 | 77,270 | 69,027 | 142,433 | 137,576 | 28,363.5 | |||||||||||||||||||||||||||||||||
Options | 410 | 289 | 204 | 622 | 3,416 | 4,753 | 15,770 | 17,280 | 19,800 | 22,944 | 1,405.0 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 2,072.7 | |||||||||||||||||||||||||||||||||||||||||||
Options | 568 | 622 | 265 | 263 | 28 | 27 | 861 | 912 | 89.9 | |||||||||||||||||||||||||||||||||||
Total | 6,516 | 7,022 | 8,462 | 9,153 | 55,922 | 59,889 | 93,040 | 86,307 | 163,940 | 162,371 | 33,465.9 | |||||||||||||||||||||||||||||||||
Credit derivative contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 207 | 248 | 6,471 | 5,951 | 60,864 | 62,495 | 26,822 | 30,905 | 94,364 | 99,599 | 5,172.3 | |||||||||||||||||||||||||||||||||
Total rate of return swaps | 412 | 313 | 143 | 243 | 2,457 | 2,814 | 7,922 | 3,235 | 10,934 | 6,605 | 188.3 | |||||||||||||||||||||||||||||||||
Total | 619 | 561 | 6,614 | 6,194 | 63,321 | 65,309 | 34,744 | 34,140 | 105,298 | 106,204 | 5,360.6 | |||||||||||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 8,248 | 8,792 | 2,554 | 2,867 | 888 | 623 | 14 | 33 | 11,704 | 12,315 | 1,322.2 | |||||||||||||||||||||||||||||||||
Interest and currency swaps | 26,887 | 28,169 | 15,780 | 13,616 | 19,412 | 21,934 | 12,467 | 11,605 | 74,546 | 75,324 | 4,871.9 | |||||||||||||||||||||||||||||||||
Options | 4,807 | 4,396 | 5,887 | 5,519 | 1,316 | 1,313 | 52 | 76 | 12,062 | 11,304 | 1,506.9 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 12.0 | |||||||||||||||||||||||||||||||||||||||||||
Options | 66 | 57 | 9 | 9 | 75 | 66 | 4.5 | |||||||||||||||||||||||||||||||||||||
Total | 40,008 | 41,414 | 24,230 | 22,011 | 21,616 | 23,870 | 12,533 | 11,714 | 98,387 | 99,009 | 7,717.5 | |||||||||||||||||||||||||||||||||
Equity/index contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2,384 | 2,006 | 1,736 | 1,047 | 550 | 738 | 87 | 63 | 4,757 | 3,854 | 175.8 | |||||||||||||||||||||||||||||||||
Options | 3,134 | 4,163 | 4,689 | 9,103 | 5,412 | 12,054 | 1,216 | 3,548 | 14,451 | 28,868 | 291.4 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 55.6 | |||||||||||||||||||||||||||||||||||||||||||
Options | 6,114 | 6,193 | 7,909 | 8,727 | 6,520 | 7,173 | 221 | 315 | 20,764 | 22,408 | 325.5 | |||||||||||||||||||||||||||||||||
Total | 11,632 | 12,362 | 14,334 | 18,877 | 12,482 | 19,965 | 1,524 | 3,926 | 39,972 | 55,130 | 848.3 | |||||||||||||||||||||||||||||||||
Precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 463 | 993 | 864 | 659 | 1,007 | 489 | 47 | 71 | 2,381 | 2,212 | 39.9 | |||||||||||||||||||||||||||||||||
Options | 488 | 1,020 | 1,107 | 1,116 | 1,842 | 1,691 | 170 | 130 | 3,607 | 3,957 | 79.1 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 0.2 | |||||||||||||||||||||||||||||||||||||||||||
Options | 145 | 127 | 226 | 233 | 43 | 41 | 414 | 401 | 28.0 | |||||||||||||||||||||||||||||||||||
Total | 1,096 | 2,140 | 2,197 | 2,008 | 2,892 | 2,221 | 217 | 201 | 6,402 | 6,570 | 147.2 | |||||||||||||||||||||||||||||||||
Commodities contracts, excluding precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2,421 | 2,425 | 1,580 | 1,567 | 1,886 | 1,751 | 1,065 | 1,157 | 6,952 | 6,900 | 111.5 | |||||||||||||||||||||||||||||||||
Options | 469 | 459 | 896 | 1,187 | 878 | 1,048 | 117 | 134 | 2,360 | 2,828 | 24.9 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 170.3 | |||||||||||||||||||||||||||||||||||||||||||
Options | 1,606 | 1,453 | 2,284 | 2,342 | 1,016 | 732 | 4,906 | 4,527 | 181.3 | |||||||||||||||||||||||||||||||||||
Total | 4,496 | 4,337 | 4,760 | 5,096 | 3,780 | 3,531 | 1,182 | 1,291 | 14,218 | 14,255 | 488.0 | |||||||||||||||||||||||||||||||||
Total derivative instruments | 64,367 | 67,836 | 60,597 | 63,339 | 160,013 | 174,785 | 143,240 | 137,579 | 428,217 | 5 | 443,539 | 6 | ||||||||||||||||||||||||||||||||
Financial information |
Note 23 Derivative instruments and hedge accounting1 (continued) | ||||||||||||||||||||||||||||||||||||||||||||||||
As of 31 December 2008 | Term to maturity | |||||||||||||||||||||||||||||||||||||||||||||||
Within 3 months | 3–12 months | 1–5 years | over 5 years | Total | Notional | Total | Notional | |||||||||||||||||||||||||||||||||||||||||
CHF billion | PRV2 | NRV3 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | value | NRV | value | ||||||||||||||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2.1 | 2.2 | 3.8 | 4.1 | 0.3 | 0.4 | 0.0 | 6.2 | 1,544.9 | 6.7 | 1,584.5 | |||||||||||||||||||||||||||||||||||||
Swaps | 9.5 | 9.9 | 23.6 | 24.3 | 152.1 | 140.5 | 144.8 | 142.9 | 330.0 | 9,065.4 | 317.6 | 22,739.9 | ||||||||||||||||||||||||||||||||||||
Options | 4.0 | 3.7 | 6.6 | 7.0 | 14.3 | 15.6 | 12.6 | 16.5 | 37.4 | 498.4 | 42.9 | 595.5 | ||||||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 219.8 | 307.8 | ||||||||||||||||||||||||||||||||||||||||||||||
Options | 0.8 | 0.8 | 0.5 | 0.5 | 0.1 | 0.1 | 1.4 | 6.4 | 1.4 | 8.7 | ||||||||||||||||||||||||||||||||||||||
Total | 16.4 | 16.6 | 34.5 | 36.0 | 166.8 | 156.6 | 157.4 | 159.5 | 375.1 | 11,334.9 | 368.6 | 25,236.4 | ||||||||||||||||||||||||||||||||||||
Credit derivative contracts | ||||||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 0.5 | 0.3 | 3.4 | 3.5 | 95.4 | 91.2 | 89.8 | 88.2 | 189.1 | 1,856.1 | 183.3 | 1,754.0 | ||||||||||||||||||||||||||||||||||||
Total rate of return swaps | 3.4 | 0.4 | 0.2 | 0.1 | 3.1 | 0.5 | 1.6 | 0.5 | 8.3 | 31.2 | 1.5 | 12.6 | ||||||||||||||||||||||||||||||||||||
Total | 3.9 | 0.7 | 3.6 | 3.6 | 98.4 | 91.7 | 91.4 | 88.8 | 197.4 | 1,887.2 | 184.8 | 1,766.7 | ||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 21.0 | 22.8 | 8.4 | 10.6 | 1.6 | 1.1 | 0.1 | 0.1 | 31.2 | 468.1 | 34.5 | 485.6 | ||||||||||||||||||||||||||||||||||||
Interest and currency swaps | 72.1 | 74.5 | 36.2 | 33.8 | 34.9 | 39.2 | 27.1 | 26.5 | 170.3 | 2,047.4 | 173.9 | 1,868.4 | ||||||||||||||||||||||||||||||||||||
Options | 7.5 | 7.6 | 10.0 | 9.1 | 2.1 | 1.8 | 0.0 | 19.7 | 610.1 | 18.6 | 524.8 | |||||||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 1.7 | |||||||||||||||||||||||||||||||||||||||||||||||
Options | 0.2 | 0.3 | 0.0 | 0.0 | 0.2 | 12.8 | 0.3 | 6.1 | ||||||||||||||||||||||||||||||||||||||||
Total | 101.0 | 105.2 | 54.6 | 53.5 | 38.7 | 42.1 | 27.2 | 26.6 | 221.5 | 3,138.3 | 227.3 | 2,886.5 | ||||||||||||||||||||||||||||||||||||
Equity/index contracts | ||||||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 1.9 | 1.6 | 2.0 | 1.8 | 2.2 | 2.0 | 0.2 | 0.3 | 6.4 | 68.5 | 5.7 | 40.1 | ||||||||||||||||||||||||||||||||||||
Options | 1.7 | 3.2 | 4.8 | 7.4 | 4.7 | 8.5 | 1.7 | 4.0 | 12.9 | 108.9 | 23.0 | 106.1 | ||||||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 15.3 | 18.2 | ||||||||||||||||||||||||||||||||||||||||||||||
Options | 5.0 | 5.2 | 5.3 | 6.7 | 4.8 | 5.6 | 0.9 | 1.2 | 16.1 | 97.9 | 18.7 | 110.5 | ||||||||||||||||||||||||||||||||||||
Total | 8.6 | 10.0 | 12.1 | 16.0 | 11.7 | 16.1 | 2.9 | 5.5 | 35.3 | 290.5 | 47.4 | 275.0 | ||||||||||||||||||||||||||||||||||||
Precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 0.8 | 0.7 | 0.6 | 0.5 | 0.5 | 0.4 | 0.0 | 0.1 | 1.8 | 13.1 | 1.7 | 14.1 | ||||||||||||||||||||||||||||||||||||
Options | 0.5 | 0.6 | 1.3 | 1.3 | 1.8 | 1.5 | 0.2 | 0.2 | 3.8 | 30.6 | 3.7 | 35.8 | ||||||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 0.6 | |||||||||||||||||||||||||||||||||||||||||||||||
Options | 0.1 | 0.1 | 0.1 | 0.2 | 0.0 | 0.0 | 0.1 | 4.7 | 0.3 | 9.5 | ||||||||||||||||||||||||||||||||||||||
Total | 1.3 | 1.4 | 1.9 | 2.0 | 2.3 | 1.9 | 0.3 | 0.4 | 5.8 | 48.4 | 5.7 | 60.0 | ||||||||||||||||||||||||||||||||||||
Commodities contracts, excluding precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2.2 | 1.7 | 3.7 | 3.2 | 1.4 | 1.2 | 0.9 | 1.0 | 8.2 | 26.1 | 7.1 | 19.0 | ||||||||||||||||||||||||||||||||||||
Options | 0.3 | 0.4 | 1.3 | 1.2 | 0.8 | 0.8 | 0.0 | 0.0 | 2.4 | 5.7 | 2.4 | 6.6 | ||||||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 13.5 | 0.0 | ||||||||||||||||||||||||||||||||||||||||||||||
Options | 2.0 | 2.0 | 3.7 | 3.7 | 2.7 | 2.7 | 8.4 | 69.9 | 8.4 | 86.1 | ||||||||||||||||||||||||||||||||||||||
Total | 4.5 | 4.1 | 8.8 | 8.1 | 4.8 | 4.6 | 0.9 | 1.0 | 19.0 | 115.2 | 17.9 | 111.8 | ||||||||||||||||||||||||||||||||||||
Total derivative instruments5,6 | 135.7 | 138.1 | 115.5 | 119.2 | 322.8 | 313.0 | 280.0 | 281.6 | 854.1 | 7 | 851.8 | 8 | ||||||||||||||||||||||||||||||||||||
thereof commitments to repurchase auction rate securities | 1.0 | 1.0 | 16.6 | |||||||||||||||||||||||||||||||||||||||||||||
73317
Financial Statementsinformation
Notes to the Financial Statementsconsolidated financial statements
Note 23 Derivative Instruments and Hedge Accounting1 (continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of 31 December 2006 | Term to maturity | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 23 Derivative instruments and hedge accounting1 (continued) | Note 23 Derivative instruments and hedge accounting1 (continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of 31 December 2007 | Term to maturity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
within 3 months | 3-12 months | 1-5 years | over 5 years | Total | Total | notional | Within 3 months | 3–12 months | 1–5 years | over 5 years | Total | Notional | Total | Notional | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million | PRV2 | NRV3 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | NRV | CHF bn | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CHF billion | PRV2 | NRV3 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | value | NRV | value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate contracts | Interest rate contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | Over-the-counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 1,001 | 764 | 172 | 177 | 38 | 34 | 1,211 | 975 | 1,848.0 | 0.7 | 0.8 | 0.1 | 0.1 | 0.0 | 0.0 | 0.8 | 759.7 | 0.9 | 775.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Swaps | 5,629 | 4,784 | 9,891 | 10,134 | 46,690 | 47,128 | 51,609 | 46,249 | 113,819 | 108,295 | 22,643.4 | 4.9 | 5.4 | 7.9 | 8.1 | 52.4 | 55.1 | 77.3 | 69.0 | 142.4 | 12,527.7 | 137.6 | 15,835.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 273 | 308 | 127 | 440 | 2,252 | 3,563 | 13,529 | 15,148 | 16,181 | 19,459 | 1,432.5 | 0.4 | 0.3 | 0.2 | 0.6 | 3.4 | 4.8 | 15.8 | 17.3 | 19.8 | 621.9 | 22.9 | 783.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | Exchange-traded contracts4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 2,904.4 | 367.7 | 1,705.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 406 | 438 | 474 | 485 | 96 | 96 | 976 | 1,019 | 34.7 | 0.6 | 0.6 | 0.3 | 0.3 | 0.0 | 0.0 | 0.9 | 39.0 | 0.9 | 50.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 7,309 | 6,294 | 10,664 | 11,236 | 49,076 | 50,821 | 65,138 | 61,397 | 132,187 | 129,748 | 28,863.0 | 6.5 | 7.0 | 8.5 | 9.2 | 55.9 | 59.9 | 93.0 | 86.3 | 163.9 | 14,316.0 | 162.4 | 19,149.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit derivative contracts | Credit derivative contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | Over-the-counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 35 | 54 | 363 | 673 | 12,874 | 14,035 | 7,425 | 7,953 | 20,697 | 22,715 | 2,536.6 | 0.2 | 0.2 | 6.5 | 6.0 | 60.9 | 62.5 | 26.8 | 30.9 | 94.4 | 2,509.7 | 99.6 | 2,662.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total rate of return swaps | 54 | 63 | 100 | 74 | 583 | 1,606 | 4,284 | 3,512 | 5,021 | 5,255 | 103.0 | 0.4 | 0.3 | 0.1 | 0.2 | 2.5 | 2.8 | 7.9 | 3.2 | 10.9 | 56.6 | 6.6 | 131.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 89 | 117 | 463 | 747 | 13,457 | 15,641 | 11,709 | 11,465 | 25,718 | 27,970 | 2,639.6 | 0.6 | 0.6 | 6.6 | 6.2 | 63.3 | 65.3 | 34.7 | 34.1 | 105.3 | 2,566.3 | 106.2 | 2,794.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | Foreign exchange contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | Over-the-counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 4,565 | 4,322 | 1,765 | 1,968 | 827 | 531 | 17 | 103 | 7,174 | 6,924 | 784.0 | 8.2 | 8.8 | 2.6 | 2.9 | 0.9 | 0.6 | 0.0 | 0.0 | 11.7 | 635.0 | 12.3 | 687.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest and currency swaps | 24,724 | 22,977 | 10,363 | 10,599 | 14,641 | 12,366 | 12,821 | 11,831 | 62,549 | 57,773 | 4,064.6 | 26.9 | 28.2 | 15.8 | 13.6 | 19.4 | 21.9 | 12.5 | 11.6 | 74.5 | 2,457.9 | 75.3 | 2,414.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 2,877 | 2,624 | 2,987 | 3,042 | 828 | 1,041 | 51 | 49 | 6,743 | 6,756 | 1,276.2 | 4.8 | 4.4 | 5.9 | 5.5 | 1.3 | 1.3 | 0.1 | 0.1 | 12.1 | 759.2 | 11.3 | 747.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | Exchange-traded contracts4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 20.8 | 1.5 | 10.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 12 | 16 | 2 | 2 | 14 | 18 | 0.1 | 0.1 | 0.1 | 0.0 | 0.0 | 0.1 | 0.0 | 0.1 | 4.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 32,178 | 29,939 | 15,117 | 15,611 | 16,296 | 13,938 | 12,889 | 11,983 | 76,480 | 71,471 | 6,145.7 | 40.0 | 41.4 | 24.2 | 22.0 | 21.6 | 23.9 | 12.5 | 11.7 | 98.4 | 3,853.6 | 99.0 | 3,863.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity/index contracts | Equity/index contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | Over-the-counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 1,179 | 1,464 | 386 | 1,217 | 506 | 8 | 14 | 103 | 2,085 | 2,792 | 107.8 | 2.4 | 2.0 | 1.7 | 1.0 | 0.6 | 0.7 | 0.1 | 0.1 | 4.8 | 103.1 | 3.9 | 72.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 1,073 | 3,485 | 3,702 | 5,655 | 6,121 | 8,821 | 1,605 | 2,795 | 12,501 | 20,756 | 258.0 | 3.1 | 4.2 | 4.7 | 9.1 | 5.4 | 12.1 | 1.2 | 3.5 | 14.5 | 113.5 | 28.9 | 177.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | Exchange-traded contracts4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 72.4 | 20.5 | 35.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 4,277 | 4,602 | 8,238 | 8,396 | 9,978 | 10,458 | 22,946 | 23,889 | 270.7 | 6.1 | 6.2 | 7.9 | 8.7 | 6.5 | 7.2 | 0.2 | 0.3 | 20.8 | 158.6 | 22.4 | 166.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 6,529 | 9,551 | 12,326 | 15,268 | 16,605 | 19,287 | 2,072 | 3,331 | 37,532 | 47,437 | 708.9 | 11.6 | 12.4 | 14.3 | 18.9 | 12.5 | 20.0 | 1.5 | 3.9 | 40.0 | 395.7 | 55.1 | 452.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Precious metals contracts | Precious metals contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | Over-the-counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 348 | 339 | 573 | 355 | 757 | 371 | 37 | 48 | 1,715 | 1,113 | 25.6 | 0.5 | 1.0 | 0.9 | 0.7 | 1.0 | 0.5 | 0.0 | 0.1 | 2.4 | 16.8 | 2.2 | 23.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 293 | 580 | 676 | 784 | 1,554 | 1,281 | 118 | 68 | 2,641 | 2,713 | 70.6 | 0.5 | 1.0 | 1.1 | 1.1 | 1.8 | 1.7 | 0.2 | 0.1 | 3.6 | 36.6 | 4.0 | 42.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | Exchange-traded contracts4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 1.0 | 0.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 75 | 142 | 242 | 196 | 332 | 369 | 649 | 707 | 23.9 | 0.1 | 0.1 | 0.2 | 0.2 | 0.0 | 0.0 | 0.4 | 18.5 | 0.4 | 9.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 716 | 1,061 | 1,491 | 1,335 | 2,643 | 2,021 | 155 | 116 | 5,005 | 4,533 | 121.1 | 1.1 | 2.1 | 2.2 | 2.0 | 2.9 | 2.2 | 0.2 | 0.2 | 6.4 | 71.9 | 6.6 | 75.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commodities contracts, excluding precious metals contracts | Commodities contracts, excluding precious metals contracts | Commodities contracts, excluding precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | Over-the-counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 3,254 | 3,223 | 2,894 | 3,155 | 1,724 | 1,579 | 766 | 840 | 8,638 | 8,797 | 86.3 | 2.4 | 2.4 | 1.6 | 1.6 | 1.9 | 1.8 | 1.1 | 1.2 | 7.0 | 59.0 | 6.9 | 52.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 221 | 236 | 447 | 368 | 595 | 654 | 1 | 27 | 1,264 | 1,285 | 13.0 | 0.5 | 0.5 | 0.9 | 1.2 | 0.9 | 1.0 | 0.1 | 0.1 | 2.4 | 11.4 | 2.8 | 13.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | Exchange-traded contracts4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Futures | 236.7 | 0.4 | 169.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options | 1,884 | 1,895 | 2,349 | 2,152 | 1,918 | 1,775 | 6,151 | 5,822 | 67.1 | 1.6 | 1.5 | 2.3 | 2.3 | 1.0 | 0.7 | 4.9 | 88.7 | 4.5 | 92.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 5,359 | 5,354 | 5,690 | 5,675 | 4,237 | 4,008 | 767 | 867 | 16,053 | 15,904 | 403.1 | 4.5 | 4.3 | 4.8 | 5.1 | 3.8 | 3.5 | 1.2 | 1.3 | 14.2 | 159.5 | 14.3 | 328.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total derivative instruments | 52,180 | 52,316 | 45,751 | 49,872 | 102,314 | 105,716 | 92,730 | 89,159 | 292,975 | 5 | 297,063 | 6 | 64.4 | 67.8 | 60.6 | 63.3 | 160.0 | 174.8 | 143.2 | 137.6 | 428.2 | 5 | 443.5 | 6 |
74318
Off-Balance Sheet InformationOff-balance-sheet information
Note 24 Pledgeable off-balance-sheet securities
The Group obtains securities which are not recorded on the balance sheet with the right to sell or repledge them as shown in the table below.
CHF million | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | ||||||||||||
Fair value of securities received which can be sold or repledged | 1,491,567 | 1,436,827 | 651,380 | 1,491,567 | ||||||||||||
as collateral under reverse repurchase, securities borrowing and lending arrangements, derivative transactions and other transactions | 1,396,768 | 1,342,733 | 621,981 | 1,396,768 | ||||||||||||
in unsecured borrowings | 94,799 | 94,094 | 29,399 | 94,799 | ||||||||||||
thereof sold or repledged | 1,011,090 | 1,069,795 | 430,670 | 1,118,305 | ||||||||||||
in connection with financing activities | 924,329 | 969,608 | 343,252 | 924,795 | ||||||||||||
to satisfy commitments under short sale transactions | 58,039 | 87,288 | 62,431 | 164,788 | ||||||||||||
in connection with derivative and other transactions | 28,722 | 12,899 | 24,987 | 28,722 |
Note 25 Operating lease commitments
agreements do not contain contingent
CHF million | 31.12.07 | 31.12.08 | ||||||
Operating leases due | ||||||||
2008 | 1,085 | |||||||
2009 | 1,009 | 1,034 | ||||||
2010 | 920 | 950 | ||||||
2011 | 833 | 848 | ||||||
2012 | 762 | 772 | ||||||
2013 and thereafter | 3,769 | |||||||
2013 | 634 | |||||||
2014 and thereafter | 2,573 | |||||||
Subtotal commitments for minimum payments under operating leases | 8,378 | 6,811 | ||||||
Less: Sublease rentals under non-cancellable leases | 742 | 578 | ||||||
Net commitments for minimum payments under operating leases | 7,636 | 6,233 |
319
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Gross operating lease expense | 1,251 | 1,170 | 1,232 | |||||||||
from continuing operations | 1,248 | 1,150 | 1,084 | |||||||||
from discontinued operations | 3 | 20 | 148 | |||||||||
Sublease rental income from continuing operations | 54 | 56 | 51 | |||||||||
Net operating lease expense | 1,197 | 1,114 | 1,181 | |||||||||
from continuing operations | 1,194 | 1,094 | 1,033 | |||||||||
from discontinued operations | 3 | 20 | 148 | |||||||||
Financial information
Notes to the consolidated financial statements
Note 25 Operating lease commitments (continued) | ||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||
Gross operating lease expense | 1,215 | 1,251 | 1,170 | |||||||||
from continuing operations | 1,215 | 1,233 | 1,137 | |||||||||
from discontinued operations | 0 | 18 | 33 | |||||||||
Sublease rental income from continuing operations | 50 | 54 | 56 | |||||||||
Net operating lease expense | 1,165 | 1,197 | 1,114 | |||||||||
from continuing operations | 1,165 | 1,179 | 1,081 | |||||||||
from discontinued operations | 0 | 18 | 33 | |||||||||
cations eachlocations exceeded CHF 100 million. Non-cancellablemillion and non-
75320
Financial information |
Additional information
Note 26 Capital increases and mandatory convertible notes
Share capital increase
Issuance of mandatory convertible notes (MCNs)
December 2008 issuance
321
Financial Statementsinformation
Notes to the Financial Statementsconsolidated financial statements
Note 26 Capital increases and mandatory convertible notes (continued)
Additional Information
a) Fair value measurements
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willingwill-
ing parties in an arm’s length transaction. For 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), as it is the best evidence of the fair value of a financial instrument (level 1). Refer to Note 1a5)1a) 5) for an overview on the determination of fair value.
Determination of fair values from quoted market prices or valuation techniques | |||||||||||||||||||||||||||||||||
31.12.08 | 31.12.07 | ||||||||||||||||||||||||||||||||
CHF billion | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
Trading portfolio assets | 128.1 | 128.4 | 15.3 | 271.8 | 277.2 | 330.7 | 52.3 | 660.1 | |||||||||||||||||||||||||
Trading portfolio assets pledged as collateral | 25.4 | 13.2 | 1.6 | 40.2 | 57.4 | 48.5 | 8.3 | 114.2 | |||||||||||||||||||||||||
Positive replacement values | 5.1 | 811.2 | 37.8 | 854.1 | 6.8 | 407.4 | 14.0 | 428.2 | |||||||||||||||||||||||||
Financial assets designated at fair value | 1.1 | 11.2 | 0.6 | 12.9 | 1.8 | 10.0 | 0.0 | 11.8 | |||||||||||||||||||||||||
Financial investments available- for-sale | 2.4 | 1.2 | 1.6 | 5.2 | 1.2 | 2.4 | 1.4 | 5.0 | |||||||||||||||||||||||||
Total assets | 162.1 | 965.2 | 57.0 | 1,184.3 | 344.4 | 799.0 | 75.9 | 1,219.3 | |||||||||||||||||||||||||
Trading portfolio liabilities | 33.9 | 27.5 | 1.0 | 62.4 | 119.9 | 44.9 | 0.0 | 164.8 | |||||||||||||||||||||||||
Negative replacement values | 4.9 | 812.0 | 34.9 | 851.8 | 6.6 | 420.1 | 16.8 | 443.5 | |||||||||||||||||||||||||
Financial liabilities designated at fair value | 0.0 | 91.2 | 10.3 | 101.5 | 0.0 | 149.5 | 42.4 | 191.9 | |||||||||||||||||||||||||
Total liabilities | 38.8 | 930.7 | 46.3 | 1,015.8 | 126.5 | 614.5 | 59.2 | 800.2 | |||||||||||||||||||||||||
Financial instruments accounted for certain financial assets and liabilities held and issued by UBS. In these cases, fair values are estimated using present value or other valuation techniques, using inputs existing at the balance sheet dates. If available, market observable inputs are applied to valuation models. Fair value measurements are considered level 2 if all significant inputs are market observable. Where one or more significant input is not market observable, valuations are considered level 3, and the non-market observable valuation parameters are estimated based on appropriate assumptions.
76
Positions related to the US residential mortgage market Where possible, holdings are marked at the quoted market price in an active market. In the current market environment, such price information is typically not available for instruments linked to the US sub-prime residential mortgage market, and UBS applies valuation techniques to measure such instruments. Valuation techniques use “market observable inputs”, where available, derived from similar assets in similar and active markets, from recent transaction prices for comparable items or from other observable
market data. For positions where observable reference data is not available, UBS uses valuation models with non-market observable inputs.
77
Financial StatementsNotes to the Financial Statements
RMBS positions, a consistent approach is used to value related hedge positions with monoline insurers.
rities, mortgage loans and derivatives linked to the US mortgage market. Such instruments were either purchased in transactions with third parties or retained in structures such as securitizations originated by UBS. The parameters to measure such instruments generally include expected credit default rates, weighted average life, prepayment speed and discount rates. Information about the risks and exposures of such items is included in the “Risk concentrations” section inRisk, Treasury and Capital Management 2007.
For trading portfolio assets and liabilities, financial assets and liabilities designated at fair value and financial investments available-for-sale which are listed or other- wiseotherwise traded in an active market, for exchange-traded derivatives, and for other financial instruments for which quoted prices in an active market are available, fair value is determined directly from those quoted market prices (level 1).
For some types of financial instruments, fair values cannot be obtained directly from quoted market prices, or indirectly using valuation techniques or models supported by observable market prices or rates. This is generally the case for private equity investments in unlisted securities, and for certain complex or structured financial instruments.instruments and for private equity investments. In these cases, fair value is estimated indirectly using valuation techniques or models for whichaddition, the inputs are reasonable assumptions, based on market conditions (level 3). The illiquidity of a broad range of financial instruments linked to the US residential mortgage market, as well as US student loan ARSs, monolines, leveraged finance and others required an extended use of valuations based on partially or fully non-market observable market inputs in the second half of 2007.
Determination of fair values from quoted market prices or valuation techniques | ||||||||||||||||||||||||||||||||
31.12.07 | 31.12.06 | |||||||||||||||||||||||||||||||
Valuation | Valuation | Valuation | Valuation | |||||||||||||||||||||||||||||
technique – | technique – | technique – | technique – | |||||||||||||||||||||||||||||
Quoted | market | non-market | Quoted | market | non-market | |||||||||||||||||||||||||||
market | observable | observable | market | observable | observable | |||||||||||||||||||||||||||
CHF billion | price | inputs | inputs | Total | price | inputs | inputs | Total | ||||||||||||||||||||||||
Trading portfolio assets | 249.3 | 323.4 | 37.3 | 610.0 | 215.1 | 411.8 | 0.1 | 627.0 | ||||||||||||||||||||||||
Trading portfolio assets pledged as collateral | 85.3 | 55.8 | 23.2 | 164.3 | 243.5 | 8.0 | 0.0 | 251.5 | ||||||||||||||||||||||||
Positive replacement values | 6.8 | 407.4 | 14.0 | 428.2 | 31.3 | 250.2 | 11.5 | 293.0 | ||||||||||||||||||||||||
Financial assets designated at fair value | 1.8 | 10.0 | 0.0 | 11.8 | 0.0 | 5.1 | 0.8 | 5.9 | ||||||||||||||||||||||||
Financial investments available-for-sale | 1.2 | 2.4 | 1.4 | 5.0 | 2.5 | 4.6 | 1.8 | 8.9 | ||||||||||||||||||||||||
Total assets | 344.4 | 799.0 | 75.9 | 1,219.3 | 492.4 | 679.7 | 14.2 | 1,186.3 | ||||||||||||||||||||||||
Trading portfolio liabilities | 119.9 | 44.9 | 0.0 | 164.8 | 169.9 | 34.9 | 0.0 | 204.8 | ||||||||||||||||||||||||
Negative replacement values | 6.6 | 420.1 | 16.8 | 443.5 | 32.7 | 255.2 | 9.2 | 297.1 | ||||||||||||||||||||||||
Financial liabilities designated at fair value | 0.0 | 149.5 | 42.4 | 191.9 | 0.0 | 113.0 | 32.7 | 145.7 | ||||||||||||||||||||||||
Total liabilities | 126.5 | 614.5 | 59.2 | 800.2 | 202.6 | 403.1 | 41.9 | 647.6 | ||||||||||||||||||||||||
78322
Financial information |
Note 27 Fair value of financial instruments (continued)
a)Fair value measurements (continued)
Reflection of counterparty credit risk in the valuation of traded debt instruments and derivative instruments
UBS incorporates the counterparty credit risk inherent in over-the-counter (OTC) derivatives transactions and traded debt instruments into its fair value estimates via the credit valuation adjustment (CVA). This amount represents the estimated market value of protection required to hedge credit risk from counterparties in UBS’s OTC derivatives portfolio and traded debt instruments, taking into account expected future exposures, collateral, and netting arrangements. The most significant component of the overall CVA is the portion related to monolines, discussed further below.
UBS’s own credit risk in the valuations of financial liabilities at fair value, including derivative liabilities
The Group’s own credit changes are reflected in valuations for those financial liabilities at fair value, including derivative liabilities, where the Group’s own credit risk would be considered by market participants and excludes fully collateralized transactions and other instruments for which it is established market practice not to include an entity-specific adjustment for own credit. This amount represents the estimated difference in the market value of identical obligations
Disclosures on own credit for financial liabilities designated at fair value
At 31 December 2008, the own credit gain for financial liabilities designated at fair value still held at reporting date, predominantly issued structured products, amounts to CHF 2,032 million (year-to-date) and CHF 2,953 million (life-to-date). The life-to-date amount reduced the fair value of financial liabilities designated at fair value at 31 December 2008. Included in these amounts is the overall quantification of changes in fair value attributable to changes in UBS’s credit spread during the periods. In addition, it includes the credit effect of period changes in fair values attributable to factors other than credit spreads, including benchmark interest rates, prices of financial instruments issued by third parties, commodity prices, foreign exchange rates or index prices or rates (i.e. credit effect of volume changes). The year-to-date 2008 own credit profit and loss including only the change in credit spread but excluding the credit effect of volume changes was a gain of CHF 3,993 million.
Reflection of market illiquidity in fair value determinations
Fair value estimates incorporate the effects of illiquidity in the relevant markets. Where trading prices are observable in such markets, these prices invariably include a liquidity or risk premium relative to what could be concluded on the basis of an actuarial assessment of credit loss potential. Valuations based on models similarly incorporate liquidity or risk premiums either implicitly (e.g., by calibrating to market prices that incorporate such premiums) or explicitly.
Valuation processes
323
Financial information
Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
a) Fair value measurements (continued)
validation process before they are approved for use. Uncertainties associated with the use of model-based valuations (both level 2 and level 3) are predominantly addressed through the use of model reserves. These reserves reflect the amounts that UBS estimates are appropriate to deduct from the valuations produced directly by the models to reflect uncertainties in the relevant modeling assumptions and inputs used.
Financial instruments accounted for at amortized cost
31.12.08 | |||||||||
CHF billion | Carrying value | Fair value | |||||||
Assets | |||||||||
Loans to banks and customers | 403.0 | 402.6 | |||||||
Cash collateral on securities borrowed and reverse repurchase agreements | 347.5 | 347.7 | |||||||
Accrued income and prepaid expenses, other assets | 9.4 | 9.4 | |||||||
Liabilities | |||||||||
Due to banks and customers | 600.4 | 600.4 | |||||||
Cash collateral on securities lent and repurchase agreements | 116.6 | 116.6 | |||||||
Debt issued | 201.2 | 199.7 | |||||||
Accrued expenses and deferred income, other liabilities | 22.8 | 22.8 | |||||||
The fair values included in the table above were calculated for disclosure purposes only. The valuation techniques and assumptions described below provide a measurement of fair value of UBS’s financial instruments accounted for at amortized cost. However, because other institutions may use different methods and assumptions for their fair value estimation, such fair value disclosures cannot necessarily be compared from one financial institution to another. UBS applies significant judgments and assumptions to arrive at these fair values, which are more holistic and less sophisticated than UBS’s established fair value and model governance policies and processes applied for financial instruments accounted for at fair value, whose fair values impact UBS’s balance sheet and net profit. Debt instruments reclassified in fourth quarter 2008 from “held for trading” to “loans and receivables” followed the same fair value measurement principles and governance policies as financial instruments accounted for at fair value. The following principles were applied when determing fair value estimates for financial instruments accounted for at amortized cost:
– | For short-term financial instruments with remaining maturities of one year or less, the carrying amount, which is net of credit loss allowances, is generally considered a reasonable estimate of fair value. The following financial instruments accounted for at amortized cost have remaining maturities of one year or less: |
100% of cash collateral on securities borrowed and reverse repurchase agreements; 97% of loans due from banks; 61% of loans to customers; 98% of amounts due to banks and customers; 99% cash collateral on securities lent and repurchase agreements; 60% of debt issued. Refer to the chapter “Liquidity and funding management” in the “Risk and treasury management” section of this report. | ||
– | The fair value of variable-interest bearing financial instruments accounted for at amortized cost is assumed to be approximated by their carrying amounts, which are net of credit loss allowances, and does not reflect fair value changes in the credit quality of counterparties respectively UBS’s own credit movements. | |
– | For fixed-interest bearing financial instruments with remaining maturities above one year, fair value was estimated by discounting contractual cash flows using current rates at which similar loans would be transacted to borrowers with similar credit ratings and/or collateral and for the same remaining maturities. These estimates generally include adjustments for counterparty credit respectively UBS’s own credit. | |
– | The fair value estimates for repurchase and reverse repurchase agreements with variable and fixed interest rates, for all maturities, include the valuation of the interest rate component of these instrument. Credit and debit valua- |
324
Note 27 Fair value of financial instruments (continued)
a) Fair value measurements (continued)
tion adjustments have not been included into the valuation due to the short-term nature of these instruments. |
– | For loans to customers from Global Wealth Management & Business Banking, mainly reflecting the impact of the Swiss Mortgage loan portfolio with a fixed rate of interest, an excess of fair value over the carrying amount of CHF 3.0 billion was determined. This amount is largely attributable to the current CHF interest rate movements, which are significantly below the average levels over the last decade. The fair values of UBS’s Investment Bank’s loans to customers were CHF 3.4 billion below their carrying values, mainly reflecting credit valuation adjustments for debt instruments reclassified from “held for trading” to “loans and receivables” in fourth quarter 2008. |
– | For debt issued with remaining maturities greater than one year, the fair value was determined from quoted market prices, where available. Where quoted market prices were |
not available the fair value was derived by discounting contractual cash flows by using rates at which UBS could issue debt with similar remaining maturities. Adjustments for own credit movements have been included into fair value estimation. |
b) Fair value measurements involving significant unobservable inputs (level 3)
Level 3 instruments at year-end
Material changes in level 3 instruments for the year
325
Financial information
Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
b) Fair value measurements involving significant unobservable inputs (level 3) (continued)
Level 3 profit or loss
Sensitivity information
and inputs used. In arriving at these estimates, UBS considers the range of market practice and how it believes other market participants would assess these uncertainties. Model reserves are periodically reassessed in light of information from market transactions, pricing utilities, and other relevant sources. The level of these model reserves is, nevertheless, to a large extent judgmental.a matter of judgment.
– | Scaling the model reserve amounts upward in line with less favorable assumptions would reduce fair value by approximately CHF | |
– | Scaling the model reserve amounts downward in line with more favorable assumptions would increase fair value by approximately CHF |
79326
Financial information |
Note 27 Fair value of financial instruments (continued)
c) Valuation techniques and inputs by product
US super senior RMBS CDOs
All material super senior RMBS CDO tranches still held by UBS are covered by corresponding monoline credit protection referencing the specific position held by UBS. Where liquidation of the RMBS CDO is deemed imminent, valuation is based on the estimated aggregate proceeds of the liquidation (using current fair value estimates of the underlying instruments) less any estimated expenses associated with the liquidation. For the remainder of the super senior RMBS CDO population, a model that projects losses on the underlying mortgage pools and applies the implications of these projected lifetime losses through to the RMBS and then to the CDO structure is applied. The loss projection is calibrated separately for each RMBS CDO so that the model recovers the estimated market value of the underlying collateral pool. At 31 December 2007, a similar model was applied, with loss projection estimates calibrated such that the model valued relevant ABX market indices consistently with their observed levels in the market. The model has been adjusted in 2008 to better reflect the prevailing market conditions and illiquidity.
Credit valuation adjustments on monoline credit protection
Credit valuation adjustments (CVAs) for monoline credit protection are based on a methodology that uses credit default swap spreads on the monolines as a key input in determining an implied level of expected loss. Where a monoline has no observable credit default swap spread, a judgment is made on the most comparable monoline or combination of monolines and the corresponding spreads are used instead. Credit valuation adjustments are intended to achieve a fair value of the underlying contracts and are normally based on publicly available information. In 2008, in some cases where UBS has had knowledge of potential restructurings that may result in economic outcomes more adverse than those implied by CDS market spreads, UBS had determined to modify CVA amounts accordingly. At 31 December 2007, a similar methodology was applied. The
methodology was re-calibrated in 2008 to reflect prevailing market conditions, in particular the greater prevalence of CDS trading with up-front cash exchanges and declines in potential recovery rates implied by recovery swap contract pricing.
Student loan auction rate securities (ARSs)
Student loan ARSs held by UBS’s Investment Bank of USD 7.9 billion (CHF 8.4 billion), previously classified as “held for trading”, were reclassified to the category “loans and receivables” per 31 December 2008. This implies that, going forward, these positions will be accounted for at amortized cost and tested for impairment, rather than being subject to fair value accounting through profit or loss. These ARS positions have been fair valued for the last time at 31 December 2008, applying the following principles. The applied method separates various factors and risks influencing fair value of ARSs and allows calibrating the result to market transactions whenever they become available. The methodology relies on four key components: (a) fundamental cash flow modeling to estimate the level and timing of potential credit losses on a given portfolio of student loans backing the ARS, (b) use of forward yields embedded in market term structure to estimate expected required coupon payments, c) discounted cash flow projections calibrated to observed ARS market transactions to correct for any model drift, and (d) liquidity penalties that impose a further discount to reflect market conditions. Each of these inputs is calculated and then aggregated in order to arrive at the fair value for each individ-
327
Financial Statementsinformation
Notes to the Financial Statements
Note 27 Fair value of financial instruments (continued)
c) Valuation techniques and inputs by product (continued)
Total Net trading income / (loss) for the years endedual security. At 31 December 2007, these instruments were not classified as level 3, as auctions had not failed at this time. After the failure of auctions due to lack of investor demand in first quarter 2008 up to third quarter 2008, UBS valued student loan ARSs by comparing them to the student loan floating rate notes (FRNs), but adopted the model described above for 31 December 20062008, consistent with the belief that it provides a better and more granular approach to fair value estimation.
US reference linked notes (US RLNs)
The US RLN consists of a series of transactions whereby UBS purchases credit protection, predominantly in note form, on a portfolio of fixed income assets. It is described in detail in the Annual Report 2007, “Risk, Treasury and Capital Management” section, page 13. The referenced assets are comprised of USD ABSs (primarily home equity) and/or corporate bonds and loans across all rating categories. UBS’s direct exposure to these assets has been reduced via transactions including the transaction with the SNB.
Non-US reference linked notes (Non-US RLNs)
The same valuation model and the same approach to calculation of monetary assetsfair value adjustments is applied for the non-US RLN credit protection as for the US RLN credit protection described above, except spread is shocked by 10% for European corporate names. As of 31 December 2008, the fair value of the non-US RLN credit protection is approximately USD 1,971 million (CHF 2,102 million). The fair value adjustments (up and liabilitiesdown) calculated by applying the shocks described above are USD 155 million (CHF 165 million).
Leveraged finance
A significant proportion of UBS’s leveraged finance exposures have been reclassified from the category “held for trading” to the category “loans and receivables” in fourth quarter 2008. The leveraged finance exposures in the “held for trading” category at 31 December 2008 are predominantly classified as level 3. Fair value estimates for these positions rely on market knowledge and expert judgment, including both realizedjudgmental determinations based on the terms of the relevant instrument and unrealized income. Unrealized incomevarious other factors. These other factors may include, without limitation, observable pricing for other debt of the relevant issuer or debt of issuers of comparable credit quality, credit default swap spreads and estimated loss severity factors, and prevailing interest rate levels.
Option to acquire equity of the SNB StabFund
Under IFRS, the option to purchase the SNB StabFund’s equity is determined fromrecognized on the balance sheet as a derivative at fair value with changes in fair values, using quoted pricesvalue recognized in active markets when available,profit and otherwise estimated using valuation techniques with market observable and / or non-market observable inputs.
328
Financial information |
Note 27 Fair value of financial instruments (continued)
c) Valuation techniques and inputs by product (continued)
d) Deferred day 1 profit or loss | ||||
For the year ended | For the year ended | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | ||||||||||||
Balance at the beginning of the year | 951 | 1,343 | 550 | 951 | ||||||||||||
Deferred profit / (loss) on new transactions | 1,259 | 890 | ||||||||||||||
Deferred profit/(loss) on new transactions | 588 | 1,259 | ||||||||||||||
Recognized (profit) / loss in the income statement | (1,383 | ) | (1,200 | ) | ||||||||||||
Recognized (profit)/loss in the income statement | (459 | ) | (1,383 | ) | ||||||||||||
Revision to fair value estimates | (224 | ) | 0 | (224 | ) | |||||||||||
Foreign currency translation | (53 | ) | (82 | ) | (52 | ) | (53 | ) | ||||||||
Balance at the end of the year | 550 | 951 | 627 | 550 |
80329
Financial information
Notes to the consolidated financial statements
Note 2728 Pledged Assetsassets and Transferred Financial Assetstransferred financial assets which do not Qualifyqualify for Derecognition
ral banks, against loans from mortgage institutions, in connection with derivative transactions and for security deposits relating to stock exchange and clearinghouse memberships.
Pledged assets | Pledged assets | Pledged assets | ||||||||||||||
Carrying amount | Carrying amount | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | ||||||||||||
Financial assets pledged: | ||||||||||||||||
Financial assets pledged to third parties for liabilities with and without the right of rehypothecation | 232,948 | 366,866 | 78,002 | 182,827 | ||||||||||||
thereof: Financial assets pledged to third parties with right of rehypothecation | 164,311 | 251,478 | 40,216 | 114,190 | ||||||||||||
Mortgage loans | 200 | 81 | 3,699 | 200 | ||||||||||||
Other1 | 21,040 | 0 | ||||||||||||||
Total financial assets pledged | 233,148 | 366,947 | 102,741 | 183,027 | ||||||||||||
Other assets pledged | ||||||||||||||||
Precious metals and other commodities | 8,628 | 5,432 | 780 | 8,628 |
The following table presents details of financial assets which have been sold or otherwise transferred, but which do not
qualify for derecognition. Criteria for derecognition are discussed in Note 1a4)1a) 4).
Transfer of financial assets which do not qualify for derecognition | Transfer of financial assets which do not qualify for derecognition | Transfer of financial assets which do not qualify for derecognition | ||||||||||||||
Continued asset recognition in full — | ||||||||||||||||
Total assets | Continued asset recognition in full – Total assets | |||||||||||||||
CHF billion | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | ||||||||||||
Nature of transaction | ||||||||||||||||
Securities lending agreements | 87.7 | 98.9 | 22.0 | 59.7 | ||||||||||||
Repurchase agreements | 73.5 | 146.5 | 13.1 | 51.3 | ||||||||||||
Other financial asset transfers | 75.9 | 69.8 | 46.6 | 75.9 | ||||||||||||
Total | 237.1 | 315.2 | 81.7 | 186.9 |
The transactions are mostly conducted under standard agreements employed by financial market participants and are undertaken with counterparties subject to UBS’s normal credit risk control processes. The resulting credit exposures are controlled by daily monitoring and collateralization of the positions. The financial assets which continue to be recognized are typically transferred in exchange for cash or other financial assets. The associated liabilities can therefore be assumed to be approximately the carrying amount of the transferred financial assets.
full. These include credit risk, settlement risk, country risk and market risk.
