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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 20—F
(Mark One) | ||
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
OR | ||
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, 2003 | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number: 1-15060
UBS AG
Switzerland
(Jurisdiction of Incorporation or Organization)
Bahnhofstrasse 45
CH-8098 Zurich, Switzerland
and
Aeschenvorstadt 1,
CH-4051 Basel, Switzerland
(Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Please see the following page.
Securities registered or to be registered pursuant to Section 12 (g) of the Act:
None.
Securities for which there is a reporting obligation pursuant to Section 15 (d) of the Act:
Please see the following page.
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Indicate the number of outstanding shares of each of the issuer’s classes of
capital or common stock as of 31 December 2003:
Ordinary shares, par value CHF 0.80 per share: 1,183,046,764 ordinary shares
(including 111,360,692 treasury shares)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 o Item 18 þ
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Securities registered or to be registered pursuant to Section 12(b) of the Act:
Name of each exchange on | ||
Title of each class | which registered | |
Ordinary Shares (par value of CHF 0.80 each) | New York Stock Exchange | |
$300,000,000 7.25% Noncumulative Trust Preferred Securities | New York Stock Exchange | |
$300,000,000 7.25% Noncumulative Company Preferred Securities | New York Stock Exchange* | |
$300,000,000 Floating Rate Noncumulative Trust Preferred Securities | New York Stock Exchange | |
$300,000,000 Floating Rate Noncumulative Company Preferred Securities | New York Stock Exchange* | |
Subordinated Guarantee of UBS AG with respect to Company Preferred Securities | New York Stock Exchange* | |
$54,000,000 BULs due September 2006 | American Stock Exchange | |
$4,500,000 BULs due October 2006 | American Stock Exchange | |
$46,000,000 PPNs due May 2005 | American Stock Exchange | |
$16,500,000 PPNs due June 2005 | American Stock Exchange | |
$8,129,000 PPNs due November 2005 | American Stock Exchange | |
$8,961,000 PPNs due December 2005 | American Stock Exchange | |
$31,517,000 Equity Linked Notes due November 2007 | American Stock Exchange | |
$52,000,000 PPNs due November 2007 | American Stock Exchange | |
$14,500,000 PPNs due December 2007 | American Stock Exchange | |
$20,000,000 PPNs due February 2008 | American Stock Exchange | |
$16,000,000 PPNs due February 2008 | American Stock Exchange | |
$8,000,000 PPNs due November 2010 | American Stock Exchange | |
$9,000,000 PPNs due April 2009 | American Stock Exchange | |
$6,900,000 PPNs due May 2009 | American Stock Exchange | |
$12,660,000 PPNs due September 2010 | American Stock Exchange | |
$17,842,000 PPNs due October 2011 | American Stock Exchange | |
$30,000,000 PPNs due Apr 2010 | American Stock Exchange | |
$24,223,000 PPNs due Oct 2009 | American Stock Exchange | |
$31,000,000 PPNs due May 2010 | American Stock Exchange | |
$133,000,000 EASs due May 2004 | American Stock Exchange | |
$74,000,000 EASs due August 2004 | American Stock Exchange | |
$23,000,000 PPNs due June 2010 | American Stock Exchange | |
$10,000,000 PPNs due July 2010 | American Stock Exchange | |
$7,750,000 PPNs due August 2010 | American Stock Exchange | |
$5,100,000 PPNs due September 2009 | American Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
$1,500,000,000 8.622% Noncumulative Trust Preferred Securities
$1,500,000,000 8.622% Noncumulative Company Preferred Securities
$500,000,000 7.247% Noncumulative Trust Preferred Securities
$500,000,000 7.247% Noncumulative Company Preferred Securities
Subordinated Guarantee of UBS AG with respect to Company Preferred Securities
$14,000,000 Equity Linked Notes due February 1, 2007
$4,976,000 Equity Linked Notes due June 20, 2007
$26,000,000 PPNs due August 2008
$9,200,000 EASs due October 2004
$23,000,000 EASs due October 2004
$11,200,000 PPNs due February 2011
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$14,000,000 EASs due October 2004
$5,500,000 EASs due October 2004
$8,500,000 EASs due October 2004
$13,000,000 PPNs due July 2004
$9,000,000 EASs due November 2004
$5,000,000 EASs due November 2004
$2,000,000 EASs due November 2004
$3,600,620 EASs due November 2004
$6,393,920 EASs due November 2004
$4,012,800 EASs due November 2004
$4,677,030 EASs due November 2004
$4,500,000 PPNs due July 2009
$35,000,000 EASs due December 2004
$1,546,930 EASs due December 2004
$3,282,240 EASs due December 2004
$1,452,000 EASs due December 2004
$1,942,330 EASs due December 2004
$3,570,800 EASs due December 2004
$22,500,000 EASs due January 2005
$11,000,000 PPCNs due January 2012
$1,800,920 EASs due January 2005
$900,500 EASs due January 2005
$891,450 EASs due January 2005
$1,141,080 EASs due January 2005
$755,430 EASs due January 2005
$3,700,000 EASs due January 2005
$20,000,000 EASs due February 2005
$22,000,000 EASs due March 2005
$19,100,000 EASs due March 2005
$25,500,000 PPNs due January 2009
$26,000,000 EASs due April 2005
$11,500,000 CPNs due August 2009
$7,500,000 PPNs due February 2009
$15,500,000 PPNs due January 2012
$12,000,000 EASs due June 2005
$42,000,000 Commodity Linked Notes due May 2005
Guarantees with respect to certain securities of UBS Americas Inc.
* | Not for trading, but solely in connection with the registration of the corresponding Trust Preferred Securities. |
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CONTENTS
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as the information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. The words “anticipate”, “believe”, “expect”, “estimate”, “intend”, “plan”, “should”, “could”, “may” and other similar expressions are used in connection with forward-looking statements. In this annual report, forward-looking statements may, without limitation, relate to:
• | The implementation of strategic initiatives, such as the implementation of the European wealth management strategy and our plans to continue to expand our corporate finance business; | |||
• | The development of revenues overall and within specific business areas; | |||
• | The development of operating expenses; | |||
• | The anticipated level of capital expenditures and associated depreciation expense; | |||
• | The expected impact of the risks that affect UBS’s business, including the risk of loss resulting from the default of an obligor or counterparty; | |||
• | Expected credit losses based upon UBS’s credit review; and | |||
• | Other statements relating to UBS’s future business development and economic performance. |
There can be no assurance that forward-looking statements will approximate actual experience. Several important factors exist that could cause UBS’s actual results to differ materially from expected results as described in the forward-looking statements. Such factors include:
• | General economic conditions, including prevailing interest rates and performance of financial markets, which may affect demand for products and services and the value of our assets; | |||
• | Changes in UBS’s expenses associated with acquisitions and dispositions; | |||
• | General competitive factors, locally, nationally, regionally and globally; | |||
• | Industry consolidation and competition; | |||
• | Changes affecting the banking industry generally and UBS’s banking operations specifically, including asset quality; | |||
• | Developments in technology; | |||
• | Credit ratings and the financial position of obligors and counterparties; | |||
• | UBS’s ability to control risk in its businesses; | |||
• | Changes in tax laws in the countries in which UBS operates, which could adversely affect the tax advantages of certain of UBS’s products or subject it to increased taxation; | |||
• | Changes in accounting standards applicable to UBS, as more fully described below; | |||
• | Changes in investor confidence in the future performance of financial markets, affecting the level of transactions they undertake, and hence the levels of transaction-based fees UBS earns; | |||
• | Changes in the market value of securities held by UBS’s clients, affecting the level of asset-based fees UBS can earn on the services it provides; and |
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• | Changes in currency exchange rates, including the exchange rate for the Swiss franc into US dollars. |
UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
The effect of future changes in accounting standards
Included in the Notes to the Financial Statements is a description of the expected effect of accounting standards that have been issued but have not yet been adopted, for both IFRS and US GAAP.
Although we believe that description includes all significant matters that have been approved by the IASB and the FASB, those standard-setting bodies have a large number of projects in process that could result in significant new accounting standards or significant changes to existing standards.
This increased level of activity includes normal ongoing development and efforts to improve the existing body of accounting standards, and also is in response to a number of perceived deficiencies in accounting standards exemplified by reported abuses by various companies.
We believe it is likely that several new accounting standards will be issued in the near future, and that those new standards could have a significant effect on our reported results of operations and financial position, but cannot predict the precise nature or amounts of any such changes.
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PART I
Item 1. Identity of Directors, Senior Management and Advisors.
Not required because this Form 20-F is filed as an annual report.
Item 2. Offer Statistics and Expected Timetable.
Not required because this Form 20-F is filed as an annual report.
Item 3. Key Information.
A—Selected Financial Data.
Please see pages 199 to 203 of the attached Financial Report 2003 U.S. Version, also referred to as “Financial Report 2003”.
Ratio of Earnings to Fixed Charges
Please see page 203 of the attached Financial Report 2003, and Exhibit 7 to this Form 20-F.
B—Capitalization and Indebtedness.
Not required because this Form 20-F is filed as an annual report.
C—Reasons for the Offer and Use of Proceeds.
Not required because this Form 20-F is filed as an annual report.
D—Risk Factors.
Please see pages 20 and 21 of the attached Financial Report 2003.
Item 4. Information on the Company.
A—History and Development of the Company.
1-3 | Please see page 5 of the attached Handbook 2003/2004 U.S. Version, also referred to as “Handbook 2003/2004”, and page 5 of the attached Financial Report 2003. | |
4 | Please see page 16 of the attached Handbook 2003/2004. | |
5, 6 | Please see the sectionUBS Resultson pages 23 to 38 of the attached Financial Report 2003, in particular, subsectionPaineWebber merger-related costs. | |
7 | Not applicable. |
B—Business Overview.
1, 2, 3, 5, 7 | Please see sectionThe Business Groupson pages 17 to 44 of the attached Handbook 2003/2004 and the sectionSeasonal Characteristicson page 14 of the attached Financial Report 2003. For a breakdown of revenues by category of activity and geographic market for each of the last three financial years, please refer to Notes 2a and 2b to the Financial Statements, on pages 100 to 105 of the attached Financial Report 2003. | |
4, 6 | Not applicable. | |
8 | Please see the sectionRegulation and Supervisionon pages 104 to 106 of the attached Handbook 2003/2004. |
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C—Organizational Structure.
Please see Note 36 to the Financial Statements on pages 159 to 162 of the attached Financial Report 2003.
D—Property, Plant and Equipment.
Please see the sectionProperty, Plant and Equipmenton page 203 of the attached Financial Report 2003.
Information Required by Industry Guide 3
Please see pages 204 to 220 of the attached Financial Report 2003.
Item 5. Operating and Financial Review and Prospects.
A—Operating Results.
Please see sectionsOverview,UBS ResultsandBusiness Group Resultson pages 7 to 75 of the attached Financial Report 2003.
Please also see Note 40 to the Financial StatementsReconciliation of International Financial Reporting Standards (IFRS) to United States Generally Accepted Accounting Principles (US GAAP)on pages 165 to 177 of the attached Financial Report 2003 and theCurrency managementsubsection of theTreasury section, on pages 71 and 72 of the attached Handbook 2003/2004.
B—Liquidity and Capital Resources.
We believe that our working capital is sufficient for the company’s present requirements.
UBS liquidity and capital management is undertaken at UBS by Group Treasury as an integrated asset and liability management function. For a detailed discussion of Group Treasury’s functions and results, including our capital resources, please see pages 67 to 74 of the attached Handbook 2003/2004, and Note 18 to the Financial StatementsDebt Issuedon pages 121 and 122 of the attached Financial Report 2003.
For a discussion of UBS’s balance sheet and cash flows, please see pages 31, 32, 34 and 35 of the attached Financial Report 2003.
For a discussion of UBS’s long term credit ratings, please see theCapital Strengthsubsection of the sectionCapital Managementon page 74 of the attached Handbook 2003/2004.
C—Research and Development, Patents and Licenses, etc.
Not applicable.
D—Trend Information.
Please seeOutlooksubsection of the sectionUBS Resultson page 34 of the attached Financial Report 2003, and pages 11, 12, 30, 34, 35 and 41 of the attached Handbook 2003/2004, which contain more detailed trend information.
E—Off-balance sheet arrangements.
Please seeOff-balance sheetsubsection of the sectionUBS Resultson pages 32 to 34 of the attached Financial Report 2003.
F—Tabular disclosure of contractual obligations.
Please seeContractual Obligationssubsection of the sectionUBS Results on page 32 of the attached Financial Report 2003.
Item 6. Directors, Senior Management and Employees.
A—Directors and Senior Management.
1, 2, 3 | Please see pages 81 to 90 of the attached Handbook 2003/2004. | |
4 and 5 | None. |
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B—Compensation.
Please see theCompensation, Shareholdings and Loanssection on pages 91 to 95 of the attached Handbook 2003/2004 and also Notes 32 and 33 to the Financial Statements on pages 151 to 157 of the attached Financial Report 2003.
C—Board Practices.
Please see pages 81 to 86 of the attached Handbook 2003/2004 and Note 33 to the Financial Statements on pages 155 to 157 of the attached Financial Report 2003.
D—Employees.
Please see pages 30-31 of the attached Financial Report 2003.
E—Share Ownership.
Please see the subsectionCompensation, Shareholdings and Loansin theCorporate Governancesection on pages 91 to 95 of the attached Handbook 2003/2004 and also Notes 32 and 33 to the Financial Statements on pages 151 to 157 of the attached Financial Report 2003.
Item 7. Major Shareholders and Related Party Transactions.
A—Major Shareholders.
Please see pages 77 and 78 of the attached Handbook 2003/2004.
B—Related Party Transactions.
The total number of shares held by members of the Board of Directors (including those nominated for election to the Board of Directors at the annual general meeting to be held on 15 April 2004), and the Group Executive Board and parties closely linked to them was 3,152,617 at 31 December 2003 and 2,139,371 at 31 December 2002. The total number of shares held by these two groups plus the Group Managing Board was 4,068,918 at 31 December 2001. No member of the Board of Directors or Group Executive Board is the beneficial owner of more than 1% of the Group’s shares at 31 December 2003.
C—Interests of Experts and Counsel.
Not applicable because this Form 20-F is filed as an annual report.
Item 8. Financial Information.
A—Consolidated Statements and Other Financial Information.
Please see Item 18 of this Form 20-F.
B—Significant Changes.
UBS is not aware of any significant change that has occurred since the date of the annual financial statements included in this Form 20-F.
Item 9. The Offer and Listing.
A—Offer and Listing Details.
1, 2, 3, 5, 6, 7 | Not required because this Form 20-F is filed as an annual report. | |
4 | Please see page 122 of the attached Handbook 2003/2004. |
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B—Plan of Distribution
Not required because this Form 20-F is filed as an annual report.
C—Markets.
UBS’s shares are traded on the virt-x, the New York Stock Exchange and the Tokyo Stock Exchange. The symbols are shown on page 119 of the attached Handbook 2003/2004.
Trading on virt-x
Since July 2001, Swiss blue chip stocks have no longer been traded on the SWX Swiss Exchange. All trading in the shares of members of the Swiss Market Index (SMI) now takes place on virt-x, although these stocks remain listed on the SWX Swiss Exchange. Altogether, approximately 400 blue-chip stocks are traded on virt-x, in the currency of their home market.
virt-x is wholly owned by the SWX Swiss Exchange. It provides an efficient and cost effective pan-European blue-chip market. It addresses the increasing requirement for equity investment to be conducted on a sectoral basis across Europe rather than being limited to national markets.
virt-x is a Recognized Investment Exchange supervised by the Financial Services Authority in the United Kingdom. It is delivered on the modern, scalable SWX trading platform.
Trading is possible on all target days, as specified by the European Central Bank. The opening hours are 06:00 to 22:00 CET and the trading hours are 09:00 to 17:30 CET. During the after-hours trading phase from 17:30 to 22:00 CET and in the pre-trading phase from 06:00 to 09:00 CET, orders can be entered or deleted. From 09:00 CET, once the opening price is set, trading begins. Orders are executed automatically according to established rules that match bid and asked prices. Regardless of their size or origin, incoming orders are executed on a price/time priority, i.e., in the order of price (first priority) and time received (second priority). Depending on the type of transaction, the order and trade details are also transmitted to data vendors (Reuters, Bloomberg, Telekurs, etc.).
In most cases, each trade triggers an automatic settlement instruction which is routed through one of three central securities depositories (CSD); SIS SEGAINTERSETTLE AG, CRESTCo or Euroclear. Members can choose to settle from one or more accounts within these CSD’s and when counterparties have selected different CSD’s, settlement will be cross-border. Additionally, virt-x introduced the first pan-European Central Counterparty (CCP) for cross-border trading in May 2003.
All trades executed through the order book settle on a uniform “T+3” basis, meaning that delivery and payment of exchange transactions occur three days after the trade date. The buyer is able to ask virt-x to enforce settlement if the seller has not delivered within three days of the intended settlement date.
Any transaction executed under the rules of virt-x must be reported to virt-x. Order book executions are automatically reported by the trading system. There are separate provisions for the delayed reporting of certain qualifying trades. Individual elements of Portfolio Trades must be reported within one hour while Block Trades and enlarged risk trades must be reported when the business is substantially (80%) complete, or by the end of order book trading that day, unless the trade is agreed one hour or less before the market close, when the Trade must be reported by the end of order book trading on the following market day. Block Trades and Enlarged Risk Trades are subject to minimum trade size criteria. During normal trading hours all other transactions must be reported within three minutes. The Enlarged Risk Trades provisions enable a member to protect a client’s interest while the member works a large trade on behalf of the client. The Block Trade provisions allow a member a publication delay when the member has executed a large transaction for a client; the delay gives the member time in which to offset the risk of the large trade.
In the event of extraordinary situations such as large price fluctuations and other situations likely to hamper fair and orderly trading, virt-x may take whatever measures it deems necessary to maintain fair and orderly markets. A listed security may be suspended, the opening of trading in that security may be delayed or continuous trading may be interrupted.
Trading on the New York Stock Exchange
UBS listed its shares on the New York Stock Exchange (“NYSE”) on 16 May 2000.
As of 31 December 2003, the equity securities of nearly 2,800 corporations were listed on the NYSE. Non-US issuers, currently over 470 in number with a combined market valuation exceeding USD 5.8 trillion, are playing an increasingly important role on the NYSE.
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The NYSE is open Monday through Friday, 9:30 A.M. — 4:00 P.M., EST.
The NYSE is an agency auction market. Trading at the NYSE takes place by open bids and offers by Exchange members, acting as agents for institutions or individual investors. Buy and sell orders meet directly on the trading floor, and prices are determined by the interplay of supply and demand. In contrast, in the US over-the-counter market, the price is determined by a dealer who buys and sells out of inventory.
At the NYSE, each listed stock is assigned to a single post where the specialist manages the auction process. NYSE members bring all orders for NYSE-listed stocks to the Exchange floor either electronically or through a floor broker. As a result, the flow of buy and sell orders for each stock is funnelled to a single location.
This heavy stream of diverse orders is one of the great strengths of the Exchange. It provides liquidity — the ease with which securities can be bought and sold without wide price fluctuations.
When an investor’s transaction is completed, the best price will have been exposed to a wide range of potential buyers and sellers.
Every transaction made at the NYSE is under continuous surveillance during the trading day. Stock Watch, a computer system that searches for unusual trading patterns, alerts NYSE regulatory personnel to possible insider trading abuses or other prohibited trading practices. The NYSE’s other regulatory activities include the supervision of member firms to enforce compliance with financial and operational requirements, periodic checks on brokers’ sales practices, and the continuous monitoring of specialist operations.
Trading on the Tokyo Stock Exchange
The volume of UBS shares traded on the Tokyo Stock Exchange is negligible in comparison to the volume on virt-x or on the NYSE.
D—Selling Shareholders.
Not required because this Form 20-F is filed as an annual report.
E—Dilution.
Not required because this Form 20-F is filed as an annual report.
F—Expenses of the Issue.
Not required because this Form 20-F is filed as an annual report.
Item 10. Additional Information.
A—Share Capital.
Not required because this Form 20-F is filed as an annual report.
B—Memorandum and Articles of Association.
Please see:
a) | Item 14 of our registration statement on Form 20-F filed 9 May 2000. Please see Articles of Association of UBS AG filed as Exhibit 1.1 and Organization Regulations of UBS AG filed as Exhibit 1.2 on Form 20-F filed on March 19, 2003. | |||
b) | The sectionGlobal Registered Shareon pages 118 and 119 of the attached Handbook 2003/2004. | |||
c) | Pages 6 and 118 of the attached Handbook 2003/2004 which provide details of our transfer agent in the US, Mellon Investor Services. |
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C—Material Contracts.
None.
D—Exchange Controls.
There are no restrictions under UBS’s Articles of Association or Swiss law, presently in force, that limit the right of non-resident nor foreign owners to hold UBS’s securities freely. There are currently no Swiss foreign exchange controls or other Swiss laws restricting the import or export of capital by UBS or its subsidiaries. In addition, there are currently no restrictions under Swiss law affecting the remittance of dividends, interest or other payments to non-resident holders of UBS securities.
E-Taxation.
This section outlines the material Swiss tax and United States federal income tax consequences of the ownership of UBS ordinary shares by a US holder (as defined below) who holds UBS ordinary shares as capital assets. It is designed to explain the major interactions between Swiss and US taxation for US persons who hold UBS shares.
The discussion does not address the tax consequences to persons who hold UBS ordinary shares in particular circumstances, such as tax-exempt entities, banks, financial institutions, insurance companies, broker-dealers, traders in securities that elect to mark to market, holders liable for alternative minimum tax, holders that actually or constructively own 10% or more of the voting stock of UBS, holders that hold UBS ordinary shares as part of a straddle or a hedging or conversion transaction or holders whose functional currency for US tax purposes is not the US dollar. This discussion also does not apply to holders who acquired their UBS ordinary shares pursuant to the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan.
The discussion is based on the tax laws of Switzerland and the United States, including the US Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations under the Internal Revenue Code, published rulings and court decisions, as in effect on the date of this document, as well as the convention between the United States of America and Switzerland, which we call the “Treaty,” all of which may be subject to change or change in interpretation, possibly with retroactive effect.
For purposes of this discussion, a “US holder” is any beneficial owner of UBS ordinary shares that is:
• | a citizen or resident of the United States, | |||
• | a corporation or other entity taxable as a corporation organized under the laws of the United States or any political subdivision of the United States, | |||
• | an estate the income of which is subject to United States federal income tax without regard to its source, or | |||
• | a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust. |
The discussion does not generally address any aspects of Swiss taxation other than income and capital taxation or of United States taxation other than federal income taxation. Holders of UBS shares are urged to consult their tax advisors regarding the United States federal, state and local and the Swiss and other tax consequences of owning and disposing of these shares in their particular circumstances.
Ownership of UBS Ordinary Shares-Swiss Taxation
Dividends and Distributions
Dividends paid by UBS to a holder of UBS ordinary shares (including dividends on liquidation proceeds and stock dividends) are subject to a Swiss federal withholding tax at a rate of 35%. The withholding tax must be withheld from the gross distribution, and be paid to the Swiss Federal Tax Administration.
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A US holder that qualifies for Treaty benefits may apply for a refund of the withholding tax withheld in excess of the 15% Treaty rate. The claim for refund must be filed with the Swiss Federal Tax Administration, Eigerstrasse 65, CH-3003 Berne, Switzerland no later than December 31 of the third year following the end of the calendar year in which the income subject to withholding was due. The form used for obtaining a refund is Swiss Tax Form 82 (82C for companies; 82E for other entities; 821 for individuals), which may be obtained from any Swiss Consulate General in the United States or from the Swiss Federal Tax Administration at the address above. The form must be filled out in triplicate with each copy duly completed and signed before a notary public in the United States. The form must be accompanied by evidence of the deduction of withholding tax withheld at the source.
Repayment of capital in the form of a par value reduction is not subject to Swiss withholding tax.
Transfers of UBS Ordinary Shares
The sale of UBS ordinary shares, whether by Swiss resident or non-resident holders (including US holders), may be subject to a Swiss securities transfer stamp duty of up to 0.15% calculated on the sale proceeds if it occurs through or with a bank or other securities dealer in Switzerland as defined in the Swiss Federal Stamp Tax Act. In addition to the stamp duty, the sale of UBS ordinary shares by or through a member of a recognized stock exchange may be subject to a stock exchange levy. Capital gains realized by a US holder upon the sale of UBS ordinary shares are not subject to Swiss income or gains taxes, unless such US holder holds such shares as business assets of a Swiss business operation qualifying as a permanent establishment for the purposes of the Treaty. In the latter case, gains are taxed at ordinary Swiss individual or corporate income tax rates, as the case may be, and losses are deductible for purposes of Swiss income taxes.
Ownership of UBS Ordinary Shares-United States Federal Income Taxation
Dividends and Distribution
Subject to the passive foreign investment company rules discussed below, US holders will include in gross income the gross amount of any dividend paid, before reduction for Swiss withholding taxes, by UBS out of its current or accumulated earnings and profits, as determined for United States federal income tax purposes, as ordinary income when the dividend is actually or constructively received by the US holder. Dividends paid to a noncorporate US holder in taxable years beginning after December 31, 2002 and before January 1, 2009 that constitute qualified dividend income will be taxable to the holder at a maximum rate of 15%, provided that the holder has a holding period in the shares of more than 60 days during the 120-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. On February 19, 2004, the IRS announced that it will permit taxpayers to apply a proposed legislative change to the holding period requirement described in the preceding sentence as if such change were already effective. This legislative “technical correction” would change the minimum required holding period, retroactive to January 1, 2003, to more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Dividends paid by UBS with respect to the shares will generally be qualified dividend income.
For United States federal income tax purposes, a dividend will include a distribution characterized as a repayment of capital in the form of a par value reduction, if the distribution is made out of current or accumulated earnings and profits, as described above.
Dividends will be income from sources outside the United States for foreign tax credit limitation purposes, but generally will be “passive income” or “financial services income,” which are treated separately from other types of income for foreign tax credit limitation purposes. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% rate. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution included in income of a US holder will be the US dollar value of the Swiss franc payments made, determined at the spot Swiss franc/US dollar rate on the date such dividend distribution is included in the income of the US holder, regardless of whether the payment is in fact converted into US dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend distribution is included in income to the date such dividend distribution is converted into US dollars will be treated as ordinary income or loss. Such gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a return of capital to the extent of the US holder’s basis in its UBS ordinary shares and thereafter as capital gain.
Subject to certain limitations, the Swiss tax withheld in accordance with the Treaty and paid over to Switzerland will be creditable against the US holder’s United States federal income tax liability. To the extent a refund of the tax withheld is available to a US holder
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under the laws of Switzerland or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against the US holder’s United States federal income tax liability, whether or not the refund is actually obtained.
Stock dividends to US holders that are made as part of a pro rata distribution to all shareholders of UBS generally will not be subject to United States federal income tax. US holders that received a stock dividend that is subject to Swiss tax but not US tax may not have enough foreign income for US tax purposes to receive the benefit of the foreign tax credit associated with that tax, unless the holder has foreign income from other sources.
Transfers of UBS Ordinary Shares
Subject to the passive foreign investment company rules discussed below, a US holder that sells or otherwise disposes of UBS ordinary shares generally will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the US dollar value of the amount realized and the tax basis, determined in US dollars, in the UBS ordinary shares. Capital gain of a non-corporate US holder that is recognized on or after May 6, 2003 and before January 1, 2009 is generally taxed at a maximum rate of 15% if the UBS ordinary shares were held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.
Passive Foreign Investment Company Rules
UBS believes that UBS ordinary shares should not be treated as stock of a passive foreign investment company for United States federal income tax purposes, but this conclusion is a factual determination made annually and thus may be subject to change. In general, UBS will be a passive foreign investment company with respect to a US holder if, for any taxable year in which the US holder held UBS ordinary shares, either (i) at least 75% of the gross income of UBS for the taxable year is passive income or (ii) at least 50% of the value, determined on the basis of a quarterly average, of UBS’s assets is attributable to assets that produce or are held for the production of passive income (including cash). If UBS were to be treated as a passive foreign investment company, then unless a US holder makes a mark-to-market election, gain realized on the sale or other disposition of UBS ordinary shares would in general not be treated as capital gain. Instead, a US holder would be treated as if the holder had realized such gain and certain “excess distributions” ratably over the holder’s holding period for the shares and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. In addition, dividends received from UBS would not be eligible for the preferential tax rate applicable to qualified dividend income if UBS were to be treated as a passive foreign investment company either in the taxable year of the distribution or the preceding taxable year, but would instead be taxable at rates applicable to ordinary income.
F—Dividends and Paying Agents.
Not required because this Form 20-F is filed as an annual report.
G—Statement by Experts.
Not required because this Form 20-F is filed as an annual report.
H—Documents on Display.
UBS files periodic reports and other information with the Securities and Exchange Commission. You may read and copy any document that we file with the SEC on the SEC’s website, www.sec.gov, or at the SEC’s public reference room at 450 Fifth Street NW, Washington, DC, 20549. Please call the SEC at 1-800-SEC-0330 (in the US) or at +1 202 942 8088 (outside the US) for further information on the operation of its public reference room. You may also inspect our SEC reports and other information at the New York Stock Exchange, Inc., 20 Broad Street, New York, NY 10005. Much of this additional information may also be found on the UBS website at www.ubs.com/investors. http://www.ubs.com/investors.
I—Subsidiary Information.
Not applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
A—Quantitative Information About Market Risk.
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Please see the sectionMarket Riskon pages 60 to 64 of the attached Handbook 2003/2004.
B—Qualitative Information About Market Risk.
Please see the sectionMarket Riskon pages 60 to 64 of the attached Handbook 2003/2004.
C—Interim Periods.
Not applicable.
D—Safe Harbor.
The safe harbor provided in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (“statutory safe harbors”) applies to information provided pursuant to paragraphs (a), (b) and (c) of this Item 11.
Item 12. Description of Securities Other than Equity Securities.
Not required because this Form 20-F is filed as an annual report.
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PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
There has been no material default in respect of any indebtedness of UBS AG or any of its significant subsidiaries or any arrearages of dividends or any other material delinquency not cured within 30 days relating to any preferred stock of UBS AG or any of its significant subsidiaries.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.
Not applicable.
Item 15. Controls and Procedures.
Please see page 103 of the attached Handbook 2003/2004.
Item 16.A Audit Committee Financial Expert
See subsectionCompliance with NYSE Standards on Corporate Governancein our Corporate Governance section on page 108 of the attached Handbook 2003/2004.
Item 16.B Code of Ethics
See subsectionCompliance with NYSE Listing Standards on Corporate Governancein ourCorporate Governancesection on page 109 of the attached Handbook 2003/2004. The code is published on our website under http://www.ubs.com/corporate-governance.
Item 16.C Principal Accountant Fees and Services
See subsectionAuditorsin ourCorporate Governancesection on pages 99 to 101 of the attached Handbook 2003/2004.
Item 16.D Exemptions from the Listing Standards for Audit Committee
Not applicable.
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PART III
Item 17. Financial Statements.
Not applicable.
Item 18. Financial Statements.
The Financial Statements included on pages 77 to 184 of the attached Financial Report 2003 are incorporated by reference herein.
Item 19. Exhibits.
Exhibit | ||
Number | Description | |
1.1. | Articles of Association of UBS AG. | |
1.2. | Organization Regulations of UBS AG (incorporated by reference to Exhibit 1.2 to UBS AG’s Annual Report on Form 20-F for the fiscal year ended December 31, 2002). | |
2(b). | Instruments defining the rights of the holders of long-term debt issued by UBS AG and its subsidiaries. | |
We agree to furnish to the SEC upon request, copies of the instruments, including indentures, defining the rights of the holders of our long-term debt and of our subsidiaries’ long-term debt. | ||
7. | Statement regarding ratio of earnings to fixed charges. | |
8. | Significant Subsidiaries of UBS AG. Please see Note 36 on pages 159 to 162 of the attached Financial Report 2003. | |
12. | The certifications required by Rule 13(a)-14(a) (17 CFR 240.13a-14(a)). | |
13. | The certifications required by Rule 13(a)-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). | |
14. | Consent of Ernst & Young Ltd |
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
UBS AG | ||||
/s/ Peter A. Wuffli | ||||
Name: | Peter A. Wuffli | |||
Title: | Chief Executive Officer | |||
/s/ Hugo Schaub | ||||
Name: | Hugo Schaub | |||
Title: | Group Controller | |||
Date: March 31, 2004 | ||||
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INDEX TO EXHIBITS
Exhibit | ||
Number | Description | |
1.1. | Articles of Association of UBS AG. | |
1.2. | Organization Regulations of UBS AG (incorporated by reference to Exhibit 1.2 to UBS AG’s Annual Report on Form 20-F for the fiscal year ended December 31, 2002). | |
2(b). | Instruments defining the rights of the holders of long-term debt issued by UBS AG and its subsidiaries. We agree to furnish to the SEC upon request, copies of the instruments, including indentures, defining the rights of the holders of our long-term debt and of our subsidiaries’ long-term debt. | |
7. | Statement regarding ratio of earnings to fixed charges. | |
8. | Significant Subsidiaries of UBS AG. | |
Please see Note 36 on pages 159 to 162 of the attached Financial Report 2003. | ||
12. | The certifications required by Rule 13(a)-14(a) (17 CFR 240.13a-14(a)). | |
13. | The certifications required by Rule 13(a)-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). | |
14. | Consent of Ernst & Young Ltd |
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Introduction
Our Financial Report forms an essential part of our annual reporting portfolio. It includes the audited Financial Statements of UBS for 2002 and 2003, prepared according to International Financial Reporting Standards (IFRS) and reconciled to the United States’ Generally Accepted Accounting Principles (US GAAP), and the audited financial statements of UBS AG (the “Parent Bank”) for 2002 and 2003, prepared according to Swiss Banking Law requirements. It also contains a discussion and analysis of the financial and business performance of UBS and its Business Groups, and additional disclosures required under Swiss and US regulations.
The Financial Report should be read in conjunction with the other information published by UBS, described on page 4.
We sincerely hope that you will find our annual reports useful and informative. We believe that UBS is one of the leaders in corporate disclosure, although we would be very interested to hear your views on how we might improve the content, information and presentation of the reporting products that we publish.
Mark Branson
Chief Communication Officer
UBS AG
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Introduction
UBS Financial Highlights
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Income statement key figures | ||||||||||||||||
Operating income | 33,972 | 34,121 | 37,114 | 0 | ||||||||||||
Operating expenses | 25,624 | 29,577 | 30,396 | (13 | ) | |||||||||||
Operating profit before tax | 8,348 | 4,544 | 6,718 | 84 | ||||||||||||
Net profit | 6,385 | 3,535 | 4,973 | 81 | ||||||||||||
Cost / income ratio (%)1 | 75.2 | 86.2 | 80.8 | |||||||||||||
Per share data (CHF) | ||||||||||||||||
Basic earnings per share2 | 5.72 | 2.92 | 3.93 | 96 | ||||||||||||
Diluted earnings per share2 | 5.61 | 2.87 | 3.78 | 95 | ||||||||||||
Return on shareholders’ equity (%)3 | 18.2 | 8.9 | 11.7 | |||||||||||||
CHF million, except where indicated | % change from | |||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Balance sheet key figures | ||||||||||||||||
Total assets | 1,386,000 | 1,181,118 | 1,253,297 | 17 | ||||||||||||
Shareholders’ equity | 35,446 | 38,991 | 43,530 | (9 | ) | |||||||||||
Market capitalization | 95,401 | 79,448 | 105,475 | 20 | ||||||||||||
BIS capital ratios | ||||||||||||||||
Tier 1 (%)4 | 11.8 | 11.3 | 11.6 | |||||||||||||
Total BIS (%) | 13.3 | 13.8 | 14.8 | |||||||||||||
Risk-weighted assets | 251,901 | 238,790 | 253,735 | 5 | ||||||||||||
Invested assets (CHF billion) | 2,209 | 2,037 | 2,448 | 8 | ||||||||||||
Headcount (full-time equivalents) | ||||||||||||||||
Switzerland | 26,662 | 27,972 | 29,163 | (5 | ) | |||||||||||
Europe (excluding Switzerland) | 9,906 | 10,009 | 9,650 | (1 | ) | |||||||||||
Americas | 25,511 | 27,350 | 27,463 | (7 | ) | |||||||||||
Asia Pacific | 3,850 | 3,730 | 3,709 | 3 | ||||||||||||
Total | 65,929 | 69,061 | 69,985 | (5 | ) | |||||||||||
Long-term ratings5 | ||||||||||||||||
Fitch, London | AA+ | AAA | AAA | |||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||||||
Throughout this report, 2001 and 2002 segment results have been restated to reflect the transfer of the Private Banks & GAM to Corporate Center.
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UBS at a Glance
UBS is one of the world’s leading financial firms, serving a discerning global client base. As an organization, it combines financial strength with a global culture that embraces change. As an integrated firm, UBS creates added value for clients by drawing on the combined resources and expertise of all its businesses.
Businesses
Wealth management
Investment banking and securities
Asset management
Swiss corporate and individual clients
Corporate Center
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Introduction
Sources of Information
This Financial Report contains our audited Financial Statements for the year 2003 and the related detailed analysis. You can find out more about UBS from the sources shown below.
Publications
This Financial Report is available in English and German. (SAP no. 80531-0401).
Annual Review 2003
Handbook 2003/2004
Quarterly reports
How to order reports
Information tools for investors
Website
Messenger service
Results presentations
UBS and the environment
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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 the Form 20-F, our Annual Report filed pursuant to the US Securities Exchange Act of 1934.
You may read and copy any document that we file with the SEC on the SEC’s website, www.sec.gov, or at the SEC’s public reference room at 450 Fifth Street NW, Washington, DC, 20549. Please call the SEC at 1-800-SEC-0330 (in the US) or at +1 202 942 8088 (outside the US) for further information on the operation of its public reference room. You may also inspect our SEC reports and other information at the New York Stock Exchange, Inc., 20 Broad Street, New York, NY 10005. Much of this additional information may also be found on the UBS web-site at www.ubs.com / investors, and copies of documents filed with the SEC may be obtained from UBS’s Investor Relations team, at the addresses shown on the next page.
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.
The addresses and telephone numbers of our two registered offices are:
Bahnhofstrasse 45, CH-8098 Zurich, Switzerland, telephone +41-1-234 11 11;
and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, telephone +41-61-288 20 20.
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Introduction
Contacts
Switchboards | Zurich | +41-1-234 1111 | ||||
For all general queries. | London | +44-20-7568 0000 | ||||
New York | +1-212-821 3000 | |||||
Hong Kong | +852-2971 8888 | |||||
Investor Relations | Zurich | |||||
Our Investor Relations team supports | Hotline | +41-1-234 4100 | UBS AG | |||
institutional, professional | Christian Gruetter | +41-1-234 4360 | Investor Relations | |||
and retail investors from offices in | Cate Lybrook | +41-1-234 2281 | P.O. Box | |||
Zurich and New York. | Oliver Lee | +41-1-234 2733 | CH-8098 Zurich, Switzerland | |||
Fax | +41-1-234 3415 | |||||
www.ubs.com/investors | ||||||
New York | ||||||
Hotline | +1-212-713 3641 | UBS Americas Inc. | ||||
Christopher McNamee | +1-212-713 3091 | Investor Relations | ||||
Fax | +1-212-713 1381 | 135 W. 50th Street, 10th Floor | ||||
New York, NY 10020, USA | ||||||
sh-investorrelations@ubs.com | ||||||
Media Relations | Zurich | +41-1-234 8500 | sh-gpr@ubs.com | |||
Our Media Relations team supports | London | +44-20-7567 4714 | ubs-media-relations@ubs.com | |||
global media and journalists from | New York | +1-212-713 8391 | mediarelations-ny@ubs.com | |||
offices in Zurich, London, New York | Hong Kong | +852-2971 8200 | sh-mediarelations-ap@ubs.com | |||
and Hong Kong. | ||||||
www.ubs.com/media | ||||||
Shareholder Services | Hotline | +41-1-235 6202 | UBS AG | |||
UBS Shareholder Services, a unit of | Fax | +41-1-235 3154 | Shareholder Services | |||
the Company Secretary, is responsible | P.O. Box | |||||
for the registration of the Global | CH-8098 Zurich, Switzerland | |||||
Registered Shares. | ||||||
sh-shareholder-services@ubs.com | ||||||
US Transfer Agent | calls from the US | +1-866-541 9689 | Mellon Investor Services | |||
For all Global Registered Share- | calls outside the US | +1-201-329 8451 | Overpeck Centre | |||
related queries in the USA. | Fax | +1-201-296 4801 | 85 Challenger Road | |||
Ridgefield Park, NJ 07660, USA | ||||||
www.melloninvestor.com | ||||||
shrrelations@melloninvestor.com | ||||||
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7
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Overview
Preparation and Presentation of
Financial Information
Standards and principles in UBS financial
reporting
Accounting principles
Standards for management accounting
attributable to each business unit. Internal charges and transfer pricing adjustments are reflected in the performance of each business unit.
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than short-term temporary workers (hired for less than 90 calendar days) and contractors.
Disclosure principles and
additional financial information
Restatement of results
Changes to accounting presentation in 2003
There were no other accounting changes during 2003 that affected either the UBS Financial Statements or our business unit reporting.
Fair value disclosure of employee
stock options
PaineWebber merger-related costs
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Overview
Indicative Pre-goodwill Tax Rates
in % | ||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Wealth Management & Business Banking | 18 | 19 | 20 | |||||||||
Wealth Management | 16 | 18 | 18 | |||||||||
Business Banking Switzerland | 20 | 20 | 22 | |||||||||
Global Asset Management | 20 | 22 | 22 | |||||||||
Investment Bank | 32 | 38 | 39 | |||||||||
Investment Banking & Securities | 30 | 31 | 31 | |||||||||
Private Equity | 3 | 3 | 4 | |||||||||
Wealth Management USA | 38 | 37 | 37 | |||||||||
As part of the merger, UBS agreed to make retention payments to PaineWebber key function holders, subject to these employees’ continued employment and other restrictions. The payments vest over periods of up to four years from November 2000 and the vast majority of them
are paid in the form of UBS shares. Personnel expenses in 2003 include retention payments of USD 196 million (CHF 263 million). In 2004, we expect a final expense of approximately USD 80 million.
Effective 2004, we will make a number of changes in accounting and presentation as well as to our disclosure. They will require us to restate comparative prior periods, although not all of them will have an effect on net profit or shareholders’ equity. Because of the changes, we will release restated interim and annual financial statement figures for 2002 and 2003 before we publish our first quarter 2004 report.
Early adoption of IAS 32 and 39
Adopting the two standards will largely eliminate the separation requirement for derivatives embedded in the structured notes we issue. It will reduce profit and loss volatility generated by issuance of structured debt instruments (for example equity-linked GOALs or credit-linked notes). Previously, such instruments had to be accounted for on an accrual basis, while the embedded derivative and related hedge instruments were carried at fair value. The revised standards now allow us to measure both components of our structured notes at fair value, with any changes in their value directly recorded in the income statement – just as we already do for the related hedging instruments. The change will, as an example, eliminate unwanted volatility in our net income from treasury activities income line.
only if normal settlement is also intended to take place on a net basis. In general, that condition is not met and therefore we will now separately record the replacement values that were previously offset. This will increase the gross value of the assets and liabilities on our balance sheet by approximately CHF 165 billion at 31 December 2003. There will be no effect on net profit, shareholders’ equity, earnings per share or regulatory capital from this change.
Accounting for investment property
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Business Group tax rates
The indicative tax rates are presented pre-goodwill. They give an indication of what the tax rate would have been if goodwill were not charged for accounting purposes. It is the sum of the tax expense payable on net profit before tax and goodwill in each location, divided by the total net profit before tax and goodwill. Tax rates post-goodwill are higher than the pre-goodwill rates, because in some jurisdictions there are limitations on the tax deductibility of amortization costs.
nized immediately in the profit and loss account. Investment property is held exclusively to earn rental income and benefit from appreciation in value. That contrasts with bank property, which we use to supply services or for administration purposes. Carrying investment property at fair value better reflects the business rationale behind acquiring and managing these assets.
– | to credit retained earnings as of 1 January 2002 by CHF 202 million for the then existing difference between book value and fair value of the investment property portfolio |
– | to reduce net profit for 2002 by CHF 117 million |
– | to reduce net profit for 2003 by CHF 64 million. |
ties during those two years. Our current investment property portfolio is valued at CHF 236 million on 31 December 2003. While this new treatment eliminates regular depreciation charges on investment property, it is likely that the fair value model will add some volatility to our income statement.
Credit risk losses incurred on OTC
derivatives
income are not subject to such a deferral. In the segment report, therefore, losses on OTC derivatives will now be reported as incurred. The changed accounting will not have a material effect on the Investment Bank’s restated performance before tax.
Change in treatment of
corporate client assets in Business
Banking Switzerland
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Overview
Analysis of Performance
Amortization of goodwill and
other intangibles
IFRS rules currently require that goodwill be amortized over its estimated useful life regardless of whether its economic value is maintained or even increased. We believe, however, goodwill is not a wasting asset that needs to be replaced at the end of its life. Amortization charges do not represent cash outflows and are not an economic cost. We believe that the value of our business is driven by future cash flows and that these amortization charges are not a driver of the value created for our shareholders. In early 2004, the International Accounting Standard Board (IASB) is expected to issue a new standard regarding business combinations, which would be effective for 2005. We presume that the accounting for goodwill will change to the model applicable under US GAAP, which requires that goodwill is tested for impairment rather than amortized over its estimated life. We would then cease amortizing goodwill starting in 2005, eliminating a significant reconciling item to US GAAP as currently included in Note 40.
Performance indicators
UBS performance indicators
– | return on equity |
– | growth in basic earnings per share (EPS) |
– | cost / income ratio |
– | net new money in our wealth management units. |
Business Group performance indicators
explicit targets, but are indicators of the business units’ success in creating value for shareholders. They reflect the key drivers of each unit’s core business activities and include both financial metrics, such as the cost / income ratio, and non-financial metrics, such as invested assets or the number of client advisors.
Client / invested assets reporting
Since 2001 we report two distinct metrics for client funds:
– | Client assets are all client assets managed by or deposited with UBS including custody-only assets and assets held for purely transactional purposes |
– | Invested assets is a more restrictive term and includes all client assets managed by or deposited with UBS for investment purposes. |
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Performance Indicators
Performance | ||||
Business | indicators | Definition | ||
All business units | Cost / income ratio | Total operating expenses / total operating income before adjusted expected credit loss. | ||
Wealth Management and Asset Management businesses and Business Banking Switzerland | Invested assets | Assets managed by or deposited with UBS for investment purposes only (for further details please refer to page 12). | ||
Net new money | Inflow of invested assets from new clients - - outflows due to client defection +/- inflows / outflows from existing clients. (for further details please refer to page 12) | |||
Wealth Management and Asset Management businesses | Gross Margin on invested assets | Annualized operating income before adjusted expected credit loss / average invested assets. | ||
Wealth Management | Client advisors (CAs) | Expressed in full-time equivalents. | ||
Business Banking Switzerland | Non-performing loans (%) | Non-performing loans / gross loans. | ||
Impaired loans (%) | Impaired loans / gross loans. | |||
Investment Banking & Securities | Compensation ratio | Personnel expenses / operating income before adjusted expected credit loss. | ||
Non-performing loans (%) | Non-performing loans / gross loans. | |||
Impaired loans (%) | Impaired loans / gross loans. | |||
Average VaR (10-day 99%) | VaR expresses the potential loss on a trading portfolio assuming a 10-day time horizon before positions can be adjusted, and measured to a 99% level of confidence. | |||
Private Equity | Value creation | Value creation adds the increase in the unrealized portfolio gains to realized gains / losses for the period. | ||
Investment | Historical cost of investment made, less divestments and impairments. | |||
Wealth Management USA | Recurring fees | Asset-based fees for portfolio management and fund distribution, account based and advisory fees (as opposed to transactional fees). | ||
Financial advisors (FAs) | Expressed in full-time equivalents. | |||
from net new money. Interest expense on loans results in net new money outflows.
Global Asset Management business or GAM and sold by a wealth management unit (Wealth Management or Wealth Management USA). Both business units involved count these funds as invested assets. This approach is in line with the overall industry and our open architecture strategy and allows us to accurately reflect the performance of each individual business. Overall, CHF 287 billion of invested assets were double counted in 2003 (CHF 295 billion in 2002).
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Overview
Seasonal characteristics
Of our main businesses, only Investment Banking & Securities shows significant seasonal patterns. Its revenues are impacted by the seasonal characteristics of general financial market activity and
deal flows in investment banking. In our quarterly reporting, we therefore compare the Investment Bank’s results for the reported quarter with those achieved in the same period of the previous year. For all other business units, results are compared with the previous quarter.
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Critical Accounting Policies
Basis of preparation and selection of
policies
We prepare our Financial Statements in accordance with IFRS, and provide a reconciliation to Generally Accepted Accounting Principles in the United States (US GAAP). Where feasible, we reduce the differences between our Financial Statements under the two standards by applying accounting policies that are in accordance with both sets of standards. This approach limits (but does not completely eliminate) the range of elective accounting treatments available to us, but there are still rules under both standards which require us to apply judgement and make estimates in preparing our Financial Statements. The more significant of these accounting treatments are discussed in this section, as a guide to understanding how their application affects our reported results and our disclosure. A broader description of the accounting policies we employ is shown in Note 1 to the Financial Statements.
Recognition and measurement of
financial instruments – fair value
Assets and liabilities in our trading portfolio are recorded at fair value on the balance sheet, with changes in fair value recorded in net trading income in the income statement. Key judgements affecting this accounting policy relate to how we determine fair value for such assets and liabilities.
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Overview
use of judgement, and management also applies its judgement in establishing reserves against indicated valuations for aged positions, deteriorating economic conditions (including country-specific risks), concentrations in specific industries, types of instruments or currencies, market liquidity, model risk itself, and other factors.
Hedge accounting
IAS 39 allows a company to apply hedge accounting if it fully complies with specified hedge criteria. One of the goals of a hedging program is to reduce volatility of fair values by entering into a hedging transaction where changes in fair value of the hedging transaction offset changes in the fair value of the hedged item. Due to cost and other considerations, a transaction may not be hedged over its entire life, or a dynamic hedging strategy may be used whereby different transactions are designated as the hedging transaction at different times. However, if the hedged item is one that would normally not be recorded at fair value (for instance if it is held at cost less impairment), but the hedging instrument would normally be accounted for at fair value, there could be substantial differences in the profit and loss effect for the two items during specific accounting periods, although over the whole life of the instrument these would be expected to balance out. We believe that, in such cases, non-application of hedge accounting could lead to misinterpretations of our results and financial position, since hedging transactions could have a material impact on reported net profit in a particular period.
of the designated hedging instruments in each individual reporting period would be reported in net income for that period, regardless of the economic effectiveness of the hedge. For our fair value hedges, the net effect of not applying hedge accounting would have resulted in a pre-tax loss of CHF 555 million in 2003, a pre-tax gain of CHF 951 million in 2002, and a pre-tax gain of CHF 319 million in 2001. For our cash flow hedges, the respective amounts of the net effect are a pre-tax gain of CHF 199 million in 2003, a pre-tax gain of CHF 326 million for 2002 and a pre-tax loss of CHF 79 million for 2001. Please refer to Note 1(v) to the Financial Statements for further information on hedge accounting.
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In 2003, UBS recorded mark to market losses of CHF 678 million on CDSs that hedge existing credit exposures, without recording a corresponding credit loss expense recovery. The development in 2003 is explained by improved credit ratings of the hedged exposures, which means lower probabilities of default and hence a decline in fair value of the related CDSs. In 2002, the opposite development occurred and UBS recorded mark to market gains of CHF 226 million on CDSs that hedge existing credit risk exposures without recording a corresponding credit loss expense. Had we been able to apply hedge accounting, we could have deferred recognition of gains on the CDSs until the underlying claim became impaired. Unless we decide to settle CDSs prematurely, and thus realize the mark to market gains or losses, for example because we believe that we will ultimately not incur a credit loss on a hedged exposure, any mark to market gains may be offset by losses in future periods. This may occur either because the fair value of the CDS will decrease or because a credit loss is incurred on the hedged exposure.
Financial investments – available for sale
UBS has classified some of its financial assets, including investments not held for trading purposes, as available for sale. This classification is based on our determination that these assets are not held for the purpose of generating short-term trading gains, but rather for mid-to-long-term capital appreciation. If we had originally decided that these were trading assets, or if we were to reclassify these assets as trading assets, changes in fair value would then have to be reflected in income rather than shareholders’ equity. The amount of unrealized gains or losses on the balance sheet date is disclosed in the statement of changes in equity in the Financial Statements.
not expected to be recoverable within a reasonable time period are recorded in our income statement as impairment charges. Since quoted market prices are generally unavailable for these companies, fair value is determined by applying recognized valuation techniques, which require the use of assumptions and estimates. The valuation of our investments is derived by application of our valuation policy in a detailed quarterly investment-by-investment review involving the business and control functions. Our standard valuation method is to apply multiples of earnings that are observed for comparable companies. These multiples depend on a number of factors and may fluctuate over time. The geographic, stage and sector diversity of the portfolio means that the valuations of these positions may not move in line with the changing economic environment. Although judgement is involved, we believe that the estimates and assumptions made in determining the fair value of each investment are reasonable and supportable. Since there are no general estimates or assumptions underlying the determination of fair value, but instead fair value is determined on a case by case basis, it is not possible to provide any meaningful estimate of the impact on earnings of variations in assumptions and estimates over the whole portfolio.
Goodwill and other intangible assets
We regularly review assets that are not carried at fair value (e. g. goodwill and other intangibles) for possible impairment indications. If impairment indicators are identified, we make an assessment about whether the carrying value of such assets remains fully recoverable. When making this assessment, we compare the carrying value to the market value, if available, or the value in use. Value in use is determined by discounting expected future net cash flows gener-
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Overview
ated by an asset or group of assets to present value. Determination of the value in use requires management to make assumptions and use estimates. We believe that the assumptions and estimates used are reasonable and supportable in the existing market environment and commensurate with the risk profile of the assets valued, but different ones could be used which would lead to different results.
Allowances and provisions for credit losses
UBS classifies a claim as impaired if the book value of the claim exceeds the present value of the cash flows actually expected in future periods – loan interest payments, scheduled loan principal repayments, or other payments due (for example on guarantees), including liquidation of collateral where available. UBS has established policies to ensure that the carrying values of impaired claims are determined on a consistent and fair basis, especially for those impaired claims for which no market estimate or benchmark for the likely recovery value is available. Future cash flows considered recoverable are discounted to present value in accordance with IAS 39. A loan loss allowance is then recorded for the probable loss on the claim in question and charged to the income statement as credit loss expense.
considered recoverable are independently approved by the Credit Risk Control function. Although judgement is involved, we believe that the estimates and assumptions made in determining provisions and allowances on each individual impaired claim are reasonable and supportable. Since there are no general estimates or assumptions underlying the determination of allowances and provisions, but instead, as noted above, these allowances and provisions are determined on a case by case basis, it is not possible to provide any meaningful estimate of the impact on earnings of variations in assumptions and estimates.
Securitizations and Special Purpose Entities
UBS sponsors the formation of Special Purpose Entities (SPEs) primarily for the purpose of allowing clients to hold investments, for asset securitization transactions, and for buying or selling credit protection. In accordance with IFRS we do not consolidate SPEs that we do not control. As it can sometimes be difficult to determine whether we exercise control over an SPE, we have to make judgements about risks and rewards as well as our ability to make operational decisions for the SPE in question. In many instances, elements are present that, considered in isolation, indicate control or lack of control over an SPE, but when considered together make it difficult to reach a clear conclusion. In such cases we generally consolidate an SPE.
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Principal types of SPE used by UBS
SPEs used to allow clients to hold investmentsare structures that allow one or more clients to invest in an asset or set of assets which are generally purchased by the SPE in the open market and not transferred from UBS. The risk or reward of the assets held by the SPE resides with the clients. Typically, UBS will receive service and commission fees for creation of the SPE, or because it acts as investment manager, custodian or in some other function.
Equity compensation
Currently IFRS does not specifically address the recognition and measurement of equity-based compensation plans, including employee option plans. However, two basic methods, the intrinsic value method and the fair value method, are applied in practice. Under the intrinsic value method, if the exercise price of options granted is equal to or greater than the fair value of the underlying equity at grant date, no compensation expense need be recorded. Under the fair value method, an amount would be computed for such options and charged to compensation expense. For IFRS, UBS records as compensation expense only the intrinsic value at grant date, if any, of options granted to employees. Subsequent changes in intrinsic value are not recognized.
Deferred tax
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; 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.
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Overview
The magnitude of the valuation allowance is significantly influenced by our own forecast of future profit generation, which drives the extent to which we will be able to utilize the deferred tax assets. Were we to be more optimistic or pessimistic when forecasting future taxable profits, we would record a lower or higher valuation allowance, which would have a direct impact on earnings. Additionally, changes in circumstances may result in either an increase or a reduction of the valuation allowance, and therefore net
income. An example of such might be a change in tax legislation. See Note 21 to the Financial Statements for further details.
Segment reporting
The policies used to prepare our segment reporting affect the split of our income and expenses between the different Business Groups. Although the application of rules different from the ones we currently use would lead to altered net profit(continued on page 22)
As a global financial services firm, we are affected by the factors driving the markets in which we operate. Different risk factors can impact our ability to effectively carry out our business strategies and can directly affect our earnings. The factors described below, as well as other influences beyond our control, mean that our revenues and operating profit have been and are likely to continue to be subject to a measure of variability from period to period. Our revenues and operating profit for any particular period may not, therefore, be indicative of sustainable results, they may vary from year to year and may affect our ability to achieve UBS’s strategic objectives.
Interest rates, equity prices, foreign
exchange levels and other market
fluctuations may affect earnings
limits, including limits on our exposure to a range of market stress events, is provided on page 45 of our Handbook 2003/ 2004.
Furthermore, income in businesses such as investment banking, and wealth and asset management is often directly related to client activity levels. As a result, our income can be susceptible to adverse effects from sustained market downturns as well as any significant deterioration of investor sentiment. Asset-based revenues generated in our wealth and asset management businesses depend on the levels of client assets which can, in themselves, be adversely affected by deteriorating market valuations.
Counterparty failure may lead to
credit loss
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Credit Loss Expense Charged to the Business Groups
Wealth | Wealth | |||||||||||||||||||
CHF million | Management & | Investment | Management | Corporate | ||||||||||||||||
For the year ended 31.12.03 | Business Banking | Bank | USA | Center1 | Total | |||||||||||||||
Credit loss expense | (75 | ) | (40 | ) | (3 | ) | 2 | (116 | ) | |||||||||||
Expected loss | (542 | ) | (94 | ) | (8 | ) | (2 | ) | (646 | ) | ||||||||||
Deferral | 411 | (45 | ) | 0 | 0 | 366 | ||||||||||||||
Adjusted expected credit loss expense charged to the Business Groups | (131 | ) | (139 | ) | (8 | ) | (2 | ) | (280 | ) | ||||||||||
Balancing item charged as credit loss expense in Corporate Center | 164 | |||||||||||||||||||
political event. Any of these events could lead us to incur losses.
Operational risk may increase costs
and impact revenues
risks is provided on page 64 of our Handbook 2003/2004.
Legal claims may arise in the conduct
of our business
Competitive forces may influence
business direction
trends to continue and competition to increase in the future. Our competitive strength will depend on the ability of our businesses to adapt quickly to significant market and industry trends.
Our global presence exposes us to
other risks
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Overview
Reconciliation of Adjusted Expected Credit Loss Charged to the Business Groups to
Credit Loss (Expense) / Recovery
CHF million | Adjusted expected credit loss | Credit loss (expense)/recovery | ||||||||||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | ||||||||||||||||||
Wealth Management & Business Banking | (131 | ) | (312 | ) | (601 | ) | (75 | ) | (238 | ) | (124 | ) | ||||||||||||
Investment Bank | (139 | ) | (128 | ) | (112 | ) | (40 | ) | 35 | (360 | ) | |||||||||||||
Wealth Management USA | (8 | ) | (13 | ) | (18 | ) | (3 | ) | (15 | ) | (15 | ) | ||||||||||||
Corporate Center | (2 | ) | (2 | ) | (3 | ) | 2 | 12 | 1 | |||||||||||||||
Total | (280 | ) | (455 | ) | (734 | ) | (116 | ) | (206 | ) | (498 | ) | ||||||||||||
Balancing item in Corporate Center | 164 | 249 | 236 | |||||||||||||||||||||
results in the Business Groups, they would have no effect on the total Group profit number.
although the latter is more erratic, in both timing and amount.
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UBS Results
UBS Results
1 | Net profit/average shareholders’ equity less dividends. | |
2 | For the EPS calculation, see Note 8 to the Financial Statements. | |
3 | Operating expenses/operating income less credit loss expense or recovery. | |
4 | Excludes interest and dividend income. | |
5 | Wealth Management and Wealth Management USA. |
UBS Performance Indicators
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
RoE (%)1 | 18.2 | 8.9 | 11.7 | |||||||||
Basic EPS (CHF)2 | 5.72 | 2.92 | 3.93 | |||||||||
Cost / income ratio (%)3 | 75.2 | 86.2 | 80.8 | |||||||||
Net new money, wealth management units (CHF billion)4, 5 | ||||||||||||
Wealth Management | 29.7 | 17.7 | 23.2 | |||||||||
Wealth Management USA | 21.1 | 18.5 | 33.2 | |||||||||
Total | 50.8 | 36.2 | 56.4 | |||||||||
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This time last year, we could not have anticipated that 2003 would turn out to be such a positive year for the financial services industry. It was also an excellent year for UBS – the second most profitable in our history. When conditions were difficult at the outset of the year, our results were resilient. As the year progressed, investor sentiment turned increasingly positive and activity levels picked up along with stock market valuations. Helped by this improving environment, we fully captured the resulting revenue opportunities.