81330
Financial StatementsNotes to the Financial Statements
Financial information |
Note 2829 Measurement Categoriescategories of Financial Assetsfinancial assets and Financial Liabilitiesfinancial liabilities
a) Measurement categories of financial assets and financial liabilities
The following table provides information about the carrying amounts of individual classes of financial instruments within the measurement categories of financial assets and financial liabilities as defined in IAS 39. Only those assets and liabilities which are deemed to be financial instruments are included
31.12.07 | 31.12.06 | |||||||
Financial Assets | ||||||||
Held for trading | ||||||||
Trading portfolio assets | 580,643 | 605,965 | ||||||
Trading portfolio assets pledged as collateral | 164,311 | 251,478 | ||||||
Positive replacement values | 428,217 | 292,975 | ||||||
Total | 1,173,171 | 1,150,418 | ||||||
Fair value through profit or loss, other | ||||||||
Financial assets designated at fair value | 11,765 | 5,930 | ||||||
Cash, loans and receivables | ||||||||
Cash and balances with central banks | 18,793 | 3,495 | ||||||
Due from banks | 60,907 | 50,426 | ||||||
Cash collateral on securities borrowed | 207,063 | 351,590 | ||||||
Reverse repurchase agreements | 376,928 | 405,834 | ||||||
Loans | 334,367 | 296,592 | ||||||
Accrued income and prepaid expenses | 9,200 | 8,685 | ||||||
Other assets | 12,874 | 11,412 | ||||||
Total | 1,020,132 | 1,128,034 | ||||||
Available-for-sale | ||||||||
Financial investments available-for-sale | 4,966 | 8,937 | ||||||
Total Financial Assets | 2,210,034 | 2,293,319 | ||||||
Financial Liabilities | ||||||||
Held for trading | ||||||||
Trading portfolio liabilities | 164,788 | 204,773 | ||||||
Debt issued1 | 74 | 463 | ||||||
Negative replacement values | 443,539 | 297,063 | ||||||
Total | 608,401 | 502,299 | ||||||
Fair value through profit or loss, other | ||||||||
Financial liabilities designated at fair value | 191,853 | 145,687 | ||||||
Amounts due under unit-linked contracts | 27,455 | 33,645 | ||||||
Total | 219,308 | 179,332 | ||||||
Financial liabilities at amortized cost | ||||||||
Due to banks | 145,762 | 203,689 | ||||||
Cash collateral on securities lent | 31,621 | 63,088 | ||||||
Repurchase agreements | 305,887 | 545,480 | ||||||
Due to customers | 641,892 | 555,886 | ||||||
Accrued expenses and deferred income | 21,665 | 21,353 | ||||||
Debt issued | 222,003 | 189,680 | ||||||
Other liabilities | 25,302 | 20,349 | ||||||
Total | 1,394,132 | 1,599,525 | ||||||
Total Financial Liabilities | 2,221,841 | 2,281,156 | ||||||
in the table below, which may cause certain balances to differ from those presented on the balance sheet.
31.12.08 | 31.12.07 | |||||||
Financial assets | ||||||||
Held for trading | ||||||||
Trading portfolio assets | 261,904 | 630,764 | ||||||
Trading portfolio assets pledged as collateral | 40,216 | 114,190 | ||||||
Debt issued1,2 | 4,152 | |||||||
Positive replacement values | 854,100 | 428,217 | ||||||
Total | 1,160,372 | 1,173,171 | ||||||
Fair value through profit or loss, other | ||||||||
Financial assets designated at fair value | 12,882 | 11,765 | ||||||
Cash, loans and receivables | ||||||||
Cash and balances with central banks | 32,744 | 18,793 | ||||||
Due from banks | 64,451 | 60,907 | ||||||
Cash collateral on securities borrowed | 122,897 | 207,063 | ||||||
Reverse repurchase agreements | 224,648 | 376,928 | ||||||
Loans | 338,520 | 334,367 | ||||||
Accrued income and prepaid expenses | 3,238 | 9,200 | ||||||
Other assets | 6,184 | 12,874 | ||||||
Total | 792,682 | 1,020,132 | ||||||
Available-for-sale | ||||||||
Financial investments available-for-sale | 5,248 | 4,966 | ||||||
Total financial assets | 1,971,184 | 2,210,034 | ||||||
Financial liabilities | ||||||||
Held for trading | ||||||||
Trading portfolio liabilities | 62,431 | 164,788 | ||||||
Debt issued1 | 185 | 74 | ||||||
Negative replacement values | 851,803 | 443,539 | ||||||
Total | 914,419 | 608,401 | ||||||
Fair value through profit or loss, other | ||||||||
Financial liabilities designated at fair value | 101,546 | 191,853 | ||||||
Amounts due under unit-linked contracts | 13,051 | 27,455 | ||||||
Total | 114,597 | 219,308 | ||||||
Financial liabilities at amortized cost | ||||||||
Due to banks | 125,628 | 145,762 | ||||||
Cash collateral on securities lent | 14,063 | 31,621 | ||||||
Repurchase agreements | 102,561 | 305,887 | ||||||
Due to customers | 474,774 | 641,892 | ||||||
Accrued expenses and deferred income | 10,012 | 21,665 | ||||||
Debt issued | 201,221 | 222,003 | ||||||
Other liabilities | 12,840 | 25,302 | ||||||
Total | 941,099 | 1,394,132 | ||||||
Total financial liabilities | 1,970,115 | 2,221,841 | ||||||
82331
Financial information
Notes to the consolidated financial statements
Note 29 Measurement categories of financial assets and financial liabilities (continued)
b) Reclassification of financial assets
Pursuant to the amendment to IAS 39 and IFRS 7, “Reclassification of Financial Assets”, UBS reclassified certain financial assets out of Trading portfolio assets to Loans and receivables. Although the amendment could have been applied retrospectively from 1 July 2008, UBS decided at the end of October 2008 to apply the amendment with effect from 1 October 2008 following an assessment of the implications on its financial statements. The financial assets were reclassi-
fied using their fair value on the date of the reclassification which became their new cost basis at that date. The reclassification of these financial assets reflects UBS’s change in intent and ability to hold these financial assets for the foreseeable future rather than for trading in the near term.
1.10.08 | 31.12.08 | |||||||||||
CHF billion | Fair value | Carrying value | Fair value | |||||||||
Trading portfolio assets reclassified to Loans on 1.10.08 | 17.6 | 15.8 | 12.4 | |||||||||
Trading portfolio assets reclassified to Loans on 31.12.08 | 8.4 | 8.4 | ||||||||||
Total financial assets reclassified to Loans and receivables | 17.6 | 24.2 | 20.8 | |||||||||
Reclassified financial assets primarily relate to student loan ARSs and other debt instruments.
332
Financial information |
Note 2930 Pension and Other Post-Retirement Benefit Plans
a) Defined benefit plans
The Group has established various pension plans inside and outside of Switzerland. The major plans are located in Switzerland, the UK, the US and Germany. Independent actuarial valuations are performed for the plans in these locations. The measurement date of these plans is 31 December for each year presented.
Swiss pension plans
The pension plan of UBS covers practically all UBS employees in Switzerland and exceeds the minimum benefit requirements under Swiss law. The Swiss plan was amended on 1 January 2007 to change the definition of retirement benefits from a final covered salary to a retirement savings approach.approach and on 1 January 2008 to allow employees a choice in the level of annual contributions paid by the employee. The pension plan provides benefits which are based on an-
nualannual contributions as a percentage of salary and accrue at an interest rate that is defined annually by the plan trustees.
calculated as a percentage of covered salary and are deducted monthly. The percentages deducted from salary for the full standard level of benefit coverage (including risk benefits) depend on age and vary between 1% and 10%9% of covered base salary and 3% and 8% of covered bonus.variable compensation. The employer pays a contribution that ranges between 100% and 350%, or approximately 230%, on average, of the sum375% of employees’ contributions.contributions for the standard level of benefit coverage. The benefits covered include retirement benefits,benefits; disability, death and survivor pensions,pensions; and employment termination benefits.
Foreign pension plans
The foreign locations of UBS operate various pension plans in accordance with local regulations and practices. Among these plans are defined contribution plans as well as defined benefit plans. The locations with defined benefit plans of a material nature are in the UK, the US and Germany. The UK and the US defined benefit plans are closed to new entrants who are covered by defined contribution plans. The amounts shown for foreign plans reflect the net funded positions of the major foreign plans.
83333
Financial Statementsinformation
Notes to the Financial Statements
Note 2930 Pension and Other Post-Retirement Benefit Plansother post-employment benefit plans (continued)
a) Defined benefit plans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
a) Defined benefit plans (continued) | a) Defined benefit plans (continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million | Swiss | Foreign | Swiss | Foreign | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the year ended | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Defined benefit obligation at the beginning of the year | (21,506 | ) | (20,972 | ) | (20,225 | ) | (5,207 | ) | (5,020 | ) | (4,142 | ) | (20,877 | ) | (21,506 | ) | (20,972 | ) | (4,928 | ) | (5,207 | ) | (5,020 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Service cost | (367 | ) | (347 | ) | (353 | ) | (88 | ) | (76 | ) | (82 | ) | (336 | ) | (367 | ) | (347 | ) | (63 | ) | (88 | ) | (76 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest cost | (633 | ) | (611 | ) | (660 | ) | (264 | ) | (242 | ) | (236 | ) | (710 | ) | (633 | ) | (611 | ) | (251 | ) | (264 | ) | (242 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Plan participant contributions | (236 | ) | (221 | ) | (219 | ) | (233 | ) | (236 | ) | (221 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amendments | (414 | ) | (125 | ) | 0 | 0 | (414 | ) | (125 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Actuarial gain / (loss) | 1,508 | (265 | ) | (713 | ) | 236 | (120 | ) | (416 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | 298 | (84 | ) | (280 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Actuarial gain/(loss) | (288 | ) | 1,508 | (265 | ) | 318 | 236 | (120 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefits paid | 792 | 723 | 866 | 151 | 149 | 144 | 1,158 | 792 | 723 | 148 | 151 | 149 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Special termination benefits | (21 | ) | (17 | ) | (37 | ) | 0 | 0 | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Termination benefits | (25 | ) | (21 | ) | (17 | ) | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | (54 | ) | 0 | (6 | ) | 0 | (54 | ) | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Settlements | 0 | 329 | 369 | 0 | 186 | 0 | 0 | 0 | 329 | 0 | 0 | 186 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Curtailments | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | 1,134 | 298 | (84 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Defined benefit obligation at the end of the year | (20,877 | ) | (21,506 | ) | (20,972 | ) | (4,928 | ) | (5,207 | ) | (5,020 | ) | (21,311 | ) | (20,877 | ) | (21,506 | ) | (3,642 | ) | (4,928 | ) | (5,207 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of plan assets at the beginning of the year | 21,336 | 20,229 | 18,575 | 4,602 | 4,288 | 3,580 | 22,181 | 21,336 | 20,229 | 4,579 | 4,602 | 4,288 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expected return on plan assets | 1,067 | 998 | 925 | 313 | 283 | 263 | 990 | 1,067 | 998 | 282 | 313 | 283 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Actuarial gain / (loss) | (250 | ) | 447 | 1,284 | (97 | ) | 40 | 247 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | (288 | ) | 74 | 253 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Actuarial gain/(loss) | (3,820 | ) | (250 | ) | 447 | (1,027 | ) | (97 | ) | 40 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employer contributions | 584 | 492 | 468 | 200 | 66 | 89 | 603 | 584 | 492 | 194 | 200 | 66 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Plan participant contributions | 236 | 221 | 219 | 233 | 236 | 221 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefits paid | (792 | ) | (723 | ) | (866 | ) | (151 | ) | (149 | ) | (144 | ) | (1,158 | ) | (792 | ) | (723 | ) | (148 | ) | (151 | ) | (149 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Settlements | 0 | (328 | ) | (376 | ) | 0 | 0 | (328 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Curtailments | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | (1,014 | ) | (288 | ) | 74 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of plan assets at the end of the year | 22,181 | 21,336 | 20,229 | 4,579 | 4,602 | 4,288 | 19,029 | 22,181 | 21,336 | 2,866 | 4,579 | 4,602 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Funded status | 1,304 | (170 | ) | (743 | ) | (349 | ) | (605 | ) | (732 | ) | (2,282 | ) | 1,304 | (170 | ) | (776 | ) | (349 | ) | (605 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Unrecognized net actuarial (gains) / losses | 865 | 2,123 | 2,334 | 975 | 1,237 | 1,222 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrecognized net actuarial (gains)/losses | 4,405 | 2,123 | 2,123 | 1,324 | 975 | 1,237 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrecognized past service cost | 414 | 0 | 0 | 0 | 1 | 1 | 0 | 0 | 0 | 0 | 0 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrecognized asset | (2,583 | ) | (1,953 | ) | (1,591 | ) | 0 | (1,304 | ) | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 0 | 626 | 633 | 491 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Accrued)/prepaid pension cost | 2,123 | 2,123 | 1,953 | 548 | 626 | 633 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Movement in the net (liability) or asset | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Accrued) / prepaid pension cost at the beginning of the year | 633 | 491 | 485 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Accrued)/prepaid pension cost at the beginning of the year | 2,123 | 1,953 | 1,588 | 626 | 633 | 491 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net periodic pension cost | (584 | ) | (492 | ) | (468 | ) | (97 | ) | (103 | ) | (125 | ) | (603 | ) | (414 | ) | (127 | ) | (69 | ) | (97 | ) | (103 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Employer contributions | 584 | 492 | 468 | 200 | 66 | 89 | 603 | 584 | 492 | 194 | 200 | 66 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | (54 | ) | 0 | (6 | ) | 0 | (54 | ) | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Settlement | 0 | 170 | 0 | 0 | 0 | 170 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | (56 | ) | 9 | 48 | (203 | ) | (56 | ) | 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 0 | 626 | 633 | 491 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Accrued)/prepaid pension cost | 2,123 | 2,123 | 1,953 | 548 | 626 | 633 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amounts recognized in the balance sheet | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid pension cost | 887 | 815 | 832 | 2,123 | 2,123 | 1,953 | 798 | 887 | 815 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued pension liability | (261 | ) | (182 | ) | (341 | ) | (250 | ) | (261 | ) | (182 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 0 | 626 | 633 | 491 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Accrued)/prepaid pension cost | 2,123 | 2,123 | 1,953 | 548 | 626 | 633 |
84334
a) Defined benefit plans (continued) | ||||||||||||||||||||||||
CHF million | Swiss | Foreign | ||||||||||||||||||||||
For the year ended | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | ||||||||||||||||||
Components of net periodic pension cost | ||||||||||||||||||||||||
Service cost | 367 | 347 | 353 | 88 | 76 | 82 | ||||||||||||||||||
Interest cost | 633 | 611 | 660 | 264 | 242 | 236 | ||||||||||||||||||
Expected return on plan assets | (1,067 | ) | (998 | ) | (925 | ) | (313 | ) | (283 | ) | (263 | ) | ||||||||||||
Amortization of unrecognized past service cost | 0 | 125 | (3 | ) | ||||||||||||||||||||
Amortization of unrecognized net (gains) / losses | 0 | 25 | 101 | 58 | 68 | 68 | ||||||||||||||||||
Special termination benefits | 21 | 17 | 37 | 0 | 0 | 2 | ||||||||||||||||||
Settlements | 0 | 0 | 10 | |||||||||||||||||||||
Increase / (decrease) of unrecognized asset | 630 | 365 | 235 | |||||||||||||||||||||
Net periodic pension cost | 584 | 492 | 468 | 97 | 103 | 125 | ||||||||||||||||||
Funded and unfunded plans | Swiss | |||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||||||
Defined benefit obligation from funded plans | (20,877 | ) | (21,506 | ) | (20,972 | ) | (20,225 | ) | (18,216 | ) | ||||||||||||||
Plan assets | 22,181 | 21,336 | 20,229 | 18,575 | 17,619 | |||||||||||||||||||
Surplus/(deficit) | 1,304 | (170 | ) | (743 | ) | (1,650 | ) | (597 | ) | |||||||||||||||
Experience gains / (losses) on plan liabilities | 0 | (265 | ) | (77 | ) | |||||||||||||||||||
Experience gains / (losses) on plan assets | (250 | ) | 447 | 1,284 | ||||||||||||||||||||
Foreign | ||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||||||
Defined benefit obligation from funded plans | (4,654 | ) | (5,002 | ) | (4,635 | ) | (3,815 | ) | (3,509 | ) | ||||||||||||||
Defined benefit obligation from unfunded plans | (274 | ) | (205 | ) | (385 | ) | (327 | ) | (154 | ) | ||||||||||||||
Plan assets | 4,579 | 4,602 | 4,288 | 3,580 | 3,402 | |||||||||||||||||||
Surplus/(deficit) | (349 | ) | (605 | ) | (732 | ) | (562 | ) | (261 | ) | ||||||||||||||
Experience gains / (losses) on plan liabilities | (32 | ) | (11 | ) | 7 | |||||||||||||||||||
Experience gains / (losses) on plan assets | (97 | ) | 40 | 247 | ||||||||||||||||||||
Swiss | Foreign | |||||||||||||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||||||||||||
Principal weighted average actuarial assumptions used (%) Assumptions used to determine defined benefit obligations at the end of the year | ||||||||||||||||||||||||
Discount rate | 3.5 | 3.0 | 3.0 | 5.8 | 5.2 | 5.0 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.8 | 4.6 | 4.4 | ||||||||||||||||||
Rate of pension increase | 0.8 | 0.8 | 0.8 | 2.4 | 2.1 | 1.9 | ||||||||||||||||||
Assumptions used to determine net periodic pension cost for the year ended | ||||||||||||||||||||||||
Discount rate | 3.0 | 3.0 | 3.3 | 5.2 | 5.0 | 5.5 | ||||||||||||||||||
Expected rate of return on plan assets | 5.0 | 5.0 | 5.0 | 7.0 | 6.7 | 7.0 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.6 | 4.4 | 4.4 | ||||||||||||||||||
Rate of pension increase | 0.8 | 0.8 | 1.0 | 2.1 | 1.9 | 1.9 | ||||||||||||||||||
85
Financial information |
Note 30 Pension and other post-employment benefit plans (continued)
a) Defined benefit plans (continued) | |||||||||||||||||||||||||
CHF million | Swiss | Foreign | |||||||||||||||||||||||
For the year ended | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||||||
Components of net periodic pension cost | |||||||||||||||||||||||||
Service cost | 336 | 367 | 347 | 63 | 88 | 76 | |||||||||||||||||||
Interest cost | 710 | 633 | 611 | 251 | 264 | 242 | |||||||||||||||||||
Expected return on plan assets | (990 | ) | (1,067 | ) | (998 | ) | (282 | ) | (313 | ) | (283 | ) | |||||||||||||
Amortization of unrecognized net (gains)/losses | 0 | 0 | 25 | 37 | 58 | 68 | |||||||||||||||||||
Amortization of unrecognized past service cost | 0 | 0 | 125 | ||||||||||||||||||||||
Immediate recognition of net actuarial (gains)/losses in current period | 1,826 | (1,258 | ) | 0 | |||||||||||||||||||||
Immediate recognition of past service cost in current period | 0 | 414 | 0 | ||||||||||||||||||||||
Termination benefits | 25 | 21 | 17 | ||||||||||||||||||||||
Settlements | 0 | 0 | 0 | ||||||||||||||||||||||
Curtailments | 0 | 0 | 0 | ||||||||||||||||||||||
Limit of defined benefit asset | (1,304 | ) | 1,304 | 0 | |||||||||||||||||||||
Net periodic pension cost | 603 | 414 | 127 | 69 | 97 | 103 | |||||||||||||||||||
Funded and unfunded plans | Swiss | ||||||||||||||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||
Defined benefit obligation from funded plans | (21,311 | ) | (20,877 | ) | (21,506 | ) | (20,972 | ) | (20,225 | ) | |||||||||||||||
Plan assets | 19,029 | 22,181 | 21,336 | 20,229 | 18,575 | ||||||||||||||||||||
Surplus/(deficit) | (2,282 | ) | 1,304 | (170 | ) | (743 | ) | (1,650 | ) | ||||||||||||||||
Experience gains / (losses) on plan liabilities | 0 | 0 | (265 | ) | |||||||||||||||||||||
Experience gains / (losses) on plan assets | (3,820 | ) | (250 | ) | 447 | ||||||||||||||||||||
Foreign | |||||||||||||||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||
Defined benefit obligation from funded plans | (3,402 | ) | (4,654 | ) | (5,002 | ) | (4,635 | ) | (3,815 | ) | |||||||||||||||
Defined benefit obligation from unfunded plans | (240 | ) | (274 | ) | (205 | ) | (385 | ) | (327 | ) | |||||||||||||||
Plan assets | 2,866 | 4,579 | 4,602 | 4,288 | 3,580 | ||||||||||||||||||||
Surplus/(deficit) | (776 | ) | (349 | ) | (605 | ) | (732 | ) | (562 | ) | |||||||||||||||
Experience gains/(losses) on plan liabilities | 62 | (32 | ) | (11 | ) | ||||||||||||||||||||
Experience gains/(losses) on plan assets | (1,027 | ) | (97 | ) | 40 | ||||||||||||||||||||
335
Financial Statementsinformation
Notes to the Financial Statementsconsolidated financial statements
Note 2930 Pension and Other Post-Retirement Benefit Plans (continued)
a) Defined benefit plans (continued) | |||||||||||||||||||||||||
Swiss | Foreign | ||||||||||||||||||||||||
31.12.08 | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||||||||||
Principal weighted average actuarial assumptions used (%) | |||||||||||||||||||||||||
Assumptions used to determine defined benefit obligations at the end of the year | |||||||||||||||||||||||||
Discount rate | 3.3 | 3.5 | 3.0 | 6.0 | 5.8 | 5.2 | |||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.5 | 4.8 | 4.6 | |||||||||||||||||||
Rate of pension increase | 0.5 | 0.8 | 0.8 | 1.9 | 2.4 | 2.1 | |||||||||||||||||||
Assumptions used to determine net periodic pension cost for the year ended | |||||||||||||||||||||||||
Discount rate | 3.5 | 3.0 | 3.0 | 5.8 | 5.2 | 5.0 | |||||||||||||||||||
Expected rate of return on plan assets | 4.5 | 5.0 | 5.0 | 7.1 | 7.0 | 6.7 | |||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.8 | 4.6 | 4.4 | |||||||||||||||||||
Rate of pension increase | 0.8 | 0.8 | 0.8 | 2.4 | 2.1 | 1.9 | |||||||||||||||||||
Plan assets (weighted average) | |||||||||||||||||||||||||
Actual plan asset allocation (%) | |||||||||||||||||||||||||
Equity instruments | 26 | 38 | 41 | 46 | 50 | 53 | |||||||||||||||||||
Debt instruments | 55 | 47 | 45 | 35 | 38 | 38 | |||||||||||||||||||
Real estate | 13 | 11 | 11 | 3 | 4 | 4 | |||||||||||||||||||
Other | 6 | 4 | 3 | 16 | 8 | 5 | |||||||||||||||||||
Total | 100 | 100 | 100 | 100 | 100 | 100 | |||||||||||||||||||
Long-term target plan asset allocation (%) | |||||||||||||||||||||||||
Equity instruments | 20–48 | 33–51 | 33–51 | 45–48 | 49–52 | 49–53 | |||||||||||||||||||
Debt instruments | 37–63 | 31–50 | 31–50 | 37–38 | 38–44 | 37–44 | |||||||||||||||||||
Real estate | 10–20 | 10–19 | 10–19 | 3–7 | 4–6 | 4–6 | |||||||||||||||||||
Other | 0-5 | 0 | 0 | 10–12 | 1–3 | 1–5 | |||||||||||||||||||
Actual return on plan assets (%) | (12.8 | ) | 3.9 | 7.2 | (18.2 | ) | 4.8 | 7.8 | |||||||||||||||||
Additional details to fair value of plan assets | |||||||||||||||||||||||||
UBS financial instruments and UBS bank accounts | 782 | 336 | 684 | ||||||||||||||||||||||
UBS AG shares1 | 55 | 128 | 193 | ||||||||||||||||||||||
Securities lent to UBS included in plan assets | 0 | 9,379 | 7,169 | ||||||||||||||||||||||
Other assets used by UBS included in plan assets | 148 | 111 | 69 | ||||||||||||||||||||||
Mortality tables and life expectancies for major plans | ||||||||||||||||||||||||||
Life expectancy at age 65 for a male member currently | ||||||||||||||||||||||||||
aged 65 | aged 45 | |||||||||||||||||||||||||
Country | Mortality table (end of 2007) | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||||||||||||
Switzerland | BVG 2000 | 17.8 | 17.8 | 17.8 | 17.8 | 17.8 | 17.8 | |||||||||||||||||||
UK | PA 92 G, medium cohort | 21.9 | 21.8 | 19.7 | 23.0 | 23.0 | 21.3 | |||||||||||||||||||
Germany | Dr. K. Heubeck 2005 G | 18.9 | 18.7 | 18.5 | 21.6 | 21.5 | 21.3 | |||||||||||||||||||
US | RP2000 projected to 2008 | 18.3 | 17.9 | 17.5 | 18.3 | 17.9 | 17.5 | |||||||||||||||||||
Life expectancy at age 65 for a female member currently | ||||||||||||||||||||||||||
aged 65 | aged 45 | |||||||||||||||||||||||||
Country | Mortality table (end of 2007) | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||||||||||||
Switzerland | BVG 2000 | 21.1 | 21.1 | 21.1 | 21.1 | 21.1 | 21.1 | |||||||||||||||||||
UK | PA 92 G, medium cohort | 24.8 | 24.7 | 22.6 | 25.8 | 25.8 | 24.1 | |||||||||||||||||||
Germany | Dr. K. Heubeck 2005 G | 23.0 | 22.8 | 22.7 | 25.6 | 25.5 | 25.4 | |||||||||||||||||||
US | RP2000 projected to 2008 | 20.5 | 20.3 | 20.7 | 20.5 | 20.3 | 20.7 | |||||||||||||||||||
Swiss | Foreign | |||||||||||||||||||||||
For the year ended | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | ||||||||||||||||||
Plan assets (weighted average) | ||||||||||||||||||||||||
Actual plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 38 | 41 | 43 | 50 | 53 | 52 | ||||||||||||||||||
Debt instruments | 47 | 45 | 43 | 38 | 38 | 39 | ||||||||||||||||||
Real estate | 11 | 11 | 12 | 4 | 4 | 4 | ||||||||||||||||||
Other | 4 | 3 | 2 | 8 | 5 | 5 | ||||||||||||||||||
Total | 100 | 100 | 100 | 100 | 100 | 100 | ||||||||||||||||||
Long-term target plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 33--51 | 33--51 | 34--46 | 49--52 | 49--53 | 52--55 | ||||||||||||||||||
Debt instruments | 31--50 | 31--50 | 30--53 | 38--44 | 37--44 | 44--45 | ||||||||||||||||||
Real estate | 10--19 | 10--19 | 11--19 | 4--6 | 4--6 | 0--3 | ||||||||||||||||||
Other | 0 | 0 | 0 | 1--3 | 1--5 | 1--2 | ||||||||||||||||||
Actual return on plan assets (%) | 3.9 | 7.2 | 12.0 | 4.8 | 7.8 | 13.6 | ||||||||||||||||||
Additional details to fair value of plan assets | ||||||||||||||||||||||||
CHF million | ||||||||||||||||||||||||
UBS financial instruments and UBS bank accounts | 336 | 684 | 613 | |||||||||||||||||||||
UBS AG shares1 | 128 | 193 | 225 | |||||||||||||||||||||
Securities lent to UBS included in plan assets | 9,379 | 7,169 | 2,222 | |||||||||||||||||||||
Other assets used by UBS included in plan assets | 111 | 69 | 69 | |||||||||||||||||||||
Mortality tables and life expectancies for major plans | |||||||||||||||||||||||||||||
Life expectancy at age 65 for a male member currently | |||||||||||||||||||||||||||||
aged 65 | aged 45 | ||||||||||||||||||||||||||||
Country | Mortality table | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||
Switzerland | BVG 2000 | 17.8 | 17.8 | 17.8 | 17.8 | 17.8 | 17.8 | ||||||||||||||||||||||
UK | PA 92 | 22.7 | 21.9 | 21.8 | 25.6 | 23.0 | 23.0 | ||||||||||||||||||||||
Germany | Dr. K. Heubeck 2005 G | 19.0 | 18.9 | 18.7 | 21.8 | 21.6 | 21.5 | ||||||||||||||||||||||
US | RP 2000 with projections | 18.4 | 18.3 | 17.9 | 18.4 | 18.3 | 17.9 | ||||||||||||||||||||||
Life expectancy at age 65 for a female member currently | |||||||||||||||||||||||||||||
aged 65 | aged 45 | ||||||||||||||||||||||||||||
Country | Mortality table | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||
Switzerland | BVG 2000 | 21.1 | 21.1 | 21.1 | 21.1 | 21.1 | 21.1 | ||||||||||||||||||||||
UK | PA 92 | 24.5 | 24.8 | 24.7 | 26.4 | 25.8 | 25.8 | ||||||||||||||||||||||
Germany | Dr. K. Heubeck 2005 G | 23.1 | 23.0 | 22.8 | 25.7 | 25.6 | 25.5 | ||||||||||||||||||||||
US | RP 2000 with projections | 20.6 | 20.5 | 20.3 | 20.6 | 20.5 | 20.3 | ||||||||||||||||||||||
86336
Financial information |
Note 2930 Pension and Other Post-Retirement Benefit Plansother post-employment benefit plans (continued)
b) Post-retirement medical and life plans
In the US and the UK, the Group offers retiree medical benefits that contribute to the health care coverage of employees and beneficiaries after retirement. In addition to retiree medical benefits, the Group in the US also provides retiree life insurance benefits. The UK plan is closed to new entrants. The benefit obligation in excess of fair value of plan assets for those plans amounts to CHF 190159 million as of 31 December 2007 (2006:2008 (2007: CHF 190 million; 2006: CHF 219 million, 2005: CHF 216 mil-
lion)million) and the total accrued post-retirement cost
amounts to CHF 181164 million as of 31 December 2007 (2006:2008 (2007: CHF 176 million, 2005:181 million; 2006: CHF 168176 million). The net periodic post-retirement costs for the years ended 31 December 2008, 31 December 2007 and 31 December 2006 and 31 December 2005 were CHF 9 million (including a curtailment gain of CHF 11 million), CHF 26 million CHF 24 million and CHF 2124 million, respectively.
b) Post-retirement medical and life plans | ||||||||||||||||||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||||||||||||
Post-retirement benefit obligation at the beginning of the year | (219 | ) | (216 | ) | (166 | ) | (190 | ) | (219 | ) | (216 | ) | ||||||||||||||||||||||||||||
Service cost | (12 | ) | (10 | ) | (8 | ) | (8 | ) | (12 | ) | (10 | ) | ||||||||||||||||||||||||||||
Interest cost | (11 | ) | (11 | ) | (11 | ) | (11 | ) | (11 | ) | (11 | ) | ||||||||||||||||||||||||||||
Plan participant contributions | (1 | ) | (1 | ) | 0 | (0 | ) | (1 | ) | (1 | ) | |||||||||||||||||||||||||||||
Actuarial gain / (loss) | 39 | 1 | (17 | ) | ||||||||||||||||||||||||||||||||||||
Foreign currency translation | 14 | 10 | (22 | ) | ||||||||||||||||||||||||||||||||||||
Actuarial gain/(loss) | 14 | 39 | 1 | |||||||||||||||||||||||||||||||||||||
Amendments | (8 | ) | (1 | ) | 0 | 0 | (8 | ) | (1 | ) | ||||||||||||||||||||||||||||||
Benefits paid | 8 | 9 | 8 | 7 | 8 | 9 | ||||||||||||||||||||||||||||||||||
Curtailments | 9 | 0 | 0 | |||||||||||||||||||||||||||||||||||||
Foreign currency translation | 20 | 14 | 10 | |||||||||||||||||||||||||||||||||||||
Post-retirement benefit obligation at the end of the year | (190 | ) | (219 | ) | (216 | ) | (159 | ) | (190 | ) | (219 | ) | ||||||||||||||||||||||||||||
Fair value of plan assets at the beginning of the year | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||
Employer contributions | 7 | 8 | 8 | 6 | 7 | 8 | ||||||||||||||||||||||||||||||||||
Plan participant contributions | 1 | 1 | 0 | 1 | 1 | 1 | ||||||||||||||||||||||||||||||||||
Benefits paid | (8 | ) | (9 | ) | (8 | ) | (7 | ) | (8 | ) | (9 | ) | ||||||||||||||||||||||||||||
Fair value of plan assets at the end of the year | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||||||||||||||||||||
Defined benefit obligation | (190 | ) | (219 | ) | (216 | ) | (166 | ) | (179 | ) | ||||||||||||||||||||||||||||||
Plan asset | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||
Surplus/(deficit) | (190 | ) | (219 | ) | (216 | ) | (166 | ) | (179 | ) | ||||||||||||||||||||||||||||||
Experience gains / (losses) on plan liabilities | 8 | 1 | (3 | ) | 0 | 0 | ||||||||||||||||||||||||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||||||||
Defined benefit obligation | (159 | ) | (190 | ) | (219 | ) | (216 | ) | (166 | ) | ||||||||||
Plan asset | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Surplus/(deficit) | (159 | ) | (190 | ) | (219 | ) | (216 | ) | (166 | ) | ||||||||||
Experience gains/(losses) on plan liabilities | 3 | 8 | 1 | (3 | ) | 0 | ||||||||||||||
The assumed average health care cost trend rate used in determining post-retirement benefit expense is assumed to be 11%10% for 20072008 and to decrease to an ultimate trend rate of 5% in 2013.2014. On a country-by-country basis, the same discount rate is used for the calculation of the post-retirement benefit obligation from medical and life plans as for the defined benefit obligations arising from pension plans.
CHF million | 1% increase | 1% decrease | 1% increase | 1% decrease | ||||||||||||
Effect on total service and interest cost | 4 | (3 | ) | 3 | (2 | ) | ||||||||||
Effect on the post-retirement benefit obligation | 25 | (20 | ) | 19 | (16 | ) |
87337
Financial Statementsinformation
Notes to the Financial Statementsconsolidated financial statements
The 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 expense for the years ended 31 December 2008, 31 December 2007 and 31 December 2006 and 31 December 2005 were CHF 312 million, CHF 285 million and CHF 229 million, and CHF 184 million, respectively.
UBS is the principal bank for the pension fund of UBS in Switzerland. In this function, UBS is engaged to execute most of the pension fund’s banking activities. These activities also include, but are not limited to, trading and securities lending and borrowing. All transactions have been executed at arm’s length conditions.
Related party disclosure | Related party disclosure | |||||||||||||||||||||||
For the year ended | For the year ended | |||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||||||||
Received by UBS | ||||||||||||||||||||||||
Fees | 58 | 53 | 48 | 44 | 58 | 53 | ||||||||||||||||||
Paid by UBS | ||||||||||||||||||||||||
Interest | 2 | 2 | 4 | 1 | 2 | 2 | ||||||||||||||||||
Dividends and capital repayments | 38 | 33 | 7 | 4 | 38 | 33 |
The transaction volumes in UBS shares and other UBS securities are as follows:
Transaction volumes – related parties | Transaction volumes – related parties | |||||||||||||||||||||||
For the year ended | For the year ended | |||||||||||||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||||||
Financial instruments bought by pension funds | ||||||||||||||||||||||||
UBS AG shares (in thousands of shares) | 1,728 | 1,793 | 2,774 | 6,925 | 1,728 | 1,793 | ||||||||||||||||||
UBS financial instruments (nominal values in CHF million) | 950 | 8 | 0 | 78 | 950 | 8 | ||||||||||||||||||
Financial instruments sold by pension funds or matured | ||||||||||||||||||||||||
UBS AG shares (in thousands of shares) | 1,930 | 2,752 | 4,526 | 1,881 | 1,930 | 2,752 | ||||||||||||||||||
UBS financial instruments (nominal values in CHF million) | 976 | 14 | 45 | 10 | 976 | 14 |
UBS has also leased buildings from its pension funds. The rent paid by UBS under these leases amounted to CHF 7 million in 2008, CHF 6 million in 2007 CHF 4 million in 2006 and CHF 4 million in 2005.2006.
UBS defined benefit pension plans are contained in the additional details to the fair value of plan assets. Furthermore, UBS defined contribution plans hold 14,121,23917,866,949 UBS shares with a market value of CHF 736272 million as of 31 December 2007 (2006:2008 (2007: 14,121,239 shares with a market value of CHF 736 million; 2006: 14,158,961 shares with a market value of CHF 1,043 million, 2005: 14,128,558 shares with a market value of CHF 885 million).
88338
Financial information |
3031 Equity Participationparticipation and Other Compensation Plansother compensation plans
UBS has established several equity participation plans to further align the long-term interests of executives, managers and staff with the interests of 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 describeprovide a general description of the terms of the most significant plans in general, butoffered, however specific plan rules may vary by country.
Equity participation plans
Equity Plus Plan (Equity Plus): This voluntary plan gives eligible employees the opportunity to purchase UBS shares at fair market value and generally receive at no additional cost two UBS options for each share purchased, up to a maximum annual limit. Share purchases can be made annually from bonus compensation and / and/or quarterly based on regular deductions from salary. Shares purchased under Equity Plus are restricted from sale for two years from the time of purchase. The options have a strike price equal to the fair market value of a UBS share on the date the option is granted, a two-year vesting period and generally expire ten years from the date of grant. The options are forfeitable in certain circumstances and are settled in equity, except in countries where this is not permitted for legal reasons.
the performance year, which is generally the period prior to the grant date.
shares instead of cash, on a mandatory basis. The awards granted in UBS shares or notional UBS shares are settled in equity. SEEOP awards generally vest in one-fifth increments over a five-year vesting period. These awards are forfeitable if certain conditions are not met. Compensation expense for all SEEOP awards is recognized during the performance year, which is generally the period prior to the grant date. During 2008, UBS granted to certain employees SEEOP awards with a nine-month vesting period. Compensation expense for these awards was fully recognized in 2007.
339
Financial information
Notes to the consolidated financial statements
Note 31 Equity participation and other compensation plans (continued)
a) Plans offered (continued)
period from grant to the retirement eligibility date of the employee.
Other plans:compensation plans
Executive Capital Accumulation Plan (ECAP): UBS sponsors a voluntary deferred compensation plan for selected eligible employees. Under this plan, participants are allowed to notionally invest a portion of their cash bonus in money market funds, UBS and non-UBS mutual funds and other
UBS sponsored funds. No additional company match is granted. Thegranted, the awards are generally not forfeitable and are settled in cash. This plan does not result in compensation expense for UBS.
89b) Effect on income statement and balance sheet
The total share-based compensation expense recognized for the years ended 31 December 2008, 31 December 2007 and 31 December 2006 was negative CHF 94 million, CHF 3,173 million and CHF 2,685 million, respectively. The decrease in compensation expense in 2008 as compared to prior years is primarily a result of UBS adopting the amendment to IFRS 2 Share-based Payment: Vesting Conditions and Cancellations on 1 January 2008. Furthermore, UBS amended the EOP plan rules for awards to be granted in 2009 for the year 2008 for which compensation expense related to these awards will be recognized over the vesting period rather than in the performance year. For the years ended 31 December 2008, 31 December 2007 and 31 De-
cember 2006, the compensation expense recognized for share-based payments was primarily related to equity-settled plans. At 31 December 2008, total compensation expense related to non-vested awards not yet recognized in the income statement is CHF 648 million, which is expected to be recognized in Personnel expenses over a weighted average period of 3.2 years.
340
Financial StatementsNotes to the Financial Statements
Financial information |
Movements in shares granted under Prior to 2008, UBS vested was CHF value of notional UBS shares without dividend entitlements also includes a deduction for the present value of future expected dividends to be paid between grant date and distribution. The fair value of the share awards subject to post-vesting sale and hedge restrictions is discounted based upon the duration of the post-vesting restriction. The weighted average discount for share awards granted in 2008 is approximately 19% of the market price of the UBS share. Discounts for non-vesting conditions are based on the probability that the non-vesting conditions will be achieved and the award will become exercisable. The fair value of share-based awards granted prior to 2008 was not discounted for post-vesting sale and hedge restrictions, as there was no distinction between vesting and non-vesting conditions until the IASB amended IFRS 2 effective for UBS January 2008 Share-based Payment:Vesting Conditions and Cancellations. 3413031 Equity Participationparticipation and Other Compensation Plansother compensation plans (continued)b) UBS Share Awardsvariousthe equity participation plans described in Note 30a)31a) are as follows: Weighted average Weighted Weighted Number grant Number average grant Number average grant of shares date fair of shares date fair of shares date fair 31.12.07 value CHF 31.12.06 value CHF 31.12.05 value CHF Unvested, at the beginning of the year 56,141,102 58 53,725,186 46 49,273,638 40 Shares awarded during the year 30,271,820 70 26,652,070 69 27,252,100 51 Vested during the year (25,031,819 ) 55 (22,712,566 ) 43 (21,991,760 ) 39 Forfeited during the year (2,278,523 ) 66 (1,523,588 ) 56 (808,792 ) 45 Unvested, at the end of the year 59,102,580 66 56,141,102 58 53,725,186 46 Weighted Weighted Weighted Number of average Number of average Number of average shares grant date shares grant date shares grant date 31.12.08 fair value CHF 31.12.07 fair value CHF 31.12.06 fair value CHF Forfeitable, at the beginning of the year 59,102,580 66 56,141,102 58 53,725,186 46 Shares awarded during the year 90,895,594 1,2 32 30,271,820 70 26,652,070 69 Distributions during the year (60,105,109 ) 61 (25,031,819 ) 55 (22,712,566 ) 43 Forfeited during the year (5,156,131 ) 54 (2,278,523 ) 66 (1,523,588 ) 56 Forfeitable, at the end of the year 84,736,935 53 59,102,580 66 56,141,102 58 65,767,017 47,700,903 47,345,901 estimatesestimated the grant date fair value of shares awarded during the year by using the average UBS share price on the grant date as quoted on the virtX.SWX Europe. The grant date fair value of notional UBS shares without dividend entitlements includes a deduction for the present value of future expected dividends to be paid between grant date and distribution. The market value of shares1,7371,385 million, CHF 1,5871,737 million, and CHF 1,0831,587 million for the years ended 31 December 2008, 31 December 2007, and 31 December 2006, respectively.31 December 2005, respectively.hedge restrictions and non-vesting conditions, in accordance with IFRS 2 Share-based Payment: Vesting Conditions and Cancellations. The grant date fair
Financial information
Notes to the consolidated financial statements
c)Note 31 Equity participation and other compensation plans (continued)
Movements in options granted under variousthe equity participation plans described in Note 30a)31a) are as follows:
Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||||||||||||||||||||||||||||
Number | average | Number | average | Number | average | Number of | average | Number of | Weighted | Number of | Weighted | |||||||||||||||||||||||||||||||||||||
of options | exercise | of options | exercise | of options | exercise | options | exercise price | options | average exercise | options | average exercise | |||||||||||||||||||||||||||||||||||||
31.12.07 | price CHF1 | 31.12.06 | price CHF1 | 31.12.05 | price CHF1 | 31.12.081 | CHF1,2 | 31.12.071 | price CHF1,2 | 31.12.061 | price CHF1,2 | |||||||||||||||||||||||||||||||||||||
Outstanding, at the beginning of the year | 176,779,087 | 50 | 181,765,090 | 42 | 201,814,708 | 35 | 198,213,092 | 52 | 188,393,473 | 47 | 193,707,056 | 39 | ||||||||||||||||||||||||||||||||||||
Granted during the year | 45,129,476 | 71 | 45,517,013 | 71 | 45,202,854 | 55 | 62,973,879 | 30 | 48,094,483 | 67 | 48,507,481 | 67 | ||||||||||||||||||||||||||||||||||||
Exercised during the year | (32,214,986 | ) | 38 | (47,179,386 | ) | 36 | (61,303,418 | ) | 34 | (3,673,657 | ) | 26 | (34,331,511 | ) | 36 | (50,279,072 | ) | 34 | ||||||||||||||||||||||||||||||
Forfeited during the year | (3,425,863 | ) | 66 | (3,303,002 | ) | 55 | (3,810,106 | ) | 45 | (6,732,080 | ) | 52 | (3,650,942 | ) | 62 | (3,520,009 | ) | 52 | ||||||||||||||||||||||||||||||
Expired unexercised | (274,384 | ) | 62 | (20,628 | ) | 40 | (138,948 | ) | 34 | (14,725,689 | ) | 46 | (292,411 | ) | 58 | (21,983 | ) | 38 | ||||||||||||||||||||||||||||||
Outstanding, at the end of the year | 185,993,330 | 55 | 176,779,087 | 50 | 181,765,090 | 42 | 236,055,545 | 47 | 198,213,092 | 52 | 188,393,473 | 47 | ||||||||||||||||||||||||||||||||||||
Exercisable, at the end of the year | 90,453,625 | �� | 42 | 80,312,503 | 36 | 74,788,838 | 35 | 124,054,442 | 46 | 96,396,428 | 39 | 85,589,034 | 34 |
The weighted average share price at the time when the options were exercised during the year was CHF 34, CHF 72, and CHF 71 and CHF 53 for the years ended 31 December 2007,2008, 31 De-
cember 20062007, and 31 December 2005,2006, respectively. The following table provides additional information about option awards:
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||
Intrinsic value of options exercised during the year (CHF million) | 1,046 | 1,660 | 1,224 | |||||||||
Weighted average grant date fair value of options granted (CHF) | 11.11 | 12.39 | 8.01 | |||||||||
90
Note 30 Equity Participation and Other Compensation Plans (continued)
31.12.08 | 31.12.07 | 31.12.06 | ||||||||||
Intrinsic value of options exercised during the year (CHF million) | 29 | 1,046 | 1,660 | |||||||||
Weighted average grant date fair value of options granted (CHF) | 7.53 | 10.43 | 11.63 | |||||||||
The following table summarizes additional information about options outstanding and options exercisable at 31 December 2007:2008:
Options outstanding | Options exercisable | Options outstanding | Options exercisable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted | Aggregate | average | Weighted | Aggregate | average | Weighted | Aggregate | average | Weighted | Aggregate | average | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Number | average | intrinsic value | remaining | Number | average | intrinsic value | remaining | Number of | average | intrinsic value | remaining | Number of | average | intrinsic value | remaining | |||||||||||||||||||||||||||||||||||||||||||||||||
of options | exercise price | (CHF / USD | contractual | of options | exercise price | (CHF / USD | contractual | options | exercise price | (CHF/USD | contractual | options | exercise price | (CHF/USD | contractual | |||||||||||||||||||||||||||||||||||||||||||||||||
Range of exercise price per share | outstanding | (CHF / USD) | million) | term (years) | exercisable | (CHF / USD) | million) | term (years) | outstanding | (CHF/USD) | million) | term (years) | exercisable | (CHF/USD) | million) | term (years) | ||||||||||||||||||||||||||||||||||||||||||||||||
CHF | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
26.69–40.00 | 17,461,795 | 34.25 | 317 | 4.8 | 17,241,610 | 34.27 | 312 | 4.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
14.47–25.00 | 9,612,902 | 18.31 | 1.7 | 9.8 | 0 | 0.00 | 0.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
40.01–50.00 | 14,334,889 | 46.77 | 81 | 5.5 | 14,201,947 | 46.79 | 80 | 5.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
25.01–35.00 | 49,437,156 | 31.08 | 0.0 | 8.3 | 8,966,563 | 28.22 | 0.0 | 4.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
50.01–60.00 | 24,364,314 | 52.63 | 24 | 7.4 | 11,532,651 | 51.11 | 16 | 7.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
35.01–45.00 | 27,821,969 | 39.23 | 0.0 | 5.9 | 19,023,570 | 40.68 | 0.0 | 4.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
60.01–70.00 | 5,791,089 | 64.50 | 0 | 9.0 | 607,206 | 64.34 | 0 | 8.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
45.01–55.00 | 26,011,919 | 49.18 | 0.0 | 6.0 | 22,846,437 | 48.63 | 0.0 | 5.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
70.01–78.80 | 77,760,388 | 72.25 | 0 | 8.7 | 7,841,168 | 70.45 | 0 | 8.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
55.01–65.00 | 5,398,949 | 60.31 | 0.0 | 8.0 | 2,208,584 | 61.30 | 0.0 | 7.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
26.69–78.80 | 139,712,475 | 61.14 | 422 | 7.7 | 51,424,582 | 47.38 | 408 | 6.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
65.01–75.00 | 76,929,095 | 67.85 | 0.0 | 7.7 | 30,294,459 | 66.34 | 0.0 | 7.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
14.47–75.00 | 195,211,990 | 49.32 | 1.7 | 7.5 | 83,339,613 | 51.39 | 0.0 | 5.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
USD | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4.74–20.00 | 138,622 | 14.20 | 4 | 2.1 | 138,622 | 14.20 | 4 | 2.1 | 108,301 | 13.49 | 0.3 | 1.2 | 108,301 | 13.49 | 0.3 | 1.2 | ||||||||||||||||||||||||||||||||||||||||||||||||
20.01–30.00 | 18,753,410 | 23.26 | 426 | 4.3 | 18,753,410 | 23.26 | 426 | 4.3 | 15,864,689 | 21.60 | 0.0 | 3.7 | 15,864,689 | 21.60 | 0.0 | 3.7 | ||||||||||||||||||||||||||||||||||||||||||||||||
30.01–40.00 | 10,550,084 | 36.26 | 103 | 6.3 | 10,508,448 | 36.24 | 103 | 6.3 | 9,821,977 | 34.03 | 0.0 | 5.3 | 9,821,977 | 34.03 | 0.0 | 5.3 | ||||||||||||||||||||||||||||||||||||||||||||||||
40.01–53.50 | 16,838,735 | 44.15 | 39 | 7.2 | 9,628,563 | 43.15 | 29 | 7.1 | 15,048,584 | 41.40 | 0.0 | 6.2 | 14,919,862 | 41.36 | 0.0 | 6.1 | ||||||||||||||||||||||||||||||||||||||||||||||||
4.74–53.50 | 46,280,851 | 33.79 | 572 | 5.8 | 39,029,043 | 31.63 | 562 | 5.5 | 40,843,551 | 31.86 | 0.3 | 5.0 | 40,714,829 | 31.82 | 0.3 | 5.0 |
342
Financial information |
d) ValuationNote 31 Equity participation and other compensation plans (continued)
The fair value of options is determined by means of a Monte Carlo simulation. The simulation technique uses a mix of implied and historic volatility and specific employee exercise behavior patterns based on statistical data, taking into account the specific terms and conditions under which the options are granted, such as the vesting period, forced exercises during the lifetime, and gain- and time-dependent exercise behavior. The expected term of each option is calcu-
lated as the probability-weighted average period of the time between grant and exercise. The term structure of volatility is derived from the implied volatilities of traded UBS options in combination with the observed long-term historic share price volatility. Dividends are assumed to grow at a fixed rate over the term of the option.