Net profit
In 2003, we recorded the second-best annual result since UBS and SBC merged in 1998. All businesses reported a stronger set of results in 2003 than in the previous year. Our net profit in full-year 2003 was CHF 6,385 million, up from CHF 3,535 million in 2002 - an increase of 81%. In 2002, our results were negatively influenced by the CHF 953 million writedown of the value of the PaineWebber brand but benefited from both the sale of private bank Hyposwiss, which resulted in a net gain of CHF 125 million and the divestment of Klinik Hirslanden, a private hospital group with a net gain of CHF 60 million. Excluding the amortization of goodwill and other intangibles and the sale of these subsidiaries, net profit increased 33% in 2003 from 2002. The increase was driven by our tight management of costs and our ability to build market share and capture revenues during the steady recovery in financial markets as the year
progressed. In particular, our asset-based revenues recovered from the lows posted in 2002. Our result was further helped by much improved trading opportunities, a gradual improvement in investor sentiment and significantly lower writedowns in our Private Equity business. At the same time, expenses remained under tight control. We recorded reductions in all cost categories compared with 2002, with non-personnel expenses falling below the year 2000 level.
UBS performance indicators
As mentioned in the previous section ‘Analysis of Performance’, we focus on four performance indicators, designed to deliver continually improving returns to our shareholders:
– | Our return on equity for 2003 was 18.2%, up from 8.9% a year ago. This was our best result since the very strong 21.5% return recorded in 2000. The increase reflects our much improved net profit combined with a lower average level of equity resulting from our continued buyback programs. In 2002, the return was boosted by 0.5 percentage points from the Klinik Hirslanden and Hyposwiss divestments, but lowered by 2.4 percentage points through the writedown of the PaineWebber brand. Amortization of goodwill reduced the 2003 ratio by 2.7 percentage points, compared to an effect of 3.1 percentage points in 2002. Excluding these divestment gains and the amortization of goodwill and other intangibles, return on equity increased by 7.0 percentage points. |
– | Basic earnings per share (EPS) stood at the highest level since 2000. In 2003, they were CHF 5.72, an increase of CHF 2.80 or 96% from 2002, reflecting the increase in profit as well as the 8% reduction in the average number of shares outstanding due to our continued buyback activities. In 2002, basic EPS was boosted by CHF 0.15 from the Klinik Hirslanden and Hyposwiss divestments, but lowered by CHF 0.79 through the writedown of the PaineWebber brand. Amortization of goodwill reduced basic EPS by CHF 0.84 in 2003, compared to CHF 1.81 in 2002. Excluding these divestment gains and the amortization of goodwill and other intangibles, basic EPS increased by CHF 1.99. |
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UBS Results
Invested Assets and Net New Money
Invested assets | Net new money1 | |||||||||||||||||||||||
CHF billion | 31.12.03 | 31.12.02 | 31.12.01 | 2003 | 2002 | 2001 | ||||||||||||||||||
UBS | 2,209 | 2,037 | 2,448 | 61.6 | 36.9 | 102.0 | ||||||||||||||||||
Wealth Management & Business Banking | ||||||||||||||||||||||||
Wealth Management | 701 | 642 | 728 | 29.7 | 17.7 | 23.2 | ||||||||||||||||||
Business Banking Switzerland | 212 | 205 | 215 | (5.0 | ) | 3.7 | 9.2 | |||||||||||||||||
Global Asset Management | ||||||||||||||||||||||||
Institutional | 313 | 274 | 324 | 12.7 | (1.4 | ) | 6.4 | |||||||||||||||||
Wholesale Intermediary | 261 | 259 | 325 | (5.0 | ) | (6.3 | ) | 24.5 | ||||||||||||||||
Investment Bank | 4 | 3 | 1 | 0.9 | 0.5 | 0.1 | ||||||||||||||||||
Wealth Management USA | 634 | 584 | 769 | 21.1 | 18.5 | 33.2 | ||||||||||||||||||
Corporate Center | ||||||||||||||||||||||||
Private Banks & GAM | 84 | 70 | 86 | 7.2 | 4.2 | 5.4 | ||||||||||||||||||
– | The cost / income ratio was 75.2% in 2003, an improvement from 86.2% in 2002. It stands at its lowest level since PaineWebber became part of UBS. The slight drop in income reflected the difficult market environment in first half 2003 and lower divestment gains. This was more than compensated by a decline in operating expenses due to ongoing cost management initiatives and the downward pressure on compensation ratios. In 2002, the ratio was boosted by 0.6 percentage points from the Klinik Hirslanden and Hypo-swiss divestments, but experienced a 3.6 percentage point negative impact from the PaineWebber writedown. Amortization of goodwill accounted for 2.8 percentage points of the 2003 ratio, compared to an effect of 7.2 percentage points in 2002. Excluding these divestment gains and the amortization of goodwill and other intangibles, the ratio decreased by 6.8 percentage points. |
Results
Operating income
in 2002. The drop was caused by lower asset-based revenues impacted by the low market levels in early 2003, which only started to recover in the second half of the year. Operating income was also affected by the weakening of major currencies against the Swiss franc, including the 13% drop of the US dollar. This was partially offset by higher income from fixed income trading and much lower private equity writedowns. Excluding the divestment gains of CHF 227 million from the sale of Hyposwiss and Klinik Hirslanden in 2002 and CHF 161 million from the sale of Correspondent Services Corporation in 2003, total operating income decreased by CHF 83 million from 2002 compared to 2003.
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Net Interest and Trading Income
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Net interest income | 12,299 | 10,546 | 8,041 | 17 | ||||||||||||
Net trading income | 3,883 | 5,572 | 8,802 | (30 | ) | |||||||||||
Total net interest and trading income | 16,182 | 16,118 | 16,843 | 0 | ||||||||||||
Breakdown by business activity
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Net income from interest margin products | 5,077 | 5,275 | 5,694 | (4 | ) | |||||||||||
Equities | 2,464 | 2,794 | 3,661 | (12 | ) | |||||||||||
Fixed income | 6,530 | 6,041 | 6,294 | 8 | ||||||||||||
Foreign exchange | 1,501 | 1,500 | 1,490 | 0 | ||||||||||||
Other | 315 | 270 | 84 | 17 | ||||||||||||
Net income from trading activities | 10,810 | 10,605 | 11,529 | 2 | ||||||||||||
Net income from treasury activities | 1,415 | 1,667 | 1,424 | (15 | ) | |||||||||||
Other1 | (1,120 | ) | (1,429 | ) | (1,804 | ) | 22 | |||||||||
Total net interest and trading income | 16,182 | 16,118 | 16,843 | 0 | ||||||||||||
reflects lower interest margins on client savings and cash accounts, and declining revenues from our diminishing recovery portfolio in Switzerland as well as lower interest revenue on margin loans in the US as we sold our Correspondent Services Corporation (CSC) clearing business. These effects were partially offset by higher mortgages and saving accounts volumes in Switzerland.
Credit Default Swaps (CDS) hedging existing credit exposure in the loan book. In 2002, we recorded a mark to market gain of CHF 226 million on these CDS positions. Our use of CDSs as hedging instruments for our loan book is only one part of our overall management approach to trading credit risk. The Critical accounting policies section on page 15 in this report and the Capital and Risk Management section of our Handbook 2003/2004 contain further information on how we use CDSs to hedge our credit exposure. Over the full year, foreign exchange trading revenues, at CHF 1,501 million, remained virtually unchanged from CHF 1,500 million in 2002.
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UBS Results
Credit Loss (Expense) / Recovery
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Wealth Management & Business Banking | (75 | ) | (238 | ) | (124 | ) | 68 | |||||||||
Investment Bank | (40 | ) | 35 | (360 | ) | |||||||||||
Wealth Management USA | (3 | ) | (15 | ) | (15 | ) | 80 | |||||||||
Corporate Center | 2 | 12 | 1 | (83 | ) | |||||||||||
UBS | (116 | ) | (206 | ) | (498 | ) | 44 | |||||||||
down of the value of the PaineWebber brand, and lower funding needs for our private equity portfolio.
managing the impaired portfolio has resulted in a higher than anticipated level of recoveries. In response to an improving economic and political environment in some emerging markets, we were also able to release country allowances relating to our correspondent banking business.
Net Fee and Commission Income
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Security trading and investment activity fees | ||||||||||||||||
Underwriting fees | 2,354 | 2,134 | 2,158 | 10 | ||||||||||||
Corporate finance fees | 761 | 848 | 1,339 | (10 | ) | |||||||||||
Brokerage fees | 5,608 | 5,987 | 6,445 | (6 | ) | |||||||||||
Investment fund fees | 3,895 | 4,033 | 4,276 | (3 | ) | |||||||||||
Fiduciary fees | 241 | 300 | 355 | (20 | ) | |||||||||||
Custodian fees | 1,201 | 1,302 | 1,356 | (8 | ) | |||||||||||
Portfolio and other management and advisory fees | 3,855 | 4,065 | 4,650 | (5 | ) | |||||||||||
Insurance-related and other fees | 355 | 417 | 538 | (15 | ) | |||||||||||
Total securities trading and investment activity fees | 18,270 | 19,086 | 21,117 | (4 | ) | |||||||||||
Credit-related fees and commissions | 249 | 275 | 307 | (9 | ) | |||||||||||
Commission income from other services | 1,087 | 1,006 | 946 | 8 | ||||||||||||
Total fee and commission income | 19,606 | 20,367 | 22,370 | (4 | ) | |||||||||||
Brokerage fees paid | 1,483 | 1,349 | 1,281 | 10 | ||||||||||||
Other | 778 | 797 | 878 | (2 | ) | |||||||||||
Total fee and commission expense | 2,261 | 2,146 | 2,159 | 5 | ||||||||||||
Net fee and commission income | 17,345 | 18,221 | 20,211 | (5 | ) | |||||||||||
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with the more favorable outlook for emerging market economies. For further details on our risk management approach, how we measure credit risk and the development of our credit risk exposures, please see the Capital and Risk Management section in our Handbook 2003/2004.
fees resulting from the low market levels at the outset of the year. This was partially offset by higher performance fees. At CHF 355 million in 2003, insurance-related and other fees decreased by 15% from a year earlier, mainly reflecting the weakening of the US dollar.
Operating expenses
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UBS Results
Headcount
% change from | ||||||||||||||||
(full-time equivalents) | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Wealth Management & Business Banking | 26,796 | 27,841 | 28,138 | (4 | ) | |||||||||||
Wealth Management | 9,176 | 9,399 | 8,918 | (2 | ) | |||||||||||
Business Banking Switzerland | 17,620 | 18,442 | 19,220 | (4 | ) | |||||||||||
Global Asset Management | 2,689 | 2,733 | 2,704 | (2 | ) | |||||||||||
Investment Bank | 15,550 | 16,037 | 15,690 | (3 | ) | |||||||||||
Investment Banking & Securities | 15,500 | 15,964 | 15,562 | (3 | ) | |||||||||||
Private Equity | 50 | 73 | 128 | (32 | ) | |||||||||||
Wealth Management USA | 18,016 | 19,563 | 20,413 | (8 | ) | |||||||||||
Corporate Center | 2,878 | 2,887 | 3,040 | 0 | ||||||||||||
Total | 65,929 | 69,061 | 69,985 | (5 | ) | |||||||||||
tributions to retirement plans. Personnel expenses are managed on a full-year basis with final fixing of annual performance-related payments in the fourth quarter. Over the full year, approximately 44% of this year’s personnel expense was paid as bonus or other variable compensation, up from 42% last year. Average variable compensation per head in 2003 was 3% higher than in 2002.
Tax
Headcount
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Headcount, at 65,929 on 31 December 2003, was 5% lower than a year ago. While we have been able to avoid major job cut programs in the last three years, we have closely monitored our cost structure and staffing needs. We have not needed to maintain all our capacity during the recent market downturn and we have continued to improve efficiency and productivity. Therefore, we have gradually reduced headcount across the firm while, at the same time, expanding our capabilities in areas with positive growth potential.
Dividend
The Board of Directors will recommend at the Annual General Meeting on 15 April 2004 that UBS should pay a dividend of CHF 2.60 per share for the 2003 financial year, an increase of 30% or CHF 0.60 from the CHF 2.00 dividend paid at the same time a year earlier for the 2002 financial year.
Balance sheet
Total assets, at CHF 1,386 billion on 31 December 2003, increased by 17% from CHF 1,181 billion on 31 December 2002. The increase was mainly due to higher overall trading activities although that was partially offset by the weakening of the US dollar, which fell by 10% against
the Swiss franc in the period. Cash and balances with central banks was CHF 3.6 billion on 31 December 2003, down slightly from CHF 4.3 billion on the same date a year earlier. The drop was mainly due to a decline in our positions held with the Swiss National Bank. Assets due from banks decreased to CHF 31.7 billion on 31 December 2003 from CHF 32.5 billion on 31 December 2002, reflecting lower short-term deposits with third-party banks. Trading-related assets (cash collateral on securities borrowed, trading portfolio assets and reverse repurchase agreements) rose by CHF 191.7 billion between 31 December 2003 and the same date a year earlier. This increase reflects higher trading activities, mainly in the Fixed Income, Rates and Currencies (FIRC) business, especially in the US. Cash collateral on securities borrowed rose by 54% or CHF 74.9 billion in the same period, reflecting an increase in securities lending activities, influenced by our acquisition of ABN AMRO’s US prime brokerage business. Reverse repurchase agreements increased by 9% or CHF 26.5 billion, reflecting higher client and market making activity and a lower level of counter party netting. Trading portfolio assets increased by 24% or CHF 90.3 billion, mirroring higher positions in most products, particularly in mortgage-backed securities and principal finance positions. Loans, net of allowances for credit losses, remained virtually unchanged in the period. Financial investments fell to CHF 5.1 billion on 31 December 2003 from CHF 8.4 billion on the same date a year earlier, mainly reflecting a decrease in money market and debt positions, and reduced equity investments and private equity positions. Goodwill and other intangible assets, at CHF 11.5 billion on 31 December 2003, fell 16% or CHF 2.2 billion from CHF 13.7 billion a year earlier. The drop was mainly due to ongoing amortization, the sale of our CSC clearing business in the US (with its goodwill written down accordingly), as well as the decline of the US dollar against the Swiss franc.
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UBS Results
bilities) increased by CHF 102.9 billion in 2003 from a year earlier, reflecting growth across most sectors of the business. Amounts due to customers increased by 13% or CHF 40.5 billion, as a result of the acquired customer accounts from ABN AMRO’s US prime brokerage business and the launch of UBS Bank USA, where client cash balances previously swept into money market funds are now redirected into FDIC-insured deposit accounts. Debt issued decreased by CHF 9.2 billion to CHF 120.2 billion on 31 December 2003, reflecting a decrease in commercial paper issuance as the bank funded more in the interbank market and on a collateralized basis. Our long-term debt rose to CHF 62.1 billion on 31 December 2003 from CHF 56.6 billion a year earlier, reflecting attractive market conditions for new issuance of bonds and structured funding products. We believe the maturity profile of our long-term debt portfolio balances well and matches the maturity profile of our assets. For further details, please refer to Note 18 to the Financial Statements. Minority interests increased by 15% to CHF 4.1 billion on 31 December 2003 as we issued an additional USD 300 million (CHF 372 million) in trust preferred securities.
Contractual obligations
The table below summarizes our contractual obligations as of 31 December 2003. All contracts, with the exception of purchase obligations (those where we are committed to purchase determined volumes of goods and services), are
either recognized as liabilities on our balance sheet or, in the case of operating leases, are disclosed in Note 26 to the Financial Statements.
Off-balance sheet arrangements
In the normal course of business, UBS enters into arrangements that, under IFRS, are not recognized on the balance sheet and do not affect the income statement. These types of arrangements are kept off-balance sheet as long as UBS does not incur an obligation from them or become entitled to an asset itself. As soon as an obligation is incurred, it is recognized on the balance sheet, with the resulting loss recorded in the income statement. It should be noted, however, that the amount recognized on the balance sheet does not, in many instances, represent the full loss potential inherent in such arrangements.
Contractual Obligations
Payment due by period | ||||||||||||||||
Less than | More than | |||||||||||||||
CHF million | 1 year | 1-3 years | 3-5 years | 5 years | ||||||||||||
Long-term debt | 7,598 | 18,828 | 14,719 | 20,977 | ||||||||||||
Capital lease obligations | 64 | 147 | 130 | 0 | ||||||||||||
Operating leases | 876 | 1,477 | 1,227 | 3,992 | ||||||||||||
Purchase obligations | 937 | 594 | 169 | 11 | ||||||||||||
Other long-term liabilities | 267 | 1 | 0 | 6 | ||||||||||||
Total | 9,742 | 21,047 | 16,245 | 24,986 | ||||||||||||
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es in the past and we do not expect to do so in the future. The following paragraphs discuss four distinct areas of off-balance sheet arrangements as of 31 December 2003 and any potential obligations that may arise from them.
Guarantees
Retained interests
Derivative instruments recorded in
shareholders’ equity
Variable Interest Entities (VIE)
VIEs in which UBS is the primary beneficiary
VIEs in which UBS has a significant interest,
but is not the primary beneficiary
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UBS Results
has actually invested into the entities in question, as there are no additional contractual obligations. Again, we believe that the probability of suffering the maximum loss from these VIEs is remote.
VIEs in which UBS may hold a significant variable
interest, or be the primary beneficiary
Cash flows
In the full year to 31 December 2003, cash and cash equivalents decreased by CHF 9.0 billion, principally as a result of financing activities, which generated negative cash flows of CHF 13.3 billion. Significant cash outflows resulted from CHF 14.7 billion in repayments of money market paper, CHF 6.8 billion from movements in treasury shares and derivative activity in own equity, and CHF 2.3 billion from dividends paid. Issuance of long-term debt of CHF 23.6 billion and repayments of CHF 13.6 billion brought a net cash inflow of CHF 10.0 billion. When compared to 2002, cash outflows from financing activities fell by approximately CHF 19 billion. The main reasons for the reduced outflows were an approximate CHF 12 billion decline in repayments of money market paper and higher net inflows of roughly CHF 8 billion in both issuance and repayment of long-term debt. Increased buybacks of treasury shares in 2003, coupled with a higher average price for our shares, resulted in a higher cash outflow of approximately CHF 1.2 billion in 2003.
Operating cash inflows (before changes in operating assets and liabilities and income taxes paid) amounted to CHF 9.1 billion, an increase of CHF 944 million from 2002. While net profit in 2003 was CHF 2.9 billion higher than a year earlier, we had considerably higher non-cash expenses in 2002, which reduce net profit but do not affect cash flow. Notably, amortization of goodwill and intangible assets was CHF 1.5 billion higher in 2002 than in 2003. The main reason was the writedown of the value of the PaineWebber brand name of CHF 1,234 million, but the US dollar exchange rate, which was higher in 2002 against most currencies than it was last year, also contributed to the difference. The other two items were deferred tax expense and gains or losses from investing activities included in net profit. In 2003, we had deferred tax expenses of CHF 514 million, attributable to a range of sources generating taxable temporary differences. In 2002, we had a deferred tax benefit of CHF 509 million, to which the release of deferred tax liabilities related to the PaineWebber brand name was the largest single contributor.
Outlook
Having successfully navigated the turbulent down-markets of the last few years with no unpredictable changes in our profitability, our strategy, or our staffing levels, we now enter what seem likely to be calmer waters with, we
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believe, the full confidence of our clients, our employees and our shareholders. Our businesses are all performing extremely well. And while, of course, we cannot predict with certainty whether markets will continue in their friendly mood, we are committed to again securing for our investors the best possible returns in 2004.
Net profit
UBS’s 2002 net profit was CHF 3,535 million, a 29% decline from CHF 4,973 million in 2001. In 2002, profit was affected by the non-cash write-down of the value of the PaineWebber brand, which reduced after-tax profit by 21%, and the impact from sales of the Hyposwiss and Klinik Hirslanden subsidiaries, which added 6% to profit. Excluding the amortization of goodwill and other intangibles and the sale of these subsidiaries, net profit fell 12% between 2002 and 2001.
UBS performance indicators
We focus on four performance indicators, designed to deliver continually improving returns to our shareholders:
– | Our return on equity for 2002 was 8.9%, down from 11.7% in 2001. The return was boosted by 0.5 percentage points by the divestments of Klinik Hirslanden and Hyposwiss, but lowered by 2.4 percentage points through the writedown of the value of the PaineWebber brand. Amortization of goodwill and intangible assets reduced the 2002 ratio by 3.1 percentage points, equal to the effect of 2001. Excluding the effects of these divestment gains and the PaineWebber brand writedown, returns fell by 0.9 percentage points. The lower average level of equity, which fell 6% because of our ongoing share buyback programs, partially offset the market-related decline in earnings of 29%. |
– | Basic earnings per share (EPS) for 2002 were CHF 2.92, a decline of 26% from 2001. Basic EPS was boosted by CHF 0.15 by the divestments of Klinik Hirslanden and Hyposwiss, but lowered by CHF 0.79 through the write-down of the value of the PaineWebber brand. |
Amortization of goodwill and intangible assets reduced basic EPS by CHF 0.24 percentage points, equal to the effect of 2001. Excluding the effects of these divestment gains and the PaineWebber brand writedown, basic EPS fell by CHF 0.37. The decline in profit was partially offset by the reduced average number of shares outstanding. Without the buyback programs, our earnings per share in 2002 would have been 9% lower. | ||
– | The cost / income ratio increased to 86.2% from 80.8%. The ratio was boosted by 0.6 percentage points by the divestments of Klinik Hirslanden and Hyposwiss, but impacted by 3.7 percentage points through the writedown of the value of the PaineWebber brand. Amortization of goodwill and intangible assets impacted the 2002 ratio by 7.2 percentage points. Excluding the effects of these divestment gains, and the amortization of goodwill and other intangible assets, the ratio decreased by 2.2 percentage points. Excluding the writedown, operating expenses actually dropped 7%, reflecting our ongoing cost initiatives across all businesses. Yet it could not fully counteract the drop in revenues due to the declining market activity levels and subdued levels of transactional and corporate activity as well as private equity writedowns. |
Results
Operating income
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UBS Results
Net interest incomeof CHF 10,546 million in 2002 was 31% higher than in 2001.Net trading incomedeclined 37% from CHF 8,802 million in 2001 to CHF 5,572 million in 2002.
Net income from treasury activitieswas CHF 1,667 million in 2002, an increase of 17% from 2001, reflecting higher income from our invested equity, a drop in funding costs as well as higher unrealized gains on derivatives used to economically hedge interest rate risk related to structured notes issued.
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our market share as overall market volumes decreased at a sharper rate.
Operating expenses
in Wealth Management USA and Business Banking Switzerland. The drop was further accentuated by lower recruitment, training and contractor costs across the firm, reflecting our continued cost control initiatives. Finally, the result was helped by a weaker US dollar against the Swiss franc. In 2002, approximately 42% of personnel expenses were bonus or other variable compensation, down from 43% in 2001. Average variable compensation per head in 2002 was 8% lower than in 2001. We did not build up any significant overcapacity during the peak of the last business cycle, and have therefore been able to reduce headcount gradually as economic conditions weakened – without resorting to drastic cuts. UBS headcount dropped by 924 from 69,985 to 69,061, as we streamlined processes and structures at the same time as we expanded our capabilities in areas with positive growth potential.
Tax
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UBS Results
PaineWebber merger-related costs
Dividend
On 23 April 2003, we paid a dividend of CHF 2.00 per share to our shareholders for the financial year 2002, a level on par with 2001’s CHF 2.00 distribution (which was distributed in a tax-efficient way).
Cash flows
In the twelve-month period to December 2002, cash equivalents decreased by CHF 33,915 million, principally as a result of financing activities, which generated negative cash flow of CHF 32,470 million. A cash outflow of CHF 26,206 million resulted from the repayment of money market paper, CHF 5,605 million from movements in treasury shares and derivative activity in own equity, with CHF 2,509 million resulting from a capital repayment by par value reduction. The issuance of long-term debt of CHF 17,132 million and repayments of CHF 14,911 million brought a net cash inflow of CHF 2,221 million.
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Review of Business Group Performance
Wealth Management & Business Banking
Wealth Management & Business Banking
Georges Gagnebin
Chairman, Wealth
Management & Business Banking
Marcel Rohner
CEO, Wealth Management &
Business Banking
In 2003, Wealth Management’s pre-tax profit was CHF 2,609 million, a 4% increase from 2002. Strong inflows in most markets resulted in net new money rising to CHF 29.7 billion from CHF 17.7 billion. Business Banking Switzerland’s profit before tax rose 9% to CHF 2,153 million in 2003, with operating expenses falling a further 8% – to the lowest level since 1999.
Business Group Reporting
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Income | 12,052 | 12,184 | 12,782 | (1 | ) | |||||||||||
Adjusted expected credit loss1 | (131 | ) | (312 | ) | (601 | ) | (58 | ) | ||||||||
Total operating income | 11,921 | 11,872 | 12,181 | 0 | ||||||||||||
Personnel expenses | 4,584 | 4,596 | 4,558 | 0 | ||||||||||||
General and administrative expenses | 2,116 | 2,251 | 2,319 | (6 | ) | |||||||||||
Depreciation | 384 | 448 | 568 | (14 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 75 | 97 | 100 | (23 | ) | |||||||||||
Total operating expenses | 7,159 | 7,392 | 7,545 | (3 | ) | |||||||||||
Business Group performance before tax | 4,762 | 4,480 | 4,636 | 6 | ||||||||||||
Additional information | ||||||||||||||||
Regulatory equity allocated (average) | 8,750 | 8,600 | 9,150 | 2 | ||||||||||||
Cost / income ratio (%) 2 | 59 | 61 | 59 | |||||||||||||
Fair value of employee stock options granted 3 | 64 | 92 | (30 | ) | ||||||||||||
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Wealth Management
1 | In management accounts, adjusted expected credit loss rather than credit loss is reported for the Business Groups (see Note 2 to the Financial Statements). | |
2 | Excludes interest and dividend income. | |
3 | Income/average invested assets. | |
4 | Operating expenses/income. | |
5 | Operating expenses less expenses for the European wealth management initiative/income less income for the European wealth management initiative. | |
6 | For informational purposes only. These pre-tax amounts have not been recorded in the Income statement. For details on the fair value calculation, refer to Note 32e to the Financial Statements. |
Business Unit Reporting
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Income | 6,797 | 6,690 | 6,990 | 2 | ||||||||||||
Adjusted expected credit loss1 | (4 | ) | (26 | ) | (34 | ) | (85 | ) | ||||||||
Total operating income | 6,793 | 6,664 | 6,956 | 2 | ||||||||||||
Personnel expenses | 1,944 | 1,869 | 1,680 | 4 | ||||||||||||
General and administrative expenses | 2,083 | 2,092 | 1,923 | 0 | ||||||||||||
Depreciation | 82 | 93 | 103 | (12 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 75 | 97 | 100 | (23 | ) | |||||||||||
Total operating expenses | 4,184 | 4,151 | 3,806 | 1 | ||||||||||||
Business unit performance before tax | 2,609 | 2,513 | 3,150 | 4 | ||||||||||||
Performance Indicators | ||||||||||||||||
Invested assets (CHF billion) | 701 | 642 | 728 | 9 | ||||||||||||
Net new money (CHF billion)2 | 29.7 | 17.7 | 23.2 | |||||||||||||
Gross margin on invested assets (bps)3 | 101 | 97 | 96 | 4 | ||||||||||||
Cost / income ratio (%)4 | 62 | 62 | 54 | |||||||||||||
Cost / income ratio excluding the European wealth management initiative (%)5 | 53 | 55 | 48 | |||||||||||||
Client advisors (full-time equivalents) | 3,300 | 3,001 | 2,681 | 10 | ||||||||||||
International Clients | ||||||||||||||||
Income | 4,734 | 4,640 | 4,792 | 2 | ||||||||||||
Invested assets (CHF billion) | 491 | 447 | 492 | 10 | ||||||||||||
Net new money (CHF billion)2 | 29.7 | 20.2 | 21.8 | |||||||||||||
Gross margin on invested assets (bps)3 | 101 | 98 | 98 | 3 | ||||||||||||
European wealth management initiative (part of International Clients) | ||||||||||||||||
Income | 267 | 186 | 140 | 44 | ||||||||||||
Invested assets (CHF billion) | 46 | 28 | 16 | 64 | ||||||||||||
Net new money (CHF billion)2 | 10.8 | 7.6 | 5.6 | |||||||||||||
Client advisors (full-time equivalents) | 672 | 551 | 370 | 22 | ||||||||||||
Swiss Clients Income | 2,063 | 2,050 | 2,198 | 1 | ||||||||||||
Invested assets (CHF billion) | 210 | 195 | 236 | 8 | ||||||||||||
Net new money (CHF billion)2 | 0.0 | (2.5 | ) | 1.4 | ||||||||||||
Gross margin on invested assets (bps)3 | 102 | 95 | 92 | 7 | ||||||||||||
Additional information | % change from | |||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Client assets (CHF billion) | 884 | 788 | 886 | 12 | ||||||||||||
Regulatory equity allocated (average) | 2,650 | 2,900 | 3,300 | (9 | ) | |||||||||||
Fair value of employee stock options granted6 | 37 | 54 | (31 | ) | ||||||||||||
Headcount (full-time equivalents) | 9,176 | 9,399 | 8,918 | (2 | ) | |||||||||||
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Review of Business Group Performance
Wealth Management & Business Banking
Components of operating income
Wealth Management derives its operating income principally from:
– | fees for financial planning and wealth management services; |
– | fees for investment management services; and |
– | transaction-related fees. |
Wealth Management’s fees are based on the market value of invested assets and the level of transaction-related activity. As a result, operating income is affected by such factors as fluctuations in invested assets, changes in market conditions, investment performance and inflows and outflows of client funds.
Performance indicators
In full-year 2003, net new money inflows totaled CHF 29.7 billion, up 68% from CHF 17.7 billion in 2002. The excellent performance was due to strong inflows into our European wealth management business as well as significant inflows from clients in Asia and Eastern Europe.
Invested assets, at CHF 701 billion on 31 December 2003, were up 9% from CHF 642 billion a year earlier, mainly due to the recovery in global equity markets during the second half of the year, as well as the strong inflows of net new money. That more than compensated for the 10% fall in the US dollar against the Swiss franc in 2003, which had a direct impact on the value of Wealth Management’s invested assets, 37% of which are denominated in US dollars.
and a gain on disposal of our participation in Deutsche Börse. The gross margin on invested assets was 101 basis points in 2003, up 4 basis points from 97 basis points a year earlier.
The cost / income ratio remained unchanged at 62%, with higher non-recurring revenues offsetting the increased costs from rising personnel expenses. Goodwill amortization accounted for 1.1 percentage point of the 2003 cost / income ratio. Excluding the European wealth management business, the cost / income ratio fell to 53% in 2003 from 55% a year earlier.
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European wealth management
Our European wealth management business continued to make significant progress. After three years of intense effort, the total level of invested assets in Germany, France, UK, Spain and Italy reached CHF 46 billion.
The level of invested assets reached a record CHF 46 billion on 31 December 2003, up from CHF 28 billion a year earlier, reflecting healthy inflows of net new money, our acquisition of the French business of Lloyds TSB and positive markets.
ted to growing our presence in our European target markets and will continue to invest in qualified advisory staff at a rate determined by the market environment and business opportunities.
Results
Wealth Management’s full-year 2003 pre-tax profit, at CHF 2,609 million, increased 4% from 2002 on the financial market recovery in the second half of the year, which resulted in higher revenues.
Operating income
Operating expenses
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Review of Business Group Performance
Wealth Management & Business Banking
a year earlier, reflecting our investments in the European wealth management business and higher personnel expenses. Personnel expenses rose 4% to CHF 1,944 million in 2003 compared to a year earlier, mainly due to an increased severance payments as well as slightly higher performance-related compensation. General and administrative expenses in 2003, at CHF 2,083 million, were almost unchanged from 2002, as our ongoing tight management of costs more than offset the investments in our European wealth management business. Full-year depreciation was CHF 82 million in 2003, down 12% from a year earlier because of lower charges for information technology equipment, which is increasingly being leased instead of bought. Goodwill amortization was CHF 75 million in 2003, down 23% from 2002 mainly due to the weakening of the US dollar against the Swiss franc.
Headcount
Performance indicators
In 2002, net new money inflows totaled CHF 17.7 billion, down from the 2001 result of CHF 23.2 billion. International clients invested net new money of CHF 20.2 billion in 2002, down by only CHF 1.6 billion from 2001 despite the Italian tax amnesty. This excellent underlying result in these difficult markets was due to the
continued success of our European wealth management business as well as significant inflows from clients in Asia and the Americas.
European wealth management
Net new money inflows into our domestic European network for full-year 2002 was CHF 7.6 billion, up 36% from 2001’s intake of CHF 5.6 billion. The result in 2002 reflects an annual net new money inflow rate of 48% of the underlying asset base. For full-year 2002, income from our European wealth management business was CHF 186 million, 33% or CHF 46 million above the 2001 level. The number of client advisors increased in 2002 by 181, bringing the total on 31 December 2002 to 551.
Results
Wealth Management’s full-year 2002 pre-tax profit, at CHF 2,513 million, fell 20% from 2001 due to the steep decline in asset-based revenues which could not be fully offset by cost reductions as we continue to invest in our European wealth management business. Personnel as well as general and administrative expenses increased due to this strategic initiative.
Operating income
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lion in 2001. Both non-recurring transaction revenues and recurring asset-based revenues fell from 2001.
Operating expenses
by 10% to CHF 93 million because of lower charges for information technology equipment, which is increasingly being leased instead of bought, while goodwill amortization was CHF 97 million, down 3% from 2001.
Headcount
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Review of Business Group Performance
Wealth Management & Business Banking
Business Banking Switzerland
Business Unit Reporting
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Income | 5,255 | 5,494 | 5,792 | (4 | ) | |||||||||||
Adjusted expected credit loss1 | (127 | ) | (286 | ) | (567 | ) | (56 | ) | ||||||||
Total operating income | 5,128 | 5,208 | 5,225 | (2 | ) | |||||||||||
Personnel expenses | 2,640 | 2,727 | 2,878 | (3 | ) | |||||||||||
General and administrative expenses | 33 | 159 | 396 | (79 | ) | |||||||||||
Depreciation | 302 | 355 | 465 | (15 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 0 | 0 | 0 | |||||||||||||
Total operating expenses | 2,975 | 3,241 | 3,739 | (8 | ) | |||||||||||
Business unit performance before tax | 2,153 | 1,967 | 1,486 | 9 | ||||||||||||
Performance Indicators | ||||||||||||||||
Invested assets (CHF billion) | 212 | 205 | 215 | 3 | ||||||||||||
Net new money (CHF billion)2 | (5.0 | ) | 3.7 | 9.2 | ||||||||||||
Cost / income ratio (%)3 | 57 | 59 | 65 | |||||||||||||
Non-performing loans / gross loans (%) | 3.2 | 3.6 | 4.8 | |||||||||||||
Impaired loans / gross loans (%) | 4.6 | 6.0 | 7.7 | |||||||||||||
Additional information | % change from | |||||||||||||||
As at or for the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Deferral included in adjusted expected credit loss1 | 383 | 240 | 115 | 60 | ||||||||||||
Client assets (CHF billion) | 622 | 494 | 544 | 26 | ||||||||||||
Regulatory equity allocated (average) | 6,100 | 5,700 | 5,850 | 7 | ||||||||||||
Fair value of employee stock options granted4 | 27 | 38 | (29 | ) | ||||||||||||
Headcount (full-time equivalents) | 17,620 | 18,442 | 19,220 | (4 | ) | |||||||||||
Components of operating income
Business Banking Switzerland derives its operating income principally from:
– | net interest income from its loan portfolio and customer deposits; | |
– | fees for investment management services; | |
– | transaction fees. |
As a result, operating income is affected by movements in interest rates, fluctuations in invested assets, client activity levels, investment performance, changes in market conditions and the credit environment.
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Performance indicators
In full-year 2003, the cost / income ratio was a record low 57%, two percentage points below the previous year’s ratio of 59%, reflecting total operating expenses dropping to their lowest level since 1999.
Invested assets rose to CHF 212 billion in 2003 from CHF 205 billion a year earlier as positive market developments were only partially offset by the weakening of the US dollar against the Swiss franc and outflows of net new money. Net new money was negative CHF 5.0 billion in 2003 compared to an inflow of CHF 3.7 billion in 2002, as corporate clients continued to make transfers from short-term deposits to current accounts, which are not classified as invested assets. We will in future no longer classify assets from corporate clients (except for pension funds) as invested assets. This change will reduce invested assets by approximately CHF 75 billion.
revenues from our reduced recovery portfolio. This was partially offset by higher mortgage and saving account volumes.
Results
Full-year pre-tax profit in 2003 was a record CHF 2,153 million, up 9% from 2002. The result was achieved despite slightly lower revenues in market conditions that were difficult at the outset of the year but improved steadily thereafter. This performance is also evidence of the continued tight management of our cost base, and lower credit loss expenses reflecting the deferred benefit of the structural improvement in our loan portfolio in recent years. In 2003, personnel expenses, general and administrative expenses and depreciation all reached their lowest levels since 1999.
Operating income
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Review of Business Group Performance
Wealth Management & Business Banking
mostly offset by lower credit loss expense, which fell to CHF 127 million in 2003, down 56% from CHF 286 million in 2002. The latter reflects the deferred benefit of the structural improvement in our loan portfolio in recent years.
Operating expenses
Headcount
Performance indicators
Invested assets fell from CHF 215 billion in 2001 to CHF 205 billion in 2002 as negative market developments and the weakening of major currencies against the Swiss franc were only partially offset by positive net new money inflows. In 2002, Business Banking Switzerland attracted net new money of CHF 3.7 billion, down from CHF 9.2 billion in 2001. This drop was due to smaller inflows from large corporate client accounts – a business traditionally subject to volatile inflows and outflows.
Results
In 2002, full-year pre-tax profit was a record CHF 1,967 million, up 32% from 2001, achieved despite declining revenues in difficult market conditions, due to continued tight management of our cost base and lower credit loss expenses. Personnel expenses dropped due to lower performance-related compensation as well as a fall in headcount while general and administrative expenses declined due to our continued cost management initiatives.
Operating income
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level of CHF 5,225 million. Interest income fell because of continued pressure on margins of liability products. Trading and fee income also declined, reflecting the difficult market environment, although these developments were mostly offset by lower credit loss expense, which fell to CHF 286 million in 2002, down 50% from CHF 567 million in 2001. This drop reflected the continued success in improving the quality of our loan portfolio through the implementation of risk-adjusted pricing and the deferred benefit of the structural improvement in our loan portfolio in recent years.
Operating expenses
decrease reflected our continuous efforts to control costs as well as higher usage of services, mainly IT, provided to other business units. Overall, this very low level of general and administrative expenses is explained by the integrated business model of UBS, through which Business Banking Switzerland provides a significant number of services to other business units, mainly Wealth Management. In accounting terms, the costs for these services are charged to the receiving unit as general and administrative expenses, offset by lower general and administrative expenses in the provider unit. Depreciation for full-year 2002 dropped to CHF 355 million from CHF 465 million in 2001 as information technology equipment is increasingly being leased instead of bought.
Headcount
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Review of Business Group Performance
Global Asset Management
Global Asset Management
John A. Fraser
Chairman and CEO
Global Asset Management
Strong markets in the second half of the year, net new money inflows into equities, fixed income and alternative investment mandates and ongoing cost control measures all contributed towards a 2003 pre-tax profit of CHF 332 million, up by 52% from CHF 219 million in 2002. Money market fund outflows disguised strong inflows to higher-quality asset classes.
Business Group Reporting
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Institutional fees | 922 | 865 | 1,154 | 7 | ||||||||||||
Wholesale Intermediary fees | 815 | 790 | 809 | 3 | ||||||||||||
Total operating income | 1,737 | 1,655 | 1,963 | 5 | ||||||||||||
Personnel expenses | 816 | 774 | 886 | 5 | ||||||||||||
General and administrative expenses | 407 | 447 | 498 | (9 | ) | |||||||||||
Depreciation | 29 | 29 | 38 | 0 | ||||||||||||
Amortization of goodwill and other intangible assets | 153 | 186 | 196 | (18 | ) | |||||||||||
Total operating expenses | 1,405 | 1,436 | 1,618 | (2 | ) | |||||||||||
Business Group performance before tax | 332 | 219 | 345 | 52 | ||||||||||||
Performance Indicators Cost/income ratio (%)1 | 81 | 87 | 82 | |||||||||||||
Institutional Invested assets (CHF billion) | 313 | 274 | 324 | 14 | ||||||||||||
of which: money market funds | 14 | 19 | 23 | (26 | ) | |||||||||||
Net new money (CHF billion)2 | 12.7 | (1.4 | ) | 6.4 | ||||||||||||
of which: money market funds | (5.0 | ) | (1.8 | ) | 12.0 | |||||||||||
Gross margin on invested assets (bps)3 | 32 | 29 | 37 | 10 | ||||||||||||
Wholesale Intermediary Invested assets (CHF billion) | 261 | 259 | 325 | 1 | ||||||||||||
of which: money market funds | 87 | 106 | 134 | (18 | ) | |||||||||||
Net new money (CHF billion)2 | (5.0 | ) | (6.3 | ) | 24.5 | |||||||||||
of which: money market funds | (23.0 | ) | (6.9 | ) | 2.5 | |||||||||||
Gross margin on invested assets (bps)3 | 31 | 27 | 26 | 15 | ||||||||||||
Additional information | % change from | |||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Client assets (CHF billion) | 574 | 533 | 649 | 8 | ||||||||||||
Regulatory equity allocated (average) | 1,000 | 1,100 | 1,050 | (9 | ) | |||||||||||
Fair value of employee stock options granted4 | 41 | 43 | (5 | ) | ||||||||||||
Headcount (full-time equivalents) | 2,689 | 2,733 | 2,704 | (2 | ) | |||||||||||
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Components of operating income
Global Asset Management generates its revenue from the asset management services it provides to private clients, 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.
Performance indicators
The cost / income ratio dropped to 81% in 2003 from 87% in 2002. Amortization expenses fell, driving the cost / income ratio down 2.5 percentage points and now accounting for 8.8 percentage points of the ratio. The residual improvement of 3.4 percentage points was a result of increases in both operating income and operating expenses. The recovery in equity markets experienced in the second half of the year resulted in higher invested asset levels, and, consequently, higher asset-based revenues. Strong inflows of net new money (excluding lower fee money market funds), combined with improved investment performance, especially in the alternative and quantitative platform, also helped revenues to rise.
Institutional
Institutional invested assets totaled CHF 313 billion on 31 December 2003, up 14% from CHF 274 billion on 31 December 2002, reflecting the strong market development in the second half of the year and strong inflows of net new money. The increase was partly offset by the weakening of major currencies against the Swiss franc.
For full-year 2003, net new money inflows were CHF 12.7 billion, up significantly from the outflows of CHF 1.4 billion recorded in 2002. Equity mandates and alternative and quantitative investments experienced strong inflows, partially offset by outflows from asset allocation mandates and money market funds.
The full-year 2003 gross margin was 32 basis points, up from 29 basis points a year earlier, reflecting higher performance fees and an improving asset mix.
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Review of Business Group Performance
Global Asset Management
Wholesale Intermediary
Invested assets were CHF 261 billion on 31 December 2003, up by CHF 2 billion from the same date a year earlier. The impact of adverse currency movements and the launch of UBS Bank USA, which prompted outflows from money market funds, nearly offset the positive effect from rising financial markets.
with the CHF 6.3 billion outflow in 2002. The money market outflow in 2003 was CHF 23.0 billion, partially offset by inflows of CHF 17.1 billion into higher-margin equity and fixed income mandates. The outflows in money market funds were primarily in the Americas as a result of the launch of UBS Bank USA.
Money market sweep accounts
Investment capabilities and performance
After three years of disappointing returns, equity markets posted convincing gains in 2003 as the global economy improved and corporate earnings recovered. Cyclical industries, such as the technology sector, led the rally. Fixed income
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Annualized | ||||||||||||||||
Composite | 1 Year | 3 Years | 5 Years | 10 Years | ||||||||||||
Global Equity Composite vs. MSCI World Equity (Free) Index | - | + | + | + | ||||||||||||
Global Bond Composite vs. Citigroup World Government Bond Index | + | + | - | - | ||||||||||||
Global Securities Composite vs. Global Securities Markets Index | + | + | + | + | ||||||||||||
(+) above benchmark; (-) under benchmark. All after fees. |
returns were more modest and constrained by expectations of higher interest rates.
Results
Global Asset Management reported a pre-tax profit of CHF 332 million in 2003, an increase of 52% from 2002’s pre-tax profit of CHF 219 million. The recovery in the second half of the year in equity market valuations, coupled with strong inflows into alternative investments, equities and fixed income mandates, resulted in higher invested asset levels and, consequently, increased
asset-based revenues. Performance-related fees, especially in the alternative and quantitative business, showed significant improvement over 2002. Ongoing cost control initiatives that systematically reduced operating expenses contributed significantly to improved profitability. General and administrative expenses decreased due to lower IT and premises costs. Amortization expenses fell as the goodwill of some assets became fully amortized. These developments were partially offset by higher incentive-based compensation resulting from the increase in operating income.
Operating income
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Review of Business Group Performance
Global Asset Management
recovery in the equity markets and an improvement in the asset mix, both of which had a positive impact on our asset-based revenues.
Operating expenses
Headcount
Performance indicators
The cost/income ratio rose to 87% in 2002 from 82% in 2001. The increase was primarily due to
lower invested asset values, which resulted in lower asset-based revenues. Those developments, however, were partially offset by lower operating expenses prompted by ongoing initiatives to control costs. Goodwill amortization accounted for 11.3 percentage points of the 2002 cost / income ratio.
Institutional
Wholesale Intermediary
Results
Global Asset Management reported for full-year 2002 a pre-tax profit of CHF 219 million, a decrease of 37% from 2001’s pre-tax profit of CHF 345 million. The declines in equity markets experienced throughout 2002 resulted in lower invested asset levels and, subsequently, lower asset-based revenues. These developments were
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partially offset by ongoing initiatives to control costs. Over 2002, personnel expenses decreased due to a decline in incentive compensation while general and administrative expenses fell due to lower IT and premises expenditures. However, the drop in expenses could not compensate for the drop in revenues.
Operating income
Operating expenses
Headcount
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Review of Business Group Performance
Investment Bank
Investment Bank
John P. Costas
Chairman and CEO,
Investment Bank
In 2003, the Investment Bank as a whole posted pre-tax profit of CHF 3,889 million. The Investment Banking & Securities business unit’s pre-tax profit was CHF 4,078 million, up 30% from 2002. Private Equity reported a pre-tax loss of CHF 189 million in 2003 compared to a loss of CHF 1,761 million in 2002. This improvement reflects much lower levels of writedowns and a number of successful divestments.
Business Group Reporting
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Income | 14,120 | 12,498 | 14,715 | 13 | ||||||||||||
Adjusted expected credit loss1 | (139 | ) | (128 | ) | (112 | ) | 9 | |||||||||
Total operating income | 13,981 | 12,370 | 14,603 | 13 | ||||||||||||
Personnel expenses | 7,357 | 7,878 | 8,354 | (7 | ) | |||||||||||
General and administrative expenses | 2,130 | 2,378 | 2,650 | (10 | ) | |||||||||||
Depreciation | 327 | 382 | 456 | (14 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 278 | 364 | 402 | (24 | ) | |||||||||||
Total operating expenses | 10,092 | 11,002 | 11,862 | (8 | ) | |||||||||||
Business Group performance before tax | 3,889 | 1,368 | 2,741 | 184 | ||||||||||||
Additional information | ||||||||||||||||
Cost / income ratio (%)2 | 71 | 88 | 81 | |||||||||||||
Net new money (CHF billion)3 | 0.9 | 0.5 | 0.1 | |||||||||||||
Invested assets (CHF billion) | 4 | 3 | 1 | 33 | ||||||||||||
Client assets (CHF billion) | 143 | 133 | 109 | 8 | ||||||||||||
Regulatory equity allocated (average) | 12,700 | 13,100 | 14,300 | (3 | ) | |||||||||||
Fair value of employee stock options granted4 | 391 | 582 | (32 | ) | ||||||||||||
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Investment Banking & Securities
Business Unit Reporting
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Investment Banking | 1,703 | 1,915 | 2,541 | (11 | ) | |||||||||||
Equities | 4,894 | 5,625 | 6,422 | (13 | ) | |||||||||||
Fixed Income, Rates and Currencies | 7,600 | 6,560 | 6,624 | 16 | ||||||||||||
Income | 14,197 | 14,100 | 15,587 | 1 | ||||||||||||
Adjusted expected credit loss1 | (139 | ) | (128 | ) | (112 | ) | 9 | |||||||||
Total operating income | 14,058 | 13,972 | 15,475 | 1 | ||||||||||||
Personnel expenses2 | 7,308 | 7,784 | 8,258 | (6 | ) | |||||||||||
General and administrative expenses | 2,071 | 2,314 | 2,586 | (11 | ) | |||||||||||
Depreciation | 323 | 381 | 454 | (15 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 278 | 364 | 402 | (24 | ) | |||||||||||
Total operating expenses | 9,980 | 10,843 | 11,700 | (8 | ) | |||||||||||
Business unit performance before tax | 4,078 | 3,129 | 3,775 | 30 | ||||||||||||
Performance Indicators | ||||||||||||||||
Compensation ratio (%)3 | 51 | 55 | 53 | |||||||||||||
Cost / income ratio (%)4 | 70 | 77 | 75 | |||||||||||||
Non-performing loans / gross loans (%) | 0.9 | 1.6 | 2.6 | |||||||||||||
Impaired loans / gross loans (%) | 2.2 | 3.2 | 5.4 | |||||||||||||
Average VaR (10-day 99%) | 354 | 275 | 252 | 29 | ||||||||||||
Additional information | % change from | |||||||||||||||
As at or for the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Deferral included in adjusted expected credit loss1 | (45 | ) | (2 | ) | 38 | |||||||||||
Regulatory equity allocated (average) | 12,250 | 12,550 | 13,600 | (2 | ) | |||||||||||
Fair value of employee stock options granted5 | 390 | 567 | (31 | ) | ||||||||||||
Headcount (full-time equivalents) | 15,500 | 15,964 | 15,562 | (3 | ) | |||||||||||
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Review of Business Group Performance
Investment Bank
Components of operating income
The Investment Banking & Securities unit generates operating income from:
– | commissions on agency transactions and spreads or markups on principal transactions; | |
– | fees from debt and equity capital markets transactions, leveraged finance, and the structuring of derivatives and complex transactions; | |
– | mergers and acquisitions and other advisory fees; | |
– | interest income on principal transactions and from the loan portfolio; and |
– | gains and losses on market making, proprietary, and arbitrage positions. |
Performance indicators
In 2003, we performed strongly despite the difficult market environment at the start of the year. As the year progressed, and the overall environment improved, we were able to profit from market opportunities, capturing market share in most of our businesses.
Our compensation ratio in 2003 was 51%, down from 55% in 2002. The payout levels of annual performance-related payments are driven
by the revenue mix across business areas and are managed in line with market levels.
Total loans were CHF 55 billion on 31 December 2003, down 11% from CHF 62 billion a year earlier, mainly due to the drop in the US dol-
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lar against the Swiss franc. Continued successful recovery efforts led the ratio of impaired loans to total loans to fall from 3.2% on 31 December 2002 to 2.2% at the end of 2003. The non-performing loans to total loans ratio declined from 1.6% to 0.9% in the same period.
Results
Pre-tax profit was CHF 4,078 million in full-year 2003, up 30% from a year earlier. This result was achieved despite the weakening of the US dollar against the Swiss franc and reflects strong performances in all our businesses. In particular, the Fixed Income, Rates and Currencies business, gaining 16% from a year earlier, posted a record result, reflecting the breadth of our capabilities and our expanding franchise. At the same time, costs were tightly controlled. Both personnel expenses and general and administrative expenses fell because of currency fluctuations. Excluding the impact of currency movements, personnel expenses rose in 2003, reflecting improved revenues, while general and administrative expenses remained largely unchanged from the previous year’s level.
Operating income
Operating expenses
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Investment Bank
ing currency fluctuations, personnel expenses rose, reflecting higher performance-related compensation, which increased along with revenues, and higher severance expenses. Full-year general and administrative expenses were CHF 2,071 million in 2003, down 11% from 2002’s CHF 2,314 million. Excluding the effect of currencies, expenses rose slightly, reflecting provisions for vacant space, higher professional fees in all businesses and an increase in administration expenses. Depreciation declined 15% to CHF 323 million in 2003 from CHF 381 million in 2002. The decrease is mainly due to lower depreciation on workstations, servers and other equipment. Amortization of goodwill and other intangibles, at CHF 278 million in 2003, fell 24% from CHF 364 million a year earlier, reflecting the full amortization of the goodwill of various businesses in 2003.
Headcount
Performance indicators
Our performance in 2002 reflected the worldwide downturn in market conditions. However as a result of our strong client franchise and con-
tinuing efforts to manage costs, results proved relatively resilient.
Results
The business unit Investment Banking & Securities reported 2002 pre-tax profit of CHF 3,129 million, a decrease of 17% from 2001, reflecting difficult economic conditions, particularly for the investment banking and equities businesses. This was partially offset by the strong result of our Fixed Income, Rates and Currencies business. Over 2002, overall expenses dropped by 7%, reflecting lower personnel expenses driven by a reduction in incentive compensation, as well as the success of our continued cost containment initiatives.
Operating income
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ity, which translated into a 22% drop in the global fee pool compared to 2001. Equities revenues for the full-year 2002 were also lower than in 2001, down from CHF 6,422 million to CHF 5,625 million, reflecting falling indices worldwide and much lower market activity. Full-year 2002 primary revenues remained flat, because of market share gains in the US and in Asia, which compensated for the drop in overall market activity. In full-year 2002, Fixed Income, Rates and Currencies revenues decreased 1% to CHF 6,560 million, primarily due to reductions in our Interest Rates and Foreign Exchange business lines and much lower revenues from our non-core businesses. This was nearly offset by the substantial growth in our Emerging Markets and Principal Finance businesses. Revenues related to gains in credit default swaps hedging credit exposures in the loan book also positively impacted the result. Our Foreign Exchange business increased volumes and spreads compared to 2001.
Operating expenses
our Energy trading business. The underlying reduction of 9% from 2001’s expense levels reflected the continuing success of our cost containment initiatives accentuated by the drop of the US dollar against the Swiss franc. In total, personnel expenses in 2002, at CHF 7,784 million, were 6% lower than 2001, mainly driven by a reduction in incentive compensation in line with lower revenues and the weaker US dollar. Full-year 2002 general and administrative expenses were CHF 2,314 million in 2002, down 11% from 2001’s CHF 2,586 million, as cost-saving programs implemented during the course of 2002 helped to lower IT and other costs, particularly travel, advertising costs and professional fees. In full-year 2002, depreciation declined to CHF 381 million from CHF 454 million in 2001, reflecting our cost control initiatives, which helped to lower charges for new computer workstations and other IT-related equipment. Amortization of goodwill and other intangibles fell 9% for the full-year 2002, reflecting the fact that various assets became fully amortized in 2002.
Headcount
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Review of Business Group Performance
Investment Bank
Private Equity
Business Unit Reporting
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Total operating income | (77 | ) | (1,602 | ) | (872 | ) | 95 | |||||||||
Personnel expenses | 49 | 94 | 96 | (48 | ) | |||||||||||
General and administrative expenses | 59 | 64 | 64 | (8 | ) | |||||||||||
Depreciation | 4 | 1 | 2 | 300 | ||||||||||||
Amortization of goodwill and other intangible assets | 0 | 0 | 0 | |||||||||||||
Total operating expenses | 112 | 159 | 162 | (30 | ) | |||||||||||
Business unit performance before tax | (189 | ) | (1,761 | ) | (1,034 | ) | 89 | |||||||||
Performance Indicators Value creation (CHF billion) | (0.3 | ) | (1.4 | ) | (1.4 | ) | 79 | |||||||||
% change from | ||||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Investment (CHF billion)1 | 2.3 | 3.1 | 5.0 | (26 | ) | |||||||||||
Additional information | % change from | |||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Portfolio fair value (CHF billion) | 2.9 | 3.8 | 5.6 | (24 | ) | |||||||||||
Regulatory equity allocated (average) | 450 | 550 | 700 | (18 | ) | |||||||||||
Fair value of employee stock options granted2 | 1 | 15 | (93 | ) | ||||||||||||
Headcount (full-time equivalents) | 50 | 73 | 128 | (32 | ) | |||||||||||
Components of operating income
Private Equity’s primary source of operating income is capital gains from the disposal or sale of its investments, which are recorded at the time of ultimate divestment. As a result, appreciation in fair market value is recognized as operating income only at the time of sale. The level of annual operating income from Private Equity is directly
affected by the level of investment disposals that take place during the year. Similarly, depreciation in fair market value is only recognized against operating income if an investment becomes permanently impaired and has to be written down. Writedowns of the value of its investments can negatively affect operating income.
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Performance indicators
The level of our private equity investments was CHF 2.3 billion on 31 December 2003, a decline of 26% from CHF 3.1 billion on 31 December 2002 reflecting writedowns made on direct investments and third-party funds, as well as successful exits and currency fluctuations. Unfunded commitments fell by 29% to CHF 1.5 billion on 31 December 2003 from CHF 2.1 billion a year ago.
The level of net unrealized gains was CHF 0.6 billion on 31 December 2003, down from CHF 0.8 billion on 31 December 2002, partially reflecting successful divestments.
Results
In full-year 2003, Private Equity posted a pre-tax loss of CHF 189 million – a marked improve-
ment on the pre-tax loss of CHF 1,761 million in 2002, reflecting lower levels of writedowns and a number of successful exits. Writedowns in 2003 totaled CHF 353 million, compared to CHF 1.7 billion in 2002.
Headcount
Headcount levels dropped to 50 employees on 31 December 2003, down from 73 on 31 December 2002, reflecting the reduction of our portfolio and the restructuring of some regional investment teams.
Change in disclosure from 2004
From first quarter 2004 onwards, we will no longer report Private Equity as a stand-alone business unit. Results from the private equity business will be reported as a separate revenue line in the income statement of the Investment Bank – just as we currently do for all the major business areas. We will continue to disclose
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Review of Business Group Performance
Investment Bank
Private Equity’s performance indicators – portfolio size, fair value, and the value created.
Performance indicators
The level of our private equity investments was CHF 3.1 billion on 31 December 2002, a decline of 38% from CHF 5.0 billion on 31 December 2001. This reduction reflected writedowns made on direct investments and third-party funds, as well as successful executed exits. In full-year 2002, writedowns included in operating income totaled CHF 1.7 billion, up from CHF 1.1 billion in 2001.
Results
Full-year 2002 results for our Private Equity business unit reflected continued tough economic conditions, impacting private equity valuations across a range of sectors, a factor that was compounded by the prolonged downturn in all major equity markets. The challenging economic environment adversely affected many of the companies in the portfolio while the continued hostile climate for divestments restricted capital gains from exit opportunities. Against this background, our Private Equity business unit posted a pre-tax loss in 2002 of CHF 1,761 million, CHF 727 million worse than in 2001.
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Review of Business Group Performance
Wealth Management USA
Wealth Management USA
Joseph J. Grano, Jr.
Chairman, Wealth Management USA
Mark B. Sutton
CEO, Wealth Management USA
In 2003, Wealth Management USA’s pre-tax loss was CHF 5 million compared to a pre-tax loss of CHF 1,800 million in 2002, when the value of the PaineWebber brand was written down. Before acquisition costs, pre-tax profit increased 5% from a year earlier. On the same basis, but in US dollars, the operating result rose 21%.
Business Group Reporting
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Income | 5,190 | 1 | 5,561 | 6,391 | (7 | ) | ||||||||||
Adjusted expected credit loss2 | (8 | ) | (13 | ) | (18 | ) | (38 | ) | ||||||||
Total operating income | 5,182 | 5,548 | 6,373 | (7 | ) | |||||||||||
Personnel expenses3 | 3,712 | 4,245 | 5,019 | (13 | ) | |||||||||||
General and administrative expenses | 988 | 1,263 | 1,441 | (22 | ) | |||||||||||
Depreciation | 151 | 149 | 124 | 1 | ||||||||||||
Amortization of goodwill and other intangible assets | 336 | 1,691 | 4 | 502 | (80 | ) | ||||||||||
Total operating expenses | 5,187 | 7,348 | 7,086 | (29 | ) | |||||||||||
Business Group performance before tax | (5 | ) | (1,800 | ) | (713 | ) | (100 | ) | ||||||||
Acquisition costs Net goodwill funding5 | 231 | 390 | 468 | (41 | ) | |||||||||||
Retention payments | 263 | 351 | 436 | (25 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 336 | 1,691 | 4 | 502 | (80 | ) | ||||||||||
Total acquisition costs | 830 | 2,432 | 4 | 1,406 | (66 | ) | ||||||||||
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Review of Business Group Performance
Wealth Management USA
Wealth Management USA (continued)
Performance Indicators
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Invested assets (CHF billion) | 634 | 584 | 769 | 9 | ||||||||||||
Net new money (CHF billion)1 | 21.1 | 18.5 | 33.2 | |||||||||||||
Interest and dividend income (CHF billion)2 | 15.8 | 17.9 | 21.5 | (12 | ) | |||||||||||
Gross margin on invested assets (bps)3 | 86 | 82 | 84 | 5 | ||||||||||||
Cost / income ratio (%)4 | 100 | 132 | 111 | |||||||||||||
Recurring fees5 | 1,927 | 2,199 | 2,366 | (12 | ) | |||||||||||
Financial advisors (full-time equivalents) | 7,766 | 8,857 | 8,718 | (12 | ) | |||||||||||
Additional information | % change from | |||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Client assets (CHF billion) | 690 | 650 | 841 | 6 | ||||||||||||
Regulatory equity allocated (average) | 5,700 | 7,450 | 8,550 | (23 | ) | |||||||||||
Fair value of employee stock options granted 6 | 62 | 73 | (15 | ) | ||||||||||||
Headcount (full-time equivalents) | 18,016 | 19,563 | 20,413 | (8 | ) | |||||||||||
Components of operating income
Wealth Management USA principally derives its operating income from:
– | fees for financial planning and wealth management services | |
– | fees for discretionary management services and | |
– | transaction-related fees. |
These fees are based on the market value of invested assets and the level of transaction-related activity. As a result, operating income is affected by such factors as fluctuations in invested assets, change in market conditions, investment performance and inflows and outflows of client funds, and investor activity levels.
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Performance indicators
Wealth Management USA had CHF 634 billion in invested assets on 31 December 2003, up 9% from CHF 584 billion on 31 December 2002. The increase was due to inflows of net new money and the effects of market appreciation. In US dollar terms, invested assets were 21% higher on 31 December 2003 than they were a year earlier.
We continue to report consistently strong inflows of net new money. In 2003, inflows were CHF 21.1 billion, 14% above the CHF 18.5 billion result reported for 2002. Including interest and dividends, net new money in 2003 was CHF 36.9 billion, up from CHF 36.4 billion in 2002.