31.12.07 | 31.12.08 | |||||||||||||||||||||||
CHF awards | range low | range high | CHF awards | range low | range high | |||||||||||||||||||
Expected volatility (%) | 23.86 | 22.51 | 29.23 | 33.86 | 30.00 | 49.32 | ||||||||||||||||||
Risk-free interest rate (%) | 2.58 | 2.46 | 3.27 | 2.83 | 1.74 | 3.27 | ||||||||||||||||||
Expected dividend (CHF) | 3.13 | 2.20 | 4.56 | 1.85 | 1.10 | 2.57 | ||||||||||||||||||
Strike price (CHF) | 71.31 | 55.48 | 78.80 | 30.11 | 14.47 | 46.02 | ||||||||||||||||||
Share price (CHF) | 70.25 | 55.48 | 78.80 | 28.05 | 14.47 | 43.61 |
91
31.12.07 | ||||||||||||
CHF awards | range low | range high | ||||||||||
Expected volatility (%) | 23.86 | 22.51 | 29.23 | |||||||||
Risk-free interest rate (%) | 2.58 | 2.46 | 3.27 | |||||||||
Expected dividend (CHF) | 3.13 | 2.20 | 4.56 | |||||||||
Strike price (CHF)1 | 71.31 | 55.48 | 78.80 | |||||||||
Share price (CHF)1 | 70.25 | 55.48 | 78.80 | |||||||||
Financial StatementsNotes to the Financial Statements
Note 30 Equity Participation1 Not adjusted for stock dividend and Other Compensation Plans (continued)
31.12.06 | ||||||||||||
CHF awards1 | range low | range high | ||||||||||
Expected volatility (%) | 25.38 | 22.51 | 27.18 | |||||||||
Risk-free interest rate (%) | 2.15 | 1.96 | 2.68 | |||||||||
Expected dividend (CHF) | 2.26 | 1.76 | 2.83 | |||||||||
Strike price (CHF)2 | 71.19 | 65.13 | 77.33 | |||||||||
Share price (CHF)2 | 70.16 | 65.13 | 76.25 | |||||||||
31.12.06 | ||||||||||||
CHF awards1 | range low | range high | ||||||||||
Expected volatility (%) | 25.38 | 22.51 | 27.18 | |||||||||
Risk-free interest rate (%) | 2.15 | 1.96 | 2.68 | |||||||||
Expected dividend (CHF) | 2.26 | 1.76 | 2.83 | |||||||||
Strike price (CHF) | 71.19 | 65.13 | 77.33 | |||||||||
Share price (CHF) | 70.16 | 65.13 | 76.25 | |||||||||
31.12.05 | ||||||||||||||||||||||||
CHF awards | range low | range high | USD awards | range low | range high | |||||||||||||||||||
Expected volatility (%) | 23.20 | 12.39 | 27.03 | 23.36 | 15.21 | 27.21 | ||||||||||||||||||
Risk-free interest rate (%) | 2.00 | 0.62 | 2.34 | 4.11 | 1.91 | 4.63 | ||||||||||||||||||
Expected dividend (CHF / USD) | 2.30 | 1.50 | 3.89 | 1.89 | 1.22 | 4.12 | ||||||||||||||||||
Strike price (CHF / USD) | 52.08 | 48.23 | 63.23 | 44.11 | 39.25 | 48.26 | ||||||||||||||||||
Share price (CHF / USD) | 51.33 | 48.23 | 63.23 | 43.40 | 39.25 | 48.26 | ||||||||||||||||||
e) Effect on income statement and balance sheet
Generally, under IFRS, for all employee share and option awards as well as certain AIV awards, UBS recognizes compensation expense over the service period which is generally equal to the vesting period. Share and option awards typically have a three-year tiered vesting structure which means awards vest in one-third increments over that period.
come statement is CHF 1,904 million, which is expected to be recognized in Personnel expenses over a weighted average period of 2.1 years.
92
Financial information
Notes to the consolidated financial statements
Note 3132 Related Parties
The Group defines related parties as associated companies, post-employment benefit plans for the benefit of UBS employees, key management personnel, close family members of key management personnel and enterprises which are, directly or indirectly, controlled by, jointly controlled by or significantly influenced by or in which significant voting
power resides with key management personnel or their close family members. Key management personnel is defined as members of the Board of Directors (BoD) and Group Executive Board (GEB). This definition is based on the requirements of IAS 24Related Party Disclosures.Disclosures.
a) Remuneration of key management personnel
The executivenon-independent members of the BoD have top management employment contracts and receive pension benefits upon retirement. Total remuneration of the executivenon-inde-
pendent members of the BoD and GEB including those who stepped down during 20072008 is as follows:
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||
Base salaries and other cash payments | 12 | 14 | 16 | |||||||||
Incentive awards – cash | 0 | 38 | 107 | |||||||||
Employer’s contributions to retirement benefit plans | 2 | 2 | 1 | |||||||||
Benefits in kind, fringe benefits (at market value) | 1 | 2 | 2 | |||||||||
Equity compensation benefits1 | 0 | 22 | 113 | |||||||||
Total | 15 | 78 | 239 | |||||||||
For the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Base salaries and other cash payments | 14 | 16 | 15 | |||||||||
Incentive awards – cash | 38 | 107 | 90 | |||||||||
Employer’s contributions to retirement benefit plans | 2 | 1 | 1 | |||||||||
Benefits in kind, fringe benefits (at market value) | 2 | 2 | 3 | |||||||||
Equity compensation benefits1 | 22 | 113 | 2 | 121 | 2 | |||||||
Total | 78 | 239 | 230 | |||||||||
Marcel Ospel, former Chairman of the 2005 and 2006 stock option, and 2005 and 2006 total compensation figuresBoD, did not stand for membersre-election at the AGM of 23 April 2008. Stephan Haeringer, former executive vice chairman of the GEB andBoD, retired from the BoD on 2 October 2008. Marco Suter, formerly an executive membersmember of the Board of Directors.
Peter Wuffli relinquished his position as Group CEO on 6 July 2007, Clive Standish retired on 30 September 2007 and Huw JenkinsBoD, stepped down from the BoD on 1 October 2007 and thereafter acted as Group Chief Financial Officer (Group CFO) and as a member of the GEB until his stepping down from this role on 31 August 2008. While Marcel Ospel has retired from UBS as of April 2008, Stephan Haeringer and Marco Suter agreed with UBS to continue their services for UBS until their termination dates of 30 September 2007: all2009 and 31 August 2009 respectively.
Stephan Haeringer and Marco Suter announced that they voluntarily relinquished substantial parts of the payments to which they were entitled during their periods of employment with UBS until 30 September 2008.UBS. The total amount due underwaived or repaid was CHF 33 million.
45.3 million payablethose upcoming in 2009, –net of the CHF 33 million voluntarily waived or repaid, amounted to CHF 10 million. This amount has been fully accrued in 20072008 and is reflected in the 2007firm’s 2008 income statement. Of this amount, CHF 2.3 million was for Marcel Ospel, CHF 3.9 million for Stephan Haeringer and CHF 3.8 million for Marco Suter.
344
Financial information |
Note 32 Related parties (continued)
b) Equity holdings
31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||||||||||||||
Number of stock options from equity participation plans held by executive members of the BoD and the GEB1 | 6,828,152 | 10,886,798 | 10,862,250 | |||||||||||||||||||||
Number of stock options from equity participation plans held by non-independent members of the BoD and the GEB1 | 8,458,037 | 6,828,152 | 10,886,798 | |||||||||||||||||||||
Number of shares held by members of the BoD, GEB and parties closely linked to them | 6,693,012 | 7,974,724 | 8,713,984 | 5,892,548 | 6,693,012 | 7,974,724 |
Of the share totals above, at 31 December 2008, 31 December 2007 and 31 December 2006, and 31 December 2005,15,878 shares, 4,852 shares 7,146 shares and 6,5387,146 shares respectively were held by close family members of key management personnel and 2,200,000103,841 shares, 2,200,000 shares and 2,486,0602,200,000 shares respectively were held by enterprises which are directly or indirectly controlled by,
by, jointly controlled by or significantly influenced by or in which significant voting power resides with key management personnel or their close family members. Further information about UBS’s equity participation plans can be found in Note 30.31. No member of the BoD or GEB is the beneficial owner of more than 1% of the Group’s shares at 31 December 2007.2008.
93
Financial StatementsNotes to the Financial Statements
Note 31 Related Parties (continued)
c) Loans, advances and mortgages to key management personnel
Non-independent members of the BoD and GEB members have been granted loans, fixed advances and mortgages on the same terms and conditions that are available to other employees, based on terms and conditions granted to third parties adjusted for reduced credit risk. Non-executiveIndependent BoD
members are granted loans and mortgages at general market conditions.
CHF million | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | ||||||||||||
Balance at the beginning of the year | 19 | 21 | 15 | 19 | ||||||||||||
Additions | 0 | 1 | 8 | 0 | ||||||||||||
Reductions | (4 | ) | (3 | ) | (12 | ) | (4 | ) | ||||||||
Balance at the end of the year | 15 | 19 | 11 | 15 |
No unsecured loans were granted to key management personnel as of 31 December 20072008 and 31 December 2006.2007.
d) Associated companies
Movements in loans to associated companies are as follows: | Movements in loans to associated companies are as follows: | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | ||||||||||||
Balance at the beginning of the year | 375 | 321 | 220 | 375 | ||||||||||||
Additions | 60 | 116 | 171 | 60 | ||||||||||||
Reductions | (215 | ) | (48 | ) | (77 | ) | (215 | ) | ||||||||
Credit loss (expense) / recovery | 0 | 1 | ||||||||||||||
Credit loss (expense)/recovery | 0 | 0 | ||||||||||||||
Foreign currency translation | 0 | (15 | ) | (13 | ) | 0 | ||||||||||
Balance at the end of the year | 220 | 375 | 301 | 220 | ||||||||||||
Thereof unsecured loans | 56 | 177 | ||||||||||||||
thereof unsecured loans | 82 | 56 | ||||||||||||||
Thereof allowances for credit losses | 4 | 5 | ||||||||||||||
thereof allowances for credit losses | 3 | 4 |
All loans to associated companies are transacted at arm’s length.
345
Financial information
Notes to the consolidated financial statements
Note 32 Related parties (continued)
Other transactions with associated companies transacted at arm’s length are as follows:
For the year ended or as of | For the year ended or as of | |||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||||||||
Payments to associates for goods and services received | 87 | 58 | 397 | 90 | 87 | 58 | ||||||||||||||||||
Fees received for services provided to associates | 20 | 79 | 258 | 6 | 20 | 79 | ||||||||||||||||||
Commitments and contingent liabilities to associates | 33 | 32 | 40 | 33 | 32 |
Note 3334 provides a list of significant associates.
e) Other related party transactions
During 20072008 and 2006,2007, UBS entered into transactions at arm’s length with enterprises which are directly or indirectly controlled by, jointly controlled by or significantly influenced by or in which significant voting power resides with key management personnel or their close family members. In 20072008 and 2006,2007 these companies included Aebi + Co. AG (Switzer-land)(Switzerland), AC Management SA, (Switzerland), Bertarelli Family (Switzerland), BMW Group (Germany)Bertarelli Investment Ltd (Jersey) (dissolved in December 2007), DKSH Holding AG (Switzerland), Kedge Capital Funds Ltd. (Jersey)
Fiat Group (Italy), Kedge Capital Selected Funds Ltd. (Jersey), Lista AGLévy Kaufmann-Kohler (Switzerland), Limonares Ltd (Jersey) (dissolved in December 2007), Löwenfeld AG (Switzerland), Martown Trading
Ltd. (Isle of Man), Royal Dutch Shell plc (UK), Seromer Biotech SA (Switzerland, previously Bertarelli Biotech SA), Serono Group (Switzerland), Stadler Rail Group (Switzerland), Team Alinghi (Switzerland), Team Alinghi (Spain), and Unisys Corporation (USA). Related parties in 2007 also included Bertarelli Investment Ltd (Jersey), Fiat Group (Italy), Lévy Kaufmann-Kohler (Switzerland), Limonares Ltd (Jersey), Omega Fund I Ltd (Jersey), Omega Fund II Ltd (Jersey), Omega Fund III Ltd (Jersey), Omega Fund IV Ltd (Jersey), Royal Dutch Shell plc (UK), SGS Société Générale de Surveillance SA (Switzerland), Stadler Rail Group (Switzerland), Team Alinghi (Switzerland), Team Alinghi (Spain) and Walo Group (Switzerland).
94
Note 31 Related Parties (continued)
e) Other related party transactions (continued)
Movements in loans to other related parties are as follows:
CHF million | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||||||
Balance at the beginning of the year | 872 | 919 | 688 | 872 | 919 | |||||||||||||||||||
Additions | 301 | 34 | 206 | 301 | 34 | |||||||||||||||||||
Reductions | 485 | 81 | 220 | 485 | 81 | |||||||||||||||||||
Balance at the end of the year1 | 688 | 872 | 674 | 688 | 872 |
Other transactions with these related parties include:
For the year ended | ||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||||||||
Goods sold and services provided to UBS | 8 | 8 | 15 | 1 | 8 | 8 | ||||||||||||||||||
Fees received for services provided by UBS | 16 | 8 | 1 | 22 | 16 | 8 |
As part of its sponsorship of Team Alinghi, defender for the “America’s Cup 2007”, UBS paid CHF 8.9 million828,090 (EUR 5.4 million)538,000) in basic sponsoring fees for 2007. 2008.
Team Alinghi’s controlling shareholder is UBS board member Ernesto Bertarelli.
f) Additional information
UBS also engages in trading and risk management activities (e. g.(e.g. swaps, options, forwards) with various related parties mentioned in previous sections. 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 also a market maker in equity and debt instruments and at times may hold positions in instruments of related parties.
346
Financial information |
Note 32 Post-Balance Sheet Events
Mandatory Convertible Notes
pact on net profit after tax was negative CHF 1,190 million.
95
Financial StatementsNotes to the Financial Statements
Note 3334 Significant Subsidiariessubsidiaries 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 Groupsbusiness divisions of UBS (namely Investment Bank, Global Wealth Management & Business Banking and Global Asset Management) nor Corporate Center are replicated in their own individual legal entities, but rather they generally operate out of UBS AG (Parent Bank) through its Swiss and foreign branches.
the Business Groups.business divisions. It provides for the most cost-efficient and flexible structure and facilitates efficient allocation and use of capital, comprehensive risk management and control and straightforward funding processes.
Significant subsidiaries | ||||||||||||||
Jurisdiction | Share capital | Equity interest | ||||||||||||
Company | of incorporation | Business Group1 | in millions | accumulated in % | ||||||||||
Banco UBS Pactual S.A. | Rio de Janeiro, Brazil | IB | BRL | 349.6 | 100.0 | |||||||||
Crédit Industriel Société Anonyme in Liquidation | Zurich, Switzerland | Global WM&BB | CHF | 0.1 | 100.0 | |||||||||
Dillon Read U.S. Finance L.P. | Delaware, USA | IB | USD | 548.0 | 100.0 | |||||||||
Fondcenter AG | Zurich, Switzerland | Global AM | CHF | 0.1 | 100.0 | |||||||||
OOO UBS Bank | Moscow, Russia | IB | RUB | 1250.0 | 100.0 | |||||||||
PT UBS Securities Indonesia | Jakarta, Indonesia | IB | IDR | 118000.0 | 98.4 | |||||||||
Thesaurus Continentale Effekten-Gesellschaft in Zürich in Liquidation | Zurich, Switzerland | Global WM&BB | CHF | 0.1 | 100.0 | |||||||||
UBS (Bahamas) Ltd. | Nassau, Bahamas | Global WM&BB | USD | 4.0 | 100.0 | |||||||||
UBS (France) S.A. | Paris, France | Global WM&BB | EUR | 25.7 | 100.0 | |||||||||
UBS (Grand Cayman) Limited | George Town, Cayman Islands | IB | USD | 25.0 | 100.0 | |||||||||
UBS (Italia) S.p.A. | Milan, Italy | Global WM&BB | EUR | 60.0 | 100.0 | |||||||||
UBS (Luxembourg) S.A. | Luxembourg, Luxembourg | Global WM&BB | CHF | 150.0 | 100.0 | |||||||||
UBS (Monaco) S.A. | Monte Carlo, Monaco | Global WM&BB | EUR | 9.2 | 100.0 | |||||||||
UBS Alternative and Quantitative Investments Limited | London, Great Britain | Global AM | GBP | 0.3 | 100.0 | |||||||||
UBS Alternative and Quantitative Investments LLC | Delaware, USA | Global AM | USD | 0.1 | 100.0 | |||||||||
UBS Americas Inc. | Delaware, USA | IB | USD | 0.0 | 100.0 | |||||||||
UBS Asesores SA | Panama, Panama | Global WM&BB | USD | 0.0 | 100.0 | |||||||||
UBS Bank (Canada) | Toronto, Canada | Global WM&BB | CAD | 8.5 | 100.0 | |||||||||
UBS Bank Mexico, S.A. Institucion de Banca Multiple, UBS Grupo Financiero | Mexico City, Mexico | IB | MXN | 409.4 | 100.0 | |||||||||
UBS Bank USA | Utah, USA | Global WM&BB | USD | 1700.0 | 100.0 | |||||||||
UBS Bank, S.A. | Madrid, Spain | Global WM&BB | EUR | 72.2 | 100.0 | |||||||||
UBS Belgium SA / NV | Brussels, Belgium | Global WM&BB | EUR | 23.0 | 100.0 | |||||||||
UBS Capital (Jersey) Ltd. | St. Helier, Jersey | IB | GBP | 130.0 | 100.0 | |||||||||
UBS Capital B.V. | Amsterdam, the Netherlands | IB | EUR | 29.8 | 2 | 100.0 | ||||||||
UBS Card Center AG | Glattbrugg, Switzerland | Global WM&BB | CHF | 0.1 | 100.0 | |||||||||
UBS Clearing and Execution Services Limited | London, Great Britain | IB | USD | 50.0 | 100.0 | |||||||||
UBS Commodities Canada Ltd. | Toronto, Canada | IB | USD | 11.3 | 100.0 | |||||||||
UBS Derivatives Hong Kong Limited | Hong Kong, China | IB | HKD | 500.0 | 100.0 | |||||||||
UBS Deutschland AG | Frankfurt am Main, Germany | Global WM&BB | EUR | 176.0 | 100.0 | |||||||||
UBS Employee Benefits Trust Limited | St. Helier, Jersey | CC | GBP | 0.0 | 100.0 | |||||||||
UBS Energy LLC | Delaware, USA | IB | USD | 0.0 | 100.0 | |||||||||
UBS Factoring AG | Zurich, Switzerland | Global WM&BB | CHF | 5.0 | 100.0 | |||||||||
UBS Fiduciaria S.p.A. | Milan, Italy | Global WM&BB | EUR | 0.2 | 100.0 | |||||||||
UBS Fiduciary Trust Company | New Jersey, USA | Global WM&BB | USD | 4.4 | 2 | 100.0 | ||||||||
UBS Finance (Cayman Islands) Ltd. | George Town, Cayman Islands | CC | USD | 0.5 | 100.0 | |||||||||
UBS Finance (Curação) N.V. | Willemstad, Netherlands Antilles | CC | USD | 0.1 | 100.0 | |||||||||
UBS Finance (Delaware) LLC | Delaware, USA | IB | USD | 37.3 | 2 | 100.0 | ||||||||
Significant subsidiaries | ||||||||||||||
Share capital | Equity interest | |||||||||||||
Company | Jurisdiction of incorporation | Business division1 | in millions | accumulated in % | ||||||||||
Banco UBS Pactual S.A. | Rio de Janeiro, Brazil | IB | BRL | 349.6 | 100.0 | |||||||||
Caisse Centrale de Réescompte | Paris, France | Global AM | EUR | 106.3 | 100.0 | |||||||||
CCR Actions S.A. | Paris, France | Global AM | EUR | 1.1 | 100.0 | |||||||||
CCR Gestion S.A. | Paris, France | Global AM | EUR | 2.2 | 100.0 | |||||||||
Fondcenter AG | Zurich, Switzerland | Global AM | CHF | 0.1 | 100.0 | |||||||||
OOO UBS Bank | Moscow, Russia | IB | RUB | 1,250.0 | 100.0 | |||||||||
PT UBS Securities Indonesia | Jakarta, Indonesia | IB | IDR | 118,000.0 | 98.6 | |||||||||
UBS (Bahamas) Ltd. | Nassau, Bahamas | Global WM&BB | USD | 4.0 | 100.0 | |||||||||
UBS (France) S.A. | Paris, France | Global WM&BB | EUR | 50.7 | 100.0 | |||||||||
UBS (Grand Cayman) Limited | George Town, Cayman Islands | IB | USD | 25.0 | 100.0 | |||||||||
UBS (Italia) S.p.A. | Milan, Italy | Global WM&BB | EUR | 60.0 | 100.0 | |||||||||
UBS (Luxembourg) S.A. | Luxembourg, Luxembourg | Global WM&BB | CHF | 150.0 | 100.0 | |||||||||
UBS (Monaco) S.A. | Monte Carlo, Monaco | Global WM&BB | EUR | 9.2 | 100.0 | |||||||||
UBS Alternative and Quantitative Investments Limited | London, Great Britain | Global AM | GBP | 0.3 | 100.0 | |||||||||
UBS Alternative and Quantitative Investments LLC | Delaware, USA | Global AM | USD | 0.1 | 100.0 | |||||||||
UBS Americas Inc | Delaware, USA | IB | USD | 0.0 | 100.0 | |||||||||
UBS Asesores SA | Panama, Panama | Global WM&BB | USD | 0.0 | 100.0 | |||||||||
UBS Bank (Canada) | Toronto, Canada | Global WM&BB | CAD | 8.5 | 100.0 | |||||||||
UBS Bank Mexico, S.A. Institucion de Banca Multiple, UBS Grupo Financiero | Mexico City, Mexico | IB | MXN | 639.4 | 100.0 | |||||||||
96347
Financial information
Notes to the consolidated financial statements
Note 3334 Significant Subsidiariessubsidiaries and Associatesassociates (continued)
Significant subsidiaries (continued) | ||||||||||||||
Share capital | Equity interest | |||||||||||||
Company | Jurisdiction of incorporation | Business division1 | in millions | accumulated in % | ||||||||||
UBS Bank USA | Utah, USA | Global WM&BB | USD | 1,700.0 | 100.0 | |||||||||
UBS Bank, S.A. | Madrid, Spain | Global WM&BB | EUR | 77.2 | 100.0 | |||||||||
UBS Belgium SA/NV | Brussels, Belgium | Global WM&BB | EUR | 23.0 | 100.0 | |||||||||
UBS Capital (Jersey) Ltd | St. Helier, Jersey | IB | GBP | 119.0 | 100.0 | |||||||||
UBS Capital B.V. | Amsterdam, the Netherlands | IB | EUR | 8.9 | 2 | 100.0 | ||||||||
UBS Card Center AG | Glattbrugg, Switzerland | Global WM&BB | CHF | 0.1 | 100.0 | |||||||||
UBS Clearing and Execution Services Limited | London, Great Britain | IB | USD | 50.0 | 100.0 | |||||||||
UBS Convertible Securities (Jersey) Limited | St. Helier, Jersey | CC | CHF | 50.0 | 100.0 | |||||||||
UBS Derivatives Hong Kong Limited | Hong Kong, China | IB | HKD | 880.0 | 100.0 | |||||||||
UBS Deutschland AG | Frankfurt am Main, Germany | Global WM&BB | EUR | 176.0 | 100.0 | |||||||||
UBS Factoring AG | Zurich, Switzerland | Global WM&BB | CHF | 5.0 | 100.0 | |||||||||
UBS Fiduciaria S.p.A. | Milan, Italy | Global WM&BB | EUR | 0.2 | 100.0 | |||||||||
UBS Finance (Cayman Islands) Ltd. | George Town, Cayman Islands | CC | USD | 0.5 | 100.0 | |||||||||
UBS Finance (Curação) N.V. | 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 | Global WM&BB | USD | 2,005.8 | 2 | 100.0 | ||||||||
UBS Financial Services Incorporated of Puerto Rico | Hato Rey, Puerto Rico | Global WM&BB | USD | 31.0 | 2 | 100.0 | ||||||||
UBS Fund Advisor, L.L.C. | Delaware, USA | Global WM&BB | USD | 0.0 | 100.0 | |||||||||
UBS Fund Holding (Luxembourg) S.A. | 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 | 1.3 | 100.0 | |||||||||
UBS Fund Services (Luxembourg) S.A. | Luxembourg, Luxembourg | Global AM | CHF | 2.5 | 100.0 | |||||||||
UBS Fund Services (Luxembourg) S.A. Poland Branch | Zabierzow, Poland | CC | PLN | 0.1 | 100.0 | |||||||||
UBS Futures Singapore Ltd. | Singapore, Singapore | IB | USD | 39.8 | 2 | 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 (Deutschland) GmbH | Frankfurt am Main, Germany | Global AM | EUR | 7.7 | 100.0 | |||||||||
UBS Global Asset Management (France) S.A. | Paris, France | Global WM&BB | EUR | 2.3 | 100.0 | |||||||||
UBS Global Asset Management (Hong Kong) Limited | Hong Kong, China | Global AM | HKD | 25.0 | 100.0 | |||||||||
UBS Global Asset Management (Italia) SGR SpA | Milan, Italy | Global AM | EUR | 3.1 | 100.0 | |||||||||
UBS Global Asset Management (Japan) Ltd | Tokyo, Japan | Global AM | JPY | 2,200.0 | 100.0 | |||||||||
UBS Global Asset Management (Singapore) Ltd | Singapore, Singapore | Global AM | SGD | 4.0 | 100.0 | |||||||||
UBS Global Asset Management (Taiwan) Ltd | Taipei, Taiwan | Global AM | TWD | 340.0 | 100.0 | |||||||||
UBS Global Asset Management (UK) Ltd | London, Great Britain | Global AM | GBP | 68.0 | 100.0 | |||||||||
UBS Global Asset Management (US) Inc | Delaware, USA | Global AM | USD | 23.2 | 2 | 100.0 | ||||||||
UBS Global Asset Management Funds Ltd | London, Great Britain | Global AM | GBP | 19.0 | 100.0 | |||||||||
UBS Global Asset Management Holding Ltd | London, Great Britain | Global AM | GBP | 86.0 | 100.0 | |||||||||
UBS Global Asset Management Life Ltd | London, Great Britain | Global AM | GBP | 5.0 | 100.0 | |||||||||
UBS Global Life AG | Vaduz, Liechtenstein | Global WM&BB | CHF | 5.0 | 100.0 | |||||||||
UBS Global Trust Corporation | St. John, Canada | Global WM&BB | CAD | 0.1 | 100.0 | |||||||||
UBS Grupo Financiero, S.A. de C.V. | Mexico City, Mexico | IB | MXN | 851.8 | 100.0 | |||||||||
UBS Hana Asset Management Company Ltd | Seoul, South Korea | Global AM | KRW | 45,000.0 | 51.0 | |||||||||
UBS International Holdings B.V. | Amsterdam, the Netherlands | CC | EUR | 6.8 | 100.0 | |||||||||
UBS International Inc. | New York, USA | Global WM&BB | USD | 44.3 | 2 | 100.0 | ||||||||
UBS International Life Limited | Dublin, Ireland | Global WM&BB | EUR | 1.0 | 100.0 | |||||||||
UBS Investment Management Canada Inc. | Toronto, Canada | Global WM&BB | CAD | 0.0 | 100.0 | |||||||||
Significant subsidiaries (continued) | ||||||||||||||
Jurisdiction | Share capital | Equity interest | ||||||||||||
Company | of incorporation | Business Group1 | in millions | accumulated in % | ||||||||||
UBS Financial Services Inc. | Delaware, USA | Global WM&BB | USD | 2005.8 | 2 | 100.0 | ||||||||
UBS Financial Services Incorporated of Puerto Rico | Hato Rey, Puerto Rico | Global WM&BB | USD | 31.0 | 2 | 100.0 | ||||||||
UBS Fund Advisor, L.L.C. | Delaware, USA | Global WM&BB | USD | 0.0 | 100.0 | |||||||||
UBS Fund Holding (Luxembourg) S.A. | 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 | 1.3 | 100.0 | |||||||||
UBS Fund Services (Luxembourg) S.A. | Luxembourg, Luxembourg | Global AM | CHF | 2.5 | 100.0 | |||||||||
UBS Fund Services (Luxembourg) S.A. Poland Branch | Zabierzow, Poland | CC | PLN | 0.1 | 100.0 | |||||||||
UBS Futures Singapore Ltd. | Singapore, Singapore | IB | USD | 39.8 | 2 | 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 (Deutschland) GmbH | Frankfurt am Main, Germany | Global AM | EUR | 7.7 | 100.0 | |||||||||
UBS Global Asset Management (France) S.A. | Paris, France | Global 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) SGR SpA | Milan, Italy | Global AM | EUR | 3.1 | 100.0 | |||||||||
UBS Global Asset Management (Japan) Ltd. | Tokyo, Japan | Global AM | JPY | 2200.0 | 100.0 | |||||||||
UBS Global Asset Management (Singapore) Ltd. | Singapore, Singapore | Global AM | SGD | 4.0 | 100.0 | |||||||||
UBS Global Asset Management (Taiwan) Ltd. | Taipei, Taiwan | Global AM | TWD | 340.0 | 100.0 | |||||||||
UBS Global Asset Management (UK) Ltd. | London, Great Britain | Global AM | GBP | 56.0 | 100.0 | |||||||||
UBS Global Asset Management (US) Inc. | Delaware, USA | Global AM | USD | 23.2 | 2 | 100.0 | ||||||||
UBS Global Asset Management Funds Ltd. | London, Great Britain | Global AM | GBP | 11.0 | 100.0 | |||||||||
UBS Global Asset Management Holding Ltd. | London, Great Britain | Global AM | GBP | 78.0 | 100.0 | |||||||||
UBS Global Asset Management Life Ltd. | London, Great Britain | Global AM | GBP | 5.0 | 100.0 | |||||||||
UBS Global Life AG | Vaduz, Liechtenstein | Global WM&BB | CHF | 5.0 | 100.0 | |||||||||
UBS Global Trust Corporation | St. John, Canada | Global WM&BB | CAD | 0.1 | 100.0 | |||||||||
UBS Grupo Financiero, S.A. de C.V. | Mexico City, Mexico | IB | MXN | 548.8 | 100.0 | |||||||||
UBS Hana Asset Management Company Ltd. | Seoul, South Korea | Global AM | KRW | 45000.0 | 51.0 | |||||||||
UBS International Holdings B.V. | Amsterdam, the Netherlands | CC | EUR | 6.8 | 100.0 | |||||||||
UBS International Inc. | New York, USA | Global WM&BB | USD | 44.3 | 2 | 100.0 | ||||||||
UBS International Life Limited | Dublin, Ireland | Global WM&BB | EUR | 1.0 | 100.0 | |||||||||
UBS Investment Management Canada Inc. | Toronto, Canada | Global WM&BB | CAD | 0.0 | 100.0 | |||||||||
UBS Investments Philippines, Inc. | Makati City, Philippines | IB | PHP | 360.0 | 99.4 | |||||||||
UBS Italia SIM SpA | Milan, Italy | IB | EUR | 15.1 | 100.0 | |||||||||
UBS Leasing AG | Zurich, Switzerland | Global WM&BB | CHF | 10.0 | 100.0 | |||||||||
UBS Life AG | Zurich, Switzerland | Global WM&BB | CHF | 25.0 | 100.0 | |||||||||
UBS Life Insurance Company USA | California, USA | Global WM&BB | USD | 39.3 | 2 | 100.0 | ||||||||
UBS Limited | London, Great Britain | IB | GBP | 29.4 | 100.0 | |||||||||
UBS Loan Finance LLC | Delaware, USA | IB | USD | 16.7 | 100.0 | |||||||||
UBS Menkul Degerler AS | Istanbul, Turkey | IB | TRY | 0.4 | 100.0 | |||||||||
UBS New Zealand Limited | Auckland, New Zealand | IB | NZD | 7.5 | 100.0 | |||||||||
UBS O’Connor Limited | London, Great Britain | Global AM | GBP | 8.8 | 100.0 | |||||||||
UBS O’Connor LLC | Delaware, USA | Global AM | USD | 1.0 | 100.0 | |||||||||
UBS Pactual Asset Management S.A. DTVM | Rio de Janeiro, Brazil | Global AM | BRL | 73.2 | 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 IV | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||
97348
Financial StatementsNotes to the Financial Statements
Financial information |
Note 3334 Significant Subsidiariessubsidiaries and Associatesassociates (continued)
Significant subsidiaries (continued) | ||||||||||||||
Share capital | Equity interest | |||||||||||||
Company | Jurisdiction of incorporation | Business division1 | in millions | accumulated in % | ||||||||||
UBS Investments Philippines, Inc. | Makati City, Philippines | IB | PHP | 360.0 | 99.4 | |||||||||
UBS Italia SIM SpA | Milan, Italy | IB | EUR | 15.1 | 100.0 | |||||||||
UBS Leasing AG | Zurich, Switzerland | Global WM&BB | CHF | 10.0 | 100.0 | |||||||||
UBS Life AG | Zurich, Switzerland | Global WM&BB | CHF | 25.0 | 100.0 | |||||||||
UBS Life Insurance Company USA | California, USA | Global WM&BB | USD | 39.3 | 2 | 100.0 | ||||||||
UBS Limited | London, Great Britain | IB | GBP | 63.3 | 100.0 | |||||||||
UBS Loan Finance LLC | Delaware, USA | IB | USD | 16.7 | 100.0 | |||||||||
UBS Menkul Degerler AS | Istanbul, Turkey | IB | TRY | 30.0 | 100.0 | |||||||||
UBS New Zealand Limited | Auckland, New Zealand | IB | NZD | 7.5 | 100.0 | |||||||||
UBS O’Connor Limited | London, Great Britain | Global AM | GBP | 8.8 | 100.0 | |||||||||
UBS O’Connor LLC | Delaware, USA | Global AM | USD | 1.0 | 100.0 | |||||||||
UBS Pactual Asset Management S.A. DTVM | Rio de Janeiro, Brazil | Global AM | BRL | 73.2 | 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 IV | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||
UBS Preferred Funding Company LLC V | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||
UBS Real Estate Kapitalanlagegesellschaft mbH | Munich, Germany | Global AM | EUR | 7.5 | 51.0 | |||||||||
UBS Real Estate Securities Inc | Delaware, USA | IB | USD | 950.4 | 2 | 100.0 | ||||||||
UBS Realty Investors LLC | Massachusetts, USA | Global AM | USD | 9.3 | 100.0 | |||||||||
UBS Sauerborn Private Equity Komplementär GmbH | Bad Homburg, Germany | Global WM&BB | EUR | 0.0 | 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 | 100.0 | |||||||||
UBS Securities España Sociedad de Valores SA | Madrid, Spain | IB | EUR | 15.0 | 100.0 | |||||||||
UBS Securities France S.A. | Paris, France | IB | EUR | 22.9 | 100.0 | |||||||||
UBS Securities Hong Kong Limited | Hong Kong, China | IB | HKD | 430.0 | 100.0 | |||||||||
UBS Securities India Private Limited | Mumbai, India | IB | INR | 668.3 | 100.0 | |||||||||
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 LLC | Delaware, USA | IB | USD | 22,205.6 | 2 | 100.0 | ||||||||
UBS Securities Malaysia Sdn. Bhd. | Kuala Lumpur, Malaysia | IB | MYR | 75.0 | 100.0 | |||||||||
UBS Securities Philippines Inc | Makati City, Philippines | IB | PHP | 190.0 | 100.0 | |||||||||
UBS Securities Pte. Ltd. | Singapore, Singapore | IB | SGD | 311.5 | 100.0 | |||||||||
UBS Securities Pte. Ltd. Seoul Branch | Seoul, South Korea | IB | KRW | 150,000.0 | 100.0 | |||||||||
UBS Service Centre (India) Private Limited | Mumbai, India | CC | INR | 1,249.6 | 100.0 | |||||||||
UBS Service Centre (Poland) Sp. z o.o. | Krakow, Poland | CC | PLN | 0.1 | 100.0 | |||||||||
UBS Services USA LLC | Delaware, USA | Global WM&BB | USD | 0.1 | 100.0 | |||||||||
UBS South Africa (Proprietary) Limited | Sandton, South Africa | IB | ZAR | 0.0 | 100.0 | |||||||||
UBS Swiss Financial Advisers AG | Zurich, Switzerland | Global WM&BB | CHF | 1.5 | 100.0 | |||||||||
UBS Trustees (Bahamas) Ltd | Nassau, Bahamas | Global WM&BB | USD | 2.0 | 100.0 | |||||||||
UBS Trustees (Cayman) Ltd | George Town, Cayman Islands | Global WM&BB | USD | 2.0 | 100.0 | |||||||||
UBS Trustees (Jersey) Ltd. | St. Helier, Jersey | Global WM&BB | GBP | 0.0 | 100.0 | |||||||||
UBS Trustees (Singapore) Ltd | Singapore, Singapore | Global WM&BB | SGD | 3.3 | 100.0 | |||||||||
UBS UK Holding Limited | London, Great Britain | IB | GBP | 5.0 | 100.0 | |||||||||
UBS UK Properties Limited | London, Great Britain | IB | GBP | 132.0 | 100.0 | |||||||||
UBS Wealth Management (UK) Ltd | London, Great Britain | Global WM&BB | GBP | 2.5 | 100.0 | |||||||||
UBS Wealth Management Australia Ltd | Melbourne, Australia | Global WM&BB | AUD | 53.9 | 100.0 | |||||||||
UBS Trust Company National Association | New York, USA | Global WM&BB | USD | 105.0 | 2 | 100.0 | ||||||||
Vermogens Advies Holding B.V. | Amsterdam, the Netherlands | Global WM&BB | EUR | 0.3 | 100.0 | |||||||||
Significant subsidiaries (continued) | ||||||||||||||
Jurisdiction | Share capital | Equity interest | ||||||||||||
Company | of incorporation | Business Group1 | in millions | accumulated in % | ||||||||||
UBS Real Estate Investments Inc. | Delaware, USA | IB | USD | 0.0 | 100.0 | |||||||||
UBS Real Estate Kapitalanlagegesellschaft mbH | Munich, Germany | Global AM | EUR | 7.5 | 51.0 | |||||||||
UBS Real Estate Securities Inc. | Delaware, USA | IB | USD | 300.4 | 2 | 100.0 | ||||||||
UBS Realty Investors LLC | Massachusetts, USA | Global AM | USD | 9.3 | 100.0 | |||||||||
UBS Sauerborn Private Equity Komplementär GmbH | Bad Homburg, Germany | Global WM&BB | EUR | 0.0 | 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 | 100.0 | |||||||||
UBS Securities España Sociedad de Valores SA | Madrid, Spain | IB | EUR | 15.0 | 100.0 | |||||||||
UBS Securities France S.A. | Paris, France | IB | EUR | 22.9 | 100.0 | |||||||||
UBS Securities Hong Kong Limited | Hong Kong, China | IB | HKD | 430.0 | 100.0 | |||||||||
UBS Securities India Private Limited | Mumbai, India | IB | INR | 668.3 | 100.0 | |||||||||
UBS Securities International Limited | London, Great Britain | IB | GBP | 18.0 | 100.0 | |||||||||
UBS Securities Japan Ltd | George Town, Cayman Islands | IB | JPY | 60000.0 | 100.0 | |||||||||
UBS Securities Limited | London, Great Britain | IB | GBP | 140.0 | 100.0 | |||||||||
UBS Securities LLC | Delaware, USA | IB | USD | 2455.6 | 2 | 100.0 | ||||||||
UBS Securities Malaysia Sdn. Bhd. | Kuala Lumpur, Malaysia | IB | MYR | 75.0 | 100.0 | |||||||||
UBS Securities Philippines Inc. | Makati City, Philippines | IB | PHP | 190.0 | 100.0 | |||||||||
UBS Securities Pte. Ltd. | Singapore, Singapore | IB | SGD | 311.5 | 100.0 | |||||||||
UBS Securities Pte. Ltd. Seoul Branch | Seoul, South Korea | IB | KRW | 150000.0 | 100.0 | |||||||||
UBS Service Centre (Poland) Sp. z o.o. | Krakow, Poland | CC | PLN | 0.1 | 100.0 | |||||||||
UBS Services USA LLC | Delaware, USA | Global WM&BB | USD | 0.1 | 100.0 | |||||||||
UBS South Africa (Proprietary) Limited | Sandton, South Africa | IB | ZAR | 87.1 | 2 | 100.0 | ||||||||
UBS Swiss Financial Advisers AG | Zurich, Switzerland | Global WM&BB | CHF | 1.5 | 100.0 | |||||||||
UBS Trust Company National Association | New York, USA | Global WM&BB | USD | 105.0 | 2 | 100.0 | ||||||||
UBS Trustees (Bahamas) Ltd | Nassau, Bahamas | Global WM&BB | USD | 2.0 | 100.0 | |||||||||
UBS Trustees (Cayman) Ltd | George Town, Cayman Islands | Global WM&BB | USD | 2.0 | 100.0 | |||||||||
UBS Trustees (Jersey) Ltd. | St. Helier, Jersey | Global WM&BB | GBP | 0.0 | 100.0 | |||||||||
UBS Trustees (Singapore) Ltd | Singapore, Singapore | Global WM&BB | SGD | 3.3 | 100.0 | |||||||||
UBS UK Holding Limited | London, Great Britain | IB | GBP | 5.0 | 100.0 | |||||||||
UBS UK Properties Limited | London, Great Britain | IB | GBP | 100.0 | 100.0 | |||||||||
UBS Wealth Management (UK) Ltd | London, Great Britain | Global WM&BB | GBP | 2.5 | 100.0 | |||||||||
UBS Wealth Management Australia Ltd | Melbourne, Australia | Global WM&BB | AUD | 53.9 | 100.0 | |||||||||
98349
Financial information
Notes to the consolidated financial statements
Note 3334 Significant Subsidiariessubsidiaries and Associatesassociates (continued)
Consolidated companies: changes in | ||||
Significant new companies | ||||
CCR Gestion S.A. – Paris, France | ||||
UBS | ||||
UBS | ||||
UBS Service | ||||
Vermogens Advies Holding B.V. – Amsterdam, the Netherlands | ||||
Deconsolidated companies | ||||
Significant deconsolidated companies | Reason for deconsolidation | |||
Liquidated | ||||
Thesaurus Continentale Effekten-Gesellschaft in Zurich in Liquidation – Zurich, Switzerland | Liquidated | |||
UBS | Sold | |||
Significant associates | ||||||||
Company | Industry | Equity interest in % | ||||||
SIX Group AG – Zurich, Switzerland | 17.3 | |||||||
UBS | 20.0 | |||||||
50.0 | ||||||||
219 West 81st LLC – Delaware, USA | Real Estate | 50.0 | ||||||
Significant associates | |||||||||||
Company | Industry | Equity interest in % | Share capital in millions | ||||||||
SIS Swiss Financial Services Group AG – Zurich, Switzerland | Financial | 32.9 | CHF | 26 | |||||||
Telekurs Holding AG – Zurich, Switzerland | Financial | 33.3 | CHF | 45 | |||||||
UBS Securities Co. Limited, Beijing – China | Financial | 20.0 | CNY | 1,490 | |||||||
UBS Alpha Select – George Town, Cayman Islands | Private Investment Company | 20.7 | USD | 2,323 | 1 | ||||||
UBS Global Alpha Strategies XL (Multi Currency) Limited – George Town, Cayman Islands | Private Investment Company | 23.2 | USD | 164 | 1 | ||||||
Williamsburg Edge LLC – Delaware, USA | Real Estate | 50.0 | USD | 72 | |||||||
219 West 81st LLC – Wilmington – USA | Real Estate | 50.0 | USD | 56 | |||||||
Greensands Holding Limited – St. Helier, Jersey | Water Supply | 15.6 | 2 | GBP | 1,282 | ||||||
99350
Financial StatementsNotes to the Financial Statements
Financial information |
Note 3435 Invested Assetsassets and Net New Money
Invested assets include all client assets managed by or deposited with UBS for investment purposes. InvestedFor example, invested assets include 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. All assets held for purely transactional purposes and custody-only assets, including corporate client assets held for cash management and transactional purposes, are excluded from invested assets as the Group only administers the assets and does not offer advice on how the assets should be invested. Also excluded are non-bankable assets (e. g.(e.g. art collections) and deposits from third-party banks for funding or trading purposes.
distributes it. This results in double counting within UBS total invested assets, as both Business Groupsbusiness divisions are providing a service independently to their respective clients, and both add value and generate revenue.
As of or for the year ended | On or for the year ended | |||||||||||||||
CHF billion | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | ||||||||||||
Fund assets managed by UBS | 509 | 439 | 339 | 509 | ||||||||||||
Discretionary assets | 877 | 849 | 528 | 877 | ||||||||||||
Other invested assets | 1,803 | 1,701 | 1,307 | 1,803 | ||||||||||||
Total invested assets (double counts included) | 3,189 | 2,989 | 2,174 | 3,189 | ||||||||||||
thereof double count | 392 | 371 | 273 | 392 | ||||||||||||
thereof acquisitions (divestments) | 50.5 | 81.1 | 19.1 | 50.5 | ||||||||||||
Net new money (double counts included) | 140.6 | 151.7 | (226.0 | ) | 140.6 |
100351
Financial information
Notes to the consolidated financial statements
Note 3536 Business Combinationscombinations
Caisse Centrale de Réescompte Group
closing. The cost of the business combination has been allocated to intangible assets reflecting customer relationships of CHF 36 million (EUR 23 million), net assets of CHF 209 million (EUR 131 million) and goodwill of CHF 368 million (EUR 233 million). The business of CCR, which included EUR 13.3 billion of invested assets as of 31 December 2007 and approximately 190 employees, was integrated into UBS’s asset management and wealth management businesses in France.