The gross margin on invested assets was 86 basis points for full-year 2003, up from 82 basis points in 2002. The gain from the sale of the CSC business helped the margin by 3 basis points while goodwill funding lowered it by 4 basis points compared to a 6 basis point effect in 2002.
Excluding these effects, the gross margin fell 1 basis point year on year.
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Review of Business Group Performance
Wealth Management USA
The number of financial advisors decreased to 7,766 in 2003 from 8,857 a year earlier due to the curtailment of our training program and an increase in attrition rates among less experienced and less productive financial advisors.
Results
In the early part of the year, political, economic and financial uncertainty adversely affected investor activity. Conditions, however, started to improve over the course of second quarter 2003 and continued to do so as the year progressed. The UBS Index of Investor Optimism rose steadily in 2003, reaching its highest level in 21 months by December.
On this basis and in US dollar terms, performance in 2003 was 21% above that in 2002, reflecting higher recurring fee gains and improved transactional revenues. Client activity increased, with daily average trades rising 3% above their 2002 level. In addition, conditions in the municipal securities market remained extremely buoyant, with new issues hitting an all-time high in 2003. At the same time, we continued to benefit from cost-saving initiatives started when we became a part of UBS.
Operating income
Operating expenses
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the effects of currency translation, personnel expenses were actually slightly higher than in 2002, reflecting higher performance-related compensation due to an increase in revenue partially offset by lower retention payments. General and administrative expenses fell 22% from CHF 1,263 million in 2002 to CHF 988 million in 2003. Excluding the impact of currency fluctuations, general and administrative expenses dropped 10% compared to 2002 due to the strict cost management discipline that we have exerted in the past three years. Operational provisions also fell as 2002 included the equity research settlement charge of CHF 21 million. The drop was further accentuated by the sale of the CSC business. Depreciation increased CHF 2 million to CHF 151 million in 2003 from CHF 149 million in 2002. Excluding currency movements, the increase in depreciation of 16% was due to higher charges for broker workstations purchased in 2003. Goodwill and other intangible amortization decreased from CHF 1,691 million in 2002 to CHF 336 million in 2003. This decrease was due to the prior-year writedown of the Paine-Webber brand name, and the sale of CSC. Excluding the writedown and the sale of CSC, amortization charges dropped by 26% as a result of the weakening US dollar against the Swiss franc.
Headcount
Performance indicators
At the end of 2002, Wealth Management USA had CHF 584 billion in invested assets, compared to CHF 769 billion on 31 December 2001. This decline of 24% was partly due to the effect of the US dollar’s weakening against the Swiss franc. Excluding the impact of currency fluctuations, invested assets fell 8% during full-year 2002, mainly due to US equity market declines, although that was partially offset by net new money inflows.
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Review of Business Group Performance
Wealth Management USA
offset by lower asset-based fees, which fell in line with the decline in asset levels.
Results
In 2002, political, economic and financial uncertainty continued to adversely affect investor activity. The UBS Index of Investor Optimism dropped significantly during 2002, with a low in October. Daily average client transaction volumes were 10% lower than in 2001.
Operating income
Operating expenses
franc, operating expenses declined 5% from 2001, reflecting lower performance-driven compensation and lower retention expenses. In addition, cost management initiatives implemented during the course of 2002, the transfer of the prime brokerage business to the Investment Bank and the closure of the Japanese domestic private client businesses helped to reduce overall expenses. Personnel expenses dropped 15% from CHF 5,019 million in 2001 to CHF 4,245 million in 2002. Excluding the effects of currency translation, personnel expenses were 7% lower than 2001, reflecting lower performance-driven compensation due to a decline in revenues, a fall in non-financial advisor headcount, the transfer of the prime brokerage business to the Investment Bank, the closure of the Japanese domestic private client business and lower retention expenses. General and administrative expenses fell 12% from CHF 1,441 million in 2001 to CHF 1,263 million in 2002. Excluding the impact of the falling US dollar against the Swiss franc, general and administrative expenses dropped by 4% compared to 2001 due to the cost management initiatives implemented during the course of 2002, reducing our professional fees, advertising, travel and other office-related costs. In addition, general and administrative expenses were reduced by the transfer of prime brokerage business to the Investment Bank and the closure of the Japanese private client businesses. This was partially offset by the equity research settlement charge of CHF 21 million. Depreciation increased CHF 25 million to CHF 149 million in 2002 from CHF 124 million in 2001. Excluding currency movements, the increase in depreciation of 32% was due to higher technology equipment charges. Goodwill and other intangible amortization increased from CHF 502 million in 2001 to CHF 1,691 million in 2002. This increase was entirely due to the writedown of the PaineWebber brand name. Excluding the writedown, amortization charges would have dropped as a result of the weakening US dollar against the Swiss franc.
Headcount
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Japanese domestic private client business and transferred the prime brokerage business to the Investment Bank. At the same time, we expanded our financial advisor headcount by 139, reflecting our continued aim to extend the reach of our business.
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Review of Business Group Performance
Corporate Center
Corporate Center
Business Group Reporting | ||||||||||||||||
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Income | 989 | 2,429 1 | 1,761 | (59 | ) | |||||||||||
Credit loss (expense) / recovery 2 | 162 | 247 | 233 | (34 | ) | |||||||||||
Total operating income | 1,151 | 2,676 | 1,994 | (57 | ) | |||||||||||
Personnel expenses | 762 | 1,031 | 1,011 | (26 | ) | |||||||||||
General and administrative expenses | 445 | 733 | 723 | (39 | ) | |||||||||||
Depreciation | 473 | 513 | 428 | (8 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 101 | 122 | 123 | (17 | ) | |||||||||||
Total operating expenses | 1,781 | 2,399 | 2,285 | (26 | ) | |||||||||||
Business Group performance before tax | (630 | ) | 277 | (291 | ) | |||||||||||
Private Banks & GAM | ||||||||||||||||
Performance before tax | 208 | 384 3 | 198 | (46 | ) | |||||||||||
Invested assets (CHF billion) | 84 | 70 | 86 | 20 | ||||||||||||
Net new money (CHF billion) 4 | 7.2 | 4.2 | 5.4 | |||||||||||||
Headcount (full-time equivalents) | 1,672 | 1,702 | 1,908 | (2 | ) | |||||||||||
Additional information | % change from | |||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Regulatory equity allocated (average) | 9,150 | 10,250 | 9,300 | (11 | ) | |||||||||||
Fair value of employee stock options granted 5 | 18 | 37 | (51 | ) | ||||||||||||
Total headcount (full-time equivalents) | 2,878 | 2,887 | 3,040 | 0 | ||||||||||||
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Results
Corporate Center recorded a pre-tax loss of CHF 630 million in full-year 2003, down from the CHF 277 million profit reported a year earlier.
Operating income
Operating expenses
445 million from CHF 733 million. This was mainly due to lower legal provisions, the disposal of Klinik Hirslanden and lower project-related expenses, partially offset by higher branding costs. Depreciation dropped from CHF 513 million in 2002 to CHF 473 million in 2003. The decrease is mainly due to the absence of depreciation expenses from Klinik Hirslanden and lower depreciation in the Private Banks & GAM unit. At CHF 101 million in 2003, amortization of goodwill and other intangibles dropped by 17% from CHF 122 million in 2002, reflecting the drop of the US dollar against the Swiss franc.
Headcount
Private Banks & GAM
Headcount Private Banks & GAM
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Review of Business Group Performance
Corporate Center
acquisition of Banque Notz Stucki S.A. as well as an increase in headcount at GAM due to the growth of the business.
Results
Corporate Center recorded a pre-tax gain of CHF 277 million in 2002, compared to the pretax loss of CHF 291 million in 2001.
Operating income
CHF 247 million, compared to a credit loss recovery of CHF 233 million in 2001.
Operating expenses
Headcount
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Private Banks & GAM
Invested assets were CHF 70 billion on 31 December 2002, down from CHF 86 billion a year earlier, reflecting the drop in equity markets in 2002.
lion of Hyposwiss and after goodwill, the increase was CHF 31 million or 16%. On the same basis, operating income was down CHF 73 million due to generally weaker income as a result of unfavorable market conditions. On the other hand, expenses were CHF 104 million lower as a result of rigid cost control. The decline in revenues and expenses includes the divestment of Hyposwiss (two months of business in 2002).
Headcount Private Banks & GAM
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76
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Financial Statements
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Financial Statements
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Financial Statements
Report of the Group Auditors
81
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Financial Statements
Financial Statements
UBS Income Statement
CHF million, except per share data | % change from | |||||||||||||||||||
For the year ended | Note | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 3 | 40,159 | 39,963 | 52,277 | 0 | |||||||||||||||
Interest expense | 3 | (27,860 | ) | (29,417 | ) | (44,236 | ) | (5 | ) | |||||||||||
Net interest income | 12,299 | 10,546 | 8,041 | 17 | ||||||||||||||||
Credit loss (expense) / recovery | (116 | ) | (206 | ) | (498 | ) | (44 | ) | ||||||||||||
Net interest income after credit loss expense | 12,183 | 10,340 | 7,543 | 18 | ||||||||||||||||
Net fee and commission income | 4 | 17,345 | 18,221 | 20,211 | (5 | ) | ||||||||||||||
Net trading income | 3 | 3,883 | 5,572 | 8,802 | (30 | ) | ||||||||||||||
Other income | 5 | 561 | (12 | ) | 558 | |||||||||||||||
Total operating income | 33,972 | 34,121 | 37,114 | 0 | ||||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 6 | 17,231 | 18,524 | 19,828 | (7 | ) | ||||||||||||||
General and administrative expenses | 7 | 6,086 | 7,072 | 7,631 | (14 | ) | ||||||||||||||
Depreciation of property and equipment | 14 | 1,364 | 1,521 | 1,614 | (10 | ) | ||||||||||||||
Amortization of goodwill and other intangible assets | 15 | 943 | 2,460 | 1,323 | (62 | ) | ||||||||||||||
Total operating expenses | 25,624 | 29,577 | 30,396 | (13 | ) | |||||||||||||||
Operating profit before tax and minority interests | 8,348 | 4,544 | 6,718 | 84 | ||||||||||||||||
Tax expense | 21 | 1,618 | 678 | 1,401 | 139 | |||||||||||||||
Net profit before minority interests | 6,730 | 3,866 | 5,317 | 74 | ||||||||||||||||
Minority interests | 22 | (345 | ) | (331 | ) | (344 | ) | 4 | ||||||||||||
Net profit | 6,385 | 3,535 | 4,973 | 81 | ||||||||||||||||
Basic earnings per share (CHF) | 8 | 5.72 | 2.92 | 3.93 | 96 | |||||||||||||||
Diluted earnings per share (CHF) | 8 | 5.61 | 2.87 | 3.78 | 95 | |||||||||||||||
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UBS Balance Sheet
% change from | ||||||||||||||||
CHF million | Note | 31.12.03 | 31.12.02 | 31.12.02 | ||||||||||||
Assets | ||||||||||||||||
Cash and balances with central banks | 3,584 | 4,271 | (16 | ) | ||||||||||||
Due from banks | 9 | 31,667 | 32,468 | (2 | ) | |||||||||||
Cash collateral on securities borrowed | 10 | 213,932 | 139,052 | 54 | ||||||||||||
Reverse repurchase agreements | 10 | 320,587 | 294,086 | 9 | ||||||||||||
Trading portfolio assets | 11 | 461,772 | 371,436 | 24 | ||||||||||||
Positive replacement values | 23 | 84,334 | 82,092 | 3 | ||||||||||||
Loans | 9 | 212,504 | 211,647 | 0 | ||||||||||||
Financial investments | 12 | 5,139 | 8,391 | (39 | ) | |||||||||||
Accrued income and prepaid expenses | 6,218 | 6,453 | (4 | ) | ||||||||||||
Investments in associates | 13 | 1,616 | 705 | 129 | ||||||||||||
Property and equipment | 14 | 7,659 | 7,869 | (3 | ) | |||||||||||
Goodwill and other intangible assets | 15 | 11,529 | 13,696 | (16 | ) | |||||||||||
Other assets | 16,21 | 25,459 | 8,952 | 184 | ||||||||||||
Total assets | 1,386,000 | 1,181,118 | 17 | |||||||||||||
Total subordinated assets | 4,794 | 3,652 | 31 | |||||||||||||
Liabilities | ||||||||||||||||
Due to banks | 17 | 127,153 | 83,178 | 53 | ||||||||||||
Cash collateral on securities lent | 10 | 53,278 | 36,870 | 45 | ||||||||||||
Repurchase agreements | 10 | 415,863 | 366,858 | 13 | ||||||||||||
Trading portfolio liabilities | 11 | 143,957 | 106,453 | 35 | ||||||||||||
Negative replacement values | 23 | 93,646 | 81,282 | 15 | ||||||||||||
Due to customers | 17 | 347,358 | 306,876 | 13 | ||||||||||||
Accrued expenses and deferred income | 13,673 | 15,331 | (11 | ) | ||||||||||||
Debt issued | 18 | 120,237 | 129,411 | (7 | ) | |||||||||||
Other liabilities | 19,20,21 | 31,316 | 12,339 | 154 | ||||||||||||
Total liabilities | 1,346,481 | 1,138,598 | 18 | |||||||||||||
Minority interests | 22 | 4,073 | 3,529 | 15 | ||||||||||||
Shareholders’ equity | ||||||||||||||||
Share capital | 946 | 1,005 | (6 | ) | ||||||||||||
Share premium account | 6,938 | 12,638 | (45 | ) | ||||||||||||
Net gains / (losses) not recognized in the income statement, net of tax | (983 | ) | (159 | ) | (518 | ) | ||||||||||
Retained earnings | 36,725 | 32,638 | 13 | |||||||||||||
Treasury shares | (8,180 | ) | (7,131 | ) | (15 | ) | ||||||||||
Total shareholders’ equity | 35,446 | 38,991 | (9 | ) | ||||||||||||
Total liabilities, minority interests and shareholders’ equity | 1,386,000 | 1,181,118 | 17 | |||||||||||||
Total subordinated liabilities | 9,301 | 10,102 | (8 | ) | ||||||||||||
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Financial Statements
1 | On 16 July 2001, UBS made a distribution to shareholders of CHF 1.60 per share, paid in the form of a reduction in the par value of its shares, from CHF 10.00 to CHF 8.40. At the same time, UBS split its share 3 for 1, resulting in a new par value of CHF 2.80 per share. On 10 July 2002, UBS made a distribution of CHF 2.00 per share to shareholders which reduced the par value from CHF 2.80 to CHF 0.80 per share. A dividend of CHF 2.00 per share was paid out on 23 April 2003. There was no capital repayment by par value reduction in 2003. | |
2 | Included are gains and losses from match-funding of net investments in foreign entities as follows: CHF 93 million net gain for 2003, CHF 849 million net gain for 2002 and CHF 43 million net loss for 2001. | |
3 | Opening adjustments to reflect the adoption of IAS 39 (see Note 1: Summary of Significant Accounting Policies). |
UBS Statement of Changes in Equity
CHF million | ||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Issued and paid up share capital | ||||||||||||
Balance at the beginning of the year | 1,005 | 3,589 | 4,444 | |||||||||
Issue of share capital | 2 | 6 | 12 | |||||||||
Capital repayment by par value reduction1 | (2,509 | ) | (683 | ) | ||||||||
Cancellation of second trading line treasury shares (2000 Program) | (184 | ) | ||||||||||
Cancellation of second trading line treasury shares (2001 Program) | (81 | ) | ||||||||||
Cancellation of second trading line treasury shares (2002 Program) | (61 | ) | ||||||||||
Balance at the end of the year | 946 | 1,005 | 3,589 | |||||||||
Share premium | ||||||||||||
Balance at the beginning of the year | 12,638 | 14,408 | 20,885 | |||||||||
Premium on shares issued and warrants exercised | 92 | 157 | 80 | |||||||||
Net premium / (discount) on treasury share and own equity derivative activity | (324 | ) | 282 | (239 | ) | |||||||
Settlement of own shares to be delivered | (2,502 | ) | ||||||||||
Cancellation of second trading line treasury shares (2000 Program) | (3,816 | ) | ||||||||||
Cancellation of second trading line treasury shares (2001 Program) | (2,209 | ) | ||||||||||
Cancellation of second trading line treasury shares (2002 Program) | (5,468 | ) | ||||||||||
Balance at the end of the year | 6,938 | 12,638 | 14,408 | |||||||||
Net gains / (losses) not recognized in the income statement, net of taxes | ||||||||||||
Foreign currency translation | ||||||||||||
Balance at the beginning of the year | (849 | ) | (769 | ) | (687 | ) | ||||||
Movements during the year2 | (795 | ) | (80 | ) | (82 | ) | ||||||
Subtotal – balance at the end of the year | (1,644 | ) | (849 | ) | (769 | ) | ||||||
Net unrealized gains / (losses) on available-for-sale investments, net of taxes | ||||||||||||
Balance at the beginning of the year | 946 | 1,035 | 0 | |||||||||
Change in accounting policy | 1,577 | 3 | ||||||||||
Net unrealized gains / (losses) on available-for-sale investments | (108 | ) | (144 | ) | (139 | ) | ||||||
Impairment charges reclassified to the income statement | 285 | 635 | 47 | |||||||||
Gains reclassified to the income statement | (340 | ) | (600 | ) | (461 | ) | ||||||
Losses reclassified to the income statement | 22 | 20 | 11 | |||||||||
Subtotal – balance at the end of the year | 805 | 946 | 1,035 | |||||||||
Change in fair value of derivative instruments designated as cash flow hedges, net of taxes | ||||||||||||
Balance at the beginning of the year | (256 | ) | (459 | ) | 0 | |||||||
Change in accounting policy | (380) | 3 | ||||||||||
Net unrealized gains / (losses) on the revaluation of cash flow hedges | 116 | (11 | ) | (316 | ) | |||||||
Net (gains) / losses reclassified to the income statement | (4 | ) | 214 | 237 | ||||||||
Subtotal – balance at the end of the year | (144 | ) | (256 | ) | (459 | ) | ||||||
Balance at the end of the year | (983 | ) | (159 | ) | (193 | ) | ||||||
Retained earnings | ||||||||||||
Balance at the beginning of the year | 32,638 | 29,103 | 24,191 | |||||||||
Change in accounting policy | (61) | 3 | ||||||||||
Balance at the beginning of the year (restated) | 32,638 | 29,103 | 24,130 | |||||||||
Net profit for the year | 6,385 | 3,535 | 4,973 | |||||||||
Dividends paid 1 | (2,298 | ) | ||||||||||
Balance at the end of the year | 36,725 | 32,638 | 29,103 | |||||||||
Treasury shares, at cost | ||||||||||||
Balance at the beginning of the year | (7,131 | ) | (3,377 | ) | (4,000 | ) | ||||||
Acquisitions | (8,424 | ) | (8,313 | ) | (13,506 | ) | ||||||
Disposals | 1,846 | 2,269 | 10,129 | |||||||||
Cancellation of second trading line treasury shares (2000 Program) | 4,000 | |||||||||||
Cancellation of second trading line treasury shares (2001 Program) | 2,290 | |||||||||||
Cancellation of second trading line treasury shares (2002 Program) | 5,529 | |||||||||||
Balance at the end of the year | (8,180 | ) | (7,131 | ) | (3,377 | ) | ||||||
Total shareholders’ equity | 35,446 | 38,991 | 43,530 | |||||||||
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UBS Statement of Changes in Equity (continued)
Shares issued
Number of shares | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Balance at the beginning of the year | 1,256,297,678 | 1,281,717,499 | 1,333,139,187 | (2 | ) | |||||||||||
Issue of share capital | 2,719,166 | 3,398,869 | 3,843,661 | (20 | ) | |||||||||||
Cancellation of second trading line treasury shares (2000 Program) | (55,265,349 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2001 Program) | (28,818,690 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2002 Program) | (75,970,080 | ) | ||||||||||||||
Balance at the end of the year | 1,183,046,764 | 1,256,297,678 | 1,281,717,499 | (6 | ) | |||||||||||
Treasury shares
Number of shares | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Balance at the beginning of the year | 97,181,094 | 41,254,951 | 55,265,349 | 136 | ||||||||||||
Acquisitions | 116,080,976 | 110,710,741 | 162,818,045 | 5 | ||||||||||||
Disposals | (25,931,298 | ) | (25,965,908 | ) | (121,563,094 | ) | 0 | |||||||||
Cancellation of second trading line treasury shares (2000 Program) | (55,265,349 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2001 Program) | (28,818,690 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2002 Program) | (75,970,080 | ) | ||||||||||||||
Balance at the end of the year | 111,360,692 | 97,181,094 | 41,254,951 | 15 | ||||||||||||
During the year a total of 75,970,080 shares acquired under the second trading line buyback program 2002 were cancelled. At 31 December 2003, a maximum of 6,871,752 shares can be issued against the exercise of options from former PaineWebber employee option plans. These shares are shown as conditional share capital in the UBS AG (Parent Bank) disclosure. Out of the total number of 111,360,692 treasury
shares, 56,707,000 shares (CHF 4,266 million) were acquired under the second trading line buyback program 2003 and are earmarked for cancellation. The Board of Directors will propose to the Annual General Meeting on 15 April 2004 to reduce the outstanding number of shares and the share capital by the number of shares purchased for cancellation. All issued shares are fully paid.
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Financial Statements
Financial Statements
UBS Statement of Cash Flows
CHF million | ||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Cash flow from / (used in) operating activities | ||||||||||||
Net profit | 6,385 | 3,535 | 4,973 | |||||||||
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 | 1,364 | 1,521 | 1,614 | |||||||||
Amortization of goodwill and other intangible assets | 943 | 2,460 | 1,323 | |||||||||
Credit loss expense / (recovery) | 116 | 206 | 498 | |||||||||
Equity in income of associates | (123 | ) | (7 | ) | (72 | ) | ||||||
Deferred tax expense / (benefit) | 514 | (509 | ) | 292 | ||||||||
Net loss / (gain) from investing activities | (63 | ) | 986 | 513 | ||||||||
Net (increase) / decrease in operating assets: | ||||||||||||
Net due from / to banks | 42,921 | (22,382 | ) | 27,306 | ||||||||
Reverse repurchase agreements and cash collateral on securities borrowed | (101,381 | ) | (944 | ) | (60,536 | ) | ||||||
Trading portfolio and net replacement values | (52,264 | ) | 21,967 | (78,456 | ) | |||||||
Loans / due to customers | 38,594 | (11,537 | ) | 42,813 | ||||||||
Accrued income, prepaid expenses and other assets | (16,100 | ) | 2,875 | (424 | ) | |||||||
Net increase / (decrease) in operating liabilities: | ||||||||||||
Repurchase agreements and cash collateral on securities lent | 65,413 | 4,791 | 80,006 | |||||||||
Accrued expenses and other liabilities | 18,188 | (4,754 | ) | (5,235 | ) | |||||||
Income taxes paid | (1,104 | ) | (572 | ) | (1,742 | ) | ||||||
Net cash flow from / (used in) operating activities | 3,403 | (2,364 | ) | 12,873 | ||||||||
Cash flow from / (used in) investing activities | ||||||||||||
Investments in subsidiaries and associates | (428 | ) | (60 | ) | (467 | ) | ||||||
Disposal of subsidiaries and associates | 834 | 984 | 95 | |||||||||
Purchase of property and equipment | (1,376 | ) | (1,763 | ) | (2,021 | ) | ||||||
Disposal of property and equipment | 123 | 67 | 380 | |||||||||
Net (investment in) / divestment of financial investments | 2,317 | 2,153 | (5,770 | ) | ||||||||
Net cash flow from / (used in) investing activities | 1,470 | 1,381 | (7,783 | ) | ||||||||
Cash flow from / (used in) financing activities | ||||||||||||
Net money market paper issued / (repaid) | (14,737 | ) | (26,206 | ) | 24,226 | |||||||
Net movements in treasury shares and treasury share contract activity | (6,810 | ) | (5,605 | ) | (6,038 | ) | ||||||
Capital issuance | 2 | 6 | 12 | |||||||||
Capital repayment by par value reduction | 0 | (2,509 | ) | (683 | ) | |||||||
Dividends paid | (2,298 | ) | ||||||||||
Issuance of long-term debt | 23,644 | 17,132 | 18,233 | |||||||||
Repayment of long-term debt | (13,615 | ) | (14,911 | ) | (18,477 | ) | ||||||
Increase in minority interests1 | 755 | 0 | 1,291 | |||||||||
Dividend payments to / and purchase from minority interests | (278 | ) | (377 | ) | (461 | ) | ||||||
Net cash flow from / (used in) financing activities | (13,337 | ) | (32,470 | ) | 18,103 | |||||||
Effects of exchange rate differences | (524 | ) | (462 | ) | (304 | ) | ||||||
Net increase / (decrease) in cash and cash equivalents | (8,988 | ) | (33,915 | ) | 22,889 | |||||||
Cash and cash equivalents, beginning of the year | 82,344 | 116,259 | 93,370 | |||||||||
Cash and cash equivalents, end of the year | 73,356 | 82,344 | 116,259 | |||||||||
Cash and cash equivalents comprise: | ||||||||||||
Cash and balances with central banks | 3,584 | 4,271 | 20,990 | |||||||||
Money market paper2 | 40,599 | 46,183 | 69,938 | |||||||||
Due from banks maturing in less than three months | 29,173 | 31,890 | 25,331 | |||||||||
Total | 73,356 | 82,344 | 116,259 | |||||||||
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UBS Statement of Cash Flows (continued)
Significant non-cash investing and financing activities
CHF million | ||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Hyposwiss, Zurich, deconsolidation | ||||||||||||
Financial investments | 0 | 53 | 0 | |||||||||
Property and equipment | 0 | 18 | 0 | |||||||||
Debt issued | 0 | 63 | 0 | |||||||||
Hirslanden Holding AG, Zurich, deconsolidation | ||||||||||||
Financial investments | 0 | 3 | 0 | |||||||||
Property and equipment | 0 | 718 | 0 | |||||||||
Goodwill and other intangible assets | 0 | 15 | 0 | |||||||||
Consolidation of special purpose entities | ||||||||||||
Debt issued | 0 | 2,322 | 0 | |||||||||
Provisions for reinstatement costs | ||||||||||||
Property and equipment | 137 | 0 | 0 | |||||||||
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Financial Statements
Notes to the Financial Statements
Notes to the Financial Statements
a) Basis of accounting
b) Use of estimates in the preparation of Financial Statements
c) Consolidation
and held with a view to their subsequent disposal, are recorded as Financial investments.
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the asset are passed through to an independent third party. These transactions do not affect the consolidation status of an entity.
d) Foreign currency translation
e) Segment reporting
f) Cash and cash equivalents
g) Fee income
h) Securities borrowing and lending
i) Repurchase and reverse repurchase transactions
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Financial Statements
Notes to the Financial Statements
ized financing transactions. In reverse repurchase agreements, the cash advanced, including accrued interest, is recognized on the balance sheet as Reverse repurchase agreements. In repurchase agreements, the cash received, including accrued interest, is recognized on the balance sheet as Repurchase agreements.
j) Trading portfolio
arising from revaluing that contract to fair value in the income statement. Subsequent to the trade date, when the transaction is consummated (settlement date) a resulting financial asset or liability is recognized on the balance sheet at the fair value of the consideration given or received plus or minus the change in fair value of the contract since the trade date. When the Group becomes party to a sales contract of a financial asset classified in its trading portfolio, it derecognizes the asset on the day of its transfer.
k) Loans originated by the Group
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l) Allowance and provision for credit losses
result in a change in the allowance for credit losses and be charged or credited to credit loss expense.
m) Securitizations
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Financial Statements
Notes to the Financial Statements
tions which may include credit losses, discount rates, yield curves and other factors.
n) Financial investments
reported in Other income. A financial investment is considered impaired if its cost exceeds the recoverable amount. For non-quoted equity investments, the recoverable amount is determined by applying recognized valuation techniques. The standard method applied 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 judgement. For quoted financial investments, the recoverable amount is determined by reference to the market price. They are considered impaired if objective evidence indicates that the decline in market price has reached such a level that recovery of the cost value cannot be reasonably expected within the foreseeable future.
o) Property and equipment
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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 | |
p) Goodwill and other intangible assets
nomic life, not exceeding 20 years. At each balance sheet date, goodwill and other intangible assets are reviewed for indications of impairment or changes in estimated future benefits. If such indications exist, an analysis is performed to assess whether the carrying amount of goodwill or other intangible assets is fully recoverable. A writedown is made if the carrying amount exceeds the recoverable amount.
q) Income taxes
r) Debt issued
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Financial Statements
Notes to the Financial Statements
ment 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.
s) Treasury shares
t) Retirement benefits
a) | 10% of present value of the defined benefit obligation at that date (before deducting plan assets); and | |
b) | 10% of the fair value of any plan assets at that date. | |
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expected average remaining working lives of the employees participating in the plans.
u) Equity participation plans
v) Derivative instruments and hedging
arising from forecast transactions. The Group applies either fair value or cash flow hedge accounting when transactions meet the specified criteria to obtain hedge accounting treatment.
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Financial Statements
Notes to the Financial Statements
hedged item, which is also recognized in net profit or loss. 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 net profit or loss over the remaining term of the original hedge, while for non-interest bearing instruments that amount is immediately recognized in earnings. If the hedged instrument is derecognized, e.g. is sold or repaid, the unamortized fair value adjustment is recognized immediately in net profit and loss.
the issuance of certain structured debt instruments. If the host contract is not carried at fair value with changes in fair value reported in net profit or loss, the embedded derivative is separated from the host contract and accounted for as a stand-alone derivative instrument at fair value if, and only if: the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract and the embedded derivative actually meets the definition of a derivative.
w) Earnings per Share (EPS)
x) Comparability
Segment Reporting
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prior year amounts have been restated to conform to the current year presentation.
IAS 39, Recognition and Measurement of Financial Instruments
y) Recently issued International Financial Reporting Standards
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Financial Statements
Notes to the Financial Statements
recognition related to guarantees, and the effect from restating prior periods is insignificant.
IASB Improvements Project
IFRS 2 Share-based Payment
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ing for share-based payments. When share-based payments are made to employees, for example through awards of shares or share options, the fair value of these awards measured at the date of grant must be recognized as compensation expense. The new standard is effective for financial years beginning on or after 1 January 2005 and applies to equity-settled awards granted after 7 November 2002 that have not vested at 1 January 2005 and to liabilities arising from share-based awards that exist at the effective date. Comparative prior periods need to be restated and the opening balance of retained earnings at 1 January 2003 has to be adjusted. UBS discloses the compensation expense attributable to share-based awards in Note 32, but the amounts disclosed are based on the requirements under US generally accepted accounting principles, which may differ from IFRS 2. UBS is currently evaluating the impact the new standard will have on its financial statements.
z) Accounting changes effective in 2004
– | to credit (increase) retained earnings as of 1 January 2002 by CHF 202 million, net of |
taxes of CHF 64 million, for the then existing difference between book value and fair value of the investment property portfolio; | ||
– | to reduce net profit for 2003 by CHF 64 million; and | |
– | to reduce net profit for 2002 by CHF 117 million. |
Credit risk losses incurred on OTC derivatives
Change in treatment of corporate client assets
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Financial Statements
Notes to the Financial Statements
Based on our integrated business model, UBS is organized into the four Business Groups: Wealth Management & Business Banking, Global Asset Management, Investment Bank and Wealth Management USA, and our Corporate Center.
Wealth Management & Business Banking
Global Asset Management
Investment Bank
plete access to the world’s capital markets for intermediaries, governments, corporate and institutional clients and other parts of UBS.
Wealth Management USA
Corporate Center
Credit Loss Expense
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Business Group performance based on an adjusted measure of credit loss which varies with the current portfolio composition and recent loss experience.
b) Expected Credit Loss
– | the probability that the counterparty will default — referred to as probability of default (PD), i.e. the likelihood that a counterparty (or obligor) will not be able to meet its obligations. UBS rates counterparties to determine a counterparty specific PD by means of rating tools tailored to customer segments. Clients are segmented into 15 |
rating classes. We have assigned to each rating class a fixed probability of default except for the two lowest categories which are used to classify clients where a loss event has already occured due to default and impairment. |
– | the current and likely future exposure should default occur, known as Exposure at Default (EAD): this is the amount of exposure to the obligor – the value of the transaction – which we expect to be outstanding at the time when default occurs. | |
– | the likely severity of the loss should default occur, typically described as Loss Given Default (LGD), expressed as a rate per unit of exposure. LGDs are typically differentiated by type of counterparty, claim and seniority, taking into account any available collateral. |
c) Computation of Adjusted Expected Credit Loss
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Financial Statements
Notes to the Financial Statements
Note 2a Segment Reporting by Business Group (continued)
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue sharing agreements are used to allocate external customer revenues to a Business Group on a reasonable basis. Transactions between Business Groups are conducted at arm’s length.
For the year ended 31 December 2003
Wealth | Wealth | |||||||||||||||||||||||
Management & | Global Asset | Investment | Management | Corporate | ||||||||||||||||||||
CHF million | Business Banking | Management | Bank | USA | Center | UBS | ||||||||||||||||||
Income1 | 12,052 | 1,737 | 14,120 | 5,190 | 989 | 34,088 | ||||||||||||||||||
Credit loss (expense) / recovery | (75 | ) | 0 | (40 | ) | (3 | ) | 2 | (116 | ) | ||||||||||||||
Total operating income | 11,977 | 1,737 | 14,080 | 5,187 | 991 | 33,972 | ||||||||||||||||||
Personnel expenses | 4,584 | 816 | 7,357 | 3,712 | 762 | 17,231 | ||||||||||||||||||
General and administrative expenses | 2,116 | 407 | 2,130 | 988 | 445 | 6,086 | ||||||||||||||||||
Depreciation | 384 | 29 | 327 | 151 | 473 | 1,364 | ||||||||||||||||||
Amortization of goodwill and other intangible assets2 | 75 | 153 | 278 | 336 | 101 | 943 | ||||||||||||||||||
Total operating expenses | 7,159 | 1,405 | 10,092 | 5,187 | 1,781 | 25,624 | ||||||||||||||||||
Business Group contribution before tax | 4,818 | 332 | 3,988 | 0 | (790 | ) | 8,348 | |||||||||||||||||
Tax expense | 1,618 | |||||||||||||||||||||||
Net profit before minority interests | 6,730 | |||||||||||||||||||||||
Minority interests | (345 | ) | ||||||||||||||||||||||
Net profit | 6,385 | |||||||||||||||||||||||
Additional information3 | ||||||||||||||||||||||||
Total assets | 312,520 | 21,928 | 1,151,750 | 46,837 | (147,035 | ) | 1,386,000 | |||||||||||||||||
Total liabilities and minority interests | 303,382 | 20,917 | 1,138,133 | 41,732 | (153,610 | ) | 1,350,554 | |||||||||||||||||
Capital expenditure | 436 | 17 | 424 | 68 | 436 | 1,381 | ||||||||||||||||||
For internal management reporting purposes we measure credit loss expense using an expected loss concept. The table below shows Business Group performance consistent with the way in which our businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the average annual costs that are expected to arise from positions in the current portfolio that become impaired in the future. The Adjusted expected credit loss reported for each Business Group is the Expected credit loss on its portfolio, plus the difference between Credit loss expense and Expected credit loss, amortized over a three year period. The difference between these Adjusted expected credit loss figures and the Credit loss expense recorded at Group level for financial reporting purposes is reported in the Corporate Center.
Wealth | Wealth | |||||||||||||||||||||||
Management & | Global Asset | Investment | Management | Corporate | ||||||||||||||||||||
CHF million | Business Banking | Management | Bank | USA | Center | UBS | ||||||||||||||||||
Income1 | 12,052 | 1,737 | 14,120 | 5,190 | 989 | 34,088 | ||||||||||||||||||
Expected credit loss | (542 | ) | 0 | (94 | ) | (8 | ) | 528 | (116 | ) | ||||||||||||||
Deferral | 411 | 0 | (45 | ) | 0 | (366 | ) | 0 | ||||||||||||||||
Adjusted expected credit loss | (131 | ) | 0 | (139 | ) | (8 | ) | 162 | (116 | ) | ||||||||||||||
Total operating income | 11,921 | 1,737 | 13,981 | 5,182 | 1,151 | 33,972 | ||||||||||||||||||
Personnel expenses | 4,584 | 816 | 7,357 | 3,712 | 762 | 17,231 | ||||||||||||||||||
General and administrative expenses | 2,116 | 407 | 2,130 | 988 | 445 | 6,086 | ||||||||||||||||||
Depreciation | 384 | 29 | 327 | 151 | 473 | 1,364 | ||||||||||||||||||
Amortization of goodwill and other intangible assets2 | 75 | 153 | 278 | 336 | 101 | 943 | ||||||||||||||||||
Total operating expenses | 7,159 | 1,405 | 10,092 | 5,187 | 1,781 | 25,624 | ||||||||||||||||||
Business Group performance before tax | 4,762 | 332 | 3,889 | (5 | ) | (630 | ) | 8,348 | ||||||||||||||||
Tax expense | 1,618 | |||||||||||||||||||||||
Net profit before minority interests | 6,730 | |||||||||||||||||||||||
Minority interests | (345 | ) | ||||||||||||||||||||||
Net profit | 6,385 | |||||||||||||||||||||||
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For the year ended 31 December 2002
Wealth | Wealth | |||||||||||||||||||||||
Management & | Global Asset | Investment | Management | Corporate | ||||||||||||||||||||
CHF million | Business Banking | Management | Bank | USA | Center | UBS | ||||||||||||||||||
Income1 | 12,184 | 1,655 | 12,498 | 5,561 | 2,429 | 34,327 | ||||||||||||||||||
Credit loss (expense) / recovery | (238 | ) | 0 | 35 | (15 | ) | 12 | (206 | ) | |||||||||||||||
Total operating income | 11,946 | 1,655 | 12,533 | 5,546 | 2,441 | 34,121 | ||||||||||||||||||
Personnel expenses | 4,596 | 774 | 7,878 | 4,245 | 1,031 | 18,524 | ||||||||||||||||||
General and administrative expenses | 2,251 | 447 | 2,378 | 1,263 | 733 | 7,072 | ||||||||||||||||||
Depreciation | 448 | 29 | 382 | 149 | 513 | 1,521 | ||||||||||||||||||
Amortization of goodwill and other intangible assets2 | 97 | 186 | 364 | 1,691 | 122 | 2,460 | ||||||||||||||||||
Total operating expenses | 7,392 | 1,436 | 11,002 | 7,348 | 2,399 | 29,577 | ||||||||||||||||||
Business Group contribution before tax | 4,554 | 219 | 1,531 | (1,802 | ) | 42 | 4,544 | |||||||||||||||||
Tax expense | 678 | |||||||||||||||||||||||
Net profit before minority interests | 3,866 | |||||||||||||||||||||||
Minority interests | (331 | ) | ||||||||||||||||||||||
Net profit | 3,535 | |||||||||||||||||||||||
Additional information3 | ||||||||||||||||||||||||
Total assets | 310,722 | 4,428 | 933,962 | 39,610 | (107,604 | ) | 1,181,118 | |||||||||||||||||
Total liabilities and minority interests | 302,272 | 2,937 | 921,446 | 33,225 | (117,753 | ) | 1,142,127 | |||||||||||||||||
Capital expenditure | 380 | 20 | 473 | 185 | 705 | 1,763 | ||||||||||||||||||
For internal management reporting purposes we measure credit loss expense using an expected loss concept. The table below shows Business Group performance consistent with the way in which our businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the average annual costs that are expected to arise from positions in the current portfolio that become impaired in the future. The Adjusted expected credit loss reported for each Business Group is the Expected credit loss on its portfolio, plus the difference between Credit loss expense and Expected credit loss, amortized over a three year period. The difference between these Adjusted expected credit loss figures and the Credit loss expense recorded at Group level for financial reporting purposes is reported in the Corporate Center.
Wealth | Wealth | |||||||||||||||||||||||
Management & | Global Asset | Investment | Management | Corporate | ||||||||||||||||||||
CHF million | Business Banking | Management | Bank | USA | Center | UBS | ||||||||||||||||||
Income1 | 12,184 | 1,655 | 12,498 | 5,561 | 2,429 | 34,327 | ||||||||||||||||||
Expected credit loss | (567 | ) | 0 | (126 | ) | (13 | ) | 500 | (206 | ) | ||||||||||||||
Deferral | 255 | 0 | (2 | ) | 0 | (253 | ) | 0 | ||||||||||||||||
Adjusted expected credit loss | (312 | ) | 0 | (128 | ) | (13 | ) | 247 | (206 | ) | ||||||||||||||
Total operating income | 11,872 | 1,655 | 12,370 | 5,548 | 2,676 | 34,121 | ||||||||||||||||||
Personnel expenses | 4,596 | 774 | 7,878 | 4,245 | 1,031 | 18,524 | ||||||||||||||||||
General and administrative expenses | 2,251 | 447 | 2,378 | 1,263 | 733 | 7,072 | ||||||||||||||||||
Depreciation | 448 | 29 | 382 | 149 | 513 | 1,521 | ||||||||||||||||||
Amortization of goodwill and other intangible assets2 | 97 | 186 | 364 | 1,691 | 122 | 2,460 | ||||||||||||||||||
Total operating expenses | 7,392 | 1,436 | 11,002 | 7,348 | 2,399 | 29,577 | ||||||||||||||||||
Business Group performance before tax | 4,480 | 219 | 1,368 | (1,800 | ) | 277 | 4,544 | |||||||||||||||||
Tax expense | 678 | |||||||||||||||||||||||
Net profit before minority interests | 3,866 | |||||||||||||||||||||||
Minority interests | (331 | ) | ||||||||||||||||||||||
Net profit | 3,535 | |||||||||||||||||||||||
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Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2001
Wealth | Wealth | |||||||||||||||||||||||
Management & | Global Asset | Investment | Management | Corporate | ||||||||||||||||||||
CHF million | Business Banking | Management | Bank | USA | Center | UBS | ||||||||||||||||||
Income1 | 12,782 | 1,963 | 14,715 | 6,391 | 1,761 | 37,612 | ||||||||||||||||||
Credit loss (expense) / recovery | (124 | ) | 0 | (360 | ) | (15 | ) | 1 | (498 | ) | ||||||||||||||
Total operating income | 12,658 | 1,963 | 14,355 | 6,376 | 1,762 | 37,114 | ||||||||||||||||||
Personnel expenses | 4,558 | 886 | 8,354 | 5,019 | 1,011 | 19,828 | ||||||||||||||||||
General and administrative expenses | 2,319 | 498 | 2,650 | 1,441 | 723 | 7,631 | ||||||||||||||||||
Depreciation | 568 | 38 | 456 | 124 | 428 | 1,614 | ||||||||||||||||||
Amortization of goodwill and other intangible assets2 | 100 | 196 | 402 | 502 | 123 | 1,323 | ||||||||||||||||||
Total operating expenses | 7,545 | 1,618 | 11,862 | 7,086 | 2,285 | 30,396 | ||||||||||||||||||
Business Group contribution before tax | 5,113 | 345 | 2,493 | (710 | ) | (523 | ) | 6,718 | ||||||||||||||||
Tax expense | 1,401 | |||||||||||||||||||||||
Net profit before minority interests | 5,317 | |||||||||||||||||||||||
Minority interests | (344 | ) | ||||||||||||||||||||||
Net profit | 4,973 | |||||||||||||||||||||||
Additional information3 | ||||||||||||||||||||||||
Total assets | 313,800 | 6,335 | 1,005,397 | 39,747 | (111,982 | ) | 1,253,297 | |||||||||||||||||
Total liabilities and minority interests | 304,988 | 4,367 | 992,272 | 31,556 | (123,416 | ) | 1,209,767 | |||||||||||||||||
Capital expenditure | 540 | 37 | 337 | 296 | 811 | 2,021 | ||||||||||||||||||
For internal management reporting purposes we measure credit loss expense using an expected loss concept. The table below shows Business Group performance consistent with the way in which our businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the average annual costs that are expected to arise from positions in the current portfolio that become impaired in the future. The Adjusted expected credit loss reported for each Business Group is the Expected credit loss on its portfolio, plus the difference between credit loss expense and Expected credit loss, amortized over a three year period. The difference between these Adjusted expected credit loss figures and the Credit loss expense recorded at Group level for financial reporting purposes is reported in the Corporate Center.
Wealth | Wealth | |||||||||||||||||||||||
Management & | Global Asset | Investment | Management | Corporate | ||||||||||||||||||||
CHF million | Business Banking | Management | Bank | USA | Center | UBS | ||||||||||||||||||
Income1 | 12,782 | 1,963 | 14,715 | 6,391 | 1,761 | 37,612 | ||||||||||||||||||
Expected credit loss | (719 | ) | 0 | (150 | ) | (18 | ) | 389 | (498 | ) | ||||||||||||||
Deferral | 118 | 0 | 38 | 0 | (156 | ) | 0 | |||||||||||||||||
Adjusted expected credit loss | (601 | ) | 0 | (112 | ) | (18 | ) | 233 | (498 | ) | ||||||||||||||
Total operating income | 12,181 | 1,963 | 14,603 | 6,373 | 1,994 | 37,114 | ||||||||||||||||||
Personnel expenses | 4,558 | 886 | 8,354 | 5,019 | 1,011 | 19,828 | ||||||||||||||||||
General and administrative expenses | 2,319 | 498 | 2,650 | 1,441 | 723 | 7,631 | ||||||||||||||||||
Depreciation | 568 | 38 | 456 | 124 | 428 | 1,614 | ||||||||||||||||||
Amortization of goodwill and other intangible assets2 | 100 | 196 | 402 | 502 | 123 | 1,323 | ||||||||||||||||||
Total operating expenses | 7,545 | 1,618 | 11,862 | 7,086 | 2,285 | 30,396 | ||||||||||||||||||
Business Group performance before tax | 4,636 | 345 | 2,741 | (713 | ) | (291 | ) | 6,718 | ||||||||||||||||
Tax expense | 1,401 | |||||||||||||||||||||||
Net profit before minority interests | 5,317 | |||||||||||||||||||||||
Minority interests | (344 | ) | ||||||||||||||||||||||
Net profit | 4,973 | |||||||||||||||||||||||
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The geographic analysis of total assets is based on customer domicile whereas operating income and capital expenditure is based on the location of the office in which the transactions and assets are recorded. Because of the global nature of financial markets the Group’s business is managed on an integrated basis worldwide, with a view to profitability by product line. The geo-
graphic analysis of operating income, total assets, and capital expenditure is provided in order to comply with IFRS, and does not reflect the way the Group is managed. Management believes that analysis by Business Group, as shown in Note 2a to these Financial Statements, is a more meaningful representation of the way in which the Group is managed.
For the year ended 31 December 2003
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 13,278 | 39 | 180,629 | 13 | 689 | 50 | ||||||||||||||||||
Rest of Europe / Africa / Middle East | 6,057 | 18 | 430,901 | 31 | 247 | 18 | ||||||||||||||||||
Americas | 12,923 | 38 | 688,762 | 50 | 411 | 30 | ||||||||||||||||||
Asia Pacific | 1,714 | 5 | 85,708 | 6 | 34 | 2 | ||||||||||||||||||
Total | 33,972 | 100 | 1,386,000 | 100 | 1,381 | 100 | ||||||||||||||||||
For the year ended 31 December 2002
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 14,307 | 42 | 174,878 | 15 | 885 | 51 | ||||||||||||||||||
Rest of Europe / Africa / Middle East | 6,850 | 20 | 258,147 | 22 | 199 | 11 | ||||||||||||||||||
Americas | 11,055 | 32 | 669,823 | 56 | 635 | 36 | ||||||||||||||||||
Asia Pacific | 1,909 | 6 | 78,270 | 7 | 44 | 2 | ||||||||||||||||||
Total | 34,121 | 100 | 1,181,118 | 100 | 1,763 | 100 | ||||||||||||||||||
For the year ended 31 December 2001
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 14,223 | 38 | 195,321 | 16 | 1,039 | 52 | ||||||||||||||||||
Rest of Europe / Africa / Middle East | 7,445 | 20 | 240,094 | 19 | 304 | 15 | ||||||||||||||||||
Americas | 13,587 | 37 | 691,157 | 55 | 630 | 31 | ||||||||||||||||||
Asia Pacific | 1,859 | 5 | 126,725 | 10 | 48 | 2 | ||||||||||||||||||
Total | 37,114 | 100 | 1,253,297 | 100 | 2,021 | 100 | ||||||||||||||||||
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Financial Statements
Notes to the Financial Statements
Income Statement
Accounting standards require separate disclosure of net interest income and net trading income (see the tables on the following page). This required disclosure, however, does not take into account that net interest and trading income are generated by a range of different business activities. In many cases, a particular business activity can generate both net interest and trading income. Fixed income trading activity, for example, generates both trading profits and coupon income. UBS management therefore analyzes net interest
and trading income according to the business activity generating it. The table below provides information that corresponds to this management view. For example, net income from trading activities is further broken down into the four sub-components of Equities, Fixed income, Foreign exchange and Other. These activities generate both types of income (interest and trading revenue) and therefore this analysis is not comparable to the breakdown provided in the third table on the next page (Net trading income only).
Net Interest and Trading Income
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Net interest income | 12,299 | 10,546 | 8,041 | 17 | ||||||||||||
Net trading income | 3,883 | 5,572 | 8,802 | (30 | ) | |||||||||||
Total net interest and trading income | 16,182 | 16,118 | 16,843 | 0 | ||||||||||||
Breakdown by business activity
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Net income from interest margin products | 5,077 | 5,275 | 5,694 | (4 | ) | |||||||||||
Equities | 2,464 | 2,794 | 3,661 | (12 | ) | |||||||||||
Fixed Income | 6,530 | 6,041 | 6,294 | 8 | ||||||||||||
Foreign Exchange | 1,501 | 1,500 | 1,490 | 0 | ||||||||||||
Other | 315 | 270 | 84 | 17 | ||||||||||||
Net income from trading activities | 10,810 | 10,605 | 11,529 | 2 | ||||||||||||
Net income from treasury activities | 1,415 | 1,667 | 1,424 | (15 | ) | |||||||||||
Other1 | (1,120 | ) | (1,429 | ) | (1,804 | ) | 22 | |||||||||
Total net interest and trading income | 16,182 | 16,118 | 16,843 | 0 | ||||||||||||
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Note 3 Net Interest and Trading Income (continued)
Net interest Income1
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Interest income | ||||||||||||||||
Interest earned on loans and advances | 10,542 | 11,600 | 16,955 | (9 | ) | |||||||||||
Interest earned on securities borrowed and reverse repurchase agreements | 11,148 | 11,184 | 18,337 | 0 | ||||||||||||
Interest and dividend income from financial investments | 75 | 165 | 453 | (55 | ) | |||||||||||
Interest and dividend income from trading portfolio | 18,394 | 17,014 | 16,532 | 8 | ||||||||||||
Total | 40,159 | 39,963 | 52,277 | 0 | ||||||||||||
Interest expense | ||||||||||||||||
Interest on amounts due to banks and customers | 5,093 | 6,383 | 14,088 | (20 | ) | |||||||||||
Interest on securities lent and repurchase agreements | 9,623 | 10,081 | 14,517 | (5 | ) | |||||||||||
Interest and dividend expense from trading portfolio | 10,101 | 8,366 | 7,815 | 21 | ||||||||||||
Interest on debt issued | 3,043 | 4,587 | 7,816 | (34 | ) | |||||||||||
Total | 27,860 | 29,417 | 44,236 | (5 | ) | |||||||||||
Net interest income | 12,299 | 10,546 | 8,041 | 17 | ||||||||||||
Net trading income1
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Equities | 1,679 | 2,638 | 4,026 | (36 | ) | |||||||||||
Fixed income2 | 452 | 1,061 | 2,731 | (57 | ) | |||||||||||
Foreign exchange and other | 1,752 | 1,873 | 2,045 | (6 | ) | |||||||||||
Net trading income | 3,883 | 5,572 | 8,802 | (30 | ) | |||||||||||
Note 4 Net Fee and Commission Income
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Underwriting fees | 2,354 | 2,134 | 2,158 | 10 | ||||||||||||
Corporate finance fees | 761 | 848 | 1,339 | (10 | ) | |||||||||||
Brokerage fees | 5,608 | 5,987 | 6,445 | (6 | ) | |||||||||||
Investment fund fees | 3,895 | 4,033 | 4,276 | (3 | ) | |||||||||||
Fiduciary fees | 241 | 300 | 355 | (20 | ) | |||||||||||
Custodian fees | 1,201 | 1,302 | 1,356 | (8 | ) | |||||||||||
Portfolio and other management and advisory fees | 3,855 | 4,065 | 4,650 | (5 | ) | |||||||||||
Insurance-related and other fees | 355 | 417 | 538 | (15 | ) | |||||||||||
Total securities trading and investment activity fees | 18,270 | 19,086 | 21,117 | (4 | ) | |||||||||||
Credit-related fees and commissions | 249 | 275 | 307 | (9 | ) | |||||||||||
Commission income from other services | 1,087 | 1,006 | 946 | 8 | ||||||||||||
Total fee and commission income | 19,606 | 20,367 | 22,370 | (4 | ) | |||||||||||
Brokerage fees paid | 1,483 | 1,349 | 1,281 | 10 | ||||||||||||
Other | 778 | 797 | 878 | (2 | ) | |||||||||||
Total fee and commission expense | 2,261 | 2,146 | 2,159 | 5 | ||||||||||||
Net fee and commission income | 17,345 | 18,221 | 20,211 | (5 | ) | |||||||||||
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Financial Statements
Notes to the Financial Statements
Note 5 Other Income
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Gains / losses from disposal of associates and subsidiaries | ||||||||||||||||
Net gain from disposal of: | ||||||||||||||||
Consolidated subsidiaries | 160 | 228 | 3 | (30 | ) | |||||||||||
Investments in associates | 2 | 0 | 0 | |||||||||||||
Total | 162 | 228 | 3 | (29 | ) | |||||||||||
Financial investments available for sale | ||||||||||||||||
Net gain from disposal of: | ||||||||||||||||
Private equity investments | 352 | 273 | 454 | 29 | ||||||||||||
Other financial investments | 90 | 457 | 256 | (80 | ) | |||||||||||
Impairment charges on private equity investments and other financial investments | (541 | ) | (1,944 | ) | (1,294 | ) | 72 | |||||||||
Total | (99 | ) | (1,214 | ) | (584 | ) | 92 | |||||||||
Net income from investments in property | 75 | 90 | 68 | (17 | ) | |||||||||||
Equity in income of associates | 123 | 7 | 72 | |||||||||||||
Other | 300 | 877 | 999 | (66 | ) | |||||||||||
Total other income | 561 | (12 | ) | 558 | ||||||||||||
Note 6 Personnel Expenses
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Salaries and bonuses | 13,478 | 14,219 | 15,238 | (5 | ) | |||||||||||
Contractors | 539 | 579 | 729 | (7 | ) | |||||||||||
Insurance and social contributions | 923 | 939 | 984 | (2 | ) | |||||||||||
Contribution to retirement plans | 721 | 676 | 603 | 7 | ||||||||||||
Other personnel expenses | 1,570 | 2,111 | 2,274 | (26 | ) | |||||||||||
Total personnel expenses | 17,231 | 18,524 | 19,828 | (7 | ) | |||||||||||
Note 7 General and Administrative Expenses
CHF million | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Occupancy | 1,304 | 1,354 | 1,314 | (4 | ) | |||||||||||
Rent and maintenance of machines and equipment | 708 | 665 | 632 | 6 | ||||||||||||
Telecommunications and postage | 864 | 1,019 | 1,213 | (15 | ) | |||||||||||
Administration | 599 | 819 | 906 | (27 | ) | |||||||||||
Marketing and public relations | 398 | 453 | 574 | (12 | ) | |||||||||||
Travel and entertainment | 526 | 600 | 700 | (12 | ) | |||||||||||
Professional fees | 589 | 568 | 667 | 4 | ||||||||||||
IT and other outsourcing | 844 | 1,036 | 1,224 | (19 | ) | |||||||||||
Other | 254 | 558 | 401 | (54 | ) | |||||||||||
Total general and administrative expenses | 6,086 | 7,072 | 7,631 | (14 | ) | |||||||||||
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Note 8 Earnings per Share (EPS) and Shares Outstanding
% change from | ||||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Basic Earnings (CHF million) | ||||||||||||||||
Net profit | 6,385 | 3,535 | 4,973 | 81 | ||||||||||||
Diluted Earnings (CHF million) | ||||||||||||||||
Net profit | 6,385 | 3,535 | 4,973 | 81 | ||||||||||||
Less: profit on own equity derivative contracts deemed dilutive | 1 | (20 | ) | (99 | ) | |||||||||||
Net profit for diluted EPS | 6,386 | 3,515 | 4,874 | 82 | ||||||||||||
Weighted average shares outstanding | ||||||||||||||||
Weighted average shares outstanding | 1,116,953,623 | 1,208,586,678 | 1,266,038,193 | (8 | ) | |||||||||||
Potentially dilutive ordinary shares resulting from options and warrants outstanding1 | 21,847,002 | 14,796,264 | 22,539,745 | 48 | ||||||||||||
Weighted average shares outstanding for diluted EPS | 1,138,800,625 | 1,223,382,942 | 1,288,577,938 | (7 | ) | |||||||||||
Earnings per share (CHF) | ||||||||||||||||
Basic EPS | 5.72 | 2.92 | 3.93 | 96 | ||||||||||||
Diluted EPS | 5.61 | 2.87 | 3.78 | 95 | ||||||||||||
Shares outstanding | % change from | |||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Total ordinary shares issued | 1,183,046,764 | 1,256,297,678 | 1,281,717,499 | (6 | ) | |||||||||||
Second trading line treasury shares | ||||||||||||||||
2001 program | 23,064,356 | |||||||||||||||
2002 first program | 67,700,000 | |||||||||||||||
2002 second program | 6,335,080 | |||||||||||||||
2003 program | 56,707,000 | |||||||||||||||
Other treasury shares | 54,653,692 | 23,146,014 | 18,190,595 | 136 | ||||||||||||
Total treasury shares | 111,360,692 | 97,181,094 | 41,254,951 | 15 | ||||||||||||
Shares outstanding | 1,071,686,072 | 1,159,116,584 | 1,240,462,548 | (8 | ) | |||||||||||
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Financial Statements
Notes to the Financial Statements
Balance Sheet: Assets
Note 9a Due from Banks and Loans
By type of exposure
CHF million | 31.12.03 | 31.12.02 | ||||||
Banks | 32,024 | 32,911 | ||||||
Allowance for credit losses | (357 | ) | (443 | ) | ||||
Net due from banks | 31,667 | 32,468 | ||||||
Loans | ||||||||
Residential mortgages | 110,239 | 108,779 | ||||||
Commercial mortgages | 18,903 | 19,090 | ||||||
Other loans | 87,041 | 88,590 | ||||||
Subtotal | 216,183 | 216,459 | ||||||
Allowance for credit losses | (3,679 | ) | (4,812 | ) | ||||
Net loans | 212,504 | 211,647 | ||||||
Net due from banks and loans | 244,171 | 244,115 | ||||||
thereof subordinated | 23 | 115 | ||||||
By geographic region (based on the location of the borrower) | ||||||||
CHF million | 31.12.03 | 31.12.02 | ||||||
Switzerland | 152,374 | 151,604 | ||||||
Rest of Europe / Africa / Middle East | 43,842 | 39,352 | ||||||
Americas | 42,653 | 48,412 | ||||||
Asia Pacific | 9,338 | 10,002 | ||||||
Subtotal | 248,207 | 249,370 | ||||||
Allowance for credit losses | (4,036 | ) | (5,255 | ) | ||||
Net due from banks and loans | 244,171 | 244,115 | ||||||
By type of collateral | ||||||||
CHF million | 31.12.03 | 31.12.02 | ||||||
Secured by real estate | 130,740 | 129,525 | ||||||
Collateralized by securities | 28,062 | 26,769 | ||||||
Guarantees and other collateral | 18,507 | 12,398 | ||||||
Unsecured | 70,898 | 80,678 | ||||||
Subtotal | 248,207 | 249,370 | ||||||
Allowance for credit losses | (4,036 | ) | (5,255 | ) | ||||
Net due from banks and loans | 244,171 | 244,115 | ||||||
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Note 9b Allowances and Provisions for Credit Losses
Specific | Country risk | |||||||||||||||
allowances and | allowances and | Total | Total | |||||||||||||
CHF million | provisions | provisions | 31.12.03 | 31.12.02 | ||||||||||||
Balance at the beginning of the year | 4,885 | 736 | 5,621 | 8,218 | ||||||||||||
Write-offs | (1,413 | ) | (23 | ) | (1,436 | ) | (2,536 | ) | ||||||||
Recoveries | 87 | 0 | 87 | 70 | ||||||||||||
Increase / (decrease) in credit loss allowance and provision | 191 | (75 | ) | 116 | 206 | |||||||||||
Foreign currency translation and other adjustments | (28 | ) | (34 | ) | (62 | ) | (337 | ) | ||||||||
Transfers1 | 318 | (318 | ) | 0 | 0 | |||||||||||
Balance at the end of the year | 4,040 | 286 | 4,326 | 5,621 | ||||||||||||
CHF million | 31.12.03 | 31.12.02 | ||||||||||||||
As a reduction of Due from banks | 357 | 443 | ||||||||||||||
As a reduction of Loans | 3,679 | 4,812 | ||||||||||||||
Subtotal | 4,036 | 5,255 | ||||||||||||||
Included in other liabilities related to commitments and contingent liabilities | 290 | 366 | ||||||||||||||
Total allowances and provisions for credit losses | 4,326 | 5,621 | ||||||||||||||
Note 9c Impaired Due from Banks and Loans
CHF million | 31.12.03 | 31.12.02 | ||||||
Total gross impaired due from banks and loans1, 2 | 7,606 | 10,365 | ||||||
Allowance for impaired due from banks | 245 | 291 | ||||||
Allowance for impaired loans | 3,561 | 4,601 | ||||||
Total allowances for credit losses related to impaired due from banks and loans | 3,806 | 4,892 | ||||||
Average total gross impaired due from banks and loans3 | 8,985 | 12,623 | ||||||
CHF million | 31.12.03 | 31.12.02 | ||||||
Total gross impaired due from banks and loans | 7,606 | 10,365 | ||||||
Estimated liquidation proceeds of collateral | 2,465 | 3,531 | ||||||
Net impaired due from banks and loans | 5,141 | 6,834 | ||||||
Specific allowances and provisions | 3,806 | 4,892 | ||||||
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Financial Statements
Notes 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 when the payment of interest, principal or fees is overdue by more than 90 days or – as required by Swiss regulatory guidelines as at 31 December 2003 – when insolvency proceedings have commenced or obligations have been restructured on concessionary terms. Prior year numbers have not been restated.
CHF million | 31.12.03 | 31.12.02 | ||||||
Total gross non-performing due from banks and loans | 4,959 | 6,029 | ||||||
Total allowances for credit losses related to non-performing due from banks and loans | 2,815 | 3,485 | ||||||
Average total gross non-performing due from banks and loans1 | 5,482 | 7,361 | ||||||
CHF million | 31.12.03 | 31.12.02 | ||||||
Non-performing due from banks and loans at the beginning of the year | 6,029 | 8,639 | ||||||
Net additions / (reductions) | 346 | (509 | ) | |||||
Write-offs and disposals | (1,416 | ) | (2,101 | ) | ||||
Non-performing due from banks and loans at the end of the year | 4,959 | 6,029 | ||||||
By type of exposure | ||||||||
CHF million | 31.12.03 | 31.12.02 | ||||||
Banks | 253 | 311 | ||||||
Loans | ||||||||
Mortgages | 1,470 | 1,972 | ||||||
Other | 3,236 | 3,746 | ||||||
Total loans | 4,706 | 5,718 | ||||||
Total non-performing due from banks and loans | 4,959 | 6,029 | ||||||
By geographic region (based on the location of the borrower) | ||||||||
CHF million | 31.12.03 | 31.12.02 | ||||||
Switzerland | 4,012 | 4,609 | ||||||
Rest of Europe / Africa / Middle East | 488 | 621 | ||||||
Americas | 366 | 499 | ||||||
Asia Pacific | 93 | 300 | ||||||
Total non-performing due from banks and loans | 4,959 | 6,029 | ||||||
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Note 10 Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements
The Group enters into collateralized reverse repurchase and repurchase agreements and securities borrowing and securities lending transactions that may result in credit exposure in the event that the counterparty to the transaction is unable to fulfill its contractual obligations. The Group controls credit risk associated with these activities by monitoring counterparty credit exposure and collateral values on a daily basis and requiring additional collateral to be deposited with or returned to the Group when deemed necessary.
Balance sheet assets
Cash collateral | Reverse | Cash collateral | Reverse | |||||||||||||
on securities | repurchase | on securities | repurchase | |||||||||||||
borrowed | agreements | borrowed | agreements | |||||||||||||
CHF million | 31.12.03 | 31.12.03 | 31.12.02 | 31.12.02 | ||||||||||||
By counterparty: | ||||||||||||||||
Banks | 172,783 | 237,212 | 122,764 | 201,269 | ||||||||||||
Customers | 41,149 | 83,375 | 16,288 | 92,817 | ||||||||||||
Total | 213,932 | 320,587 | 139,052 | 294,086 | ||||||||||||
Balance sheet liabilities
Cash collateral | Cash collateral | |||||||||||||||
on securities | Repurchase | on securities | Repurchase | |||||||||||||
lent | agreements | lent | agreements | |||||||||||||
CHF million | 31.12.03 | 31.12.03 | 31.12.02 | 31.12.02 | ||||||||||||
By counterparty: | ||||||||||||||||
Banks | 39,587 | 263,905 | 29,748 | 200,904 | ||||||||||||
Customers | 13,691 | 151,958 | 7,122 | 165,954 | ||||||||||||
Total | 53,278 | 415,863 | 36,870 | 366,858 | ||||||||||||
Under reverse repurchase and securities borrowing arrangements, the Group obtains securities on terms which permit it to repledge or resell the securities to others. Amounts on such terms as at 31 December 2003 and 31 December 2002 were as follows:
CHF million | 31.12.03 | 31.12.02 | ||||||
Securities received under reverse repurchase and /or securities borrowing arrangements which can be repledged or resold | 827,602 | 641,341 | ||||||
thereof repledged /transferred to others in connection with financing activities or to satisfy commitments under short sale transactions | 593,049 | 530,188 | ||||||
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Financial Statements
Notes to the Financial Statements
Note 11 Trading Portfolio
The Group trades money market paper, debt and equity instruments, loans, precious metals and derivatives to meet the financial needs of its customers and to generate revenue. Note 23 provides a description of the various classes of derivatives together with the related notional amounts, while Note 10 provides further details about cash collateral on securities borrowed and lent and repurchase and reverse repurchase agreements.
CHF million | 31.12.03 | 31.12.02 | ||||||
Trading portfolio assets | ||||||||
Money market paper | 40,003 | 45,310 | ||||||
thereof pledged as collateral with central banks | 6,208 | 10,475 | ||||||
Debt instruments | ||||||||
Swiss government and government agencies | 1,011 | 1,140 | ||||||
US Treasury and government agencies | 92,250 | 71,884 | ||||||
Other government agencies | 69,755 | 50,296 | ||||||
Corporate listed | 152,413 | 73,268 | ||||||
Other unlisted | 8,457 | 39,613 | ||||||
Total | 323,886 | 236,201 | ||||||
thereof pledged as collateral | 130,093 | 132,221 | ||||||
thereof can be repledged or resold by the counterparty | 104,402 | 92,460 | ||||||
Equity instruments | ||||||||
Listed | 64,116 | 66,150 | ||||||
Unlisted | 10,507 | 4,841 | ||||||
Total | 74,623 | 70,991 | ||||||
thereof pledged as collateral | 16,426 | 18,614 | ||||||
thereof can be repledged or resold by the counterparty | 16,357 | 17,905 | ||||||
Traded loans | 12,650 | 11,533 | ||||||
Precious metals | 10,610 | 7,401 | ||||||
Total trading portfolio assets | 461,772 | 371,436 | ||||||
Trading portfolio liabilities | ||||||||
Debt instruments | ||||||||
Swiss government and government agencies | 586 | 1,807 | ||||||
US Treasury and government agencies | 52,377 | 38,327 | ||||||
Other government agencies | 38,369 | 19,722 | ||||||
Corporate listed | 13,537 | 14,177 | ||||||
Other unlisted | 10,851 | 8,296 | ||||||
Total | 115,720 | 82,329 | ||||||
Equity instruments | 28,237 | 24,124 | ||||||
Total trading portfolio liabilities | 143,957 | 106,453 | ||||||
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Note 12 Financial Investments (available-for-sale)
CHF million | 31.12.03 | 31.12.02 | ||||||
Money market paper | 596 | 873 | ||||||
Other debt instruments | ||||||||
Listed | 189 | 290 | ||||||
Unlisted | 72 | 885 | ||||||
Total | 261 | 1,175 | ||||||
Equity investments | ||||||||
Listed | 387 | 596 | ||||||
Unlisted | 630 | 1,443 | ||||||
Total | 1,017 | 2,039 | ||||||
Private equity investments | 3,265 | 4,304 | ||||||
Total financial investments | 5,139 | 8,391 | ||||||
thereof eligible for discount at central banks | 196 | 261 | ||||||
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Financial Statements
Notes to the Financial Statements
Note 12 Financial Investments (available-for-sale) (continued)
The following tables show the unrealized gains and losses not recognized in the income statement for the years 2003 and 2002:
Unrealized gains / losses not recognized in the income statement | ||||||||||||||||||||||||
CHF million | Fair value | Gross gains | Gross losses | Net, before tax | Tax effect | Net, after tax | ||||||||||||||||||
31 December 2003 | ||||||||||||||||||||||||
Money market paper | 596 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by the Swiss national government and agencies | 14 | 2 | 0 | 2 | 0 | 2 | ||||||||||||||||||
Debt securities issued by Swiss local governments | 25 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by US Treasury and agencies | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by foreign governments and official institutions | 54 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Corporate debt securities | 156 | 3 | 8 | (5 | ) | 1 | (6 | ) | ||||||||||||||||
Mortgage-backed securities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Other debt securities | 12 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Equity securities | 1,017 | 296 | 7 | 289 | 58 | 231 | ||||||||||||||||||
Private equity investments | 3,265 | 781 | 216 | 565 | 0 | 565 | ||||||||||||||||||
Total | 5,139 | 1,082 | 231 | 851 | 59 | 792 | ||||||||||||||||||
Unrealized gains / losses not recognized in the income statement | ||||||||||||||||||||||||
CHF million | Fair value | Gross gains | Gross losses | Net, before tax | Tax effect | Net, after tax | ||||||||||||||||||
31 December 2002 | ||||||||||||||||||||||||
Money market paper | 873 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by the Swiss national government and agencies | 16 | 1 | 0 | 1 | 0 | 1 | ||||||||||||||||||
Debt securities issued by Swiss local governments | 42 | 2 | 0 | 2 | 0 | 2 | ||||||||||||||||||
Debt securities issued by US Treasury and agencies | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by foreign governments and official institutions | 81 | 1 | 0 | 1 | 0 | 1 | ||||||||||||||||||
Corporate debt securities | 964 | 7 | 0 | 7 | 1 | 6 | ||||||||||||||||||
Mortgage-backed securities | 23 | 1 | 0 | 1 | 0 | 1 | ||||||||||||||||||
Other debt securities | 49 | 1 | 1 | 0 | 0 | 0 | ||||||||||||||||||
Equity securities | 2,039 | 335 | 31 | 304 | 82 | 222 | ||||||||||||||||||
Private equity investments | 4,304 | 966 | 223 | 743 | 30 | 713 | ||||||||||||||||||
Total | 8,391 | 1,314 | 255 | 1,059 | 113 | 946 | ||||||||||||||||||
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Note 12 Financial Investments (available-for-sale) (continued)
The unrealized losses not recognized in the income statement are considered to be temporary on the basis that the investments are intended to be held for a period of time sufficient to recover their cost, and UBS believes that the evidence indicating that the cost of the investments should be recoverable within a reasonable period of time outweighs the evidence to the contrary. This includes the nature of the investments, valuations and research undertaken by UBS, the current outlook for each investment, offers under negotiation at favourable prices, the duration of the unrealized losses, and the relationship of unrealized losses with unrealized gains on other investments.
Fair Value | Unrealized Losses | |||||||||||||||||||||||
Investments | Investments | Investments | Investments | |||||||||||||||||||||
with unrealized | with unrealized | with unrealized | with unrealized | |||||||||||||||||||||
loss less than | loss more than | loss less than | loss more than | |||||||||||||||||||||
CHF million | 12 months | 12 months | Total | 12 months | 12 months | Total | ||||||||||||||||||
31 December 2003 | ||||||||||||||||||||||||
Money market paper | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by the Swiss national government and agencies | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by Swiss local governments | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by US Treasury and agencies | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by foreign governments and official institutions | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Corporate debt securities | 0 | 0 | 0 | 8 | 0 | 8 | ||||||||||||||||||
Mortgage-backed securities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Other debt securities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Equity securities | 6 | 44 | 50 | 3 | 4 | 7 | ||||||||||||||||||
Private equity investments | 98 | 359 | 457 | 86 | 130 | 216 | ||||||||||||||||||
Total | 104 | 403 | 507 | 97 | 134 | 231 | ||||||||||||||||||
Contractual maturities of the investments in debt instruments1
Within 1 year | 1-5 years | 5-10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 2003 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 3 | 6.61 | 4 | 2.92 | 6 | 3.80 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 5 | 3.90 | 20 | 2.01 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 45 | 1.89 | 9 | 1.49 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 81 | 1.09 | 68 | 3.53 | 7 | 7.38 | 0 | 0.00 | ||||||||||||||||||||||||
Mortgage-backed securities | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Other debt securities | 4 | 0.00 | 8 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 138 | 109 | 13 | 1 | ||||||||||||||||||||||||||||
Proceeds from sales and maturities of investment securities available for sale, excluding private equity, were as follows:
CHF million | 31.12.03 | 31.12.02 | ||||||
Proceeds | 1379 | 1,820 | ||||||
Gross realized gains | 112 | 479 | ||||||
Gross realized losses | (23 | ) | (21 | ) | ||||
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Notes to the Financial Statements
Financial Statements
Note 13 Investments in Associates
CHF million | 31.12.03 | 31.12.02 | ||||||
Carrying amount at the beginning of the year | 705 | 697 | ||||||
Additions | 1,232 | 51 | ||||||
Disposals | (285 | )1 | (1 | ) | ||||
Income | 123 | 24 | ||||||
Write-offs | 0 | (17 | ) | |||||
Dividend paid | (30 | ) | (44 | ) | ||||
Foreign currency translation | (129 | ) | (5 | ) | ||||
Carrying amount at the end of the year | 1,616 | 705 | ||||||
Note 14 Property and Equipment
Other | ||||||||||||||||||||||||||||||||
Leasehold | IT, software | machines | ||||||||||||||||||||||||||||||
Own-used | Investment | improve- | and com- | and | Projects in | |||||||||||||||||||||||||||
CHF million | properties | properties | 1 | ments | munication | equipment | progress | 31.12.03 | 31.12.02 | |||||||||||||||||||||||
Historical cost | ||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 9,307 | 560 | 1,312 | 4,105 | 2,432 | 234 | 17,950 | 19,479 | ||||||||||||||||||||||||
Additions | 297 | 5 | 83 | 674 | 120 | 178 | 1,357 | 1,763 | ||||||||||||||||||||||||
Additions from acquired companies | 3 | 0 | 14 | 3 | 4 | 0 | 24 | 0 | ||||||||||||||||||||||||
Disposals / write-offs2 | (118 | ) | (89 | ) | (59 | ) | (720 | ) | (126 | ) | (7 | ) | (1,119 | ) | (2,588 | ) | ||||||||||||||||
Reclassifications | (46 | ) | (257 | ) | 1,257 | 313 | (928 | ) | (125 | ) | 214 | 14 | ||||||||||||||||||||
Foreign currency translation | (35 | ) | (1 | ) | (62 | ) | (134 | ) | (77 | ) | 0 | (309 | ) | (718 | ) | |||||||||||||||||
Balance at the end of the year | 9,408 | 218 | 2,545 | 4,241 | 1,425 | 280 | 18,117 | 17,950 | ||||||||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 4,210 | 211 | 757 | 3,240 | 1,663 | 0 | 10,081 | 10,784 | ||||||||||||||||||||||||
Depreciation | 221 | 14 | 184 | 859 | 86 | 0 | 1,364 | 1,521 | ||||||||||||||||||||||||
Disposals / write-offs2 | (114 | ) | (60 | ) | (50 | ) | (709 | ) | (63 | ) | 0 | (996 | ) | (1,786 | ) | |||||||||||||||||
Reclassifications | 49 | (145 | ) | 715 | 61 | (499 | ) | 4 | 185 | 35 | ||||||||||||||||||||||
Foreign currency translation | (1 | ) | 0 | (36 | ) | (117 | ) | (22 | ) | 0 | (176 | ) | (473 | ) | ||||||||||||||||||
Balance at the end of the year | 4,365 | 20 | 1,570 | 3,334 | 1,165 | 4 | 10,458 | 10,081 | ||||||||||||||||||||||||
Net book value at the end of the year3 | 5,043 | 198 | 975 | 907 | 260 | 276 | 7,659 | 7,869 | ||||||||||||||||||||||||
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Note 15 Goodwill and Other Intangible Assets
Goodwill | Other intangible assets | |||||||||||||||||||||||
Customer | ||||||||||||||||||||||||
relation- | ||||||||||||||||||||||||
Infra- | ships | |||||||||||||||||||||||
CHF million | Total | structure | and other | Total | 31.12.03 | 31.12.02 | ||||||||||||||||||
Historical cost | ||||||||||||||||||||||||
Balance at the beginning of the year | 13,957 | 1,069 | 1,996 | 3,065 | 17,022 | 21,792 | ||||||||||||||||||
Additions and reallocations | 241 | 0 | 99 | 99 | 340 | 290 | ||||||||||||||||||
Disposals and other reductions | (368 | ) | 0 | (3 | ) | (3 | ) | (371 | ) | (115 | ) | |||||||||||||
Write-offs 1 | (508 | ) | 0 | 0 | 0 | (508 | ) | (1,350 | ) | |||||||||||||||
Foreign currency translation | (1,290 | ) | (111 | ) | (177 | ) | (288 | ) | (1,578 | ) | (3,595 | ) | ||||||||||||
Balance at the end of the year | 12,032 | 958 | 1,915 | 2,873 | 14,905 | 17,022 | ||||||||||||||||||
Accumulated amortization | ||||||||||||||||||||||||
Balance at the beginning of the year | 2,776 | 116 | 434 | 550 | 3,326 | 2,707 | ||||||||||||||||||
Amortization | 756 | 52 | 135 | 187 | 943 | 2,460 | ||||||||||||||||||
Disposals | (68 | ) | 0 | (2 | ) | (2 | ) | (70 | ) | (28 | ) | |||||||||||||
Write-offs 1 | (508 | ) | 0 | 0 | 0 | (508 | ) | (1,350 | ) | |||||||||||||||
Foreign currency translation | (272 | ) | (16 | ) | (27 | ) | (43 | ) | (315 | ) | (463 | ) | ||||||||||||
Balance at the end of the year | 2,684 | 152 | 540 | 692 | 3,376 | 3,326 | ||||||||||||||||||
Net book value at the end of the year | 9,348 | 806 | 1,375 | 2,181 | 11,529 | 13,696 | ||||||||||||||||||
The following table presents the disclosure of goodwill and other intangible assets by Business Group for the year ended 31 December 2003.
Balance | Additions | Disposals | ||||||||||||||||||||||
at the | and | and | Foreign | Balance | ||||||||||||||||||||
beginning | reallo- | other | Amorti- | currency | at the end | |||||||||||||||||||
CHF million | of the year | cations | 1 | reductions | zation | translation | of the year | |||||||||||||||||
Goodwill | ||||||||||||||||||||||||
Wealth Management & Business Banking | 1,003 | (10 | ) | (4 | ) | (54 | ) | (98 | ) | 837 | ||||||||||||||
Global Asset Management | 2,185 | (525 | ) | (1 | ) | (152 | ) | (106 | ) | 1,401 | ||||||||||||||
Investment Bank | 3,793 | 218 | (16 | ) | (251 | ) | (372 | ) | 3,372 | |||||||||||||||
Wealth Management USA | 4,199 | (1 | ) | (270 | ) | (220 | ) | (393 | ) | 3,315 | ||||||||||||||
Corporate Center | 1 | 559 | (9 | ) | (79 | ) | (49 | ) | 423 | |||||||||||||||
UBS | 11,181 | 241 | (300 | ) | (756 | ) | (1,018 | ) | 9,348 | |||||||||||||||
Other Intangible Assets | ||||||||||||||||||||||||
Wealth Management & Business Banking | 33 | (8 | ) | 0 | (21 | ) | 0 | 4 | ||||||||||||||||
Global Asset Management | 1 | 0 | 0 | (1 | ) | 0 | 0 | |||||||||||||||||
Investment Bank | 278 | 99 | 0 | (27 | ) | (26 | ) | 324 | ||||||||||||||||
Wealth Management USA | 2,134 | 0 | 0 | (116 | ) | (213 | ) | 1,805 | ||||||||||||||||
Corporate Center | 69 | 8 | (1 | ) | (22 | ) | (6 | ) | 48 | |||||||||||||||
UBS | 2,515 | 99 | (1 | ) | (187 | ) | (245 | ) | 2,181 | |||||||||||||||
For further information about disclosure by Business Group, including the amortization of goodwill and other intangible assets of previous years, please see Note 2a: Segment Reporting by Business Group.
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Financial Statements
Notes to the Financial Statements
Note 15 Goodwill and Other Intangible Assets (continued)
The estimated, aggregated amortization expenses for Goodwill and Other intangible assets are as follows:
Other | ||||||||||||
CHF million | Goodwill | intangible assets | Total | |||||||||
Estimated, aggregated amortization expenses for: | ||||||||||||
2004 | 709 | 162 | 871 | |||||||||
2005 | 704 | 159 | 863 | |||||||||
2006 | 695 | 146 | 841 | |||||||||
2007 | 668 | 139 | 807 | |||||||||
2008 | 588 | 138 | 726 | |||||||||
2009 and thereafter | 5,984 | 1,437 | 7,421 | |||||||||
Total | 9,348 | 2,181 | 11,529 | |||||||||
If the IASB issues in 2004 a final standard following ED3 Business Combinations, as proposed, goodwill amortization will cease as of 1 January 2005.
Note 16 Other Assets
CHF million | Note | 31.12.03 | 31.12.02 | |||||||||
Deferred tax assets | 21 | 2,276 | 2,800 | |||||||||
Settlement and clearing accounts | 2,874 | 1,449 | ||||||||||
VAT and other tax receivables | 338 | 436 | ||||||||||
Prepaid pension costs | 862 | 250 | ||||||||||
Properties held for resale | 754 | 1,071 | ||||||||||
Receivables under life insurance policies | 13,544 | 0 | ||||||||||
Other receivables | 4,811 | 2,946 | ||||||||||
Total other assets | 25,459 | 8,952 | ||||||||||
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Balance Sheet: Liabilities
Note 17 Due to Banks and Customers
CHF million | 31.12.03 | 31.12.02 | ||||||
Due to banks | 127,153 | 83,178 | ||||||
Due to customers in savings and investment accounts | 94,914 | 76,884 | ||||||
Other amounts due to customers | 252,444 | 229,992 | ||||||
Total due to customers | 347,358 | 306,876 | ||||||
Total due to banks and customers | 474,511 | 390,054 | ||||||
Note 18 Debt Issued
The Group issues both CHF and non-CHF denominated fixed and floating rate debt. Floating rate debt generally pays interest based on the three-month or six-month London Interbank Offered Rate (LIBOR).
derivatives embedded in these instruments are separated from the host debt contract and reported as stand-alone derivatives. The amount recorded within Debt Issued represents the host contract after the separation of the embedded derivative. At 31 December 2003 and 31 December 2002, the Group had CHF 427 million and CHF 1,389 million, respectively, in bonds with attached warrants on UBS shares outstanding. At year end 2003 all warrants related to those bonds have expired.
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Financial Statements
Notes to the Financial Statements
Note 18 Debt Issued (continued)
CHF million | 31.12.03 | 31.12.02 | ||||||
Short-term debt: Money market paper issued | 58,115 | 72,800 | ||||||
Long-term debt: | ||||||||
Bonds | ||||||||
Senior | 51,324 | 41,939 | ||||||
Subordinated | 8,014 | 9,933 | ||||||
Shares in bond issues of the Swiss Regional or Cantonal Banks’ Central Bond Institutions | 210 | 517 | ||||||
Medium-term notes | 2,574 | 4,222 | ||||||
Subtotal long-term debt | 62,122 | 56,611 | ||||||
Total debt issued | 120,237 | 129,411 | ||||||
The following table shows the split between fixed and floating rate debt issues based on the contractual terms. However, it should be noted that the Group uses interest rate swaps to hedge many of the fixed rate debt issues which changes their re-pricing characteristics into that of floating rate debt.
Contractual maturity dates | Total | |||||||||||||||||||||||||||||||
CHF million, except where indicated | 2004 | 2005 | 2006 | 2007 | 2008 | 2009-2013 | Thereafter | 31.12.03 | ||||||||||||||||||||||||
UBS AG Parent Bank | ||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||
Fixed rate | 28,981 | 4,299 | 5,958 | 4,419 | 3,702 | 1,446 | 377 | 49,182 | ||||||||||||||||||||||||
Interest rates (range in %) | 0.00-20.00 | 0.00-19.00 | 0.00-16.50 | 0.00-11.00 | 0.00-20.00 | 0.00-13.50 | 0.00-8.50 | |||||||||||||||||||||||||
Floating rate | 65 | 339 | 138 | 179 | 791 | 2,236 | 7,941 | 11,689 | ||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||
Fixed rate | 1,036 | 1,505 | 1,772 | 1,430 | 0 | 525 | 1,199 | 7,467 | ||||||||||||||||||||||||
Interest rates (range in %) | 4.25-7.38 | 4.00-8.75 | 4.25-7.25 | 5.75-8.00 | 5.88 | 0.00-8.75 | ||||||||||||||||||||||||||
Floating rate | 0 | 0 | 0 | 0 | 0 | 0 | 506 | 506 | ||||||||||||||||||||||||
Subtotal | 30,082 | 6,143 | 7,868 | 6,028 | 4,493 | 4,207 | 10,023 | 68,844 | ||||||||||||||||||||||||
Subsidiaries | ||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||
Fixed rate | 35,336 | 535 | 2,377 | 1,237 | 2,712 | 1,135 | 247 | 43,579 | ||||||||||||||||||||||||
Interest rates (range in %) | 0.00-10.00 | 0.00-10.00 | 0.00-10.00 | 0.00-10.00 | 0.00-10.00 | 0.00-35.00 | 0.00-20.00 | |||||||||||||||||||||||||
Floating rate | 199 | 592 | 1,360 | 25 | 236 | 1,689 | 3,672 | 7,773 | ||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||
Fixed rate | 23 | 0 | 0 | 0 | 0 | 0 | 18 | 41 | ||||||||||||||||||||||||
Interest rates (range in %) | 6.90-8.06 | 9.00 | ||||||||||||||||||||||||||||||
Floating rate | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Subtotal | 35,558 | 1,127 | 3,737 | 1,262 | 2,948 | 2,824 | 3,937 | 51,393 | ||||||||||||||||||||||||
Total | 65,640 | 7,270 | 11,605 | 7,290 | 7,441 | 7,031 | 13,960 | 120,237 | ||||||||||||||||||||||||
The table above indicates fixed interest rates coupons ranging from 0 up to 35 percent on the Group’s bonds. These high or low coupons generally relate to structured debt issues prior to the separation of embedded derivatives. As a result, the stated 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.
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Note 19 Other Liabilities
CHF million | Note | 31.12.03 | 31.12.02 | |||||||||
Provisions | 20 | 1,361 | 1,375 | |||||||||
Provision for commitments and contingent liabilities | 9b | 290 | 366 | |||||||||
Current tax liabilities | 1,754 | 2,079 | ||||||||||
Deferred tax liabilities | 21 | 2,214 | 2,239 | |||||||||
VAT and other tax payables | 544 | 613 | ||||||||||
Settlement and clearing account | 2,608 | 1,354 | ||||||||||
Obligations under life insurance policies | 13,544 | 0 | ||||||||||
Other payables | 9,001 | 4,313 | ||||||||||
Total other liabilities | 31,316 | 12,339 | ||||||||||
Note 20 Provisions
Total | Total | |||||||||||||||
CHF million | Operational | Litigation | 31.12.03 | 31.12.02 | ||||||||||||
Balance at the beginning of the year | 721 | 654 | 1,375 | 1,748 | ||||||||||||
New provisions charged to income | 136 | 194 | 330 | 688 | ||||||||||||
Capitalized reinstatement costs | 155 | 155 | ||||||||||||||
Recoveries | 17 | 23 | 40 | 25 | ||||||||||||
Provisions applied | (135 | ) | (317 | ) | (452 | ) | (902 | ) | ||||||||
Reclassifications | 4 | (4 | ) | 0 | 0 | |||||||||||
Foreign currency translation | (43 | ) | (44 | ) | (87 | ) | (184 | ) | ||||||||
Balance at the end of the year | 855 | 506 | 1,361 | 1,375 | ||||||||||||
Note 21 Income Taxes
CHF million | ||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Domestic | ||||||||||||
Current | 810 | 938 | 563 | |||||||||
Deferred | 143 | (32 | ) | 231 | ||||||||
Foreign | ||||||||||||
Current | 294 | 249 | 546 | |||||||||
Deferred | 371 | (477 | ) | 61 | ||||||||
Total income tax expense | 1,618 | 678 | 1,401 | |||||||||
The Group made net tax payments, including domestic and foreign taxes, of CHF 1,104 million, CHF 572 million and CHF 1,742 million for the full years of 2003, 2002 and 2001, respectively.
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Financial Statements
Notes to the Financial Statements
Note 21 Income Taxes (continued)
The components of operating profit before tax, and the differences between income tax expense reflected in the financial statements and the amounts calculated at the Swiss statutory rate are as follows:
CHF million | ||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Operating profit before tax | 8,348 | 4,544 | 6,718 | |||||||||
Domestic | 5,491 | 6,510 | 5,565 | |||||||||
Foreign | 2,857 | (1,966 | ) | 1,153 | ||||||||
Income taxes at Swiss statutory rate of 24% in 2003 and 25% in 2002 and 2001, respectively | 2,004 | 1,136 | 1,680 | |||||||||
Increase / (decrease) resulting from: | ||||||||||||
Applicable tax rates differing from Swiss statutory rate | (250 | ) | (341 | ) | (239 | ) | ||||||
Tax losses not recognized | 42 | 51 | 77 | |||||||||
Previously unrecorded tax losses now recognized | (291 | ) | (349 | ) | (630 | ) | ||||||
Lower taxed income | (366 | ) | (378 | ) | (499 | ) | ||||||
Non-deductible goodwill amortization | 386 | 291 | 429 | |||||||||
Other non-deductible expenses | 186 | 301 | 134 | |||||||||
Adjustments related to prior years and other | (191 | ) | (122 | ) | 371 | |||||||
Change in deferred tax valuation allowance | 98 | 89 | 78 | |||||||||
Income tax expense | 1,618 | 678 | 1,401 | |||||||||
Significant components of the Group’s gross deferred income tax assets and liabilities are as follows:
CHF million | 31.12.03 | 31.12.02 | ||||||||||
Deferred tax assets | ||||||||||||
Compensation and benefits | 1,538 | 1,559 | ||||||||||
Allowance for credit losses | 4 | 84 | ||||||||||
Net operating loss carry forwards | 2,626 | 2,883 | ||||||||||
Trading assets | 306 | 330 | ||||||||||
Other | 685 | 779 | ||||||||||
Total | 5,159 | 5,635 | ||||||||||
Valuation allowance | (2,883 | ) | (2,835 | ) | ||||||||
Net deferred tax assets | 2,276 | 2,800 | ||||||||||
Deferred tax liabilities | ||||||||||||
Property and equipment | 307 | 412 | ||||||||||
Investments | 388 | 430 | ||||||||||
Other provisions | 401 | 470 | ||||||||||
Trading assets | 348 | 182 | ||||||||||
Other | 770 | 745 | ||||||||||
Total deferred tax liabilities | 2,214 | 2,239 | ||||||||||
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 due to the effect of foreign currency rate changes on tax assets and liabilities denominated in currencies other than CHF.
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Note 21 Income Taxes (continued)
Certain foreign branches and subsidiaries of the Group have deferred tax assets related to net operating loss carry forwards and other items. Due to realization of these assets being uncertain, the Group has established valuation allowances of CHF 2,883 million (CHF 2,835 million at 31 December 2002). For companies that suffered tax losses in either the current or preceding year an amount of CHF 542 million (CHF 947 million at 31 December 2002) has been recognized as deferred tax assets based on expectations that sufficient taxable income will be generated in future years to utilize the tax loss carry forwards.
The carry forwards expire as follows: | 31.12.03 | |||||||
Within 1 year | 97 | |||||||
From 2 to 4 years | 469 | |||||||
After 4 years | 6,423 | |||||||
Total | 6,989 | |||||||
Note 22 Minority Interests
CHF million | 31.12.03 | 31.12.02 | ||||||
Balance at the beginning of the year | 3,529 | 4,112 | ||||||
Issuance of trust preferred securities | 372 | 0 | ||||||
Other increases | 573 | 172 | ||||||
Decreases and dividend payments | (357 | ) | (377 | ) | ||||
Foreign currency translation | (389 | ) | (709 | ) | ||||
Minority interest in net profit | 345 | 331 | ||||||
Balance at the end of the year | 4,073 | 3,529 | ||||||
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Type of derivatives
– | Interest rate swap contracts generally entail the contractual exchange of fixed and floating rate interest payments in a single currency, based on a notional amount and an interest reference rate. | |
– | Cross currency swaps involve the exchange of interest payments based on two different currency principal balances and interest reference rates and generally also entail exchange of principal amounts at the start and / or end of the contract. | |
– | Credit default swaps (CDS) are the most common form of credit derivative, under which the party buying protection makes one or more payments to the party selling protection during the life of the swap in exchange for an undertaking by the seller to make a payment to the buyer following a credit event, as defined in the contract, with respect to a third party. Settlement following a credit event may be a cash amount, or cash in return for physical delivery of one or more deliverable obligations of the credit entity, as defined in the contract, and is made regardless of whether the protection buyer has 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 flow and economic benefits and risks of an underlying security without actually owning the security, while the total return payer has a synthetic short position in the underlying reference security. |
the-counter (OTC) market, whereas futures are standardized contracts transacted on regulated exchanges.
Derivatives transacted for trading purposes
Derivatives transacted for hedging purposes
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Derivatives designated and accounted
for as hedging instruments
Fair value hedges
Cash flow hedges of individual variable
rate assets and liabilities
Cash flow hedges of forecast transactions
CHF billion | < 1 year | 1–3 years | 3–5 years | 5–10 years | over 10 years | |||||||||||||||
Cash inflows (Assets) | 170 | 261 | 181 | 191 | 16 | |||||||||||||||
Cash outflows (Liabilities) | 148 | 250 | 183 | 287 | 167 | |||||||||||||||
Net cash flows | 22 | 11 | (2 | ) | (96 | ) | (151 | ) | ||||||||||||
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Financial Statements
Notes to the Financial Statements
Gains and losses on derivatives designated as cash flow hedges of forecast transactions are initially recorded in Shareholders’ equity as Gains / losses not recognized in the income statement and transferred to current period earnings when the forecast cash flows affect net profit or loss. As at 31 December 2003, the fair value of outstanding derivatives designated as cash flow hedges of forecast transactions was a CHF 871 million net negative replacement value. During the year, certain CHF hedging interest rate swaps with a positive replacement value of CHF 867 million were terminated. At this year-end, the unrecognized income of CHF 805 million associated with swaps has remained deferred in shareholders’ equity to be removed from the equity when the underlying previously hedged cash flows impact net profit or loss. Amounts reclassified from Gains / losses not recognized in the income statement to current period earnings due to discontinuation of hedge accounting were CHF 7 million net gain which is recorded in net interest income.
Notional amounts and replacement values
Credit mitigation
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Note 23 Derivative Instruments (continued)
As at 31 December 2003 | Term to maturity | Total | ||||||||||||||||||||||||||||||||||||||||||
notional | ||||||||||||||||||||||||||||||||||||||||||||
Within 3 months | 3–12 months | 1–5 years | over 5 years | Total | Total | amount | ||||||||||||||||||||||||||||||||||||||
CHF million | PRV1 | NRV2 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | NRV | CHF bn | |||||||||||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 423 | 588 | 258 | 312 | 71 | 130 | 6 | 4 | 758 | 1,034 | 1,128.4 | |||||||||||||||||||||||||||||||||
Swaps | 3,831 | 4,388 | 9,715 | 9,918 | 66,959 | 65,074 | 52,019 | 50,517 | 132,524 | 129,897 | 8,064.4 | |||||||||||||||||||||||||||||||||
Options | 464 | 977 | 868 | 992 | 4,579 | 5,967 | 4,223 | 5,334 | 10,134 | 13,270 | 815.4 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 243.7 | |||||||||||||||||||||||||||||||||||||||||||
Options | 7 | 9 | 2 | 8 | 9 | 17 | 63.4 | |||||||||||||||||||||||||||||||||||||
Total | 4,725 | 5,962 | 10,843 | 11,230 | 71,609 | 71,171 | 56,248 | 55,855 | 143,425 | 144,218 | 10,315.3 | |||||||||||||||||||||||||||||||||
Credit derivative contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 109 | 102 | 39 | 61 | 3,443 | 3,537 | 2,105 | 1,880 | 5,696 | 5,580 | 289.3 | |||||||||||||||||||||||||||||||||
Total rate of return swaps | 27 | 2 | 29 | 576 | 197 | 470 | 112 | 305 | 365 | 1,353 | 12.0 | |||||||||||||||||||||||||||||||||
Total | 136 | 104 | 68 | 637 | 3,640 | 4,007 | 2,217 | 2,185 | 6,061 | 6,933 | 301.3 | |||||||||||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 3,045 | 3,879 | 1,978 | 2,573 | 161 | 317 | 15 | 12 | 5,199 | 6,781 | 298.4 | |||||||||||||||||||||||||||||||||
Interest and currency swaps | 24,929 | 25,242 | 14,258 | 12,428 | 17,804 | 14,394 | 6,002 | 5,250 | 62,993 | 57,314 | 2,254.4 | |||||||||||||||||||||||||||||||||
Options | 3,232 | 3,348 | 3,211 | 2,550 | 360 | 356 | 9 | 1 | 6,812 | 6,255 | 576.8 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 5.0 | |||||||||||||||||||||||||||||||||||||||||||
Options | 3 | 3 | 119 | 116 | 122 | 119 | 13.2 | |||||||||||||||||||||||||||||||||||||
Total | 31,209 | 32,472 | 19,566 | 17,667 | 18,325 | 15,067 | 6,026 | 5,263 | 75,126 | 70,469 | 3,147.8 | |||||||||||||||||||||||||||||||||
Precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 246 | 247 | 377 | 306 | 333 | 270 | 18 | 23 | 974 | 846 | 15.9 | |||||||||||||||||||||||||||||||||
Options | 304 | 193 | 308 | 386 | 668 | 629 | 116 | 54 | 1,396 | 1,262 | 35.1 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 1.1 | |||||||||||||||||||||||||||||||||||||||||||
Options | 9 | 40 | 21 | 63 | 3 | 4 | 33 | 107 | 2.3 | |||||||||||||||||||||||||||||||||||
Total | 559 | 480 | 706 | 755 | 1,004 | 903 | 134 | 77 | 2,403 | 2,215 | 54.4 | |||||||||||||||||||||||||||||||||
Equity / Index contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 510 | 529 | 760 | 583 | 923 | 449 | 1,408 | 500 | 3,601 | 2,061 | 57.9 | |||||||||||||||||||||||||||||||||
Options | 1,843 | 2,788 | 3,476 | 7,847 | 8,584 | 13,646 | 1,329 | 4,560 | 15,232 | 28,841 | 213.8 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 8.6 | |||||||||||||||||||||||||||||||||||||||||||
Options | 708 | 858 | 892 | 1,363 | 886 | 768 | 54 | 117 | 2,540 | 3,106 | 62.6 | |||||||||||||||||||||||||||||||||
Total | 3,061 | 4,175 | 5,128 | 9,793 | 10,393 | 14,863 | 2,791 | 5,177 | 21,373 | 34,008 | 342.9 | |||||||||||||||||||||||||||||||||
Commodity contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 206 | 181 | 456 | 424 | 93 | 42 | 755 | 647 | 10.6 | |||||||||||||||||||||||||||||||||||
Options | 168 | 153 | 73 | 53 | 241 | 206 | 1.6 | |||||||||||||||||||||||||||||||||||||
Total | 374 | 334 | 529 | 477 | 93 | 42 | 0 | 0 | 996 | 853 | 12.2 | |||||||||||||||||||||||||||||||||
Total derivative instruments | 40,064 | 43,527 | 36,840 | 40,559 | 105,064 | 106,053 | 67,416 | 68,557 | 249,384 | 258,696 | ||||||||||||||||||||||||||||||||||
Replacement value netting | 165,050 | 165,050 | ||||||||||||||||||||||||||||||||||||||||||
Replacement values after netting | 84,334 | 93,646 | ||||||||||||||||||||||||||||||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 23 Derivative Instruments (continued)
As at 31 December 2002 | Term to maturity | Total | ||||||||||||||||||||||||||||||||||||||||||
notional | ||||||||||||||||||||||||||||||||||||||||||||
Within 3 months | 3–12 months | 1–5 years | over 5 years | Total | Total | amount | ||||||||||||||||||||||||||||||||||||||
CHF million | PRV1 | NRV2 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | NRV | CHF bn | |||||||||||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 3,785 | 4,127 | 93 | 121 | 141 | 333 | 33 | 8 | 4,052 | 4,589 | 1,517.3 | |||||||||||||||||||||||||||||||||
Swaps | 2,862 | 3,778 | 9,451 | 8,127 | 78,413 | 76,244 | 55,377 | 51,917 | 146,103 | 140,066 | 5,753.0 | |||||||||||||||||||||||||||||||||
Options | 338 | 706 | 1,143 | 1,488 | 4,216 | 5,484 | 3,905 | 4,464 | 9,602 | 12,142 | 663.2 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 40.3 | |||||||||||||||||||||||||||||||||||||||||||
Options | 4 | 16 | 1 | 4 | 17 | 101.1 | ||||||||||||||||||||||||||||||||||||||
Total | 6,989 | 8,627 | 10,687 | 9,737 | 82,770 | 82,061 | 59,315 | 56,389 | 159,761 | 156,814 | 8,074.9 | |||||||||||||||||||||||||||||||||
Credit derivative contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 2 | 7 | 95 | 504 | 1,636 | 2,740 | 2,852 | 958 | 4,585 | 4,209 | 164.6 | |||||||||||||||||||||||||||||||||
Total rate of return swaps | 15 | 21 | 194 | 782 | 2,308 | 1,726 | 162 | 35 | 2,679 | 2,564 | 14.5 | |||||||||||||||||||||||||||||||||
Total | 17 | 28 | 289 | 1,286 | 3,944 | 4,466 | 3,014 | 993 | 7,264 | 6,773 | 179.1 | |||||||||||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2,406 | 3,100 | 1,005 | 1,732 | 232 | 270 | 11 | 1 | 3,654 | 5,103 | 252.0 | |||||||||||||||||||||||||||||||||
Interest and currency swaps | 21,561 | 20,641 | 8,962 | 10,292 | 8,627 | 8,907 | 3,360 | 3,990 | 42,510 | 43,830 | 1,843.1 | |||||||||||||||||||||||||||||||||
Options | 2,223 | 2,219 | 1,681 | 1,636 | 361 | 312 | 7 | 4,272 | 4,167 | 500.8 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 0.0 | |||||||||||||||||||||||||||||||||||||||||||
Options | 1 | 1 | 1 | 1 | 0.1 | |||||||||||||||||||||||||||||||||||||||
Total | 26,190 | 25,961 | 11,649 | 13,660 | 9,220 | 9,489 | 3,378 | 3,991 | 50,437 | 53,101 | 2,596.0 | |||||||||||||||||||||||||||||||||
Precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 329 | 231 | 235 | 257 | 150 | 121 | 9 | 8 | 723 | 617 | 18.0 | |||||||||||||||||||||||||||||||||
Options | 205 | 217 | 325 | 289 | 407 | 373 | 86 | 63 | 1,023 | 942 | 38.6 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 0.0 | |||||||||||||||||||||||||||||||||||||||||||
Options | 1 | 1 | 4 | 0 | 6 | 0.2 | ||||||||||||||||||||||||||||||||||||||
Total | 534 | 449 | 560 | 547 | 557 | 498 | 95 | 71 | 1,746 | 1,565 | 56.8 | |||||||||||||||||||||||||||||||||
Equity / Index contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 5,393 | 1,406 | 583 | 512 | 917 | 205 | 124 | 219 | 7,017 | 2,342 | 33.2 | |||||||||||||||||||||||||||||||||
Options | 8,676 | 12,441 | 2,515 | 3,496 | 6,650 | 7,125 | 403 | 794 | 18,244 | 23,856 | 99.3 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 7.4 | |||||||||||||||||||||||||||||||||||||||||||
Options | 861 | 246 | 316 | 247 | 443 | 338 | 1,620 | 831 | 7.5 | |||||||||||||||||||||||||||||||||||
Total | 14,930 | 14,093 | 3,414 | 4,255 | 8,010 | 7,668 | 527 | 1,013 | 26,881 | 27,029 | 147.4 | |||||||||||||||||||||||||||||||||
Commodity contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 5 | 3 | 2,629 | 2,670 | 346 | 304 | 2,980 | 2,977 | 24.9 | |||||||||||||||||||||||||||||||||||
Options | 0 | 0 | 0.0 | |||||||||||||||||||||||||||||||||||||||||
Total | 5 | 3 | 2,629 | 2,670 | 346 | 304 | 0 | 0 | 2,980 | 2,977 | 24.9 | |||||||||||||||||||||||||||||||||
Total derivative instruments | 48,665 | 49,161 | 29,228 | 32,155 | 104,847 | 104,486 | 66,329 | 62,457 | 249,069 | 248,259 | ||||||||||||||||||||||||||||||||||
Replacement value netting | 166,977 | 166,977 | ||||||||||||||||||||||||||||||||||||||||||
Replacement values after netting | 82,092 | 81,282 | ||||||||||||||||||||||||||||||||||||||||||
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Off-Balance Sheet Information
Note 24 Fiduciary Transactions
Fiduciary placement represents funds which customers have instructed the Group to place in foreign banks. The Group is not liable to the customer for any default by the foreign bank nor do creditors of the Group have a claim on the assets placed.
CHF million | 31.12.03 | 31.12.02 | ||||||
Placements with third parties | 37,851 | 43,440 | ||||||
Fiduciary credits and other fiduciary financial transactions | 74 | 774 | ||||||
Total fiduciary transactions | 37,925 | 44,214 | ||||||
The Group also acts in its own name as trustee or in fiduciary capacities for the account of third parties. The assets managed in such capacities are not reported on the balance sheet unless they are invested with UBS. UBS earns commission and fee income from such transactions and assets. These activities potentially expose UBS to liability risks in cases of gross negligence with regard to non-compliance with its fiduciary and contractual duties. The risks associated with this business are covered by the standard UBS risk framework.
The Group utilizes various lending-related financial instruments in order to meet the financial needs of its customers. The Group issues commitments to extend credit, standby and other letters of credit, guarantees, commitments to enter into repurchase agreements, note issuance facilities and revolving underwriting facilities. Guarantees represent irrevocable assurances, subject to the satisfaction of certain conditions, that the Group will make payment in the event that the customer fails to fulfill its obligation to third parties. The Group also enters into commitments to extend credit in the form of credit lines which are available to secure the liquidity needs of its customers, but not yet drawn upon by them, the majority of which range in maturity from 1 month to 5 years.
loan facilities and is monitored with the same risk control processes and specific credit risk policies. For the years ended 31 December 2003, 2002 and 2001 the Group recognized CHF 23 million expense recovery, CHF 13 million expense and CHF 25 million expense, respectively, in the income statement related to obligations incurred for contingencies and commitments.
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Financial Statements
Notes to the Financial Statements
Note 25 Commitments and Contingent Liabilities (continued)
CHF million | 31.12.03 | 31.12.02 | ||||||
Contingent liabilities | ||||||||
Credit guarantees and similar instruments1 | 10,832 | 11,522 | ||||||
Sub-participations | (765 | ) | (650 | ) | ||||
Total | 10,067 | 10,872 | ||||||
Performance guarantees and similar instruments2 | 2,760 | 3,216 | ||||||
Sub-participations | (276 | ) | (348 | ) | ||||
Total | 2,484 | 2,868 | ||||||
Irrevocable commitments under documentary credits | 1,971 | 1,856 | ||||||
Sub-participations | (373 | ) | (259 | ) | ||||
Total | 1,598 | 1,597 | ||||||
Gross contingent liabilities | 15,563 | 16,594 | ||||||
Sub-participations | (1,414 | ) | (1,257 | ) | ||||
Net contingent liabilities | 14,149 | 15,337 | ||||||
Irrevocable commitments | ||||||||
Undrawn irrevocable credit facilities | 46,623 | 39,306 | ||||||
Sub-participations | (235 | ) | (446 | ) | ||||
Total | 46,388 | 38,860 | ||||||
Liabilities for calls on shares and other equities | 337 | 21 | ||||||
Gross irrevocable commitments | 46,960 | 39,327 | ||||||
Sub-participations | (235 | ) | (446 | ) | ||||
Net irrevocable commitments | 46,725 | 38,881 | ||||||
Gross commitments and contingent liabilities | 62,523 | 55,921 | ||||||
Sub-participations | (1,649 | ) | (1,703 | ) | ||||
Net commitments and contingent liabilities | 60,874 | 54,218 | ||||||
Mortgage | Other | |||||||||||||||
CHF million | collateral | collateral | Unsecured | Total | ||||||||||||
Overview of collateral | ||||||||||||||||
Gross contingent liabilities | 142 | 7,297 | 8,124 | 15,563 | ||||||||||||
Gross irrevocable commitments | 2,495 | 23,573 | 20,555 | 46,623 | ||||||||||||
Liabilities for calls on shares and other equities | 337 | 337 | ||||||||||||||
Total 31.12.2003 | 2,637 | 30,870 | 29,016 | 62,523 | ||||||||||||
Total 31.12.2002 | 1,359 | 23,210 | 31,352 | 55,921 | ||||||||||||
Other commitments
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Note 26 Operating Lease Commitments
At 31 December 2003, UBS was obligated under a number of non-cancellable operating leases for premises and equipment used primarily for banking purposes. The significant premises leases usually include renewal options and escalation clauses in line with general office rental market conditions as well as rent adjustments based on price indices. However, the lease agreements do not contain contingent rent payment clauses and purchase options. The leases also do not impose any restrictions on UBS’s ability to pay dividends, engage in debt financing transactions or enter into further lease agreements.
CHF million | 31.12.03 | |||
Operating leases due | ||||
2004 | 876 | |||
2005 | 770 | |||
2006 | 707 | |||
2007 | 632 | |||
2008 | 595 | |||
2009 and thereafter | 3,992 | |||
Subtotal commitments for minimum payments under operating leases | 7,572 | |||
Less: Sublease rentals under non-cancellable leases | 645 | |||
Net commitments for minimum payments under operating leases | 6,927 | |||
Operating expenses for the year ended 31 December 2003 include CHF 1,233 million of gross operating lease rentals which were reduced by CHF 43 million of sublease income. Operating expenses include CHF 1,193 million and CHF 1,092 million in respect of operating lease rentals for the years ended 31 December 2002 and 31 December 2001, respectively.
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Financial Statements
Notes to the Financial Statements
Additional Information
Note 27 Pledged Assets
Assets are pledged as collateral for collateralized credit lines with central banks, loans from central mortgage institutions, deposit guarantees for savings banks, security deposits relating to stock exchange membership and mortgages on the Group’s property. The following table shows additional information about assets pledged or assigned as security for liabilities and assets subject to reservation of title for the years ended 31 December 2003 and 31 December 2002.
Carrying | Related | Carrying | Related | |||||||||||||
amount | liability | amount | liability | |||||||||||||
CHF million | 31.12.03 | 31.12.03 | 31.12.02 | 31.12.02 | ||||||||||||
Mortgage loans | 428 | 209 | 808 | 506 | ||||||||||||
Securities1 | 157,639 | 121,984 | 50,945 | 37,038 | ||||||||||||
Property and equipment | 0 | 0 | 129 | 33 | ||||||||||||
Other | 0 | 0 | 2 | 0 | ||||||||||||
Total pledged assets | 158,067 | 122,193 | 51,884 | 37,577 | ||||||||||||
Due to the nature of their business, the bank and other companies within the UBS Group are involved in various claims, disputes and legal proceedings, arising in the ordinary course of business. The Group makes provisions for such matters when, in the opinion of management and its professional advisors, it is probable that a payment will be made by the Group, and the amount can be reasonably estimated (see Note 20).
In respect of the further claims asserted against the Group of which management is aware (and which, according to the principles outlined above, have not been provided for), it is the opinion of the management that such claims are either without merit, can be successfully defended or will not have a material adverse effect on the Group’s financial condition, results of operations or liquidity.
This section presents information about UBS’s exposure to and its management and control of risks, in particular the primary risks associated with its use of financial instruments:
– | market risk is exposure to observable market variables such as interest rates, exchange rates and equity markets |
– | credit risk is the risk of loss resulting from client or counterparty default and arises on credit exposure in all forms, including settlement risk |
– | funding and liquidity risk is the risk that UBS is unable to meet its payment obligations when due, or that it is unable, on an ongoing basis, to borrow funds in the market on an unsecured, or even secured basis at an acceptable price to fund actual or proposed commitments. |
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(a)(i) Overview
tions in price volatility and market depth and liquidity. They include controls on exposure to individual market risk variables, such as individual interest or exchange rates, and positions in the securities of individual issuers (‘issuer risk’).
(a)(ii) Interest Rate Risk
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Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
a) Market Risk (continued)
Interest rate sensitivity position (continued)
Interest rate sensitivity by time bands at 31.12.2003 | ||||||||||||||||||||||||||
CHF thousand | Within 1 | 1 to 3 | 3 to 12 | 1 to 5 | Over 5 | |||||||||||||||||||||
per basis point increase | month | months | months | years | years | Total | ||||||||||||||||||||
CHF | Trading | 19 | (185 | ) | (6 | ) | 311 | (91 | ) | 48 | ||||||||||||||||
Non-trading | (38 | ) | (99 | ) | (359 | ) | (4,288 | ) | (3,587 | ) | (8,371 | ) | ||||||||||||||
USD | Trading | (17 | ) | (690 | ) | (638 | ) | (941 | ) | 1,190 | (1,096 | ) | ||||||||||||||
Non-trading | 50 | (55 | ) | (92 | ) | (2,213 | ) | (1,702 | ) | (4,012 | ) | |||||||||||||||
EUR | Trading | (84 | ) | (206 | ) | 398 | (1,018 | ) | 649 | (261 | ) | |||||||||||||||
Non-trading | 4 | 6 | (21 | ) | (131 | ) | (196 | ) | (338 | ) | ||||||||||||||||
GBP | Trading | 24 | 31 | 131 | (736 | ) | 536 | (14 | ) | |||||||||||||||||
Non-trading | 0 | (10 | ) | (55 | ) | (40 | ) | 481 | 376 | |||||||||||||||||
JPY | Trading | 59 | (326 | ) | (34 | ) | 410 | (273 | ) | (164 | ) | |||||||||||||||
Non-trading | (4 | ) | 3 | (1 | ) | (5 | ) | (2 | ) | (9 | ) | |||||||||||||||
Others | Trading | (43 | ) | 22 | 80 | (464 | ) | 335 | (70 | ) | ||||||||||||||||
Non-trading | (1 | ) | 0 | (6 | ) | (1 | ) | (3 | ) | (11 | ) | |||||||||||||||
Interest rate sensitivity by time bands at 31.12.2002 | ||||||||||||||||||||||||||
CHF thousand | Within 1 | 1 to 3 | 3 to 12 | 1 to 5 | Over 5 | |||||||||||||||||||||
per basis point increase | month | months | months | years | years | Total | ||||||||||||||||||||
CHF | Trading | (10 | ) | 211 | (287 | ) | (47 | ) | (18 | ) | (151 | ) | ||||||||||||||
Non-trading | (42 | ) | (153 | ) | (365 | ) | (6,504 | ) | (5,119 | ) | (12,183 | ) | ||||||||||||||
USD | Trading | (93 | ) | (256 | ) | (1,021 | ) | (2,668 | ) | 2,445 | (1,593 | ) | ||||||||||||||
Non-trading | 26 | (82 | ) | (72 | ) | (927 | ) | (230 | ) | (1,285 | ) | |||||||||||||||
EUR | Trading | 114 | 33 | 12 | (1,387 | ) | 728 | (500 | ) | |||||||||||||||||
Non-trading | (1 | ) | 10 | (2 | ) | (86 | ) | (193 | ) | (272 | ) | |||||||||||||||
GBP | Trading | (78 | ) | 200 | (227 | ) | (453 | ) | (269 | ) | (827 | ) | ||||||||||||||
Non-trading | (1 | ) | (6 | ) | (39 | ) | 92 | 587 | 633 | |||||||||||||||||
JPY | Trading | 21 | 12 | (502 | ) | (249 | ) | (204 | ) | (922 | ) | |||||||||||||||
Non-trading | 0 | 1 | 0 | 18 | (24 | ) | (5 | ) | ||||||||||||||||||
Others | Trading | (46 | ) | (61 | ) | 500 | (54 | ) | (286 | ) | 53 | |||||||||||||||
Non-trading | 0 | 0 | (4 | ) | (1 | ) | (3 | ) | (8 | ) | ||||||||||||||||
Positions shown as ‘trading’ are those which contribute to market risk regulatory capital, i. e. those considered ‘trading book’ for regulatory capital purposes (see section d). ‘Non-trading’ includes all other interest rate sensitive assets and liabilities including derivatives designated as hedges for accounting purposes (as explained in Note 23). This distinction differs somewhat from the accounting classification of trading and non-trading assets and liabilities.
of debt instruments defined as financial investments for accounting purposes in Note 12. Both contribute to the interest rate sensitivity shown in the table. Details of derivatives are shown in Note 23 but it should be noted that interest rate risk arises not only on interest rate contracts but also on other forwards, swaps and options, in particular on forward foreign exchange contracts.
Trading
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Note 29 Financial Instruments Risk Position (continued)
a) Market Risk (continued)
Non-trading
with CHF 8.1 million arising in CHF, CHF 4.3 million in USD and the remainder in EUR and GBP. The interest rate sensitivity of these investments is directly related to the chosen investment duration and it should be recognized that, although investing in significantly shorter maturities would lead to a reduction in apparent interest rate sensitivity, it would lead to higher volatility in interest earnings.
(iii) Currency Risk
Trading
Non-Trading
137
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Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
a) Market Risk (Continued)
The Group’s equity investment is managed in order to reflect the currency distribution of its risk-weighted assets and is diversified into CHF, USD, EUR and GBP. This creates structural foreign currency exposures, the gains or losses on which are recorded through equity, leading to
fluctuations in UBS’s capital base in line with the fluctuations in risk-weighted assets, thereby protecting the BIS Tier 1 capital ratio.
Breakdown of assets and liabilities by currencies
31.12.03 | 31.12.02 | |||||||||||||||||||||||||||||||
CHF billion | CHF | USD | EUR | Other | CHF | USD | EUR | Other | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and balances with central banks | 2.4 | 0.1 | 0.8 | 0.3 | 2.4 | 0.1 | 0.6 | 1.2 | ||||||||||||||||||||||||
Due from banks | 4.6 | 11.8 | 8.2 | 7.1 | 5.2 | 11.4 | 7.4 | 8.5 | ||||||||||||||||||||||||
Cash collateral on securities borrowed | 0.7 | 192.5 | 7.3 | 13.4 | 0.1 | 126.7 | 2.7 | 9.5 | ||||||||||||||||||||||||
Reverse repurchase agreements | 1.2 | 162.4 | 73.8 | 83.2 | 1.9 | 164.6 | 61.0 | 66.5 | ||||||||||||||||||||||||
Trading portfolio assets | 8.9 | 288.9 | 77.6 | 86.4 | 6.1 | 247.6 | 51.7 | 66.0 | ||||||||||||||||||||||||
Positive replacement values | 14.6 | 7.6 | 0.8 | 61.3 | 10.4 | 8.1 | 0.8 | 62.8 | ||||||||||||||||||||||||
Loans | 149.7 | 39.2 | 12.9 | 10.7 | 147.8 | 39.5 | 11.5 | 12.8 | ||||||||||||||||||||||||
Financial investments | 0.6 | 2.4 | 1.2 | 0.9 | 1.1 | 5.0 | 1.5 | 0.8 | ||||||||||||||||||||||||
Accrued income and prepaid expenses | 0.3 | 3.0 | 1.8 | 1.1 | 0.5 | 4.0 | 0.3 | 1.7 | ||||||||||||||||||||||||
Investments in associates | 0.5 | 1.1 | 0.0 | 0.0 | 0.7 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||||||||
Property and equipment | 5.9 | 1.2 | 0.1 | 0.5 | 5.6 | 1.3 | 0.1 | 0.9 | ||||||||||||||||||||||||
Goodwill and other intangible assets | 0.1 | 11.1 | 0.0 | 0.3 | 0.7 | 12.7 | 0.0 | 0.3 | ||||||||||||||||||||||||
Other assets | 2.4 | 4.2 | 1.8 | 17.1 | 1.4 | 5.0 | 1.0 | 1.6 | ||||||||||||||||||||||||
Total balance sheet assets | 191.9 | 725.5 | 186.3 | 282.3 | 183.9 | 626.0 | 138.6 | 232.6 | ||||||||||||||||||||||||
Receivables from FX spot, FX forwards, FX options and currency swaps1 | 189.5 | 1,210.5 | 604.5 | 871.2 | ||||||||||||||||||||||||||||
Total assets including FX derivatives1 | 381.4 | 1,936.0 | 790.8 | 1,153.5 | ||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Due to banks | 5.8 | 58.7 | 39.2 | 23.5 | 7.6 | 48.0 | 13.8 | 13.8 | ||||||||||||||||||||||||
Cash collateral on securities lent | 0.1 | 35.4 | 6.8 | 11.0 | 0.0 | 21.6 | 5.2 | 10.1 | ||||||||||||||||||||||||
Repurchase agreements | 17.9 | 277.8 | 76.4 | 43.7 | 17.8 | 260.8 | 51.9 | 36.4 | ||||||||||||||||||||||||
Trading portfolio liabilities | 2.4 | 90.8 | 20.3 | 30.5 | 3.7 | 68.6 | 11.3 | 22.9 | ||||||||||||||||||||||||
Negative replacement values | 15.8 | 7.0 | 0.4 | 70.4 | 10.1 | 7.1 | 0.7 | 63.5 | ||||||||||||||||||||||||
Due to customers | 137.1 | 126.4 | 51.8 | 32.1 | 123.5 | 111.5 | 43.6 | 28.2 | ||||||||||||||||||||||||
Accrued expenses and deferred income | 2.0 | 7.1 | 0.8 | 3.8 | 1.9 | 8.1 | 0.9 | 4.3 | ||||||||||||||||||||||||
Debt issued | 10.0 | 68.1 | 21.0 | 21.1 | 11.4 | 96.1 | 14.3 | 7.6 | ||||||||||||||||||||||||
Other liabilities | 6.6 | 5.3 | 2.9 | 16.5 | 5.4 | 4.1 | 0.9 | 1.9 | ||||||||||||||||||||||||
Minority interests | 0.0 | 3.9 | 0.1 | 0.1 | 0.0 | 3.4 | 0.0 | 0.1 | ||||||||||||||||||||||||
Shareholders’ equity | 35.4 | 0.0 | 0.0 | 0.0 | 39.0 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||||||||
Of which foreign currency capital in subsidiaries | (13.2 | ) | 10.2 | 1.3 | 1.7 | |||||||||||||||||||||||||||
Total liabilities, minority interests and shareholders’ equity | 219.9 | 690.7 | 221.0 | 254.4 | 220.4 | 629.3 | 142.6 | 188.8 | ||||||||||||||||||||||||
Payables from FX spot, FX forwards, FX options and currency swaps1 | 160.6 | 1,246.2 | 569.7 | 899.2 | ||||||||||||||||||||||||||||
Total liabilities, minority interests and shareholders’ equity including FX derivatives1 | 380.5 | 1,936.9 | 790.7 | 1,153.6 | ||||||||||||||||||||||||||||
Net position by currency1 | 0.9 | (0.9 | ) | 0.1 | (0.1 | ) | ||||||||||||||||||||||||||
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(iv) Equity Risk
(v) Issuer Risk
Credit risk represents the loss which UBS would suffer if a client or counterparty failed to meet its contractual obligations. It is inherent in traditional banking products – loans, commitments to lend and other contingent liabilities, such as letters of credit – and in traded products – derivative contracts such as forwards, swaps and options, and repo and securities borrowing and lending transactions.
by the GEB (by delegation to the Group CCO) and within the Business Groups.