Caisse Centrale de Réescompte Group (CCR) 2008 | |||||||||||||
CHF million | Book Value | Step-up to fair value | Fair Value | ||||||||||
Assets | |||||||||||||
Intangible assets | 0 | 36 | 36 | ||||||||||
Property and equipment | 5 | 0 | 5 | ||||||||||
Goodwill | 0 | 368 | 368 | ||||||||||
All other assets | 513 | 1 | 514 | ||||||||||
Total assets | 518 | 405 | 923 | ||||||||||
Liabilities | |||||||||||||
Total liabilities | 297 | 13 | 310 | ||||||||||
Net assets | 221 | 392 | 613 | ||||||||||
Total liabilities and equity | 518 | 405 | 923 | ||||||||||
On the acquisition date, intangible assets and goodwill were allocated to the divisions as follows:
Caisse Centrale de Réescompte Group (CCR) 2008 | |||||||||||||
Global Wealth Management & | Global Asset | ||||||||||||
CHF million | Business Banking | Management | Total | ||||||||||
Assets | |||||||||||||
Intangible assets | 10 | 26 | 36 | ||||||||||
Goodwill | 37 | 331 | 368 | ||||||||||
352
Financial information |
Note 36 Business combinations (continued)
VermogensGroep
In August 2008, UBS completed the acquisition of 100% of VermogensGroep, an independent Dutch wealth manager. The cost of the business combination, including directly attributable transaction costs, amounted to approximately CHF 171 million (EUR 105 million) out of which approximately CHF 81 million (EUR 50 million) were paid in cash upon closing. The remaining cost of the business combination is expected to be paid in installments over the next
3 years. The cost of the business combination was allocated to intangible assets of CHF 49 million (EUR 30 million), net liabilities of CHF 2.1 million (EUR 1.3 million) and goodwill of CHF 124 million (EUR 77 million). VermogensGroep serves wealthy private clients, foundations and institutions in the Dutch market and managed client assets of approximately EUR 4 billion at the time of the transaction. VermogensGroep was integrated into UBS’s wealth management business.
VermogensGroep 2008 | ||||||||||||
CHF million | Book Value | Step-up to fair value | Fair Value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 49 | 49 | |||||||||
Property and equipment | 2 | 0 | 2 | |||||||||
Goodwill | 0 | 124 | 124 | |||||||||
All other assets | 10 | 0 | 10 | |||||||||
Total assets | 12 | 173 | 185 | |||||||||
Liabilities | ||||||||||||
Total liabilities | 2 | 12 | 14 | |||||||||
Net assets | 10 | 161 | 171 | |||||||||
Total liabilities and equity | 12 | 173 | 185 | |||||||||
Acquisition announced after the balance sheet date
purchase price for the transaction is USD 15 million, payable upon closing, and additional payments of up to USD 135 million over the following 18 months, based upon future earnings of the purchased business. Closing of the transaction, expected by May 2009, is subject to a number of regulatory and other conditions. No assurance can be given that any such conditions will be satisfied.
353
Financial information
Notes to the consolidated financial statements
Note 36 Business combinations (continued)
During 2007, UBS completed two material acquisitions that were accounted for as business combinations.
McDonald Investments’ branch network
portfolios of McDonald Investments, resulting in a
total cash consideration paid of CHF 339 million (USD 278 million). The cost of the business combination was allocated to an intangible asset reflecting customer relationships of CHF 57 million (USD 47 million), remaining net assets of CHF 77 million (USD 63 million) including the net loans to customer portfolios, and goodwill of CHF 205 million (USD 168 million). The unit provides comprehensive wealth management services to affluent and high net worth individuals, including estate planning, retirement planning and asset management, and has been integrated into Wealth Management US.
CHF million | Book value | Step-up to fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 57 | 57 | |||||||||
Property and equipment | 4 | (1 | ) | 3 | ||||||||
Deferred tax assets | 0 | 10 | 10 | |||||||||
Goodwill | 0 | 205 | 205 | |||||||||
All other assets | 70 | 0 | 70 | |||||||||
Total assets | 74 | 271 | 345 | |||||||||
Liabilities | ||||||||||||
Total liabilities | 6 | 0 | 6 | |||||||||
Net assets | 68 | 271 | 339 | |||||||||
Total liabilities and equity | 74 | 271 | 345 | |||||||||
101
Financial StatementsNotes to the Financial Statements
Note 35 Business Combinations (continued)
McDonald Investments’ branch network 2007 | ||||||||||||
CHF million | Book Value | Step-up to fair value | Fair Value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 57 | 57 | |||||||||
Property and equipment | 4 | (1 | ) | 3 | ||||||||
Deferred tax assets | 0 | 10 | 10 | |||||||||
Goodwill | 0 | 205 | 205 | |||||||||
All other assets | 70 | 0 | 70 | |||||||||
Total assets | 74 | 271 | 345 | |||||||||
Liabilities | ||||||||||||
Total liabilities | 6 | 0 | 6 | |||||||||
Net assets | 68 | 271 | 339 | |||||||||
Total liabilities and equity | 74 | 271 | 345 | |||||||||
Daehan Investment Trust Management Company
lion)billion) in total and was paid in cash. The purchasepur-
chase price is subject to an earn-out clawback of up to CHF 40 million (KRW 30 billion) over the next three to five years. The acquisition costs havehad been allocated to intangible assets reflecting customer relationships of CHF 54 million, net assets of CHF 74 million and goodwill of CHF 170 million. On the acquisition date, equity attributable to minority interests was CHF 60 million. The allocation of the cost of the business combination to assets acquired and liabilities assumed is still being finalized. At closing, DIMCO managed around CHF 26.4 billion of assets (KRW 19.9 trillion).
Daehan Investment Trust Management Company 2007 | Daehan Investment Trust Management Company 2007 | |||||||||||||||||||||||
CHF million | Book value | Step-up to fair value | Fair value | Book Value | Step-up to fair value | Fair Value | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Intangible assets | 0 | 54 | 54 | 0 | 52 | 52 | ||||||||||||||||||
Goodwill | 0 | 170 | 170 | 0 | 188 | 188 | ||||||||||||||||||
All other assets | 87 | 0 | 87 | 87 | 0 | 87 | ||||||||||||||||||
Total assets | 87 | 224 | 311 | 87 | 240 | 327 | ||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Total liabilities | 13 | 0 | 13 | 13 | 14 | 27 | ||||||||||||||||||
Net assets attributable to minority interests | 36 | 24 | 60 | 36 | 22 | 58 | ||||||||||||||||||
Net assets attributable to UBS shareholders | 38 | 200 | 238 | 38 | 204 | 242 | ||||||||||||||||||
Total liabilities and equity | 87 | 224 | 311 | 87 | 240 | 327 |
102354
Financial information |
Note 3536 Business Combinationscombinations (continued)
Business combinations announced in 2007
Acquisition of significant associates in 2007
CHF 369 million (RMB 2.4 billion). The cost of the acquisition consisted of cash payments of approximately CHF 324 million (RMB 2.1 billion) including transaction costs and liabilities settled as well as the assumption of liabilities of approximately CHF 45 million (RMB 0.3 billion). On the basis of its current rights and obligations, UBS has significant influence and applies the equity method of accounting. Following approvals by Chinese regulators, UBSS commenced operations in December 2006 on the basis of a comprehensive set of securities licenses. UBSS is active in both primary and secondary domestic equities and fixed income businesses, in discretionary asset management, corporate advisory and mergers and acquisitions services, and in wealth management.
Business combinations completed in 2006
Banco Pactual S.A.
Step-up to | ||||||||||||
CHF million | Book value | fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 610 | 610 | |||||||||
Property and equipment | 9 | 0 | 9 | |||||||||
Deferred tax assets | 16 | 0 | 16 | |||||||||
Goodwill | 0 | 1,723 | 1,723 | |||||||||
All other assets | 11,877 | 0 | 11,877 | |||||||||
Total assets | 11,902 | 2,333 | 14,235 | |||||||||
Liabilities | ||||||||||||
Provisions | 52 | 0 | 52 | |||||||||
Deferred tax liabilities | 28 | 0 | 28 | |||||||||
All other liabilities | 11,363 | (35 | ) | 11,328 | ||||||||
Total liabilities | 11,443 | (35 | ) | 11,408 | ||||||||
Net assets | 459 | 2,368 | 2,827 | |||||||||
Total liabilities and equity | 11,902 | 2,333 | 14,235 | |||||||||
103
Financial StatementsNotes to the Financial Statements
Note 35 Business Combinations (continued)
On the acquisition date, intangible assets and goodwill were allocated to the Business Groups as follows:
Global Wealth Management & | Global Asset | |||||||||||||||
CHF million | Business Banking | Investment Bank | Management | Total | ||||||||||||
Assets | ||||||||||||||||
Intangible assets | 160 | 252 | 198 | 610 | ||||||||||||
Goodwill | 174 | 1,066 | 483 | 1,723 | ||||||||||||
Investment BankABN AMRO’s Global Futures and Options Business
provides clearing and execution services on a global basis. The acquired business has been integrated into the Prime Services business within the Equities business of the Investment Bank. The purchase price was allocated to net assets of CHF 429 million (USD 344 million) and intangible assets of CHF 132 million (USD 106 million). The difference of CHF 298 million (USD 237 million) from the purchase price was recognized as goodwill.
CHF million | Book value | Step-up to fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 132 | 132 | |||||||||
Property and equipment | 13 | 0 | 13 | |||||||||
Financial investments available-for-sale | 26 | 54 | 80 | |||||||||
Goodwill | 0 | 298 | 298 | |||||||||
All other assets | 11,942 | 0 | 11,942 | |||||||||
Total assets | 11,981 | 484 | 12,465 | |||||||||
Liabilities | ||||||||||||
Provisions | 0 | 9 | 9 | |||||||||
Deferred tax liabilities | 0 | 23 | 23 | |||||||||
All other liabilities | 11,574 | 0 | 11,574 | |||||||||
Total liabilities | 11,574 | 32 | 11,606 | |||||||||
Net assets | 407 | 452 | 859 | |||||||||
Total liabilities and equity | 11,981 | 484 | 12,465 | |||||||||
104
Note 35 Business Combinations (continued)
Global Wealth Management & Business BankingPiper Jaffray Companies’ Private Client Services Branch Network
120 million) representing client relationships. The difference of CHF 457 million (USD 371 million) from the purchase price was recognized as goodwill. Approximately 90 Piper Jaffray wealth management offices, mainly located in the Midwest and Western United States, serving 190,000 households, have been renamed and integrated into Wealth Management US.
Dolfi
CHF million | Book value | Step-up to fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 158 | 158 | |||||||||
Property and equipment | 16 | (4 | ) | 12 | ||||||||
Financial investments available-for-sale | 1 | 0 | 1 | |||||||||
Goodwill | 0 | 479 | 479 | |||||||||
All other assets | 291 | 0 | 291 | |||||||||
Total assets | 308 | 633 | 941 | |||||||||
Liabilities | ||||||||||||
Provisions | 0 | 8 | 8 | |||||||||
Deferred tax liabilities | 0 | 3 | 3 | |||||||||
All other liabilities | 2 | 4 | 6 | |||||||||
Total liabilities | 2 | 15 | 17 | |||||||||
Net assets | 306 | 618 | 924 | |||||||||
Total liabilities and equity | 308 | 633 | 941 | |||||||||
105
Financial StatementsNotes to the Financial Statements
Note 35 Business Combinations (continued)
Acquisitions of minority interests of subsidiaries in 2006UBS Bunting Limited
Acquisition completed after the balance sheet dateCaisse Centrale de Réescompte Group
well as approximately EUR 140 million for the excess capital of CCR at closing, reflecting provisional adjustments made during the closing process. Under the terms of the transaction, the final price for the acquisition will be determined after the closing, following determination of the actual adjustments. The business of CCR, which includes EUR 13.3 billion of invested assets as of 31 December 2007 and approximately 190 employees, will be integrated into the asset management and wealth management businesses of UBS in France.
Pro-forma information (unaudited)
uary 2006. Adjustments have been made to reflect additional amortization and depreciation of assets and liabilities, which have been assigned fair values different from their carryover bases in purchase accounting.
Pro-forma information (unaudited) | Pro-forma information (unaudited) | |||||||||||||||||||||||
For the year ended | For the year ended | |||||||||||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||||||||
Total operating income | 32,035 | 49,180 | 41,580 | 1,224 | 31,932 | 48,928 | ||||||||||||||||||
Net profit | (4,404 | ) | 12,617 | 14,070 | (20,881 | ) | (5,233 | ) | 11,887 | |||||||||||||||
Basic earnings per share (CHF) | (2.29 | ) | 6.38 | 6.99 | (7.54 | ) | (2.42 | ) | 5.35 |
106355
Financial information
Notes to the consolidated financial statements
Note 3637 Discontinued Operations
2008
Industrial holdings
2007
Industrial Holdingsholdings
Private Banksbanks & GAM
2006
Motor-Columbus
Other Industrial Holdingsholdings
107356
Financial StatementsNotes
Financial information |
Note 37 Discontinued operations (continued) | ||||||||
For the year ended 31.12.08 | ||||||||
CHF million | Private Banks & GAM | 1 | Industrial Holdings | |||||
Operating income | 0 | 19 | ||||||
Operating expenses | 0 | (15 | ) | |||||
Operating profit from discontinued operations before tax | 0 | 34 | ||||||
Pre-tax gain on sale | 44 | 120 | ||||||
Profit from discontinued operations before tax | 44 | 155 | ||||||
Tax expense on operating profit from discontinued operations before tax | 0 | 0 | ||||||
Tax expense on gain from sale | 1 | 0 | ||||||
Tax expense from discontinued operations | 1 | 0 | ||||||
Net profit from discontinued operations | 43 | 155 | ||||||
Net cash flows from | ||||||||
operating activities | 0 | (1 | ) | |||||
investing activities | 0 | 3 | ||||||
financing activities | 0 | 0 | ||||||
Note 36 Discontinued Operations (continued)
2005
Private Banks & GAM
for the remaining 1.6%. The value of the Julius Baer stake is based on a price of CHF 86.20 per share at the date of closing, which is a discount of 8.4% to the market price to take into account the 18-month lock-up period to which 19.9% of the stake is subject. Shortly after closing, UBS reduced its 21.5% stake to approximately 20.7% by settling call options that were outstanding on the shares of the former holding company of the Private Banks & GAM businesses. UBS classified the stake as a financial investment available-for-sale until its sale in 2007 (refer to Note 5 and to the year 2007 section of Private Banks & GAM in this Note). Private Banks & GAM is presented as a discontinued operation in these Financial Statements.
For the year ended 31.12.07 | ||||||||
CHF million | Private Banks & GAM1 | Industrial Holdings | ||||||
Operating income | 0 | 135 | ||||||
Operating expenses | 0 | 109 | ||||||
Operating profit from discontinued operations before tax | 0 | 26 | ||||||
Pre-tax gain on sale | 7 | 102 | ||||||
Profit from discontinued operations before tax | 7 | 128 | ||||||
Tax expense on operating profit from discontinued operations before tax | 0 | (8 | ) | |||||
Tax expense on gain on sale | (258 | ) | 0 | |||||
Tax expense from discontinued operations | (258 | ) | (8 | ) | ||||
Net profit from discontinued operations | 265 | 136 | ||||||
Net cash flows from | ||||||||
operating activities | 0 | 28 | ||||||
investing activities | 0 | 0 | ||||||
financing activities | 0 | (42 | ) | |||||
108
Note 36 Discontinued Operations (continued)
For the year ended 31.12.06 | For the year ended 31.12.07 | |||||||||||||||
Other | ||||||||||||||||
CHF million | Motor-Columbus | Industrial Holdings1 | Private Banks & GAM | 1 | Industrial Holdings | |||||||||||
Operating income | 2,494 | 741 | 0 | 394 | ||||||||||||
Operating expenses | 2,412 | 736 | 0 | 358 | ||||||||||||
Operating profit from discontinued operations before tax | 82 | 5 | 0 | 36 | ||||||||||||
Pre-tax gain on sale | 364 | 428 | 7 | 102 | ||||||||||||
Profit from discontinued operations before tax | 446 | 433 | 7 | 138 | ||||||||||||
Tax expense on operating profit from discontinued operations before tax | 11 | 0 | 0 | 0 | ||||||||||||
Tax expense on gain on sale | (23 | ) | 0 | |||||||||||||
Tax expense on gain from sale | (258 | ) | 0 | |||||||||||||
Tax expense from discontinued operations | (12 | ) | 0 | (258 | ) | 0 | ||||||||||
Net profit from discontinued operations | 458 | 433 | 265 | 138 | ||||||||||||
Net cash flows from | ||||||||||||||||
operating activities | 1 | 14 | 0 | 32 | ||||||||||||
investing activities | (52 | ) | 78 | 0 | (1 | ) | ||||||||||
financing activities | (22 | ) | (88 | ) | 0 | (42 | ) |
For the year ended 31.12.06 | ||||||||
CHF million | Motor-Columbus | Other Industrial Holdings | 1 | |||||
Operating income | 2,494 | 993 | ||||||
Operating expenses | 2,412 | 979 | ||||||
Operating profit from discontinued operations before tax | 82 | 14 | ||||||
Pre-tax gain on sale | 364 | 428 | ||||||
Profit from discontinued operations before tax | 446 | 442 | ||||||
Tax expense on operating profit from discontinued operations before tax | 11 | 1 | ||||||
Tax expense on gain from sale | (23 | ) | 0 | |||||
Tax expense from discontinued operations | (12 | ) | 1 | |||||
Net profit from discontinued operations | 458 | 441 | ||||||
Net cash flows from | ||||||||
operating activities | 1 | 16 | ||||||
investing activities | (52 | ) | 73 | |||||
financing activities | (22 | ) | (88 | ) | ||||
357
For the year ended 31.12.05 | ||||||||||||
Other | ||||||||||||
CHF million | Private Banks & GAM | Motor-Columbus | Industrial Holdings | |||||||||
Operating income | 1,102 | 8,711 | 2,551 | |||||||||
Operating expenses | 633 | 8,323 | 2,522 | |||||||||
Operating profit from discontinued operations before tax | 469 | 388 | 29 | |||||||||
Pre-tax gain on sale | 4,095 | 0 | 113 | |||||||||
Profit from discontinued operations before tax | 4,564 | 388 | 142 | |||||||||
Tax expense on operating profit from discontinued operations before tax | 99 | 65 | 28 | |||||||||
Tax expense on gain on sale | 390 | 0 | 0 | |||||||||
Tax expense from discontinued operations | 489 | 65 | 28 | |||||||||
Net profit from discontinued operations | 4,075 | 323 | 114 | |||||||||
Net cash flows from | ||||||||||||
operating activities | (143 | ) | 252 | 92 | ||||||||
investing activities | (22 | ) | (326 | ) | (47 | ) | ||||||
financing activities | 0 | 163 | 29 | |||||||||
Financial information
Notes to the consolidated financial statements
Note 3738 Reorganizations and disposals
Reorganizations
Repositioning of the investment bank
Disposals
Sale of assets to a third-party fund controlled by the
Swiss National Bank (SNB)
358
Financial information |
Note 38 Reorganizations and disposals (continued)
income. The fair value of the contingent share issue was estimated at approximately CHF 607 million and will not hereafter be re-measured to fair value.
Disposal of equity interest in Adams Street Partners
Disposal of financial investment in Bank of China
359
Financial information
Notes to the consolidated financial statements
Note 39 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 of | Year ended | Spot rate | Average rate | |||||||||||||||||||||||||||||||||||||
31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.05 | As of | Year ended | ||||||||||||||||||||||||||||||||||
31.12.08 | 31.12.07 | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||||||||||||||
1 USD | 1.13 | 1.22 | 1.22 | 1.25 | 1.25 | 1.07 | 1.13 | 1.06 | 1.22 | 1.25 | ||||||||||||||||||||||||||||||
1 EUR | 1.65 | 1.61 | 1.65 | 1.58 | 1.55 | 1.49 | 1.65 | 1.58 | 1.65 | 1.58 | ||||||||||||||||||||||||||||||
1 GBP | 2.25 | 2.39 | 2.31 | 2.31 | 2.27 | 1.56 | 2.25 | 1.96 | 2.31 | 2.31 | ||||||||||||||||||||||||||||||
100 JPY | 1.02 | 1.02 | 1.02 | 1.08 | 1.13 | 1.17 | 1.02 | 0.98 | 1.02 | 1.08 |
109
Financial StatementsNotes to the Financial Statements
Note 3840 Swiss Banking Law Requirements
The consolidated Financial Statements of UBS are prepared in accordance with International Financial Reporting Standards.Standards (IFRS). The Guidelines of the Swiss Financial Market Supervisory Authority (FINMA) require banks which present their financial statements under IFRS to provide a narrative explanation of the main differences between IFRS and Swiss GAAP (FINMA circular 08/2) and the Banking Ordinance. Included in this note are the significant differences in regard to recognition and measurement between IFRS and the provisions of the Banking Ordinance and the Guidelines of the Swiss Banking CommissionFINMA governing financial statement reporting pursuant to Article 23 through Article 27 of the Banking Ordinance. The differences outlined in points two through nine also apply to the Parent Bank statutory accounts.
1. Consolidation
2. Financial investments available-for-sale
3. Cash flow hedges
4. Investment property
360
Financial information |
Note 40 Swiss banking law requirements (continued)
5. Fair value option
6. Goodwill and intangible assets
7. Discontinued operations
8. Extraordinary income and expense
9. Netting of replacement values
361
110
Note 39 Additional Disclosures Required under SEC RulesNote 39.1 Industrial Holdings’ Income Statement
From 1 July 2004, UBS held a majority ownership interest in Motor-Columbus and consolidated it in its Financial Statements. Motor-Columbus was sold on 23 March 2006, and it is presented below as a discontinued operation in the income statements for the years ended 31 December 2006 and 31 December 2005. Refer to Note 36 Discontinued Operations for further information.
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.
As of or for | ||||||||||||
the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Operating income | ||||||||||||
Net Sales | 268 | 262 | 229 | |||||||||
Operating expenses | ||||||||||||
Cost of products sold | 229 | 220 | 196 | |||||||||
Marketing expenses | 2 | 2 | 2 | |||||||||
General and administrative expenses | 14 | 20 | 22 | |||||||||
Amortization of intangible assets | 6 | 5 | 6 | |||||||||
Other operating expenses | 161 | 63 | 118 | |||||||||
Total operating expenses | 412 | 310 | 344 | |||||||||
Operating profit | (144 | ) | (48 | ) | (115 | ) | ||||||
Non-operating profit | ||||||||||||
Interest income | 6 | 0 | 6 | |||||||||
Interest expense | (9 | ) | (44 | ) | (54 | ) | ||||||
Other non-operating income, net | 708 | 336 | 589 | |||||||||
Non-operating profit | 705 | 292 | 541 | |||||||||
Net profit from continuing operations before tax | 561 | 244 | 426 | |||||||||
Tax expense | 36 | 34 | 169 | |||||||||
Equity in income of associates, net of tax | (25 | ) | 11 | 25 | ||||||||
Net profit from continuing operations | 500 | 221 | 282 | |||||||||
Net profit from discontinued operations | 136 | 887 | 437 | |||||||||
Net profit | 636 | 1,108 | 719 | |||||||||
Net profit attributable to minority interests | 50 | 104 | 207 | |||||||||
Net profit attributable to UBS shareholders | 586 | 1,004 | 512 | |||||||||
Accounts receivable trade, gross | 27 | 103 | ||||||||||
Allowance for doubtful receivables | (2 | ) | (7 | ) | ||||||||
Accounts receivables trade, net | 25 | 96 | ||||||||||
111
Financial Statementsinformation
Notes to the Financial Statements
consolidated financial statements
Guarantee of PaineWebber securities
ceedingproceeding against UBS Americas Inc. UBS’s obligations under the subordinated note guarantee are subordinated to the prior payment in full of the deposit liabilities of UBS and all other liabilities of UBS. At 31 December 2007, the amount of senior liabilities of UBS to which the holders of the subordinated debt securities would be subordinated is approximately CHF 2,215 billion.
Supplemental Guarantor Consolidating Income Statement | Supplemental Guarantor Consolidating Income Statement | Supplemental Guarantor Consolidating Income Statement | ||||||||||||||||||||||||||||||||||||||
CHF million | UBS AG | UBS | Consolidating | UBS AG | UBS | Consolidating | ||||||||||||||||||||||||||||||||||
For the year ended 31 December 2007 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||||||||||||||||||||||
For the year ended 31 December 2008 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||||||||||||||||||||||
Operating income | ||||||||||||||||||||||||||||||||||||||||
Interest income | 77,306 | 47,747 | 51,985 | (67,926 | ) | 109,112 | 49,699 | 21,343 | 27,565 | (32,717 | ) | 65,890 | ||||||||||||||||||||||||||||
Interest expense | (74,689 | ) | (46,420 | ) | (50,592 | ) | 67,926 | (103,775 | ) | (48,686 | ) | (17,436 | ) | (26,282 | ) | 32,717 | (59,687 | ) | ||||||||||||||||||||||
Net interest income | 2,617 | 1,327 | 1,393 | 0 | 5,337 | 1,013 | 3,907 | 1,283 | 0 | 6,203 | ||||||||||||||||||||||||||||||
Credit loss (expense) / recovery | 11 | (234 | ) | (15 | ) | 0 | (238 | ) | (861 | ) | (2,050 | ) | (85 | ) | 0 | (2,996 | ) | |||||||||||||||||||||||
Net interest income after credit loss expense | 2,628 | 1,093 | 1,378 | 0 | 5,099 | 152 | 1,857 | 1,198 | 0 | 3,207 | ||||||||||||||||||||||||||||||
Net fee and commission income | 12,852 | 10,119 | 7,663 | 0 | 30,634 | 9,709 | 7,910 | 5,310 | 0 | 22,929 | ||||||||||||||||||||||||||||||
Net trading income | 3,467 | (9,932 | ) | (1,888 | ) | 0 | (8,353 | ) | (8,129 | ) | (19,847 | ) | 2,158 | 0 | (25,818 | ) | ||||||||||||||||||||||||
Income from subsidiaries | 602 | 0 | 0 | (602 | ) | 0 | (19,477 | ) | 0 | 0 | 19,477 | 0 | ||||||||||||||||||||||||||||
Other income | (4,273 | ) | 8,369 | 236 | 0 | 4,332 | 2,836 | 1,058 | (3,010 | ) | 0 | 884 | ||||||||||||||||||||||||||||
Revenues from industrial holdings | 0 | 0 | 268 | 0 | 268 | |||||||||||||||||||||||||||||||||||
Total operating income | 15,276 | 9,649 | 7,657 | (602 | ) | 31,980 | (14,909 | ) | (9,022 | ) | 5,656 | 19,477 | 1,201 | |||||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||||||||||
Personnel expenses | 12,611 | 8,307 | 3,880 | 0 | 24,798 | 8,738 | 5,169 | 2,355 | 0 | 16,262 | ||||||||||||||||||||||||||||||
General and administrative expenses | 5,684 | 3,446 | (665 | ) | 0 | 8,465 | 3,918 | 4,604 | 1,976 | 0 | 10,498 | |||||||||||||||||||||||||||||
Depreciation of property and equipment | 930 | 138 | 183 | 0 | 1,251 | 770 | 205 | 266 | 0 | 1,241 | ||||||||||||||||||||||||||||||
Impairment of goodwill | 0 | 341 | 0 | 0 | 341 | |||||||||||||||||||||||||||||||||||
Amortization of intangible assets | 3 | 101 | 178 | 0 | 282 | 1 | 93 | 119 | 0 | 213 | ||||||||||||||||||||||||||||||
Goods and materials purchased | 0 | 0 | 119 | 0 | 119 | |||||||||||||||||||||||||||||||||||
Total operating expenses | 19,228 | 11,992 | 3,695 | 0 | 34,915 | 13,427 | 10,412 | 4,716 | 0 | 28,555 | ||||||||||||||||||||||||||||||
Operating profit from continuing operations before tax | (3,952 | ) | (2,343 | ) | 3,962 | (602 | ) | (2,935 | ) | (28,336 | ) | (19,434 | ) | 940 | 19,477 | (27,353 | ) | |||||||||||||||||||||||
Tax expense / (benefit) | 697 | (486 | ) | 1,100 | 0 | 1,311 | ||||||||||||||||||||||||||||||||||
Tax expense | (7,407 | ) | (4 | ) | 574 | 0 | (6,837 | ) | ||||||||||||||||||||||||||||||||
Net profit / (loss) from continuing operations | (4,649 | ) | (1,857 | ) | 2,862 | (602 | ) | (4,246 | ) | |||||||||||||||||||||||||||||||
Net profit from continuing operations | (20,930 | ) | (19,430 | ) | 366 | 19,477 | (20,517 | ) | ||||||||||||||||||||||||||||||||
Net profit / (loss) from discontinued operations | 265 | 0 | 136 | 0 | 401 | |||||||||||||||||||||||||||||||||||
Net profit from discontinued operations | 43 | 0 | 155 | 0 | 198 | |||||||||||||||||||||||||||||||||||
Net profit / (loss) | (4,384 | ) | (1,857 | ) | 2,998 | (602 | ) | (3,845 | ) | |||||||||||||||||||||||||||||||
Net profit | (20,887 | ) | (19,430 | ) | 521 | 19,477 | (20,319 | ) | ||||||||||||||||||||||||||||||||
Net profit / (loss) attributable to minority interests | 0 | 18 | 521 | 0 | 539 | |||||||||||||||||||||||||||||||||||
Net profit attributable to minority interests | 0 | (9 | ) | 577 | 0 | 568 | ||||||||||||||||||||||||||||||||||
Net profit / (loss) attributable to UBS shareholders | (4,384 | ) | (1,875 | ) | 2,477 | (602 | ) | (4,384 | ) | |||||||||||||||||||||||||||||||
Net profit attributable to UBS shareholders | (20,887 | ) | (19,421 | ) | (56 | ) | 19,477 | (20,887 | ) |
362
Financial information |
Supplemental guarantor consolidating balance sheet | ||||||||||||||||||||
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
As of 31 December 2008 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 27,030 | 332 | 5,382 | 0 | 32,744 | |||||||||||||||
Due from banks | 111,563 | 11,490 | 192,206 | (250,808 | ) | 64,451 | ||||||||||||||
Cash collateral on securities borrowed | 48,874 | 109,783 | 16,914 | (52,674 | ) | 122,897 | ||||||||||||||
Reverse repurchase agreements | 206,087 | 79,178 | 145,851 | (206,468 | ) | 224,648 | ||||||||||||||
Trading portfolio assets | 183,303 | 54,973 | 50,638 | (17,076 | ) | 271,838 | ||||||||||||||
Trading portfolio assets pledged as collateral | 33,445 | 5,240 | 1,531 | 0 | 40,216 | |||||||||||||||
Positive replacement values | 862,459 | 18,215 | 293,896 | (320,470 | ) | 854,100 | ||||||||||||||
Financial assets designated at fair value | 5,120 | 7,755 | 12,741 | (12,734 | ) | 12,882 | ||||||||||||||
Loans | 326,548 | 53,774 | 35,193 | (75,207 | ) | 340,308 | ||||||||||||||
Financial investments available-for-sale | 1,237 | 638 | 3,373 | 0 | 5,248 | |||||||||||||||
Accrued income and prepaid expenses | 3,684 | 2,700 | 2,666 | (2,909 | ) | 6,141 | ||||||||||||||
Investments in associates | 66,660 | 58 | 50 | (65,878 | ) | 892 | ||||||||||||||
Property and equipment | 5,093 | 971 | 642 | 0 | 6,706 | |||||||||||||||
Goodwill and intangible assets | 250 | 9,393 | 3,292 | 0 | 12,935 | |||||||||||||||
Other assets | 15,541 | 3,905 | 7,132 | (7,484 | ) | 19,094 | ||||||||||||||
Total assets | 1,896,894 | 358,405 | 771,507 | (1,011,708 | ) | 2,015,098 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 196,723 | 68,213 | 111,500 | (250,808 | ) | 125,628 | ||||||||||||||
Cash collateral on securities lent | 25,248 | 32,884 | 8,605 | (52,674 | ) | 14,063 | ||||||||||||||
Repurchase agreements | 30,988 | 140,197 | 137,844 | (206,468 | ) | 102,561 | ||||||||||||||
Trading portfolio liabilities | 51,034 | 17,086 | 11,387 | (17,076 | ) | 62,431 | ||||||||||||||
Negative replacement values | 855,005 | 16,792 | 300,476 | (320,470 | ) | 851,803 | ||||||||||||||
Financial liabilities designated at fair value | 88,505 | 1,716 | 24,059 | (12,734 | ) | 101,546 | ||||||||||||||
Due to customers | 422,688 | 70,242 | 57,051 | (75,207 | ) | 474,774 | ||||||||||||||
Accrued expenses and deferred income | 7,417 | 2,584 | 3,104 | (2,909 | ) | 10,196 | ||||||||||||||
Debt issued | 127,408 | 2,439 | 67,407 | 0 | 197,254 | |||||||||||||||
Other liabilities | 12,598 | 4,313 | 24,613 | (7,484 | ) | 34,040 | ||||||||||||||
Total liabilities | 1,817,614 | 356,466 | 746,046 | (945,830 | ) | 1,974,296 | ||||||||||||||
Equity attributable to UBS shareholders | 79,280 | (1,097 | ) | 20,495 | (65,878 | ) | 32,800 | |||||||||||||
Equity attributable to minority interests | 0 | 3,036 | 4,966 | 0 | 8,002 | |||||||||||||||
Total equity | 79,280 | 1,939 | 25,461 | (65,878 | ) | 40,802 | ||||||||||||||
Total liabilities and equity | 1,896,894 | 358,405 | 771,507 | (1,011,708 | ) | 2,015,098 | ||||||||||||||
363
Financial information
Notes to the consolidated financial statements
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidating cash flow statement | |||||||||||||||||
CHF million | UBS AG | UBS | |||||||||||||||
For the year ended 31 December 2008 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | |||||||||||||
Net cash flow from/(used in) operating activities | 69,772 | (438 | ) | 7,838 | 77,172 | ||||||||||||
Cash flow from/(used in) investing activities | |||||||||||||||||
Investments in subsidiaries and associates | (1,502 | ) | 0 | 0 | (1,502 | ) | |||||||||||
Disposal of subsidiaries and associates | 1,686 | 0 | 0 | 1,686 | |||||||||||||
Purchase of property and equipment | (819 | ) | (258 | ) | (140 | ) | (1,217 | ) | |||||||||
Disposal of property and equipment | 37 | 27 | 5 | 69 | |||||||||||||
Net (investment in)/divestment of financial investments available-for-sale | 330 | 156 | (1,198 | ) | (712 | ) | |||||||||||
Net cash flow from/(used in) investing activities | (268 | ) | (75 | ) | (1,333 | ) | (1,676 | ) | |||||||||
Cash flow from/(used in) financing activities | |||||||||||||||||
Net money market paper issued/(repaid) | (52,815 | ) | 914 | 11,264 | (40,637 | ) | |||||||||||
Net movements in treasury shares and own equity derivative activity | 623 | 0 | 0 | 623 | |||||||||||||
Capital issuance | 23,135 | 0 | 0 | 23,135 | |||||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 91,961 | 0 | 11,126 | 103,087 | |||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (62,822 | ) | (14,500 | ) | (15,572 | ) | (92,894 | ) | |||||||||
Increase in minority interests | 0 | 842 | 819 | 1,661 | |||||||||||||
Dividends paid to/decrease in minority interests | 0 | (112 | ) | (420 | ) | (532 | ) | ||||||||||
Net activity in investments in subsidiaries | (11,978 | ) | 21,816 | (9,838 | ) | 0 | |||||||||||
Net cash flow from/(used in) financing activities | (11,896 | ) | 8,960 | (2,621 | ) | (5,557 | ) | ||||||||||
Effects of exchange rate differences | (33,963 | ) | 442 | (5,857 | ) | (39,378 | ) | ||||||||||
Net increase/(decrease) in cash equivalents | 23,645 | 8,889 | (1,973 | ) | 30,561 | ||||||||||||
Cash and cash equivalents, beginning of the year | 109,110 | 15,532 | 24,463 | 149,105 | |||||||||||||
Cash and cash equivalents, end of the year | 132,755 | 24,421 | 22,490 | 179,666 | |||||||||||||
Cash and cash equivalents comprise: | |||||||||||||||||
Cash and balances with central banks | 27,030 | 332 | 5,382 | 32,744 | |||||||||||||
Money market paper2 | 62,777 | 19,875 | 4,080 | 86,732 | |||||||||||||
Due from banks with original maturity of less than three months | 42,948 | 4,214 | 13,028 | 60,190 | |||||||||||||
Total | 132,755 | 24,421 | 22,490 | 179,666 | |||||||||||||
364
Financial information |
Note 41 Supplemental guarantor information required under SEC rules (continued) | ||||||||||||||||||||
Supplemental guarantor consolidating income statement | ||||||||||||||||||||
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2007 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 77,306 | 47,747 | 51,985 | (67,926 | ) | 109,112 | ||||||||||||||
Interest expense | (74,689 | ) | (46,420 | ) | (50,592 | ) | 67,926 | (103,775 | ) | |||||||||||
Net interest income | 2,617 | 1,327 | 1,393 | 0 | 5,337 | |||||||||||||||
Credit loss (expense)/recovery | 11 | (234 | ) | (15 | ) | 0 | (238 | ) | ||||||||||||
Net interest income after credit loss expense | 2,628 | 1,093 | 1,378 | 0 | 5,099 | |||||||||||||||
Net fee and commission income | 12,852 | 10,119 | 7,663 | 0 | 30,634 | |||||||||||||||
Net trading income | 3,467 | (9,932 | ) | (1,888 | ) | 0 | (8,353 | ) | ||||||||||||
Income from subsidiaries | 464 | 0 | 0 | (464 | ) | 0 | ||||||||||||||
Other income | (4,273 | ) | 8,369 | 245 | 0 | 4,341 | ||||||||||||||
Total operating income | 15,138 | 9,649 | 7,398 | (464 | ) | 31,721 | ||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 13,239 | 8,329 | 3,947 | 0 | 25,515 | |||||||||||||||
General and administrative expenses | 5,684 | 3,446 | (701 | ) | 0 | 8,429 | ||||||||||||||
Depreciation of property and equipment | 930 | 138 | 175 | 0 | 1,243 | |||||||||||||||
Amortization of intangible assets | 3 | 101 | 172 | 0 | 276 | |||||||||||||||
Total operating expenses | 19,856 | 12,014 | 3,593 | 0 | 35,463 | |||||||||||||||
Operating profit from continuing operations before tax | (4,718 | ) | (2,365 | ) | 3,805 | (464 | ) | (3,742 | ) | |||||||||||
Tax expense | 794 | (486 | ) | 1,061 | 0 | 1,369 | ||||||||||||||
Net profit from continuing operations | (5,512 | ) | (1,879 | ) | 2,744 | (464 | ) | (5,111 | ) | |||||||||||
Net profit from discontinued operations | 265 | 0 | 138 | 0 | 403 | |||||||||||||||
Net profit | (5,247 | ) | (1,879 | ) | 2,882 | (464 | ) | (4,708 | ) | |||||||||||
Net profit attributable to minority interests | 0 | 18 | 521 | 0 | 539 | |||||||||||||||
Net profit attributable to UBS shareholders | (5,247 | ) | (1,897 | ) | 2,361 | (464 | ) | (5,247 | ) | |||||||||||
365
Financial information
Notes to the consolidated financial statements
Note 41 Supplemental guarantor information required under SEC rules (continued) | ||||||||||||||||||||
Supplemental guarantor consolidating balance sheet | ||||||||||||||||||||
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
On 31 December 2007 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 8,530 | 109 | 10,154 | 0 | 18,793 | |||||||||||||||
Due from banks | 154,138 | 16,530 | 200,488 | (310,249 | ) | 60,907 | ||||||||||||||
Cash collateral on securities borrowed | 117,312 | 166,479 | 53,672 | (130,400 | ) | 207,063 | ||||||||||||||
Reverse repurchase agreements | 292,839 | 106,775 | 266,470 | (289,156 | ) | 376,928 | ||||||||||||||
Trading portfolio assets | 297,100 | 170,977 | 84,884 | 107,221 | 660,182 | |||||||||||||||
Trading portfolio assets pledged as collateral | 161,071 | 55,842 | 4,498 | (107,221 | ) | 114,190 | ||||||||||||||
Positive replacement values | 436,271 | 16,770 | 192,144 | (216,968 | ) | 428,217 | ||||||||||||||
Financial assets designated at fair value | 5,510 | 7,149 | 8,421 | (9,315 | ) | 11,765 | ||||||||||||||
Loans | 370,274 | 41,398 | 43,584 | (119,392 | ) | 335,864 | ||||||||||||||
Financial investments available-for-sale | 2,611 | 980 | 1,375 | 0 | 4,966 | |||||||||||||||
Accrued income and prepaid expenses | 7,379 | 4,369 | 4,883 | (4,678 | ) | 11,953 | ||||||||||||||
Investments in associates | 28,049 | 139 | 150 | (26,359 | ) | 1,979 | ||||||||||||||
Property and equipment | 5,352 | 959 | 923 | 0 | 7,234 | |||||||||||||||
Goodwill and intangible assets | 276 | 10,516 | 3,746 | 0 | 14,538 | |||||||||||||||
Other assets | 15,848 | 5,135 | 4,951 | (5,622 | ) | 20,312 | ||||||||||||||
Total assets | 1,902,560 | 604,127 | 880,343 | (1,112,139 | ) | 2,274,891 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 246,977 | 114,066 | 94,968 | (310,249 | ) | 145,762 | ||||||||||||||
Cash collateral on securities lent | 45,055 | 64,281 | 52,685 | (130,400 | ) | 31,621 | ||||||||||||||
Repurchase agreements | 105,750 | 238,880 | 250,413 | (289,156 | ) | 305,887 | ||||||||||||||
Trading portfolio liabilities | 111,955 | 51,904 | 929 | 0 | 164,788 | |||||||||||||||
Negative replacement values | 456,631 | 16,333 | 187,543 | (216,968 | ) | 443,539 | ||||||||||||||
Financial liabilities designated at fair value | 146,701 | 14,947 | 39,520 | (9,315 | ) | 191,853 | ||||||||||||||
Due to customers | 555,694 | 87,534 | 118,056 | (119,392 | ) | 641,892 | ||||||||||||||
Accrued expenses and deferred income | 13,276 | 8,242 | 5,310 | (4,678 | ) | 22,150 | ||||||||||||||
Debt issued | 168,266 | 3,478 | 50,333 | 0 | 222,077 | |||||||||||||||
Other liabilities | 19,524 | 5,511 | 42,083 | (5,622 | ) | 61,496 | ||||||||||||||
Total liabilities | 1,869,829 | 605,176 | 841,840 | (1,085,780 | ) | 2,231,065 | ||||||||||||||
Equity attributable to UBS shareholders | 32,731 | (3,373 | ) | 33,876 | (26,359 | ) | 36,875 | |||||||||||||
Equity attributable to minority interests | 0 | 2,324 | 4,627 | 0 | 6,951 | |||||||||||||||
Total equity | 32,731 | (1,049 | ) | 38,503 | (26,359 | ) | 43,826 | |||||||||||||
Total liabilities and equity | 1,902,560 | 604,127 | 880,343 | (1,112,139 | ) | 2,274,891 | ||||||||||||||
366
Financial information |
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidating cash flow statement | ||||||||||||||||
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2007 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | ||||||||||||
Net cash flow from/(used in) operating activities | (65,749 | ) | 19,670 | (5,999 | ) | (52,078 | ) | |||||||||
Cash flow from/(used in) investing activities | ||||||||||||||||
Investments in subsidiaries and associates | (2,337 | ) | 0 | 0 | (2,337 | ) | ||||||||||
Disposal of subsidiaries and associates | 885 | 0 | 0 | 885 | ||||||||||||
Purchase of property and equipment | (1,022 | ) | (581 | ) | (307 | ) | (1,910 | ) | ||||||||
Disposal of property and equipment | 40 | 28 | 66 | 134 | ||||||||||||
Net (investment in)/divestment of financial investments available-for-sale | 4,027 | 34 | 1,920 | 5,981 | ||||||||||||
Net cash flow from/(used in) investing activities | 1,593 | (519 | ) | 1,679 | 2,753 | |||||||||||
Cash flow from/(used in) financing activities | ||||||||||||||||
Net money market paper issued/(repaid) | 35,017 | (1,426 | ) | (919 | ) | 32,672 | ||||||||||
Net movements in treasury shares and own equity derivative activity | (2,771 | ) | 0 | 0 | (2,771 | ) | ||||||||||
Dividends paid | (4,275 | ) | 0 | 0 | (4,275 | ) | ||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 105,197 | 1,022 | 4,655 | 110,874 | ||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (54,251 | ) | (7,022 | ) | (1,134 | ) | (62,407 | ) | ||||||||
Increase in minority interests | 0 | 32 | 1,062 | 1,094 | ||||||||||||
Dividends paid to/decrease in minority interests | 0 | (665 | ) | 46 | (619 | ) | ||||||||||
Net activity in investments in subsidiaries | 871 | (6,627 | ) | 5,756 | 0 | |||||||||||
Net cash flow from/(used in) financing activities | 79,788 | (14,686 | ) | 9,466 | 74,568 | |||||||||||
Effects of exchange rate differences | (9,070 | ) | (3,062 | ) | (96 | ) | (12,228 | ) | ||||||||
Net increase/(decrease) in cash equivalents | 6,562 | 1,403 | 5,050 | 13,015 | ||||||||||||
Cash and cash equivalents, beginning of the year | 102,548 | 14,129 | 19,413 | 136,090 | ||||||||||||
Cash and cash equivalents, end of the year | 109,110 | 15,532 | 24,463 | 149,105 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 8,530 | 109 | 10,154 | 18,793 | ||||||||||||
Money market paper2 | 60,266 | 13,202 | 3,747 | 77,215 | ||||||||||||
Due from banks with original maturity of less than three months | 40,314 | 2,221 | 10,562 | 53,097 | ||||||||||||
Total | 109,110 | 15,532 | 24,463 | 149,105 | ||||||||||||
367
Financial information
Notes to the consolidated financial statements
Note 41 Supplemental guarantor information required under SEC rules (continued) | ||||||||||||||||||||
Supplemental guarantor consolidating income statement | ||||||||||||||||||||
CHF million | UBS AG Parent | Consolidating | ||||||||||||||||||
For the year ended 31 December 2006 | Bank1 | UBS Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 60,057 | 42,667 | 39,269 | (54,592 | ) | 87,401 | ||||||||||||||
Interest expense | (56,020 | ) | (41,049 | ) | (38,403 | ) | 54,592 | (80,880 | ) | |||||||||||
Net interest income | 4,037 | 1,618 | 866 | 0 | 6,521 | |||||||||||||||
Credit loss (expense)/recovery | 167 | (6 | ) | (5 | ) | 0 | 156 | |||||||||||||
Net interest income after credit loss expense | 4,204 | 1,612 | 861 | 0 | 6,677 | |||||||||||||||
Net fee and commission income | 11,646 | 8,590 | 5,220 | 0 | 25,456 | |||||||||||||||
Net trading income | 10,306 | 1,634 | 1,803 | 0 | 13,743 | |||||||||||||||
Income from subsidiaries | 3,086 | 0 | 0 | (3,086 | ) | 0 | ||||||||||||||
Other income | (450 | ) | 1,637 | 421 | 0 | 1,608 | ||||||||||||||
Total operating income | 28,792 | 13,473 | 8,305 | (3,086 | ) | 47,484 | ||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 12,480 | 8,287 | 3,264 | 0 | 24,031 | |||||||||||||||
General and administrative expenses | 2,805 | 3,362 | 1,775 | 0 | 7,942 | |||||||||||||||
Depreciation of property and equipment | 979 | 133 | 132 | 0 | 1,244 | |||||||||||||||
Amortization of intangible assets | 14 | 83 | 51 | 0 | 148 | |||||||||||||||
Total operating expenses | 16,278 | 11,865 | 5,222 | 0 | 33,365 | |||||||||||||||
Operating profit from continuing operations before tax | 12,514 | 1,608 | 3,083 | (3,086 | ) | 14,119 | ||||||||||||||