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Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
b) Credit Risk (continued)
details see Note 10. The credit exposure is generally only a small percentage of the balance sheet amounts. The amounts shown in the table below represent the mark to market values of these
transactions, i. e. the difference in value between the cash or securities lent or given as collateral by UBS and the value of cash or securities borrowed or taken as collateral by UBS.
Breakdown of credit exposure
Amounts for each product type are shown gross before allowances and provisions.
CHF million | 31.12.03 | 31.12.02 | ||||||
Banking products | ||||||||
Loans to customers and due from banks1 | 248,207 | 249,370 | ||||||
Contingent liabilities (gross – before participations)2 | 15,563 | 16,594 | ||||||
Undrawn irrevocable commitments (gross – before participations)2 | 46,623 | 39,306 | ||||||
Traded products3 | ||||||||
Derivatives positive replacement values (before collateral but after netting)4 | 84,334 | 82,092 | ||||||
Securities borrowing and lending, repos and reverse repos5, 6 | 30,833 | 20,120 | ||||||
Allowances and provisions7 | (4,326 | ) | (5,621 | ) | ||||
Total credit exposure net of allowances and provisions8 | 421,234 | 401,861 | ||||||
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UBS is an active user of credit derivatives to hedge credit risk in banking and traded products. It also makes use of master netting agreements where possible in its OTC derivatives trading and, in line with general market trends, has also entered into bilateral collateral agreements with market participants. Further information is given in Note 23.
fied as non-performing where payment of interest, principal or fees is overdue by more than 90 days or (as now required by Swiss regulatory guidelines) when insolvency proceedings have commenced or obligations have been restructured on concessionary terms. Allowances or provisions are determined such that the carrying values of impaired claims are consistent with the principles of IAS 39. For further information about accounting policy for allowance and provision for credit losses see Note 1 l). For the amounts of allowance and provision for credit losses and amounts of impaired and non-performing loans, see Note 9 b), c) and d).
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Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
c) Liquidity Risk
UBS’s approach to liquidity management is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without compromising its ability to respond quickly to strategic market opportunities. A centralized approach is adopted, based on an integrated framework incorporating the assessment of expected cash flows and the availability of high-grade collateral which could be used to secure additional funding if required. The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress
factors. Scenarios encompass both normal market conditions and stressed conditions, including both UBS-specific and general market crises. The impact on both trading and client businesses is considered, taking account of potential collateral with which funds might be raised, and the possibility that customers might seek to withdraw funds or draw down unutilized credit lines.
Maturity analysis of assets and liabilities
Due | Due | |||||||||||||||||||||||||||
Due | between | between | Due | |||||||||||||||||||||||||
On | Subject | within | 3 and | 1 and | after | |||||||||||||||||||||||
CHF billion | demand | to notice1 | 3 mths | 12 mths | 5 years | 5 years | Total | |||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Cash and balances with central banks | 3.6 | 3.6 | ||||||||||||||||||||||||||
Due from banks | 22.4 | 0.8 | 6.0 | 0.9 | 1.4 | 0.2 | 31.7 | |||||||||||||||||||||
Cash collateral on securities borrowed | 9.5 | 166.2 | 37.4 | 0.7 | 0.1 | 0.0 | 213.9 | |||||||||||||||||||||
Reverse repurchase agreements | 44.0 | 35.1 | 193.7 | 43.0 | 3.7 | 1.1 | 320.6 | |||||||||||||||||||||
Trading portfolio assets2 | 461.8 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 461.8 | |||||||||||||||||||||
Positive replacement values2 | 84.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 84.3 | |||||||||||||||||||||
Loans | 20.6 | 44.9 | 33.5 | 37.8 | 66.8 | 8.9 | 212.5 | |||||||||||||||||||||
Financial investments | 4.0 | 0.0 | 0.6 | 0.2 | 0.2 | 0.1 | 5.1 | |||||||||||||||||||||
Accrued income and prepaid expenses | 6.2 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 6.2 | |||||||||||||||||||||
Investments in associates | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 1.6 | 1.6 | |||||||||||||||||||||
Property and equipment | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 7.7 | 7.7 | |||||||||||||||||||||
Goodwill and other intangible assets | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 11.5 | 11.5 | |||||||||||||||||||||
Other assets | 11.9 | 13.6 | 0.0 | 0.0 | 0.0 | 0.0 | 25.5 | |||||||||||||||||||||
Total 31.12.2003 | 668.3 | 260.6 | 271.2 | 82.6 | 72.2 | 31.1 | 1,386.0 | |||||||||||||||||||||
Total 31.12.2002 | 489.7 | 23.7 | 478.1 | 90.7 | 69.7 | 29.2 | 1,181.1 | |||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Due to banks | 52.0 | 4.6 | 66.3 | 3.4 | 0.8 | 0.1 | 127.2 | |||||||||||||||||||||
Cash collateral on securities lent | 5.1 | 46.8 | 1.4 | 0.0 | 0.0 | 0.0 | 53.3 | |||||||||||||||||||||
Repurchase agreements | 158.5 | 13.2 | 186.0 | 57.8 | 0.3 | 0.0 | 415.8 | |||||||||||||||||||||
Trading portfolio liabilities2 | 144.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 144.0 | |||||||||||||||||||||
Negative replacement values2 | 93.6 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 93.6 | |||||||||||||||||||||
Due to customers | 146.3 | 109.7 | 83.1 | 5.3 | 1.8 | 1.2 | 347.4 | |||||||||||||||||||||
Accrued expenses and deferred income | 13.7 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 13.7 | |||||||||||||||||||||
Debt issued | 0.0 | 0.0 | 1.7 | 63.9 | 33.6 | 21.0 | 120.2 | |||||||||||||||||||||
Other liabilities | 17.6 | 13.7 | 0.0 | 0.0 | 0.0 | 0.0 | 31.3 | |||||||||||||||||||||
Total 31.12.2003 | 630.8 | 188.0 | 338.5 | 130.4 | 36.5 | 22.3 | 1,346.5 | |||||||||||||||||||||
Total 31.12.2002 | 373.4 | 5.4 | 636.0 | 66.1 | 36.7 | 21.0 | 1,138.6 | |||||||||||||||||||||
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The adequacy of UBS’s capital is monitored using, among other measures, the rules and ratios established by the Basel Committee on Banking Supervision (“BIS rules / ratios”). The BIS ratios compare the amount of eligible capital (in total and Tier 1) with the total of risk-weighted assets (RWAs).
BIS Eligible capital
BIS Risk-Weighted Assets (RWAs)
unsecured claims on corporates and private customers, are weighted at 100%, meaning that 8% capital support is required.
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Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
d) Capital Adequacy (continued)
Risk-weighted assets (BIS)
Balance | Balance | |||||||||||||||
sheet/ | Risk- | sheet / | Risk- | |||||||||||||
notional | weighted | notional | weighted | |||||||||||||
amount | amount | amount | amount | |||||||||||||
CHF million | 31.12.03 | 31.12.03 | 31.12.02 | 31.12.02 | ||||||||||||
Balance sheet assets | ||||||||||||||||
Due from banks and other collateralized lendings1 | 441,662 | 8,565 | 356,501 | 8,877 | ||||||||||||
Net positions in securities2 | 6,755 | 6,182 | 9,096 | 8,193 | ||||||||||||
Positive replacement values3 | 84,334 | 22,324 | 82,092 | 21,680 | ||||||||||||
Loans, net of allowances for credit losses and other collateralized lendings1 | 337,028 | 153,537 | 320,752 | 147,703 | ||||||||||||
Accrued income and prepaid expenses | 6,218 | 4,284 | 6,453 | 3,025 | ||||||||||||
Property and equipment | 9,840 | 9,614 | 10,384 | 10,149 | ||||||||||||
Other assets | 25,459 | 7,670 | 8,952 | 5,774 | ||||||||||||
Off-balance sheet and other positions | ||||||||||||||||
Contingent liabilities | 15,563 | 8,167 | 16,594 | 8,224 | ||||||||||||
Irrevocable commitments | 46,960 | 6,863 | 39,327 | 4,622 | ||||||||||||
Forward and swap contracts4 | 11,746,880 | 4,710 | 9,455,928 | 4,253 | ||||||||||||
Purchased options4 | 1,183,708 | 1,716 | 298,800 | 1,023 | ||||||||||||
Market risk positions5 | 18,269 | 15,267 | ||||||||||||||
Total risk-weighted assets | 251,901 | 238,790 | ||||||||||||||
BIS capital ratios
Capital | Ratio | Capital | Ratio | |||||||||||||
CHF million | % | CHF million | % | |||||||||||||
31.12.03 | 31.12.03 | 31.12.02 | 31.12.02 | |||||||||||||
Tier 1 | 29,765 | 11.8 | 27,047 | 11.3 | ||||||||||||
of which hybrid Tier 1 | 3,224 | 1.3 | 3,182 | 1.3 | ||||||||||||
Tier 2 | 3,816 | 1.5 | 5,962 | 2.5 | ||||||||||||
Total BIS | 33,581 | 13.3 | 33,009 | 13.8 | ||||||||||||
The Tier 1 capital includes CHF 3,224 million (USD 2,600 million) trust preferred securities at 31 December 2003 and CHF 3,182 million (USD 2,300 million) at 31 December 2002.
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The following table presents the fair value of financial instruments based on the following valuation methods and assumptions. It is presented because not all financial instruments are reflected in the financial statements at fair value.
(a) | trading assets, derivatives and other transactions undertaken for trading purposes are measured at fair value by reference to quoted market prices when available. If quoted market prices are not available, then fair values are estimated on the basis of pricing models, or discounted cash flows. Fair value is equal to the carrying amount for these items; |
(b) | financial investments classified as available for sale are measured at fair value by reference to quoted market prices when available. If quoted market prices are not available, then fair values are estimated on the basis of pricing models or other recognized valuation techniques. Prior to the adoption of IAS 39 in 2001, financial investments were carried at cost or if considered held for sale, at the |
lower of cost or market. Upon the adoption of the standard, all financial investments are carried at fair value. Unrealized gains and unrealized losses, excluding impairment writedowns, are recorded in shareholders’ equity until an asset is sold, collected or otherwise disposed of; | ||
(c) | the carrying amount of liquid assets and other assets maturing within 12 months is assumed to approximate their fair value. This assumption is applied to liquid assets and the short-term elements of all other financial assets and financial liabilities; |
(d) | the fair value of demand deposits and savings accounts with no specific maturity is assumed to be the amount payable on demand at the balance sheet date; |
(e) | the fair value of variable rate financial instruments is assumed to be approximated by their carrying amounts and, in the case of loans, does not, therefore, reflect changes in their credit quality as the impact of credit risk is recognized separately by deducting the amount of the allowance for credit losses from both book and fair values; |
(f) | the fair value of fixed rate loans and mortgages is estimated by comparing market interest rates when the loans were granted with current market rates offered on similar loans. Changes in the credit quality of loans within the portfolio are not taken into account in determining gross fair values as the impact of credit risk is recognized separately by deducting the amount of the allowance for credit losses from both book and fair values. |
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Financial Statements
Notes to the Financial Statements
Note 30 Fair Value of Financial Instruments (continued)
Carrying | Fair | Unrealized | Carrying | Fair | Unrealized | |||||||||||||||||||
value | value | gain/(loss) | value | value | gain/(loss) | |||||||||||||||||||
CHF billion | 31.12.03 | 31.12.03 | 31.12.03 | 31.12.02 | 31.12.02 | 31.12.02 | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Cash and balances with central banks | 3.6 | 3.6 | 0.0 | 4.3 | 4.3 | 0.0 | ||||||||||||||||||
Due from banks | 31.7 | 31.7 | 0.0 | 32.5 | 32.5 | 0.0 | ||||||||||||||||||
Cash collateral on securities borrowed | 213.9 | 213.9 | 0.0 | 139.1 | 139.1 | 0.0 | ||||||||||||||||||
Reverse repurchase agreements | 320.6 | 320.6 | 0.0 | 294.1 | 294.1 | 0.0 | ||||||||||||||||||
Trading portfolio assets | 461.8 | 461.8 | 0.0 | 371.4 | 371.4 | 0.0 | ||||||||||||||||||
Positive replacement values | 84.3 | 84.3 | 0.0 | 82.1 | 82.1 | 0.0 | ||||||||||||||||||
Loans | 212.5 | 213.8 | 1.3 | 211.8 | 214.1 | 2.3 | ||||||||||||||||||
Financial investments | 5.1 | 5.1 | 0.0 | 8.4 | 8.4 | 0.0 | ||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Due to banks | 127.2 | 127.2 | 0.0 | 83.4 | 83.4 | 0.0 | ||||||||||||||||||
Cash collateral on securities lent | 53.3 | 53.3 | 0.0 | 36.9 | 36.9 | 0.0 | ||||||||||||||||||
Repurchase agreements | 415.9 | 415.9 | 0.0 | 366.9 | 366.9 | 0.0 | ||||||||||||||||||
Trading portfolio liabilities | 144.0 | 144.0 | 0.0 | 106.5 | 106.5 | 0.0 | ||||||||||||||||||
Negative replacement values | 93.6 | 93.6 | 0.0 | 81.3 | 81.3 | 0.0 | ||||||||||||||||||
Due to customers | 347.3 | 347.3 | 0.0 | 307.4 | 307.5 | (0.1 | ) | |||||||||||||||||
Debt issued | 120.2 | 121.5 | (1.3 | ) | 129.8 | 131.7 | (1.9 | ) | ||||||||||||||||
Subtotal | 0.0 | 0.3 | ||||||||||||||||||||||
Unrealized gains and losses recorded in shareholders’ equity before tax on: | ||||||||||||||||||||||||
Financial investments | 0.8 | 1.1 | ||||||||||||||||||||||
Derivative instruments designated as cash flow hedges | (0.2 | ) | (0.3 | ) | ||||||||||||||||||||
Net unrealized gains and losses not recognized in the income statement | 0.6 | 1.1 | ||||||||||||||||||||||
The table does not reflect the fair values of non-financial assets and liabilities such as property, equipment, goodwill, prepayments and non-interest accruals. Where applicable, the interest accrued to date on financial instruments is included, for purposes of the above fair value disclosure, in the carrying value of the financial instruments.
included in the Positive or Negative replacement values in the above table. When the interest rate risk on a fixed rate financial instrument is hedged with a derivative in a fair value hedge, the fixed rate financial instrument (or hedged portion thereof) is reflected in the above table at fair value only in relation to the interest rate risk, not the credit risk as explained in (f) above. Fair value changes are recorded in net profit. The treatment of derivatives designated as cash flow hedges is explained in Note 1v). The amount shown in the table as “derivative instruments designated as cash flow hedges” is the net change in fair values on such derivatives that is recorded in Shareholders’ equity and not yet transferred to income or expense.
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a) Defined benefit plans
Swiss pension plan
excess employer contributions. In 2003, the remaining CHF 33 million (2002 CHF 323 million, 2001 CHF 0 million) of this asset was used to fund the employer contributions and was recognized as a pension expense.
Foreign pension plans
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Financial Statements
Notes to the Financial Statements
Note 31 Pension and Other Post-Retirement Benefit Plans (continued)
b) Post-retirement medical and life plans
2003, 31 December 2002 and 31 December 2001 were CHF 22 million, CHF 25 million and CHF 24 million, respectively.
c) Defined contribution plans
a) Defined benefit plans
Swiss | Foreign | |||||||||||||||||||||||
CHF million | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | ||||||||||||||||||
Defined benefit obligation at the beginning of the year | (19,204 | ) | (17,879 | ) | (17,712 | ) | (3,436 | ) | (3,553 | ) | (3,406 | ) | ||||||||||||
Service cost | (564 | ) | (554 | ) | (541 | ) | (91 | ) | (108 | ) | (121 | ) | ||||||||||||
Interest cost | (703 | ) | (699 | ) | (674 | ) | (197 | ) | (210 | ) | (204 | ) | ||||||||||||
Plan amendments | (1 | ) | ||||||||||||||||||||||
Special termination benefits | (70 | ) | (209 | ) | (262 | ) | ||||||||||||||||||
Actuarial gain / (loss) | 1,395 | (681 | ) | 421 | (201 | ) | (177 | ) | (345 | ) | ||||||||||||||
Benefits paid | 930 | 818 | 889 | 124 | 111 | 107 | ||||||||||||||||||
Curtailment / settlement | 74 | |||||||||||||||||||||||
Foreign currency translation | 138 | 427 | (12 | ) | ||||||||||||||||||||
Other | 429 | |||||||||||||||||||||||
Defined benefit obligation at the end of the year | (18,216 | ) | (19,204 | ) | (17,879 | ) | (3,663 | ) | (3,436 | ) | (3,553 | ) | ||||||||||||
Fair value of plan assets at the beginning of the year | 16,566 | 18,289 | 19,074 | 2,382 | 2,887 | 3,378 | ||||||||||||||||||
Actual return on plan assets | 1,411 | (1,350 | ) | (765 | ) | 429 | (240 | ) | (220 | ) | ||||||||||||||
Employer contributions | 370 | 236 | 656 | 831 | 164 | 258 | ||||||||||||||||||
Plan participant contributions | 202 | 209 | 213 | |||||||||||||||||||||
Benefits paid | (930 | ) | (818 | ) | (889 | ) | (124 | ) | (111 | ) | (107 | ) | ||||||||||||
Foreign currency translation | (116 | ) | (318 | ) | 7 | |||||||||||||||||||
Other | (429 | ) | ||||||||||||||||||||||
Fair value of plan assets at the end of the year | 17,619 | 16,566 | 18,289 | 3,402 | 2,382 | 2,887 | ||||||||||||||||||
Funded status | (597 | ) | (2,638 | ) | 410 | (261 | ) | (1,054 | ) | (666 | ) | |||||||||||||
Unrecognized net actuarial (gains) / losses | 1,716 | 3,892 | 961 | 970 | 1,126 | 673 | ||||||||||||||||||
Unrecognized prior service cost | 1 | 1 | 2 | |||||||||||||||||||||
Unrecognized asset | (1,119 | ) | (1,221 | ) | (1,015 | ) | ||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 33 | 356 | 710 | 73 | 9 | ||||||||||||||||||
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Note 31 Pension and Other Post-Retirement Benefit Plans
(continued)
a) Defined benefit plans (continued)
Swiss | Foreign | |||||||||||||||||||||||
CHF million | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | ||||||||||||||||||
Movement in the net (liability) or asset | ||||||||||||||||||||||||
(Accrued) / prepaid pension cost at the beginning of the year | 33 | 356 | 356 | 73 | 9 | (153 | ) | |||||||||||||||||
Net periodic pension cost | (403 | ) | (559 | ) | (656 | ) | (168 | ) | (83 | ) | (97 | ) | ||||||||||||
Employer contributions | 370 | 236 | 656 | 831 | 164 | 258 | ||||||||||||||||||
Foreign currency translation | (26 | ) | (17 | ) | 1 | |||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 33 | 356 | 710 | 73 | 9 | ||||||||||||||||||
Amounts recognized in the Balance Sheet | ||||||||||||||||||||||||
Prepaid pension cost | 33 | 356 | 862 | 220 | 185 | |||||||||||||||||||
Accrued pension liability | (152 | ) | (147 | ) | (176 | ) | ||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 33 | 356 | 710 | 73 | 9 | ||||||||||||||||||
CHF million For the year ended | ||||||||||||||||||||||||
Components of net periodic pension cost | ||||||||||||||||||||||||
Service cost | 564 | 554 | 541 | 91 | 108 | 121 | ||||||||||||||||||
Interest cost | 703 | 699 | 674 | 197 | 210 | 204 | ||||||||||||||||||
Expected return on plan assets | (818 | ) | (900 | ) | (947 | ) | (178 | ) | (199 | ) | (228 | ) | ||||||||||||
Increase / (decrease) of unrecognized assets | (102 | ) | 206 | 339 | ||||||||||||||||||||
Special termination benefits | 70 | 209 | 262 | |||||||||||||||||||||
Amortization of unrecognized prior service cost | 1 | |||||||||||||||||||||||
Amortization of unrecognized net (gains) / losses | 188 | 58 | 22 | |||||||||||||||||||||
Curtailment / settlement | (59 | ) | ||||||||||||||||||||||
Employee contributions | (202 | ) | (209 | ) | (213 | ) | ||||||||||||||||||
Net periodic pension cost | 403 | 559 | 656 | 168 | 83 | 97 | ||||||||||||||||||
Principal actuarial assumptions used (%) | ||||||||||||||||||||||||
Assumptions used to determine defined benefit obligations at the end of the year | ||||||||||||||||||||||||
Discount rate | 3.8 | 3.8 | 4.0 | 5.7 | 5.8 | 6.2 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.6 | 4.4 | 4.4 | ||||||||||||||||||
Rate of pension increase | 1.0 | 1.5 | 1.5 | 1.9 | 1.5 | 1.5 | ||||||||||||||||||
Assumptions used to determine net periodic pension cost for the year ended | ||||||||||||||||||||||||
Discount rate | 3.8 | 4.0 | 4.0 | 5.8 | 6.2 | 6.3 | ||||||||||||||||||
Expected rate of return on plan assets | 5.0 | 5.0 | 5.0 | 7.1 | 7.3 | 7.9 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.4 | 4.4 | 4.4 | ||||||||||||||||||
Rate of pension increase | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 | 1.6 | ||||||||||||||||||
Plan assets | ||||||||||||||||||||||||
Actual plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 39 | 35 | 45 | 52 | 57 | 57 | ||||||||||||||||||
Debt instruments | 43 | 47 | 39 | 30 | 36 | 35 | ||||||||||||||||||
Real estate | 12 | 13 | 13 | 1 | 1 | 1 | ||||||||||||||||||
Other | 6 | 5 | 3 | 17 | 6 | 7 | ||||||||||||||||||
Total | 100 | 100 | 100 | 100 | 100 | 100 | ||||||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 31 Pension and Other Post-Retirement Benefit Plans
(continued)
a) Defined benefit plans (continued)
Swiss | Foreign | |||||||||||||||||||||||
31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||||||
Long-term target plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 35–53 | 51–55 | ||||||||||||||||||||||
Debt instruments | 30–48 | 44–46 | ||||||||||||||||||||||
Real estate | 12–19 | 0–1 | ||||||||||||||||||||||
Other | 0 | 1–2 | ||||||||||||||||||||||
Actual return on plan assets (%) | 8.6 | (7.5 | ) | (4.0 | ) | 17.8 | (8.7 | ) | (7.3 | ) | ||||||||||||||
CHF million | ||||||||||||||||||||||||
Additional details to fair value of plan assets | ||||||||||||||||||||||||
UBS financial instruments and UBS bank accounts | 1,005 | 814 | 476 | |||||||||||||||||||||
UBS AG shares1 | 246 | 206 | 305 | |||||||||||||||||||||
Securities lent to UBS included in plan assets | 2,930 | 2,645 | 824 | |||||||||||||||||||||
Other assets used by UBS included in plan assets | 84 | 90 | 104 | |||||||||||||||||||||
b) Post-retirement medical and life plans
CHF million | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Post-retirement benefit obligation at the beginning of the year | (166 | ) | (145 | ) | (115 | ) | ||||||
Service cost | (11 | ) | (8 | ) | (7 | ) | ||||||
Interest cost | (10 | ) | (9 | ) | (9 | ) | ||||||
Plan amendments | (3 | ) | (10 | ) | ||||||||
Actuarial gain / (loss) | (14 | ) | (31 | ) | (6 | ) | ||||||
Benefits paid | 6 | 4 | 4 | |||||||||
Foreign currency translation | 16 | 26 | (2 | ) | ||||||||
Post-retirement benefit obligation at the end of the year | (179 | ) | (166 | ) | (145 | ) | ||||||
Fair value of plan assets at the beginning of the year | 2 | 3 | 4 | |||||||||
Actual return on plan assets | 0 | 0 | 0 | |||||||||
Employer contributions | 4 | 3 | 3 | |||||||||
Benefits paid | (6 | ) | (4 | ) | (4 | ) | ||||||
Fair value of plan assets at the end of the year | 0 | 2 | 3 | |||||||||
The assumed average health care cost trend rates used in determining post-retirement benefit expense is assumed to be 10.3% for 2003 and to decrease to an ultimate trend rate of 5% in 2010. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in the assumed health care cost trend rates would change the US post-retirement benefit obligation and the service and interest cost components of the net periodic post-retirement benefit costs as follows:
CHF million | 1% increase | 1% decrease | ||||||
Effect on total service and interest cost | 5 | (4 | ) | |||||
Effect on the post-retirement benefit obligation | 25 | (19 | ) | |||||
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UBS has established several equity participation plans to further align the long-term interests of executives, managers, staff and shareholders. The plans are offered to eligible employees in approximately 50 countries and are designed to meet the complex legal, tax and regulatory requirements of each country in which they are offered. The explanations below describe the most significant plans in general, but specific plan rules and investment offerings may vary by country.
and non-UBS mutual funds and other UBS sponsored funds. EOP awards vest in one-third increments over a three-year vesting period. Under certain conditions, these awards are fully forfeitable by the employee.
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Financial Statements
Notes to the Financial Statements
Note 32 Equity Participation Plans (continued)
b) UBS share awards
i) Stock compensation plans
Movements in shares granted under various equity participation plans mentioned on the previous page are as follows:
Stock compensation plans | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Unvested shares outstanding, at the beginning of the year | 48,136,561 | 52,299,332 | 47,458,928 | |||||||||
Shares awarded during the year | 11,023,553 | 13,511,655 | 16,850,859 | |||||||||
Vested during the year | (26,915,860 | ) | (16,333,832 | ) | (10,740,466 | ) | ||||||
Forfeited during the year | (860,364 | ) | (1,340,594 | ) | (1,269,989 | ) | ||||||
Unvested shares outstanding, at the end of the year | 31,383,890 | 48,136,561 | 52,299,332 | |||||||||
Weighted-average fair market value of shares awarded (in CHF) | 61 | 71 | 90 | |||||||||
Fair market value of outstanding shares at the end of the year (CHF billion) | 2.7 | 3.2 | 4.4 | |||||||||
ii) Stock purchase plans
The following table shows the shares awarded and the weighted-average fair value per share for the Group’s stock purchase plans.
Stock purchase plans | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Share quantity purchased through discounted purchase plans | 1,722,492 | 1,339,223 | 1,701,099 | |||||||||
Weighted-average purchase price (in CHF) | 31 | 40 | 47 | |||||||||
Share quantity purchased through EP at fair market value | 2,593,391 | 2,483,684 | 1,221,416 | |||||||||
Weighted-average purchase price (in CHF) | 61 | 77 | ||||||||||
Weighted-average purchase price (in USD) | 49 | 46 | 51 | |||||||||
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Note 32 Equity Participation Plans (continued)
c) UBS option awards
Movements in options granted under various equity participation plans mentioned on the previous page are as follows:
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
average | average | average | ||||||||||||||||||||||
exercise | exercise | exercise | ||||||||||||||||||||||
Number of | price | Number of | price | Number of | price | |||||||||||||||||||
options | (in CHF) | options | (in CHF) | options | (in CHF) | |||||||||||||||||||
31.12.03 | 31.12.031 | 31.12.02 | 31.12.021 | 31.12.01 | 31.12.011 | |||||||||||||||||||
Outstanding, at the beginning of the year | 88,164,227 | 67 | 63,286,669 | 66 | 63,308,502 | 58 | ||||||||||||||||||
Granted during the year | 38,969,319 | 59 | 37,060,178 | 71 | 11,070,992 | 94 | ||||||||||||||||||
Exercised during the year | (14,782,471 | ) | 54 | (9,595,133 | ) | 54 | (10,083,075 | ) | 49 | |||||||||||||||
Forfeited during the year | (2,721,970 | ) | 64 | (2,082,356 | ) | 71 | (1,009,750 | ) | 74 | |||||||||||||||
Expired unexercised | (589,079 | ) | 76 | (505,131 | ) | 77 | 0 | 0 | ||||||||||||||||
Outstanding, at the end of the year | 109,040,026 | 63 | 88,164,227 | 67 | 63,286,669 | 66 | ||||||||||||||||||
Exercisable, at the end of the year | 34,726,720 | 59 | 21,765,482 | 51 | 25,550,932 | 50 | ||||||||||||||||||
The following table summarizes additional information about stock options outstanding at 31 December 2003:
Options outstanding | Options exercisable | |||||||||||||||||||
Range of exercise | Number of options | Weighted-average | Weighted-average | Number of | Weighted-average | |||||||||||||||
prices per share | outstanding | exercise price | remaining contractual life | options exercisable | exercise price | |||||||||||||||
CHF | CHF | Years | CHF | |||||||||||||||||
53.37–70.00 | 27,389,634 | 61.17 | 6.4 | 10,496,007 | 63.76 | |||||||||||||||
70.01–85.00 | 23,708,208 | 78.13 | 6.7 | 8,845,007 | 78.52 | |||||||||||||||
85.01–106.00 | 5,686,709 | 98.66 | 4.7 | 420,348 | 87.56 | |||||||||||||||
53.37–106.00 | 56,784,551 | 72.00 | 6.3 | 19,761,362 | 70.87 | |||||||||||||||
USD | USD | Years | USD | |||||||||||||||||
6.48–35.00 | 6,342,786 | 19.32 | 2.0 | 6,342,786 | 19.32 | |||||||||||||||
35.01–45.00 | 14,530,862 | 43.15 | 9.1 | 79,679 | 39.52 | |||||||||||||||
45.01–55.00 | 26,951,159 | 47.30 | 7.1 | 8,500,619 | 46.57 | |||||||||||||||
55.01–65.31 | 4,430,668 | 59.11 | 7.4 | 42,274 | 57.87 | |||||||||||||||
6.48–65.31 | 52,255,475 | 43.75 | 7.1 | 14,965,358 | 35.02 | |||||||||||||||
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Financial Statements
Notes to the Financial Statements
Generally under IFRS, for all equity participation instruments (shares, cash-settled warrants and other cash-settled derivatives for which the underlying is UBS shares) except options, UBS accrues expense in the performance year and determines the number of instruments granted to employees based on the instrument’s market price at the grant date, which is generally in the year following the performance year. For options, the amount of expense recognized is equal to the intrinsic value at grant date (i. e. the difference between the strike price and fair
market value of shares at the date of grant. This difference is generally zero, as option strike prices are generally at or above the market prices of the shares). For discounted share plans, the expense is equal to the difference between the fair market value and the discounted value and is accrued for in the performance year. Management’s estimate of the accrued expense before tax for share-based compensation for the years ended 31 December 2003, 2002 and 2001 was CHF 833 million, CHF 592 million and CHF 974 million, respectively.
The following table presents IFRS Net profit and Earnings per share for 2003, 2002 and 2001 as if UBS had applied the fair value method of accounting for its equity participation plans. The
fair value method would recognize expense equal to the fair value of option awards at grant, which is higher than the intrinsic value because of the time value of options.
CHF million, except per share data | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Net Profit, as reported | 6,385 | 3,535 | 4,973 | |||||||||
Add: Equity-based employee compensation expense included in reported net income, net of tax | 630 | 493 | 769 | |||||||||
Deduct: Total equity-based employee compensation expense determined under the fair-value-based method for all awards, net of tax | (1,069 | ) | (1,183 | ) | (1,116 | ) | ||||||
Net profit, pro-forma | 5,946 | 2,845 | 4,626 | |||||||||
Earnings per share | ||||||||||||
Basic, as reported | 5.72 | 2.92 | 3.93 | |||||||||
Basic, pro-forma | 5.32 | 2.35 | 3.65 | |||||||||
Diluted, as reported | 5.61 | 2.87 | 3.78 | |||||||||
Diluted, pro-forma | 5.22 | 2.31 | 3.51 | |||||||||
The fair value of options granted was determined using a proprietary option pricing model, substantially similar to the Black-Scholes model, with the following assumptions:
31.12.03 | 31.12.02 | 31.12.01 | ||||||||||
Expected volatility | 35% | 35% | 30% | |||||||||
Risk-free interest rate (CHF) | 1.70% | 3.28% | 3.51% | |||||||||
Risk-free interest rate (USD) | 3.17% | 4.65% | 5.81% | |||||||||
Expected dividend rate | 4.43% | 3.35% | 2.67% | |||||||||
Expected life (years) | 4.5 | 4.5 | 4.5 | |||||||||
The weighted-average fair value of options granted in 2003, 2002 and 2001 was CHF 15, CHF 20 and CHF 23 per share, respectively.
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For its 2003 and 2002 Financial Statements, the Group defines related parties as Associated companies, private equity investees, the Board of Directors, the Group Executive Board, close family members and enterprises which are controlled by these individuals through their majority shareholding or their role as chairman and / or CEO in those companies. In 2001, the Group Managing Board was also included in the above definition.
a) Remuneration and equity holdings
The executive members of the Board of Directors have top-management employment contracts and receive pension benefits upon retirement. Total remuneration to the executive members of the Board of Directors and Group Executive Board recognized in the income statement including cash, shares and accrued pension benefits amounted to CHF 144.6 million in 2003 and CHF 131.8 million in 2002. Total compensation numbers exclude merger-related retention payments for the two ex-PaineWebber executives of CHF 21.1 million (USD 17.0 million) in 2003 and CHF 20.6 million (USD 14.9 million) in 2002. These retention payments were committed to at the time of the merger in 2000 and fully disclosed at the time. Total remuneration to the executive members of
the Board of Directors, Group Executive Board and Group Managing Board including accrued pension benefits amounted to CHF 321.4 million in 2001.
b) Loans and advances to Board of Directors and senior executives
The outstanding balance of loans to the members of the Board of Directors, the Group Executive Board and close family members amounted to CHF 25.2 million at 31 December 2003 and CHF 28 million at 31 December 2002. In the past, executive members of the Board and GEB
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Financial Statements
Notes to the Financial Statements
Note 33 Related Parties (continued)
members were granted loans, fixed advances and mortgages at 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. New loans and mortgages
are now granted at general market conditions with no preferential rates, following the US Sarbanes-Oxley Act of 2002. Non-executive Board members are granted loans and mortgages at general market conditions.
c) Loans, advances to and transactions with significant associated companies
CHF million | 31.12.03 | 31.12.02 | ||||||
Balance at the beginning of the year | 40 | 65 | ||||||
Additions | 48 | 10 | ||||||
Reductions | (25 | ) | (35 | ) | ||||
Balance at the end of the year | 63 | 40 | ||||||
All loans and advances to associated companies are transacted at arm’s length. At 31 December 2003 and 2002, there were trading exposures and guarantees to significant associated companies of CHF 35 million and CHF 136 million, respectively. In addition, the Group routinely receives services from associated companies at arm’s length terms. For the years ended 31 December 2003, 31 December 2002 and 31 December 2001, the amount paid to significant associates for these services was CHF 106 million, CHF 60 million and CHF 98 million, respectively.
d) Loans, advances to and transactions with private equity investees
CHF million | 31.12.03 | 31.12.02 | ||||||
Balance at the beginning of the year | 338 | 489 | ||||||
Additions | 153 | 328 | ||||||
Reductions | (125 | ) | (479 | ) | ||||
Balance at the end of the year | 366 | 338 | ||||||
At 31 December 2003 and 31 December 2002, there were trading exposures and guarantees or commitments to private equity companies of CHF 23 million and CHF 73 million, respectively. In addition the Group purchased services from private equity companies at arm’s length terms for the years ended 31 December 2003, 31 December 2002 and 31 December 2001 in the amount of CHF 14 million, CHF 116 million and CHF 196 million, respectively.
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Note 33 Related Parties (continued)
e) Other related party transactions
During 2003 and 2002, UBS entered into the following transactions at arm’s length with companies whose Chairman and / or CEO is an external member of the Board of Directors of UBS or of which an external director is a controlling shareholder.
CHF million | 2003 | 2002 | ||||||
Goods sold and services provided by related parties to UBS | 43 | 54 | ||||||
Services provided to related parties by UBS (fees received) | 7 | 13 | ||||||
Loans granted to related parties by UBS | 79 | 1 | 140 | |||||
As part of its sponsorship of Team Alinghi, UBS paid CHF 12 million to AC 2003 SA during 2002. AC 2003 SA, whose controlling shareholder is UBS board member Ernesto Bertarelli, is Team Alinghi’s management company.
157
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Financial Statements
Notes to the Financial Statements
Note 34 Sales of Financial Assets in Securitizations
During the years ended 31 December 2003, 2002 and 2001, UBS securitized (i.e., transformed owned financial assets into securities through sales transactions) residential mortgage loans and securities, commercial mortgage loans and other financial assets, acting as lead or co-manager. UBS’s continuing involvement in these transactions was primarily limited to the temporary retention of various security interests.
Proceeds Received | ||||||||||||
CHF billion | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Residential mortgage securitizations | 131 | 143 | 68 | |||||||||
Commercial mortgage securitizations | 4 | 4 | 4 | |||||||||
Other financial asset securitizations | 2 | 6 | 3 | |||||||||
Related pre-tax gains (losses) recognized, including unrealized gains (losses) on retained interests, at the time of securitization were as follows:
Pre-tax gains / (losses) recognized | ||||||||||||
CHF million | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Residential mortgage securitizations | 338 | 524 | 113 | |||||||||
Commercial mortgage securitizations | 214 | 206 | 130 | |||||||||
Other financial asset securitizations | 2 | (5 | ) | 21 | ||||||||
At 31 December 2003 and 2002, UBS retained CHF 3.8 billion and CHF 5.2 billion, respectively in agency residential mortgage securities, backed by the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). The fair value of retained interests in residential mortgage securities is generally determined using observable market prices. Retained interests in other residential mortgage, commercial mortgage and other securities were not material at 31 December 2003 and 2002.
There have been no material post-balance sheet events which would require disclosure or adjustment to the 31 December 2003 Financial Statements.
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The legal entity group structure of UBS is designed to support the Group’s businesses within an efficient legal, tax, regulatory and funding framework. Neither the Business Groups of UBS (namely Wealth Management & Business Banking, Global Asset Management, Investment Bank and Wealth Management USA) nor Corporate Center are replicated in their own individual legal entities but rather they generally operate out of the parent bank, UBS AG, through its Swiss and foreign branches.
Footnotes
1 | WM&BB: Wealth Management & Business Banking, Global AM: Global Asset Management, IB: Investment Bank, WM-US: Wealth Management USA, CC: Corporate Center. | |
2 | Share Capital and Share Premium. |
Significant subsidiaries
Equity | ||||||||||||||
Share | interest | |||||||||||||
Jurisdiction | Business | capital | accumu- | |||||||||||
Company | of incorporation | Group1 | in millions | lated in % | ||||||||||
Aventic AG | Zurich, Switzerland | WM&BB | CHF | 30.0 | 100.0 | |||||||||
Banco UBS SA | Rio de Janeiro, Brazil | IB | BRL | 52.9 | 100.0 | |||||||||
BDL Banco di Lugano | Lugano, Switzerland | CC | CHF | 50.0 | 100.0 | |||||||||
BDL Banco di Lugano (Singapore) Ltd | Singapore, Singapore | CC | SGD | 25.0 | 100.0 | |||||||||
Brunswick UBS Ltd | George Town, Cayman Islands | IB | USD | 25.0 | 50.0 | |||||||||
Cantrade Private Bank | ||||||||||||||
Switzerland (CI) Limited | St. Helier, Jersey | CC | GBP | 0.7 | 100.0 | |||||||||
Crédit Industriel SA | Zurich, Switzerland | WM&BB | CHF | 10.0 | 100.0 | |||||||||
Ehinger & Armand von Ernst AG | Zurich, Switzerland | CC | CHF | 21.0 | 100.0 | |||||||||
Factors AG | Zurich, Switzerland | WM&BB | CHF | 5.0 | 100.0 | |||||||||
Ferrier Lullin & Cie SA | Geneva, Switzerland | CC | CHF | 30.0 | 100.0 | |||||||||
GAM Holding AG | Zurich, Switzerland | CC | CHF | 116.0 | 100.0 | |||||||||
GAM Limited | Hamilton, Bermuda | CC | USD | 2.0 | 100.0 | |||||||||
Giubergia UBS SIM SpA | Milan, Italy | IB | EUR | 15.1 | 50.0 | |||||||||
Noriba Bank BSC | Manama, Bahrain | WM&BB | USD | 10.0 | 100.0 | |||||||||
PaineWebber Capital Inc | Delaware, USA | WM-US | USD | 25.8 | 2 | 100.0 | ||||||||
PT UBS Securities Indonesia | Jakarta, Indonesia | IB | IDR | 25,000.0 | 93.4 | |||||||||
SBC Wealth Management AG | Zug, Switzerland | CC | CHF | 290.1 | 100.0 | |||||||||
SBCI IB Limited | London, Great Britain | IB | GBP | 100.0 | 100.0 | |||||||||
SG Warburg & Co International BV | Amsterdam, the Netherlands | IB | GBP | 40.5 | 100.0 | |||||||||
Thesaurus Continentale | ||||||||||||||
Effekten-Gesellschaft in Zürich | Zurich, Switzerland | WM&BB | CHF | 30.0 | 100.0 | |||||||||
UBS (Bahamas) Ltd | Nassau, Bahamas | WM&BB | USD | 4.0 | 100.0 | |||||||||
UBS (France) SA | Paris, France | WM&BB | EUR | 10.7 | 100.0 | |||||||||
UBS (Italia) SpA | Milan, Italy | WM&BB | EUR | 42.0 | 100.0 | |||||||||
UBS (Luxembourg) SA | Luxembourg, Luxembourg | WM&BB | CHF | 150.0 | 100.0 | |||||||||
UBS (Monaco) SA | Monte Carlo, Monaco | WM&BB | EUR | 9.2 | 100.0 | |||||||||
UBS (Trust and Banking) Limited | Tokyo, Japan | Global AM | JPY | 10,900.0 | 100.0 | |||||||||
UBS Advisory and | ||||||||||||||
Capital Markets Australia Ltd | Sydney, Australia | IB | AUD | 580.8 | 2 | 100.0 | ||||||||
UBS Americas Inc | Delaware, USA | IB | USD | 4,490.8 | 2 | 100.0 | ||||||||
UBS Asesores SA | Panama, Panama | WM&BB | USD | – | 100.0 | |||||||||
UBS Australia Limited | Sydney, Australia | IB | AUD | 50.0 | 100.0 | |||||||||
UBS Bank (Canada) | Toronto, Canada | WM&BB | CAD | 8.5 | 100.0 | |||||||||
UBS Bank USA | Utah, USA | WM-US | USD | 1,700.0 | 2 | 100.0 | ||||||||
UBS Belgium SA / NV | Brussels, Belgium | WM&BB | EUR | 14.5 | 100.0 | |||||||||
UBS Beteiligungs-GmbH & Co KG | Frankfurt am Main, Germany | IB | EUR | 398.8 | 100.0 | |||||||||
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Financial Statements
Notes to the Financial Statements
Note 36 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued)
Footnotes
1 | WM&BB: Wealth Management & Business Banking, Global AM: Global Asset Management, IB: Investment Bank, WM-US: Wealth Management USA, CC: Corporate Center. | |
2 | Share Capital and Share Premium. |
Equity | ||||||||||||||
Share | interest | |||||||||||||
Jurisdiction | Business | capital | accumu- | |||||||||||
Company | of incorporation | Group1 | in millions | lated in % | ||||||||||
UBS Capital (Jersey) Ltd | St. Helier, Jersey | IB | GBP | 226.0 | 100.0 | |||||||||
UBS Capital AG | Zurich, Switzerland | IB | CHF | 5.0 | 100.0 | |||||||||
UBS Capital Americas Investments II LLC | Delaware, USA | IB | USD | 130.0 | 2 | 100.0 | ||||||||
UBS Capital Americas Investments III Ltd | George Town, Cayman Islands | IB | USD | 61.1 | 2 | 100.0 | ||||||||
UBS Capital Asia Pacific Limited | George Town, Cayman Islands | IB | USD | 5.0 | 100.0 | |||||||||
UBS Capital BV | Amsterdam, the Netherlands | IB | EUR | 118.8 | 2 | 100.0 | ||||||||
UBS Capital II LLC | Delaware, USA | IB | USD | 2.6 | 2 | 100.0 | ||||||||
UBS Capital Latin America LDC | George Town, Cayman Islands | IB | USD | 113.0 | 2 | 100.0 | ||||||||
UBS Capital LLC | Delaware, USA | IB | USD | 378.5 | 2 | 100.0 | ||||||||
UBS Capital SpA | Milan, Italy | IB | EUR | 25.8 | 100.0 | |||||||||
UBS Card Center AG | Glattbrugg, Switzerland | WM&BB | CHF | 40.0 | 100.0 | |||||||||
UBS Corporate Finance Italia SpA | Milan, Italy | IB | EUR | 1.9 | 100.0 | |||||||||
UBS Corporate Finance | ||||||||||||||
South Africa (Proprietary) Limited | Sandton, South Africa | IB | ZAR | – | 100.0 | |||||||||
UBS Derivatives Hong Kong Limited | Hong Kong, China | IB | HKD | 20.0 | 100.0 | |||||||||
UBS Employee Benefits Trust Limited | St. Helier, Jersey | CC | CHF | – | 100.0 | |||||||||
UBS Equity Research Malaysia Sdn Bhd | Kuala Lumpur, Malaysia | IB | MYR | 0.5 | 70.0 | |||||||||
UBS España SA | Madrid, Spain | WM&BB | EUR | 115.3 | 100.0 | |||||||||
UBS Fiduciaria SpA | Milan, Italy | WM&BB | EUR | 0.2 | 100.0 | |||||||||
UBS Fiduciary Trust Company | New Jersey, USA | WM-US | USD | 4.4 | 2 | 99.6 | ||||||||
UBS Finance (Cayman Islands) Ltd | George Town, Cayman Islands | CC | USD | 0.5 | 100.0 | |||||||||
UBS Finance (Curação) NV | Willemstad, Netherlands Antilles | CC | USD | 0.1 | 100.0 | |||||||||
UBS Finance (Delaware) LLC | Delaware, USA | IB | USD | 37.3 | 2 | 100.0 | ||||||||
UBS Financial Services Inc. | Delaware, USA | WM-US | USD | 1,672.3 | 2 | 100.0 | ||||||||
UBS Financial Services | ||||||||||||||
Incorporated of Puerto Rico | Hato Rey, Puerto Rico | WM-US | USD | 31.0 | 2 | 100.0 | ||||||||
UBS Finanzholding AG | Zurich, Switzerland | CC | CHF | 10.0 | 100.0 | |||||||||
UBS Fund Advisor LLC | Delaware, USA | WM-US | USD | – | 100.0 | |||||||||
UBS Fund Holding (Luxembourg) SA | Luxembourg, Luxembourg | Global AM | CHF | 42.0 | 100.0 | |||||||||
UBS Fund Holding (Switzerland) AG | Basel, Switzerland | Global AM | CHF | 18.0 | 100.0 | |||||||||
UBS Fund Management (Switzerland) AG | Basel, Switzerland | Global AM | CHF | 1.0 | 100.0 | |||||||||
UBS Fund Services (Cayman) Ltd | George Town, Cayman Islands | Global AM | USD | 5.6 | 100.0 | |||||||||
UBS Fund Services (Luxembourg) SA | Luxembourg, Luxembourg | Global AM | CHF | 2.5 | 100.0 | |||||||||
UBS Global Asset Management | ||||||||||||||
(Americas) Inc | Delaware, USA | Global AM | USD | – | 100.0 | |||||||||
UBS Global Asset Management | ||||||||||||||
(Australia) Ltd | Sydney, Australia | Global AM | AUD | 8.0 | 100.0 | |||||||||
UBS Global Asset Management | ||||||||||||||
(Canada) Co | Halifax, Canada | Global AM | CAD | 117.0 | 100.0 | |||||||||
UBS Global Asset Management | ||||||||||||||
(France) SA | Paris, France | WM&BB | EUR | 2.1 | 100.0 | |||||||||
UBS Global Asset Management | ||||||||||||||
(Hong Kong) Limited | Hong Kong, China | Global AM | HKD | 25.0 | 100.0 | |||||||||
UBS Global Asset Management | ||||||||||||||
(Italia) SIM SpA | Milan, Italy | Global AM | EUR | 2.0 | 100.0 | |||||||||
UBS Global Asset Management | ||||||||||||||
(Japan) Ltd | Tokyo, Japan | Global AM | JPY | 2,200.0 | 100.0 | |||||||||
UBS Global Asset Management | ||||||||||||||
(Singapore) Ltd | Singapore, Singapore | Global AM | SGD | 4.0 | 100.0 | |||||||||
UBS Global Asset Management | ||||||||||||||
(Taiwan) Ltd | Taipei, Taiwan | Global AM | TWD | 340.0 | 84.1 | |||||||||
UBS Global Asset Management (US) Inc | Delaware, USA | Global AM | USD | 35.2 | 2 | 100.0 | ||||||||
UBS Global Asset Management Holding Ltd | London, Great Britain | Global AM | GBP | 8.0 | 100.0 | |||||||||
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Note 36 Significant Subsidiaries and Associates (continued)
Significant subsidiaries continued)
Footnotes
1 | WM&BB: Wealth Management & Business Banking, Global AM: Global Asset Management, IB: Investment Bank, WM-US: Wealth Management USA, CC: Corporate Center. | |
2 | Share Capital and Share Premium. |
Equity | ||||||||||||||
Share | interest | |||||||||||||
Jurisdiction | Business | capital | accumu- | |||||||||||
Company | of incorporation | Group1 | in millions | lated in % | ||||||||||
UBS Global Trust Corporation | St. John, Canada | WM&BB | CAD | 0.1 | 100.0 | |||||||||
UBS International Holdings BV | Amsterdam, the Netherlands | CC | EUR | 6.8 | 100.0 | |||||||||
UBS International Inc | New York, USA | WM&BB | USD | 34.3 | 2 | 100.0 | ||||||||
UBS International Life Limited | Dublin, Ireland | WM&BB | EUR | 1.0 | 100.0 | |||||||||
UBS Invest Kapitalanlagegesellschaft mbH | Frankfurt am Main, Germany | Global AM | EUR | 7.7 | 100.0 | |||||||||
UBS Investment Bank AG | Frankfurt am Main, Germany | IB | EUR | 155.7 | 100.0 | |||||||||
UBS Investment Bank Nederland BV | Amsterdam, the Netherlands | IB | EUR | 10.9 | 100.0 | |||||||||
UBS Leasing AG | Brugg, Switzerland | WM&BB | CHF | 10.0 | 100.0 | |||||||||
UBS Life AG | Zurich, Switzerland | WM&BB | CHF | 25.0 | 100.0 | |||||||||
UBS Limited | London, Great Britain | IB | GBP | 21.2 | 100.0 | |||||||||
UBS Loan Finance LLC | Delaware, USA | IB | USD | 16.7 | 100.0 | |||||||||
UBS Mortgage Holdings LLC | Delaware, USA | WM-US | USD | – | 100.0 | |||||||||
UBS New Zealand Limited | Auckland, New Zealand | IB | NZD | 7.5 | 100.0 | |||||||||
UBS O’Connor LLC | Delaware, USA | Global AM | USD | 1.0 | 100.0 | |||||||||
UBS PaineWebber Life Insurance Company | California, USA | WM-US | USD | 39.3 | 2 | 100.0 | ||||||||
UBS Portfolio LLC | New York, USA | IB | USD | 0.1 | 100.0 | |||||||||
UBS Preferred Funding Company LLC I | Delaware, USA | IB | USD | – | 100.0 | |||||||||
UBS Preferred Funding Company LLC II | Delaware, USA | IB | USD | – | 100.0 | |||||||||
UBS Preferred Funding Company LLC III | Delaware, USA | IB | USD | – | 100.0 | |||||||||
UBS Preferred Funding Company LLC IV | Delaware, USA | IB | USD | – | 100.0 | |||||||||
UBS Principal Finance LLC | Delaware, USA | IB | USD | 0.1 | 100.0 | |||||||||
UBS Private Clients Australia Ltd | Melbourne, Australia | IB | AUD | 53.9 | 100.0 | |||||||||
UBS Real Estate Investments Inc | Delaware, USA | IB | USD | 0.3 | 100.0 | |||||||||
UBS Real Estate Securities Inc | Delaware, USA | IB | USD | 0.4 | 100.0 | |||||||||
UBS Realty Investors LLC | Connecticut, USA | Global AM | USD | 9.3 | 100.0 | |||||||||
UBS Securities (Thailand) Ltd | Bangkok, Thailand | IB | THB | 400.0 | 100.0 | |||||||||
UBS Securities Asia Limited | Hong Kong, China | IB | HKD | 20.0 | 100.0 | |||||||||
UBS Securities Australia Ltd | Sydney, Australia | IB | AUD | 209.8 | 2 | 100.0 | ||||||||
UBS Securities Canada Inc | Toronto, Canada | IB | CAD | 10.0 | 50.0 | |||||||||
UBS Securities España | ||||||||||||||
Sociedad de Valores SA | Madrid, Spain | IB | EUR | 15.0 | 100.0 | |||||||||
UBS Securities France SA | Paris, France | IB | EUR | 22.9 | 100.0 | |||||||||
UBS Securities Hong Kong Limited | Hong Kong, China | IB | HKD | 30.0 | 100.0 | |||||||||
UBS Securities India Private Limited | Mumbai, India | IB | INR | 237.8 | 75.0 | |||||||||
UBS Securities International Limited | London, Great Britain | IB | GBP | 18.0 | 100.0 | |||||||||
UBS Securities Japan Ltd | George Town, Cayman Islands | IB | JPY | 50,000.0 | 100.0 | |||||||||
UBS Securities Limited | London, Great Britain | IB | GBP | 140.0 | 100.0 | |||||||||
UBS Securities LLC | Delaware, USA | IB | USD | 2,141.4 | 2 | 100.0 | ||||||||
UBS Securities Philippines Inc | Makati City, Philippines | IB | PHP | 150.0 | 100.0 | |||||||||
UBS Securities Singapore Pte Ltd | Singapore, Singapore | IB | SGD | 55.0 | 100.0 | |||||||||
UBS Securities South Africa | ||||||||||||||
(Proprietary) Limited | Sandton, South Africa | IB | ZAR | 87.1 | 2 | 100.0 | ||||||||
UBS Trust (Canada) | Toronto, Canada | WM&BB | CAD | 12.5 | 100.0 | |||||||||
UBS Trust Company National Association | New York, USA | WM-US | USD | 5.0 | 2 | 100.0 | ||||||||
UBS Trustees (Bahamas) Ltd | Nassau, Bahamas | WM&BB | USD | 2.0 | 100.0 | |||||||||
UBS Trustees (Cayman) Ltd | George Town, Cayman Islands | WM&BB | USD | 2.0 | 100.0 | |||||||||
UBS Trustees (Jersey) Ltd | St. Helier, Jersey | WM&BB | GBP | – | 100.0 | |||||||||
UBS Trustees (Singapore) Limited | Singapore, Singapore | WM&BB | SGD | 3.3 | 100.0 | |||||||||
UBS UK Holding Limited | London, Great Britain | IB | GBP | 5.0 | 100.0 | |||||||||
UBS Wealth Management AG | Hamburg, Germany | WM&BB | EUR | 51.0 | 100.0 | |||||||||
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Notes to the Financial Statements
Note 36 Significant Subsidiaries and Associates (continued)
Consolidated companies: changes in 2003
Significant new companies | ||
Giubergia UBS SIM SpA – Milan, Italy | ||
SBC Wealth Management AG – Zug, Switzerland UBS Bank USA – Utah, USA | ||
UBS International Life Limited – Dublin, Ireland | ||
UBS Preferred Funding Company LLC IV – Delaware, USA | ||
Deconsolidated companies
Significant deconsolidated companies | Reason for deconsolidation | |
Bank Ehinger & Cie AG – Basel, Switzerland | Merged | |
Cantrade Privatbank AG – Zurich, Switzerland | Merged | |
UBS (USA) Inc – Delaware, USA | Merged |
Significant associates
Equity interest | Share capital | ||||||||||
Company | Industry | in % | in millions | ||||||||
Motor Columbus AG – Baden, Switzerland | Electricity | 36 | CHF | 253 | |||||||
SIS Swiss Financial Services Group AG – Zurich, Switzerland | Financial | 33 | CHF | 26 | |||||||
Telekurs Holding AG – Zurich, Switzerland | Financial | 33 | CHF | 45 | |||||||
O’Connor Global Convertible Portfolio – | Private Investment | ||||||||||
Luxembourg, Luxembourg | Company | 60 | USD | 33 | 1 | ||||||
UBS Currrency Portfolio Ltd – | Private Investment | ||||||||||
George Town, Cayman Islands | Company | 20 | USD | 1,750 | 1 | ||||||
UBS Global Equity Arbitrage Ltd – | Private Investment | ||||||||||
George Town, Cayman Islands | Company | 52 | USD | 823 | 1 | ||||||
UBS Neutral Alpha Strategies Ltd – | Private Investment | ||||||||||
George Town, Cayman Islands | Company | 12 | USD | 695 | 1 | ||||||
Volbroker.com Limited – London, Great Britain | Financial | 21 | GBP | 18 | |||||||
None of the above investments carry voting rights that are significantly different from the proportion of shares held.
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Invested assetsinclude all client assets managed by or deposited with UBS for investment purposes only. They therefore exclude all assets held for purely transactional purposes. Assets included are, for example, managed fund assets, managed institutional assets, discretionary and advisory wealth management portfolios, fiduciary deposits, time deposits, savings accounts and wealth management securities or brokerage accounts. Custody-only assets and transactional cash or current accounts as well as non-bankable assets (e.g. art collections) and deposits from third-party banks for funding or trading purposes are excluded.
both the Business Group that does the investment management and the one that distributes it. This results in double counting within UBS total invested assets, as both Business Groups are providing a service independently to their respective clients, and both add value and generate revenue.
CHF billion | 31.12.03 | 31.12.02 | ||||||
Fund assets managed by UBS | 339 | 322 | ||||||
Discretionary assets | 511 | 446 | ||||||
Other invested assets | 1,359 | 1,269 | ||||||
Total invested assets | 2,209 | 2,037 | ||||||
thereof double count | 287 | 295 | ||||||
Net new money | 61.6 | 36.9 | ||||||
Note 38 Currency Translation Rates
The following table shows the principal rates used to translate the financial statements of foreign entities into Swiss francs:
Spot rate | Average rate | |||||||||||||||||||
As at | Year ended | |||||||||||||||||||
31.12.03 | 31.12.02 | 31.12.03 | 31.12.02 | 31.12.01 | ||||||||||||||||
1 USD | 1.24 | 1.38 | 1.34 | 1.54 | 1.69 | |||||||||||||||
1 EUR | 1.56 | 1.45 | 1.54 | 1.46 | 1.50 | |||||||||||||||
1 GBP | 2.22 | 2.23 | 2.20 | 2.33 | 2.44 | |||||||||||||||
100 JPY | 1.15 | 1.17 | 1.16 | 1.24 | 1.40 | |||||||||||||||
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The consolidated financial statements of UBS are prepared in accordance with International Financial Reporting Standards. Set out below are the significant differences regarding recognition and measurement between IFRS and the provisions of the Banking Ordinance and the Guidelines of the Swiss Banking Commission governing financial statement reporting pursuant to Article 23 through Article 27 of the Banking Ordinance.
1. Financial investments
or loss balance recognized in Shareholders’ equity, is included in net profit or loss for the period.
2. Cash flow hedges
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Note 40 Reconciliation of International Financial Reporting Standards (IFRS) to United States Generally Accepted Accounting Principles (US GAAP)
Note 40.1 Valuation and income recognition differences between IFRS and US GAAP
The consolidated financial statements of UBS have been prepared in accordance with IFRS. The principles of IFRS differ in certain respects from United States Generally Accepted Accounting Principles (“US GAAP”). The following is a summary of the relevant significant accounting and valuation differences between IFRS and US GAAP.
a. Purchase accounting (merger of Union Bank of Switzerland and Swiss Bank Corporation)
Under IFRS, the 1998 merger of Union Bank of Switzerland and Swiss Bank Corporation was accounted for under the uniting of interests method. The balance sheets and income statements of the banks were combined, and no adjustments were made to the carrying values of the assets and liabilities. Under US GAAP, the business combination creating UBS AG is accounted for under the purchase method with Union Bank of Switzerland being considered the acquirer. Under the purchase method, the cost of acquisition is measured at fair value and the acquirer’s interests in identifiable tangible assets and liabilities of the acquiree are restated to fair values at the date of acquisition. Any excess consideration paid over the fair value of net tangible assets acquired is allocated, first to identifiable intangible assets based on their fair values, if determinable, with the remainder allocated to goodwill.
Goodwill and intangible assets
On 1 January 2002, UBS adopted SFAS 141, “Business Combinations” and SFAS 142, “Goodwill and Other Intangible Assets”. SFAS 141 requires reclassification of intangible assets to goodwill which no longer meet the recognition criteria under the new standard. SFAS 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized but be tested annually for impairment. Identifiable intangible assets with finite lives will continue to be amortized. Upon adoption, the amortization charges related to the 1998 business combination of Union Bank of Switzerland and Swiss Bank Corporation ceased to be recorded under US GAAP.
Other purchase accounting adjustments
b. Reversal of IFRS goodwill amortization
The adoption of SFAS 142 “Goodwill and Intangible Assets” resulted in two new reconciling items: 1) Intangible assets on the IFRS balance sheet with a book value of CHF 1.8 billion at 31 December 2001 were reclassified to goodwill for US GAAP; 2) The amortization of IFRS goodwill and the intangible assets reclassified to goodwill for US GAAP (CHF 831 million and CHF 1,017 million for the years ended 31 December 2003 and 31 December 2002, respectively) was reversed for US GAAP.
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Notes to the Financial Statements
CHF million, except for per share data | ||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Reported Net profit under US GAAP | 6,513 | 5,546 | 3,234 | |||||||||
Add back: SBC purchase accounting goodwill | 0 | 0 | 1,657 | |||||||||
Add back: Amortization of intangibles reclassified to goodwill for US GAAP and / or IFRS goodwill | 0 | 0 | 886 | |||||||||
Adjusted net profit under US GAAP | 6,513 | 5,546 | 5,777 | |||||||||
Reported basic earnings per share under US GAAP | 5.83 | 4.59 | 2.58 | |||||||||
Add back: SBC purchase accounting goodwill | 0.00 | 0.00 | 1.32 | |||||||||
Add back: Amortization of intangibles reclassified to goodwill for US GAAP and / or IFRS goodwill | 0.00 | 0.00 | 0.71 | |||||||||
Adjusted basic earnings per share under US GAAP | 5.83 | 4.59 | 4.61 | |||||||||
Reported diluted earnings per share under US GAAP | 5.72 | 4.51 | 2.46 | |||||||||
Add back: SBC purchase accounting goodwill | 0.00 | 0.00 | 1.30 | |||||||||
Add back: Amortization of intangibles reclassified to goodwill for US GAAP and / or IFRS goodwill | 0.00 | 0.00 | 0.70 | |||||||||
Adjusted diluted earnings per share under US GAAP | 5.72 | 4.51 | 4.46 | |||||||||
The table below shows the estimated, aggregated amortization expenses for other intangible assets, which are still subject to an annual amortization, on a US GAAP basis:
CHF million | ||||
Estimated, aggregated amortization expense for: | ||||
2004 | 93 | |||
2005 | 90 | |||
2006 | 77 | |||
2007 | 70 | |||
2008 | 69 | |||
2009 and thereafter | 775 | |||
Total | 1,174 | |||
c. Restructuring provision
Under IFRS, restructuring provisions are recognized when a legal or constructive obligation has been incurred. In 1997, a CHF 7,000 million restructuring provision was recognized to cover personnel, IT, premises and other costs associated with combining and restructuring the merged banks. A further CHF 300 million provision was recognized in 1999, reflecting the impact of increased precision in the estimation of certain leased and owned property costs.
provision of CHF 1,575 million during 1998 for US GAAP. CHF 759 million of this provision related to estimated costs for restructuring the operations and activities of Swiss Bank Corporation, and that amount was recorded as a liability of the acquired business. The remaining CHF 816 million of estimated costs were charged to restructuring expense during 1998. The US GAAP restructuring provision was increased by CHF 600 million and CHF 130 million in 1999 and 2000, respectively.
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d. Derivative instruments
Derivative instruments held or issued for hedging activities
In addition, amounts deferred under previous hedging relationships that now do not qualify as hedges under IAS 39 are being amortized against IFRS net profit over the remaining life of the hedging relationship. Such amounts have been reversed for US GAAP as they have never been treated as hedges.
Derivative instruments indexed to UBS shares
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Financial Statements
Notes to the Financial Statements
Bifurcation of embedded issuer calls out of structured debt instruments
e. Financial investments and private equity
Financial investments available for sale
Private equity investments
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CHF million, except for per share data | pro-forma | pro-forma | pro-forma | |||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Net profit under US GAAP | 6,513 | 4,907 | 2,763 | |||||||||
Basic earnings per share | 5.83 | 4.06 | 2.21 | |||||||||
Diluted earnings per share | 5.72 | 3.99 | 2.09 | |||||||||
See Note 2 for information regarding impairment charges recorded for private equity investments.
f. Pension plans
Under IFRS, UBS recognizes pension expense based on a specific method of actuarial valuation used to determine the projected plan liabilities for accrued service, including future expected salary increases, and expected return on plan assets. Plan assets are recorded at fair value and are held in a separate trust to satisfy plan liabilities. Under IFRS the recognition of a prepaid asset is subject to certain limitations, and any unrecognized prepaid asset is recorded as pension expense. US GAAP does not allow a limitation on the recognition of prepaid assets recorded in the Balance sheet.
303 million as at 31 December 2003, 2002 and 2001, respectively.
g. Other post-retirement benefit plans
Under IFRS, UBS has recorded expenses and liabilities for post-retirement, medical and life insurance benefits, determined under a methodology similar to that described above under pension plans.
h. Equity participation plans
IFRS does not specifically address the recognition and measurement requirements for equity participation plans.
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Notes to the Financial Statements
to increase assets by CHF 460 million and CHF 396 million, liabilities by CHF 483 million and CHF 429 million, and decrease Shareholders’ equity by CHF 23 million and CHF 33 million (for UBS AG shares held by the trusts which are treated as treasury shares) at 31 December 2003 and 2002 respectively.
i. Software capitalization
Under IFRS, effective 1 January 2000, certain costs associated with the acquisitions or development of internal-use software had to be capitalized. Once the software was ready for its intended use, the costs capitalized were amortized to the Income statement over the estimated life of the software. Under US GAAP, the same principle applied, however this standard was effective 1 January 1999. For US GAAP, the costs associated with the acquisition or development of internal-use software that met the US GAAP software capitalization criteria in 1999 were reversed from Operating expenses and amortized over a life of two years from the time that the software was ready for its intended use. From 1 January 2000, the only remaining recon-
j. Consolidation of Variable Interest Entities (VIEs)
US GAAP, like IFRS, generally requires consolidation of entities on the basis of controlling a majority of voting rights. In certain situations, control over the majority of voting rights is not a reliable indicator of the need to consolidate, such as when there are no voting rights, or when voting rights and exposure to risks and rewards are largely disproportionate. However, there are differences in the approach of IFRS and US GAAP to those situations.
– | do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties |
– | do not have the characteristics of a controlling financial interest |
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– | have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of an investor with disproportionately small voting interest. |
k. Recently issued US accounting standards
On 1 January 2003, UBS adopted SFAS 145, Rescission of FASB Statements 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The adoption of this new accounting standard did not affect the Financial Statements for the year ended 31 December 2003.
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a liability be recognized at inception of certain guarantees equal to the fair value of the obligation assumed, which extends over the period of the guarantee. FIN 45 is applicable prospectively for certain guarantees issued or modified after 31 December 2002. The adoption of FIN 45 had no material impact on the results of operations and financial position of UBS.
– | for a financial instrument linked to an entity’s own shares that embodies an obligation to repurchase the equity shares or settle the obligation by transferring assets. |
– | for an obligation that the entity must or may settle by issuing a variable number of its equity shares whereby the counterparty receiving the equity shares has no or only little exposure to changes in the entity’s share price. |
– | for an instrument whose fair value is inversely related to the change in fair value of the entity’s equity shares, for example a written put option that could be net share settled. |
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Notes to the Financial Statements
ments entered into or modified after that date, and adopted the standard as at 1 July 2003 for financial instruments entered into on or before 31 May 2003.
– | the aggregate amount of unrealized losses (that is, the amount by which cost or amortized cost exceeds fair value) and |
– | the aggregate related fair value of investments with unrealized losses. |
– | the nature of the investment(s) |
– | the cause(s) of the impairment(s) |
– | the number of investment positions that are in an unrealized loss position |
– | the severity and duration of the impairment(s) |
– | other evidence considered by the investor in reaching its conclusion that the investment(s) is not other-than-temporarily impaired, including, for example, industry analyst reports, sector credit ratings, volatility of the security’s market price, and / or any other information that the investor considers relevant. |
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Pursuant to guidance included in FASB Staff Position FAS 106-1, the Group has chosen to defer recognition of the potential effects of the Act. This decision was made largely due to the number of open issues about various provisions of the Act and a lack of authoritative accounting guidance concerning certain technical matters. Therefore, the retiree health obligation and cost reported in these Financial Statements and the accompanying notes as at and for the year ended 31 December 2003 do not yet reflect any poten-
tial impact of the Act. Specific authoritative guidance on the accounting for the government subsidy is pending and that guidance, when issued, could require the Group to change previously reported information. It is expected that a change would decrease the obligation and cost attributable to post-retirement medical coverage.
Note 40.2 Reconciliation of IFRS Shareholders’ equity and Net profit to US GAAP
Note 40.1 | Shareholders' equity | Net profit | ||||||||||||||||||||||
CHF million | Reference | 31.12.03 | 31.12.02 | 31.12.03 | 31.12.02 | 31.12.01 | ||||||||||||||||||
Amounts determined in accordance with IFRS | 35,446 | 38,991 | 6,385 | 3,535 | 4,973 | |||||||||||||||||||
Adjustments in respect of: | ||||||||||||||||||||||||
SBC purchase accounting goodwill and other purchase accounting adjustments | a | 15,196 | 15,285 | (89 | ) | (128 | ) | (1,614 | ) | |||||||||||||||
Reversal of IFRS goodwill amortization | b | 1,825 | 1,017 | 808 | 1,017 | 0 | ||||||||||||||||||
Restructuring provision | c | 0 | 0 | 0 | 0 | (112 | ) | |||||||||||||||||
Derivative instruments | d | (94 | ) | (138 | ) | 188 | 354 | 25 | ||||||||||||||||
Financial investments and private equity | e | (84 | ) | (30 | ) | (159 | ) | 767 | 0 | |||||||||||||||
Pension plans | f | 1,303 | 621 | (235 | ) | (156 | ) | 119 | ||||||||||||||||
Other post-retirement benefit plans | g | (1 | ) | (1 | ) | 0 | 7 | 8 | ||||||||||||||||
Equity participation plans | h | (112 | ) | (164 | ) | (152 | ) | 63 | (12 | ) | ||||||||||||||
Software capitalization | i | 0 | 0 | 0 | (60 | ) | (169 | ) | ||||||||||||||||
Consolidation of variable interest entities (VIEs) | j | (10 | ) | 0 | (10 | ) | 0 | 0 | ||||||||||||||||
Tax adjustments | (295 | ) | (5 | ) | (223 | ) | 147 | 16 | ||||||||||||||||
Total adjustments | 17,728 | 16,585 | 128 | 2,011 | (1,739 | ) | ||||||||||||||||||
Amounts determined in accordance with US GAAP | 53,174 | 55,576 | 6,513 | 5,546 | 3,234 | |||||||||||||||||||
Note 40.3 Earnings per share
Under both IFRS and US GAAP, basic earnings per share (“EPS”) are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted EPS include the determinants of basic EPS and, in addition, gives effect to dilutive potential common shares that were outstanding during the period.
31.12.03 | 31.12.02 | 31.12.01 | ||||||||||||||||||||||
For the year ended | US GAAP | IFRS | US GAAP | IFRS | US GAAP | IFRS | ||||||||||||||||||
Net profit available for ordinary shares (CHF million) | 6,513 | 6,385 | 5,546 | 3,535 | 3,234 | 4,973 | ||||||||||||||||||
Net profit for diluted EPS (CHF million) | 6,514 | 6,386 | 5,520 | 3,515 | 3,135 | 4,874 | ||||||||||||||||||
Weighted-average shares outstanding | 1,116,602,289 | 1,116,953,623 | 1,208,055,132 | 1,208,586,678 | 1,251,180,815 | 1,266,038,193 | ||||||||||||||||||
Diluted weighted-average shares outstanding | 1,138,800,625 | 1,138,800,625 | 1,222,862,165 | 1,223,382,942 | 1,273,720,560 | 1,288,577,938 | ||||||||||||||||||
Basic earnings per share (CHF) | 5.83 | 5.72 | 4.59 | 2.92 | 2.58 | 3.93 | ||||||||||||||||||
Diluted earnings per share (CHF) | 5.72 | 5.61 | 4.51 | 2.87 | 2.46 | 3.78 | ||||||||||||||||||
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Notes to the Financial Statements
Note 40.4 Presentation differences between IFRS and US GAAP
In addition to the differences in valuation and income recognition, other differences, essentially related to presentation, exist between IFRS and US GAAP. Although there is no impact on IFRS and US GAAP reported Shareholders’ equity and Net profit due to these differences, it may be useful to understand them to interpret the financial statements presented in accordance with US GAAP. The following is a summary of presentation differences that relate to the basic IFRS financial statements.
1. Settlement date vs. trade date accounting
2. Financial investments
3. Securities received as proceeds in a securities for securities lending transaction
4. Reverse repurchase, repurchase, securities borrowing and securities lending transactions
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Note 40.5 Consolidated Income Statement
The following is a Consolidated Income Statement of the Group, for the years ended 31 December 2003, 31 December 2002 and 31 December 2001, restated to reflect the impact of valuation and income recognition differences and presentation differences between IFRS and US GAAP.
CHF million | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||||||||||||
For the year ended | Reference | US GAAP | IFRS | US GAAP | IFRS | US GAAP | IFRS | |||||||||||||||||||||
Operating income | ||||||||||||||||||||||||||||
Interest income | a, d, 4, j | 39,940 | 40,159 | 39,679 | 39,963 | 51,907 | 52,277 | |||||||||||||||||||||
Interest expense | a, 4 | (27,700 | ) | (27,860 | ) | (29,334 | ) | (29,417 | ) | (44,096 | ) | (44,236 | ) | |||||||||||||||
Net interest income | 12,240 | 12,299 | 10,345 | 10,546 | 7,811 | 8,041 | ||||||||||||||||||||||
Credit loss expense / (recovery) | (116 | ) | (116 | ) | (206 | ) | (206 | ) | (498 | ) | (498 | ) | ||||||||||||||||
Net interest income after credit loss expense / (recovery) | 12,124 | 12,183 | 10,139 | 10,340 | 7,313 | 7,543 | ||||||||||||||||||||||
Net fee and commission income | 17,345 | 17,345 | 18,221 | 18,221 | 20,211 | 20,211 | ||||||||||||||||||||||
Net trading income | d, 4, h, j | 4,065 | 3,883 | 6,031 | 5,572 | 8,959 | 8,802 | |||||||||||||||||||||
Other income1 | b, e, 4 | 380 | 561 | 96 | (12 | ) | 534 | 558 | ||||||||||||||||||||
Total operating income | 33,914 | 33,972 | 34,487 | 34,121 | 37,017 | 37,114 | ||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||
Personnel expenses | f, g, h | 17,615 | 17,231 | 18,610 | 18,524 | 19,713 | 19,828 | |||||||||||||||||||||
General and administrative expenses | 6,086 | 6,086 | 7,072 | 7,072 | 7,631 | 7,631 | ||||||||||||||||||||||
Depreciation of property and equipment | a, i | 1,396 | 1,364 | 1,613 | 1,521 | 1,815 | 1,614 | |||||||||||||||||||||
Amortization of goodwill | a, b | 0 | 756 | 0 | 930 | 2,484 | 1,025 | |||||||||||||||||||||
Amortization of other intangible assets | b | 112 | 187 | 1,443 | 1,530 | 298 | 298 | |||||||||||||||||||||
Restructuring costs | c | 0 | 0 | 0 | 0 | 112 | 0 | |||||||||||||||||||||
Total operating expenses | 25,209 | 25,624 | 28,738 | 29,577 | 32,053 | 30,396 | ||||||||||||||||||||||
Operating profit / (loss) before tax and minority interests | 8,705 | 8,348 | 5,749 | 4,544 | 4,964 | 6,718 | ||||||||||||||||||||||
Tax expense / (benefit) | 1,842 | 1,618 | 511 | 678 | 1,386 | 1,401 | ||||||||||||||||||||||
Net profit / (loss) before minority interests | 6,863 | 6,730 | 5,238 | 3,866 | 3,578 | 5,317 | ||||||||||||||||||||||
Minority interests | j | (350 | ) | (345 | ) | (331 | ) | (331 | ) | (344 | ) | (344 | ) | |||||||||||||||
Change in accounting principle: | ||||||||||||||||||||||||||||
cumulative effect of adoption of “AICPA Audit and Accounting Guide, Audits of Investment Companies” on certain financial investments, net of tax | e | 0 | 0 | 639 | 0 | 0 | 0 | |||||||||||||||||||||
Net profit | 6,513 | 6,385 | 5,546 | 3,535 | 3,234 | 4,973 | ||||||||||||||||||||||
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Notes to the Financial Statements
Note 40.6 Condensed Consolidated Balance Sheet
The following is a Condensed Consolidated Balance Sheet of the Group, as at 31 December 2003 and 31 December 2002, restated to reflect the impact of valuation and income recognition principles and presentation differences between IFRS and US GAAP.
31.12.03 | 31.12.02 | |||||||||||||||||||
CHF million | Reference | US GAAP | IFRS | US GAAP | IFRS | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 3,584 | 3,584 | 4,271 | 4,271 | ||||||||||||||||
Due from banks | a, j | 31,685 | 31,667 | 32,481 | 32,468 | |||||||||||||||
Cash collateral on securities borrowed | 4 | 211,058 | 213,932 | 139,073 | 139,052 | |||||||||||||||
Reverse repurchase agreements | 320,587 | 320,587 | 294,086 | 294,086 | ||||||||||||||||
Trading portfolio assets (including assets pledged as collateral of CHF 125,411 million at 31.12.03 and CHF 110,365 million at 31.12.02) | 1, 4, h, j | 544,492 | 461,772 | 441,845 | 371,436 | |||||||||||||||
Positive replacement values | 1,4, j | 84,034 | 84,334 | 83,757 | 82,092 | |||||||||||||||
Loans | a, d | 212,554 | 212,504 | 211,755 | 211,647 | |||||||||||||||
Financial investments | e, 2 | 1,303 | 5,139 | 2,846 | 8,391 | |||||||||||||||
Securities received as collateral | 3 | 13,071 | 16,308 | |||||||||||||||||
Accrued income and prepaid expenses | 4, h | 6,219 | 6,218 | 6,462 | 6,453 | |||||||||||||||
Investments in associates | 1,616 | 1,616 | 705 | 705 | ||||||||||||||||
Property and equipment | a | 8,116 | 7,659 | 8,358 | 7,869 | |||||||||||||||
Goodwill | a, b | 26,775 | 9,348 | 28,127 | 11,181 | |||||||||||||||
Other intangible assets | b | 1,174 | 2,181 | 1,222 | 2,515 | |||||||||||||||
Private equity investments | e, 2 | 3,308 | 4,328 | |||||||||||||||||
Other assets | d, e, f, h, j, l, 2 | 64,381 | 25,459 | 21,314 | 8,952 | |||||||||||||||
Total assets | 1,533,957 | 1,386,000 | 1,296,938 | 1,181,118 | ||||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 127,385 | 127,153 | 83,178 | 83,178 | ||||||||||||||||
Cash collateral on securities lent | 4 | 51,157 | 53,278 | 36,870 | 36,870 | |||||||||||||||
Repurchase agreements | 415,863 | 415,863 | 366,858 | 366,858 | ||||||||||||||||
Trading portfolio liabilities | 1,4 | 149,380 | 143,957 | 117,721 | 106,453 | |||||||||||||||
Obligation to return securities received as collateral | 3 | 13,071 | 16,308 | |||||||||||||||||
Negative replacement values | 1,4, j | 161,086 | 93,646 | 132,354 | 81,282 | |||||||||||||||
Due to customers | a, d | 347,358 | 347,358 | 306,872 | 306,876 | |||||||||||||||
Accrued expenses and deferred income | 4 | 13,673 | 13,673 | 15,330 | 15,331 | |||||||||||||||
Debt issued | a, d, j, 1 | 123,259 | 120,237 | 129,527 | 129,411 | |||||||||||||||
Other liabilities | d, f, g, h, j, 1 | 74,044 | 31,316 | 32,815 | 12,339 | |||||||||||||||
Total liabilities | 1,476,276 | 1,346,481 | 1,237,833 | 1,138,598 | ||||||||||||||||
Minority interests | j | 4,507 | 4,073 | 3,529 | 3,529 | |||||||||||||||
Total shareholders’ equity | 53,174 | 35,446 | 55,576 | 38,991 | ||||||||||||||||
Total liabilities, minority interests and shareholders’ equity | 1,533,957 | 1,386,000 | 1,296,938 | 1,181,118 | ||||||||||||||||
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Note 40.7 Comprehensive income
Comprehensive income under US GAAP is defined as the change in Shareholders’ equity excluding transactions with shareholders. Comprehensive income has two major components: Net profit, as reported in the income statement, and Other comprehensive income. Other comprehensive income includes such items as foreign currency translation, unrealized gains / losses on available-for-sale securities, unrealized gains / losses on changes in fair value of derivative instruments designated as cash flow hedges and additional minimum pension liability. The components and accumulated other comprehensive income amounts on a US GAAP basis for the years ended 31 December 2003, 31 December 2002 and 31 December 2001 are as follows:
Unrealized | Accumu- | |||||||||||||||||||||||||||
gains/ | Unrealized | lated other | ||||||||||||||||||||||||||
(losses) on | gains/ | Additional | compre- | Compre- | ||||||||||||||||||||||||
Foreign | available- | (losses) on | minimum | Deferred | hensive | hensive | ||||||||||||||||||||||
currency | for-sale | cash flow | pension | income | income/ | income / | ||||||||||||||||||||||
CHF million | translation | investments | hedges | liability | taxes | (loss) | (loss) | |||||||||||||||||||||
Balance at 1 January 2001 | (687 | ) | 463 | 0 | 0 | (112 | ) | (336 | ) | |||||||||||||||||||
Net profit | 3,234 | |||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation | (82 | ) | (82 | ) | (82 | ) | ||||||||||||||||||||||
Net unrealized gains on available-for-sale investments | 136 | (27 | ) | 109 | 109 | |||||||||||||||||||||||
Reclassification of gains on available-for-sale investments realized in net profit | (130 | ) | 26 | (104 | ) | (104 | ) | |||||||||||||||||||||
Net unrealized gains on cash flow hedges | 5 | (1 | ) | 4 | 4 | |||||||||||||||||||||||
Reclassification of losses on cash flow hedges realized in net profit | 4 | (1 | ) | 3 | 3 | |||||||||||||||||||||||
Additional minimum pension liability | (303 | ) | 108 | (195 | ) | (195 | ) | |||||||||||||||||||||
Other comprehensive income / (loss) | (82 | ) | 6 | 9 | (303 | ) | 105 | (265 | ) | (265 | ) | |||||||||||||||||
Comprehensive income | 2,969 | |||||||||||||||||||||||||||
Balance at 31 December 2001 | (769 | ) | 469 | 9 | (303 | ) | (7 | ) | (601 | ) | ||||||||||||||||||
Net profit | 5,546 | |||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation | (80 | ) | (80 | ) | (80 | ) | ||||||||||||||||||||||
Net unrealized gains on available-for-sale investments | 143 | (34 | ) | 109 | 109 | |||||||||||||||||||||||
Impairment charges reclassified to the income statement | 121 | (26 | ) | 95 | 95 | |||||||||||||||||||||||
Reclassification of gains on available-for-sale investments realized in net profit | (470 | ) | 102 | (368 | ) | (368 | ) | |||||||||||||||||||||
Net unrealized losses on cash flow hedges | (4 | ) | 3 | (1 | ) | (1 | ) | |||||||||||||||||||||
Reclassification of gains on cash flow hedges realized in net profit | (8 | ) | 0 | (8 | ) | (8 | ) | |||||||||||||||||||||
Additional minimum pension liability | (920 | ) | 93 | (827 | ) | (827 | ) | |||||||||||||||||||||
Other comprehensive income / (loss) | (80 | ) | (206 | ) | (12 | ) | (920 | ) | 138 | (1,080 | ) | (1,080 | ) | |||||||||||||||
Comprehensive income | 4,466 | |||||||||||||||||||||||||||
Balance at 31 December 2002 | (849 | ) | 263 | (3 | ) | (1,223 | ) | 131 | (1,681 | ) | ||||||||||||||||||
Net profit | 6,513 | |||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation | (795 | ) | (795 | ) | (795 | ) | ||||||||||||||||||||||
Net unrealized losses on available-for-sale investments | (130 | ) | 49 | (81 | ) | (81 | ) | |||||||||||||||||||||
Impairment charges reclassified to the income statement | 111 | (18 | ) | 93 | 93 | |||||||||||||||||||||||
Reclassification of gains on available-for-sale investments realized in net profit | (69 | ) | 11 | (58 | ) | (58 | ) | |||||||||||||||||||||
Reclassification of losses on cash flow hedges realized in net profit | 3 | (1 | ) | 2 | 2 | |||||||||||||||||||||||
Additional minimum pension liability | 917 | (82 | ) | 835 | 835 | |||||||||||||||||||||||
Other comprehensive income / (loss) | (795 | ) | (88 | ) | 3 | 917 | (41 | ) | (4 | ) | (4 | ) | ||||||||||||||||
Comprehensive income | 6,509 | |||||||||||||||||||||||||||
Balance at 31 December 2003 | (1,644 | ) | 175 | 0 | (306 | ) | 90 | (1,685 | ) | |||||||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 41 Additional Disclosures Required under US GAAP and SEC Rules
Note 41.1 Variable interest entities
FIN 46 was originally issued on 17 January 2003. Subsequently, in December 2003, the FASB issued a revised version of FIN 46.
Measurement
Some VIEs function as a passive intermediary to a derivative transaction and are generally established to facilitate the transfer of credit risk on portfolios to investors. The size of such VIEs may also be measured using the “notional amount” of the derivatives’ underlying referenced assets, i.e. the size of the portfolio for which credit risk has been transferred. These notional amounts are also included in Note 23. In measuring the total size of VIEs quantified below, the most appropriate measure has been taken for each specific VIE on an individual basis.
VIEs created after 31 January 2003
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VIEs, created after 31 January 2003, for which UBS is the primary beneficiary1
Consolidated assets that are collateral | Creditors' | |||||||||||||
(CHF million) | for the VIEs' obligations | recourse | ||||||||||||
Nature, purpose and activities of VIEs | Total assets | Classification | Amount | to UBS | ||||||||||
Passive intermediary to a derivative transaction | 1,013 | Cash, corporate debt securities | 494 | 0 | ||||||||||
Credit protection vehicles | 3,548 | Credit derivatives, corporate debt securities | 2,795 | 0 | ||||||||||
Investment funds managed by UBS | 541 | Debt, equity | 428 | 0 | ||||||||||
Total 31.12.2003 | 5,102 | 3,717 | 0 | |||||||||||
VIEs, created after 31 January 2003, in which UBS has a significant variable interest
Maximum | ||||||||||||||
(CHF million) | exposure | |||||||||||||
Nature, purpose and activities of VIEs | Total assets | Nature of involvement | to loss | |||||||||||
Credit protection vehicles | 281 | SPE used for credit protection – | ||||||||||||
(UBS sells credit risk on portfolios to investors) | 1 | |||||||||||||
Total 31.12.2003 | 281 | 1 | ||||||||||||
VIEs created prior to 1 February 2003
established to hold UBS shares, UBS share options, and alternative investment vehicles; approximately CHF 93 million relates to certain leveraged investment opportunities available to key employees, and approximately CHF 370 million relates to other VIEs. UBS has a maximum exposure to loss, according to the provisions of FIN 46, of approximately CHF 4.6 billion in relation to the employee equity compensation trusts (see below), approximately CHF 503 million in relation to the leveraged investment plans (see below), and approximately CHF 370 million in relation to other VIEs which may become consolidated. In addition to the above VIEs, UBS has identified other VIEs which are still being assessed, and which are discussed in more detail below.
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Financial Statements
Notes to the Financial Statements
has committed to provide up to CHF 394 million in loans to employee investment partnerships. At 31 December 2003, a total of CHF 77 million in loans had actually been drawn down. Repayment of these loans is on a non recourse basis but is senior to the employees’ investment in the partnerships. The remaining unfunded portion of these commitments is also included in Note 25. In addition, if employees default on their investment commitments, UBS is obliged to assume the remaining unfunded portion, which amounted to CHF 109 million at 31 December 2003. In the event that all the investments made by these partnerships became worthless, UBS could be exposed to the loss of the entire committed amount of CHF 503 million which is included in the CHF 503 million maximum exposure to loss noted for these VIEs.
assets in relation to derivatives. UBS has a maximum exposure to loss of approximately CHF 1.8 billion in relation to these VIEs, which are used primarily as credit protection vehicles, or passive intermediaries to derivative transactions.
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Note 41.2 Supplemental Guarantor Information
Guarantee of PaineWebber securities
tions 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 2003, the amount of senior liabilities of UBS to which the holders of the subordinated debt securities would be subordinated is approximately CHF 1,337 billion.
Supplemental Guarantor Consolidating Income Statement
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2003 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 28,749 | 13,091 | 9,280 | (10,961 | ) | 40,159 | ||||||||||||||
Interest expense | 20,033 | 10,292 | 8,496 | (10,961 | ) | 27,860 | ||||||||||||||
Net interest income | 8,716 | 2,799 | 784 | 0 | 12,299 | |||||||||||||||
Credit loss expense | (124 | ) | (12 | ) | 20 | 0 | (116 | ) | ||||||||||||
Net interest income after credit loss expense | 8,592 | 2,787 | 804 | 0 | 12,183 | |||||||||||||||
Net fee and commission income | 6,873 | 6,711 | 3,761 | 0 | 17,345 | |||||||||||||||
Net trading income | 1,525 | 1,540 | 818 | 0 | 3,883 | |||||||||||||||
Income from subsidiaries | 2,466 | 0 | 0 | (2,466 | ) | 0 | ||||||||||||||
Other income | 337 | 230 | (6 | ) | 0 | 561 | ||||||||||||||
Total operating income | 19,793 | 11,268 | 5,377 | (2,466 | ) | 33,972 | ||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 8,853 | 6,886 | 1,492 | 0 | 17,231 | |||||||||||||||
General and administrative expenses | 2,861 | 1,620 | 1,605 | 0 | 6,086 | |||||||||||||||
Depreciation of property and equipment | 682 | 186 | 496 | 0 | 1,364 | |||||||||||||||
Amortization of goodwill and other intangible assets | 104 | 789 | 50 | 0 | 943 | |||||||||||||||
Total operating expenses | 12,500 | 9,481 | 3,643 | 0 | 25,624 | |||||||||||||||
Operating profit / (loss) before tax and minority interests | 7,293 | 1,787 | 1,734 | (2,466 | ) | 8,348 | ||||||||||||||
Tax expense / (benefit) | 908 | 344 | 366 | 0 | 1,618 | |||||||||||||||
Net profit /(loss) before minority interests | 6,385 | 1,443 | 1,368 | (2,466 | ) | 6,730 | ||||||||||||||
Minority interests | 0 | 0 | (345 | ) | 0 | (345 | ) | |||||||||||||
Net profit / (loss) | 6,385 | 1,443 | 1,023 | (2,466 | ) | 6,385 | ||||||||||||||
Net profit / (loss) US GAAP2 | 3,389 | 2,120 | 1,004 | 0 | 6,513 | |||||||||||||||
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Notes to the Financial Statements
Supplemental Guarantor Consolidating Balance Sheet
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2003 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 2,894 | 8 | 682 | 0 | 3,584 | |||||||||||||||
Due from banks | 76,780 | 12,106 | 109,713 | (166,932 | ) | 31,667 | ||||||||||||||
Cash collateral on securities borrowed | 75,609 | 190,993 | 76,773 | (129,443 | ) | 213,932 | ||||||||||||||
Reverse repurchase agreements | 197,765 | 149,507 | 219,444 | (246,129 | ) | 320,587 | ||||||||||||||
Trading portfolio assets | 248,999 | 182,346 | 30,427 | 0 | 461,772 | |||||||||||||||
Positive replacement values | 111,612 | 849 | 25,474 | (53,601 | ) | 84,334 | ||||||||||||||
Loans | 234,356 | 23,001 | 40,420 | (85,273 | ) | 212,504 | ||||||||||||||
Financial investments | 826 | 739 | 3,574 | 0 | 5,139 | |||||||||||||||
Accrued income and prepaid expenses | 3,665 | 1,868 | 3,391 | (2,706 | ) | 6,218 | ||||||||||||||
Investments in associates | 14,077 | 11 | 594 | (13,066 | ) | 1,616 | ||||||||||||||
Property and equipment | 5,891 | 787 | 981 | 0 | 7,659 | |||||||||||||||
Goodwill and other intangible assets | 218 | 11,270 | 41 | 0 | 11,529 | |||||||||||||||
Other assets | 5,194 | 3,356 | 19,958 | (3,049 | ) | 25,459 | ||||||||||||||
Total assets | 977,886 | 576,841 | 531,472 | (700,199 | ) | 1,386,000 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 139,525 | 83,193 | 71,367 | (166,932 | ) | 127,153 | ||||||||||||||
Cash collateral on securities lent | 59,356 | 46,313 | 77,052 | (129,443 | ) | 53,278 | ||||||||||||||
Repurchase agreements | 112,245 | 337,030 | 212,717 | (246,129 | ) | 415,863 | ||||||||||||||
Trading portfolio liabilities | 79,714 | 55,351 | 8,892 | 0 | 143,957 | |||||||||||||||
Negative replacement values | 125,925 | 1,157 | 20,165 | (53,601 | ) | 93,646 | ||||||||||||||
Due to customers | 343,297 | 34,530 | 54,804 | (85,273 | ) | 347,358 | ||||||||||||||
Accrued expenses and deferred income | 7,034 | 6,026 | 3,319 | (2,706 | ) | 13,673 | ||||||||||||||
Debt issued | 64,264 | 7,331 | 48,642 | 0 | 120,237 | |||||||||||||||
Other liabilities | 11,222 | 1,873 | 21,270 | (3,049 | ) | 31,316 | ||||||||||||||
Total liabilities | 942,582 | 572,804 | 518,228 | (687,133 | ) | 1,346,481 | ||||||||||||||
Minority interests | 0 | 42 | 4,031 | 0 | 4,073 | |||||||||||||||
Total shareholders’ equity | 35,304 | 3,995 | 9,213 | (13,066 | ) | 35,446 | ||||||||||||||
Total liabilities, minority interests and shareholders’ equity | 977,886 | 576,841 | 531,472 | (700,199 | ) | 1,386,000 | ||||||||||||||
Total shareholders’ equity – US GAAP2 | 38,129 | 5,471 | 9,574 | 0 | 53,174 | |||||||||||||||
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Supplemental Guarantor Consolidating Cash Flow Statement
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2003 | Parent Bank | 1 | Americas Inc. | Subsidiaries | UBS Group | |||||||||||
Net cash flow from / (used in) operating activities | (12,936 | ) | 1,366 | 14,973 | 3,403 | |||||||||||
Cash flow from / (used in) investing activities Investments in subsidiaries and associates | (428 | ) | 0 | 0 | (428 | ) | ||||||||||
Disposal of subsidiaries and associates | 123 | 667 | 44 | 834 | ||||||||||||
Purchase of property and equipment | (862 | ) | (338 | ) | (176 | ) | (1,376 | ) | ||||||||
Disposal of property and equipment | 88 | 17 | 18 | 123 | ||||||||||||
Net (investment in) / divestment of financial investments | 524 | 867 | 926 | 2,317 | ||||||||||||
Net cash flow from / (used in) investing activities | (555 | ) | 1,213 | 812 | 1,470 | |||||||||||
Cash flow from / (used in) financing activities Net money market paper issued / (repaid) | 1,910 | (333 | ) | (16314 | ) | (14737 | ) | |||||||||
Net movements in treasury shares and treasury share contract activity | (6,810 | ) | 0 | 0 | (6810 | ) | ||||||||||
Capital issuance | 2 | 0 | 0 | 2 | ||||||||||||
Dividends paid | (2,298 | ) | 0 | 0 | (2,298 | ) | ||||||||||
Issuance of long-term debt | 15,932 | 2,362 | 5,350 | 23,644 | ||||||||||||
Repayment of long-term debt | (8,324 | ) | (1,254 | ) | (4,037 | ) | (13,615 | ) | ||||||||
Increase in minority interests2 | 0 | 0 | 755 | 755 | ||||||||||||
Dividend payments to / and purchase from minority interests | 0 | (8 | ) | (270 | ) | (278 | ) | |||||||||
Net activity in investments in subsidiaries | (773 | ) | 1,007 | (234 | ) | 0 | ||||||||||
Net cash flow from / (used in) financing activities | (361 | ) | 1,774 | (14,750 | ) | (13,337 | ) | |||||||||
Effects of exchange rate differences | (751 | ) | (661 | ) | 888 | (524 | ) | |||||||||
Net increase / (decrease) in cash equivalents | (14,603 | ) | 3,692 | 1,923 | (8,988 | ) | ||||||||||
Cash and cash equivalents, beginning of the year | 57,912 | 15,119 | 9,313 | 82,344 | ||||||||||||
Cash and cash equivalents, end of the year | 43,309 | 18,811 | 11,236 | 73,356 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 2,894 | 8 | 682 | 3,584 | ||||||||||||
Money market paper3 | 21,232 | 15,812 | 3,555 | 40,599 | ||||||||||||
Due from banks maturing in less than three months | 19,183 | 2,991 | 6,999 | 29,173 | ||||||||||||
Total | 43,309 | 18,811 | 11,236 | 73,356 | ||||||||||||
Guarantee of other securities
one-month LIBOR of such securities. 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 2003, the amount of senior liabilities of UBS to which the holders of the subordinated debt securities would be subordinated is approximately CHF 1,337 billion.
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UBS AG (Parent Bank)
Table of Contents
UBS AG (Parent Bank)
Table of Contents
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UBS AG (Parent Bank)
Parent Bank Review
Parent Bank Review
Income Statement
The Parent Bank UBS AG net profit decreased CHF 1,637 million from CHF 5,834 million to CHF 4,197 million. Income from investments in associates decreased to CHF 1,914 million from CHF 3,417 million in 2002 mainly due to less distribution received. Depreciation and writeoffs were CHF 919 million, down from CHF 3,025 million in 2002 mainly caused by lower writeoffs on investments in associated companies. Extraordinary income contains CHF 33 million (2002: CHF 260 million) from the sale of associates and CHF 59 million from release of provisions.
Balance Sheet
Total assets overall decreased by CHF 69 billion to CHF 995 billion by 31 December 2003. This reduction is mostly caused by the first-time netting of the positive and negative replacement values on the Parent Bank level in accordance with the RRV-EBK requirement of CHF 141 billion in 2003 (netting impact in 2002 would have been CHF 167 billion). This change was partially offset by the increased positions in due from banks and trading balances in securities.
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UBS AG (Parent Bank)
Financial Statements
Financial Statements
Income Statement
CHF million | % change from | |||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.02 | |||||||||
Interest and discount income | 19,417 | 20,059 | (3 | ) | ||||||||
Interest and dividend income from trading portfolio | 9,325 | 7,074 | 32 | |||||||||
Interest and dividend income from financial investments | 11 | 23 | (52 | ) | ||||||||
Interest expense | (20,034 | ) | (20,125 | ) | 0 | |||||||
Net interest income | 8,719 | 7,031 | 24 | |||||||||
Credit-related fees and commissions | 228 | 252 | (10 | ) | ||||||||
Fee and commission income from securities and investment business | 6,998 | 7,249 | (3 | ) | ||||||||
Other fee and commission income | 826 | 515 | 60 | |||||||||
Fee and commission expense | (1,180 | ) | (1,167 | ) | 1 | |||||||
Net fee and commission income | 6,872 | 6,849 | 0 | |||||||||
Net trading income | 521 | 4,634 | (89 | ) | ||||||||
Net income from disposal of financial investments | (69 | ) | 125 | |||||||||
Income from investments in associated companies | 1,914 | 3,417 | (44 | ) | ||||||||
Income from real estate holdings | 43 | 50 | (14 | ) | ||||||||
Sundry income from ordinary activities | 1,213 | 1,908 | (36 | ) | ||||||||
Sundry ordinary expenses | (96 | ) | (381 | ) | (75 | ) | ||||||
Other income from ordinary activities | 3,005 | 5,119 | (41 | ) | ||||||||
Operating income | 19,117 | 23,633 | (19 | ) | ||||||||
Personnel expenses | 8,889 | 8,916 | 0 | |||||||||
General and administrative expenses | 3,943 | 4,379 | (10 | ) | ||||||||
Operating expenses | 12,832 | 13,295 | (3 | ) | ||||||||
Operating profit | 6,285 | 10,338 | (39 | ) | ||||||||
Depreciation and writeoffs on investments in associated companies and fixed assets | 919 | 3,025 | (70 | ) | ||||||||
Allowances, provisions and losses | 658 | 1,053 | (38 | ) | ||||||||
Profit before extraordinary items and taxes | 4,708 | 6,260 | (25 | ) | ||||||||
Extraordinary income | 92 | 265 | (65 | ) | ||||||||
Extraordinary expenses | 1 | 7 | (86 | ) | ||||||||
Tax expense / (benefit) | 602 | 684 | (12 | ) | ||||||||
Profit for the period | 4,197 | 5,834 | (28 | ) | ||||||||
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Balance Sheet
% change from | ||||||||||||
CHF million | 31.12.03 | 31.12.02 | 31.12.02 | |||||||||
Assets | ||||||||||||
Liquid assets | 2,895 | 3,609 | (20 | ) | ||||||||
Money market paper | 21,233 | 33,671 | (37 | ) | ||||||||
Due from banks | 321,796 | 265,106 | 21 | |||||||||
Due from customers | 130,814 | 165,938 | (21 | ) | ||||||||
Mortgage loans | 131,900 | 117,677 | 12 | |||||||||
Trading balances in securities and precious metals | 236,096 | 199,546 | 18 | |||||||||
Financial investments | 8,955 | 8,377 | 7 | |||||||||
Investments in associated companies | 14,757 | 10,275 | 44 | |||||||||
Tangible fixed assets | 4,367 | 4,633 | (6 | ) | ||||||||
Accrued income and prepaid expenses | 3,666 | 2,342 | 57 | |||||||||
Positive replacement values | 111,612 | 249,064 | (55 | ) | ||||||||
Other assets | 6,585 | 3,734 | 76 | |||||||||
Total assets | 994,676 | 1,063,972 | (7 | ) | ||||||||
Total subordinated assets | 4,450 | 4,717 | (6 | ) | ||||||||
Total amounts receivable from Group companies | 397,410 | 218,915 | 82 | |||||||||
Liabilities | ||||||||||||
Money market paper issued | 23,879 | 22,131 | 8 | |||||||||
Due to banks | 377,447 | 303,023 | 25 | |||||||||
Due to customers on savings and deposit accounts | 84,360 | 76,687 | 10 | |||||||||
Other amounts due to customers | 274,408 | 274,431 | 0 | |||||||||
Medium-term bonds | 2,403 | 4,220 | (43 | ) | ||||||||
Bond issues and loans from central mortgage institutions | 45,968 | 67,759 | (32 | ) | ||||||||
Accruals and deferred income | 7,060 | 7,846 | (10 | ) | ||||||||
Negative replacement values | 127,885 | 256,278 | (50 | ) | ||||||||
Other liabilities | 6,802 | 3,281 | 107 | |||||||||
Value adjustments and provisions | 3,894 | 4,177 | (7 | ) | ||||||||
Share capital | 946 | 1,005 | (6 | ) | ||||||||
General statutory reserve | 7,212 | 12,392 | (42 | ) | ||||||||
Reserve for own shares | 8,024 | 6,623 | 21 | |||||||||
Other reserves | 20,191 | 18,285 | 10 | |||||||||
Profit brought forward | ||||||||||||
Profit for the period | 4,197 | 5,834 | (28 | ) | ||||||||
Total liabilities | 994,676 | 1,063,972 | (7 | ) | ||||||||
Total subordinated liabilities | 12,471 | 13,315 | (6 | ) | ||||||||
Total amounts payable to Group companies | 257,955 | 142,139 | 81 | |||||||||
Statement of Appropriation of Retained Earnings
CHF million | ||||
The Board of Directors proposes to the Annual General Meeting the following appropriation: | ||||
Profit for the financial year 2003 as per the Parent Bank’s Income Statement | 4,197 | |||
Appropriation to general statutory reserve | 288 | |||
Appropriation to other reserves | 980 | |||
Proposed dividends | 2,929 | |||
Total appropriation | 4,197 | |||
Dividend Distribution
The Board of Directors will recommend to the Annual General Meeting on 15 April 2004 that UBS should pay a dividend of CHF 2.60 per share of CHF 0.80 par value. If the dividend is approved, the payment of CHF 2.60 per share, after deduction of 35% Swiss withholding tax, would be made on 20 April 2004 for shareholders who hold UBS shares on 15 April 2004.
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UBS AG (Parent Bank)
Notes to the Financial Statements
Notes to the Financial Statements
Accounting Principles
The Parent Bank’s accounting policies are in compliance with Swiss 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 banking law requirements and International Financial Reporting Standards are described in Note 39 to the Group Financial Statements.
Treasury shares
Foreign currency translation
in Note 1d). Assets and liabilities of foreign branches are translated into CHF at the exchange rates at the balance sheet date, while income and expense items are translated at weighted average rates for the period. Exchange differences arising on the translation of each of these foreign branches are credited to a provision account (other liabilities) in case of a gain, while any losses are firstly debited to that provision account until such provision is fully utilized, and secondly to profit and loss.
Investments in associated companies
Property and equipment
Extraordinary income and expenses
190
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Additional Income Statement Information
Net Trading Income
CHF million | % change from | |||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.02 | |||||||||
Equities | 1,708 | 2,208 | (23 | ) | ||||||||
Fixed income1 | (1,307 | ) | 565 | |||||||||
Foreign exchange and other | 120 | 1,861 | (94 | ) | ||||||||
Total | 521 | 4,634 | (89 | ) | ||||||||
Extraordinary Income and Expenses
Extraordinary income contains CHF 33 million (2002: CHF 260 million) from the sale of associates and CHF 59 million from release of provisions (2002: CHF 5 million from other disposals).
191
Table of Contents
UBS AG (Parent Bank)
Notes to the Financial Statements
Additional Balance Sheet Information
Value Adjustments and Provisions
Provisions | Recoveries, | |||||||||||||||||||
applied in | doubtful | |||||||||||||||||||
accordance | interest, | New | ||||||||||||||||||
with their | currency | provisions | ||||||||||||||||||
Balance at | specified | translation | charged | Balance at | ||||||||||||||||
CHF million | 31.12.02 | purpose | differences | to income | 31.12.03 | |||||||||||||||
Default risks (credit and country risk) | 5,406 | (1,372 | ) | 66 | 118 | 4,218 | ||||||||||||||
Trading portfolio risks | 2,359 | (221 | ) | 585 | 2,723 | |||||||||||||||
Litigation risks | 445 | (98 | ) | (20 | ) | 65 | 392 | |||||||||||||
Operational risks | 1,437 | (332 | ) | 151 | 615 | 1,871 | ||||||||||||||
Capital and income taxes | 1,279 | (743 | ) | (96 | ) | 678 | 1,118 | |||||||||||||
Total allowance for general credit | ||||||||||||||||||||
losses and other provisions | 10,926 | (2,545 | ) | (120 | ) | 2,061 | 10,322 | |||||||||||||
Allowances deducted from assets | 6,749 | 6,428 | ||||||||||||||||||
Total provisions as per balance sheet | 4,177 | - | - | - | 3,894 | |||||||||||||||
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Statement of Shareholders’ Equity
Total share- | ||||||||||||||||||||||||
General | General | holders' | ||||||||||||||||||||||
statutory | statutory | equity | ||||||||||||||||||||||
reserves: | reserves: | Reserves | (before | |||||||||||||||||||||
Share | Share | Retained | for own | Other | distribution | |||||||||||||||||||
CHF million | capital | premium | earnings | shares | reserves | of profit) | ||||||||||||||||||
As at 31.12.01 and 1.1.02 | 3,589 | 13,665 | 842 | 3,253 | 21,538 | 42,887 | ||||||||||||||||||
Par value reduction | (2,509 | ) | 117 | (2,392 | ) | |||||||||||||||||||
Cancellation of own shares | (81 | ) | (2,209 | ) | (2,290 | ) | ||||||||||||||||||
Capital increase | 6 | 94 | 100 | |||||||||||||||||||||
Increase in reserves | 0 | |||||||||||||||||||||||
Profit for the period | 5,834 | 5,834 | ||||||||||||||||||||||
Changes in reserves for own shares | 3,370 | (3,370 | ) | 0 | ||||||||||||||||||||
As at 31.12.02 and 1.1.03 | 1,005 | 11,550 | 842 | 6,623 | 24,119 | 44,139 | ||||||||||||||||||
Par value reduction | ||||||||||||||||||||||||
Cancellation of own shares | (61 | ) | (5,468 | ) | (5,529 | ) | ||||||||||||||||||
Capital increase | 2 | 59 | 61 | |||||||||||||||||||||
Increase in reserves | 229 | (229 | ) | 0 | ||||||||||||||||||||
Prior year dividend | (2,298 | ) | (2,298 | ) | ||||||||||||||||||||
Profit for the period | 4,197 | 4,197 | ||||||||||||||||||||||
Changes in reserves for own shares | 1,401 | (1,401 | ) | 0 | ||||||||||||||||||||
As at 31.12.03 | 946 | 6,141 | 1,071 | 8,024 | 24,388 | 40,570 | ||||||||||||||||||
Share Capital
Par value | Ranking for dividends | |||||||||||||||
As at 31 December 2003 | No. of shares | Capital in CHF | No. of shares | Capital in CHF | ||||||||||||
Issued and paid up | 1,183,046,764 | 946,437,411 | 1,126,339,764 | 901,071,811 | ||||||||||||
Conditional share capital | 6,871,752 | 5,497,402 | 0 | 0 | ||||||||||||
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UBS AG (Parent Bank)
Notes to the Financial Statements
Off-Balance Sheet and Other Information
Assets Pledged or Assigned as Security for Own Obligations,
Assets Subject to Reservation of Title
31.12.03 | 31.12.02 | Change in % | ||||||||||||||||||||||
Book | Effective | Book | Effective | Book | Effective | |||||||||||||||||||
CHF million | value | liability | value | liability | value | liability | ||||||||||||||||||
Money market paper | 6,225 | 10,475 | (41 | ) | ||||||||||||||||||||
Mortgage loans | 428 | 210 | 808 | 506 | (47 | ) | (58 | ) | ||||||||||||||||
Securities1 | 96,065 | 66,395 | 2,495 | |||||||||||||||||||||
Total | 102,718 | 66,605 | 13,778 | 506 | 646 | |||||||||||||||||||
Assets are pledged as collateral for securities borrowing and repo transactions, for collateralized credit lines with central banks, loans from mortgage institutions and security deposits relating to stock exchange membership.
Fiduciary Transactions
% change from | ||||||||||||
CHF million | 31.12.03 | 31.12.02 | 31.12.02 | |||||||||
Deposits | ||||||||||||
with other banks | 29,549 | 28,865 | 2 | |||||||||
with Group banks | 672 | 351 | 91 | |||||||||
Loans and other financial transactions | 6 | 713 | (99 | ) | ||||||||
Total | 30,227 | 29,929 | 1 | |||||||||
Due to UBS Pension Plans, Loans to Corporate Bodies/Related Parties
% change from | ||||||||||||
CHF million | 31.12.03 | 31.12.02 | 31.12.02 | |||||||||
Due to UBS pension plans and | ||||||||||||
UBS debt instruments held by pension plans | 1,096 | 905 | 21 | |||||||||
Securities borrowed from pension plans | 2,930 | 2,645 | 11 | |||||||||
Loans to directors, senior executives and auditors1 | 25 | 28 | (11 | ) | ||||||||
194
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195
Table of Contents
196
Table of Contents
197
Table of Contents
Additional Disclosure Required
under SEC Regulations
Table of Contents
Additional Disclosure Required under SEC Regulations
Table of Contents
198
Table of Contents
A – Introduction
The following pages contain additional disclosure about UBS Group which is required under SEC regulations.
dards (IFRS) and are denominated in Swiss francs, or CHF, the reporting currency of the Group. Certain financial information has also been presented in accordance with United States Generally Accepted Accounting Principles (US GAAP).
B – Selected Financial 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 | ||||||||||||
1999 | 0.7361 | 0.6244 | 0.6605 | 0.6277 | ||||||||||||
2000 | 0.6441 | 0.5479 | 0.5912 | 0.6172 | ||||||||||||
2001 | 0.6331 | 0.5495 | 0.5910 | 0.5857 | ||||||||||||
2002 | 0.7229 | 0.5817 | 0.6453 | 0.7229 | ||||||||||||
2003 | 0.8189 | 0.7048 | 0.7493 | 0.8069 | ||||||||||||
Month | High | Low | ||||||||||||||
September 2003 | 0.7581 | 0.7048 | ||||||||||||||
October 2003 | 0.7618 | 0.7468 | ||||||||||||||
November 2003 | 0.7745 | 0.7261 | ||||||||||||||
December 2003 | 0.8069 | 0.7709 | ||||||||||||||
January 2004 | 0.8036 | 0.7958 | ||||||||||||||
February 2004 | 0.8152 | 0.7891 | ||||||||||||||
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Additional Disclosure Required
under SEC Regulations
B – Selected Financial Data (continued)
CHF million, except where indicated | ||||||||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | |||||||||||||||
Income statement data | ||||||||||||||||||||
Interest income | 40,159 | 39,963 | 52,277 | 51,745 | 35,604 | |||||||||||||||
Interest expense | 27,860 | 29,417 | 44,236 | 43,615 | 29,695 | |||||||||||||||
Net interest income | 12,299 | 10,546 | 8,041 | 8,130 | 5,909 | |||||||||||||||
Credit loss (expense) / recovery | (116 | ) | (206 | ) | (498 | ) | 130 | (956 | ) | |||||||||||
Net interest income after credit loss (expense) / recovery | 12,183 | 10,340 | 7,543 | 8,260 | 4,953 | |||||||||||||||
Net fee and commission income | 17,345 | 18,221 | 20,211 | 16,703 | 12,607 | |||||||||||||||
Net trading income | 3,883 | 5,572 | 8,802 | 9,953 | 7,719 | |||||||||||||||
Other income | 561 | (12 | ) | 558 | 1,486 | 3,146 | ||||||||||||||
Operating income | 33,972 | 34,121 | 37,114 | 36,402 | 28,425 | |||||||||||||||
Operating expenses | 25,624 | 29,577 | 30,396 | 26,203 | 20,532 | |||||||||||||||
Operating profit before tax | 8,348 | 4,544 | 6,718 | 10,199 | 7,893 | |||||||||||||||
Tax expense / (benefit) | 1,618 | 678 | 1,401 | 2,320 | 1,686 | |||||||||||||||
Minority interests | (345 | ) | (331 | ) | (344 | ) | (87 | ) | (54 | ) | ||||||||||
Net profit | 6,385 | 3,535 | 4,973 | 7,792 | 6,153 | |||||||||||||||
Cost / income ratio (%)1 | 75.2 | 86.2 | 80.8 | 72.2 | 69.9 | |||||||||||||||
Per share data (CHF) | ||||||||||||||||||||
Basic earnings per share2 | 5.72 | 2.92 | 3.93 | 6.44 | 5.07 | |||||||||||||||
Diluted earnings per share2 | 5.61 | 2.87 | 3.78 | 6.35 | 5.02 | |||||||||||||||
Cash dividends declared per share (CHF)3 | 2.60 | 2.00 | 0.00 | 1.50 | 1.83 | |||||||||||||||
Cash dividends equivalent in USD3 | 1.46 | 0.00 | 0.86 | 1.10 | ||||||||||||||||
Dividend payout ratio (%)3 | 45.45 | 68.49 | 23.28 | 36.18 | ||||||||||||||||
Rates of return (%) | ||||||||||||||||||||
Return on shareholders’ equity4 | 18.2 | 8.9 | 11.7 | 21.5 | 22.4 | |||||||||||||||
Return on average equity | 17.1 | 8.3 | 11.3 | 22.0 | 18.6 | |||||||||||||||
Return on average assets | 0.41 | 0.24 | 0.36 | 0.70 | 0.65 | |||||||||||||||
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B – Selected Financial Data (continued)
CHF million, except where indicated | ||||||||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | |||||||||||||||
Balance sheet data | ||||||||||||||||||||
Total assets | 1,386,000 | 1,181,118 | 1,253,297 | 1,087,552 | 896,556 | |||||||||||||||
Shareholders’ equity | 35,446 | 38,991 | 43,530 | 44,833 | 30,608 | |||||||||||||||
Average equity to average assets (%) | 2.38 | 3.14 | 3.49 | 3.17 | 3.52 | |||||||||||||||
Market capitalization | 95,401 | 79,448 | 105,475 | 112,666 | 92,642 | |||||||||||||||
Shares | ||||||||||||||||||||
Registered ordinary shares | 1,183,046,764 | 1,256,297,678 | 1,281,717,499 | 1,333,139,187 | 1,292,679,486 | |||||||||||||||
Own shares to be delivered | 0 | 0 | 0 | 28,444,788 | 0 | |||||||||||||||
Treasury shares | 111,360,692 | 97,181,094 | 41,254,951 | 55,265,349 | 110,621,142 | |||||||||||||||
BIS capital ratios | ||||||||||||||||||||
Tier 1 (%) | 11.8 | 11.3 | 11.6 | 11.7 | 10.6 | |||||||||||||||
Total BIS (%) | 13.3 | 13.8 | 14.8 | 15.7 | 14.5 | |||||||||||||||
Risk-weighted assets | 251,901 | 238,790 | 253,735 | 273,290 | 273,107 | |||||||||||||||
Invested assets (CHF billion) | 2,209 | 2,037 | 2,448 | 2,445 | 1,744 | |||||||||||||||
Headcount (full-time equivalents) | ||||||||||||||||||||
Switzerland | 26,662 | 27,972 | 29,163 | 30,215 | 32,843 | |||||||||||||||
Europe (excluding Switzerland) | 9,906 | 10,009 | 9,650 | 9,286 | 7,892 | |||||||||||||||
Americas | 25,511 | 27,350 | 27,463 | 28,114 | 5,025 | |||||||||||||||
Asia Pacific | 3,850 | 3,730 | 3,709 | 3,461 | 3,298 | |||||||||||||||
Total | 65,929 | 69,061 | 69,985 | 71,076 | 49,058 | |||||||||||||||
Long-term ratings1 | ||||||||||||||||||||
Fitch, London | AA+ | AAA | AAA | AAA | AAA | |||||||||||||||
Moody’s, New York | Aa2 | AA2 | AA2 | Aa1 | Aa1 | |||||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | AA+ | AA+ | |||||||||||||||
Balance Sheet Data
CHF million | ||||||||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | |||||||||||||||
Assets | ||||||||||||||||||||
Total assets | 1,386,000 | 1,181,118 | 1,253,297 | 1,087,552 | 896,556 | |||||||||||||||
Due from banks | 31,667 | 32,468 | 27,526 | 29,147 | 29,907 | |||||||||||||||
Cash collateral on securities borrowed | 213,932 | 139,052 | 162,938 | 177,857 | 113,162 | |||||||||||||||
Reverse repurchase agreements | 320,587 | 294,086 | 269,256 | 193,801 | 132,391 | |||||||||||||||
Trading portfolio assets | 461,772 | 371,436 | 397,886 | 315,588 | 211,932 | |||||||||||||||
Positive replacement values | 84,334 | 82,092 | 73,447 | 57,875 | 62,957 | |||||||||||||||
Loans | 212,504 | 211,647 | 226,545 | 244,842 | 234,858 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 127,153 | 83,178 | 106,531 | 82,240 | 76,365 | |||||||||||||||
Cash collateral on securities lent | 53,278 | 36,870 | 30,317 | 23,418 | 12,832 | |||||||||||||||
Repurchase agreements | 415,863 | 366,858 | 368,620 | 295,513 | 196,914 | |||||||||||||||
Trading portfolio liabilities | 143,957 | 106,453 | 105,798 | 82,632 | 54,638 | |||||||||||||||
Negative replacement values | 93,646 | 81,282 | 71,443 | 75,923 | 95,786 | |||||||||||||||
Due to customers | 347,358 | 306,876 | 333,781 | 310,679 | 279,960 | |||||||||||||||
Debt issued | 120,237 | 129,411 | 156,218 | 129,635 | 120,987 | |||||||||||||||
Shareholders’ equity | 35,446 | 38,991 | 43,530 | 44,833 | 30,608 | |||||||||||||||
201
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Additional Disclosure Required
under SEC Regulations
B – Selected Financial Data (continued)
US GAAP Income Statement Data
CHF million | ||||||||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 39,940 | 39,679 | 51,907 | 51,565 | 35,404 | |||||||||||||||
Interest expense | (27,700 | ) | (29,334 | ) | (44,096 | ) | (43,584 | ) | (29,660 | ) | ||||||||||
Net interest income | 12,240 | 10,345 | 7,811 | 7,981 | 5,744 | |||||||||||||||
Credit loss (expense) / recovery | (116 | ) | (206 | ) | (498 | ) | 130 | (956 | ) | |||||||||||
Net interest income after credit loss (expense) / recovery | 12,124 | 10,139 | 7,313 | 8,111 | 4,788 | |||||||||||||||
Net fee and commission income | 17,345 | 18,221 | 20,211 | 16,703 | 12,607 | |||||||||||||||
Net trading income | 4,065 | 6,031 | 8,959 | 8,597 | 7,174 | |||||||||||||||
Other income | 380 | 96 | 534 | 1,514 | 3,182 | |||||||||||||||
Total operating income | 33,914 | 34,487 | 37,017 | 34,925 | 27,751 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 17,615 | 18,610 | 19,713 | 17,262 | 12,483 | |||||||||||||||
General and administrative expenses | 6,086 | 7,072 | 7,631 | 6,813 | 6,664 | |||||||||||||||
Depreciation of property and equipment | 1,396 | 1,613 | 1,815 | 1,800 | 1,619 | |||||||||||||||
Amortization of goodwill | 0 | 0 | 2,484 | 2,018 | 1,793 | |||||||||||||||
Amortization of other intangible assets | 112 | 1,443 | 298 | 134 | 42 | |||||||||||||||
Restructuring costs | 0 | 0 | 112 | 191 | 750 | |||||||||||||||
Total operating expenses | 25,209 | 28,738 | 32,053 | 28,218 | 23,351 | |||||||||||||||
Operating profit / (loss) before tax and minority interests | 8,705 | 5,749 | 4,964 | 6,707 | 4,400 | |||||||||||||||
Tax expense / (benefit) | 1,842 | 511 | 1,386 | 2,183 | 1,509 | |||||||||||||||
Net profit / (loss) before minority interests | 6,863 | 5,238 | 3,578 | 4,524 | 2,891 | |||||||||||||||
Minority interests | (350 | ) | (331 | ) | (344 | ) | (87 | ) | (54 | ) | ||||||||||
Change in accounting principle: cumulative effect of adoption of “AICPA Audit and Accounting Guide, Audits of Investment Companies” on certain financial investments, net of tax1 | 0 | 639 | 0 | 0 | 0 | |||||||||||||||
Net profit / (loss) | 6,513 | 5,546 | 3,234 | 4,437 | 2,837 | |||||||||||||||
202
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B – Selected Financial Data (continued)
US GAAP Balance Sheet Data
CHF million | ||||||||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | |||||||||||||||
Assets | ||||||||||||||||||||
Total assets | 1,533,957 | 1,296,938 | 1,361,920 | 1,124,554 | 893,525 | |||||||||||||||
Due from banks | 31,685 | 32,481 | 27,550 | 29,182 | 29,954 | |||||||||||||||
Cash collateral on securities borrowed | 211,058 | 139,073 | 162,566 | 177,857 | 113,162 | |||||||||||||||
Reverse repurchase agreements | 320,587 | 294,086 | 269,256 | 193,801 | 132,391 | |||||||||||||||
Trading portfolio assets | 544,492 | 441,845 | 455,406 | 318,788 | 228,230 | |||||||||||||||
Positive replacement values1 | 84,034 | 83,757 | 73,474 | 57,775 | 62,294 | |||||||||||||||
Loans | 212,554 | 211,755 | 226,747 | 245,214 | 235,401 | |||||||||||||||
Goodwill | 26,775 | 28,127 | 29,255 | 31,016 | 21,163 | |||||||||||||||
Other intangible assets | 1,174 | 1,222 | 4,510 | 4,710 | 265 | |||||||||||||||
Other assets | 64,381 | 21,314 | 36,972 | 27,955 | 18,717 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 127,385 | 83,178 | 106,531 | 82,240 | 76,363 | |||||||||||||||
Cash collateral on securities lent | 51,157 | 36,870 | 30,317 | 23,418 | 12,832 | |||||||||||||||
Repurchase agreements | 415,863 | 366,858 | 368,620 | 295,513 | 173,840 | |||||||||||||||
Trading portfolio liabilities | 149,380 | 117,721 | 119,528 | 87,832 | 52,658 | |||||||||||||||
Obligation to return securities received as collateral | 13,071 | 16,308 | 10,931 | 0 | 0 | |||||||||||||||
Negative replacement values1 | 161,086 | 132,354 | 116,666 | 75,423 | 95,004 | |||||||||||||||
Due to customers | 347,358 | 306,872 | 333,766 | 310,686 | 279,971 | |||||||||||||||
Accrued expenses and deferred income | 13,673 | 15,330 | 17,289 | 21,038 | 12,040 | |||||||||||||||
Debt issued | 123,259 | 129,527 | 156,462 | 129,750 | 120,704 | |||||||||||||||
Shareholders’ equity | 53,174 | 55,576 | 59,282 | 62,960 | 51,833 | |||||||||||||||
Ratio of Earnings to Fixed Charges
The following table sets forth UBS’s ratio of earnings to fixed charges, for the periods indicated. Ratios of earnings to combined fixed charges and preferred stock dividends requirements are not presented as there were no preferred share dividends in any of the periods indicated.