Tax expense | 1,499 | 1,018 | 481 | 0 | 2,998 | |||||||||||||||
Net profit from continuing operations | 11,015 | 590 | 2,602 | (3,086 | ) | 11,121 | ||||||||||||||
Net profit from discontinued operations | 512 | 0 | 387 | 0 | 899 | |||||||||||||||
Net profit | 11,527 | 590 | 2,989 | (3,086 | ) | 12,020 | ||||||||||||||
Net profit attributable to minority interests | 0 | 527 | (34 | ) | 0 | 493 | ||||||||||||||
Net profit attributable to UBS shareholders | 11,527 | 63 | 3,023 | (3,086 | ) | 11,527 | ||||||||||||||
112368
Note 39 Additional Disclosures Required under SEC Rules (continued)Note 39.2 Supplemental Guarantor Consolidating Balance Sheet
Financial information |
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
As of 31 December 2007 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 8,530 | 109 | 10,154 | 0 | 18,793 | |||||||||||||||
Due from banks | 154,138 | 16,530 | 200,488 | (310,249 | ) | 60,907 | ||||||||||||||
Cash collateral on securities borrowed | 117,312 | 166,479 | 53,672 | (130,400 | ) | 207,063 | ||||||||||||||
Reverse repurchase agreements | 292,839 | 106,775 | 266,470 | (289,156 | ) | 376,928 | ||||||||||||||
Trading portfolio assets | 354,200 | 170,977 | 84,884 | 0 | 610,061 | |||||||||||||||
Trading portfolio assets pledged as collateral | 103,971 | 55,842 | 4,498 | 0 | 164,311 | |||||||||||||||
Positive replacement values | 436,271 | 16,770 | 192,144 | (216,968 | ) | 428,217 | ||||||||||||||
Financial assets designated at fair value | 5,510 | 7,149 | 8,421 | (9,315 | ) | 11,765 | ||||||||||||||
Loans | 370,274 | 41,398 | 43,584 | (119,392 | ) | 335,864 | ||||||||||||||
Financial investments available-for-sale | 2,611 | 980 | 1,375 | 0 | 4,966 | |||||||||||||||
Accrued income and prepaid expenses | 7,379 | 4,369 | 4,883 | (4,678 | ) | 11,953 | ||||||||||||||
Investments in associates | 28,049 | 139 | 150 | (26,359 | ) | 1,979 | ||||||||||||||
Property and equipment | 5,352 | 959 | 923 | 0 | 7,234 | |||||||||||||||
Goodwill and intangible assets | 276 | 10,516 | 3,746 | 0 | 14,538 | |||||||||||||||
Other assets | 13,606 | 5,135 | 4,881 | (5,622 | ) | 18,000 | ||||||||||||||
Total assets | 1,900,318 | 604,127 | 880,273 | (1,112,139 | ) | 2,272,579 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 246,977 | 114,066 | 94,968 | (310,249 | ) | 145,762 | ||||||||||||||
Cash collateral on securities lent | 45,055 | 64,281 | 52,685 | (130,400 | ) | 31,621 | ||||||||||||||
Repurchase agreements | 105,750 | 238,880 | 250,413 | (289,156 | ) | 305,887 | ||||||||||||||
Trading portfolio liabilities | 111,955 | 51,904 | 929 | 0 | 164,788 | |||||||||||||||
Negative replacement values | 456,631 | 16,333 | 187,543 | (216,968 | ) | 443,539 | ||||||||||||||
Financial liabilities designated at fair value | 146,701 | 14,947 | 39,520 | (9,315 | ) | 191,853 | ||||||||||||||
Due to customers | 555,694 | 87,534 | 118,056 | (119,392 | ) | 641,892 | ||||||||||||||
Accrued expenses and deferred income | 13,276 | 7,940 | 5,310 | (4,678 | ) | 21,848 | ||||||||||||||
Debt issued | 168,266 | 3,478 | 50,333 | 0 | 222,077 | |||||||||||||||
Other liabilities | 19,011 | 5,356 | 42,031 | (5,622 | ) | 60,776 | ||||||||||||||
Total liabilities | 1,869,316 | 604,719 | 841,788 | (1,085,780 | ) | 2,230,043 | ||||||||||||||
Equity attributable to UBS shareholders | 31,002 | (2,916 | ) | 33,858 | (26,359 | ) | 35,585 | |||||||||||||
Minority interests | 0 | 2,324 | 4,627 | 0 | 6,951 | |||||||||||||||
Total equity | 31,002 | (592 | ) | 38,485 | (26,359 | ) | 42,536 | |||||||||||||
Total liabilities and equity | 1,900,318 | 604,127 | 880,273 | (1,112,139 | ) | 2,272,579 | ||||||||||||||
Note 41 Supplemental guarantor information required under SEC rules (continued) | ||||||||||||||||
Supplemental guarantor consolidating cash flow statement | ||||||||||||||||
CHF million | UBS AG Parent | |||||||||||||||
For the year ended 31 December 2006 | Bank1 | UBS Americas Inc. | Subsidiaries | UBS Group | ||||||||||||
Net cash flow from/(used in) operating activities | (2,215 | ) | (14,984 | ) | 11,815 | (5,384 | ) | |||||||||
Cash flow from/(used in) investing activities | ||||||||||||||||
Investments in subsidiaries and associates | 2,856 | 0 | 0 | 2,856 | ||||||||||||
Disposal of subsidiaries and associates | 1,154 | 0 | 0 | 1,154 | ||||||||||||
Purchase of property and equipment | (1,292 | ) | (255 | ) | (246 | ) | (1,793 | ) | ||||||||
Disposal of property and equipment | 298 | 47 | 154 | 499 | ||||||||||||
Net (investment in)/divestment of financial investments available-for-sale | 90 | 433 | 1,200 | 1,723 | ||||||||||||
Net cash flow from/(used in) investing activities | 3,106 | 225 | 1,108 | 4,439 | ||||||||||||
Cash flow from/(used in) financing activities | ||||||||||||||||
Net money market paper issued/(repaid) | 17,526 | 1,039 | (1,644 | ) | 16,921 | |||||||||||
Net movements in treasury shares and own equity derivative activity | (3,179 | ) | 0 | 0 | (3,179 | ) | ||||||||||
Capital issuance | 1 | 0 | 0 | 1 | ||||||||||||
Capital repayment by par value reduction | (631 | ) | 0 | 0 | (631 | ) | ||||||||||
Dividends paid | (3,214 | ) | 0 | 0 | (3,214 | ) | ||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 79,358 | 10,881 | 7,436 | 97,675 | ||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (48,748 | ) | (447 | ) | (10,545 | ) | (59,740 | ) | ||||||||
Increase in minority interests | 0 | 85 | 1,246 | 1,331 | ||||||||||||
Dividends paid to/decrease in minority interests | 0 | 2,441 | (3,513 | ) | (1,072 | ) | ||||||||||
Net activity in investments in subsidiaries | (8,410 | ) | 3,229 | 5,181 | 0 | |||||||||||
Net cash flow from/(used in) financing activities | 32,703 | 17,228 | (1,839 | ) | 48,092 | |||||||||||
Effects of exchange rate differences | 406 | (1,871 | ) | (634 | ) | (2,099 | ) | |||||||||
Net increase/(decrease) in cash equivalents | 34,000 | 598 | 10,450 | 45,048 | ||||||||||||
Cash and cash equivalents, beginning of the year | 68,548 | 13,531 | 8,963 | 91,042 | ||||||||||||
Cash and cash equivalents, end of the year | 102,548 | 14,129 | 19,413 | 136,090 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 2,660 | 78 | 757 | 3,495 | ||||||||||||
Money market paper2 | 73,431 | 11,488 | 2,225 | 87,144 | ||||||||||||
Due from banks with original maturity of less than three months | 26,457 | 2,563 | 16,431 | 45,451 | ||||||||||||
Total | 102,548 | 14,129 | 19,413 | 136,090 | ||||||||||||
113
Financial StatementsNotes to the Financial Statements
Note 39 Additional Disclosures Required under SEC Rules (continued)Note 39.2 Supplemental Guarantor Consolidating Cash Flow Statement
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2007 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | ||||||||||||
Net cash flow from / (used in) operating activities | (65,133 | ) | 19,722 | (5,865 | ) | (51,276 | ) | |||||||||
Cash flow from / (used in) investing activities | ||||||||||||||||
Investments in subsidiaries and associates | (2,337 | ) | 0 | 0 | (2,337 | ) | ||||||||||
Disposal of subsidiaries and associates | 885 | 0 | 0 | 885 | ||||||||||||
Purchase of property and equipment | (1,022 | ) | (581 | ) | (307 | ) | (1,910 | ) | ||||||||
Disposal of property and equipment | 40 | 28 | 66 | 134 | ||||||||||||
Net (investment in) / divestment of financial investments available-for-sale | 4,027 | 34 | 1,920 | 5,981 | ||||||||||||
Net cash flow from / (used in) investing activities | 1,593 | (519 | ) | 1,679 | 2,753 | |||||||||||
Cash flow from / (used in) financing activities | ||||||||||||||||
Net money market paper issued / (repaid) | 35,017 | (1,426 | ) | (919 | ) | 32,672 | ||||||||||
Net movements in treasury shares and own equity derivative activity | (3,550 | ) | 0 | 0 | (3,550 | ) | ||||||||||
Dividends paid | (4,275 | ) | 0 | 0 | (4,275 | ) | ||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 105,197 | 1,022 | 4,655 | 110,874 | ||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair | (54,251 | ) | (7,022 | ) | (1,134 | ) | (62,407 | ) | ||||||||
value | ||||||||||||||||
Increase in minority interests | 0 | 32 | 1,062 | 1,094 | ||||||||||||
Dividend payments to / purchase from minority interests | 0 | (665 | ) | 46 | (619 | ) | ||||||||||
Net activity in investments in subsidiaries | 1,057 | (6,679 | ) | 5,622 | 0 | |||||||||||
Net cash flow from / (used in) financing activities | 79,195 | (14,738 | ) | 9,332 | 73,789 | |||||||||||
Effects of exchange rate differences | (9,093 | ) | (3,062 | ) | (96 | ) | (12,251 | ) | ||||||||
Net increase / (decrease) in cash equivalents | 6,562 | 1,403 | 5,050 | 13,015 | ||||||||||||
Cash and cash equivalents, beginning of the year | 102,548 | 14,129 | 19,413 | 136,090 | ||||||||||||
Cash and cash equivalents, end of the year | 109,110 | 15,532 | 24,463 | 149,105 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 8,530 | 109 | 10,154 | 18,793 | ||||||||||||
Money market paper2 | 60,266 | 13,202 | 3,747 | 77,215 | ||||||||||||
Due from banks with original maturity of less than three months | 40,314 | 2,221 | 10,562 | 53,097 | ||||||||||||
Total | 109,110 | 15,532 | 24,463 | 149,105 | ||||||||||||
114
Note 39 Additional Disclosures Required under SEC Rules (continued)Note 39.2 Supplemental Guarantor Consolidating Income Statement
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2006 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 60,057 | 42,667 | 39,269 | (54,592 | ) | 87,401 | ||||||||||||||
Interest expense | (56,020 | ) | (41,049 | ) | (38,403 | ) | 54,592 | (80,880 | ) | |||||||||||
Net interest income | 4,037 | 1,618 | 866 | 0 | 6,521 | |||||||||||||||
Credit loss (expense) / recovery | 167 | (6 | ) | (5 | ) | 0 | 156 | |||||||||||||
Net interest income after credit loss expense | 4,204 | 1,612 | 861 | 0 | 6,677 | |||||||||||||||
Net fee and commission income | 11,646 | 8,590 | 5,220 | 0 | 25,456 | |||||||||||||||
Net trading income | 10,306 | 1,634 | 1,803 | 0 | 13,743 | |||||||||||||||
Income from subsidiaries | 3,760 | 0 | 0 | (3,760 | ) | 0 | ||||||||||||||
Other income | (450 | ) | 1,637 | 411 | 0 | 1,598 | ||||||||||||||
Revenues from industrial holdings | 0 | 0 | 262 | 0 | 262 | |||||||||||||||
Total operating income | 29,466 | 13,473 | 8,557 | (3,760 | ) | 47,736 | ||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 12,208 | 8,040 | 3,343 | 0 | 23,591 | |||||||||||||||
General and administrative expenses | 2,805 | 3,362 | 1,813 | 0 | 7,980 | |||||||||||||||
Depreciation of property and equipment | 979 | 133 | 140 | 0 | 1,252 | |||||||||||||||
Amortization of intangible assets | 14 | 83 | 56 | 0 | 153 | |||||||||||||||
Goods and materials purchased | 0 | 0 | 116 | 0 | 116 | |||||||||||||||
Total operating expenses | 16,006 | 11,618 | 5,468 | 0 | 33,092 | |||||||||||||||
Operating profit from continuing operations before tax | 13,460 | 1,855 | 3,089 | (3,760 | ) | 14,644 | ||||||||||||||
Tax expense / (benefit) | 1,715 | 585 | 485 | 0 | 2,785 | |||||||||||||||
Net profit / (loss) from continuing operations | 11,745 | 1,270 | 2,604 | (3,760 | ) | 11,859 | ||||||||||||||
Net profit / (loss) from discontinued operations | 512 | 0 | 379 | 0 | 891 | |||||||||||||||
Net profit / (loss) | 12,257 | 1,270 | 2,983 | (3,760 | ) | 12,750 | ||||||||||||||
Net profit / (loss) attributable to minority interests | 0 | 527 | (34 | ) | 0 | 493 | ||||||||||||||
Net profit / (loss) attributable to UBS shareholders | 12,257 | 743 | 3,017 | (3,760 | ) | 12,257 | ||||||||||||||
115
Financial StatementsNotes to the Financial Statements
Note 39 Additional Disclosures Required under SEC Rules (continued)Note 39.2 Supplemental Guarantor Consolidating Balance Sheet
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
As of 31 December 2006 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 2,660 | 78 | 757 | 0 | 3,495 | |||||||||||||||
Due from banks | 121,404 | 16,884 | 182,850 | (270,712 | ) | 50,426 | ||||||||||||||
Cash collateral on securities borrowed | 99,829 | 303,607 | 156,083 | (207,929 | ) | 351,590 | ||||||||||||||
Reverse repurchase agreements | 270,814 | 167,222 | 300,862 | (333,064 | ) | 405,834 | ||||||||||||||
Trading portfolio assets | 294,590 | 188,710 | 143,736 | 0 | 627,036 | |||||||||||||||
Trading portfolio assets pledged as collateral | 162,722 | 51,834 | 36,922 | 0 | 251,478 | |||||||||||||||
Positive replacement values | 283,466 | 13,168 | 173,243 | (176,902 | ) | 292,975 | ||||||||||||||
Financial assets designated at fair value | 2,902 | 4,147 | 7,146 | (8,265 | ) | 5,930 | ||||||||||||||
Loans | 399,352 | 40,279 | 38,644 | (180,433 | ) | 297,842 | ||||||||||||||
Financial investments available-for-sale | 5,843 | 862 | 2,232 | 0 | 8,937 | |||||||||||||||
Accrued income and prepaid expenses | 6,598 | 4,029 | 4,809 | (5,075 | ) | 10,361 | ||||||||||||||
Investments in associates | 34,887 | 179 | 237 | (33,780 | ) | 1,523 | ||||||||||||||
Property and equipment | 5,432 | 637 | 844 | 0 | 6,913 | |||||||||||||||
Goodwill and intangible assets | 258 | 11,128 | 3,387 | 0 | 14,773 | |||||||||||||||
Other assets | 10,709 | 5,524 | 5,587 | (4,571 | ) | 17,249 | ||||||||||||||
Total assets | 1,701,466 | 808,288 | 1,057,339 | (1,220,731 | ) | 2,346,362 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 228,992 | 114,782 | 130,627 | (270,712 | ) | 203,689 | ||||||||||||||
Cash collateral on securities lent | 106,019 | 57,937 | 107,061 | (207,929 | ) | 63,088 | ||||||||||||||
Repurchase agreements | 167,166 | 419,427 | 291,951 | (333,064 | ) | 545,480 | ||||||||||||||
Trading portfolio liabilities | 107,747 | 71,165 | 25,861 | 0 | 204,773 | |||||||||||||||
Negative replacement values | 290,746 | 13,629 | 169,590 | (176,902 | ) | 297,063 | ||||||||||||||
Financial liabilities designated at fair value | 121,074 | 49 | 32,829 | (8,265 | ) | 145,687 | ||||||||||||||
Due to customers | 489,823 | 80,936 | 165,560 | (180,433 | ) | 555,886 | ||||||||||||||
Accrued expenses and deferred income | 12,336 | 8,406 | 5,860 | (5,075 | ) | 21,527 | ||||||||||||||
Debt issued | 110,020 | 29,149 | 50,974 | 0 | 190,143 | |||||||||||||||
Other liabilities | 16,488 | 4,284 | 47,050 | (4,571 | ) | 63,251 | ||||||||||||||
Total liabilities | 1,650,411 | 799,764 | 1,027,363 | (1,186,951 | ) | 2,290,587 | ||||||||||||||
Equity attributable to UBS shareholders | 51,055 | 5,539 | 26,872 | (33,780 | ) | 49,686 | ||||||||||||||
Minority interests | 0 | 2,985 | 3,104 | 0 | 6,089 | |||||||||||||||
Total equity | 51,055 | 8,524 | 29,976 | (33,780 | ) | 55,775 | ||||||||||||||
Total liabilities and equity | 1,701,466 | 808,288 | 1,057,339 | (1,220,731 | ) | 2,346,362 | ||||||||||||||
116
Note 39 Additional Disclosures Required under SEC Rules (continued)Note 39.2 Supplemental Guarantor Consolidating Cash Flow Statement
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2006 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | ||||||||||||
Net cash flow from / (used in) operating activities | (1,916 | ) | (14,810 | ) | 11,805 | (4,921 | ) | |||||||||
Cash flow from / (used in) investing activities | ||||||||||||||||
Investments in subsidiaries and associates | 2,856 | 0 | 0 | 2,856 | ||||||||||||
Disposal of subsidiaries and associates | 1,154 | 0 | 0 | 1,154 | ||||||||||||
Purchase of property and equipment | (1,292 | ) | (255 | ) | (246 | ) | (1,793 | ) | ||||||||
Disposal of property and equipment | 298 | 47 | 154 | 499 | ||||||||||||
Net (investment in) / divestment of financial investments available-for-sale | 90 | 433 | 1,200 | 1,723 | ||||||||||||
Net cash flow from / (used in) investing activities | 3,106 | 225 | 1,108 | 4,439 | ||||||||||||
Cash flow from / (used in) financing activities | ||||||||||||||||
Net money market paper issued / (repaid) | 17,526 | 1,039 | (1,644 | ) | 16,921 | |||||||||||
Net movements in treasury shares and own equity derivative activity | (3,624 | ) | 0 | 0 | (3,624 | ) | ||||||||||
Capital issuance | 1 | 0 | 0 | 1 | ||||||||||||
Capital repayment by par value reduction | (631 | ) | 0 | 0 | (631 | ) | ||||||||||
Dividends paid | (3,214 | ) | 0 | 0 | (3,214 | ) | ||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 79,358 | 10,881 | 7,436 | 97,675 | ||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair | (48,748 | ) | (447 | ) | (10,545 | ) | (59,740 | ) | ||||||||
value | ||||||||||||||||
Increase in minority interests | 0 | 85 | 1,246 | 1,331 | ||||||||||||
Dividend payments to / purchase from minority interests | 0 | 2,441 | (3,513 | ) | (1,072 | ) | ||||||||||
Net activity in investments in subsidiaries | (8,246 | ) | 3,055 | 5,191 | 0 | |||||||||||
Net cash flow from / (used in) financing activities | 32,422 | 17,054 | (1,829 | ) | 47,647 | |||||||||||
Effects of exchange rate differences | 388 | (1,871 | ) | (634 | ) | (2,117 | ) | |||||||||
Net increase / (decrease) in cash equivalents | 34,000 | 598 | 10,450 | 45,048 | ||||||||||||
Cash and cash equivalents, beginning of the year | 68,548 | 13,531 | 8,963 | 91,042 | ||||||||||||
Cash and cash equivalents, end of the year | 102,548 | 14,129 | 19,413 | 136,090 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 2,660 | 78 | 757 | 3,495 | ||||||||||||
Money market paper2 | 73,431 | 11,488 | 2,225 | 87,144 | ||||||||||||
Due from banks with original maturity of less than three months | 26,457 | 2,563 | 16,431 | 45,451 | ||||||||||||
Total | 102,548 | 14,129 | 19,413 | 136,090 | ||||||||||||
369
117
Financial Statementsinformation
Notes to the Financial Statementsconsolidated financial statements
Note 39 Additional Disclosures Required41 Supplemental guarantor information required under SEC Rulesrules (continued)Note 39.2 Supplemental Guarantor Consolidating Income Statement
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2005 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 39,779 | 27,782 | 20,729 | (29,004 | ) | 59,286 | ||||||||||||||
Interest expense | (33,892 | ) | (24,803 | ) | (20,067 | ) | 29,004 | (49,758 | ) | |||||||||||
Net interest income | 5,887 | 2,979 | 662 | 0 | 9,528 | |||||||||||||||
Credit loss (expense) / recovery | 370 | (3 | ) | 8 | 0 | 375 | ||||||||||||||
Net interest income after credit loss expense | 6,257 | 2,976 | 670 | 0 | 9,903 | |||||||||||||||
Net fee and commission income | 9,670 | 7,420 | 4,094 | 0 | 21,184 | |||||||||||||||
Net trading income | 7,453 | (123 | ) | 918 | 0 | 8,248 | ||||||||||||||
Income from subsidiaries | (675 | ) | 0 | 0 | 675 | 0 | ||||||||||||||
Other income | 2,635 | 476 | (1,984 | ) | 0 | 1,127 | ||||||||||||||
Revenues from industrial holdings | 0 | 0 | 229 | 0 | 229 | |||||||||||||||
Total operating income | 25,340 | 10,749 | 3,927 | 675 | 40,691 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 9,962 | 6,587 | 3,518 | 0 | 20,067 | |||||||||||||||
General and administrative expenses | 2,330 | 2,667 | 1,507 | 0 | 6,504 | |||||||||||||||
Depreciation of property and equipment | 988 | 140 | 119 | 0 | 1,247 | |||||||||||||||
Amortization of intangible assets | 24 | 70 | 39 | 0 | 133 | |||||||||||||||
Goods and materials purchased | 0 | 0 | 97 | 0 | 97 | |||||||||||||||
Total operating expenses | 13,304 | 9,464 | 5,280 | 0 | 28,048 | |||||||||||||||
Operating profit from continuing operations before tax | 12,036 | 1,285 | (1,353 | ) | 675 | 12,643 | ||||||||||||||
Tax expense / (benefit) | 1,712 | 1,079 | (326 | ) | 0 | 2,465 | ||||||||||||||
Net profit / (loss) from continuing operations | 10,324 | 206 | (1,027 | ) | 675 | 10,178 | ||||||||||||||
Net profit / (loss) from discontinued operations | 3,705 | 0 | 807 | 0 | 4,512 | |||||||||||||||
Net profit / (loss) | 14,029 | 206 | (220 | ) | 675 | 14,690 | ||||||||||||||
Net profit / (loss) attributable to minority interests | 0 | 122 | 539 | 0 | 661 | |||||||||||||||
Net profit / (loss) attributable to UBS shareholders | 14,029 | 84 | (759 | ) | 675 | 14,029 | ||||||||||||||
118
Note 39 Additional Disclosures Required under SEC Rules (continued)Note 39.2 Supplemental Guarantor Consolidating Cash Flow Statement
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2005 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | ||||||||||||
Net cash flow from / (used in) operating activities | (29,118 | ) | (15,771 | ) | (18,318 | ) | (63,207 | ) | ||||||||
Cash flow from / (used in) investing activities | ||||||||||||||||
Investments in subsidiaries and associates | (1,540 | ) | 0 | 0 | (1,540 | ) | ||||||||||
Disposal of subsidiaries and associates | 3,240 | 0 | 0 | 3,240 | ||||||||||||
Purchase of property and equipment | (1,153 | ) | (155 | ) | (584 | ) | (1,892 | ) | ||||||||
Disposal of property and equipment | 71 | 6 | 193 | 270 | ||||||||||||
Net (investment in) / divestment of financial investments available-for-sale | (4,667 | ) | (40 | ) | 2,220 | (2,487 | ) | |||||||||
Net cash flow from / (used in) investing activities | (4,049 | ) | (189 | ) | 1,829 | (2,409 | ) | |||||||||
Cash flow from / (used in) financing activities | ||||||||||||||||
Net money market paper issued / (repaid) | 22,698 | 615 | (92 | ) | 23,221 | |||||||||||
Net movements in treasury shares and own equity derivative activity | (2,416 | ) | 0 | 0 | (2,416 | ) | ||||||||||
Capital issuance | 2 | 0 | 0 | 2 | ||||||||||||
Dividends paid | (3,105 | ) | 0 | 0 | (3,105 | ) | ||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 50,587 | 14,635 | 11,085 | 76,307 | ||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair | (17,780 | ) | (753 | ) | (11,924 | ) | (30,457 | ) | ||||||||
value | ||||||||||||||||
Increase in minority interests | 0 | 8 | 1,564 | 1,572 | ||||||||||||
Dividend payments to / purchase from minority interests | 0 | (175 | ) | (400 | ) | (575 | ) | |||||||||
Net activity in investments in subsidiaries | (1,591 | ) | (214 | ) | 1,805 | 0 | ||||||||||
Net cash flow from / (used in) financing activities | 48,395 | 14,116 | 2,038 | 64,549 | ||||||||||||
Effects of exchange rate differences | 3,283 | (720 | ) | 2,455 | 5,018 | |||||||||||
Net increase / (decrease) in cash equivalents | 18,511 | (2,564 | ) | (11,996 | ) | 3,951 | ||||||||||
Cash and cash equivalents, beginning of the year | 50,037 | 16,095 | 20,959 | 87,091 | ||||||||||||
Cash and cash equivalents, end of the year | 68,548 | 13,531 | 8,963 | 91,042 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 2,712 | 5 | 2,642 | 5,359 | ||||||||||||
Money market paper2 | 47,838 | 8,991 | 997 | 57,826 | ||||||||||||
Due from banks with original maturity of less than three months | 17,998 | 4,535 | 5,324 | 27,857 | ||||||||||||
Total | 68,548 | 13,531 | 8,963 | 91,042 | ||||||||||||
119
Financial StatementsNotes to the Financial Statements
Note 39 Additional Disclosures Required under SEC Rules (continued)Note 39.2 Guarantee of other securities
Guarantee of other securities
USD billion, unless otherwise indicated | Outstanding on 31.12.08 | |||||||||||||||
Issuing Entity | Type of security | Date issued | Interest (%) | Amount | ||||||||||||
UBS Preferred Funding Trust I | Trust preferred securities | October 2000 | 8.622 | 1.5 | ||||||||||||
UBS Preferred Funding Trust II | Trust preferred securities1 | June 2001 | 7.247 | 0.5 | ||||||||||||
UBS Preferred Funding Trust IV | Floating rate noncumulative trust | one-month LIBOR | ||||||||||||||
preferred securities | May 2003 | + 0.7% | 0.3 | |||||||||||||
UBS Preferred Funding Trust V | Trust preferred securities | May 2006 | 6.243 | 1.0 | ||||||||||||
USD billion, unless otherwise indicated | Outstanding as of 31.12.07 | |||||||
Issuing Entity | Type of security | Date issued | Interest (%) | Amount | ||||
UBS Preferred Funding Trust I | Trust preferred securities | October 2000 | 8.622 | 1.5 | ||||
UBS Preferred Funding Trust II | Trust preferred securities1 | June 2001 | 7.247 | 0.5 | ||||
Floating rate noncumulative trust | one-month LIBOR | |||||||
UBS Preferred Funding Trust IV | preferred securities | May 2003 | + 0.7% | 0.3 | ||||
UBS Preferred Funding Trust V | Trust preferred securities | May 2006 | 6.243 | 1.0 | ||||
UBS AG has fully and unconditionally guaranteed 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 2007,2008, the amount of senior liabilities of UBS to which the holders of the subordinated debt securities would be subordinated is approximately CHF 2,2151,959 billion.
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Financial information |
Financial information
UBS AG (Parent Bank)Table of Contents
UBS AG (Parent Bank)Table of Contents124125125126127128129129129130130130131132132132132133133133
122
123
UBS AG (Parent Bank)Parent Bank Review
Parent Bank Review
Income Statementreview
Income statement
The Parent Bank UBS AG Net profit decreasednet loss increased by CHF 10,80932,238 million from a profitloss of CHF 6,5584,251 million in the previous year to a loss of CHF 4,25136,489 million.
– | ||
– | Net trading income decreased from |
Balance Sheetsheet
In 2008, UBS’s overall balance sheet reduction initiatives also led to lower Parent Bank total assets. In particular UBS subsidiaries in the Americas reduced their assets and therefore their funding needs from the Parent Bank. The Parent Bank total assets stood at CHF 1,189 billion on 31 December 2008, a drop of CHF 409 billion from CHF 1,598 billion on 31 December 2007, up slightly from2007.
er assets down CHF 65 billion. These increases,declines, however, were almostpartially offset by decreases in customer and mortgage loans (down CHF 54 billion), inhigher positive replacement values on derivative instruments (down CHF 14 billion), in money market paper (down CHF 13 billion) and a decline in investments in associated companies of CHF 678 billion due toand liquid assets of CHF 19 billion. Mortgage loans remained stable in 2008 at CHF 141 billion. The above mentioned write-downs of investments in associated US subsidiaries.companies have been offset during the year by capital injections.
Interbank Lendinglending
InDuring 2008, due from banks on demand volume rosetime declined by CHF 3940 billion, partiallypredominantly due to higherlower funding needs of ourUBS bank subsidiaries in the Americas. Due from banks on demand declined slightly by CHF 4 billion, as lower funding to bank subsidiaries in the European Region combined with anoutweighed the increase to non-UBS related banks in the same regionAmericas and to a lesser extent in the Americas Region. During 2007, due from banks on time slightlyJapan. In addition, interbank collateral trading declined by CHF 5 billion. In addition, Inter-bank collateral127 billion, with roughly two thirds attributable to lower trading grew by CHF 54 billion due to tradingvolumes with UBS subsidiaries, and one third due to reductions in particular in the two Regions Europe and Asia, andtrading volumes with third party clients.
Customer Lendinglending
The customer loan drop of CHF 4255 billion was due tomainly the result of lower funding needs of UBS subsidiaries predominately related(non-banks), predominantly in the Americas region.
Financial investments
Compared with the previous year, the increase of CHF 10 billion is mainly due to the reintegration of positions held by Dillon Read Capital Management subsidiaries, which are no longer funded by the UBS Parent Bank. In addition, loans secured by mortgages declined (CHF 12 billion) driven by the downturnreclassification from Trading balances in the US mortgage market and the exit of certain US legacy positions which were built up by Dillon Read Capital Management.securities to Financial investments in fourth quarter 2008.
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Financial information
UBS AG (Parent Bank)Financial Statements
Financial StatementsParent Bank financial statements
Income Statement
Income statement | Income statement | ||||||||||||||||||||||||
For the year ended | % change from | For the year ended | % change from | ||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | 31.12.08 | 31.12.07 | 31.12.07 | |||||||||||||||||||
Interest and discount income | 58,674 | 45,978 | 28 | 37,825 | 58,674 | (36 | ) | ||||||||||||||||||
Interest and dividend income from trading portfolio | 19,003 | 15,324 | 24 | 12,014 | 19,003 | (37 | ) | ||||||||||||||||||
Interest and dividend income from financial investments | 58 | 32 | 81 | 76 | 58 | 31 | |||||||||||||||||||
Interest expense | (75,179 | ) | (57,507 | ) | 31 | (49,022 | ) | (75,179 | ) | (35 | ) | ||||||||||||||
Net interest income | 2,556 | 3,827 | (33 | ) | 893 | 2,556 | (65 | ) | |||||||||||||||||
Credit-related fees and commissions | 205 | 199 | 3 | 208 | 205 | 1 | |||||||||||||||||||
Fee and commission income from securities and investment business | 15,468 | 12,288 | 26 | 11,668 | 15,468 | (25 | ) | ||||||||||||||||||
Other fee and commission income | 686 | 840 | (18 | ) | 610 | 686 | (11 | ) | |||||||||||||||||
Fee and commission expense | (3,269 | ) | (1,820 | ) | 80 | (2,849 | ) | (3,269 | ) | (13 | ) | ||||||||||||||
Net fee and commission income | 13,090 | 11,507 | 14 | 9,637 | 13,090 | (26 | ) | ||||||||||||||||||
Net trading income | 2,767 | 9,467 | (71 | ) | (9,466 | ) | 2,767 | ||||||||||||||||||
Net income from disposal of financial investments | 178 | 333 | (47 | ) | 176 | 178 | (1 | ) | |||||||||||||||||
Income from investments in associated companies | 2,592 | 1,910 | 36 | 3,763 | 2,592 | 45 | |||||||||||||||||||
Income from real estate holdings | 27 | 21 | 29 | 29 | 27 | 7 | |||||||||||||||||||
Sundry income from ordinary activities | 3,352 | 2,982 | 12 | 3,384 | 3,352 | 1 | |||||||||||||||||||
Sundry ordinary expenses | (3,223 | ) | (3,059 | ) | 5 | (2,767 | ) | (3,223 | ) | (14 | ) | ||||||||||||||
Other income from ordinary activities | 2,926 | 2,187 | 34 | 4,584 | 2,926 | 57 | |||||||||||||||||||
Operating income | 21,339 | 26,988 | (21 | ) | 5,648 | 21,339 | (74 | ) | |||||||||||||||||
Personnel expenses | 13,505 | 12,886 | 5 | 6,707 | 13,505 | (50 | ) | ||||||||||||||||||
General and administrative expenses | 5,191 | 4,736 | 10 | 5,822 | 5,191 | 12 | |||||||||||||||||||
Operating expenses | 18,696 | 17,622 | 6 | 12,528 | 18,696 | (33 | ) | ||||||||||||||||||
Operating profit | 2,643 | 9,366 | (72 | ) | (6,880 | ) | 2,643 | ||||||||||||||||||
Depreciation and write-offs on investments in associated companies and fixed assets | 8,660 | 1,352 | 541 | 26,900 | 8,660 | 211 | |||||||||||||||||||
Allowances, provisions and losses | 2,780 | 342 | 713 | 3,071 | 2,780 | 10 | |||||||||||||||||||
Profit before extraordinary items and taxes | (8,797 | ) | 7,672 | (36,852 | ) | (8,797 | ) | (319 | ) | ||||||||||||||||
Extraordinary income | 4,665 | 1,095 | 326 | 1,002 | 4,665 | (79 | ) | ||||||||||||||||||
Extraordinary expenses | 4 | 239 | (98 | ) | 482 | 4 | |||||||||||||||||||
Tax expense | 115 | 1,970 | (94 | ) | 157 | 115 | 37 | ||||||||||||||||||
Profit for the period | (4,251 | ) | 6,558 | ||||||||||||||||||||||
Profit/(loss) for the period | (36,489 | ) | (4,251 | ) | (758 | ) |
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UBS AG (Parent Bank)Financial Statements
Financial information |
Balance Sheet
Balance sheet | Balance sheet | ||||||||||||||||||||||||
% change from | % change from | ||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | 31.12.08 | 31.12.07 | 31.12.07 | |||||||||||||||||||
Assets | |||||||||||||||||||||||||
Liquid assets | 8,530 | 2,660 | 221 | 27,030 | 8,530 | 217 | |||||||||||||||||||
Money market paper | 60,266 | 73,430 | (18 | ) | 62,777 | 60,266 | 4 | ||||||||||||||||||
Due from banks | 527,081 | 439,098 | 20 | 355,679 | 527,081 | (33) | |||||||||||||||||||
Due from customers | 274,510 | 316,241 | (13 | ) | 191,308 | 274,510 | (30) | ||||||||||||||||||
Mortgage loans | 141,381 | 153,114 | (8 | ) | 141,328 | 141,381 | 0 | ||||||||||||||||||
Trading balances in securities and precious metals | 412,977 | 411,981 | 0 | 158,741 | 412,977 | (62) | |||||||||||||||||||
Financial investments | 1,685 | 2,844 | (41 | ) | 11,085 | 1,685 | 558 | ||||||||||||||||||
Investments in associated companies | 21,228 | 27,076 | (22 | ) | 22,001 | 21,228 | 4 | ||||||||||||||||||
Fixed assets | 5,273 | 4,527 | 16 | 5,032 | 5,273 | (5) | |||||||||||||||||||
Accrued income and prepaid expenses | 7,221 | 6,573 | 10 | 3,877 | 7,221 | (46) | |||||||||||||||||||
Positive replacement values | 124,244 | 138,222 | (10 | ) | 201,801 | 124,244 | 62 | ||||||||||||||||||
Other assets | 13,676 | 9,975 | 37 | 8,697 | 13,676 | (36) | |||||||||||||||||||
Total assets | 1,598,072 | 1,585,741 | 1 | 1,189,356 | 1,598,072 | (26) | |||||||||||||||||||
Total subordinated assets | 6,293 | 5,852 | 8 | 3,924 | 6,293 | (38) | |||||||||||||||||||
Total amounts receivable from Group companies | 602,667 | 657,919 | (8 | ) | 435,721 | 602,667 | (28) | ||||||||||||||||||
Liabilities | |||||||||||||||||||||||||
Liabilities and equity | |||||||||||||||||||||||||
Money market paper issued | 104,878 | 69,861 | 50 | 52,063 | 104,878 | (50) | |||||||||||||||||||
Due to banks | 491,102 | 556,136 | (12 | ) | 292,730 | 491,102 | (40) | ||||||||||||||||||
Due to customers on savings and deposit accounts | 72,303 | 80,883 | (11 | ) | 61,872 | 72,303 | (14) | ||||||||||||||||||
Other amounts due to customers | 521,189 | 508,609 | 2 | 388,338 | 521,189 | (25) | |||||||||||||||||||
Medium-term bonds | 3,228 | 2,238 | 44 | 3,150 | 3,228 | (2) | |||||||||||||||||||
Bond issues and loans from central mortgage institutions | 189,023 | 143,779 | 31 | 143,589 | 189,023 | (24) | |||||||||||||||||||
Accruals and deferred income | 17,368 | 16,672 | 4 | 7,895 | 17,368 | (55) | |||||||||||||||||||
Negative replacement values | 145,445 | 149,879 | (3 | ) | 193,108 | 145,445 | 33 | ||||||||||||||||||
Other liabilities | 15,576 | 10,471 | 49 | 14,181 | 15,576 | (9) | |||||||||||||||||||
Allowances and provisions | 3,970 | 2,305 | 72 | 2,724 | 3,970 | (31) | |||||||||||||||||||
Share capital | 207 | 211 | (2 | ) | 293 | 207 | 42 | ||||||||||||||||||
General statutory reserve | 8,775 | 8,295 | 6 | 40,910 | 8,775 | 366 | |||||||||||||||||||
Reserve for own shares | 9,441 | 9,114 | 4 | 2,877 | 9,441 | (70) | |||||||||||||||||||
Other reserves | 19,818 | 20,730 | (4 | ) | 22,115 | 19,818 | 12 | ||||||||||||||||||
Profit for the period | (4,251 | ) | 6,558 | ||||||||||||||||||||||
Profit/(loss) for the period | (36,489 | ) | (4,251 | ) | (758) | ||||||||||||||||||||
Total liabilities | 1,598,072 | 1,585,741 | 1 | ||||||||||||||||||||||
Total liabilities and equity | 1,189,356 | 1,598,072 | (26) | ||||||||||||||||||||||
Total subordinated liabilities | 21,114 | 21,907 | (4 | ) | 24,427 | 21,114 | 16 | ||||||||||||||||||
Total amounts payable to Group companies | 330,567 | 450,093 | (27 | ) | 271,434 | 330,567 | (18) |
126
Statement of Appropriationappropriation of Retained Earningsretained earnings
The Board of Directors proposes to the Annual General Meeting (AGM) on 15 April 2009 to approve the following appropriation:
CHF million | ||||
( | ) | |||
Appropriation to other reserves | ( | ) | ||
Appropriation to general statutory reserves: Retained earnings | (2,472 | ) | ||
Appropriation to general statutory reserves: Share premium | (11,901 | ) | ||
The Board of Directors has proposed to the Extraordinary Meeting of Shareholders on 27 February 2008 to create authorized share capital up to a maximum of 5% of the current share capital (103.7 million new shares) to replace the cash dividend for the business year 2007 with a stock dividend. The issuance of shares and the final exchange ratio for the entitlement to the stock dividend (not less than 20:1) will be determined by the Board of Directors on 23 April 2008.373
127
Financial information
UBS AG (Parent Bank)
Notes to the Financial StatementsParent Bank financial statements
Notes to the Financial Statements
Accounting Principles
The Parent Bank’s accounting policiesBank Financial Statements are prepared in complianceaccordance with Swiss Federal banking law. The accounting policies are principally the same as for the Group Financial Statements outlined in Note 1, Summary of Significant Accounting Policies. Major differences between the Swiss Federal banking law requirements and International Financial Reporting Standards (IFRS) are described in Note 3840 to the Group Financial Statements. In addition, the following principles arefinancial statements. The accounting policies applied for the statutory accounts of the Parent Bank:Bank are discussed below. The risk management of UBS AG is described in the context of the risk management for UBS Group. For the statutory required risk assessment refer to the “Risk and treasury management” section of this report.
Treasury shares Foreign currency translation Investments in associated companies Equity participation and other compensation plans Equity participation plans Other compensation plans
Treasury shares is the term used to describe when an enterprise holds itsare own equity instruments.instruments held by an entity. Under Swiss law, treasury shares are classifiedrecognized in the balance sheet as trading balances or as financial investments.balances. Short positions in treasury shares are recognized in Due to banks. Treasury shares recognized as trading balances and short positions in treasury shares are measured at fair value with unrealized gains or losses from remeasurement to fair value included in due to banks.the income statement. Realized gains and losses on the sale issuance or acquisition of treasury shares and unrealized gains or losses from remeasurement of treasury shares in the trading portfolio to market value are includedrecognized in the income statement. Treasury shares included in financial investments are carried at the lower of cost and market value. fromfor own shares must be created in equity equal to the cost value of the treasury shares held. The reserve for own shares is not available for distribution to shareholders.
Assets and liabilities of foreign branches are translated into CHF at the spot exchange ratesrate at the balance sheet date, while incomedate. Income and expense items are translated at weighted average exchange rates for the period. ExchangeGains resulting from 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. Losses resulting from exchange differences are debited, firstfirstly, to thatthe aforementioned provision account until such provision is fully utilized, and, secondly, to profit and loss.
Investments in associated companies are equity interests which are held for the purpose of the Parent Bank’s business activities or for strategic reasons. They include all directly held subsidiaries and are carried at cost less impairment, if applicable.Property and equipmentBank buildings and other real estateDeferred taxes
Deferred tax assets are carried at cost less accumulated depreciation. Depreciation of computer and telecommunications equipment, other office equipment, fixtures and fittings isnot recognized on a straight-line basis over the estimated useful lives of the related assets. The useful lives of Property and equipment are summarized in Note 1, Summary of Significant Accounting Policies, of the Group Financial Statements.Extraordinary income and expensesCertain items of income and expense appear as extraordinary within the Parent Bank Financial Statements, whereasStatements. Deferred tax liabilities are recognized for all taxable temporary differences. The change in the Group Financial Statements they are considered to be operating incomedeferred tax liability is recognized in profit or expenses and appear within the appropriate income or expense category, or they are included in net profit from discontinued operations, if required.
Under Swiss law, employee stockshare awards are recognized as compensation expense and accrued over the performance year, which is generally the period while employee stockprior to the grant date. Employee option awards which do not contain voluntary termination non-compete provisions are recognized as compensation expense inon the year of grant.grant date. If the award is performance based and contains substantive future service/vesting period, compensation expense is recognized over the performance period. Employee option awards which contain voluntary termination non-compete provisions (i.e. good leaver clause) are recognized as compensation expense over the performance year. Equity- and cash-settled awards are classified as liabilities. StockThe employee share option awards are remeasured to fair value at their intrinsic value.each balance sheet date. However, for granted employee share options that UBS intends to settle in shares from conditional capital, there is no impact on the income statement and no liability is recognized. Upon exercise of employee options, cash received for payment of the strike price payment will beis credited against share capital and general statutory reserve.
Fixed and variable deferred cash compensation is recognized as compensation expense over the performance year. If the award is performance based and contains substantive future service/vesting period, compensation expense is recognized over the performance period.128374
Financial information |
Changes in accounting policies, comparability and other adjustments
Equity participation plans
Post-employment benefits
In 2008, UBS concluded that it meets the requirements to recognize a defined benefit asset associated with its Swiss pension plan consistent with the consolidated financial statements. The change in accounting policy resulted in the following effects on the balance sheet and income statement for 31 December 2008: an increase of approximately CHF 2.1 billion in Other assets and a corresponding decrease in Personnel expenses.
Reclassification of trading securities
UBS decided at the end of October to reclassify securities from “trading balances in securities and precious metals” to “financial investments” with effect from 1 October 2008. The securities have been reclassified on the basis of their fair value on the reclassification date and are now accounted for on an amortized cost basis. An impairment charge of CHF 0.3 billion was recognized on the reclassified financial instruments. If the reclassification had not occurred, the impairment charge would not have been recognized but a trading loss of CHF 1.9 billion would have been recorded.
375
Financial information
UBS AG (Parent Bank)
Additional Income Statement Informationincome statement information
Net Trading Income | |||||||||||||||||||||||||
Net trading income | Net trading income | ||||||||||||||||||||||||
For the year ended | % change from | For the year ended | % change from | ||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | 31.12.08 | 31.12.07 | 31.12.07 | |||||||||||||||||||
Equities | 7,867 | 5,761 | 37 | 3,930 | 7,867 | (50 | ) | ||||||||||||||||||
Fixed income | (7,679 | ) | 1,114 | (15,505 | ) | (7,679 | ) | (102 | ) | ||||||||||||||||
Foreign exchange and other1 | 2,579 | 2,592 | (1 | ) | 2,109 | 2,579 | (18 | ) | |||||||||||||||||
Total | 2,767 | 9,467 | (71 | ) | (9,466 | ) | 2,767 |
Extraordinary Incomeincome and Expenses
Extraordinary income includes a gain from the sale of the Bank of China investment of approximately CHF 3,180360 million in 2008, whereas 2007 included a gain on the sale of UBS’s 20.7% stake in Julius Baer of CHF 3,180 million. Further, 2008 includes a release of provisions of CHF 72 million, a release on reserves on investments in 2007subsidiaries of CHF 490 million and a gain on the salewriteup of Motor-Columbusinvestments in associated com-
panies of CHF 67830 million in 2006. In addition, amounts(2007: CHF 409 million). Amounts in 2007 include a write-up of investments in associated companies of CHF 409 million (2006: CHF 223 million), releases of provisions for credit losses of CHF 11 million (2006: CHF 167 million). Amounts in 2007 further include a
release on reserves on own properties of CHF 824 million and for lapsed employee options of CHF 165 million.