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | |||||||||||||||
IFRS1 | 1.28 | 1.14 | 1.14 | 1.23 | 1.25 | |||||||||||||||
US GAAP1 | 1.29 | 1.18 | 1.10 | 1.15 | 1.14 | |||||||||||||||
C – Information on the Company
Property, Plant and Equipment
203
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Selected Statistical Information
Average Balances and Interest Rates
The following table sets forth average interest-earning assets and average interest-bearing liabilities, along with the average rates, for the years ended 31 December 2003, 2002 and 2001.
31.12.03 | 31.12.02 | 31.12.01 | ||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||
CHF million, except where indicated | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | |||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||
Due from banks | ||||||||||||||||||||||||||||||||||||
Domestic | 11,417 | 200 | 1.8 | 12,534 | 388 | 3.1 | 11,753 | 1,055 | 9.0 | |||||||||||||||||||||||||||
Foreign | 20,997 | 1,035 | 4.9 | 17,603 | 634 | 3.6 | 15,528 | 1,823 | 11.7 | |||||||||||||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | ||||||||||||||||||||||||||||||||||||
Domestic | 6,576 | 200 | 3.0 | 5,471 | 235 | 4.3 | 7,868 | 563 | 7.2 | |||||||||||||||||||||||||||
Foreign | 582,152 | 10,948 | 1.9 | 573,576 | 10,949 | 1.9 | 474,295 | 17,774 | 3.7 | |||||||||||||||||||||||||||
Trading portfolio assets | ||||||||||||||||||||||||||||||||||||
Domestic | 7,990 | 222 | 2.8 | 7,812 | 269 | 3.4 | 12,940 | 307 | 2.4 | |||||||||||||||||||||||||||
Foreign – taxable | 407,867 | 18,151 | 4.5 | 373,810 | 16,714 | 4.5 | 332,126 | 16,183 | 4.9 | |||||||||||||||||||||||||||
Foreign – non-taxable | 1,668 | 21 | 1.3 | 1,720 | 31 | 1.8 | 1,450 | 42 | 2.9 | |||||||||||||||||||||||||||
Foreign – total | 409,535 | 18,172 | 4.4 | 375,530 | 16,745 | 4.5 | 333,576 | 16,225 | 4.9 | |||||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||||||||||
Domestic | 165,397 | 6,437 | 3.9 | 170,641 | 6,987 | 4.1 | 177,404 | 8,017 | 4.5 | |||||||||||||||||||||||||||
Foreign | 51,457 | 1,805 | 3.5 | 55,199 | 1,789 | 3.2 | 72,176 | 3,090 | 4.3 | |||||||||||||||||||||||||||
Financial investments | ||||||||||||||||||||||||||||||||||||
Domestic | 1,988 | 40 | 2.0 | 3,794 | 60 | 1.6 | 4,598 | 90 | 2.0 | |||||||||||||||||||||||||||
Foreign – taxable | 4,798 | 35 | 0.7 | 8,781 | 105 | 1.2 | 39,252 | 363 | 0.9 | |||||||||||||||||||||||||||
Foreign – non-taxable | 0 | 0 | 0.0 | 0 | 0 | 0.0 | 0 | 0 | 0.0 | |||||||||||||||||||||||||||
Foreign – total | 4,798 | 35 | 0.7 | 8,781 | 105 | 1.2 | 39,252 | 363 | 0.9 | |||||||||||||||||||||||||||
Total interest-earning assets | 1,262,307 | 39,094 | 3.1 | 1,230,941 | 38,161 | 3.1 | 1,149,390 | 49,307 | 4.3 | |||||||||||||||||||||||||||
Net interest on swaps | 1,065 | 1,802 | 2,970 | |||||||||||||||||||||||||||||||||
Interest income and average interest-earning assets | 1,262,307 | 40,159 | 3.2 | 1,230,941 | 39,963 | 3.2 | 1,149,390 | 52,277 | 4.5 | |||||||||||||||||||||||||||
Non-interest-earning assets | ||||||||||||||||||||||||||||||||||||
Positive replacement values | 250,871 | 190,063 | 153,687 | |||||||||||||||||||||||||||||||||
Fixed assets | 11,643 | 12,532 | 13,376 | |||||||||||||||||||||||||||||||||
Other | 40,104 | 53,293 | 46,954 | |||||||||||||||||||||||||||||||||
Total average assets | 1,564,925 | 1,486,829 | 1,363,407 | |||||||||||||||||||||||||||||||||
204
Table of Contents
D – Information Required by Industry Guide 3 (continued)
Average Balances and Interest Rates (continued)
31.12.03 | 31.12.02 | 31.12.01 | ||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||
CHF million, except where indicated | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | |||||||||||||||||||||||||||
Liabilities and Equity | ||||||||||||||||||||||||||||||||||||
Due to banks | ||||||||||||||||||||||||||||||||||||
Domestic | 28,719 | 150 | 0.5 | 28,625 | 452 | 1.6 | 36,260 | 1,424 | 3.9 | |||||||||||||||||||||||||||
Foreign | 72,757 | 1,751 | 2.4 | 60,621 | 1,362 | 2.2 | 61,642 | 3,506 | 5.7 | |||||||||||||||||||||||||||
Cash collateral on securities lent and repurchase agreements | ||||||||||||||||||||||||||||||||||||
Domestic | 23,287 | 295 | 1.3 | 18,382 | 355 | 1.9 | 13,147 | 600 | 4.6 | |||||||||||||||||||||||||||
Foreign | 515,665 | 9,328 | 1.8 | 523,375 | 9,726 | 1.9 | 415,121 | 13,917 | 3.4 | |||||||||||||||||||||||||||
Trading portfolio liabilities | ||||||||||||||||||||||||||||||||||||
Domestic | 3,252 | 156 | 4.8 | 3,239 | 146 | 4.5 | 2,526 | 1 | 0.0 | |||||||||||||||||||||||||||
Foreign | 127,104 | 9,945 | 7.8 | 109,013 | 8,220 | 7.5 | 94,597 | 7,814 | 8.3 | |||||||||||||||||||||||||||
Due to customers | ||||||||||||||||||||||||||||||||||||
Domestic – demand deposits | 55,496 | 100 | 0.2 | 42,484 | 435 | 1.0 | 41,664 | 715 | 1.7 | |||||||||||||||||||||||||||
Domestic – savings deposits | 81,963 | 527 | 0.6 | 71,465 | 625 | 0.9 | 66,089 | 716 | 1.1 | |||||||||||||||||||||||||||
Domestic – time deposits | 21,125 | 395 | 1.9 | 27,646 | 447 | 1.6 | 31,261 | 989 | 3.2 | |||||||||||||||||||||||||||
Domestic – total | 158,584 | 1,022 | 0.6 | 141,595 | 1,507 | 1.1 | 139,014 | 2,420 | 1.7 | |||||||||||||||||||||||||||
Foreign1 | 161,942 | 2,170 | 1.3 | 172,650 | 3,062 | 1.8 | 187,783 | 6,738 | 3.6 | |||||||||||||||||||||||||||
Short-term debt | ||||||||||||||||||||||||||||||||||||
Domestic | 64 | 0 | 0.0 | 69 | 0 | 0.0 | 69 | 0 | 0.0 | |||||||||||||||||||||||||||
Foreign | 73,193 | 1,015 | 1.4 | 91,616 | 1,915 | 2.1 | 96,184 | 4,227 | 4.4 | |||||||||||||||||||||||||||
Long-term debt | ||||||||||||||||||||||||||||||||||||
Domestic | 6,413 | 188 | 2.9 | 10,082 | 433 | 4.3 | 12,754 | 587 | 4.6 | |||||||||||||||||||||||||||
Foreign | 52,216 | 1,840 | 3.5 | 46,930 | 2,239 | 4.8 | 43,798 | 3,002 | 6.9 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 1,223,196 | 27,860 | 2.3 | 1,206,197 | 29,417 | 2.4 | 1,102,895 | 44,236 | 4.0 | |||||||||||||||||||||||||||
Non-interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||
Negative replacement values | 257,075 | 192,659 | 165,220 | |||||||||||||||||||||||||||||||||
Other | 47,410 | 45,217 | 51,308 | |||||||||||||||||||||||||||||||||
Total liabilities | 1,527,681 | 1,444,073 | 1,319,423 | |||||||||||||||||||||||||||||||||
Shareholders’ equity | 37,244 | 42,756 | 43,984 | |||||||||||||||||||||||||||||||||
Total average liabilities and shareholders’ equity | 1,564,925 | 1,486,829 | 1,363,407 | |||||||||||||||||||||||||||||||||
Net interest income | 12,299 | 10,546 | 8,041 | |||||||||||||||||||||||||||||||||
Net yield on interest-earning assets | 1.0 | 0.9 | 0.7 | |||||||||||||||||||||||||||||||||
205
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Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Analysis of Changes in Interest Income and Expense
The following tables allocate, by categories of interest-earning assets and interest-bearing liabilities, the changes in interest income and expense due to changes in volume and interest rates for the year ended 31 December 2003 compared to the year ended 31 December 2002, and for the year ended 31 December 2002 compared to the year ended 31 December 2001. Volume and rate variances have been calculated on movements in average balances and changes in interest rates. Changes due to a combination of volume and rates have been allocated proportionally. Refer to page 213 of Industry Guide 3 for a discussion of the treatment of impaired, non-performing and restructured loans.
2003 compared to 2002 | 2002 compared to 2001 | |||||||||||||||||||||||
Increase/(decrease) | Increase/(decrease) | |||||||||||||||||||||||
due to changes in | due to changes in | |||||||||||||||||||||||
Average | Average | Net | Average | Average | Net | |||||||||||||||||||
CHF million | volume | rate | change | volume | rate | change | ||||||||||||||||||
Interest income from interest-earning assets | ||||||||||||||||||||||||
Due from banks | ||||||||||||||||||||||||
Domestic | (35 | ) | (153 | ) | (188 | ) | 70 | (737 | ) | (667 | ) | |||||||||||||
Foreign | 122 | 279 | 401 | 243 | (1,432 | ) | (1,189 | ) | ||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | ||||||||||||||||||||||||
Domestic | 48 | (83 | ) | (35 | ) | (173 | ) | (155 | ) | (328 | ) | |||||||||||||
Foreign | 163 | (164 | ) | (1 | ) | 3,673 | (10,498 | ) | (6,825 | ) | ||||||||||||||
Trading portfolio assets | ||||||||||||||||||||||||
Domestic | 6 | (53 | ) | (47 | ) | (123 | ) | 85 | (38 | ) | ||||||||||||||
Foreign – taxable | 1,533 | (96 | ) | 1,437 | 2,043 | (1,512 | ) | 531 | ||||||||||||||||
Foreign – non-taxable | (1 | ) | (9 | ) | (10 | ) | 8 | (19 | ) | (11 | ) | |||||||||||||
Foreign – total | 1,532 | (105 | ) | 1,427 | 2,051 | (1,531 | ) | 520 | ||||||||||||||||
Loans | ||||||||||||||||||||||||
Domestic | (215 | ) | (335 | ) | (550 | ) | (304 | ) | (726 | ) | (1,030 | ) | ||||||||||||
Foreign | (120 | ) | 136 | 16 | (730 | ) | (571 | ) | (1,301 | ) | ||||||||||||||
Financial investments | ||||||||||||||||||||||||
Domestic | (29 | ) | 9 | (20 | ) | (16 | ) | (14 | ) | (30 | ) | |||||||||||||
Foreign – taxable | (48 | ) | (22 | ) | (70 | ) | (274 | ) | 16 | (258 | ) | |||||||||||||
Foreign – non-taxable | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Foreign – total | (48 | ) | (22 | ) | (70 | ) | (274 | ) | 16 | (258 | ) | |||||||||||||
Interest income | ||||||||||||||||||||||||
Domestic | (225 | ) | (615 | ) | (840 | ) | (546 | ) | (1,547 | ) | (2,093 | ) | ||||||||||||
Foreign | 1,649 | 124 | 1,773 | 4,963 | (14,016 | ) | (9,053 | ) | ||||||||||||||||
Total interest income from interest-earning assets | 1,424 | (491 | ) | 933 | 4,417 | (15,563 | ) | (11,146 | ) | |||||||||||||||
Net interest on swaps | (737 | ) | (1,168 | ) | ||||||||||||||||||||
Total interest income | 196 | (12,314 | ) | |||||||||||||||||||||
206
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D – Information Required by Industry Guide 3 (continued)
Analysis of Changes in Interest Income and Expense (continued)
2003 compared to 2002 | 2002 compared to 2001 | |||||||||||||||||||||||
Increase/(decrease) | Increase/(decrease) | |||||||||||||||||||||||
due to changes in | due to changes in | |||||||||||||||||||||||
Average | Average | Net | Average | Average | Net | |||||||||||||||||||
CHF million | volume | rate | change | volume | rate | change | ||||||||||||||||||
Interest expense on interest-bearing liabilities | ||||||||||||||||||||||||
Due to banks | ||||||||||||||||||||||||
Domestic | 2 | (304 | ) | (302 | ) | (298 | ) | (674 | ) | (972 | ) | |||||||||||||
Foreign | 267 | 122 | 389 | (58 | ) | (2,086 | ) | (2,144 | ) | |||||||||||||||
Cash collateral on securities lent and repurchase agreements | ||||||||||||||||||||||||
Domestic | 93 | (153 | ) | (60 | ) | 241 | (486 | ) | (245 | ) | ||||||||||||||
Foreign | (146 | ) | (252 | ) | (398 | ) | 3,681 | (7,872 | ) | (4,191 | ) | |||||||||||||
Trading portfolio liabilities | ||||||||||||||||||||||||
Domestic | 1 | 9 | 10 | 0 | 145 | 145 | ||||||||||||||||||
Foreign | 1,357 | 368 | 1,725 | 1,197 | (791 | ) | 406 | |||||||||||||||||
Due to customers | ||||||||||||||||||||||||
Domestic – demand deposits | 130 | (465 | ) | (335 | ) | 14 | (294 | ) | (280 | ) | ||||||||||||||
Domestic – savings deposits | 94 | (192 | ) | (98 | ) | 59 | (150 | ) | (91 | ) | ||||||||||||||
Domestic – time deposits | (104 | ) | 52 | (52 | ) | (116 | ) | (426 | ) | (542 | ) | |||||||||||||
Domestic – total | 120 | (605 | ) | (485 | ) | (43 | ) | (870 | ) | (913 | ) | |||||||||||||
Foreign | (193 | ) | (699 | ) | (892 | ) | (545 | ) | (3,131 | ) | (3,676 | ) | ||||||||||||
Short-term debt | ||||||||||||||||||||||||
Domestic | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Foreign | (387 | ) | (513 | ) | (900 | ) | (201 | ) | (2,111 | ) | (2,312 | ) | ||||||||||||
Long-term debt | ||||||||||||||||||||||||
Domestic | (158 | ) | (87 | ) | (245 | ) | (123 | ) | (31 | ) | (154 | ) | ||||||||||||
Foreign | 254 | (653 | ) | (399 | ) | 216 | (979 | ) | (763 | ) | ||||||||||||||
Interest expense | ||||||||||||||||||||||||
Domestic | 58 | (1,140 | ) | (1,082 | ) | (223 | ) | (1,916 | ) | (2,139 | ) | |||||||||||||
Foreign | 1,152 | (1,627 | ) | (475 | ) | 4,290 | (16,970 | ) | (12,680 | ) | ||||||||||||||
Total interest expense | 1,210 | (2,767 | ) | (1,557 | ) | 4,067 | (18,886 | ) | (14,819 | ) | ||||||||||||||
207
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under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Deposits
The following table analyzes average deposits and the average rates on each deposit category listed below for the years ended 31 December 2003, 2002 and 2001. The geographic allocation is based on the location of the office or branch where the deposit is made. Deposits by foreign depositors in domestic offices were CHF 92,858 million, CHF 43,914 million and CHF 54,095 million at 31 December 2003, 31 December 2002 and 31 December 2001, respectively.
31.12.03 | 31.12.02 | 31.12.01 | ||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||
CHF million, except where indicated | deposit | rate (%) | deposit | rate (%) | deposit | rate (%) | ||||||||||||||||||
Banks | ||||||||||||||||||||||||
Domestic offices | ||||||||||||||||||||||||
Demand deposits | 3,836 | 0.0 | 3,524 | 0.7 | 3,741 | 1.2 | ||||||||||||||||||
Time deposits | 7,581 | 0.6 | 9,010 | 1.7 | 8,012 | 4.2 | ||||||||||||||||||
Total domestic offices | 11,417 | 0.4 | 12,534 | 1.4 | 11,753 | 3.3 | ||||||||||||||||||
Foreign offices | ||||||||||||||||||||||||
Interest-bearing deposits1 | 20,997 | 2.4 | 17,603 | 2.2 | 15,528 | 5.7 | ||||||||||||||||||
Total due to banks | 32,414 | 1.7 | 30,137 | 1.9 | 27,281 | 4.6 | ||||||||||||||||||
Customer accounts | ||||||||||||||||||||||||
Domestic offices | ||||||||||||||||||||||||
Demand deposits | 55,496 | 0.2 | 42,484 | 1.0 | 41,664 | 1.7 | ||||||||||||||||||
Savings deposits | 81,963 | 0.6 | 71,465 | 0.9 | 66,089 | 1.1 | ||||||||||||||||||
Time deposits | 21,125 | 1.9 | 27,646 | 1.6 | 31,261 | 3.2 | ||||||||||||||||||
Total domestic offices | 158,584 | 0.6 | 141,595 | 1.1 | 139,014 | 1.7 | ||||||||||||||||||
Foreign offices | ||||||||||||||||||||||||
Interest-bearing deposits1 | 161,942 | 1.3 | 172,650 | 1.8 | 187,783 | 3.6 | ||||||||||||||||||
Total due to customers | 320,526 | 1.0 | 314,245 | 1.5 | 326,797 | 2.8 | ||||||||||||||||||
At 31 December 2003, the maturity of time deposits exceeding CHF 150,000, or an equivalent amount in other currencies, was as follows:
CHF million | Domestic | Foreign | ||||||
Within 3 months | 22,382 | 122,522 | ||||||
3 to 6 months | 1,492 | 3,354 | ||||||
6 to 12 months | 1,335 | 2,384 | ||||||
1 to 5 years | 483 | 2,172 | ||||||
Over 5 years | 94 | 1,241 | ||||||
Total time deposits | 25,786 | 131,673 | ||||||
208
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D – Information Required by Industry Guide 3 (continued)
Short-term Borrowings
The following table presents our period-end, average and maximum month-end outstanding amounts for short-term borrowings, along with the average rates and period-end rates at and for the years ended 31 December 2003, 2002 and 2001.
Money market paper issued | Due to banks | Repurchase agreements1 | ||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||||||||||||||
Period-end balance | 58,115 | 72,800 | 99,006 | 89,303 | 48,780 | 77,312 | 500,592 | 464,020 | 462,316 | |||||||||||||||||||||||||||
Average balance | 73,257 | 91,685 | 96,253 | 69,062 | 59,109 | 70,621 | 498,679 | 509,572 | 400,648 | |||||||||||||||||||||||||||
Maximum month-end balance | 92,605 | 108,463 | 117,022 | 96,694 | 77,312 | 85,808 | 593,738 | 593,786 | 502,578 | |||||||||||||||||||||||||||
Average interest rate during the period (%) | 1.4 | 2.1 | 4.4 | 2.8 | 3.1 | 7.0 | 1.8 | 1.8 | 3.2 | |||||||||||||||||||||||||||
Average interest rate at period-end (%) | 1.3 | 1.5 | 2.6 | 1.5 | 2.0 | 2.2 | 1.3 | 1.7 | 2.9 | |||||||||||||||||||||||||||
209
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Additional Disclosure Required
under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Contractual Maturities of the Investments in Debt Instruments
Within 1 year | 1–5 years | 5–10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 20031 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 3 | 6.61 | 4 | 2.92 | 6 | 3.80 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 5 | 3.90 | 20 | 2.01 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 45 | 1.89 | 9 | 1.49 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 81 | 1.09 | 68 | 3.53 | 7 | 7.38 | 0 | 0.00 | ||||||||||||||||||||||||
Mortgage-backed securities | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Other debt securities | 4 | 0.00 | 8 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 138 | 109 | 13 | 1 | ||||||||||||||||||||||||||||
Within 1 year | 1–5 years | 5–10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 20021 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 0 | 0.00 | 7 | 4.88 | 8 | 3.86 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 8 | 4.02 | 30 | 3.94 | 4 | 3.59 | 0 | 0.00 | ||||||||||||||||||||||||
US Treasury and agencies | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 35 | 4.63 | 45 | 3.13 | 1 | 6.12 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 675 | 2.23 | 249 | 2.64 | 19 | 3.41 | 21 | 8.02 | ||||||||||||||||||||||||
Mortgage-backed securities | 4 | 2.25 | 15 | 3.97 | 4 | 4.03 | 0 | 0.00 | ||||||||||||||||||||||||
Other debt securities | 1 | 4.77 | 48 | 2.65 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 723 | 394 | 36 | 22 | ||||||||||||||||||||||||||||
Within 1 year | 1–5 years | 5–10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 20011 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 9 | 5.26 | 10 | 4.50 | 16 | 3.43 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 3 | 4.36 | 38 | 3.90 | 4 | 3.59 | 0 | 0.00 | ||||||||||||||||||||||||
US Treasury and agencies | 0 | 0.00 | 24 | 4.38 | 8 | 5.15 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 5,014 | 0.97 | 5,048 | 1.01 | 27 | 2.88 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 63 | 4.53 | 1,102 | 4.59 | 30 | 3.22 | 23 | 15.37 | 2 | |||||||||||||||||||||||
Mortgage-backed securities | 0 | 0.00 | 5 | 5.41 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Other debt securities | 2 | 4.77 | 87 | 3.91 | 28 | 3.56 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 5,091 | 6,314 | 113 | 24 | ||||||||||||||||||||||||||||
210
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D – Information Required by Industry Guide 3 (continued)
Due from Banks and Loans (gross)
Loans are widely dispersed over industry sectors both within and outside of Switzerland. With the exceptions of private households (foreign and domestic) and banks and financial institutions outside Switzerland and real estate and rentals in Switzerland, there is no material concentration of loans. For further discussion of the loan portfolio, see the Handbook 2003 / 2004. The following table illustrates the diversification of the loan portfolio among industry sectors at 31 December 2003, 2002, 2001, 2000 and 1999. The industry categories presented are consistent with the classification of loans for reporting to the Swiss Federal Banking Commission and Swiss National Bank.
CHF million | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks | 619 | 1,029 | 1,533 | 2,896 | 5,802 | |||||||||||||||
Construction | 2,175 | 2,838 | 3,499 | 4,870 | 6,577 | |||||||||||||||
Financial institutions | 4,009 | 4,301 | 5,673 | 5,725 | 9,387 | |||||||||||||||
Hotels and restaurants | 2,440 | 2,655 | 2,950 | 3,526 | 4,259 | |||||||||||||||
Manufacturing1 | 6,478 | 7,237 | 8,686 | 9,577 | 11,377 | |||||||||||||||
Private households | 102,181 | 95,295 | 93,746 | 91,667 | 93,846 | |||||||||||||||
Public authorities | 5,251 | 5,529 | 5,222 | 5,658 | 5,277 | |||||||||||||||
Real estate and rentals | 12,449 | 13,573 | 14,992 | 16,673 | 19,835 | |||||||||||||||
Retail and wholesale | 6,062 | 7,172 | 8,674 | 9,635 | 10,904 | |||||||||||||||
Services2 | 9,493 | 10,237 | 12,161 | 11,767 | 14,862 | |||||||||||||||
Other3 | 1,217 | 1,738 | 1,860 | 2,651 | 1,818 | |||||||||||||||
Total domestic | 152,374 | 151,604 | 158,996 | 164,645 | 183,944 | |||||||||||||||
Foreign4 | ||||||||||||||||||||
Banks | 31,405 | 31,882 | 26,728 | 27,168 | 24,983 | |||||||||||||||
Chemicals | 245 | 519 | 1,080 | 1,423 | ||||||||||||||||
Construction | 84 | 153 | 266 | 773 | ||||||||||||||||
Electricity, gas and water supply | 249 | 1,105 | 977 | 1,584 | ||||||||||||||||
Financial institutions | 23,493 | 18,378 | 14,458 | 20,348 | ||||||||||||||||
Manufacturing5 | 2,421 | 2,300 | 4,258 | 4,596 | ||||||||||||||||
Mining | 1,114 | 868 | 1,313 | 2,070 | ||||||||||||||||
Private households | 21,194 | 33,063 | 25,619 | 29,470 | ||||||||||||||||
Public authorities | 1,224 | 2,628 | 6,454 | 11,754 | ||||||||||||||||
Real estate and rentals | 473 | 616 | 10,227 | 5,077 | ||||||||||||||||
Retail and wholesale | 1,880 | 1,367 | 1,732 | 1,862 | ||||||||||||||||
Services | 7,983 | 1,654 | 4,786 | 1,585 | ||||||||||||||||
Transport, storage and communication | 3,658 | 676 | 2,117 | 993 | ||||||||||||||||
Other6 | 410 | 2,557 | 2,973 | 11,168 | 69,087 | |||||||||||||||
Total foreign | 95,833 | 97,766 | 102,988 | 119,871 | 94,070 | |||||||||||||||
Total gross | 248,207 | 249,370 | 261,984 | 284,516 | 278,014 | |||||||||||||||
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Additional Disclosure Required
under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Due from Banks and Loans (gross) (continued)
The following table analyzes the Group’s mortgage portfolio by geographic origin of the client and type of mortgage at 31 December 2003, 2002, 2001, 2000 and 1999. Mortgages are included in the industry categories mentioned above.
CHF million | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | |||||||||||||||
Mortgages | ||||||||||||||||||||
Domestic | 122,069 | 116,359 | 116,628 | 116,348 | 126,677 | |||||||||||||||
Foreign | 7,073 | 11,510 | 9,583 | 4,206 | 1,310 | |||||||||||||||
Total gross mortgages | 129,142 | 127,869 | 126,211 | 120,554 | 127,987 | |||||||||||||||
Mortgages | ||||||||||||||||||||
Residential | 110,239 | 108,779 | 101,969 | 96,181 | 91,408 | |||||||||||||||
Commercial | 18,903 | 19,090 | 24,242 | 24,373 | 36,579 | |||||||||||||||
Total gross mortgages | 129,142 | 127,869 | 126,211 | 120,554 | 127,987 | |||||||||||||||
Due from Banks and Loan Maturities (gross)
The following table discloses due from banks and loans by maturity at 31 December 2003. The determination of maturities is based on contract terms. Information on interest rate sensitivities can be found in Note 29 to the UBS Financial Statements.
CHF million | Within 1 year | 1 to 5 years | Over 5 years | Total | ||||||||||||
Domestic | ||||||||||||||||
Banks | 619 | 0 | 0 | 619 | ||||||||||||
Mortgages | 56,604 | 58,666 | 6,799 | 122,069 | ||||||||||||
Other loans | 21,695 | 6,528 | 1,463 | 29,686 | ||||||||||||
Total domestic | 78,918 | 65,194 | 8,262 | 152,374 | ||||||||||||
Foreign | ||||||||||||||||
Banks | 29,587 | 1,382 | 436 | 31,405 | ||||||||||||
Mortgages | 6,287 | 732 | 54 | 7,073 | ||||||||||||
Other loans | 54,220 | 2,419 | 716 | 57,355 | ||||||||||||
Total foreign | 90,094 | 4,533 | 1,206 | 95,833 | ||||||||||||
Total gross | 169,012 | 69,727 | 9,468 | 248,207 | ||||||||||||
At 31 December 2003, the total amount of due from banks and loans due after one year granted at fixed and floating rates are as follows:
CHF million | 1 to 5 years | Over 5 years | Total | |||||||||
Fixed rate loans | 67,134 | 8,856 | 75,990 | |||||||||
Adjustable or floating rate loans | 2,593 | 612 | 3,205 | |||||||||
Total | 69,727 | 9,468 | 79,195 | |||||||||
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D – Information Required by Industry Guide 3 (continued)
Impaired, Non-performing and Restructured Loans
A loan (included in due from banks and loans) is classified as impaired if the book value of the claim exceeds the present value of the cash flows actually expected in future periods – interest payments, scheduled principal repayments, or other payments due (for example on guarantees), and including liquidation of collateral where available. Within this category, we further classify loans as non-performing where payment of interest, principal or fees is overdue by more than 90 days or – as required by Swiss regulatory guidelines as at 31 December 2003 – when insolvency proceedings have commenced or obligations have been restructured on concessionary terms.
tic loans and CHF 53 million for foreign loans for the year ended 31 December 2002, CHF 336 million for all non-performing loans for the year ended 31 December 2001 and CHF 182 million for all non-performing loans for the year ended 31 December 2000. The amount of interest income that was included in net income for those loans was CHF 163 million for domestic loans and CHF 8 million for foreign loans for the year ended 31 December 2003, CHF 152 million for domestic loans and CHF 22 million for foreign loans for the year ended 31 December 2002 and CHF 201 million for all non-performing loans for the year ended 31 December 2001. There was no interest income recorded in net income for non-performing loans in 2000. The table below provides an analysis of the Group’s non-performing loans, for further information see the Handbook 2003 / 2004.
CHF million | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | |||||||||||||||
Non-performing due from banks and loans: | ||||||||||||||||||||
Domestic | 4,012 | 4,609 | 6,531 | 7,588 | 11,435 | |||||||||||||||
Foreign | 947 | 1,420 | 2,108 | 2,864 | 1,638 | |||||||||||||||
Total non-performing due from banks and loans | 4,959 | 6,029 | 8,639 | 10,452 | 13,073 | |||||||||||||||
Foreign restructured due from banks and loans1 | 179 | 287 | ||||||||||||||||||
In addition to the non-performing due from banks and loans shown above, the Group had CHF 2,647 million, CHF 4,336 million, CHF 5,990 million, CHF 8,042 million and CHF 9,383 million in “other impaired loans” for the years ended 31 December 2003, 2002, 2001, 2000 and 1999, respectively. For the years ended 31 December 2002, 2001, 2000 and 1999, respectively, these are loans that are current, or less than
90 days in arrears, with respect to payment of principal or interest; and for the year ended 31 December 2003, these are loans not considered “non-performing” in accordance with Swiss regulatory guidelines, however, the Group’s credit officers have expressed doubts as to the ability of the borrowers to repay the loans. As at 31 December 2003 specific allowances of CHF 991 million had been established against these loans.
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Additional Disclosure Required
under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Cross-Border Outstandings
Cross-border outstandings consist of general banking products such as loans (including unutilized commitments) and deposits with third parties, credit equivalents of over the counter (OTC) derivatives and repurchase agreements, and the market value of the inventory of securities. Outstandings are monitored and reported on an ongoing basis by the credit risk management and control organization with a dedicated country risk information system. With the exception of the 32 most developed economies, these exposures are rigorously limited.
the asset could be liquidated. This follows the “Guidelines for the Management of Country Risk”, which are applicable to all banks that are supervised by the Swiss Federal Banking Commission.
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D — Information Required by Industry Guide 3 (continued)
31.12.03 | ||||||||||||||||||||||||
Banking products | Traded | Tradable | % of total | |||||||||||||||||||||
CHF million | Banks | Non-banks | products1 | assets2 | Total | assets | ||||||||||||||||||
United States | 916 | 288 | 17,470 | 108,050 | 126,724 | 9.1 | ||||||||||||||||||
Italy | 1,041 | 967 | 8,714 | 14,547 | 25,269 | 1.8 | ||||||||||||||||||
Germany | 1,928 | 3,814 | 13,307 | 5,605 | 24,654 | 1.8 | ||||||||||||||||||
United Kingdom | 4,223 | 525 | 4,374 | 11,112 | 20,234 | 1.5 | ||||||||||||||||||
France | 441 | 1,505 | 4,450 | 8,320 | 14,716 | 1.1 | ||||||||||||||||||
Japan | 7 | 300 | 1,622 | 11,548 | 13,477 | 1.0 | ||||||||||||||||||
31.12.02 | ||||||||||||||||||||||||
Banking products | Traded | Tradable | % of total | |||||||||||||||||||||
CHF million | Banks | Non-banks | products1 | assets2 | Total | assets | ||||||||||||||||||
United States | 1,083 | 698 | 27,617 | 95,046 | 124,444 | 10.5 | ||||||||||||||||||
Germany | 2,590 | 4,732 | 13,101 | 9,104 | 29,527 | 2.5 | ||||||||||||||||||
Italy | 1,139 | 296 | 7,229 | 14,852 | 23,516 | 2.0 | ||||||||||||||||||
United Kingdom | 4,161 | 606 | 5,437 | 12,106 | 22,310 | 1.9 | ||||||||||||||||||
France | 2,077 | 1,805 | 5,710 | 11,403 | 20,995 | 1.8 | ||||||||||||||||||
Australia | 133 | 535 | 4,514 | 6,651 | 11,833 | 1.0 | ||||||||||||||||||
Canada | 130 | 872 | 4,964 | 5,115 | 11,081 | 0.9 | ||||||||||||||||||
Japan | 312 | 88 | 1,766 | 7,816 | 9,982 | 0.8 | ||||||||||||||||||
Cayman Islands | 7 | 1,175 | 5,054 | 3,387 | 9,623 | 0.8 | ||||||||||||||||||
Netherlands | 289 | 1,548 | 4,110 | 3,313 | 9,260 | 0.8 | ||||||||||||||||||
31.12.01 | ||||||||||||||||||||||||
Banking products | Traded | Tradable | % of total | |||||||||||||||||||||
CHF million | Banks | Non-banks | products1 | assets2 | Total | assets | ||||||||||||||||||
United States | 2,360 | 1,284 | 31,129 | 114,615 | 149,388 | 11.9 | ||||||||||||||||||
United Kingdom | 2,483 | 543 | 9,128 | 27,754 | 39,908 | 3.2 | ||||||||||||||||||
Germany | 3,605 | 6,395 | 11,962 | 11,755 | 33,717 | 2.7 | ||||||||||||||||||
Japan | 640 | 770 | 4,442 | 22,995 | 28,847 | 2.3 | ||||||||||||||||||
Italy | 1,086 | 498 | 11,628 | 11,180 | 24,392 | 1.9 | ||||||||||||||||||
France | 159 | 2,043 | 4,114 | 8,052 | 14,368 | 1.1 | ||||||||||||||||||
Canada | 114 | 950 | 5,220 | 8,038 | 14,322 | 1.1 | ||||||||||||||||||
Netherlands | 1,834 | 2,414 | 6,126 | 3,110 | 13,484 | 1.1 | ||||||||||||||||||
215
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Additional Disclosure Required
under SEC Regulations
D — Information Required by Industry Guide 3 (continued)
Summary of Movements in Allowances and Provisions for Credit Losses
The following table provides an analysis of movements in allowances and provisions for credit losses.
CHF million | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | |||||||||||||||
Balance at beginning of year | 5,621 | 8,218 | 10,581 | 13,398 | 14,978 | |||||||||||||||
Write offs | ||||||||||||||||||||
Domestic | ||||||||||||||||||||
Banks | 0 | 0 | 0 | 0 | (4 | ) | ||||||||||||||
Construction | (73 | ) | (148 | ) | (248 | ) | (261 | ) | (296 | ) | ||||||||||
Financial institutions | (37 | ) | (103 | ) | (51 | ) | (178 | ) | (92 | ) | ||||||||||
Hotels and restaurants | (57 | ) | (48 | ) | (52 | ) | (193 | ) | (137 | ) | ||||||||||
Manufacturing 1 | (121 | ) | (275 | ) | (109 | ) | (264 | ) | (242 | ) | ||||||||||
Private households | (262 | ) | (536 | ) | (1,297 | ) | (640 | ) | (598 | ) | ||||||||||
Public authorities | (18 | ) | 0 | 0 | 0 | 0 | ||||||||||||||
Real estate and rentals | (206 | ) | (357 | ) | (317 | ) | (729 | ) | (823 | ) | ||||||||||
Retail and wholesale | (67 | ) | (101 | ) | (115 | ) | (160 | ) | (210 | ) | ||||||||||
Services 2 | (111 | ) | (155 | ) | (93 | ) | (227 | ) | (315 | ) | ||||||||||
Other 3 | (43 | ) | (49 | ) | (46 | ) | (30 | ) | (41 | ) | ||||||||||
Total domestic write offs | (995 | ) | (1,772 | ) | (2,328 | ) | (2,682 | ) | (2,758 | ) | ||||||||||
Foreign4 | ||||||||||||||||||||
Banks | (17 | ) | (49 | ) | (24 | ) | (15 | ) | ||||||||||||
Chemicals | 0 | 0 | (2 | ) | 0 | |||||||||||||||
Construction | 0 | 0 | (10 | ) | (13 | ) | ||||||||||||||
Electricity, gas and water supply | 0 | (36 | ) | (63 | ) | (3 | ) | |||||||||||||
Financial institutions | (112 | ) | (228 | ) | (74 | ) | (33 | ) | ||||||||||||
Manufacturing 5 | (77 | ) | (70 | ) | (119 | ) | (11 | ) | ||||||||||||
Mining | (15 | ) | (1 | ) | (304 | ) | 0 | |||||||||||||
Private households | (11 | ) | (65 | ) | (5 | ) | 0 | |||||||||||||
Public authorities | 0 | (1 | ) | 0 | (4 | ) | ||||||||||||||
Real estate and rentals | (1 | ) | (2 | ) | (1 | ) | 0 | |||||||||||||
Retail and wholesale | (76 | ) | (10 | ) | 0 | (160 | ) | |||||||||||||
Services | (25 | ) | (39 | ) | (30 | ) | (8 | ) | ||||||||||||
Transport, storage and communication | (24 | ) | (74 | ) | 0 | (11 | ) | |||||||||||||
Other 6 | (83 | ) | (189 | ) | (48 | ) | (55 | ) | ||||||||||||
Total foreign write offs | (441 | ) | (764 | ) | (680 | ) | (313 | ) | (517 | ) | ||||||||||
Total write offs | (1,436 | ) | (2,536 | ) | (3,008 | ) | (2,995 | ) | (3,275 | ) | ||||||||||
Recoveries | ||||||||||||||||||||
Domestic | 49 | 43 | 58 | 124 | 54 | |||||||||||||||
Foreign | 38 | 27 | 23 | 39 | 11 | |||||||||||||||
Total recoveries | 87 | 70 | 81 | 163 | 65 | |||||||||||||||
Net write offs | (1,349 | ) | (2,466 | ) | (2,927 | ) | (2,832 | ) | (3,210 | ) | ||||||||||
Credit loss expense / (recovery) | 116 | 206 | 498 | (130 | ) | 956 | ||||||||||||||
Other adjustments 7 | (62 | ) | (337 | ) | 66 | 145 | 674 | |||||||||||||
Balance at end of year | 4,326 | 5,621 | 8,218 | 10,581 | 13,398 | |||||||||||||||
216
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D — Information Required by Industry Guide 3 (continued)
Summary of Movements in Allowances and Provisions for Credit Losses (continued)
CHF million | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | |||||||||||||||
Doubtful interest | 0 | 0 | 0 | 182 | 409 | |||||||||||||||
Net foreign exchange | (57 | ) | (269 | ) | 44 | 23 | 351 | |||||||||||||
Subsidiaries sold and other | (5 | ) | (68 | ) | 22 | (60 | ) | (86 | ) | |||||||||||
Total adjustments | (62 | ) | (337 | ) | 66 | 145 | 674 | |||||||||||||
217
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Additional Disclosure Required
under SEC Regulations
D — Information Required by Industry Guide 3 (continued)
Allocation of the Allowances and Provisions for Credit Losses (continued)
The following table provides an analysis of the allocation of the allowances and provisions for credit losses by industry sectors and geographic location at 31 December 2003, 2002, 2001, 2000 and 1999. For a description of procedures with respect to allowances and provisions for credit losses, see the Handbook 2003 / 2004.
CHF million | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks | 10 | 10 | 34 | 0 | 41 | |||||||||||||||
Construction | 158 | 265 | 467 | 843 | 1,247 | |||||||||||||||
Financial institutions | 137 | 89 | 262 | 328 | 342 | |||||||||||||||
Hotels and restaurants | 214 | 286 | 346 | 454 | 690 | |||||||||||||||
Manufacturing 1 | 327 | 458 | 722 | 863 | �� | 1,223 | ||||||||||||||
Private households | 511 | 750 | 1,082 | 1,570 | 2,350 | |||||||||||||||
Public authorities | 9 | 39 | 37 | 0 | 40 | |||||||||||||||
Real estate and rentals | 383 | 577 | 1,067 | 1,635 | 2,696 | |||||||||||||||
Retail and wholesale | 201 | 315 | 395 | 629 | 779 | |||||||||||||||
Services 2 | 549 | 470 | 448 | 419 | 934 | |||||||||||||||
Other 3 | 241 | 315 | 165 | 413 | 141 | |||||||||||||||
Total domestic | 2,740 | 3,574 | 5,025 | 7,154 | 10,483 | |||||||||||||||
Foreign4 | ||||||||||||||||||||
Banks 5 | 256 | 24 | 39 | 32 | ||||||||||||||||
Chemicals | 5 | 5 | 5 | 0 | ||||||||||||||||
Construction | 0 | 6 | 0 | 11 | ||||||||||||||||
Electricity, gas and water supply | 0 | 96 | 88 | 107 | ||||||||||||||||
Financial institutions | 168 | 153 | 420 | 262 | ||||||||||||||||
Manufacturing 6 | 359 | 314 | 653 | 547 | ||||||||||||||||
Mining | 19 | 148 | 169 | 586 | ||||||||||||||||
Private households | 48 | 58 | 103 | 72 | ||||||||||||||||
Public authorities | 69 | 0 | 0 | 0 | ||||||||||||||||
Real estate and rentals | 7 | 6 | 9 | 82 | ||||||||||||||||
Retail and wholesale | 51 | 13 | 0 | 41 | ||||||||||||||||
Services | 32 | 262 | 414 | 126 | ||||||||||||||||
Transport, storage and communication | 195 | 144 | 45 | 2 | ||||||||||||||||
Other 7 | 91 | 82 | 242 | 267 | ||||||||||||||||
Total foreign, net of country provisions | 1,300 | 1,311 | 2,187 | 2,135 | 1,539 | |||||||||||||||
Country provisions | 286 | 736 | 1,006 | 1,292 | 1,376 | |||||||||||||||
Total foreign8 | 1,586 | 2,047 | 3,193 | 3,427 | 2,915 | |||||||||||||||
Total allowances and provisions for credit losses | 4,326 | 5,621 | 8,218 | 10,581 | 13,398 | |||||||||||||||
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D — Information Required by Industry Guide 3 (continued)
Due from Bank and Loans by Industry 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 % | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks | 0.2 | 0.4 | 0.6 | 1.0 | 2.1 | |||||||||||||||
Construction | 0.9 | 1.1 | 1.3 | 1.7 | 2.4 | |||||||||||||||
Financial institutions | 1.6 | 1.7 | 2.2 | 2.0 | 3.4 | |||||||||||||||
Hotels and restaurants | 1.0 | 1.1 | 1.1 | 1.2 | 1.5 | |||||||||||||||
Manufacturing 1 | 2.6 | 2.9 | 3.3 | 3.4 | 4.1 | |||||||||||||||
Private households | 41.2 | 38.2 | 35.8 | 32.2 | 33.8 | |||||||||||||||
Public authorities | 2.1 | 2.2 | 2.0 | 2.0 | 1.9 | |||||||||||||||
Real estate and rentals | 5.0 | 5.5 | 5.7 | 5.9 | 7.1 | |||||||||||||||
Retail and wholesale | 2.4 | 2.9 | 3.3 | 3.4 | 3.9 | |||||||||||||||
Services 2 | 3.8 | 4.1 | 4.6 | 4.1 | 5.3 | |||||||||||||||
Other 3 | 0.6 | 0.7 | 0.8 | 1.0 | 0.7 | |||||||||||||||
Total domestic | 61.4 | 60.8 | 60.7 | 57.9 | 66.2 | |||||||||||||||
Foreign4 | ||||||||||||||||||||
Banks | 12.7 | 12.8 | 10.2 | 9.5 | 9.0 | |||||||||||||||
Chemicals | 0.1 | 0.2 | 0.4 | 0.5 | ||||||||||||||||
Construction | 0.0 | 0.1 | 0.1 | 0.3 | ||||||||||||||||
Electricity, gas and water supply | 0.1 | 0.4 | 0.4 | 0.6 | ||||||||||||||||
Financial institutions | 9.5 | 7.4 | 5.5 | 7.2 | ||||||||||||||||
Manufacturing 5 | 1.0 | 0.9 | 1.6 | 1.6 | ||||||||||||||||
Mining | 0.4 | 0.3 | 0.5 | 0.7 | ||||||||||||||||
Private households | 8.5 | 13.3 | 9.8 | 10.4 | ||||||||||||||||
Public authorities | 0.5 | 1.1 | 2.5 | 4.1 | ||||||||||||||||
Real estate and rentals | 0.2 | 0.2 | 3.9 | 1.8 | ||||||||||||||||
Retail and wholesale | 0.8 | 0.5 | 0.7 | 0.7 | ||||||||||||||||
Services | 3.2 | 0.7 | 1.8 | 0.6 | ||||||||||||||||
Transport, storage and communication | 1.5 | 0.3 | 0.8 | 0.3 | ||||||||||||||||
Other 6 | 0.1 | 1.0 | 1.1 | 3.8 | 24.8 | |||||||||||||||
Total foreign | 38.6 | 39.2 | 39.3 | 42.1 | 33.8 | |||||||||||||||
Total gross | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||
219
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Additional Disclosure Required
under SEC Regulations
D — Information Required by Industry Guide 3 (continued)
Loss History Statistics
The following is a summary of the Group’s loan loss history (relating to due from banks and loans).
CHF million, except where indicated | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | 31.12.99 | |||||||||||||||
Gross loans | 248,207 | 249,370 | 261,984 | 284,516 | 278,014 | |||||||||||||||
Impaired loans | 7,606 | 10,365 | 14,629 | 18,494 | 22,456 | |||||||||||||||
Non-performing loans | 4,959 | 6,029 | 8,639 | 10,452 | 13,073 | |||||||||||||||
Allowances and provisions for credit losses | 4,326 | 5,621 | 8,218 | 10,581 | 13,398 | |||||||||||||||
Net write offs | 1,349 | 2,466 | 2,927 | 2,832 | 3,210 | |||||||||||||||
Credit loss expense / (recovery) | 116 | 206 | 498 | (130 | ) | 956 | ||||||||||||||
Ratios | ||||||||||||||||||||
Impaired loans as a percentage of gross loans | 3.1 | 4.2 | 5.6 | 6.5 | 8.1 | |||||||||||||||
Non-performing loans as a percentage of gross loans | 2.0 | 2.4 | 3.3 | 3.7 | 4.7 | |||||||||||||||
Allowance and provisions for credit losses as a percentage of: | ||||||||||||||||||||
Gross loans | 1.7 | 2.3 | 3.1 | 3.7 | 4.8 | |||||||||||||||
Impaired loans | 56.9 | 54.2 | 56.2 | 57.2 | 59.7 | |||||||||||||||
Non-performing loans | 87.2 | 93.2 | 95.1 | 101.2 | 102.5 | |||||||||||||||
Allocated allowances as a percentage of impaired loans 1 | 50.0 | 47.2 | 49.9 | 52.4 | 55.5 | |||||||||||||||
Allocated allowances as a percentage of non-performing loans 2 | 56.8 | 57.8 | 62.2 | 60.6 | 66.3 | |||||||||||||||
Net write offs as a percentage of: | ||||||||||||||||||||
Gross loans | 0.5 | 1.0 | 1.1 | 1.0 | 1.2 | |||||||||||||||
Average loans outstanding during the period | 0.6 | 1.1 | 1.2 | 1.1 | 1.2 | |||||||||||||||
Allowance and provisions for credit losses | 31.2 | 43.9 | 35.6 | 26.8 | 24.0 | |||||||||||||||
Allowance and provisions for credit losses as a multiple of net write offs | 3.21 | 2.28 | 2.81 | 3.74 | 4.17 | |||||||||||||||
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Publisher/Copyright: UBS AG, Switzerland
Languages: English, German. SAP-No. 80531E-0401
Table of Contents
UBS AG | ||
P.O. Box, CH-8098 Zurich | ||
P.O. Box, CH-4002 Basel | ||
www.ubs.com |
Table of Contents
Handbook 2003/2004 U.S. Version
Introduction | ||
1 | ||||
2 | ||||
3 | ||||
4 | ||||
6 | ||||
7 | ||||
8 | ||||
16 | ||||
17 | ||||
18 | ||||
27 | ||||
31 | ||||
38 | ||||
42 | ||||
45 | ||||
46 | ||||
50 | ||||
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75 | ||||
76 | ||||
77 | ||||
79 | ||||
81 | ||||
87 | ||||
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98 | ||||
99 | ||||
102 | ||||
104 | ||||
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110 | ||||
113 | ||||
117 | ||||
118 | ||||
120 |
Introduction
This is the fourth annual edition of our Handbook.
In it, we describe ourselves – our strategy, organization, and businesses. We outline the principles by which we manage risk, and report on last year’s developments in our credit risk, market risk, and treasury management areas.
The Handbook also discusses our corporate governance arrangements and our relationships with regulators and shareholders, while providing detailed information on the UBS share.
You should read the Handbook in conjunction with the other information published by UBS, as described on page 4.
We sincerely hope that you will find our annual reports useful and informative. We believe that UBS is one of the leaders in corporate disclosure, and we would be very interested to hear your views on how we might improve the content, information and presentation of the reporting products we publish.
Mark Branson
Chief Communication Officer
UBS
1
Table of Contents
Introduction
UBS Financial Highlights
1 | Operating expenses / operating income less credit loss expense or recovery. | |
2 | For EPS calculation, see Note 8 to the Financial Statements of the Financial Report 2003. | |
3 | Net profit / average shareholders’ equity less dividends. | |
4 | Includes hybrid Tier 1 capital, please refer to Note 29 in the Notes to the Financial Statements of the Financial Report 2003. | |
5 | See the Capital strength section on page 74. | |
Throughout this report, 2001 and 2002 segment results have been restated to reflect the transfer of the Private Banks & GAM to Corporate Center. |
CHF million, except where indicated | % change from | |||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Income statement key figures | ||||||||||||||||
Operating income | 33,972 | 34,121 | 37,114 | 0 | ||||||||||||
Operating expenses | 25,624 | 29,577 | 30,396 | (13 | ) | |||||||||||
Operating profit before tax | 8,348 | 4,544 | 6,718 | 84 | ||||||||||||
Net profit | 6,385 | 3,535 | 4,973 | 81 | ||||||||||||
Cost / income ratio (%)1 | 75.2 | 86.2 | 80.8 | |||||||||||||
Per share data (CHF) | ||||||||||||||||
Basic earnings per share2 | 5.72 | 2.92 | 3.93 | 96 | ||||||||||||
Diluted earnings per share2 | 5.61 | 2.87 | 3.78 | 95 | ||||||||||||
Return on shareholders’ equity (%)3 | 18.2 | 8.9 | 11.7 | |||||||||||||
CHF million, except where indicated | % change from | |||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Balance sheet key figures | ||||||||||||||||
Total assets | 1,386,000 | 1,181,118 | 1,253,297 | 17 | ||||||||||||
Shareholders’ equity | 35,446 | 38,991 | 43,530 | (9 | ) | |||||||||||
Market capitalization | 95,401 | 79,448 | 105,475 | 20 | ||||||||||||
BIS capital ratios | ||||||||||||||||
Tier 1 (%)4 | 11.8 | 11.3 | 11.6 | |||||||||||||
Total BIS (%) | 13.3 | 13.8 | 14.8 | |||||||||||||
Risk-weighted assets | 251,901 | 238,790 | 253,735 | 5 | ||||||||||||
Invested assets (CHF billion) | 2,209 | 2,037 | 2,448 | 8 | ||||||||||||
Headcount (full-time equivalents) | ||||||||||||||||
Switzerland | 26,662 | 27,972 | 29,163 | (5 | ) | |||||||||||
Europe (excluding Switzerland) | 9,906 | 10,009 | 9,650 | (1 | ) | |||||||||||
Americas | 25,511 | 27,350 | 27,463 | (7 | ) | |||||||||||
Asia Pacific | 3,850 | 3,730 | 3,709 | 3 | ||||||||||||
Total | 65,929 | 69,061 | 69,985 | (5 | ) | |||||||||||
Long-term ratings5 | ||||||||||||||||
Fitch, London | AA+ | AAA | AAA | |||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||||||
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Introduction | ||
UBS at a Glance
UBS is one of the world’s leading financial firms, serving a discerning global client base. As an organization, it combines financial strength with a global culture that embraces change. As an integrated firm, UBS creates added value for clients by drawing on the combined resources and expertise of all its businesses.
Businesses
Wealth management
Investment banking and securities
Asset management
Swiss corporate and individual clients
Corporate Center
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Introduction
Sources of Information about UBS
This Handbook contains a detailed description of UBS, its strategy, its organization and its businesses, as well as our financial management including credit, market and operational risk, our treasury processes, and details of our corporate governance.
Publications
This Handbook is available in English and German. (SAP no. 80532-0401).
Annual Review 2003
Financial Report 2003
Quarterly reports
How to order reports
Information tools for investors
Website
Messenger service
Results presentations
UBS and the environment
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Introduction | ||
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 the Form 20-F, our Annual Report filed pursuant to the US Securities Exchange Act of 1934.
You may read and copy any document that we file with the SEC on the SEC’s website, www.sec.gov, or at the SEC’s public reference room at 450 Fifth Street NW, Washington, DC, 20549. Please call the SEC at 1-800-SEC-0330 (in the US) or at +1-202-942 8088 (outside the US) for further information on the operation of its public reference room. You may also inspect our SEC reports and other information at the New York Stock Exchange, Inc., 20 Broad Street, New York, NY 10005. Much of this additional information may also be found on the UBS website at www.ubs.com/investors, and copies of documents filed with the SEC may be obtained from UBS’s Investor Relations team, at the addresses shown on the next page.
Corporate information
The legal and commercial name of the company is UBS AG. The company was formed on 29 June 1998, when Union Bank of Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872) merged to form UBS.
The addresses and telephone numbers of our two registered offices are:
Switzerland, Phone +41-1-234 11 11; and
Aeschenvorstadt 1, CH-4051 Basel,
Switzerland, Phone +41-61-288 20 20.
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Introduction
Contacts
Switchboards | Zurich | +41-1-234 11 11 | ||||
For all general queries. | London | +44-20-7568 0000 | ||||
New York | +1-212-821 3000 | |||||
Hong Kong | +852-2971 8888 | |||||
Investor Relations | Zurich | |||||
Our Investor Relations team supports | Hotline | +41-1-234 41 00 | UBS AG | |||
institutional, professional | Christian Gruetter | +41-1-234 43 60 | Investor Relations | |||
and retail investors from offices in | Cate Lybrook | +41-1-234 22 81 | P.O. Box | |||
Zurich and New York. | Oliver Lee | +41-1-234 27 33 | CH-8098 Zurich, Switzerland | |||
Fax | +41-1-234 34 15 | |||||
www.ubs.com/investors | ||||||
New York | ||||||
Hotline | +1-212-713 3641 | UBS Americas Inc. | ||||
Christopher McNamee | +1-212-713 3091 | Investor Relations | ||||
Fax | +1-212-713 1381 | 135 W. 50th Street, 10th Floor | ||||
New York, NY 10020, USA | ||||||
sh-investorrelations@ubs.com | ||||||
Media Relations | Zurich | +41-1-234 8500 | sh-gpr@ubs.com | |||
Our Media Relations team supports | London | +44-20-7567 4714 | ubs-media-relations@ubs.com | |||
global media and journalists from | New York | +1-212-713 8391 | mediarelations-ny@ubs.com | |||
offices in Zurich, London, New York | Hong Kong | +852-2971 8200 | sh-mediarelations-ap@ubs.com | |||
and Hong Kong. | ||||||
www.ubs.com/media | ||||||
Shareholder Services | Hotline | +41-1-235 62 02 | UBS AG | |||
UBS Shareholder Services, a unit of | Fax | +41-1-235 31 54 | Shareholder Services | |||
the Company Secretary, is responsible | P.O. Box | |||||
for the registration of the Global | CH-8098 Zurich, Switzerland | |||||
Registered Shares. | ||||||
sh-shareholder-services@ubs.com | ||||||
US Transfer Agent | calls from the US | +1-866-541 9689 | Mellon Investor Services | |||
For all Global Registered Share- | calls outside the US | +1-201-329 8451 | Overpeck Centre | |||
related queries in the USA. | Fax | +1-201-296 4801 | 85 Challenger Road | |||
Ridgefield Park, NJ 07660, USA | ||||||
www.melloninvestor.com | shrrelations@melloninvestor.com | |||||
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UBS
Strategy, Structure and Culture
Strategy, Structure and Culture
We at UBS have an ambitious vision – to be recognized as the best global financial services company. We are the world’s largest wealth and asset manager, while in investment banking and securities trading we are among a select bracket of leading global houses. In Switzerland, we are the clear market leader in corporate and retail banking. Based on our integrated approach, we deliver the whole firm to our clients, giving them added value by drawing on the combined resources and expertise of all our businesses. Every client is a client of UBS, not of an individual business unit. Our first priority is always our clients’ success.
Our vision
Our strategy | ||
In the financial services industry, we are a truly global firm, working with corporate, institutional and private clients around the world. Our strategy focuses on investment banking and securities trading, asset management and wealth management, all on a global scale, as well as retail and business banking in Switzerland. These areas have been our consistent strategic priorities for many years and here we strive to achieve a leading position. This long-term perspective and commitment has helped us to become the successful firm we are today, with a broadly diversified business mix. | ||
One of the keys to our success is our “one firm” approach. We believe our clients should effortlessly be able to access all the services our firm can provide, where and when they are required, and regardless of what combinations of teams lie behind the solutions. Our clients should |
Financial success, risk and capital
management
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UBS | ||
priate balance between risk and return, limiting the scope for adverse variations in our earnings from exposure to major individual ‘stress’ events. In recent times, market opportunities as well as our business and client franchise have both grown very considerably, as a result of which we see enhanced potential for revenue growth. Consequently, our market and credit risk levels are likely to experience a gradual increase in coming quarters. We have, however, no intention of substantially changing our risk culture and processes, and we are determined to retain our overriding commitment to high-quality earnings through diversification and liquidity of risk. As one example, we continue to believe that the quality of our advice will remain the principal driving factor in building our global investment banking franchise. That means that we will neither attempt to acquire new business through balance sheet strength alone nor systematically increase our appetite for pure proprietary trading.
Operational efficiency and innovation
In all our key businesses, we are committed to attaining scale and scope, as this will enable us to deliver a full spectrum of services efficiently. Our integrated business model, in line with our overall “one firm” approach, ensures that, where UBS has a best-in-class offering, we capture the whole of the value chain. The exchange of services, knowledge and capabilities across the firm gives us the ability to build a coherent infrastructure that does not duplicate activities unnecessarily.
Organic growth
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UBS
Strategy, Structure and Culture
the French business of Lloyds TSB and the German wealth management business of Merrill Lynch. In 2004, we acquired Laing & Cruickshank and Scott Goodman Harris. Both helped us reinforce our platform in key countries targeted by our European wealth management business. Another example was our acquisition of ABN AMRO’s prime brokerage business. That transaction immediately boosted the Investment Bank’s services to hedge fund clients.