129376
UBS AG (Parent Bank)Notes to the Financial Statements
Financial information |
Additional Balance Sheet Informationbalance sheet information
Allowances and Provisions | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowances and provisions | Allowances and provisions | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Provisions | Recoveries, | Provisions | Recoveries, | ||||||||||||||||||||||||||||||||||||||||||||||||||
applied in | doubtful interest, | New | applied in | doubtful interest, | New | ||||||||||||||||||||||||||||||||||||||||||||||||
accordance | currency | Provisions | provisions | accordance | currency | Provisions | provisions | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at | with their | translation | released | charged | Balance at | Balance at | with their | translation | released to | charged to | Balance at | ||||||||||||||||||||||||||||||||||||||||||
CHF million | 31.12.06 | specified purpose | differences | to income | to income | 31.12.07 | 31.12.07 | specified purpose | Reclassifications | differences | income | income | 31.12.08 | ||||||||||||||||||||||||||||||||||||||||
Default risks (credit and country risk) | 1,298 | (299 | ) | 48 | (279 | ) | 268 | 1,036 | 1,036 | (481 | ) | 3 | (506 | ) | 1,504 | 1,556 | |||||||||||||||||||||||||||||||||||||
Trading portfolio risks | 2,844 | 0 | 0 | 0 | 1,710 | 4,554 | |||||||||||||||||||||||||||||||||||||||||||||||
Trading portfolio risks1 | 4,554 | 10,304 | 14,858 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Litigation risks | 293 | (187 | ) | (15 | ) | (48 | ) | 115 | 158 | ||||||||||||||||||||||||||||||||||||||||||||
Litigation risks2 | 158 | (457 | ) | (47 | ) | (3 | ) | (33 | ) | 1,460 | 1,078 | ||||||||||||||||||||||||||||||||||||||||||
Operational risks | 131 | (84 | ) | 3 | (44 | ) | 158 | 164 | 164 | (203 | ) | 187 | (280 | ) | 289 | 157 | |||||||||||||||||||||||||||||||||||||
Retirement benefit plans | 106 | (8 | ) | (40 | ) | 0 | 49 | 107 | 107 | (2 | ) | (49 | ) | (14 | ) | 52 | 94 | ||||||||||||||||||||||||||||||||||||
Deferred taxes | 34 | 0 | (14 | ) | 0 | 11 | 31 | 31 | 2 | 3 | 36 | ||||||||||||||||||||||||||||||||||||||||||
Other1 | 1,664 | (1,091 | ) | (3 | ) | (88 | ) | 2,964 | 3,446 | ||||||||||||||||||||||||||||||||||||||||||||
Other3 | 3,446 | (2,672 | ) | (68 | ) | (244 | ) | 871 | 1,333 | ||||||||||||||||||||||||||||||||||||||||||||
Total allowances and provisions | 6,370 | (1,669 | ) | (21 | ) | (459 | ) | 5,275 | 9,496 | 9,496 | (3,815 | ) | (47 | ) | 72 | (1,077 | ) | 14,483 | 19,112 | ||||||||||||||||||||||||||||||||||
Allowances deducted from assets | 4,065 | 5,526 | 5,526 | 16,388 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total provisions as per balance sheet | 2,305 | 3,970 | 3,970 | 2,724 |
Statement of Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
Statement of shareholders’ equity | Statement of shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
shareholders’ | shareholders' | ||||||||||||||||||||||||||||||||||||||||||||||||
General statutory | General statutory | equity (before | General statutory | General statutory | equity (before | ||||||||||||||||||||||||||||||||||||||||||||
reserves: | reserves: | Reserves for | distribution | reserves: | reserves: | Reserves for own | Other | distribution | |||||||||||||||||||||||||||||||||||||||||
CHF million | Share capital | Share premium | Retained earnings | own shares | Other reserves | of profit) | Share capital | Share premium | Retained earnings | shares | reserves | of profit) | |||||||||||||||||||||||||||||||||||||
As of 31.12.05 and 1.1.06 | 871 | 6,246 | 1,681 | 10,562 | 26,792 | 46,152 | |||||||||||||||||||||||||||||||||||||||||||
Par value reduction | (631 | ) | 35 | (596 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Cancellation of own shares | (30 | ) | (3,997 | ) | (4,027 | ) | |||||||||||||||||||||||||||||||||||||||||||
Capital increase | 1 | 34 | 35 | ||||||||||||||||||||||||||||||||||||||||||||||
Increase in reserves | 334 | (334 | ) | 0 | |||||||||||||||||||||||||||||||||||||||||||||
Prior year dividend | (3,214 | ) | (3,214 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Profit for the period | 6,558 | 6,558 | |||||||||||||||||||||||||||||||||||||||||||||||
Changes in reserves for own shares | (1,448 | ) | 1,448 | 0 | |||||||||||||||||||||||||||||||||||||||||||||
As of 31.12.06 and 1.1.07 | 211 | 6,280 | 2,015 | 9,114 | 27,288 | 44,908 | 211 | 6,280 | 2,015 | 9,114 | 27,288 | 44,908 | |||||||||||||||||||||||||||||||||||||
Cancellation of own shares | (4 | ) | (2,411 | ) | (2,415 | ) | (4 | ) | (2,411 | ) | (2,415 | ) | |||||||||||||||||||||||||||||||||||||
Capital increase | 23 | 23 | 23 | 23 | |||||||||||||||||||||||||||||||||||||||||||||
Increase in reserves | 457 | (457 | ) | 0 | 457 | (457 | ) | ||||||||||||||||||||||||||||||||||||||||||
Prior year dividend | (4,275 | ) | (4,275 | ) | (4,275 | ) | (4,275 | ) | |||||||||||||||||||||||||||||||||||||||||
Profit for the period | (4,251 | ) | (4,251 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Profit / (loss) for the period | (4,251 | ) | (4,251 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Changes in reserves for own shares | 327 | (327 | ) | 0 | 327 | (327 | ) | ||||||||||||||||||||||||||||||||||||||||||
As of 31.12.07 | 207 | 6,303 | 2,472 | 9,441 | 15,567 | 33,990 | |||||||||||||||||||||||||||||||||||||||||||
As of 31.12.07 and 1.1.08 | 207 | 6,303 | 2,472 | 9,441 | 15,567 | 33,990 | |||||||||||||||||||||||||||||||||||||||||||
Cancellation of own shares | |||||||||||||||||||||||||||||||||||||||||||||||||
Capital increase1 | 86 | 15,911 | (15 | ) | 15,982 | ||||||||||||||||||||||||||||||||||||||||||||
Capital increase related to MCNs | 16,223 | 16,223 | |||||||||||||||||||||||||||||||||||||||||||||||
Increase in reserves | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||
Prior year dividend | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||
Profit / (loss) for the period | (36,489 | ) | (36,489 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Changes in reserves for own shares | (6,564 | ) | 6,564 | 0 | |||||||||||||||||||||||||||||||||||||||||||||
Transfers2 | (11,901 | ) | (2,472 | ) | 14,373 | 0 | |||||||||||||||||||||||||||||||||||||||||||
As of 31.12.08 | 293 | 26,536 | 0 | 2,877 | 0 | 29,706 | |||||||||||||||||||||||||||||||||||||||||||
130377
Financial information
UBS AG (Parent Bank)
Share Capital | |||||||||||||||||||||||||||||||||
Share capital | Share capital | ||||||||||||||||||||||||||||||||
Par value | Ranking for dividends | Par value | Ranking for dividends | ||||||||||||||||||||||||||||||
No. of shares | Capital in CHF | No. of shares | Capital in CHF | No. of shares | Capital in CHF | No. of shares | Capital in CHF | ||||||||||||||||||||||||||
As of 31.12.08 | |||||||||||||||||||||||||||||||||
Issued and paid up | 2,932,580,549 | 293,258,055 | 2,932,580,549 | 293,258,055 | |||||||||||||||||||||||||||||
Conditional share capital | 792,844,711 | 79,284,471 | |||||||||||||||||||||||||||||||
As of 31.12.07 | |||||||||||||||||||||||||||||||||
Issued and paid up | 2,073,547,344 | 207,354,734 | 2,073,547,344 | 207,354,734 | 2,073,547,344 | 207,354,734 | 2,073,547,344 | 207,354,734 | |||||||||||||||||||||||||
Conditional share capital | 150,138,634 | 15,013,863 | 150,138,634 | 15,013,863 | |||||||||||||||||||||||||||||
As of 31.12.06 | |||||||||||||||||||||||||||||||||
Issued and paid up | 2,105,273,286 | 210,527,329 | 2,082,673,286 | 208,267,329 | |||||||||||||||||||||||||||||
Conditional share capital | 151,437,410 | 15,143,741 | |||||||||||||||||||||||||||||||
On 31 December 2007,2008, a maximum of 144,338100,415 shares couldcan be issued against the future exercise of options from former PaineWebber employee option plans. These shares are shown as conditional share capital in the table above. In addition, duringUBS AG (Parent Bank) disclosure.
131378
UBS AG (Parent Bank)Notes to the Financial Statements
Financial information |
Off-Balance SheetOff-balance sheet and Other Informationother information
Assets Pledged or Assigned as Security for Own Obligations, Assets Subject to Reservation of Title | |||||||||||||||||||||||||||||||||||||||||||||||||
Assets pledged or assigned as security for own obligations and assets subject to reservation of title | Assets pledged or assigned as security for own obligations and assets subject to reservation of title | ||||||||||||||||||||||||||||||||||||||||||||||||
31.12.07 | 31.12.06 | Change in % | 31.12.08 | 31.12.07 | Change in % | ||||||||||||||||||||||||||||||||||||||||||||
CHF million | Book value | Effective liability | Book value | Effective liability | Book value | Effective liability | Book value | Effective liability | Book value | Effective liability | Book value | Effective liability | |||||||||||||||||||||||||||||||||||||
Money market paper | 12,792 | 2,372 | 37,471 | 9,035 | (66 | ) | (74 | ) | 7,429 | 1,300 | 12,792 | 2,372 | (42 | ) | (45 | ) | |||||||||||||||||||||||||||||||||
Mortgage loans | 200 | 199 | 81 | 38 | 147 | 424 | 3,699 | 2,418 | 200 | 199 | |||||||||||||||||||||||||||||||||||||||
Securities | 99,821 | 49,397 | 89,869 | 41,306 | 11 | 20 | 50,223 | 37,083 | 99,821 | 49,397 | (50 | ) | (25 | ) | |||||||||||||||||||||||||||||||||||
Other | 8,628 | 0 | 5,432 | 0 | 59 | 8,149 | 0 | 8,628 | (6 | ) | |||||||||||||||||||||||||||||||||||||||
Total | 121,441 | 51,968 | 132,853 | 50,379 | (9 | ) | 3 | 69,500 | 40,801 | 121,441 | 51,968 | (43 | ) | (21 | ) |
Financial assets are mainly pledged in securities borrowing and lending transactions, in repurchase and reverse repurchase transactions, under collateralized credit lines with central
banks, against loans from mortgage institutions, in connection with derivative transactions and for security deposits relating to stock exchange and clearinghouse memberships.
Commitments and Contingent Liabilities | |||||||||||||||||||||||||
Commitments and contingent liabilities | Commitments and contingent liabilities | ||||||||||||||||||||||||
% change from | % change from | ||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | 31.12.08 | 31.12.07 | 31.12.07 | |||||||||||||||||||
Contingent liabilities | 223,105 | 189,627 | 18 | 286,451 | 223,105 | 28 | |||||||||||||||||||
Irrevocable commitments | 104,784 | 115,364 | (9 | ) | 68,660 | 104,784 | (34 | ) | |||||||||||||||||
Liabilities for calls on shares and other equities | 145 | 125 | 16 | 145 | 145 | 0 | |||||||||||||||||||
Confirmed credits | 2,630 | 2,133 | 23 | 2,079 | 2,630 | (21 | ) |
UBS AG is jointly and severally liable for the value added tax (VAT) liability of Swiss subsidiaries that belong to its VAT group.
payment of the par value of these shares, if the SNB incurs a loss on its loan provided to the SNB StabFund upon termination of this fund. If UBS would be required to deliver those shares, UBS intends to settle this obligation using conditional capital (subject to shareholders’ approval).
Derivative Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||
Derivative instruments | Derivative instruments | ||||||||||||||||||||||||||||||||||||||||||||||||
31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | ||||||||||||||||||||||||||||||||||||||||||||||
Notional | Notional | Notional | Notional | ||||||||||||||||||||||||||||||||||||||||||||||
amount | amount | amount | amount | ||||||||||||||||||||||||||||||||||||||||||||||
CHF million | PRV1 | NRV2 | CHF bn | PRV1 | NRV2 | CHF bn | PRV1 | NRV2 | CHF bn | PRV1 | NRV2 | CHF bn | |||||||||||||||||||||||||||||||||||||
Interest rate contracts | 167,334 | 164,325 | 33,545 | 176,765 | 175,394 | 29,558 | 377,307 | 370,346 | 36,476 | 167,334 | 164,325 | 33,545 | |||||||||||||||||||||||||||||||||||||
Credit derivative contracts | 111,898 | 116,128 | 5,451 | 29,026 | 31,781 | 2,824 | 202,357 | 187,216 | 3,712 | 111,898 | 116,128 | 5,451 | |||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | 99,494 | 99,613 | 7,725 | 76,459 | 70,899 | 6,134 | 222,178 | 229,656 | 6,005 | 99,494 | 99,613 | 7,725 | |||||||||||||||||||||||||||||||||||||
Precious metal contracts | 6,363 | 6,569 | 147 | 4,472 | 4,168 | 121 | 5,804 | 5,697 | 108 | 6,363 | 6,569 | 147 | |||||||||||||||||||||||||||||||||||||
Equity / Index contracts | 30,400 | 49,985 | 760 | 22,437 | 39,016 | 745 | 28,502 | 36,208 | 473 | 30,400 | 49,985 | 760 | |||||||||||||||||||||||||||||||||||||
Commodities contracts, excluding precious metals contracts | 21,181 | 21,251 | 484 | 11,459 | 11,017 | 359 | 27,055 | 25,387 | 160 | 21,181 | 21,251 | 484 | |||||||||||||||||||||||||||||||||||||
Total derivative instruments | 436,670 | 457,871 | 48,112 | 320,618 | 332,275 | 39,741 | 863,203 | 854,510 | 46,934 | 436,670 | 457,871 | 48,112 | |||||||||||||||||||||||||||||||||||||
Replacement value netting | 312,426 | 312,426 | 182,396 | 182,396 | 661,402 | 661,402 | 312,426 | 312,426 | |||||||||||||||||||||||||||||||||||||||||
Replacement values after netting | 124,244 | 145,445 | 138,222 | 149,879 | 201,801 | 193,108 | 124,244 | 145,445 |
132379
Fiduciary Transactions | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | |||||||||
Deposits: | ||||||||||||
with other banks | 46,074 | 41,075 | 12 | |||||||||
with Group banks | 2,186 | 1,650 | 32 | |||||||||
Total | 48,260 | 42,725 | 13 | |||||||||
Due to UBS Pension Plans | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | |||||||||
Due to UBS pension plans and UBS debt instruments held by pension plans | 443 | 790 | (51 | ) | ||||||||
Securities borrowed from pension plans | 9,379 | 7,169 | 31 | |||||||||
Personnel
Parent Bank personnel was 45,102 on 31 December 2007 and 42,443 on 31 December 2006.
133
Financial information
UBS AG (Parent Bank)Notes to the Financial Statements
Fiduciary transactions | |||||||||||||
% change from | |||||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.07 | ||||||||||
Deposits: | |||||||||||||
with other banks | 36,452 | 46,074 | (21 | ) | |||||||||
with group banks | 2,738 | 2,186 | 25 | ||||||||||
Total | 39,190 | 48,260 | (19 | ) | |||||||||
Due to UBS pension plans | ||||||||||||
For the year ended | % change from | |||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.07 | |||||||||
Due to UBS pension plans and UBS debt instruments held by pension plans | 876 | 443 | 98 | |||||||||
Securities borrowed from pension plans | 0 | 9,379 | (100 | ) | ||||||||
Personnel
Parent Bank personnel was 40,998 on 31 December 2008 and 45,102 on 31 December 2007.
Significant shareholders
Chase Nominees Ltd., London, acting in its capacity as a nominee for other investors, was registered with 7.19% of all shares issued on 31 December 2008, compared with 7.99% at year-end 2007 and 8.81% at year-end 2006. DTC (Cede & Co.), New York, The Depository Trust Company,
a US securities clearing organization, was registered as a shareholder for a large number of beneficial owners with 9.89% of all shares issued on 31 December 2008 (14.15% on 31 December 2007).
380
Financial information |
Corporate Governancegovernance and Compensation Reportcompensation report
Compensation details and additional information for executive members of the Board of Directors1 | ||||||||||||||||||||||||||||||||
CHF, except where indicateda | ||||||||||||||||||||||||||||||||
Annual incentive | Discretionary | Contributions | ||||||||||||||||||||||||||||||
Annual incentive | award (shares; | award (options; | Benefits | to retirement | ||||||||||||||||||||||||||||
Name, function2 | For the year | Base salary | award (cash) | fair value)b | fair value)c | in kindd | benefits planse | Total | ||||||||||||||||||||||||
Marcel Ospel, Chairman | 2007 | 2,000,000 | 0 | 0 | 0 | 307,310 | 261,069 | 2,568,379 | ||||||||||||||||||||||||
Stephan Haeringer, Executive Vice Chairman | 2007 | 1,500,000 | 0 | 0 | 0 | 111,808 | 261,069 | 1,872,877 | ||||||||||||||||||||||||
Marco Suter, Executive Vice Chairman | 2007 | 1,125,000 | 0 | 0 | 0 | 70,820 | 155,252 | 1,351,072 | ||||||||||||||||||||||||
Compensation details and additional information for executive members of the BoD | ||||||||||||||||||||||||||||||||
CHF, except where indicateda | ||||||||||||||||||||||||||||||||
Annual incentive | Discretionary | Contributions | ||||||||||||||||||||||||||||||
For the | Annual incentive | award (shares | award (options | Benefits | to retirement | |||||||||||||||||||||||||||
Name, function1 | year ended | Base salary | award (cash) | – fair value)b | – fair value)c | in kindd | benefits planse | Total | ||||||||||||||||||||||||
Peter Kurer, Chairman | 2008 | 1,333,333 | 0 | 0 | 0 | 58,267 | 174,047 | 1,565,647 | ||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||||||||
Marcel Ospel, Chairman | 2008 | 666,667 | 0 | 0 | 0 | 80,755 | 87,023 | 834,445 | ||||||||||||||||||||||||
2007 | 2,000,000 | 0 | 0 | 0 | 307,310 | 261,069 | 2,568,379 | |||||||||||||||||||||||||
Stephan Haeringer, | 2008 | 1,125,000 | 0 | 0 | 0 | 108,846 | 195,802 | 1,429,648 | ||||||||||||||||||||||||
Executive Vice Chairman | 2007 | 1,500,000 | 0 | 0 | 0 | 111,808 | 261,069 | 1,872,877 | ||||||||||||||||||||||||
Marco Suter, | 2008 | |||||||||||||||||||||||||||||||
Executive Vice Chairman | 2007 | 1,125,000 | 0 | 0 | 0 | 70,820 | 155,252 | 1,351,072 | ||||||||||||||||||||||||
Remuneration details and additional information for non-executive members of the Board of Directors1 | |||||||||||||||||||||||||||||||||||||
CHF, except where indicateda | |||||||||||||||||||||||||||||||||||||
Corporate | For the | ||||||||||||||||||||||||||||||||||||
Audit | Compensation | Nominating | Responsibility | period AGM | Committee | Benefits | Additional | Share | Number of | ||||||||||||||||||||||||||||
Name, function2 | Committee | Committee | Committee | Committee | 2007 / 2008 | Base fee | retainer | in kind | payments | Total | percentage | shares3 | |||||||||||||||||||||||||
Ernesto Bertarelli, member | M | 2007/2008 | 325,000 | 150,000 | 0 | 0 | 475,000 | 100 | 14,677 | ||||||||||||||||||||||||||||
Gabrielle Kaufmann-Kohler, member | M | M | 2007/2008 | 325,000 | 250,000 | 0 | 0 | 575,000 | 50 | 9,349 | |||||||||||||||||||||||||||
Sergio Marchionne, member | M | 2007/2008 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 16,226 | ||||||||||||||||||||||||||||
Rolf A. Meyer, member | M | C | 2007/2008 | 325,000 | 650,000 | 0 | 0 | 975,000 | 50 | 15,853 | |||||||||||||||||||||||||||
Helmut Panke, member | C | 2007/2008 | 325,000 | 250,000 | 0 | 0 | 575,000 | 50 | 9,349 | ||||||||||||||||||||||||||||
Peter Spuhler, member | M | 2007/2008 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 16,226 | ||||||||||||||||||||||||||||
Peter Voser, member | M | 2007/2008 | 325,000 | 300,000 | 0 | 0 | 625,000 | 50 | 10,162 | ||||||||||||||||||||||||||||
Lawrence A.Weinbach, member | C | 2007/2008 | 325,000 | 600,000 | 0 | 0 | 925,000 | 50 | 15,040 | ||||||||||||||||||||||||||||
Joerg Wolle, member | M | 2007/2008 | 325,000 | 150,000 | 0 | 0 | 475,000 | 100 | 14,677 | ||||||||||||||||||||||||||||
Legend:C = Chairman of the respective committee; M = Member of the respective committee
Total payments to all members of the Board of Directors1 | ||||||||
CHF, except where indicateda | For the year2 | Total | ||||||
Aggregate of all (executive and non-executive) members of the Board of Directors | 2007 | 11,467,328 | ||||||
134
Total compensation for all members of the Group Executive Board1 | ||||||||||||||||||||||||||||||||
CHF, except where indicateda | ||||||||||||||||||||||||||||||||
Annual | Discretionary | Contributions | ||||||||||||||||||||||||||||||
Annual | incentive | award | to retirement | |||||||||||||||||||||||||||||
incentive | award (shares; | (options; | Benefits in | benefits | ||||||||||||||||||||||||||||
Name, function | For the year | Base salary | award (cash) | fair value)b | fair value)c | kindd | planse | Total | ||||||||||||||||||||||||
Rory Tapner, Chairman and Chief Executive Officer Asia Pacific (highest-paid) | 2007 | 1,291,960 | 4,501,900 | 4,501,904 | 0 | 10,256 | 900 | 10,306,920 | ||||||||||||||||||||||||
Aggregate of all members of the Group Executive Board (GEB) who were in office as of 31 December 20072 | 2007 | 6,995,885 | 15,305,667 | 15,305,708 | 0 | 532,706 | 912,974 | 39,052,939 | ||||||||||||||||||||||||
Aggregate of all members of the GEB who stepped down during 20073 | 2007 | 2,511,947 | 23,042,376 | 6,750,036 | 0 | 406,567 | 275,635 | 32,986,561 | ||||||||||||||||||||||||
Compensation paid to former members of the Board of Directors and Group Executive Board1 | ||||||||||||
CHF, except where indicateda | ||||||||||||
Name, function | Compensation | Benefits in kind | Total | |||||||||
Alberto Togni, former member of the Board of Directors (BoD) | 318,401 | 502,478 | 820,879 | |||||||||
Philippe de Weck, former member of the BoD (Union Bank of Switzerland) | 0 | 129,701 | 129,701 | |||||||||
Robert Studer, former member of the BoD (Union Bank of Switzerland) | 0 | 260,162 | 260,162 | |||||||||
Georges Blum, former member of the BoD (Swiss Bank Corporation) | 0 | 90,803 | 90,803 | |||||||||
Aggregate of all former members of the Group Executive Board (GEB)2 | 0 | 257,791 | 257,791 | |||||||||
Aggregate of all former members of the BoD and GEB | 318,401 | 1,240,935 | 1,559,336 | |||||||||
Explanations of compensation details for executive members of the BoD and members of the GEB:
Local currencies are converted into CHF using the exchange rates as detailed in | ||
Values per share at grant: CHF 36.15 / USD 33.55 for shares granted in 2008 related to the performance year 2007. CHF prices are the average price of UBS shares at | ||
c. | No options were granted in | |
Benefits in | ||
e. | ||
In both the US and the UK, senior executives participate in the same plans as all other employees. In the US there are two different plans, one of which operates on a cash balance basis, |
135381
Financial information
UBS AG (Parent Bank)
Remuneration details and additional information for independent members of the BoD | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CHF, except where indicateda | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
HR & | Governance & | Corporate | period | Share | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Audit | compensation | nominating | responsibility | Risk | Strategy | AGM to | Committee | Benefits | Additional | percent- | Number of | ||||||||||||||||||||||||||||||||||||||||||||||
Name, function1 | committee | committee | committee | committee | committee | committee | AGM | Base fee | retainer(s) | in kind | payments | Total | age3 | shares4,5 | |||||||||||||||||||||||||||||||||||||||||||
Ernesto Bertarelli, | M | M | 2008/2009 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 51,596 | |||||||||||||||||||||||||||||||||||||||||||||||
member | M | 2007/2008 | 325,000 | 150,000 | 0 | 0 | 475,000 | 100 | 14,677 | ||||||||||||||||||||||||||||||||||||||||||||||||
Sally Bott, | M | M | 2008/2009 | 162,500 | 75,000 | 0 | 0 | 237,500 | 50 | 12,280 | |||||||||||||||||||||||||||||||||||||||||||||||
member2 | 2007/2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rainer-Marc Frey, | M | M | 2008/2009 | 162,500 | 150,000 | 0 | 0 | 312,500 | 50 | 16,158 | |||||||||||||||||||||||||||||||||||||||||||||||
member2 | 2007/2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bruno Gehrig, | M | 2008/2009 | 162,500 | 100,000 | 0 | 0 | 262,500 | 50 | 13,572 | ||||||||||||||||||||||||||||||||||||||||||||||||
member2 | 2007/2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gabrielle Kaufmann- | C | M | 2008/2009 | 325,000 | 250,000 | 0 | 0 | 575,000 | 50 | 29,731 | |||||||||||||||||||||||||||||||||||||||||||||||
Kohler, member | M | M | 2007/2008 | 325,000 | 250,000 | 0 | 0 | 575,000 | 50 | 9,349 | |||||||||||||||||||||||||||||||||||||||||||||||
Sergio Marchionne, | M | M | 2008/2009 | 325,000 | 200,000 | 0 | 250,000 | 6 | 775,000 | 100 | 76,228 | ||||||||||||||||||||||||||||||||||||||||||||||
senior independent director, vice chairman | M | 2007/2008 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 16,226 | ||||||||||||||||||||||||||||||||||||||||||||||||
Rolf A. Meyer, | M | M | 2008/2009 | 162,500 | 150,000 | 0 | 0 | 312,500 | 50 | 16,158 | |||||||||||||||||||||||||||||||||||||||||||||||
member2 | M | C | 2007/2008 | 325,000 | 650,000 | 0 | 0 | 975,000 | 50 | 15,853 | |||||||||||||||||||||||||||||||||||||||||||||||
Helmut Panke, | M | M | 2008/2009 | 325,000 | 300,000 | 0 | 0 | 625,000 | 50 | 32,316 | |||||||||||||||||||||||||||||||||||||||||||||||
member | C | 2007/2008 | 325,000 | 250,000 | 0 | 0 | 575,000 | 50 | 9,349 | ||||||||||||||||||||||||||||||||||||||||||||||||
William G. Parrett, | M | 2008/2009 | 162,500 | 100,000 | 0 | 0 | 262,500 | 50 | 13,572 | ||||||||||||||||||||||||||||||||||||||||||||||||
member2 | 2007/2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
David Sidwell, | M | C | 2008/2009 | 325,000 | 450,000 | 0 | 0 | 775,000 | 50 | 40,072 | |||||||||||||||||||||||||||||||||||||||||||||||
member | 2007/2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Peter Spuhler, | 2008/2009 | 162,500 | 0 | 0 | 0 | 162,500 | 100 | 15,945 | |||||||||||||||||||||||||||||||||||||||||||||||||
member2 | M | 2007/2008 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 16,226 | ||||||||||||||||||||||||||||||||||||||||||||||||
Peter R. Voser, | C | M | 2008/2009 | 325,000 | 400,000 | 0 | 0 | 725,000 | 50 | 37,487 | |||||||||||||||||||||||||||||||||||||||||||||||
member | M | 2007/2008 | 325,000 | 300,000 | 0 | 0 | 625,000 | 50 | 10,162 | ||||||||||||||||||||||||||||||||||||||||||||||||
Lawrence A. Weinbach, | M | 2008/2009 | 162,500 | 100,000 | 0 | 0 | 262,500 | 50 | 13,572 | ||||||||||||||||||||||||||||||||||||||||||||||||
member2 | C | 2007/2008 | 325,000 | 600,000 | 0 | 0 | 925,000 | 50 | 15,040 | ||||||||||||||||||||||||||||||||||||||||||||||||
Joerg Wolle, | C | M | 2008/2009 | 325,000 | 300,000 | 0 | 0 | 625,000 | 50 | 32,316 | |||||||||||||||||||||||||||||||||||||||||||||||
member | M | 2007/2008 | 325,000 | 150,000 | 0 | 0 | 475,000 | 100 | 14,677 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total 2008 | 6,437,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total 2007 | 5,675,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
382
Financial information |
Share and option ownership of members of the Board of Directors as of 31 December 2007 | |||||||||||||||||||||||||||
Potentially | |||||||||||||||||||||||||||
conferred | Type and | ||||||||||||||||||||||||||
Number of | Voting rights | Number of | voting rights | quantity | |||||||||||||||||||||||
Name, function1 | For the year | shares held | in % | options held | in %2 | of options3 | |||||||||||||||||||||
xii: | 390,000 | ||||||||||||||||||||||||||
xiv: | 300,000 | ||||||||||||||||||||||||||
Marcel Ospel, Chairman | 2007 | 769,483 | 0.068 | 940,000 | 0.083 | xv: | 250,000 | ||||||||||||||||||||
vii: | 80,000 | ||||||||||||||||||||||||||
ix: | 80,000 | ||||||||||||||||||||||||||
x: | 80,000 | ||||||||||||||||||||||||||
xii: | 120,000 | ||||||||||||||||||||||||||
xiv: | 100,000 | ||||||||||||||||||||||||||
Stephan Haeringer, Executive Vice Chairman | 2007 | 487,053 | 0.043 | 535,000 | 0.047 | xv: | 75,000 | ||||||||||||||||||||
Ernesto Bertarelli, member | 2007 | 48,411 | 0.004 | 0 | 0 | ||||||||||||||||||||||
Gabrielle Kaufmann-Kohler, member | 2007 | 3,303 | 0.000 | 0 | 0 | ||||||||||||||||||||||
Sergio Marchionne, member | 2007 | 45,800 | 0.004 | 0 | 0 | ||||||||||||||||||||||
Rolf A. Meyer, member | 2007 | 50,562 | 0.004 | 0 | 0 | ||||||||||||||||||||||
Helmut Panke, member | 2007 | 13,206 | 0.001 | 0 | 0 | ||||||||||||||||||||||
Peter Spuhler, member | 2007 | 67,092 | 0.006 | 0 | 0 | ||||||||||||||||||||||
Peter Voser, member | 2007 | 11,580 | 0.001 | 0 | 0 | ||||||||||||||||||||||
Lawrence A. Weinbach, member | 2007 | 45,520 | 0.004 | 0 | 0 | ||||||||||||||||||||||
Joerg Wolle, member | 2007 | 7,709 | 0.001 | 0 | 0 | ||||||||||||||||||||||
Total payments to all members of the BoD | ||||||||
For the | ||||||||
CHF, except where indicateda | year ended | Total | ||||||
Aggregate of all members of the BoD | 2008 | 10,267,240 | ||||||
Aggregate of all members of the BoD | 2007 | 11,467,328 | ||||||
Total compensation for all members of the GEB | ||||||||||||||||||||||||||||||||
CHF, except where indicateda | ||||||||||||||||||||||||||||||||
Annual | ||||||||||||||||||||||||||||||||
incentive | Discretionary | Contributions | ||||||||||||||||||||||||||||||
Annual | award | award | to retirement | |||||||||||||||||||||||||||||
For the | incentive | (shares; | (options; | Benefits | benefits | |||||||||||||||||||||||||||
Name, function | year ended | Base salary | award (cash) | fair value)b | fair value)c | in kindd | planse | Total | ||||||||||||||||||||||||
Marcel Rohner, Group Chief Executive Officer (highest-paid) | 2008 | 1,500,000 | 0 | 0 | 0 | 161,768 | 152,934 | 1,814,702 | ||||||||||||||||||||||||
Rory Tapner, Chairman & CEO Asia Pacific (highest-paid) | 2007 | 1,291,960 | 4,501,900 | 4,501,904 | 0 | 10,256 | 900 | 10,306,920 | ||||||||||||||||||||||||
Aggregate of all members of the GEB who were in office on 31 December 20081 | 2008 | 7,815,943 | 0 | 0 | 0 | 457,652 | 817,315 | 9,090,911 | ||||||||||||||||||||||||
Aggregate of all members of the GEB who were in office on 31 December 20071 | 2007 | 6,995,885 | 15,305,667 | 15,305,708 | 0 | 532,706 | 912,974 | 39,052,939 | ||||||||||||||||||||||||
Aggregate of all members of the GEB who stepped down during 20082 | 2008 | 1,614,871 | 0 | 0 | 0 | 234,838 | 258,423 | 2,108,132 | ||||||||||||||||||||||||
Aggregate of all members of the GEB who stepped down during 20072 | 2007 | 2,511,947 | 23,042,376 | 6,750,036 | 0 | 406,567 | 275,635 | 32,986,561 | ||||||||||||||||||||||||
383
Financial information
UBS AG (Parent Bank)
Share and option ownership of members of the BoD at 31 December 2007/2008 | ||||||||||||||||||||||||||
For the | Number of | Voting rights | Number of | Potentially conferred | Type and quantity | |||||||||||||||||||||
Name, function1 | year ended | shares held | in % | options held | voting rights in %2 | options3 | ||||||||||||||||||||
Peter Kurer, Chairman | 2008 | 416,088 | 0.025 | 372,995 | 0.022 | xxx: | 85 256 | |||||||||||||||||||
xxxv: | 95 913 | |||||||||||||||||||||||||
xli: | 95 913 | |||||||||||||||||||||||||
xlv: | 95 913 | |||||||||||||||||||||||||
2007 | 292,762 | 0.026 | 350,000 | 0.031 | xxx: | 80 000 | ||||||||||||||||||||
xxxv: | 90 000 | |||||||||||||||||||||||||
xli: | 90 000 | |||||||||||||||||||||||||
xlv: | 90 000 | |||||||||||||||||||||||||
Sergio Marchionne, | 2008 | 87,926 | 0.005 | 0 | 0.000 | |||||||||||||||||||||
senior independent director, vice chairman | 2007 | 45,800 | 0.004 | 0 | 0.000 | |||||||||||||||||||||
Ernesto Bertarelli, member | 2008 | 89,434 | 0.005 | 0 | 0.000 | |||||||||||||||||||||
2007 | 48,411 | 0.004 | 0 | 0.000 | ||||||||||||||||||||||
Sally Bott, member | 2008 | 1 | 0.000 | 0 | 0.000 | |||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Rainer-Marc Frey, member | 2008 | 0 | 0.000 | 0 | 0.000 | |||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Bruno Gehrig, member | 2008 | 3,000 | 0.000 | 0 | 0.000 | |||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Gabrielle Kaufmann-Kohler, member | 2008 | 18,713 | 0.001 | 0 | 0.000 | |||||||||||||||||||||
2007 | 3,303 | 0.000 | 0 | 0.000 | ||||||||||||||||||||||
Helmut Panke, member | 2008 | 31,971 | 0.002 | 0 | 0.000 | |||||||||||||||||||||
2007 | 13,206 | 0.001 | 0 | 0.000 | ||||||||||||||||||||||
William G. Parrett, member | 2008 | 4,000 | 0.000 | 0 | 0.000 | |||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
David Sidwell, member | 2008 | 1 | 0.000 | 0 | 0.000 | |||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Peter R. Voser, member | 2008 | 30,823 | 0.002 | 0 | 0.000 | |||||||||||||||||||||
2007 | 11,580 | 0.001 | 0 | 0.000 | ||||||||||||||||||||||
Joerg Wolle, member | 2008 | 41,509 | 0.002 | 0 | 0.000 | |||||||||||||||||||||
2007 | 7,709 | 0.001 | 0 | 0.000 | ||||||||||||||||||||||
136384
Financial information |
Share and option ownership of members of the Group Executive Board as of 31 December 2007 | ||||||||||||||||||||||||||||
Potentially | Type and | |||||||||||||||||||||||||||
Number of | Voting rights | Number of | conferred voting | quantity | ||||||||||||||||||||||||
Name, function1 | For the year | shares held | in % | options held | rights in %2 | of options3 | ||||||||||||||||||||||
ix: | 30,000 | |||||||||||||||||||||||||||
x: | 200,000 | |||||||||||||||||||||||||||
xii: | 260,000 | |||||||||||||||||||||||||||
Marcel Rohner, Group Chief Executive Officer (CEO) and | xiv: | 300,000 | ||||||||||||||||||||||||||
Chairman & CEO Investment Bank | 2007 | 501,846 | 0.044 | 990,000 | 0.088 | xv: | 200,000 | |||||||||||||||||||||
i: | 52,560 | |||||||||||||||||||||||||||
iv: | 71,672 | |||||||||||||||||||||||||||
vi: | 120,000 | |||||||||||||||||||||||||||
viii: | 120,000 | |||||||||||||||||||||||||||
xi: | 160,000 | |||||||||||||||||||||||||||
xiii: | 190,000 | |||||||||||||||||||||||||||
John A. Fraser, Chairman and | xiv: | 200,000 | ||||||||||||||||||||||||||
CEO Global Asset Management | 2007 | 461,764 | 0.041 | 1,074,232 | 0.095 | xv: | 160,000 | |||||||||||||||||||||
x: | 80,000 | |||||||||||||||||||||||||||
xii: | 90,000 | |||||||||||||||||||||||||||
xiv: | 90,000 | |||||||||||||||||||||||||||
Peter Kurer, Group General Counsel | 2007 | 292,762 | 0.026 | 350,000 | 0.031 | xv: | 90,000 | |||||||||||||||||||||
ii: | 4,000 | |||||||||||||||||||||||||||
iv: | 57,590 | |||||||||||||||||||||||||||
v: | 40,000 | |||||||||||||||||||||||||||
viii: | 100,000 | |||||||||||||||||||||||||||
xi: | 133,092 | |||||||||||||||||||||||||||
xiii: | 52,000 | |||||||||||||||||||||||||||
xiv: | 66,000 | |||||||||||||||||||||||||||
Joseph Scoby, Group Chief Risk Officer | 2007 | 509,571 | 0.045 | 533,682 | 0.047 | xv: | 81,000 | |||||||||||||||||||||
vii: | 30,000 | |||||||||||||||||||||||||||
x: | 60,000 | |||||||||||||||||||||||||||
xii: | 80,000 | |||||||||||||||||||||||||||
xiv: | 90,000 | |||||||||||||||||||||||||||
Walter Stuerzinger, Chief Operating Officer Corporate Center | 2007 | 209,442 | 0.019 | 350,000 | 0.031 | xv: | 90,000 | |||||||||||||||||||||
x: | 60,000 | |||||||||||||||||||||||||||
xii: | 120,000 | |||||||||||||||||||||||||||
xiv: | 100,000 | |||||||||||||||||||||||||||
Marco Suter, Group Chief Financial Officer | 2007 | 235,757 | 0.021 | 355,000 | 0.031 | xv: | 75,000 | |||||||||||||||||||||
iii: | 264,486 | |||||||||||||||||||||||||||
vi: | 200,000 | |||||||||||||||||||||||||||
ix: | 200,000 | |||||||||||||||||||||||||||
x: | 160,000 | |||||||||||||||||||||||||||
xii: | 150,000 | |||||||||||||||||||||||||||
xiv: | 160,000 | |||||||||||||||||||||||||||
Rory Tapner, Chairman and CEO Asia Pacific | 2007 | 514,365 | 0.046 | 1,294,486 | 0.115 | xv: | 160,000 | |||||||||||||||||||||
vi: | 50,000 | |||||||||||||||||||||||||||
xii: | 95,976 | |||||||||||||||||||||||||||
Raoul Weil, Chairman and | xiv: | 120,000 | ||||||||||||||||||||||||||
CEO Global Wealth Management & Business Banking | 2007 | 212,934 | 0.019 | 405,752 | 0.036 | xv: | 139,776 | |||||||||||||||||||||
Compensation paid to former members of the BoD and GEB1 | ||||||||||||||||
CHF, except where indicateda | ||||||||||||||||
For the | Benefits in | |||||||||||||||
Name, function | year ended | Compensation | kind | Total | ||||||||||||
Georges Blum, former member of the BoD | 2008 | 101,579 | 101,579 | |||||||||||||
(Swiss Bank Corporation) | 2007 | 90,803 | 90,803 | |||||||||||||
Franz Galliker, former member of the BoD | 2008 | 69,596 | 69,596 | |||||||||||||
(Swiss Bank Corporation) | 2007 | 62,174 | 62,174 | |||||||||||||
Walter G. Frehner, former member of the BoD | 2008 | 74,663 | 74,663 | |||||||||||||
(Swiss Bank Corporation) | 2007 | 73,061 | 73,061 | |||||||||||||
Hans (Liliane) Strasser, former member of the BoD | 2008 | 32,673 | 32,673 | |||||||||||||
(Swiss Bank Corporation) | 2007 | 42,311 | 42,311 | |||||||||||||
Robert Studer, former member of the BoD | 2008 | 126,208 | 126,208 | |||||||||||||
(Union Bank of Switzerland) | 2007 | 260,162 | 260,162 | |||||||||||||
Alberto Togni, former member of the BoD | 2008 | 318,461 | 427,949 | 746,410 | ||||||||||||
(UBS) | 2007 | 318,401 | 502,478 | 820,879 | ||||||||||||
Philippe de Weck, former member of the BoD | 2008 | 109,703 | 109,703 | |||||||||||||
(Union Bank of Switzerland) | 2007 | 129,701 | 129,701 | |||||||||||||
Aggregate of all former members of the GEB2 | 2008 | 0 | 171,180 | 171,180 | ||||||||||||
2007 | 0 | 257,791 | 257,791 | |||||||||||||
Aggregate of all former members of the BoD and GEB | 2008 | 318,461 | 1,113,551 | 1,432,012 | ||||||||||||
2007 | 318,401 | 1,418,481 | 1,736,882 | |||||||||||||
385
Financial information
UBS AG (Parent Bank)
Share and option ownership of members of the GEB at 31 December 2007/2008 | ||||||||||||||||||||||||||
For the | Number of | Voting rights | Number of | Potentially conferred | Type and quantity | |||||||||||||||||||||
Name, function1 | year ended | shares held | in % | options held | voting rights in %2 | of options3 | ||||||||||||||||||||
Marcel Rohner, | 2008 | 711,366 | 0.042 | 1,055,043 | 0.063 | xxv: | 31,971 | |||||||||||||||||||
Group Chief Executive Officer | xxx: | 213,140 | ||||||||||||||||||||||||
xxxv: | 277,082 | |||||||||||||||||||||||||
xli: | 319,710 | |||||||||||||||||||||||||
xlv: | 213,140 | |||||||||||||||||||||||||
2007 | 501,846 | 0.044 | 990,000 | 0.088 | xxv: | 30,000 | ||||||||||||||||||||
xxx: | 200,000 | |||||||||||||||||||||||||
xxxv: | 260,000 | |||||||||||||||||||||||||
xli: | 300,000 | |||||||||||||||||||||||||
xlv: | 200,000 | |||||||||||||||||||||||||
John Cryan, | 2008 | 235,929 | 0.014 | 382,673 | 0.023 | v: | 21,362 | |||||||||||||||||||
Group Chief Financial Officer | vi: | 20,731 | ||||||||||||||||||||||||
vii: | 20,725 | |||||||||||||||||||||||||
xii: | 5,454 | |||||||||||||||||||||||||
xiii: | 5,294 | |||||||||||||||||||||||||
xiv: | 5,292 | |||||||||||||||||||||||||
xvii: | 23,626 | |||||||||||||||||||||||||
xviii: | 23,620 | |||||||||||||||||||||||||
xix: | 23,612 | |||||||||||||||||||||||||
xxi: | 5,526 | |||||||||||||||||||||||||
xxii: | 5,524 | |||||||||||||||||||||||||
xxiii: | 5,524 | |||||||||||||||||||||||||
xxvii: | 17,072 | |||||||||||||||||||||||||
xxviii: | 17,068 | |||||||||||||||||||||||||
xxix: | 17,063 | |||||||||||||||||||||||||
�� | xxxii: | 14,210 | ||||||||||||||||||||||||
xxxiii: | 14,210 | |||||||||||||||||||||||||
xxxiv: | 14,207 | |||||||||||||||||||||||||
xxxviii: | 5,330 | |||||||||||||||||||||||||
xxxix: | 5,328 | |||||||||||||||||||||||||
xl: | 5,326 | |||||||||||||||||||||||||
xlii: | 17,762 | |||||||||||||||||||||||||
xliii: | 17,762 | |||||||||||||||||||||||||
xliv: | 17,760 | |||||||||||||||||||||||||
xlvi: | 53,285 | |||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Markus U. Diethelm, | 2008 | 112,245 | 0.007 | 0 | 0.000 | 0 | ||||||||||||||||||||
Group General Counsel | 2007 | |||||||||||||||||||||||||
John A. Fraser, | 2008 | 583,812 | 0.035 | 1,144,808 | 0.068 | i: | 56,013 | |||||||||||||||||||
Chairman and CEO | viii: | 76,380 | ||||||||||||||||||||||||
Global Asset Management | xv: | 127,884 | ||||||||||||||||||||||||
xx: | 127,884 | |||||||||||||||||||||||||
xxxi: | 170,512 | |||||||||||||||||||||||||
xxxvi: | 202,483 | |||||||||||||||||||||||||
xli: | 213,140 | |||||||||||||||||||||||||
xlv: | 170,512 | |||||||||||||||||||||||||
2007 | 461,764 | 0.041 | 1,074,232 | 0.095 | i: | 52,560 | ||||||||||||||||||||
viii: | 71,672 | |||||||||||||||||||||||||
xv: | 120,000 | |||||||||||||||||||||||||
xx: | 120,000 | |||||||||||||||||||||||||
xxxi: | 160,000 | |||||||||||||||||||||||||
xxxvi: | 190,000 | |||||||||||||||||||||||||
xli: | 200,000 | |||||||||||||||||||||||||
xlv: | 160,000 | |||||||||||||||||||||||||
Marten Hoekstra, | 2008 | 245,397 | 0.015 | 684,168 | 0.041 | ii: | 8,679 | |||||||||||||||||||
Deputy CEO Global Wealth | iii: | 8,421 | ||||||||||||||||||||||||
Management & Business Banking | iv: | 8,421 | ||||||||||||||||||||||||
and Head Wealth Management US | ix: | 8,823 | ||||||||||||||||||||||||
x: | 12,825 | |||||||||||||||||||||||||
xi: | 8,561 | |||||||||||||||||||||||||
xxvi: | 42,628 | |||||||||||||||||||||||||
xxxi: | 53,285 | |||||||||||||||||||||||||
xxxvi: | 53,285 | |||||||||||||||||||||||||
xli: | 85,256 | |||||||||||||||||||||||||
xlv: | 154,931 | |||||||||||||||||||||||||
xlvii: | 239,053 | |||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Jerker Johansson, | 2008 | 521,544 | 0.031 | 753,410 | 0.045 | xlviii: | 745,990 | |||||||||||||||||||
Chairman and CEO Investment Bank | xlix: | 7,420 | ||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
137386
UBS AG (Parent Bank)Notes to the Financial Statements
Financial information |
Share and option ownership of members of the GEB on 31 December 2007/2008 (continued) | ||||||||||||||||||||||||||
For the | Number of | Voting rights | Number of | Potentially conferred | Type and quantity | |||||||||||||||||||||
Name, function1 | year ended | shares held | in % | options held | voting rights in %2 | of options3 | ||||||||||||||||||||
Philip J. Lofts, | 2008 | 186,434 | 0.011 | 577,723 | 0.034 | v: | 11,445 | |||||||||||||||||||
Group Chief Risk Officer | vi: | 11,104 | ||||||||||||||||||||||||
vii: | 11,098 | |||||||||||||||||||||||||
xii: | 1,240 | |||||||||||||||||||||||||
xiii: | 5,464 | |||||||||||||||||||||||||
xiv: | 1,199 | |||||||||||||||||||||||||
xvii: | 9,985 | |||||||||||||||||||||||||
xviii: | 9,980 | |||||||||||||||||||||||||
xix: | 9,974 | |||||||||||||||||||||||||
xxi: | 1,833 | |||||||||||||||||||||||||
xxii: | 1,830 | |||||||||||||||||||||||||
xxiii: | 1,830 | |||||||||||||||||||||||||
xxvii: | 35,524 | |||||||||||||||||||||||||
xxviii: | 35,524 | |||||||||||||||||||||||||
xxix: | 35,521 | |||||||||||||||||||||||||
xxxv: | 117,090 | |||||||||||||||||||||||||
xli: | 117,227 | |||||||||||||||||||||||||
xlv: | 85,256 | |||||||||||||||||||||||||
xlvii: | 74,599 | |||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Walter Stuerzinger, | 2008 | 296,886 | 0.018 | 372,995 | 0.022 | xvi: | 31,971 | |||||||||||||||||||
Chief Operating Officer, | xxx: | 63,942 | ||||||||||||||||||||||||
Corporate Center | xxxv: | 85,256 | ||||||||||||||||||||||||
xli: | 95,913 | |||||||||||||||||||||||||
xlv: | 95,913 | |||||||||||||||||||||||||
2007 | 209,442 | 0.019 | 350,000 | 0.031 | xvi: | 30,000 | ||||||||||||||||||||
xxx: | 60,000 | |||||||||||||||||||||||||
xxxv: | 80,000 | |||||||||||||||||||||||||
xli: | 90,000 | |||||||||||||||||||||||||
xlv: | 90,000 | |||||||||||||||||||||||||
Rory Tapner, | 2008 | 827,809 | 0.049 | 1,379,533 | 0.082 | vii: | 281,862 | |||||||||||||||||||
Chairman and CEO Asia Pacific | xv: | 213,140 | ||||||||||||||||||||||||
xxiv: | 213,140 | |||||||||||||||||||||||||
xxx: | 170,512 | |||||||||||||||||||||||||
xxxv: | 159,855 | |||||||||||||||||||||||||
xli: | 170,512 | |||||||||||||||||||||||||
xlv: | 170,512 | |||||||||||||||||||||||||
2007 | 514,365 | 0.046 | 1,294,486 | 0.115 | vii: | 264,486 | ||||||||||||||||||||
xv: | 200,000 | |||||||||||||||||||||||||
xxiv: | 200,000 | |||||||||||||||||||||||||
xxx: | 160,000 | |||||||||||||||||||||||||
xxxv: | 150,000 | |||||||||||||||||||||||||
xli: | 160,000 | |||||||||||||||||||||||||
xlv: | 160,000 | |||||||||||||||||||||||||
Raoul Weil, | 2008 | 315,698 | 0.019 | 432,409 | 0.026 | xv: | 53,285 | |||||||||||||||||||
Chairman and CEO Global Wealth | xxxv: | 102,281 | ||||||||||||||||||||||||
Management & Business Banking, | xli: | 127,884 | ||||||||||||||||||||||||
relinquished his duties on | xlv: | 148,959 | ||||||||||||||||||||||||
an interim basis | 2007 | 212,934 | 0.019 | 405,752 | 0.036 | xv: | 50,000 | |||||||||||||||||||
xxxv: | 95,976 | |||||||||||||||||||||||||
xli: | 120,000 | |||||||||||||||||||||||||
xlv: | 139,776 | |||||||||||||||||||||||||
Alexander Wilmot-Sitwell, | 2008 | 304,655 | 0.018 | 353,807 | 0.021 | xxxiv: | 53,282 | |||||||||||||||||||
Chairman and CEO, UBS Group EMEA | xxxvii: | 2,130 | ||||||||||||||||||||||||
and Joint Global Head IB Department | xxxviii: | 35,524 | ||||||||||||||||||||||||
xxxix: | 35,524 | |||||||||||||||||||||||||
xl: | 35,521 | |||||||||||||||||||||||||
xlv: | 106,570 | |||||||||||||||||||||||||
xlvii: | 85,256 | |||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Robert Wolf, | 2008 | 827,307 | 0.049 | 948,473 | 0.056 | xx: | 287,739 | |||||||||||||||||||
Chairman and CEO, UBS Group | xxxi: | 213,140 | ||||||||||||||||||||||||
Americas / President Investment Bank | xxxvi: | 127,884 | ||||||||||||||||||||||||
xli: | 106,570 | |||||||||||||||||||||||||
xlv: | 106,570 | |||||||||||||||||||||||||
xlvii: | 106,570 | |||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||
Type | Number of options | Year of grant | Vesting date | Expiry date | Subscription ratio | Strike price | ||||||||||||||||||
i | 52,560 | 2001 | 20/02/2004 | 20/02/2009 | 1:1 | CHF 50.00 | ||||||||||||||||||
ii | 4,000 | 2002 | 28/02/2005 | 28/02/2012 | 1:1 | USD 23.12 | ||||||||||||||||||
iii | 264,486 | 2002 | 20/02/2005 | 31/01/2012 | 1:1 | CHF 38.88 | ||||||||||||||||||
iv | 129,262 | 2002 | 31/01/2005 | 31/01/2012 | 1:1 | USD 22.63 | ||||||||||||||||||
v | 40,000 | 2002 | 28/06/2005 | 28/06/2012 | 1:1 | USD 24.85 | ||||||||||||||||||
vi | 370,000 | 2002 | 28/06/2005 | 28/06/2012 | 1:1 | CHF 40.38 | ||||||||||||||||||
vii | 110,000 | 2002 | 28/06/2005 | 28/12/2012 | 1:1 | CHF 40.38 | ||||||||||||||||||
viii | 220,000 | 2003 | 31/01/2006 | 31/01/2013 | 1:1 | USD 24.00 | ||||||||||||||||||
ix | 310,000 | 2003 | 31/01/2006 | 31/07/2013 | 1:1 | CHF 32.50 | ||||||||||||||||||
x | 640,000 | 2004 | 28/02/2007 | 28/02/2014 | 1:1 | CHF 51.88 | ||||||||||||||||||
xi | 293,092 | 2004 | 28/02/2007 | 28/02/2014 | 1:1 | USD 40.63 | ||||||||||||||||||
xii | 1,305,976 | 2005 | 01/03/2008 | 28/02/2015 | 1:1 | CHF 55.75 | ||||||||||||||||||
xiii | 242,000 | 2005 | 01/03/2008 | 28/02/2015 | 1:1 | USD 47.75 | ||||||||||||||||||
xiv | 1,526,000 | 2006 | 01/03/2009 | 28/02/2016 | 1:1 | CHF 77.33 | ||||||||||||||||||
xv | 1,320,776 | 2007 | 01/03/2010 | 28/02/2017 | 1:1 | CHF 78.50 | ||||||||||||||||||
387
138
Loans granted to members of the Board of Directors as of 31 December 2007
CHF, except where indicateda | ||||||||||||
Name, function1 | Mortgages | Other loans granted | Total | |||||||||
Marcel Ospel, Chairman | 11,000,000 | 0 | 11,000,000 | |||||||||
Stephan Haeringer, Executive Vice Chairman | 0 | 0 | 0 | |||||||||
Ernesto Bertarelli, member | 0 | 0 | 0 | |||||||||
Gabrielle Kaufmann-Kohler, member | 0 | 0 | 0 | |||||||||
Sergio Marchionne, member | 0 | 0 | 0 | |||||||||
Rolf A. Meyer, member | 480,000 | 0 | 480,000 | |||||||||
Helmut Panke, member | 0 | 0 | 0 | |||||||||
Peter Spuhler, member | 0 | 0 | 0 | |||||||||
Peter Voser, member | 0 | 0 | 0 | |||||||||
Lawrence A. Weinbach, member | 0 | 0 | 0 | |||||||||
Joerg Wolle, member | 0 | 0 | 0 | |||||||||
Aggregate of all members of the Board of Directors | 11,480,000 | 0 | 11,480,000 | |||||||||
Financial information
UBS AG (Parent Bank)
Vested and unvested options held by independent members of the BoD and by members of the GEB on 31 December 2007 / 2008 | ||||||||||||||||||||||||
Type | Number of options | Year of grant | Vesting date | Expiry date | Subscription ratio | Strike price | ||||||||||||||||||
i | 56,013 | 2001 | 20.02.2004 | 20.02.2009 | 1:1 | CHF 46.92 | ||||||||||||||||||
ii | 8,679 | 2002 | 31.01.2002 | 31.07.2012 | 1:1 | USD 21.24 | ||||||||||||||||||
iii | 8,421 | 2002 | 31.01.2004 | 31.07.2012 | 1:1 | USD 21.24 | ||||||||||||||||||
iv | 8,421 | 2002 | 31.01.2005 | 31.07.2012 | 1:1 | USD 21.24 | ||||||||||||||||||
v | 32,807 | 2002 | 31.01.2003 | 31.01.2012 | 1:1 | CHF 36.49 | ||||||||||||||||||
vi | 31,835 | 2002 | 31.01.2004 | 31.01.2012 | 1:1 | CHF 36.49 | ||||||||||||||||||
vii | 313,685 | 2002 | 31.01.2005 | 31.01.2012 | 1:1 | CHF 36.49 | ||||||||||||||||||
viii | 76,380 | 2002 | 31.01.2005 | 31.01.2012 | 1:1 | USD 21.24 | ||||||||||||||||||
ix | 8,823 | 2002 | 28.02.2002 | 28.08.2012 | 1:1 | USD 21.70 | ||||||||||||||||||
x | 12,825 | 2002 | 29.02.2004 | 28.08.2012 | 1:1 | USD 21.70 | ||||||||||||||||||
xi | 8,561 | 2002 | 28.02.2005 | 28.08.2012 | 1:1 | USD 21.70 | ||||||||||||||||||
xii | 6,694 | 2002 | 28.02.2003 | 28.02.2012 | 1:1 | CHF 36.65 | ||||||||||||||||||
xiii | 10,758 | 2002 | 28.02.2004 | 28.02.2012 | 1:1 | CHF 36.65 | ||||||||||||||||||
xiv | 6,491 | 2002 | 28.02.2005 | 28.02.2012 | 1:1 | CHF 36.65 | ||||||||||||||||||
xv | 394,309 | 2002 | 28.06.2005 | 28.06.2012 | 1:1 | CHF 37.90 | ||||||||||||||||||
xvi | 31,971 | 2002 | 28.06.2005 | 28.12.2012 | 1:1 | CHF 37.90 | ||||||||||||||||||
xvii | 33,611 | 2003 | 01.03.2004 | 31.01.2013 | 1:1 | CHF 27.81 | ||||||||||||||||||
xviii | 33,600 | 2003 | 01.03.2005 | 31.01.2013 | 1:1 | CHF 27.81 | ||||||||||||||||||
xix | 33,586 | 2003 | 01.03.2006 | 31.01.2013 | 1:1 | CHF 27.81 | ||||||||||||||||||
xx | 415,623 | 2003 | 31.01.2006 | 31.01.2013 | 1:1 | USD 22.53 | ||||||||||||||||||
xxi | 7,359 | 2003 | 01.03.2004 | 28.02.2013 | 1:1 | CHF 26.39 | ||||||||||||||||||
xxii | 7,354 | 2003 | 01.03.2005 | 28.02.2013 | 1:1 | CHF 26.39 | ||||||||||||||||||
xxiii | 7,354 | 2003 | 01.03.2006 | 28.02.2013 | 1:1 | CHF 26.39 | ||||||||||||||||||
xxiv | 213,140 | 2003 | 31.01.2006 | 31.01.2013 | 1:1 | CHF 30.50 | ||||||||||||||||||
xxv | 31,971 | 2003 | 31.01.2006 | 31.07.2013 | 1:1 | CHF 30.50 | ||||||||||||||||||
xxvi | 42,628 | 2003 | 31.01.2006 | 31.07.2013 | 1:1 | USD 22.53 | ||||||||||||||||||
xxvii | 52,596 | 2004 | 01.03.2005 | 27.02.2014 | 1:1 | CHF 44.32 | ||||||||||||||||||
xxviii | 52,592 | 2004 | 01.03.2006 | 27.02.2014 | 1:1 | CHF 44.32 | ||||||||||||||||||
xxix | 52,584 | 2004 | 01.03.2007 | 27.02.2014 | 1:1 | CHF 44.32 | ||||||||||||||||||
xxx | 532,850 | 2004 | 28.02.2007 | 27.02.2014 | 1:1 | CHF 48.69 | ||||||||||||||||||
xxxi | 436,937 | 2004 | 01.03.2007 | 27.02.2014 | 1:1 | USD 38.13 | ||||||||||||||||||
xxxii | 14,210 | 2005 | 01.03.2006 | 28.02.2015 | 1:1 | CHF 47.58 | ||||||||||||||||||
xxxiii | 14,210 | 2005 | 01.03.2007 | 28.02.2015 | 1:1 | CHF 47.58 | ||||||||||||||||||
xxxiv | 67,489 | 2005 | 01.03.2008 | 28.02.2015 | 1:1 | CHF 47.58 | ||||||||||||||||||
xxxv | 837,477 | 2005 | 01.03.2008 | 28.02.2015 | 1:1 | CHF 52.32 | ||||||||||||||||||
xxxvi | 383,652 | 2005 | 01.03.2008 | 28.02.2015 | 1:1 | USD 44.81 | ||||||||||||||||||
xxxvii | 2,130 | 2005 | 04.03.2007 | 04.03.2015 | 1:1 | CHF 47.89 | ||||||||||||||||||
xxxviii | 40,854 | 2006 | 01.03.2007 | 28.02.2016 | 1:1 | CHF 65.97 | ||||||||||||||||||
xxxix | 40,852 | 2006 | 01.03.2008 | 28.02.2016 | 1:1 | CHF 65.97 | ||||||||||||||||||
xl | 40,847 | 2006 | 01.03.2009 | 28.02.2016 | 1:1 | CHF 65.97 | ||||||||||||||||||
xli | 1,332,125 | 2006 | 01.03.2009 | 28.02.2016 | 1:1 | CHF 72.57 | ||||||||||||||||||
xlii | 17,762 | 2007 | 01.03.2008 | 28.02.2017 | 1:1 | CHF 67.00 | ||||||||||||||||||
xliii | 17,762 | 2007 | 01.03.2009 | 28.02.2017 | 1:1 | CHF 67.00 | ||||||||||||||||||
xliv | 17,760 | 2007 | 01.03.2010 | 28.02.2017 | 1:1 | CHF 67.00 | ||||||||||||||||||
xlv | 1,348,276 | 2007 | 01.03.2010 | 28.02.2017 | 1:1 | CHF 73.67 | ||||||||||||||||||
xlvi | 53,285 | 2008 | 01.03.2011 | 28.02.2018 | 1:1 | CHF 32.45 | ||||||||||||||||||
xlvii | 505,478 | 2008 | 01.03.2011 | 28.03.2018 | 1:1 | CHF 35.66 | ||||||||||||||||||
xlviii | 745,990 | 2008 | 01.03.2011 | 07.04.2018 | 1:1 | CHF 36.46 | ||||||||||||||||||
xlix | 7,420 | 2008 | 01.03.2011 | 06.06.2018 | 1:1 | CHF 28.10 | ||||||||||||||||||
388
Financial information |
Loans granted to members of the Group Executive Board
CHF, except where indicateda | ||||||||||||
Name, function1 | Mortgages | Other loans granted2 | Total | |||||||||
Joseph Scoby, Group Chief Risk Officer | 0 | 3,145,796 | 3,145,796 | |||||||||
Aggregate of all members of the Group Executive Board | 3,487,000 | 3,145,796 | 6,632,796 | |||||||||
Loans granted to members of the BoD at 31 December 2007/2008 | ||||||||||||||||
CHF, except where indicated a | ||||||||||||||||
For the | Other loans | |||||||||||||||
Name, function1 | year ended | Secured loans | granted | Total | ||||||||||||
Peter Kurer, Chairman2 | 2008 | 1,261,000 | 0 | 1,261,000 | ||||||||||||
2007 | ||||||||||||||||
Sergio Marchionne, Senior Independent Director, Vice Chairman | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | 0 | 0 | 0 | |||||||||||||
Ernesto Bertarelli, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | 0 | 0 | 0 | |||||||||||||
Sally Bott, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | ||||||||||||||||
Rainer-Marc Frey, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | ||||||||||||||||
Bruno Gehrig, member2 | 2008 | 798,000 | 0 | 798,000 | ||||||||||||
2007 | ||||||||||||||||
Gabrielle Kaufmann-Kohler, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | 0 | 0 | 0 | |||||||||||||
Helmut Panke, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | 0 | 0 | 0 | |||||||||||||
William G. Parrett, member2 | 2008 | 1,167,659 | 0 | 1,167,659 | ||||||||||||
2007 | ||||||||||||||||
David Sidwell, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | ||||||||||||||||
Peter R. Voser, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | 0 | 0 | 0 | |||||||||||||
Joerg Wolle, member | 2008 | 0 | 0 | 0 | ||||||||||||
2007 | 0 | 0 | �� | 0 | ||||||||||||
Aggregate of all members of the BoD | 3,226,659 | 0 | 3,226,659 | |||||||||||||
Loans granted to members of the GEB at 31 December 2007/2008 | ||||||||||||||||
CHF, except where indicated a | ||||||||||||||||
For the | Other loans | |||||||||||||||
Name, function1 | year ended | Secured loans | granted2 | Total | ||||||||||||
Markus U. Diethelm, Group General Counsel | 2008 | 3,900,000 | 0 | 3,900,000 | ||||||||||||
Joe Scoby, Group Chief Risk Officer3 | 2007 | 0 | 3,145,796 | 3,145,796 | ||||||||||||
Aggregate of all members of the GEB4 | 2008 | 7,740,562 | 0 | 7,740,562 | ||||||||||||
Aggregate of all members of the GEB | 2007 | 3,487,000 | 3,145,796 | 6,632,796 | ||||||||||||
139389
UBS AG (Parent Bank)Report of the Auditors of the Conditional Capital Increase
Financial information
UBS AG (Parent Bank)
142
392
Additional Disclosure Required under SEC Regulations
Financial information |
Additional Disclosure Requireddisclosure required
under SEC RegulationsTable of Contentsregulations
144
A – Introduction
The following pages contain additional disclosures about UBS Group which are required under SEC regulations.
393
Financial information
Additional disclosure required under SEC regulations
B – Selected Financial Datafinancial data
The tables below set forth, for the periods and dates indicated, information concerning the noon buying rate for the Swiss franc, expressed in United States dollars, or USD, per one Swiss franc. The noon buying rate is the rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.
Average rate1 | ||||||||||||||||
Year ended 31 December | High | Low | (USD per 1 CHF) | At period end | ||||||||||||
2003 | 0.8189 | 0.7048 | 0.7493 | 0.8069 | ||||||||||||
2004 | 0.8843 | 0.7601 | 0.8059 | 0.8712 | ||||||||||||
2005 | 0.8721 | 0.7544 | 0.8039 | 0.7606 | ||||||||||||
2006 | 0.8396 | 0.7575 | 0.8034 | 0.8200 | ||||||||||||
2007 | 0.9087 | 0.7978 | 0.8381 | 0.8827 | ||||||||||||
Month | High | Low | ||||||||||||||
September 2007 | 0.8568 | 0.8258 | ||||||||||||||
October 2007 | 0.8629 | 0.8437 | ||||||||||||||
November 2007 | 0.9087 | 0.8627 | ||||||||||||||
December 2007 | 0.8951 | 0.8645 | ||||||||||||||
January 2008 | 0.9221 | 0.8948 | ||||||||||||||
February 2008 | 0.9583 | 0.9030 | ||||||||||||||
Average rate1 | ||||||||||||||||
Year ended 31 December | High | Low | (USD per 1 CHF) | At period end | ||||||||||||
2004 | 0.8843 | 0.7601 | 0.8059 | 0.8712 | ||||||||||||
2005 | 0.8721 | 0.7544 | 0.8039 | 0.7606 | ||||||||||||
2006 | 0.8396 | 0.7575 | 0.8034 | 0.8200 | ||||||||||||
2007 | 0.9087 | 0.7978 | 0.8381 | 0.8827 | ||||||||||||
2008 | 1.0142 | 0.8171 | 0.9298 | 0.9369 | ||||||||||||
Month | High | Low | ||||||||||||||
September 2008 | 0.9248 | 0.8776 | ||||||||||||||
October 2008 | 0.8921 | 0.8570 | ||||||||||||||
November 2008 | 0.8616 | 0.8172 | ||||||||||||||
December 2008 | 0.9602 | 0.8171 | ||||||||||||||
January 2009 | 0.9359 | 0.8599 | ||||||||||||||
February 2009 | 0.8757 | 0.8465 | ||||||||||||||
145394
Financial information |
395
Financial information
Additional Disclosure Requireddisclosure required under SEC Regulationsregulations
B – Selected Financial Data (continued)
146396
B – Selected Financial Data (continued)
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Balance sheet data | ||||||||||||||||||||
Total assets | 2,272,579 | 2,346,362 | 1,998,455 | 1,701,258 | 1,539,841 | |||||||||||||||
Equity attributable to UBS shareholders | 35,585 | 49,686 | 44,015 | 33,632 | 33,350 | |||||||||||||||
Average equity to average assets (%) | 1.74 | 1.96 | 1.83 | 1.87 | 2.25 | |||||||||||||||
Market capitalization | 108,654 | 154,222 | 131,949 | 103,638 | 95,401 | |||||||||||||||
Shares | ||||||||||||||||||||
Registered ordinary shares | 2,073,547,344 | 2,105,273,286 | 2,177,265,044 | 2,253,716,354 | 2,366,093,528 | |||||||||||||||
Treasury shares | 158,105,524 | 164,475,699 | 208,519,748 | 249,326,620 | 273,482,454 | |||||||||||||||
BIS capital ratios | ||||||||||||||||||||
Tier 1 (%) | 8.8 | 11.9 | 12.8 | 11.8 | 11.8 | |||||||||||||||
Total BIS (%) | 12.0 | 14.7 | 14.1 | 13.6 | 13.4 | |||||||||||||||
Risk-weighted assets | 372,298 | 341,892 | 310,409 | 264,832 | 252,398 | |||||||||||||||
Invested assets (CHF billion) | 3,189 | 2,989 | 2,652 | 2,217 | 2,098 | |||||||||||||||
Personnel Financial Businesses (full-time equivalents) | ||||||||||||||||||||
Switzerland | 27,884 | 27,018 | 26,028 | 25,987 | 26,660 | |||||||||||||||
Rest of Europe / Middle East / Africa | 13,728 | 12,687 | 11,007 | 10,751 | 9,888 | |||||||||||||||
Americas | 31,975 | 30,819 | 27,136 | 26,231 | 25,508 | |||||||||||||||
Asia Pacific | 9,973 | 7,616 | 5,398 | 4,438 | 3,823 | |||||||||||||||
Total | 83,560 | 78,140 | 69,569 | 67,407 | 65,879 | |||||||||||||||
Long-term ratings1 | ||||||||||||||||||||
Fitch, London | AA | AA+ | AA+ | AA+ | AA+ | |||||||||||||||
Moody’s, New York | Aaa | Aa2 | Aa2 | Aa2 | Aa2 | |||||||||||||||
Standard & Poor’s, New York | AA | AA+ | AA+ | AA+ | AA+ | |||||||||||||||
Balance Sheet Data
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Assets | ||||||||||||||||||||
Total assets | 2,272,579 | 2,346,362 | 1,998,455 | 1,701,258 | 1,539,841 | |||||||||||||||
Due from banks | 60,907 | 50,426 | 33,644 | 35,419 | 31,959 | |||||||||||||||
Cash collateral on securities borrowed | 207,063 | 351,590 | 288,435 | 210,606 | 206,519 | |||||||||||||||
Reverse repurchase agreements | 376,928 | 405,834 | 404,432 | 357,164 | 320,499 | |||||||||||||||
Trading portfolio assets | 610,061 | 627,036 | 499,297 | 389,487 | 354,558 | |||||||||||||||
Trading portfolio assets pledged as collateral | 164,311 | 251,478 | 154,759 | 159,115 | 120,759 | |||||||||||||||
Positive replacement values | 428,217 | 292,975 | 273,889 | 248,664 | 234,015 | |||||||||||||||
Loans | 335,864 | 297,842 | 279,910 | 241,803 | 220,083 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 145,762 | 203,689 | 124,328 | 120,026 | 129,084 | |||||||||||||||
Cash collateral on securities lent | 31,621 | 63,088 | 59,938 | 51,301 | 48,272 | |||||||||||||||
Repurchase agreements | 305,887 | 545,480 | 478,508 | 422,587 | 415,863 | |||||||||||||||
Trading portfolio liabilities | 164,788 | 204,773 | 188,631 | 171,033 | 143,957 | |||||||||||||||
Negative replacement values | 443,539 | 297,063 | 277,770 | 267,799 | 240,577 | |||||||||||||||
Financial liabilities designated at fair value | 191,853 | 145,687 | 117,401 | 65,756 | 35,286 | |||||||||||||||
Due to customers | 641,892 | 555,886 | 466,907 | 386,320 | 351,583 | |||||||||||||||
Debt issued | 222,077 | 190,143 | 160,710 | 117,856 | 88,874 | |||||||||||||||
Equity attributable to UBS shareholders | 35,585 | 49,686 | 44,015 | 33,632 | 33,350 | |||||||||||||||
147
Additional Disclosure Required under SEC Regulations
Ratio of The following table sets forth UBS’s ratio of earnings to fixed charges on an IFRS basis for the periods indicated. The ratios are calculated based on earnings from continuing operations. Ratios of earnings to combined fixed charges and preferred stock dividend requirements are not presented as there were no preferred share dividends in any of the periods indicated. 397B – Selected Financial Data (continued)Earningsearnings to Fixed Chargesfixed charges For the year ended 31.12.07 31.12.06 31.12.05 31.12.04 31.12.03 0.97 1.17 1.24 1.34 1.24 For the year ended 31.12.08 31.12.07 31.12.06 31.12.05 31.12.04 0.54 0.96 1.17 1.23 1.32
Financial information
Additional disclosure required under SEC regulations
C – Information on the Company
Property, Plantplant and Equipmentequipment
At 31 December 2007,2008, UBS Financial Businesses operated about 1,1731,166 business and banking locations worldwide, of which about 37%36% were in Switzerland, 48%47% in the Americas, 11%12% in the rest of Europe, Middle East and Africa and 4% in Asia-Pacific. 16%36% of the business and banking locations in Switzerland were owned directly by UBS, with the remainder, along with most
of UBS’s offices outside Switzerland, being held under commercial leases.
At 31 December 2007, the Industrial Holdings segment operated about 17 business locations worldwide, of which 94% were in the Americas and 6% in Asia-Pacific. 94% of the business locations worldwide were held under commercial leases.
148
398
Financial information |
D – Information Requiredrequired by Industry Guideindustry guide 3
Selected Statistical Informationstatistical information
The tables below set forth selected statistical information regarding the Group’s banking operations extracted from the Financial Statements. Unless otherwise indicated, average balances for the years ended 31 December 2007,2008, 31 Decem-
ber 2006December 2007 and 31 December 20052006 are calculated from
monthly data. The distinction between domestic and foreign is generally based on the booking location. For loans, this method is not significantly different from an analysis based on the domicile of the borrower.
Average Balancesbalances and Interest Ratesinterest 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 2008, 2007 2006 and 2005.2006.
31.12.07 | 31.12.06 | 31.12.05 | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million, except where indicated | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Due from banks | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 11,784 | 664 | 5.6 | 10,800 | 587 | 5.4 | 15,467 | 270 | 1.7 | 7,243 | 421 | 5.8 | 11,784 | 664 | 5.6 | 10,800 | 587 | 5.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 46,049 | 2,344 | 5.1 | 29,814 | 1,490 | 5.0 | 25,497 | 1,334 | 5.2 | 58,287 | 1,559 | 2.7 | 46,049 | 2,344 | 5.1 | 29,814 | 1,490 | 5.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 31,473 | 1,693 | 5.4 | 27,147 | 1,333 | 4.9 | 33,012 | 1,079 | 3.3 | 31,642 | 1,208 | 3.8 | 31,473 | 1,693 | 5.4 | 27,147 | 1,333 | 4.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 977,302 | 46,581 | 4.8 | 926,575 | 38,393 | 4.1 | 776,972 | 22,283 | 2.9 | 669,010 | 21,313 | 3.2 | 977,302 | 46,581 | 4.8 | 926,575 | 38,393 | 4.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trading portfolio assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 11,866 | 696 | 5.9 | 17,976 | 651 | 3.6 | 15,545 | 457 | 2.9 | 15,104 | 520 | 3.4 | 11,866 | 696 | 5.9 | 17,976 | 651 | 3.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign taxable | 861,923 | 38,206 | 4.4 | 707,432 | 31,433 | 4.4 | 580,763 | 23,619 | 4.1 | 522,804 | 21,494 | 4.1 | 861,923 | 38,206 | 4.4 | 707,432 | 31,433 | 4.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign non-taxable | 5,754 | 199 | 3.5 | 4,438 | 127 | 2.9 | 3,390 | 58 | 1.7 | 8,070 | 383 | 4.7 | 5,754 | 199 | 3.5 | 4,438 | 127 | 2.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign total | 867,677 | 38,405 | 4.4 | 711,870 | 31,560 | 4.4 | 584,153 | 23,677 | 4.1 | 530,874 | 21,877 | 4.1 | 867,677 | 38,405 | 4.4 | 711,870 | 31,560 | 4.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial assets designated at fair value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 588 | 0 | 42 | 0 | 616 | 0 | 945 | 0 | 588 | 0 | 42 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 9,114 | 298 | 3.3 | 2,325 | 70 | 3.0 | 691 | 26 | 3.8 | 11,024 | 404 | 3.7 | 9,114 | 298 | 3.3 | 2,325 | 70 | 3.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 187,073 | 6,565 | 3.5 | 181,186 | 5,784 | 3.2 | 174,299 | 5,424 | 3.1 | 188,950 | 6,840 | 3.6 | 187,073 | 6,565 | 3.5 | 181,186 | 5,784 | 3.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 146,040 | 9,359 | 6.4 | 105,362 | 6,284 | 5.9 | 91,290 | 3,531 | 3.9 | 147,034 | 8,515 | 5.8 | 146,040 | 9,359 | 6.4 | 105,362 | 6,284 | 5.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial investments available-for-sale | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 3,930 | 66 | 1.7 | 4,126 | 28 | 0.7 | 1,036 | 3 | 0.3 | 1,599 | 72 | 4.5 | 3,930 | 66 | 1.7 | 4,126 | 28 | 0.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign taxable | 2,934 | 110 | 3.7 | 3,171 | 100 | 3.2 | 3,546 | 83 | 2.3 | 3,370 | 73 | 2.2 | 2,934 | 110 | 3.7 | 3,171 | 100 | 3.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign non-taxable | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign total | 2,934 | 110 | 3.7 | 3,171 | 100 | 3.2 | 3,546 | 83 | 2.3 | 3,370 | 73 | 2.2 | 2,934 | 110 | 3.7 | 3,171 | 100 | 3.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total interest-earning assets | 2,295,830 | 106,781 | 4.7 | 2,020,394 | 86,280 | 4.3 | 1,722,124 | 58,167 | 3.4 | 1,665,082 | 62,802 | 3.8 | 2,295,830 | 106,781 | 4.7 | 2,020,394 | 86,280 | 4.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest on swaps | 2,331 | 1,121 | 1,119 | 3,088 | 2,331 | 1,121 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income and average interest- earning assets | 2,295,830 | 109,112 | 4.8 | 2,020,394 | 87,401 | 4.3 | 1,722,124 | 59,286 | 3.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income and average interest-earning assets | 1,665,082 | 65,890 | 4.0 | 2,295,830 | 109,112 | 4.8 | 2,020,394 | 87,401 | 4.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest-earning assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive replacement values | 373,229 | 278,733 | 271,795 | 600,073 | 373,229 | 278,733 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed assets | 7,090 | 7,445 | 9,308 | 7,091 | 7,090 | 7,445 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 80,336 | 66,362 | 55,178 | 82,433 | 82,739 | 68,894 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total average assets | 2,756,485 | 2,372,934 | 2,058,405 | 2,354,679 | 2,758,888 | 2,375,466 |
149399
Financial information
Additional Disclosure Requireddisclosure required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)regulations
Average balances and interest rates (continued) | Average balances and interest rates (continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 60,858 | 2,477 | 4.1 | 46,544 | 1,583 | 3.4 | 35,713 | 897 | 2.5 | 51,027 | 1,503 | 2.9 | 60,858 | 2,477 | 4.1 | 46,544 | 1,583 | 3.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 146,286 | 8,008 | 5.5 | 108,885 | 5,261 | 4.8 | 92,431 | 3,321 | 3.6 | 88,798 | 3,423 | 3.9 | 146,286 | 8,008 | 5.5 | 108,885 | 5,261 | 4.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash collateral on securities lent and repurchase agreements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 47,041 | 1,902 | 4.0 | 46,224 | 1,589 | 3.4 | 40,772 | 881 | 2.2 | 31,269 | 1,026 | 3.3 | 47,041 | 1,902 | 4.0 | 46,224 | 1,589 | 3.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 752,616 | 38,680 | 5.1 | 751,617 | 32,432 | 4.3 | 647,998 | 19,599 | 3.0 | 397,453 | 15,097 | 3.8 | 752,616 | 38,680 | 5.1 | 751,617 | 32,432 | 4.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trading portfolio liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 5,561 | 328 | 5.9 | 4,408 | 283 | 6.4 | 3,632 | 145 | 4.0 | 5,525 | 256 | 4.6 | 5,561 | 328 | 5.9 | 4,408 | 283 | 6.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 214,326 | 15,484 | 7.2 | 202,263 | 14,250 | 7.0 | 173,394 | 10,591 | 6.1 | 132,901 | 8,906 | 6.7 | 214,326 | 15,484 | 7.2 | 202,263 | 14,250 | 7.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial liabilities designated at fair value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 1,503 | 79 | 5.3 | 1,864 | 58 | 3.1 | 638 | 5 | 0.8 | 1,444 | 69 | 4.8 | 1,503 | 79 | 5.3 | 1,864 | 58 | 3.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 173,162 | 7,580 | 4.4 | 127,458 | 4,699 | 3.7 | 86,688 | 2,385 | 2.8 | 151,324 | 7,229 | 4.8 | 173,162 | 7,580 | 4.4 | 127,458 | 4,699 | 3.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Due to customers | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic demand deposits | 64,568 | 736 | 1.1 | 70,981 | 534 | 0.8 | 67,987 | 292 | 0.4 | 56,730 | 495 | 0.9 | 64,568 | 736 | 1.1 | 70,981 | 534 | 0.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic savings deposits | 78,775 | 502 | 0.6 | 86,631 | 392 | 0.5 | 86,373 | 404 | 0.5 | 68,213 | 604 | 0.9 | 78,775 | 502 | 0.6 | 86,631 | 392 | 0.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic time deposits | 41,056 | 1,206 | 2.9 | 28,876 | 639 | 2.2 | 24,245 | 386 | 1.6 | 35,575 | 1,081 | 3.0 | 41,056 | 1,206 | 2.9 | 28,876 | 639 | 2.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic total | 184,399 | 2,444 | 1.3 | 186,488 | 1,565 | 0.8 | 178,605 | 1,082 | 0.6 | 160,518 | 2,180 | 1.4 | 184,399 | 2,444 | 1.3 | 186,488 | 1,565 | 0.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign1 | 426,130 | 16,388 | 3.8 | 314,788 | 11,500 | 3.7 | 249,561 | 5,906 | 2.4 | 401,421 | 11,044 | 2.8 | 426,130 | 16,388 | 3.8 | 314,788 | 11,500 | 3.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-term debt | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 2,228 | 98 | 4.4 | 1,973 | 115 | 5.8 | 1,584 | 20 | 1.3 | 1,735 | 63 | 3.6 | 2,228 | 98 | 4.4 | 1,973 | 115 | 5.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 144,546 | 8,643 | 6.0 | 110,418 | 5,934 | 5.4 | 96,767 | 3,196 | 3.3 | 134,920 | 6,216 | 4.6 | 144,546 | 8,643 | 6.0 | 110,418 | 5,934 | 5.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 4,235 | 115 | 2.7 | 3,957 | 82 | 2.1 | 4,250 | 117 | 2.8 | 5,766 | 148 | 2.6 | 4,235 | 115 | 2.7 | 3,957 | 82 | 2.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign | 70,079 | 1,549 | 2.2 | 57,899 | 1,529 | 2.6 | 43,035 | 1,613 | 3.7 | 74,531 | 2,527 | 3.4 | 70,079 | 1,549 | 2.2 | 57,899 | 1,529 | 2.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | 2,232,970 | 103,775 | 4.6 | 1,964,786 | 80,880 | 4.1 | 1,655,068 | 49,758 | 3.0 | 1,638,632 | 59,687 | 3.6 | 2,232,970 | 103,775 | 4.6 | 1,964,786 | 80,880 | 4.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest-bearing liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative replacement values | 382,115 | 278,903 | 288,089 | 605,975 | 382,115 | 278,903 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 87,196 | 76,270 | 70,654 | 67,098 | 88,191 | 77,304 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 2,702,281 | 2,319,959 | 2,013,811 | 2,311,705 | 2,703,276 | 2,320,993 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total equity | 54,204 | 52,975 | 44,594 | 42,973 | 55,612 | 54,473 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total average liabilities and equity | 2,756,485 | 2,372,934 | 2,058,405 | 2,354,678 | 2,758,888 | 2,375,466 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | 5,337 | 6,521 | 9,528 | 6,203 | 5,337 | 6,521 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net yield on interest-earning assets | 0.2 | 0.3 | 0.6 | 0.4 | 0.2 | 0.3 |
The percentage of total average interest-earning assets attributable to foreign activities was 89%85% for 2008 (89% for 2007 (88%and 88% for 2006 and 86% for 2005)2006). The percentage of total average interest-bearing liabilities attributable to foreign activities was 86%84% for 2008 (86% for 2007 (85%and 85% for 2006 and 84% for 2005)2006). All assets and liabilities are translated into CHF at uniform month-end rates. Interest income and expense are translated at monthly average rates.
Average rates earned and paid on assets and liabilities can change from period to period based on the changes in interest rates in general, but are also affected by changes in the currency mix included in the assets and liabilities. This is especially true for foreign assets and liabilities. Tax-exempt income is not recorded on a tax-equivalent basis. For all three years presented, tax-exempt income is considered to be insignificant and the impact from such income is therefore negligible.
150400
Analysis of 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 ed 31 December D – Information Required by Industry Guide 3 (continued)Changeschanges in Interest Incomeinterest income and Expenseexpense20072008 compared with the year ended 31 December 2006,2007, and for the year ended 31 December 20062007 compared with the year end-2005.2006. 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 the appropriate section of Industry Guide 3 for a discussion of the treatment of impaired and non-performing loans. 2007 compared with 2006 2006 compared with 2005 2008 compared with 2007 2007 compared with 2006 Increase/(decrease) Increase / (decrease) Increase/(decrease) Increase/(decrease) due to changes in due to changes in due to changes in due to changes in Average Average Net Average Average Net Average Average Net Average Average Net CHF million volume rate change volume rate change volume rate change volume rate change Due from banks Domestic 53 24 77 (79 ) 396 317 (254 ) 11 (243 ) 53 24 77 Foreign 812 42 854 224 (68 ) 156 624 (1,409 ) (785 ) 812 42 854 Cash collateral on securities borrowed and reverse repurchase agreements Domestic 212 148 360 (194 ) 448 254 9 (494 ) (485 ) 212 148 360 Foreign 2,080 6,108 8,188 4,338 11,772 16,110 (14,798 ) (10,470 ) (25,268 ) 2,080 6,108 8,188 Trading portfolio assets Domestic (220 ) 265 45 70 124 194 191 (367 ) (176 ) (220 ) 265 45 Foreign taxable 6,798 (25 ) 6,773 5,193 2,621 7,814 (14,921 ) (1,791 ) (16,712 ) 6,798 (25 ) 6,773 Foreign non-taxable 38 34 72 18 51 69 81 103 184 38 34 72 Foreign total 6,836 9 6,845 5,211 2,672 7,883 (14,840 ) (1,688 ) (16,528 ) 6,836 9 6,845 Financial assets designated at fair value Domestic 0 0 0 0 0 0 0 0 0 0 0 0 Foreign 204 24 228 62 (18 ) 44 63 43 106 204 24 228 Loans Domestic 188 593 781 213 147 360 66 209 275 188 593 781 Foreign 2,441 634 3,075 549 2,204 2,753 64 (908 ) (844 ) 2,441 634 3,075 Financial investments Financial investments available-for-sale Domestic (1 ) 39 38 9 16 25 (40 ) 46 6 (1 ) 39 38 Foreign taxable (8 ) 18 10 (9 ) 26 17 16 (53 ) (37 ) (8 ) 18 10 Foreign non-taxable 0 0 0 0 0 0 0 0 0 0 0 0 Foreign total (8 ) 18 10 (9 ) 26 17 16 (53 ) (37 ) (8 ) 18 10 Interest income Domestic 232 1,069 1,301 19 1,131 1,150 (28 ) (595 ) (623 ) 232 1,069 1,301 Foreign 12,365 6,835 19,200 10,375 16,588 26,963 (28,871 ) (14,485 ) (43,356 ) 12,365 6,835 19,200 Total interest income from interest-earning assets 12,597 7,904 20,501 10,394 17,719 28,113 (28,899 ) (15,080 ) (43,979 ) 12,597 7,904 20,501 Net interest on swaps 1,210 2 757 1,210 21,711 28,115 (43,222 ) 21,711
151401
Financial information
Additional Disclosure Requireddisclosure required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Analysis of Changes in Interest Income and Expense (continued)regulations
Analysis of changes in interest income and expense (continued) | Analysis of changes in interest income and expense (continued) | ||||||||||||||||||||||||||||||||||||||||||||||||
2007 compared with 2006 | 2006 compared with 2005 | 2008 compared with 2007 | 2007 compared with 2006 | ||||||||||||||||||||||||||||||||||||||||||||||
Increase/(decrease) | Increase / (decrease) | Increase/(decrease) | Increase/(decrease) | ||||||||||||||||||||||||||||||||||||||||||||||
due to changes in | due to changes in | due to changes in | due to changes in | ||||||||||||||||||||||||||||||||||||||||||||||
Average | Average | Net | Average | Average | Net | Average | Average | Net | Average | Average | Net | ||||||||||||||||||||||||||||||||||||||
CHF million | volume | rate | change | volume | rate | change | volume | rate | change | volume | rate | change | |||||||||||||||||||||||||||||||||||||
Interest expense on interest-bearing liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||
Due to banks | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 487 | 407 | 894 | 271 | 415 | 686 | (403 | ) | (571 | ) | (974 | ) | 487 | 407 | 894 | ||||||||||||||||||||||||||||||||||
Foreign | 1,795 | 952 | 2,747 | 592 | 1,348 | 1,940 | (3,162 | ) | (1,423 | ) | (4,585 | ) | 1,795 | 952 | 2,747 | ||||||||||||||||||||||||||||||||||
Cash collateral on securities lent and repurchase agreements | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 28 | 285 | 313 | 120 | 588 | 708 | (631 | ) | (245 | ) | (876 | ) | 28 | 285 | 313 | ||||||||||||||||||||||||||||||||||
Foreign | 43 | 6,205 | 6,248 | 3,109 | 9,724 | 12,833 | (18,113 | ) | (5,470 | ) | (23,583 | ) | 43 | 6,205 | 6,248 | ||||||||||||||||||||||||||||||||||
Trading portfolio liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 74 | (29 | ) | 45 | 31 | 107 | 138 | (2 | ) | (70 | ) | (72 | ) | 74 | (29 | ) | 45 | ||||||||||||||||||||||||||||||||
Foreign | 844 | 390 | 1,234 | 1,761 | 1,898 | 3,659 | (5,863 | ) | (715 | ) | (6,578 | ) | 844 | 390 | 1,234 | ||||||||||||||||||||||||||||||||||
Financial liabilities designated at fair value | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | (11 | ) | 32 | 21 | 10 | 43 | 53 | (3 | ) | (7 | ) | (10 | ) | (11 | ) | 32 | 21 | ||||||||||||||||||||||||||||||||
Foreign | 1,691 | 1,190 | 2,881 | 1,142 | 1,172 | 2,314 | (961 | ) | 610 | (351 | ) | 1,691 | 1,190 | 2,881 | |||||||||||||||||||||||||||||||||||
Due to customers | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic demand deposits | (51 | ) | 253 | 202 | 12 | 230 | 242 | (86 | ) | (155 | ) | (241 | ) | (51 | ) | 253 | 202 | ||||||||||||||||||||||||||||||||
Domestic savings deposits | (39 | ) | 149 | 110 | 1 | (13 | ) | (12 | ) | (63 | ) | 165 | 102 | (39 | ) | 149 | 110 | ||||||||||||||||||||||||||||||||
Domestic time deposits | 268 | 299 | 567 | 74 | 179 | 253 | (159 | ) | 34 | (125 | ) | 268 | 299 | 567 | |||||||||||||||||||||||||||||||||||
Domestic total | 178 | 701 | 879 | 87 | 396 | 483 | (308 | ) | 44 | (264 | ) | 178 | 701 | 879 | |||||||||||||||||||||||||||||||||||
Foreign | 4,120 | 768 | 4,888 | 1,565 | 4,029 | 5,594 | (939 | ) | (4,405 | ) | (5,344 | ) | 4,120 | 768 | 4,888 | ||||||||||||||||||||||||||||||||||
Short-term debt | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 15 | (32 | ) | (17 | ) | 5 | 90 | 95 | (22 | ) | (13 | ) | (35 | ) | 15 | (32 | ) | (17 | ) | ||||||||||||||||||||||||||||||
Foreign | 1,843 | 866 | 2,709 | 450 | 2,288 | 2,738 | (578 | ) | (1,849 | ) | (2,427 | ) | 1,843 | 866 | 2,709 | ||||||||||||||||||||||||||||||||||
Long-term debt | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 6 | 27 | 33 | (8 | ) | (27 | ) | (35 | ) | 41 | �� | (8 | ) | 33 | 6 | 27 | 33 | ||||||||||||||||||||||||||||||||
Foreign | 317 | (297 | ) | 20 | 550 | (634 | ) | (84 | ) | 98 | 880 | 978 | 317 | (297 | ) | 20 | |||||||||||||||||||||||||||||||||
Interest expense | |||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 777 | 1,391 | 2,168 | 516 | 1,612 | 2,128 | (1,328 | ) | (870 | ) | (2,198 | ) | 777 | 1,391 | 2,168 | ||||||||||||||||||||||||||||||||||
Foreign | 10,653 | 10,074 | 20,727 | 9,169 | 19,825 | 28,994 | (29,518 | ) | (12,372 | ) | (41,890 | ) | 10,653 | 10,074 | 20,727 | ||||||||||||||||||||||||||||||||||
Total interest expense | 11,430 | 11,465 | 22,895 | 9,685 | 21,437 | 31,122 | (30,846 | ) | (13,242 | ) | (44,088 | ) | 11,430 | 11,465 | 22,895 |
152402
D – Information Required by Industry Guide 3 (continued)
31.12.07 | 31.12.06 | 31.12.05 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||||||||
CHF million, except where indicated | deposit | rate (%) | deposit | rate (%) | deposit | rate (%) | deposit | rate (%) | deposit | rate (%) | deposit | rate (%) | ||||||||||||||||||||||||||||||||||||
Banks | ||||||||||||||||||||||||||||||||||||||||||||||||
Domestic offices | ||||||||||||||||||||||||||||||||||||||||||||||||
Demand deposits | 2,474 | 0.6 | 2,024 | 0.2 | 8,491 | 0.1 | 2,341 | 0.5 | 2,474 | 0.6 | 2,024 | 0.2 | ||||||||||||||||||||||||||||||||||||
Time deposits | 9,310 | 5.1 | 8,776 | 4.5 | 6,976 | 3.3 | 4,902 | 3.8 | 9,310 | 5.1 | 8,776 | 4.5 | ||||||||||||||||||||||||||||||||||||
Total domestic offices | 11,784 | 4.2 | 10,800 | 3.7 | 15,467 | 1.5 | 7,243 | 2.7 | 11,784 | 4.2 | 10,800 | 3.7 | ||||||||||||||||||||||||||||||||||||
Foreign offices | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits1 | 46,049 | 5.5 | 29,814 | 4.8 | 25,497 | 3.6 | 58,287 | 3.9 | 46,049 | 5.5 | 29,814 | 4.8 | ||||||||||||||||||||||||||||||||||||
Total due to banks | 57,833 | 5.2 | 40,614 | 4.5 | 40,964 | 2.8 | 65,530 | 3.7 | 57,833 | 5.2 | 40,614 | 4.5 | ||||||||||||||||||||||||||||||||||||
Customer accounts | ||||||||||||||||||||||||||||||||||||||||||||||||
Domestic offices | ||||||||||||||||||||||||||||||||||||||||||||||||
Demand deposits | 64,568 | 1.1 | 70,981 | 0.8 | 67,987 | 0.4 | 56,730 | 0.9 | 64,568 | 1.1 | 70,981 | 0.8 | ||||||||||||||||||||||||||||||||||||
Savings deposits | 78,775 | 0.6 | 86,631 | 0.5 | 86,373 | 0.5 | 68,213 | 0.9 | 78,775 | 0.6 | 86,631 | 0.5 | ||||||||||||||||||||||||||||||||||||
Time deposits | 41,056 | 2.9 | 28,876 | 2.2 | 24,245 | 1.6 | 35,575 | 3.0 | 41,056 | 2.9 | 28,876 | 2.2 | ||||||||||||||||||||||||||||||||||||
Total domestic offices | 184,399 | 1.3 | 186,488 | 0.8 | 178,605 | 0.6 | 160,518 | 1.4 | 184,399 | 1.3 | 186,488 | 0.8 | ||||||||||||||||||||||||||||||||||||
Foreign offices | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits1 | 426,130 | 3.8 | 314,788 | 3.7 | 249,561 | 2.4 | 401,421 | 2.8 | 426,130 | 3.8 | 314,788 | 3.7 | ||||||||||||||||||||||||||||||||||||
Total due to customers | 610,529 | 3.1 | 501,276 | 2.6 | 428,166 | 1.6 | 561,939 | 2.4 | 610,529 | 3.1 | 501,276 | 2.6 |
At 31 December 2007,2008, 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 | 39,427 | 276,913 | 38,052 | 186,590 | ||||||||||||
3 to 6 months | 3,448 | 37,109 | 2,216 | 9,387 | ||||||||||||
6 to 12 months | 1,082 | 7,215 | 1,495 | 4,617 | ||||||||||||
1 to 5 years | 448 | 1,679 | 648 | 1,532 | ||||||||||||
Over 5 years | 87 | 228 | 231 | 235 | ||||||||||||
Total time deposits | 44,492 | 323,144 | 42,642 | 202,361 |
153403
Financial information
Additional Disclosure Requireddisclosure required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)regulations
Short-term Borrowingsborrowings
The following table presents the 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 2008, 2007 2006 and 2005.2006.
Money market paper issued | Due to banks | Repurchase agreements1 | Money market paper issued | Due to banks | Repurchase agreements1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Period-end balance | 152,256 | 119,584 | 102,662 | 84,826 | 153,231 | 90,651 | 487,455 | 754,623 | 667,317 | 111,619 | 152,256 | 119,584 | 61,155 | 84,826 | 153,231 | 140,039 | 487,455 | 754,623 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average balance | 146,774 | 112,391 | 98,351 | 149,311 | 114,815 | 114,701 | 739,138 | 717,542 | 628,362 | 136,655 | 146,774 | 112,391 | 74,295 | 149,311 | 114,815 | 404,512 | 739,138 | 717,542 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maximum month-end balance | 167,637 | 123,108 | 112,217 | 175,233 | 153,231 | 101,178 | 848,401 | 777,010 | 719,208 | 170,503 | 167,637 | 123,108 | 87,233 | 175,233 | 153,231 | 591,005 | 848,401 | 777,010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate during the period (%) | 6.0 | 5.4 | 3.3 | 5.1 | 4.4 | 3.3 | 5.0 | 4.4 | 3.0 | 4.6 | 6.0 | 5.4 | 3.5 | 5.1 | 4.4 | 3.5 | 5.0 | 4.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate at period-end (%) | 6.1 | 4.0 | 4.0 | 4.5 | 4.1 | 3.0 | 4.9 | 5.0 | 2.6 | 2.9 | 6.1 | 4.0 | 2.3 | 4.5 | 4.1 | 1.4 | 4.9 | 5.0 |
154404
405D – Information Required by Industry Guide 3 (continued)Contractual Maturities of Investments in Debt Instruments Available-for-Sale1,2 Contractual maturities of investments in debt instruments available-for-sale1,2 Within 1 year 1-5 years 5-10 years Over 10 years CHF million, except percentages Amount Yield (%) Amount Yield (%) Amount Yield (%) Amount Yield (%) Swiss national government and agencies 0 0.00 2 3.46 0 0.00 1 4.00 Swiss local governments 0 0.00 0 0.00 0 0.00 0 0.00 US Treasury and agencies 0 0.00 0 0.00 0 0.00 0 0.00 Foreign governments and official institutions 33 1.31 0 0.00 33 2.81 34 5.22 Corporate debt securities 3 23.35 88 3.38 38 3.12 12 1.74 Mortgage-backed securities 0 0.00 0 0.00 42 4.00 455 5.28 Other debt instruments 188 9.06 3 13.47 0 0.00 37 7.42 224 93 113 539 Within 1 year 1-5 years 5-10 years Over 10 years CHF million, except percentages Amount Yield (%) Amount Yield (%) Amount Yield (%) Amount Yield (%) Swiss national government and agencies 0 0.00 2 2.02 0 0.00 1 4.00 Swiss local governments 0 0.00 0 0.00 0 0.00 0 0.00 US Treasury and agencies 0 0.00 0 0.00 0 0.00 0 0.00 Foreign governments and official institutions 50 1.87 2 2.54 75 4.48 0 0.00 Corporate debt securities 50 5.66 44 4.11 0 0.00 0 0.00 Mortgage-backed securities 0 0.00 0 0.00 3 4.48 561 5.28 Other debt instruments 14 4.20 216 12.41 0 0.00 0 0.00 114 264 78 562 Within 1 year 1-5 years 5-10 years Over 10 years CHF million, except percentages Amount Yield (%) Amount Yield (%) Amount Yield (%) Amount Yield (%) Swiss national government and agencies 2 2.22 0 0.00 0 0.00 1 4.00 Swiss local governments 0 0.00 0 0.00 0 0.00 0 0.00 US Treasury and agencies 0 0.00 0 0.00 0 0.00 0 0.00 Foreign governments and official institutions 38 1.48 2 1.89 57 4.47 0 0.00 Corporate debt securities 26 7.00 0 0.00 2 0.00 0 0.00 Mortgage-backed securities 0 0.00 0 0.00 10 4.48 150 5.10 Other debt instruments 0 0.00 233 9.28 0 0.00 0 0.00 66 235 69 151 Within 1 year 1-5 years 5-10 years Over 10 years CHF million, except percentages Amount Yield (%) Amount Yield (%) Amount Yield (%) Amount Yield (%) Swiss national government and agencies 0 0.00 2 4.36 0 0.00 1 4.00 Swiss local governments 0 0.00 0 0.00 0 0.00 0 0.00 US Treasury and agencies 0 0.00 42 5.51 10 5.77 12 6.03 Foreign governments and official institutions 38 1.91 2 1.90 5 5.64 2 6.17 Corporate debt securities 13 3.20 239 4.25 66 5.38 103 5.66 Mortgage-backed securities 0 0.00 0 0.00 14 3.92 129 4.80 Other debt instruments 0 0.00 0 0.00 0 0.00 0 0.00 51 285 95 247 maturity.maturity for 2008 and 2007, respectively. Such instruments are not reflected in the table.155
Financial information
Additional Disclosure Requireddisclosure required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)regulations
Due from Banksbanks and Loansloans (gross)
The Group’s lending portfolio is widely diversified across industry sectors with no significant concentrations of credit risk. CHF 164.4152.5 billion (41%(37% of the total) consists of loans to thousands of private households, predominantly in Switzerland, and mostly secured by mortgages, financial collateral or other assets. Exposure to Banks and Financial Institutionsinstitutions amounted to CHF 163174.3 billion (41%(42% of the total). This includes cash posted as collateral by UBS against negative replacement values on derivatives or other positions, which, from a risk perspective, is not considered lending but is a key component of the measurement of counterparty risk taken in connection with the underlying products. Exposure to
banks includes money market deposits with highly rated institutions. Excluding Banks and Financial institutions, the largest industry sector exposure is CHF 1716.3 billion (4% of the total) to Real estate and rentals. For further discussion of the loan portfolio, see the “Credit risk”Risk and treasury management section inRisk, Treasury and Capital Management 2007.on Credit risk.
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||||||||||
Domestic | ||||||||||||||||||||||||||||||||||||||||
Banks1 | 1,237 | 561 | 1,407 | 1,406 | 619 | 1,734 | 1,237 | 561 | 1,407 | 1,406 | ||||||||||||||||||||||||||||||
Construction | 1,393 | 1,535 | 1,816 | 1,943 | 2,175 | 1,377 | 1,393 | 1,535 | 1,816 | 1,943 | ||||||||||||||||||||||||||||||
Financial institutions | 5,525 | 5,542 | 4,213 | 4,332 | 4,009 | 8,113 | 5,525 | 5,542 | 4,213 | 4,332 | ||||||||||||||||||||||||||||||
Hotels and restaurants | 1,824 | 1,957 | 2,044 | 2,269 | 2,440 | 1,811 | 1,824 | 1,957 | 2,044 | 2,269 | ||||||||||||||||||||||||||||||
Manufacturing2 | 3,887 | 3,643 | 4,134 | 5,485 | 6,478 | 4,020 | 3,887 | 3,643 | 4,134 | 5,485 | ||||||||||||||||||||||||||||||
Private households | 121,536 | 117,852 | 111,549 | 105,160 | 102,180 | 119,285 | 121,536 | 117,852 | 111,549 | 105,160 | ||||||||||||||||||||||||||||||
Public authorities | 4,734 | 4,972 | 5,494 | 5,460 | 5,251 | 4,042 | 4,734 | 4,972 | 5,494 | 5,460 | ||||||||||||||||||||||||||||||
Real estate and rentals | 11,691 | 11,356 | 11,792 | 11,466 | 12,449 | 12,097 | 11,691 | 11,356 | 11,792 | 11,466 | ||||||||||||||||||||||||||||||
Retail and wholesale | 5,138 | 4,569 | 4,808 | 4,908 | 6,062 | 4,818 | 5,138 | 4,569 | 4,808 | 4,908 | ||||||||||||||||||||||||||||||
Services3 | 6,170 | 6,758 | 8,088 | 9,110 | 9,493 | 6,172 | 6,170 | 6,758 | 8,088 | 9,110 | ||||||||||||||||||||||||||||||
Other4 | 3,300 | 4,345 | 3,119 | 591 | 1,014 | 3,329 | 3,300 | 4,345 | 3,119 | 591 | ||||||||||||||||||||||||||||||
Total domestic | 166,435 | 163,090 | 158,464 | 152,130 | 152,170 | 166,798 | 166,435 | 163,090 | 158,464 | 152,130 | ||||||||||||||||||||||||||||||
Foreign | ||||||||||||||||||||||||||||||||||||||||
Banks1 | 60,333 | 50,124 | 32,287 | 34,269 | 31,405 | 63,708 | 60,333 | 50,124 | 32,287 | 34,269 | ||||||||||||||||||||||||||||||
Chemicals | 635 | 1,321 | 2,716 | 366 | 245 | 2,816 | 635 | 1,321 | 2,716 | 366 | ||||||||||||||||||||||||||||||
Construction | 624 | 522 | 295 | 122 | 84 | 448 | 624 | 522 | 295 | 122 | ||||||||||||||||||||||||||||||
Electricity, gas and water supply | 1,888 | 951 | 1,637 | 745 | 249 | 2,995 | 1,888 | 951 | 1,637 | 745 | ||||||||||||||||||||||||||||||
Financial institutions | 96,370 | 67,676 | 62,344 | 45,095 | 30,906 | 100,779 | 96,370 | 67,676 | 62,344 | 45,095 | ||||||||||||||||||||||||||||||
Manufacturing5 | 4,678 | 3,006 | 3,784 | 2,758 | 2,421 | 5,026 | 4,678 | 3,006 | 3,784 | 2,758 | ||||||||||||||||||||||||||||||
Mining | 4,509 | 3,177 | 3,431 | 1,695 | 1,114 | 4,394 | 4,509 | 3,177 | 3,431 | 1,695 | ||||||||||||||||||||||||||||||
Private households | 42,828 | 35,031 | 38,283 | 30,237 | 21,195 | 33,242 | 42,828 | 35,031 | 38,283 | 30,237 | ||||||||||||||||||||||||||||||
Public authorities | 4,172 | 2,175 | 1,686 | 1,228 | 1,224 | 11,094 | 4,172 | 2,175 | 1,686 | 1,228 | ||||||||||||||||||||||||||||||
Real estate and rentals | 5,056 | 4,360 | 2,707 | 940 | 473 | 4,240 | 5,056 | 4,360 | 2,707 | 940 | ||||||||||||||||||||||||||||||
Retail and wholesale | 2,239 | 1,815 | 1,257 | 1,102 | 1,880 | 2,515 | 2,239 | 1,815 | 1,257 | 1,102 | ||||||||||||||||||||||||||||||
Services | 9,294 | 16,436 | 5,593 | 8,002 | 7,983 | 9,816 | 9,294 | 16,436 | 5,593 | 8,002 | ||||||||||||||||||||||||||||||
Transport, storage and communication | 1,752 | 1,528 | 1,419 | 762 | 3,658 | 3,894 | 1,752 | 1,528 | 1,419 | 762 | ||||||||||||||||||||||||||||||
Other6 | 1,105 | 564 | 272 | 318 | 432 | 1,073 | 1,105 | 564 | 272 | 318 | ||||||||||||||||||||||||||||||
Total foreign | 235,483 | 188,686 | 157,711 | 127,639 | 103,269 | 246,040 | 235,483 | 188,686 | 157,711 | 127,639 | ||||||||||||||||||||||||||||||
Total gross | 401,918 | 351,776 | 316,175 | 279,769 | 255,439 | 412,838 | 401,918 | 351,776 | 316,175 | 279,769 |
The table above also includes loans designated at fair value. Prior period amounts have been adjusted to reflect this change in presentation.
156
406
D – Information Required by Industry Guide 3 (continued)
Financial information |
Due from Banksbanks and Loansloans (gross) (continued)
The following table analyzes the Group’s mortgage portfolio by geographic origin of the client and type of mortgage at 31 December 2008, 2007, 2006, 2005 2004 and 2003.2004. Mortgages are included in the industry categories mentioned on the previous page.
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||||||||||
Mortgages | ||||||||||||||||||||||||||||||||||||||||
Domestic | 135,341 | 134,468 | 130,880 | 124,496 | 122,069 | 134,700 | 135,341 | 134,468 | 130,880 | 124,496 | ||||||||||||||||||||||||||||||
Foreign | 8,152 | 10,069 | 15,619 | 12,185 | 7,073 | 8,381 | 8,152 | 10,069 | 15,619 | 12,185 | ||||||||||||||||||||||||||||||
Total gross mortgages | 143,493 | 144,537 | 146,499 | 136,681 | 129,142 | 143,081 | 143,493 | 144,537 | 146,499 | 136,681 | ||||||||||||||||||||||||||||||
Mortgages | ||||||||||||||||||||||||||||||||||||||||
Residential | 122,435 | 124,548 | 127,990 | 117,731 | 109,980 | 121,811 | 122,435 | 124,548 | 127,990 | 117,731 | ||||||||||||||||||||||||||||||
Commercial | 21,058 | 19,989 | 18,509 | 18,950 | 19,162 | 21,270 | 21,058 | 19,989 | 18,509 | 18,950 | ||||||||||||||||||||||||||||||
Total gross mortgages | 143,493 | 144,537 | 146,499 | 136,681 | 129,142 | 143,081 | 143,493 | 144,537 | 146,499 | 136,681 |
Due from banks and loan maturities (gross) | |||||||||||||||||
CHF million | Within 1 year | 1 to 5 years | Over 5 years | Total | |||||||||||||
Domestic | |||||||||||||||||
Banks | 1,733 | 1 | 1,734 | ||||||||||||||
Mortgages | 52,324 | 60,308 | 22,068 | 134,700 | |||||||||||||
Other loans | 23,538 | 5,224 | 1,530 | 30,292 | |||||||||||||
Total domestic | 77,595 | 65,533 | 23,598 | 166,726 | |||||||||||||
Foreign | |||||||||||||||||
Banks | 60,703 | 1,671 | 365 | 62,739 | |||||||||||||
Mortgages | 5,533 | 2,249 | 599 | 8,381 | |||||||||||||
Other loans | 116,217 | 13,112 | 40,511 | 169,840 | 1 | ||||||||||||
Total foreign | 182,453 | 17,032 | 41,475 | 240,960 | |||||||||||||
Total gross | 260,048 | 82,565 | 65,073 | 407,686 | |||||||||||||
CHF million | Within 1 year | 1 to 5 years | Over 5 years | Total | ||||||||||||
Domestic | ||||||||||||||||
Banks | 1,235 | 1 | 0 | 1,236 | ||||||||||||
Mortgages | 55,758 | 55,537 | 24,046 | 135,341 | ||||||||||||
Other loans | 23,051 | 5,293 | 1,515 | 29,859 | ||||||||||||
Total domestic | 80,044 | 60,831 | 25,561 | 166,436 | ||||||||||||
Foreign | ||||||||||||||||
Banks | 58,053 | 1,448 | 198 | 59,699 | ||||||||||||
Mortgages | 4,243 | 3,432 | 477 | 8,152 | ||||||||||||
Other loans | 152,535 | 8,746 | 2,234 | 163,515 | ||||||||||||
Total foreign | 214,831 | 13,626 | 2,909 | 231,366 | ||||||||||||
Total gross1 | 294,875 | 74,457 | 28,470 | 397,802 | ||||||||||||
At 31 December 2007,2008, the total amount of dueDue from banks and loansLoans due after one year granted at fixed and floating rates wereare as follows:
CHF million | 1 to 5 years | Over 5 years | Total | 1 to 5 years | Over 5 years | Total | ||||||||||||||||||||||||||
Fixed-rate loans | 69,694 | 27,712 | 97,406 | 79,225 | 33,479 | 112,704 | ||||||||||||||||||||||||||
Adjustable or floating-rate loans | 4,763 | 758 | 5,521 | 3,340 | 31,594 | 34,934 | ||||||||||||||||||||||||||
Total | 74,457 | 28,470 | 102,927 | 82,565 | 65,073 | 147,638 |
157
407
Financial information
Additional Disclosure Requireddisclosure required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)regulations
Impaired and Non-performing Loansnon-performing 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 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||||||||||
Gross interest income that would have been recorded on non-performing loans: | ||||||||||||||||||||||||||||||||||||||||
Domestic | 39 | 50 | 81 | 107 | 171 | 16 | 39 | 50 | 81 | 107 | ||||||||||||||||||||||||||||||
Foreign | 4 | 10 | 8 | 17 | 23 | 3 | 4 | 10 | 8 | 17 | ||||||||||||||||||||||||||||||
Interest income included in Net profit for non-performing loans: | ||||||||||||||||||||||||||||||||||||||||
Domestic | 40 | 56 | 72 | 106 | 163 | 32 | 40 | 56 | 72 | 106 | ||||||||||||||||||||||||||||||
Foreign | 2 | 8 | 9 | 8 | 8 | 4 | 2 | 8 | 9 | 8 |
The table below provides an analysis of the Group’s non-performing loans. For further information see the “Credit risk”Risk and treasury management section inRisk, Treasury and Capital Management 2007.on Credit risk.
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||||||||||
Non-performing loans: | ||||||||||||||||||||||||||||||||||||||||
Domestic | 1,349 | 1,744 | 2,106 | 2,772 | 4,012 | 1,431 | 1,349 | 1,744 | 2,106 | 2,772 | ||||||||||||||||||||||||||||||
Foreign | 132 | 174 | 257 | 783 | 746 | 3,272 | 132 | 174 | 257 | 783 | ||||||||||||||||||||||||||||||
Total non-performing loans | 1,481 | 1,918 | 2,363 | 3,555 | 4,758 | 4,703 | 1,481 | 1,918 | 2,363 | 3,555 |
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. For more information refer to the “Credit risk” section of this report. Instead, specific loan allowances are established as necessary. Unrecognized interest related to restructured loans was not material to the results of operations in 2008, 2007, 2006, 2005 2004 or 2003.2004.
158408
Cross-border outstandings consist of general banking products such as loans and deposits with third parties, credit equivalents of over-the-counter (OTC) derivatives and securities financing, and the market value of the inventory of debt securities. Outstandings are monitored and reported on an ongoing basis by the credit risk control organization with a dedicated country risk information system. With the exception of the 33 most developed economies, these exposures are rigorously limited. The following analysis excludes Due from banks and Loans from Industrial Holdings. the “Guidelines for the Management of Country Risk”, which are applicable to all banks that are supervised by the Swiss D – Information Required by Industry Guide 3 (continued)OutstandingsoutstandingsFederal Banking Commission.Financial Market Supervisory Authority (FINMA).2006 and 2005.2006. At 31 December 2007,2008, there were no outstandings that exceeded 0.75% of total assets in any country currently facing liquidity problems that the Group expects would materially affect the country’s ability to service its obligations.“Credit risk”Risk and treasury management section inRisk, Treasury and Capital Management 2007.on Credit risk. 31.12.08 CHF million Banks Private Sector Public Sector Total % of total assets United States 13,869 71,584 14,234 99,687 4.9 Japan 2,093 13,159 38,922 54,174 2.7 Germany 19,098 10,418 6,010 35,526 1.8 France 11,469 7,048 6,807 25,324 1.3 United Kingdom 9,599 8,608 2,625 20,832 1.0 Luxembourg 2,883 17,586 0 20,469 1.0 31.12.07 CHF million Banks Private Sector Public Sector Total % of total assets United States 13,110 192,049 16,545 221,704 9.8 Japan 1,761 12,883 36,717 51,361 2.3 Germany 21,384 12,354 2,249 35,988 1.6 United Kingdom 6,624 14,647 8,552 29,823 1.3 Cayman Islands 173 27,715 74 27,963 1.2 France 10,620 7,075 4,605 22,300 1.0 31.12.06 CHF million Banks Private Sector Public Sector Total % of total assets United States 7,692 208,200 22,574 238,466 10.2 Japan 2,283 8,263 30,158 40,704 1.7 United Kingdom 11,149 16,098 559 27,806 1.2 Germany 15,240 8,080 1,574 24,894 1.1 31.12.05 CHF million Banks Private Sector Public Sector Total % of total assets United States 6,700 133,561 23,297 163,558 7.9 Germany 16,985 4,525 1,265 22,775 1.1 Japan 2,044 7,582 10,824 20,450 1.0 United Kingdom 6,384 11,423 555 18,362 0.9 Italy 3,343 2,509 11,324 17,176 0.8
159409
Financial information
Additional Disclosure Requireddisclosure required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)regulations
Summary of Movementsmovements in Allowancesallowances and Provisionsprovisions for Credit Lossescredit losses
The following table provides an analysis of movements in allowances and provisions for credit losses.
ingunderlying assets 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 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Balance at beginning of year | 1,332 | 1,776 | 2,802 | 3,775 | 5,015 | |||||||||||||||
Domestic | ||||||||||||||||||||
Write-offs | ||||||||||||||||||||
Banks | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Construction | (9 | ) | (14 | ) | (16 | ) | (49 | ) | (73 | ) | ||||||||||
Financial institutions | (8 | ) | (11 | ) | (14 | ) | (24 | ) | (37 | ) | ||||||||||
Hotels and restaurants | (7 | ) | (16 | ) | (26 | ) | (101 | ) | (57 | ) | ||||||||||
Manufacturing1 | (45 | ) | (40 | ) | (39 | ) | (77 | ) | (121 | ) | ||||||||||
Private households | (68 | ) | (89 | ) | (131 | ) | (208 | ) | (262 | ) | ||||||||||
Public authorities | (1 | ) | 0 | 0 | 0 | (18 | ) | |||||||||||||
Real estate and rentals | (27 | ) | (44 | ) | (56 | ) | (109 | ) | (206 | ) | ||||||||||
Retail and wholesale | (62 | ) | (20 | ) | (25 | ) | (68 | ) | (67 | ) | ||||||||||
Services2 | (20 | ) | (47 | ) | (35 | ) | (83 | ) | (111 | ) | ||||||||||
Other3 | (21 | ) | (2 | ) | (4 | ) | (9 | ) | (43 | ) | ||||||||||
Total domestic write-offs | (268 | ) | (283 | ) | (346 | ) | (728 | ) | (995 | ) | ||||||||||
Foreign | ||||||||||||||||||||
Write-offs | ||||||||||||||||||||
Banks | (1 | ) | (3 | ) | (164 | ) | (21 | ) | (17 | ) | ||||||||||
Chemicals | 0 | 0 | 0 | (1 | ) | 0 | ||||||||||||||
Construction | 0 | 0 | 0 | (3 | ) | 0 | ||||||||||||||
Electricity, gas and water supply | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Financial institutions | (15 | ) | 0 | (50 | ) | (34 | ) | (112 | ) | |||||||||||
Manufacturing4 | (21 | ) | (11 | ) | (8 | ) | (23 | ) | (77 | ) | ||||||||||
Mining | 0 | (1 | ) | (23 | ) | (8 | ) | (15 | ) | |||||||||||
Private households | (14 | ) | (7 | ) | (21 | ) | (8 | ) | (11 | ) | ||||||||||
Public authorities | (2 | ) | (58 | ) | (22 | ) | (2 | ) | 0 | |||||||||||
Real estate and rentals | 0 | 0 | (3 | ) | 0 | (1 | ) | |||||||||||||
Retail and wholesale | 0 | 0 | (9 | ) | 0 | (76 | ) | |||||||||||||
Services | 0 | 0 | 0 | (7 | ) | (25 | ) | |||||||||||||
Transport, storage and communication | 0 | 0 | 0 | 0 | (24 | ) | ||||||||||||||
Other5 | 0 | 0 | (5 | ) | (21 | ) | (83 | ) | ||||||||||||
Total foreign write-offs | (53 | ) | (80 | ) | (305 | ) | (128 | ) | (441 | ) | ||||||||||
Total write-offs | (321 | ) | (363 | ) | (651 | ) | (856 | ) | (1,436 | ) | ||||||||||
CHF million | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||||||||
Balance at beginning of year | 1,164 | 1,332 | 1,776 | 2,802 | 3,775 | |||||||||||||||
Domestic | ||||||||||||||||||||
Write-offs | ||||||||||||||||||||
Banks | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Construction | (6 | ) | (9 | ) | (14 | ) | (16 | ) | (49 | ) | ||||||||||
Financial institutions | (37 | ) | (8 | ) | (11 | ) | (14 | ) | (24 | ) | ||||||||||
Hotels and restaurants | (3 | ) | (7 | ) | (16 | ) | (26 | ) | (101 | ) | ||||||||||
Manufacturing1 | (31 | ) | (45 | ) | (40 | ) | (39 | ) | (77 | ) | ||||||||||
Private households | (112 | ) | (68 | ) | (89 | ) | (131 | ) | (208 | ) | ||||||||||
Public authorities | 0 | (1 | ) | 0 | 0 | 0 | ||||||||||||||
Real estate and rentals | (10 | ) | (27 | ) | (44 | ) | (56 | ) | (109 | ) | ||||||||||
Retail and wholesale | (4 | ) | (62 | ) | (20 | ) | (25 | ) | (68 | ) | ||||||||||
Services2 | (7 | ) | (20 | ) | (47 | ) | (35 | ) | (83 | ) | ||||||||||
Other3 | 0 | (21 | ) | (2 | ) | (4 | ) | (9 | ) | |||||||||||
Total domestic write-offs | (210 | ) | (268 | ) | (283 | ) | (346 | ) | (728 | ) | ||||||||||
Foreign | ||||||||||||||||||||
Write-offs | ||||||||||||||||||||
Banks | (13 | ) | (1 | ) | (3 | ) | (164 | ) | (21 | ) | ||||||||||
Chemicals | (1 | ) | 0 | 0 | 0 | (1 | ) | |||||||||||||
Construction | 0 | 0 | 0 | 0 | (3 | ) | ||||||||||||||
Electricity, gas and water supply | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Financial institutions | (623 | ) | (15 | ) | 0 | (50 | ) | (34 | ) | |||||||||||
Manufacturing4 | (6 | ) | (21 | ) | (11 | ) | (8 | ) | (23 | ) | ||||||||||
Mining | 0 | 0 | (1 | ) | (23 | ) | (8 | ) | ||||||||||||
Private households | (5 | ) | (14 | ) | (7 | ) | (21 | ) | (8 | ) | ||||||||||
Public authorities | (2 | ) | (2 | ) | (58 | ) | (22 | ) | (2 | ) | ||||||||||
Real estate and rentals | 0 | 0 | 0 | (3 | ) | 0 | ||||||||||||||
Retail and wholesale | 0 | 0 | 0 | (9 | ) | 0 | ||||||||||||||
Services | 0 | 0 | 0 | 0 | (7 | ) | ||||||||||||||
Transport, storage and communication | (7 | ) | 0 | 0 | 0 | 0 | ||||||||||||||
Other5 | (1 | ) | 0 | 0 | (5 | ) | (21 | ) | ||||||||||||
Total foreign write-offs | (658 | ) | (53 | ) | (80 | ) | (305 | ) | (128 | ) | ||||||||||
Total write-offs | (868 | ) | (321 | ) | (363 | ) | (651 | ) | (856 | ) | ||||||||||
Recoveries | ||||||||||||||||||||
Domestic | 43 | 52 | 51 | 53 | 54 | |||||||||||||||
Foreign | 1 | 3 | 11 | 10 | 5 | |||||||||||||||
Total recoveries | 44 | 55 | 62 | 63 | 59 | |||||||||||||||
Net write-offs | (824 | ) | (266 | ) | (301 | ) | (588 | ) | (797 | ) | ||||||||||
Increase/(decrease) in credit loss allowance and provision | 3,007 | 242 | (108 | ) | (298 | ) | (216 | ) | ||||||||||||
Collective loan loss provisions | (11 | ) | (4 | ) | (48 | ) | (76 | ) | (25 | ) | ||||||||||
Other adjustments6 | (266 | ) | (140 | ) | 13 | (64 | ) | 65 | ||||||||||||
Balance at end of year | 3,070 | 1,164 | 1,332 | 1,776 | 2,802 | |||||||||||||||
Net foreign exchange | (43 | ) | (9 | ) | 10 | 50 | 2 | |||||||||||||
Other adjustments | (223 | )7 | (131 | ) | 3 | (114 | ) | 63 | ||||||||||||
Total adjustments | (266 | ) | (140 | ) | 13 | (64 | ) | 65 | ||||||||||||
410
160
D – Information Required by Industry Guide 3 (continued)
Summary of Movements in Allowances and Provisions for Credit Losses (continued)
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Recoveries | ||||||||||||||||||||
Domestic | 52 | 51 | 53 | 54 | 49 | |||||||||||||||
Foreign | 3 | 11 | 10 | 5 | 38 | |||||||||||||||
Total recoveries | 55 | 62 | 63 | 59 | 87 | |||||||||||||||
Net write-offs | (266 | ) | (301 | ) | (588 | ) | (797 | ) | (1,349 | ) | ||||||||||
Increase / (decrease) in credit loss allowance and provision | 242 | (108 | ) | (298 | ) | (216 | ) | 102 | ||||||||||||
Collective loan loss provisions | (4 | ) | (48 | ) | (76 | ) | (25 | ) | ||||||||||||
Other adjustments1 | (140 | ) | 13 | (64 | ) | 65 | 7 | |||||||||||||
Balance at end of year | 1,164 | 1,332 | 1,776 | 2,802 | 3,775 | |||||||||||||||
Financial information |
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Net foreign exchange | (9 | ) | 10 | 50 | 2 | (57 | ) | |||||||||||||
Other adjustments | (131 | )2 | 3 | (114 | ) | 63 | 64 | |||||||||||||
Total adjustments | (140 | ) | 13 | (64 | ) | 65 | 7 | |||||||||||||
161
Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Allocation of the Allowancesallowances and Provisionsprovisions for Credit Lossescredit losses
The following table provides an analysis of the allocation of the allowances and provisions for credit loss by industry sector and geographic location at 31 December 2008, 2007, 2006, 2005 2004 and 2003.2004. For a description of procedures with respect to allowances and provisions for credit losses, see the “Credit risk”Risk and treasury management section inRisk, Treasury and Capital Management 2007.The following analysis includes Due from banks from Industrial Holdings.on Credit risk.
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||||||||||
Domestic | ||||||||||||||||||||||||||||||||||||||||
Banks | 10 | 10 | 10 | 10 | 10 | 16 | 10 | 10 | 10 | 10 | ||||||||||||||||||||||||||||||
Construction | 43 | 72 | 91 | 112 | 158 | 39 | 43 | 72 | 91 | 112 | ||||||||||||||||||||||||||||||
Financial institutions | 52 | 61 | 75 | 82 | 137 | 18 | 52 | 61 | 75 | 82 | ||||||||||||||||||||||||||||||
Hotels and restaurants | 10 | 27 | 49 | 98 | 214 | 8 | 10 | 27 | 49 | 98 | ||||||||||||||||||||||||||||||
Manufacturing1 | 113 | 155 | 174 | 224 | 327 | 71 | 113 | 155 | 174 | 224 | ||||||||||||||||||||||||||||||
Private households | 190 | 187 | 262 | 333 | 511 | 121 | 190 | 187 | 262 | 333 | ||||||||||||||||||||||||||||||
Public authorities | 1 | 3 | 8 | 9 | 9 | 1 | 1 | 3 | 8 | 9 | ||||||||||||||||||||||||||||||
Real estate and rentals | 57 | 99 | 168 | 250 | 383 | 50 | 57 | 99 | 168 | 250 | ||||||||||||||||||||||||||||||
Retail and wholesale | 247 | 311 | 330 | 363 | 201 | 262 | 247 | 311 | 330 | 363 | ||||||||||||||||||||||||||||||
Services2 | 112 | 113 | 196 | 222 | 549 | 78 | 112 | 113 | 196 | 222 | ||||||||||||||||||||||||||||||
Other3 | 76 | 107 | 61 | 188 | 150 | 92 | 76 | 107 | 61 | 188 | ||||||||||||||||||||||||||||||
Total domestic | 911 | 1,145 | 1,424 | 1,891 | 2,649 | 756 | 911 | 1,145 | 1,424 | 1,891 | ||||||||||||||||||||||||||||||
Foreign | ||||||||||||||||||||||||||||||||||||||||
Banks4 | 18 | 20 | 35 | 246 | 256 | 6 | 18 | 20 | 35 | 246 | ||||||||||||||||||||||||||||||
Chemicals | 1 | 4 | 5 | 4 | 5 | 960 | 1 | 4 | 5 | 4 | ||||||||||||||||||||||||||||||
Construction | 1 | 2 | 2 | 1 | 0 | 8 | 1 | 2 | 2 | 1 | ||||||||||||||||||||||||||||||
Electricity, gas and water supply | 3 | 8 | 16 | 15 | 0 | 2 | 3 | 8 | 16 | 15 | ||||||||||||||||||||||||||||||
Financial institutions | 112 | 9 | 8 | 140 | 168 | 542 | 112 | 9 | 8 | 140 | ||||||||||||||||||||||||||||||
Manufacturing5 | 20 | 37 | 57 | 112 | 359 | 25 | 20 | 37 | 57 | 112 | ||||||||||||||||||||||||||||||
Mining | 0 | 0 | 1 | 14 | 19 | 4 | 0 | 0 | 1 | 14 | ||||||||||||||||||||||||||||||
Private households | 15 | 26 | 30 | 48 | 48 | 233 | 15 | 26 | 30 | 48 | ||||||||||||||||||||||||||||||
Public authorities | 20 | 21 | 72 | 66 | 69 | 19 | 20 | 21 | 72 | 66 | ||||||||||||||||||||||||||||||
Real estate and rentals | 8 | 4 | 3 | 5 | 7 | 208 | 8 | 4 | 3 | 5 | ||||||||||||||||||||||||||||||
Retail and wholesale | 4 | 4 | 1 | 95 | 51 | 80 | 4 | 4 | 1 | 95 | ||||||||||||||||||||||||||||||
Services | 4 | 7 | 27 | 32 | 32 | 19 | 4 | 7 | 27 | 32 | ||||||||||||||||||||||||||||||
Transport, storage and communication | 1 | 1 | 0 | 1 | 195 | 185 | 1 | 1 | 0 | 1 | ||||||||||||||||||||||||||||||
Other6 | 12 | 6 | 8 | (75 | ) | (345 | ) | 0 | 12 | 6 | 8 | (75 | ) | |||||||||||||||||||||||||||
Total foreign | 219 | 149 | 265 | 704 | 864 | 2,291 | 219 | 149 | 265 | 704 | ||||||||||||||||||||||||||||||
Collective loan loss provisions7w | 34 | 38 | 86 | 207 | 262 | |||||||||||||||||||||||||||||||||||
Collective loan loss provisions7 | 23 | 34 | 38 | 86 | 207 | |||||||||||||||||||||||||||||||||||
Total allowances and provisions for credit losses8 | 1,164 | 1,332 | 1,775 | 2,802 | 3,775 | 3,070 | 1,164 | 1,332 | 1,775 | 2,802 |
162411
D – Information Required by Industry Guide 3 (continued)
Financial information
Additional disclosure required under SEC regulations
Due from Banksbanks and Loansloans 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.
in % | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.08 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||||||||||
Domestic | ||||||||||||||||||||||||||||||||||||||||
Banks1 | 0.3 | 0.2 | 0.4 | 0.5 | 0.2 | 0.4 | 0.3 | 0.2 | 0.4 | 0.5 | ||||||||||||||||||||||||||||||
Construction | 0.3 | 0.4 | 0.6 | 0.7 | 0.8 | 0.3 | 0.3 | 0.4 | 0.6 | 0.7 | ||||||||||||||||||||||||||||||
Financial institutions | 1.4 | 1.6 | 1.3 | 1.5 | 1.6 | 2.0 | 1.4 | 1.6 | 1.3 | 1.5 | ||||||||||||||||||||||||||||||
Hotels and restaurants | 0.5 | 0.6 | 0.6 | 0.8 | 1.0 | 0.4 | 0.5 | 0.6 | 0.6 | 0.8 | ||||||||||||||||||||||||||||||
Manufacturing2 | 1.0 | 1.0 | 1.3 | 2.0 | 2.5 | 1.0 | 1.0 | 1.0 | 1.3 | 2.0 | ||||||||||||||||||||||||||||||
Private households | 30.2 | 33.5 | 35.3 | 37.6 | 40.0 | 28.9 | 30.2 | 33.5 | 35.3 | 37.6 | ||||||||||||||||||||||||||||||
Public authorities | 1.2 | 1.4 | 1.7 | 2.0 | 2.1 | 1.0 | 1.2 | 1.4 | 1.7 | 2.0 | ||||||||||||||||||||||||||||||
Real estate and rentals | 2.9 | 3.2 | 3.7 | 4.1 | 4.9 | 2.9 | 2.9 | 3.2 | 3.7 | 4.1 | ||||||||||||||||||||||||||||||
Retail and wholesale | 1.3 | 1.3 | 1.5 | 1.7 | 2.4 | 1.2 | 1.3 | 1.3 | 1.5 | 1.7 | ||||||||||||||||||||||||||||||
Services3 | 1.5 | 1.9 | 2.6 | 3.3 | 3.7 | 1.5 | 1.5 | 1.9 | 2.6 | 3.3 | ||||||||||||||||||||||||||||||
Other4 | 0.8 | 1.3 | 1.1 | 0.2 | 0.4 | 0.8 | 0.8 | 1.3 | 1.1 | 0.2 | ||||||||||||||||||||||||||||||
Total domestic | 41.4 | 46.4 | 50.1 | 54.4 | 59.6 | 40.4 | 41.4 | 46.4 | 50.1 | 54.4 | ||||||||||||||||||||||||||||||
Foreign | ||||||||||||||||||||||||||||||||||||||||
Banks1 | 15.0 | 14.2 | 10.2 | 12.3 | 12.3 | 15.4 | 15.0 | 14.2 | 10.2 | 12.3 | ||||||||||||||||||||||||||||||
Chemicals | 0.2 | 0.4 | 0.9 | 0.1 | 0.1 | 0.7 | 0.2 | 0.4 | 0.9 | 0.1 | ||||||||||||||||||||||||||||||
Construction | 0.2 | 0.1 | 0.1 | 0.0 | 0.0 | 0.1 | 0.2 | 0.1 | 0.1 | 0.0 | ||||||||||||||||||||||||||||||
Electricity, gas and water supply | 0.5 | 0.3 | 0.5 | 0.3 | 0.1 | 0.7 | 0.5 | 0.3 | 0.5 | 0.3 | ||||||||||||||||||||||||||||||
Financial institutions | 24.0 | 19.2 | 19.7 | 16.1 | 12.1 | 24.4 | 24.0 | 19.2 | 19.7 | 16.1 | ||||||||||||||||||||||||||||||
Manufacturing5 | 1.2 | 0.9 | 1.2 | 1.0 | 1.0 | 1.2 | 1.2 | 0.9 | 1.2 | 1.0 | ||||||||||||||||||||||||||||||
Mining | 1.1 | 0.9 | 1.1 | 0.6 | 0.4 | 1.1 | 1.1 | 0.9 | 1.1 | 0.6 | ||||||||||||||||||||||||||||||
Private households | 10.7 | 10.0 | 12.1 | 10.8 | 8.3 | 8.1 | 10.7 | 10.0 | 12.1 | 10.8 | ||||||||||||||||||||||||||||||
Public authorities | 1.0 | 0.6 | 0.5 | 0.4 | 0.5 | 2.7 | 1.0 | 0.6 | 0.5 | 0.4 | ||||||||||||||||||||||||||||||
Real estate and rentals | 1.3 | 1.2 | 0.9 | 0.3 | 0.2 | 1.0 | 1.3 | 1.2 | 0.9 | 0.3 | ||||||||||||||||||||||||||||||
Retail and wholesale | 0.6 | 0.5 | 0.4 | 0.4 | 0.7 | 0.6 | 0.6 | 0.5 | 0.4 | 0.4 | ||||||||||||||||||||||||||||||
Services | 2.3 | 4.7 | 1.8 | 2.9 | 3.1 | 2.4 | 2.3 | 4.7 | 1.8 | 2.9 | ||||||||||||||||||||||||||||||
Transport, storage and communication | 0.4 | 0.4 | 0.4 | 0.3 | 1.4 | 0.9 | 0.4 | 0.4 | 0.4 | 0.3 | ||||||||||||||||||||||||||||||
Other6 | 0.1 | 0.2 | 0.1 | 0.1 | 0.2 | 0.3 | 0.1 | 0.2 | 0.1 | 0.1 | ||||||||||||||||||||||||||||||
Total foreign | 58.6 | 53.6 | 49.9 | 45.6 | 40.4 | 59.6 | 58.6 | 53.6 | 49.9 | 45.6 | ||||||||||||||||||||||||||||||
Total gross | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 |
163412
Additional Disclosure Required under SEC Regulations
Loss The following is a summary of the Group’s loan loss history (relating to Due from banks and Loans). The table below does not include loans designated at fair value.D – Information Required by Industry Guide 3 (continued)History Statisticshistory statistics CHF million, except where indicated 31.12.07 31.12.06 31.12.05 31.12.04 31.12.03 31.12.08 31.12.07 31.12.06 31.12.05 31.12.04 397,802 349,524 315,210 279,769 255,439 407,685 397,802 349,524 315,210 279,769 Impaired loans 2,392 2,628 3,434 4,699 6,999 9,145 2,392 2,628 3,434 4,699 Non-performing loans 1,481 1,918 2,363 3,555 4,758 4,703 1,481 1,918 2,363 3,555 1,164 1,332 1,776 2,802 3,775 3,070 1,164 1,332 1,776 2,802 Net write-offs 266 301 588 797 1,349 824 266 301 588 797 Credit loss (expense) / recovery (238 ) 156 375 241 (102 ) Credit loss (expense)/recovery (2,996 ) (238 ) 156 375 241 Impaired loans as a percentage of gross loans 0.6 0.8 1.1 1.7 2.7 2.2 0.6 0.8 1.1 1.7 Non-performing loans as a percentage of gross loans 0.4 0.5 0.7 1.3 1.9 1.2 0.4 0.5 0.7 1.3 Allowances and provisions for credit losses as a percentage of: Gross loans 0.3 0.4 0.6 1.0 1.5 0.8 0.3 0.4 0.6 1.0 Impaired loans 48.7 50.7 51.7 59.6 53.9 33.6 48.7 50.7 51.7 59.6 Non-performing loans 78.6 69.4 75.2 78.8 79.3 65.3 78.6 69.4 75.2 78.8 41.7 46.3 46.4 51.6 46.8 31.8 41.7 46.3 46.4 51.6 58.9 58.0 59.0 61.4 55.1 41.8 58.9 58.0 59.0 61.4 Net write-offs as a percentage of: Gross loans 0.1 0.1 0.2 0.3 0.5 0.2 0.1 0.1 0.2 0.3 Average loans outstanding during the period 0.0 0.1 0.1 0.2 0.5 0.2 0.0 0.1 0.1 0.2 Allowances and provisions for credit losses 22.9 22.6 33.1 28.4 35.7 26.8 22.9 22.6 33.1 28.4 Allowance and provisions for credit losses as a multiple of net write-offs 4.38 4.43 3.02 3.52 2.80 3.73 4.38 4.43 3.02 3.52 2004 and CHF 220 million for 2003. 2004. 2 Includes Collective loan loss provisions. 3 Allowances relating to impaired loans only. 4 Allowances relating to non-performing loans only.
164413
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Annual report 2007
Strategy, Performance and Responsibility 2007
Risk, Treasury and Capital Management 2007
Corporate Governance and Compensation Report 2007
Financial Statements 2007
Quarterly reports
How to order reports
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Information tools for investors
Website
Messaging service
Results presentations
Form 20-F and other submissions to the USSecurities and Exchange Commission
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.
UBS AG is incorporated and domiciled in Switzerland and operates under Swiss Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.
The addresses and telephone numbers of our two registered offices are: Bahnhofstrasse 45, CH-8001 Zurich, Switzerland, phone +41-44-234 11 11; and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, phone +41-61-288 20 20.
UBS AG shares are listed on the SWX Swiss Exchange (traded through its trading platform virt-x), on the New York Stock Exchange (NYSE) and on the Tokyo Stock Exchange (TSE).
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Rounding | Numbers presented throughout this report may not add up precisely to the totals provided in the tables. Percentages and percent changes are calculated based on rounded figures displayed in the tables and text and may not precisely reflect the percentages and percent changes that would be derived based on figures that are not rounded.
Imprint |Publisher / Copyright: Publisher: UBS AG, P.O. Box, CH-8098 Zurich; P.O. Box, Switzerland, CH-4002 Basel, Switzerland; www.ubs.com | Languages: English, Language: English/GermanOrder number Annual Report 2007: | SAP-No. 80531E-0801
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