Business strategies
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UBS | ||
Long-term perspectives
– | financial liberalization and deregulation |
– | wealth accumulation |
– | retirement provisioning |
– | securitization |
– | equitization |
– | corporate restructuring |
Financial liberalization and
deregulation
Wealth accumulation
Retirement provisioning
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UBS
Strategy, Structure and Culture
Securitization
Equitization
Corporate restructuring
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UBS | ||
Managing our business
Board structure
Organizational structure
Senior executive appointments
communicated in 2003
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UBS
Strategy, Structure and Culture
Our culture and values
Striving for Excellence
Responsible Relationships
High Ethical Standards
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UBS | ||
Global strategy, regional focus and
local respect
Our global strategy has the following priorities:
– | integrating diversity into the employee life cycle – which includes recruiting, orientation, training and development, as well as performance management and succession planning |
– | tracking progress consistently to create both organizational and individual accountability |
– | communicating our commitment to diversity to key stakeholders. |
While a global diversity strategy is essential, implementation must be driven regionally. We have set up separate Regional Diversity Boards in Asia Pacific, Germany,
From vision to reality – progress in 2003
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UBS
The Making of UBS
The Making of UBS
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The Business Groups
Wealth Management & Business Banking
Wealth Management & Business Banking
Georges Gagnebin
Chairman, Wealth Management
& Business Banking
Marcel Rohner
CEO, Wealth Management
& Business Banking
Wealth Management & Business Banking provides wealth management services for wealthy clients around the world and is the leading bank for individual and corporate clients in Switzerland.
Business Group / Business Unit Reporting
Business Banking | Wealth Management & | |||||||||||||||||||||||
CHF million, except where indicated | Wealth Management | Switzerland | Business Banking | |||||||||||||||||||||
For the year ended or as at | 31.12.03 | 31.12.02 | 31.12.03 | 31.12.02 | 31.12.03 | 31.12.02 | ||||||||||||||||||
Total operating income | 6,793 | 6,664 | 5,128 | 5,208 | 11,921 | 11,872 | ||||||||||||||||||
Total operating expenses | 4,184 | 4,151 | 2,975 | 3,241 | 7,159 | 7,392 | ||||||||||||||||||
Business Group / Business unit performance before tax | 2,609 | 2,513 | 2,153 | 1,967 | 4,762 | 4,480 | ||||||||||||||||||
Net new money (CHF billion) | 29.7 | 17.7 | (5.0 | ) | 3.7 | |||||||||||||||||||
Invested assets (CHF billion) | 701 | 642 | 212 | 205 | ||||||||||||||||||||
Headcount (full-time equivalents) | 9,176 | 9,399 | 17,620 | 18,442 | 26,796 | 27,841 | ||||||||||||||||||
Business
Organizational structure
In 2002, we created the new Wealth Management & Business Banking organization. High-end affluent clients that were previously the responsibility of the former Private and Corporate Clients unit became Wealth Management clients, although their advisor relationships
remained the same. Product development was consolidated into a single Products and Services area, with a new Market Strategy and Development area created to provide comprehensive marketing services for the whole Business Group. We report results for the following two business units:
– | Wealth Management, serving wealthy and high-end affluent clients | |
– | Business Banking Switzerland, serving retail and corporate clients in Switzerland, and housing the majority of the support functions. |
In 2003, our five independent private banks were integrated into a new holding company which is now reported as part of Corporate Center.
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Wealth Management
With more than 140 years of experience, an extensive global network and CHF 701 billion in invested assets on 31 December 2003, we are the world’s largest private bank.
Business
Wealth Management 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.
At the beginning of 2001, we launched the European wealth management initiative, a major growth initiative to expand our domestic wealth management presence in the five key European markets of France, Germany, Italy, Spain and the UK. Since 2001, we have steadily opened offices and hired experienced client advisors in key locations within these target markets.
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The Business Groups
Wealth Management & Business Banking
Organizational structure
Our clients have specific needs and we carefully tailor our global product offering in order to meet their financial aspirations. Where it is necessary, we complement our range of internal and external products by entering into partnerships with local specialist providers, for example, in life insurance. Our client advisors are organized into the two business areas of:
– | Wealth Management – Swiss Clients, covering clients domiciled in Switzerland, divided into eight geographic regions in Switzerland | |
– | Wealth Management – International Clients, serving clients domiciled outside Switzerland, including the clients of the European wealth management initiative. It is organized into the seven regions of: |
– | Italy | ||
– | Western Europe | ||
– | Benelux (Belgium, Netherlands, Luxembourg), Germany and Central Europe | ||
– | UK, North and Eastern Europe | ||
– | Eastern Mediterranean, Middle East and Africa | ||
– | Asia Pacific | ||
– | Americas International. |
Competitors
Wealth Management’s major competitors comprise all globally active wealth managers, such as the wealth management operations of Credit Suisse, HSBC, and Citigroup. We also compete with private banks that operate within their respective domestic markets, such as Pictet and Julius Baer in Switzerland, Coutts in the UK, Deutsche Bank and Sal. Oppenheim in Germany, and Unicredito in Italy.
Clients
Client focus is the main driver of all our activities. We are committed to proactively and consistently delivering tailored and unbiased financial solutions of the highest quality to our clients. We strive to create long-term personal relationships.
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The Business Groups |
tial to putting Wealth Management’s value proposition into action. Our process can be broken down into four clear, mutually enhancing steps. In the first, our advisors take the time to understand what it is their clients want and need, and look at all the different factors that might affect their goals and willingness to take risk. As a second step, the advisor formulates investment proposals crafted for | ||
that client’s specific requirements by selecting from the best products and services available. In the third step, the advisor agrees with the client which of the solutions should be implemented. The fourth step rounds out the whole process with comprehensive monitoring and reporting of investment performance to the client by the advisor, as well as regular communication between the two in which goals and strategies are constantly evaluated, and adjusted as required. Our extensive training programs ensure that client advisors become fully versed in all aspects of this structured, four-step advisory process.
Financial intermediaries
European wealth management
The European wealth management initiative was launched in early 2001, and is aimed at wealthy clients in the five target countries of France, Germany, Italy, Spain and the UK. Together these countries comprise around 80% of the total European market for wealthy clients. The initiative draws on the best of the marketing and product skills developed over the years by PaineWebber in the US.
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The Business Groups
Wealth Management & Business Banking
Wealth Management |
Product positioning framework |
UBS Investment Products UBS Investment Solutions UBS Financial Planning UBS Wealth Management Solutions |
Provide transaction-oriented Add systematic advisory services Go beyond pure investment Provide the whole range products & services and such as asset allocation, decisions and provide of financial services related advice. investment selection and portfolio comprehensive financial in an exclusive and very management. Client chooses services according to individualized format between discretionary and non- the life cycle of the client. discretionary as well as between UBS and 3rd party investment content.of offering |
Comprehensiveness |
Level IV Level III Level III |
Level II Level II Level II Level I Level I Level I Level I |
11.5 billion) and Scott Goodman Harris.
Products and services
Our credibility and reputation hinges on our ability to ensure that clients receive the best products and services available, regardless of whether we produce them internally or access them from external sources. However, as we have no intention of becoming a one-stop financial supermarket, we carefully choose and screen third-party offerings, selecting those that meet the high standards our clients demand. Depending on their financial situation and individual preferences, clients have varying requirements regarding the level of service they expect.
Investment products
Investment solutions
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The Business Groups | ||
Wealth Management |
Product Portal |
UBS Investment Products UBS Investment Solutions UBS Financial Planning UBS Wealth Management Solutions |
Direct Investments Portfolio Management Financial Planning Ultra-HNWI Solutions Money Market UBS Managed Fund Portfolio Tax Planning Corporate Advisory Services Structured Products / Derivatives UBS Active Advisory Retirement Planning Real Estate Services Investment Funds UBS Fund Advisory Succession Planning Wine Banking Alternative Investments Trust and Foundation Art Banking Provision / Life Insurance Gold and Numismatics |
Credits Corporate Executive Financial ServicesBasic Products and Services Acccounts / Payments / Cards Custody Account / Services Reporting UBS Key Clube-banking Special ServicesBanking abroad VIP Center UBS Optimus Foundation EscrowResearch Groups Business The |
Financial planning
Wealth management solutions
Distribution
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The Business Groups
Wealth Management & Business Banking
Business Banking Switzerland
Business Banking Switzerland, Wealth Management & Business Banking’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
We are the leading bank in Switzerland. At the end of 2003, our Business Banking Switzerland unit had around 3.5 million individual client accounts, and relationships with around some 150,000 corporate clients, including institutional investors, public entities and foundations based in Switzerland, as well as 3,000 financial institutions worldwide. Clients have invested assets of CHF 212 billion with us. With a total loan book of CHF 139 billion on 31 December 2003, we lead the Swiss lending and retail mortgage market.
Organizational structure
The Business Banking Switzerland unit comprises the domestic branch network for corporate and individual clients, which is organized into eight regions. It also includes Operations, Resources, and Information Technology business areas.
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, and other regional or local Swiss banks.
Clients and products
Business Banking Switzerland offers high-quality, standardized products to the retail market for individual and small company clients, as well as more complex products and advisory services for larger corporate and institutional clients and financial institutions.
Individual clients
Business Banking Switzerland Invested assets by asset class Total: CHF 215 billion CHF 205 billionCHF 212 billion100%11% 12% 90%14%80%28% 28% 28% 70% 60% 50%21% 22% 20% 40% 30%22% 21% 20% 20% 10%18% 17% 18% 0% 31.12.01 31.12.0231.12.03As at UBS investment funds Accounts / Money markets Bonds Others Equities |
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Business Banking SwitzerlandInvested assets by client type Total: CHF 215 billion CHF 205 billionCHF 212 billion100% 90% 80%41% 41% 41%70% 60% 50% 40% 30%59% 59% 59%20% 10% 0% 31.12.01 31.12.0231.12.03As at Individual clients Corporate clients and pension funds |
cash accounts, savings products, wealth management services, residential mortgages, pensions and life insurance. We have a leading position in many Swiss markets. In the mortgages segment for individual clients, we have a share of 26%, in the savings market for individuals it is 25%, while in the credit card business it is 32%.
Corporate clients
Financial institutions
Logistics areas
Business areas focusing on client needs can only fully exploit their potential if they are provided with a reliable and efficient infrastructure.
New IT platform
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The Business Groups
Wealth Management & Business Banking
As further bank applications in Switzerland are transferred to the SSP platform, it will allow for real-time processing around the clock as well as shortening the length of time it takes to bring new product solutions to market. As it will also progressively replace our old IT system, SSP will help us lower operational and maintenance costs over the next few years.
Distribution
Our private clients’ needs 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.
Loan portfolio
On 31 December 2003, Business Banking Switzerland’s loan portfolio was CHF 139 billion. Mortgages represented CHF 109 billion, of which more than 80% were residential mortgages. Continued discipline in implementing our 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 profile of our portfolio further improved during 2003. For details of the credit portfolio, please refer to the Risk Analysis section on page 50.
Recovery portfolio
Business Banking SwitzerlandDevelopment of UBS’s recovery portfolio, 1999–2003CHF billion 405 (10)3026 3 (9) 21202 (5) 15 1 (4) 12 1 (4)109 6 31.12.98 31.12.99 31.12.00 31.12.01 31.12.01 31.12.02 31.12.03 0Balance Settlement of recovery loans outstanding New recovery loans addedBusiness Banking SwitzerlandLoan portfolio by loan category Total: CHF 146 billion CHF 139 billionCHF 139 billion100%5% 8% 6%90%20% 18%80%22%70% 60% 50% 40%77% 70% 74% 30% 20% 10% 0% 31.12.01 31.12.0231.12.03As at Mortgages Commercial credits Recovery portfolio |
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The Business Groups | ||
The Business Groups
Global Asset Management
Global Asset Management
Chairman and CEO
Global Asset Management
The Global Asset Management business is one of the world’s leading asset managers, providing investment management solutions to private clients, financial intermediaries and institutional investors.
Business Group Reporting
CHF million, except where indicated | Global Asset Management | |||||||
For the year ended or as at | 31.12.03 | 31.12.02 | ||||||
Total operating income | 1,737 | 1,655 | ||||||
Total operating expenses | 1,405 | 1,436 | ||||||
Business Group performance before tax | 332 | 219 | ||||||
Net new money – Institutional (CHF billion) | 12.7 | (1.4 | ) | |||||
of which: money market funds – Institutional (CHF billion) | (5.0 | ) | (1.8 | ) | ||||
Invested assets – Institutional (CHF billion) | 313 | 274 | ||||||
of which: money market funds – Institutional (CHF billion) | 14 | 19 | ||||||
Net new money – Wholesale Intermediary (CHF billion) | (5.0 | ) | (6.3 | ) | ||||
of which: money market funds – Wholesale Intermediary (CHF billion) | (23.0 | ) | (6.9 | ) | ||||
Invested assets – Wholesale Intermediary (CHF billion) | 261 | 259 | ||||||
of which: money market funds – Wholesale Intermediary (CHF billion) | 87 | 106 | ||||||
Headcount (full-time equivalents) | 2,689 | 2,733 | ||||||
Business
We are distinguished by our integrated global investment processes and the breadth, depth and scope of our investment capabilities which enable us to offer investment solutions in nearly every major asset class.
Thealternative and quantitative investments business encompasses several specialist areas, including the O’Connor hedge funds business. Unlike many alternative investment providers, we have both single and multi-manager investment streams.
Global Asset ManagementInvested assets by client type Total: CHF 649 billion CHF 533 billionCHF 574 billion100% 90% 80%50% 49% 45% 70% 60% 50% 40% 30%50% 51% 55%20% 10% 0% 31.12.01 31.12.0231.12.03As at Institutional Wholesale Intermediary |
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The Business Groups
Global Asset Management
Ourreal estate business provides specialized property investment expertise. The business purchases, sells and actively manages investments in property, including office, industrial, retail and residential real estate. It then structures the investments into private funds, publicly listed investment funds or individually managed client accounts. The business is active in the Americas, UK, Continental Europe and Asia Pacific.
Organizational structure
Our main offices are in London, Chicago, New York, Tokyo and Zurich. We have around 2,600 employees, of which some 520 are investment professionals, located in 21 countries.
son Partners (whose Chicago origins date back to the early 1970s) and Phillips & Drew (established in London in 1895).
Competitors
In the institutional arena, Global Asset Management competes against other global asset managers including Capital, Guardian, PIMCO, Deutsche Asset Management and Alliance Bernstein. In the wholesale area, our main global competitors include Fidelity, AMVESCAP (INVESCO) and JP Morgan Fleming.
Clients
Our clients receive the most appropriate investment solutions for their needs through our combination of investment expertise with local delivery of our capabilities and services as well as an ongoing dialogue with clients. Apart from the advisory and reporting aspects of our client communications, we also keep them updated on current investment perspectives and business issues through a comprehensive range of publications and events.
Distribution
Institutional
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– corporate and public pension plans | ||
– endowments, municipalities, charities and private foundations | ||
– insurance companies | ||
– governments and central banks; and | ||
– supranationals | ||
In consultant-driven markets, such as the US and UK, we rely on developing and maintaining strong relationships with the major consultants that advise corporates and institutions. | ||
Wholesale Intermediary | ||
The Global Asset Management business offers over 400 investment funds, exchange traded funds and other investment vehicles, across all asset types in diverse country, regional and industry sectors. | ||
Distribution of our investment funds is principally through financial intermediaries. Our most significant distribution channels are Wealth | ||
Management & Business Banking and Wealth Management USA. We are continuing to evolve towards a distribution architecture in which an increasing proportion of funds will be sold through third-party channels.
Products and services
Our capabilities and services include active investment in equity and fixed income asset classes, indexed and exchange-traded funds, advisory services, hedge funds with both single and multi-manager investment streams, and real estate.
Investment performance
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Global Asset Management
benefited from interest rate and individual security selection, with our asset allocation and currency strategies also making a strong contribution.
Strategic initiatives / strategic opportunities
Global equity markets staged a convincing recovery in 2003, helping to support the asset management industry’s recovery. In the medium to longer term, the industry outlook continues to be bright, because of the shift in demographics in developed societies towards older populations, coupled with an increased need for private savings to supplement the various public pension systems. With a record of strong three- and five-year investment performance for most core capabilities and a solid reputation, we are competitively placed to benefit from the expected growth in institutional and wholesale markets.
On a product level, Europe is expected to continue to see a broad shift towards open architecture platforms and further development of multi-manager investment solutions – although progress to date has been slower than expected. In terms of asset mix, real estate and hedge funds are expected to continue to benefit from investors’ need for greater portfolio diversification. Passive investments are also expected to increase in importance, implying a relatively subdued outlook for traditional active equity and fixed income capabilities. As a result, competitive pressures for traditional products are expected to increase, with slower growth underscoring the importance of gains in market share. This is compounded by continuing pressure on industry fees as consultants and institutional investors remain sensitive to pricing levels, as well as expected continued regulatory pressure on wholesale and retail fund pricing.
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The Business Groups |
The Business Groups
Investment Bank
Investment Bank
Chairman and CEO
Investment Bank
UBS is one of the world’s leading firms in the investment banking and securities business, providing a full spectrum of services to institutional and corporate clients, governments and financial intermediaries.
Business Group/Business Unit Reporting
Investment Banking | ||||||||||||||||||||||||
CHF million, except where indicated | & Securities | Private Equity | Investment Bank | |||||||||||||||||||||
For the year ended or as at | 31.12.03 | 31.12.02 | 31.12.03 | 31.12.02 | 31.12.03 | 31.12.02 | ||||||||||||||||||
Total operating income | 14,058 | 13,972 | (77 | ) | (1,602 | ) | 13,981 | 12,370 | ||||||||||||||||
Total operating expenses | 9,980 | 10,843 | 112 | 159 | 10,092 | 11,002 | ||||||||||||||||||
Business Group / Business unit performance before tax | 4,078 | 3,129 | (189 | ) | (1,761 | ) | 3,889 | 1,368 | ||||||||||||||||
Headcount (full-time equivalents) | 15,500 | 15,964 | 50 | 73 | 15,550 | 16,037 | ||||||||||||||||||
Business
UBS’s Investment Bank operates globally as a client-driven investment banking and securities firm. Our salespeople, research analysts and investment bankers provide products and services to the world’s key institutional investors, intermediaries, banks, insurance companies, corporations, sovereign governments, supranational organizations and private investors.
Organizational structure
– | the Investment Banking & Securities business unit, one of the world’s leading investment |
banking and securities firms, which provides products and advice to institutional and corporate clients | ||
– | Private Equity, which manages private equity investments in a diverse global range of private companies. |
From first quarter 2004 onwards, we will no longer report Private Equity as a stand-alone business unit. Results from the private equity business will be reported as a separate revenue line in the income statement of the Investment Bank – just as we currently do for all the major business areas.
Competitors
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The Business Groups
Investment Bank
Investment Banking & Securities
Our global reach, supported by a complete array of products and services, gives our clients unique access to financial markets around the world.
Business
The Investment Banking & Securities (IB&S) business unit provides wholesale financial products and advisory services to a diverse client base spread throughout the globe. It has a significant corporate client financing and advisory business, whose particular strengths lie in providing advice on cross-border mergers and acquisitions and raising capital for our corporate and governmental client base. Historically, we have been among the leaders in European corporate finance, and in recent years we have also been one of the few investment banks experiencing strong growth in the US, according to data provided by Freeman & Co’s All Industries survey.
tives and foreign exchange transactions for the firm’s individual clients.
Organizational structure
Our businesses are run on a global basis and organized into the three distinct areas of:
– | Equities | |
– | Investment Banking | |
– | Fixed Income, Rates and Currencies |
They are distinguished by the type of products and services offered and the nature of the business risks they incur.
Legal structure
Investment Banking & Securities: income by client type
For the year ended | ||||||||||||
% of total | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Investment banking clients | 21 | 23 | 23 | |||||||||
Securities revenue from corporate clients | 4 | 6 | 6 | |||||||||
Institutional clients and markets | 75 | 71 | 71 | |||||||||
Total | 100 | 100 | 100 | |||||||||
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Products and services
Equities
2003, we introduced a new simplified rating system for equity analysis that combines a recommendation with a new predictability indicator that highlights the degree of certainty an analyst has in their price target. We believe the new research process is both easier to understand and more comprehensive. By carefully coordinating the efforts of our regional and product distribution teams, we have built a global cash equities franchise that is second to none. With the scale and balance of our platform across all time zones, we offer liquidity, and efficient completion in executing orders in every major world market.
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The Business Groups
Investment Bank
operations of ABN AMRO, significantly enhancing our market position there. The business was focused on small and mid-segment hedge funds and formed an excellent strategic fit with our existing platform by adding over 300 new clients, helping UBS position itself among the top five prime brokers in the US.
Investment Banking
ence in the US is critical and we have made substantial investments to expand our business there over the last three years. The combination of our larger investment banking and equities presence in the US, as well as increased awareness of the UBS brand, has given us greater access to key corporate executives, allowing us to participate in some of the largest and most complex transactions last year. As a result, we had one of the highest growth rates in US market share of any investment bank in 2003 and we see clear potential to expand further.
Fixed Income, Rates and Currencies
– | Fixed income, incorporating debt capital markets, credit trading and credit derivatives | |
– | Foreign exchange and cash & collateral trading | |
– | Rates, incorporating interest rate derivatives, residential mortgages, government bonds and energy trading | |
– | Principal finance and commercial real estate |
Key performance indicators: league table rankings
31.12.03 | 31.12.02 | 31.12.01 | ||||||||||||||||||||||
Market | Market | Market | ||||||||||||||||||||||
Rank | share % | Rank | share % | Rank | share % | |||||||||||||||||||
Global mergers and acquisitions (completed) | 8 | 11.2 | 9 | 10.4 | 8 | 9.8 | ||||||||||||||||||
International equity new issues | 4 | 8.5 | 6 | 8.6 | 2 | 13.0 | ||||||||||||||||||
1 Source: Thomson Financial Securities. 2 Source: Dealogic EquitywarePlus. |
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These major business lines are underpinned by our global distribution and our highly regarded research capabilities, as acknowledged by our number one ranking for Fixed Income Strategy inThomson Financial’sExtel survey and number one ranking inInstitutional Investorfor mortgage-backed securities (MBS) research.
In 2003, we maintained our presence in the international and US debt capital markets through our ability to execute across a range of currencies and products and to distribute those products in the global institutional and retail markets. We have continued not to pursue volume through large-scale lending.
Strategic opportunities
Markets are showing signs of a pick-up in activity, especially in the US and Asia, giving us reason for cautious optimism. With our diversified business portfolio, we have demonstrated the ability to shift focus according to market opportunities – taking advantage of and capitalizing on revenue opportunities where they arise and withdrawing resources at the right moment, when conditions change. We continue to build our competitive strength, focusing on growth opportunities and winning market share.
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Investment Bank
Private Equity
UBS’s Private Equity business focuses mainly on managing its existing portfolio to maximize value.
Business
The Private Equity business seeks to maximize the value of its investments through active portfolio management and to capitalize on orderly exit opportunities. The portfolio comprises majority and minority stakes in substantially privately owned companies. These investments were made, either directly or as a limited partner in third-party funds, in a number of different regions and sectors. In our direct investments we support management teams to grow earnings, rationalize costs and enhance the value of the company before selling to a trade or financial buyer, or through an IPO.
Organizational structure
The Private Equity business is managed on a global basis, fully integrated within the management and control structures of the Investment Bank. Its portfolio in Asia and Europe mainly comprises direct balance sheet investments. Private Equity in the US is focused on both direct balance sheet investments and the UBS Capital Americas fund. Around 20% of our portfolio is invested in third-party funds, which are overseen by a dedicated portfolio management team.
Investment portfolio
Private Equity had a total investment portfolio of CHF 2.3 billion on 31 December 2003, measured by the historical cost of investments less divestments, returns of capital and permanent impairments. The fair value of the portfolio at the same date was CHF 2.9 billion.
exposure to the private equity asset class, undrawn commitments were reduced to CHF 1.5 billion on 31 December 2003 from CHF 2.1 billion a year earlier.
Business outlook
The Private Equity business will continue to focus on managing existing assets in order to maximize value for UBS shareholders and for investors in UBS funds. Consistent with the de-emphasis of this asset class, we continue to capitalize on orderly exit opportunities for investments when they arise and to reduce exposure to private equity funds. As the portfolio shrinks, our performance will continue to be linked to the economic conditions prevailing in the markets of our underlying investments.
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Private Equity investment portfolio
As at | ||||||||||||
CHF million1 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
pre-1994 | 46 | 54 | 85 | |||||||||
1994 | 4 | 97 | 190 | |||||||||
1995 | 40 | 112 | 214 | |||||||||
1996 | 44 | 63 | 202 | |||||||||
1997 | 95 | 134 | 207 | |||||||||
1998 | 91 | 373 | 722 | |||||||||
1999 | 258 | 636 | 1,123 | |||||||||
2000 | 986 | 1,119 | 1,781 | |||||||||
2001 | 284 | 438 | 487 | |||||||||
2002 | 79 | 58 | ||||||||||
2003 | 386 | |||||||||||
Total | 2,313 | 3,084 | 5,011 | |||||||||
Private Equity investment portfolio
As at | ||||||||||||
CHF million1 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
North America | 1,157 | 1,302 | 2,134 | |||||||||
Europe | 794 | 1,238 | 2,018 | |||||||||
Latin America | 108 | 189 | 339 | |||||||||
Asia Pacific | 254 | 355 | 520 | |||||||||
Total | 2,313 | 3,084 | 5,011 | |||||||||
Private Equity investment portfolio
CHF million, | As at | |||||||||||||||||||||||
except where indicated1 | 31.12.03 | % of Portfolio | 31.12.02 | % of Portfolio | 31.12.01 | % of Portfolio | ||||||||||||||||||
Consumer-related | 383 | 17 | 517 | 17 | 773 | 15 | ||||||||||||||||||
Transportation | 17 | 1 | 85 | 3 | 522 | 10 | ||||||||||||||||||
Communications | 170 | 7 | 240 | 8 | 414 | 8 | ||||||||||||||||||
Computer-related | 132 | 6 | 342 | 11 | 833 | 17 | ||||||||||||||||||
Energy | 0 | 0 | 83 | 3 | 152 | 3 | ||||||||||||||||||
Other electronics-related | 145 | 6 | 174 | 6 | 247 | 5 | ||||||||||||||||||
Other manufacturing | 59 | 3 | 286 | 9 | 94 | 2 | ||||||||||||||||||
Chemicals and materials | 2 | 0 | 8 | 0 | 54 | 1 | ||||||||||||||||||
Industrial products and services | 422 | 18 | 746 | 24 | 1,360 | 27 | ||||||||||||||||||
Others | 983 | 42 | 603 | 19 | 562 | 12 | ||||||||||||||||||
Total | 2,313 | 100 | 3,084 | 100 | 5,011 | 100 | ||||||||||||||||||
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The Business Groups
Wealth Management USA
Wealth Management USA
Chairman, Wealth Management USA
CEO, Wealth Management USA
As one of the top wealth managers in the US, we provide a complete set of sophisticated wealth management services to our affluent and high net worth clients.
Business Group Reporting
CHF million, except where indicated | Wealth Management USA | |||||||
For the year ended or as at | 31.12.03 | 31.12.02 | ||||||
Total operating income | 5,182 | 5,548 | ||||||
Total operating expenses | 5,187 | 7,348 | 1 | |||||
Business Group performance before tax | (5 | ) | (1,800 | ) | ||||
KPI’s and additional information | ||||||||
Net new money (CHF billion) | 21.1 | 18.5 | ||||||
Interest and dividend income (CHF billion) | 15.8 | 17.9 | ||||||
Invested assets (CHF billion) | 634 | 584 | ||||||
Headcount (full-time equivalents) | 18,016 | 19,563 | ||||||
Business
With CHF 634 billion in invested assets and nearly 2 million private client relationships, our focus is on wealth management services to the core affluent (clients with more than USD 500,000 in investable assets) and to high net worth individuals (clients with more than USD 5 million in investable assets). We have almost 7,800 financial advisors in 366 branch office locations that build and maintain consultative relationships with their clients.
Organizational structure
Management business unit. The US private client business became an independent Business Group on 1 January 2002.
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Wealth Management USA
Geographical presence in key markets
Officer to Mark B. Sutton effective 1 January 2004. Sutton was previously President and Chief Operating Officer of Wealth Management USA. Grano will remain Chairman of our Business Group until the middle of 2004.
Legal structure
Competitors
We compete against other wealth management firms in the US, including Citigroup’s Smith Barney business, Morgan Stanley and Merrill Lynch.
Clients and strategy
We aim to meet the investment needs of core affluent and high net worth clients in the US. Now, with the launch of UBS Bank USA, we are
in a position to provide them with a complete wealth management platform – embracing both the assets and liabilities of our clients. Our asset-gathering strategy emphasizes the importance of generating recurring fees from advice and products, as fee-based relationships provide us with a source of regular, low volatility revenues.
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Wealth Management USA
a visible example of the success of our strategy, a leading industry survey indicated our share of the US private clients market grew to 15.2% in 2003 from 14.4% in 2002.
client relationship management, and legal and compliance knowledge. Moreover, this process does not end when an advisor starts working at a branch – it is continuous. We believe experience shows that our training programs are a key factor in helping to develop long-term, mutually beneficial relationships with clients.
Products and services
We offer clients wealth management services that meet individual investment needs with an open architecture product platform that gives them investment products from both UBS and third-party providers – where and when appropriate. This ensures that financial advisors and clients have a comprehensive source of investment solutions at their disposal. Our array of wealth management services includes financial planning and wealth management consulting. It also comprises transaction-based services such as securities brokerage, as well as asset-based and advisory services (discretionary and non-discretionary portfolio management). Furthermore, we also provide money market accounts and fiduciary products, FDIC-insured deposits and lending products, including collateralized loans and mortgages.
Investment products
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ernment, mortgage-backed, corporate and municipal bonds, as well as preferred stock. As one of the leading US underwriters of municipal bonds, an investment class that is particularly attractive to many core affluent and high net worth investors, we give clients access to new issue offerings as well as the secondary market. Our Municipal Securities Group is a complete origination, structuring and distribution team. It assists municipalities and agencies in addressing their funding needs by accessing the debt markets, and distributing securities through our network. In 2003, the Group was ranked second in senior negotiated volume.
Lending products
revolving lines of credit that offer competitive interest rates secured by the client’s investment portfolio.
Industry trends
Today, we are the fifth-largest full-service brokerage firm in the US in terms of number of financial advisors. In 2004, we plan to remain focused on further increasing our market share of US household financial assets and capitalizing on our enhanced capabilities as well as the strengths of UBS’s global platform. A key to achieving further growth will be a continued commitment to recruiting and retaining top financial advisors and providing them with the resources they need to sustain increased productivity. We are committed to pursuing financial success in 2004 and beyond by providing US clients with access to the resources of a global powerhouse.
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The Business Groups
Corporate Center
Corporate Center
Corporate Center creates sustainable value for shareholders and stakeholders by partnering with the Business Groups to ensure that the firm operates as an effective and integrated whole with a common vision and set of values.
Business Group Reporting
CHF million, except where indicated | Corporate Center | |||||||
For the year ended or as at | 31.12.03 | 31.12.02 | ||||||
Total operating income | 1,151 | 2,676 | ||||||
Total operating expenses | 1,781 | 2,399 | ||||||
Business Group performance before tax | (630 | ) | 277 | |||||
Private Banks & GAM | ||||||||
Performance before tax | 208 | 384 | ||||||
Invested assets (CHF billion) | 84 | 70 | ||||||
Net new money (CHF billion) | 7.2 | 4.2 | ||||||
Headcount (full-time equivalents) | 1,672 | 1,702 | ||||||
Additional information | ||||||||
Total headcount (full-time equivalents) | 2,878 | 2,887 | ||||||
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Aims and objectives
Our commitment to a strong, integrated business model means that our portfolio of complementary businesses are managed together to optimize shareholder value, making the whole worth more than the sum of its parts.
Organizational structure
The key functions within Corporate Center are:
Group Controller
Chief Risk Officer/Chief Credit Officer
Group Treasurer
Group Human Resources
Chief Communication Officer
Group Legal Services
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Corporate Center
In 2003, UBS announced a number of senior executive appointments and succession plans outlined in detail in the Strategy and Structure section on page 13. Pertaining to Corporate Center, Clive Standish will become UBS’s Chief Financial Officer (CFO) from 1 April 2004. As
CFO, Standish will lead our finance, risk, treasury, and strategy functions. In 2004, Scott Abbey will take up the new Chief Technology Officer (CTO) function, which was created to integrate information technology infrastructure (ITI) functions across the firm.
In February 2003, UBS announced the creation of a holding company for its five fully owned private banking subsidiaries (Armand von Ernst, Banco di Lugano, Bank Ehinger, Cantrade and Ferrier Lullin) and GAM, our specialist asset manager. The move was made to assist them in growing faster, support them in integrating their activities, and help them to deliver their full value creation potential. They can
also target economies of scale not achievable by each organization on its own. Private Banks & GAM may also be able to expand their presence further by playing a future role in the consolidation of the Swiss wealth management industry.
to form Ehinger & Armand von Ernst –headquartered in Zurich, with branches in Basel and Bern. It is one of the most important providers of private banking services to the Swiss-German region. In late 2003, Ferrier Lullin acquired Banque Notz Stucki S.A., which specializes in wealth management for private individuals. The acquisition adds approximately CHF 2 billion in invested assets.
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Financial Management
Risk Management and Control
Risk Management and Control
Taking risk is an integral part of our business. Therefore our overriding goal is not to minimize risk, but to achieve an appropriate balance between risk and return, limiting the scope for adverse variations in our earnings through exposure to major individual ‘stress’ events.
Risk management and control principles
Good risk management and control lie at the heart of banking and are an integral part of providing consistent, high-quality returns for shareholders. A bank that fails to adequately manage and control its risks will suffer financial losses. Potentially more devastating is the resultant damage to its reputation, which can undermine its share price, its client base and its ability to retain top talent, and may force regulators to impose constraints upon its business. We recognize that taking risk is core to our business, and aim to achieve an appropriate balance between risk and return. In our day to day business and in the strategic management of our balance sheet and capital, we therefore seek to limit the scope for adverse variations in our earnings and exposure to stress events arising from any of the material risks we face.
ty, our dividend paying ability and, ultimately, our reputation and ongoing business viability.
Key responsibilities
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Financial Management | ||
UBS Risk Management and Control Framework
The Risk Control Functions in each Business Group, headed by Chief Risk / Chief Credit Officers (CROs / CCOs), are empowered to enforce the Risk Management and Control Principles and are responsible for the implementation of independent control processes within their Business Groups.
The risk control process
– | weidentify risk, particularly in new businesses and in complex or unusual transactions, but also in response to external events and in continuous monitoring of portfolios | |
– | wemeasure quantifiable risks, using methodologies and models which have been independently validated and approved |
– | we establishrisk policiesconsistent with evolving business requirements and international best practice | |
– | we have comprehensiverisk reportingto stakeholders, and to management at all levels, against the approved risk control framework and, where applicable, limits | |
– | we imposerisk control, through compliance with our risk management and control principles, and with policies, limits and regulatory requirements. |
Coordinated processes involving all relevant control and logistics functions are applied before commencement of any new business or significant change in business, and before the execution of any transaction which is complex or unusual in its structure or motivation, including transactions which are sensitive to or motivated by tax, legal, regulatory or accounting considerations. These processes, which involve the Business, Risk Control, Legal, Compliance, Financial Control and Logistics functions, ensure that all critical elements are addressed, including the assurance that transactions can be booked in a way that will permit appropriate ongoing risk monitoring, reporting and control.
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Financial Management
Risk Management and Control
The risks we take | ||
Business risks are the risks associated with a chosen business strategy, including business cycles, industry cycles, and technological change. They are the sole responsibility of the relevant business, and are not subject to an independent control process. They are, however, factored into the firm’s planning and budgeting process. | ||
The ‘primary’ and ‘operational’ risks inherent in our business activities are subject to independent risk control. Primary risks are exposures deliberately entered into for business reasons which are actively traded and managed. Operational risk is the risk of loss arising from inadequate or failed internal processes, people or systems, or from external causes, deliberate, accidental or natural. These risks are not actively taken, but arise as a consequence of business undertaken and as a consequence of internal control gaps, which cannot be entirely eliminated. | ||
Primary risks are credit risk, market risk and funding and liquidity risk: | ||
–credit riskis the risk of loss resulting from client or counterparty default and arises on credit exposure in all forms, including settlement risk | ||
–market riskis exposure to observable market variables such as interest rates, exchange rates and equity markets, and to price movements on securities and other obligations which we trade | ||
–funding and liquidity riskis the risk that we are unable to meet our payment obligations when due, or that we are unable, on an ongoing basis, to borrow funds in the market on an unsecured, or even secured basis at an acceptable price to fund actual or proposed commitments. | ||
Operational risk can arise in a number of ways: | ||
–transaction processing riskarises from errors, failures or shortcomings at any point in the transaction process, from deal execution and capture to final settlement | ||
–compliance riskis the risk of financial loss due to regulatory fines or penalties, restriction or suspension of business, or costs of |
mandatory corrective action. Such risks may be incurred by not adhering to applicable laws, rules and regulations, local or international best practice (including ethical standards), or UBS’s own internal standards
– | legal riskis the risk of financial loss resulting from the non-enforceability of UBS’s actual or anticipated rights arising under law, contract or other arrangement | |
– | liability riskis the risk that we, or someone acting on our behalf, fail to fulfill the obligations, responsibilities or duties imposed by law or assumed under a contract and that claims are therefore made against us | |
– | security riskis the risk of loss of confidentiality, integrity or availability of our information or other assets | |
– | tax riskis the risk of additional tax arising from technically incorrect positions taken on tax matters, or failure to comply with tax withholding or reporting requirements on behalf of clients or employees; and the risk of claims by clients or counterparties as a result of UBS involvement in tax sensitive products or transactions. |
How we measure risk
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viability. The identification of stress events and scenarios to which we are vulnerable and an assessment of their potential impact, and in particular the danger of aggregated losses from a single event through concentrated exposures, is therefore a key component of the risk control process.
avoiding the temptation to ignore risks that cannot be properly quantified, and we place great emphasis on qualitative controls and processes to help in identifying and assessing both quantifiable and unquantifiable risks.
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Financial Management
Risk Analysis
Risk Analysis
Credit risk
Credit risk represents the loss which UBS would suffer if a client or counterparty failed to meet its contractual obligations. It is inherent in traditional banking products – loans, commitments to lend and other contingent liabilities, such as letters of credit – and in ‘traded products’ – derivative contracts such as forwards, swaps and options, and repo and securities borrowing and lending transactions.
Credit risk of counterparties and groups
Expected loss
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UBS internal rating scale and
mapping to external ratings
Moody’s | Standard | |||||
Investor | and | |||||
UBS | Services | Poor’s | ||||
Rating | Description | equivalent | equivalent | |||
0 and 1 | Investment | Aaa | AAA | |||
2 | grade | 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 | Ba1 | BB+ | |||
7 | grade | Ba2 | BB | |||
8 | Ba3 | BB– | ||||
9 | B1 | B+ | ||||
10 | B2 | B | ||||
11 | B3 | B– | ||||
12 | Caa to C | CCC to C | ||||
13 | Impaired and | D | D | |||
14 | defaulted | D | D | |||
will default, our current and likely future exposure to that counterparty and the likely severity of the loss should default occur.
account the seniority of the claim, and collateral or other credit mitigation where available.
Statistical and stress loss
Composition of credit exposures
Credit is an integral part of many of our business activities.
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Risk Analysis
Total exposure
Wealth Management | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million | & Business Banking | Investment Bank | Wealth Management USA | Other 1 | UBS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||||||||||||||||||||||||||||||||
Loans utilization (gross) | 174,772 | 169,106 | 175,693 | 55,366 | 61,718 | 61,229 | 13,116 | 12,857 | 18,246 | 4,953 | 5,689 | 6,816 | 248,207 | 249,370 | 261,984 | |||||||||||||||||||||||||||||||||||||||||||||
Contingent claims | 11,424 | 11,448 | 12,839 | 3,201 | 4,407 | 11,640 | 355 | 430 | 542 | 583 | 309 | 466 | 15,563 | 16,594 | 25,487 | |||||||||||||||||||||||||||||||||||||||||||||
Unutilized committed lines | 1,800 | 1,984 | 2,509 | 44,670 | 36,439 | 47,355 | 80 | 811 | 715 | 73 | 72 | 29 | 46,623 | 39,306 | 50,608 | |||||||||||||||||||||||||||||||||||||||||||||
Total banking products | 187,996 | 182,538 | 191,041 | 103,237 | 102,564 | 120,224 | 13,551 | 14,098 | 19,503 | 5,609 | 6,070 | 7,311 | 310,393 | 305,270 | 338,079 | |||||||||||||||||||||||||||||||||||||||||||||
Unsecured OTC products | 1,385 | 1,682 | 1,961 | 53,649 | 55,002 | 64,416 | 573 | 55,607 | 56,684 | 66,377 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other derivatives (secured or exchange-traded) | 1,190 | 712 | 2,317 | 14,535 | 10,850 | 12,150 | 1 | 3 | 15,726 | 11,565 | 14,467 | |||||||||||||||||||||||||||||||||||||||||||||||||
Securities lending / borrowing | 1,093 | 917 | 45 | 22,220 | 11,962 | 14,575 | 23,313 | 12,879 | 14,620 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Repo / Reverse-Repo | 26 | 14 | 67 | 19,546 | 21,744 | 18,948 | 151 | 439 | 19,723 | 22,197 | 19,015 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total traded products 2 | 3,694 | 3,325 | 4,390 | 109,950 | 99,558 | 110,089 | 152 | 442 | 573 | 114,369 | 103,325 | 114,479 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total credit exposure, gross | 191,690 | 185,863 | 195,431 | 213,187 | 202,122 | 230,313 | 13,703 | 14,540 | 19,503 | 6,182 | 6,070 | 7,311 | 424,762 | 408,595 | 452,558 | |||||||||||||||||||||||||||||||||||||||||||||
Total credit exposure, net of allowances | 188,798 | 182,148 | 189,929 | 212,072 | 200,620 | 227,949 | 13,678 | 14,511 | 19,469 | 6,178 | 6,061 | 7,298 | 420,726 | 403,340 | 444,645 | |||||||||||||||||||||||||||||||||||||||||||||
traded products. Traded products exposure to lower rated counterparties is generally collateralized or otherwise supported.
Wealth Management & Business Banking
tors, which reflects our position as a market-leading lender to this segment of predominantly small-to medium-sized enterprises in Switzerland. During 2003, we have again focused on improving the quality of our credit portfolio, and further reducing individual and sector concentrations.
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Wealth Management & Business Banking:
distribution of gross loans across counterparty rating and loss given default (LGD) buckets
Weighted | ||||||||||||||||||||||||
Gross | Loss given default buckets | Average | ||||||||||||||||||||||
CHF million | Exposure | 0-25% | 26-50% | 51-75% | 76-100% | LGD (%) | ||||||||||||||||||
0 1 2 3 4 5 6 7 8 9 10 11 12 | 1,019 567 3,611 17,024 6,261 104,355 8,618 11,124 9,309 4,934 1,065 217 278 | 469 318 2,101 10,807 2,531 96,942 2,899 3,899 2,452 1,414 249 33 133 | 404 56 1,000 1,566 1,727 3,484 3,657 4,497 5,013 2,470 520 115 92 | 146 188 497 3,142 1,966 2,280 1,768 1,335 1,261 740 216 56 25 | 0 5 13 1,509 37 1,649 294 1,393 583 310 80 13 28 | 34 37 32 27 38 25 39 41 38 39 42 44 35 | ||||||||||||||||||
Total | 168,382 | 124,247 | 24,601 | 13,620 | 5,914 | 29 | ||||||||||||||||||
Investment grade Sub-investment grade Impaired and defaulted | 132,837 35,545 6,390 | 113,168 11,079 | 8,237 16,364 | 8,219 5,401 | 3,213 2,701 | |||||||||||||||||||
Total gross loans | 174,772 | |||||||||||||||||||||||
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Financial Management
Risk Analysis
Investment Bank
billion loans at 31 December 2002 and CHF 120 billion total and CHF 61 billion loans at 31 December 2001. In the last few years, the Investment Bank has engaged in a substantial credit risk hedging program through which we have effectively reduced our banking products exposure at 31 December 2003 by CHF 22 billion. This was achieved mainly by transferring the underlying risk to high-grade market counterparties using credit default swaps. The table below provides a view of the net banking products exposure, reflecting the effect of these credit risk hedging activities. To illustrate the effects
Investment Bank: credit hedging, banking products
As at 31.12.2003 | ||||||||||||||||
Gross | Credit | Other Risk | Net | |||||||||||||
CHF million | Exposure1 | Hedges2 | Mitigants3 | Exposure | ||||||||||||
Investment grade | 39,227 | (18,892 | ) | 609 | 22,314 | |||||||||||
Sub-investment grade | 22,306 | (3,508 | ) | (498 | ) | 18,626 | ||||||||||
Impaired and defaulted | 1,495 | 0 | (889 | ) | 615 | |||||||||||
Total banking products exposure | 63,028 | (22,400 | ) | (778 | ) | 41,555 | ||||||||||
Note: Columns cannot be totaled as net exposure is set to zero in case of over-hedging.
Investment Bank: distribution of net take and hold banking products exposure1
across counterparty rating and loss given default (LGD) buckets
Net | Weighted | |||||||||||||||||||||||
Credit | Loss given default buckets | Average | ||||||||||||||||||||||
CHF million | Exposure 2 | 0–25% | 26–50% | 51–75% | 76–100% | LGD (%) | ||||||||||||||||||
Not rated | 36 | 22 | 14 | 0 | 0 | 27 | ||||||||||||||||||
0 and 1 | 1,875 | 0 | 1,875 | 0 | 0 | 49 | ||||||||||||||||||
2 | 4,019 | 217 | 3,790 | 0 | 12 | 47 | ||||||||||||||||||
3 | 5,520 | 2,513 | 2,767 | 238 | 2 | 38 | ||||||||||||||||||
4 | 3,887 | 63 | 3,757 | 67 | 0 | 50 | ||||||||||||||||||
5 | 1,694 | 573 | 1,121 | 0 | 0 | 45 | ||||||||||||||||||
6 | 989 | 345 | 627 | 5 | 12 | 44 | ||||||||||||||||||
7 | 5,227 | 4,538 | 629 | 60 | 0 | 15 | ||||||||||||||||||
8 | 4,731 | 4,255 | 341 | 0 | 135 | 14 | ||||||||||||||||||
9 | 3,177 | 2,095 | 872 | 198 | 12 | 25 | ||||||||||||||||||
10 | 797 | 119 | 636 | 36 | 6 | 46 | ||||||||||||||||||
11 | 492 | 140 | 316 | 24 | 12 | 48 | ||||||||||||||||||
12 | 491 | 163 | 310 | 18 | 0 | 34 | ||||||||||||||||||
Total non-impaired | 32,935 | 15,043 | 17,055 | 646 | 191 | 34 | ||||||||||||||||||
Investment grade | 17,031 | 3,388 | 13,324 | 305 | 14 | |||||||||||||||||||
Sub-investment grade | 15,904 | 11,655 | 3,731 | 341 | 177 | |||||||||||||||||||
Impaired and defaulted | 609 | |||||||||||||||||||||||
Total take and hold | 33,544 | |||||||||||||||||||||||
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of credit hedging and other risk mitigation, the rating distribution graph on the previous page shows exposures before and after risk mitigation. Additionally, in the matrix on page 54, we show the distribution of Investment Bank’s net banking products exposure across rating grades and LGD buckets. In this portfolio, the LGD for senior claims is normally between 40% and 50%, which explains the concentration in the 26–50% bucket. The significant exposure in the sub-investment grade 0–25% bucket is mainly comprised of short-term loans to US mortgage originators, secured on their mortgage portfolios, pending securitization. Exposure distribution across counterparty ratings shown elsewhere in this section refers only to gross exposure and probability of default, without reference to the likely severity of loss or loss mitigation from collateral or credit hedges.
sory or underwriting clients, avoiding pure commercial lending, and thereby substantially reducing our international credit exposure. With the increasing strength of the business franchise with such core clients, and the improvement in market conditions, we expect to selectively allocate moderately higher capital resources to support our business growth. Any increase in credit exposure will, however, be gradual and balanced across our lending business for core corporate clients, derivatives activity and loan underwriting.
Wealth Management USA
Settlement risk
Settlement risk arises in transactions involving the exchange of values when we must honor our obligation to deliver without first being able to determine that we have received the counter-value. The most significant element of our settlement risk arises from foreign exchange transactions, but the Continuous Linked Settlement (CLS) system, an industry initiative which went live in October 2002, allows transactions to be settled on a delivery versus payment basis, eliminating settlement risk. The volume of transactions settled through CLS has increased throughout 2003, and by fourth quarter nearly 50% by value of our foreign exchange business was being settled in this way. CLS does not, of course, eliminate the credit risk arising on foreign exchange transactions from changes in exchange rates prior to settlement, which we continue to measure and control as for other traded products, as described on page 50 under Credit risk of counterparties and groups.
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Country risk
The CCO organization at the Corporate Center assigns ratings to all countries to which we have exposure. Like counterparty ratings, sovereign ratings express the probability of the occurrence of a country risk event that would lead to an impairment of our exposures. The default probabilities and the mapping to the ratings of the major rating agencies are the same as for counterparty credit risks (see table on page 51), the three lowest ratings being designated ‘distressed’.
Country risk exposure
Emerging market exposure by major geographical area and product type
CHF million | Total | Banking products | Traded products | Tradable assets | ||||||||||||||||||||||||||||||||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | ||||||||||||||||||||||||||||||||||||
Emerging Europe | 1,833 | 2,005 | 1,954 | 441 | 390 | 632 | 606 | 532 | 750 | 786 | 1,083 | 572 | ||||||||||||||||||||||||||||||||||||
Emerging Asia | 7,721 | 4,755 | 7,747 | 2,416 | 2,189 | 4,029 | 1,113 | 1,179 | 1,537 | 4,192 | 1,387 | 2,181 | ||||||||||||||||||||||||||||||||||||
Latin America | 1,849 | 1,711 | 2,876 | 425 | 618 | 1,122 | 568 | 330 | 863 | 856 | 763 | 891 | ||||||||||||||||||||||||||||||||||||
Africa / Middle East | 2,363 | 2,205 | 2,858 | 882 | 979 | 1,432 | 1,083 | 818 | 962 | 398 | 408 | 464 | ||||||||||||||||||||||||||||||||||||
Total | 13,766 | 10,676 | 15,435 | 4,164 | 4,176 | 7,215 | 3,370 | 2,859 | 4,112 | 6,232 | 3,641 | 4,108 | ||||||||||||||||||||||||||||||||||||
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Provisioning policies
UBS classifies a claim as impaired if the book value of the claim exceeds the present value of the cash flows actually expected in future periods – loan interest payments and scheduled principal repayments, or other payments due, for example on guarantees, and including liquidation of collateral where available. We further classify loans as non-performing where payment of interest, principal or fees is overdue by more than 90 days or – as now required by Swiss regulatory guidelines – when insolvency proceedings have commenced or obligations have been restructured on concessionary terms.
Credit loss expense
Our Financial Statements are prepared in accordance with IFRS, under which credit loss expense charged to the UBS Financial Statements in any period is the sum of net allowances and direct writeoffs minus recoveries arising in that period, i.e. the credit losses actually incurred. By contrast, in our segment reporting we measure credit loss expense using the expected loss concept, which reflects the annual cost that is expected to arise on transactions in the current portfolio that become impaired in the future. To hold the Business Groups accountable for credit losses actually incurred, we charge or refund them with the difference between actual credit loss expense and expected loss, amortized over a three-year period. The
Actual credit loss (expense) / recovery versus Business Group credit loss charge
Wealth Management | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million | & Business Banking | Investment Bank | Wealth Management USA | Other1 | UBS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the year ended | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||||||||||||||||||||||||||||||||
Total banking products exposure at year end | 187,996 | 182,538 | 191,041 | 103,237 | 102,564 | 120,224 | 13,551 | 14,098 | 19,503 | 5,609 | 6,070 | 7,311 | 310,393 | 305,270 | 338,079 | |||||||||||||||||||||||||||||||||||||||||||||
Actual credit loss (expense)/recovery | (75 | ) | (238 | ) | (124 | ) | (40 | ) | 35 | (360 | ) | (3 | ) | (15 | ) | (15 | ) | 2 | 12 | 1 | (116 | ) | (206 | ) | (498 | ) | ||||||||||||||||||||||||||||||||||
- as a proportion of total banking products exposure (bps) | (4 | ) | (13 | ) | (6 | ) | (4 | ) | 3 | (30 | ) | (2 | ) | (11 | ) | (8 | ) | 4 | 20 | 1 | (4 | ) | (7 | ) | (15 | ) | ||||||||||||||||||||||||||||||||||
Credit loss expense charged to the Business Groups2 | (131 | ) | (312 | ) | (601 | ) | (139 | ) | (128 | ) | (112 | ) | (8 | ) | (13 | ) | (18 | ) | (2 | ) | (2 | ) | (3 | ) | (280 | ) | (455 | ) | (734 | ) | ||||||||||||||||||||||||||||||
- as a proportion of total banking products exposure (bps) | (7 | ) | (17 | ) | (31 | ) | (13 | ) | (12 | ) | (9 | ) | (6 | ) | (9 | ) | (9 | ) | (4 | ) | (3 | ) | (4 | ) | (9 | ) | (15 | ) | (22 | ) | ||||||||||||||||||||||||||||||
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difference between the amounts charged to the Business Groups and the actual credit loss expense recorded at Group level is reported in the Corporate Center. The following discussion covers the actual credit loss expense.
Impaired loans, allowances and provisions
As shown in the table on the following page, allowances and provisions for credit losses decreased by 23%, to CHF 4,326 million at 31 December 2003 from CHF 5,621 million at
31 December 2002. Note 9b to the Financial Statements provides further details of the changes in allowances and provisions during the year.
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Allowances and provisions for credit loss
1 | Includes Global Asset Management and Corporate Center including Private Banks. Global Asset Management had no impaired or non-performing loans at 31.12.02 and 31.12.01. | |
2 | Includes country allowances and provisions and provisions for off balance sheet liabilities. | |
3 | In the fourth quarter 2003 CHF 318 million of country provisions earmarked to cover defaulted and rescheduled non-performing claims on sovereign and quasi-sovereign borrowers were reclassified to counterparty-specific loan loss allowances. |
Wealth Management | ||||||||||||
CHF million | & Business Banking | |||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Loans to banks (gross) | 3,312 | 3,292 | 3,964 | |||||||||
Loans to customers (gross) | 171,460 | 165,814 | 171,729 | |||||||||
Gross loans | 174,772 | 169,106 | 175,693 | |||||||||
Non-performing loans | 4,420 | 5,032 | 7,001 | |||||||||
Other impaired loans | 1,970 | 3,332 | 4,303 | |||||||||
Total impaired loans | 6,390 | 8,364 | 11,304 | |||||||||
Allowances for non-performing loans | 2,346 | 2,749 | 4,245 | |||||||||
Allowances for other impaired loans | 484 | 824 | 1,137 | |||||||||
Total allowances for impaired loans | 2,830 | 3,573 | 5,382 | |||||||||
Other allowances and provisions 2 | 312 | 452 | 243 | |||||||||
Total allowances and provisions | 3,142 | 4,025 | 5,625 | |||||||||
of which country allowances and provisions 3 | 118 | 515 | 507 | |||||||||
Ratios | ||||||||||||
Impaired loans as a % of gross loans | 3.7 | 4.9 | 6.4 | |||||||||
Non-performing loans as a % of gross loans | 2.5 | 3.0 | 4.0 | |||||||||
Allowances and provisions for credit loss as a % of gross loans | 1.8 | 2.4 | 3.2 | |||||||||
Allocated allowances as a % of impaired loans | 44.3 | 42.7 | 47.6 | |||||||||
Allocated allowances as a % of non-performing loans | 53.1 | 54.6 | 60.6 | |||||||||
loans ratio improved to 2.0% at 31 December 2003 from 2.4% at 31 December 2002 and 3.3% at 31 December 2001. These positive results were due, in part, to the reduction of our exposure to international credit risk in previous years, resulting in fewer new impaired and non-performing loans than in prior periods, and in part to continuing efforts to conclude proceedings and reach settlement on existing non-performing loans.
Market risk
Market risk is the risk of loss arising from movements in observable market variables such as interest rates, exchange rates and equity markets. The risk of price movements on securities resulting from general credit and country risk factors and events specific to individual issuers is also considered market risk.
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Investment Bank | Wealth Management USA | Other 1 | UBS | |||||||||||||||||||||||||||||||||||||||||
31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||||||||||||||||||||
24,486 | 24,495 | 17,702 | 1,493 | 1,327 | 2,151 | 2,733 | 3,797 | 4,444 | 32,024 | 32,911 | 28,261 | |||||||||||||||||||||||||||||||||
30,880 | 37,223 | 43,527 | 11,623 | 11,530 | 16,095 | 2,220 | 1,892 | 2,372 | 216,183 | 216,459 | 233,723 | |||||||||||||||||||||||||||||||||
55,366 | 61,718 | 61,229 | 13,116 | 12,857 | 18,246 | 4,953 | 5,689 | 6,816 | 248,207 | 249,370 | 261,984 | |||||||||||||||||||||||||||||||||
513 | 967 | 1,609 | 25 | 29 | 17 | 1 | 1 | 12 | 4,959 | 6,029 | 8,639 | |||||||||||||||||||||||||||||||||
675 | 996 | 1,667 | 0 | 0 | 17 | 2 | 8 | 3 | 2,647 | 4,336 | 5,990 | |||||||||||||||||||||||||||||||||
1,188 | 1,963 | 3,276 | 25 | 29 | 34 | 3 | 9 | 15 | 7,606 | 10,365 | 14,629 | |||||||||||||||||||||||||||||||||
443 | 706 | 1,104 | 25 | 29 | 17 | 1 | 1 | 8 | 2,815 | 3,485 | 5,374 | |||||||||||||||||||||||||||||||||
504 | 575 | 760 | 0 | 0 | 17 | 3 | 8 | 6 | 991 | 1,407 | 1,920 | |||||||||||||||||||||||||||||||||
947 | 1,281 | 1,864 | 25 | 29 | 34 | 4 | 9 | 14 | 3,806 | 4,892 | 7,294 | |||||||||||||||||||||||||||||||||
205 | 264 | 681 | 3 | 13 | 0 | 0 | 0 | 0 | 520 | 729 | 924 | |||||||||||||||||||||||||||||||||
1,152 | 1,545 | 2,545 | 28 | 42 | 34 | 4 | 9 | 14 | 4,326 | 5,621 | 8,218 | |||||||||||||||||||||||||||||||||
168 | 221 | 499 | 0 | 0 | 0 | 0 | 0 | 0 | 286 | 736 | 1,006 | |||||||||||||||||||||||||||||||||
2.1 | 3.2 | 5.4 | 0.2 | 0.2 | 0.2 | 0.1 | 0.2 | 0.2 | 3.1 | 4.2 | 5.6 | |||||||||||||||||||||||||||||||||
0.9 | 1.6 | 2.6 | 0.2 | 0.2 | 0.1 | 0.0 | 0.0 | 0.2 | 2.0 | 2.4 | 3.3 | |||||||||||||||||||||||||||||||||
2.1 | 2.5 | 4.2 | 0.2 | 0.3 | 0.2 | 0.1 | 0.2 | 0.2 | 1.7 | 2.3 | 3.1 | |||||||||||||||||||||||||||||||||
79.7 | 65.3 | 56.9 | 100.0 | 100.0 | 100.0 | 133.3 | 100.0 | 93.3 | 50.0 | 47.2 | 49.9 | |||||||||||||||||||||||||||||||||
86.4 | 73.0 | 68.6 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 66.7 | 56.8 | 57.8 | 62.2 | |||||||||||||||||||||||||||||||||
tation of customer business, including interest rate risk in the banking books of the independent private banks.
Risk measurement
ket price for an instrument or position, and model risk in more complex products and transactions.
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worst result that could occur as a result of extreme or unusual market conditions. The absolute level of VaR should not, therefore, be interpreted as the likely range of daily trading revenues. We also measure VaR based on a 1-day holding period. 1-day VaR exposure expresses the maximum daily mark to market loss that UBS is likely to incur on the current portfolio under normal market conditions with a larger loss being statistically likely only once in a hundred business days.
Market risk developments
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trading activity in the Fixed Income, Rates and Currencies business area, particularly in US corporate and asset backed securities and, to a lesser extent, emerging market issues. As a consequence, average interest rate VaR for the year increased to CHF 323 million from CHF 219 million in 2002. Equity VaR was at similar levels to 2002. As can be seen in the VaR and backtesting revenue chart on page 64, VaR for the Investment Bank as a whole was within a tight range for most of the year, with occasional peaks as selected opportunities were taken in various emerging markets.
Investment Bank: Value at Risk (10-day 99% confidence)
Year ended 31.12.03 | Year ended 31.12.02 | Year ended 31.12.01 | ||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.03 | Min. | Max. | Average | 31.12.02 | Min. | Max. | Average | 31.12.01 | ||||||||||||||||||||||||||||||||||||||||
Risk type | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Equities | 142 | 194 | 171 | 160 | 123 | 293 | 177 | 178 | 124 | 455 | 181 | 157 | ||||||||||||||||||||||||||||||||||||||||
Interest rates | 251 | 437 | 323 | 395 | 162 | 303 | 219 | 281 | 128 | 300 | 183 | 226 | ||||||||||||||||||||||||||||||||||||||||
Foreign exchange | 7 | 82 | 31 | 28 | 6 | 100 | 35 | 10 | 9 | 91 | 29 | 26 | ||||||||||||||||||||||||||||||||||||||||
Other 1 | 7 | 51 | 15 | 10 | 4 | 113 | 30 | 13 | 2 | 14 | 6 | 5 | ||||||||||||||||||||||||||||||||||||||||
Diversification effect | 2 | 2 | (186 | ) | (182 | ) | 2 | 2 | (186 | ) | (171 | ) | 2 | 2 | (146 | ) | (143 | ) | ||||||||||||||||||||||||||||||||||
Total | 290 | 447 | 354 | 411 | 198 | 390 | 275 | 310 | 180 | 470 | 252 | 271 | ||||||||||||||||||||||||||||||||||||||||
UBS: Value at Risk (10-day 99% confidence)
Year ended 31.12.03 | Year ended 31.12.02 | Year ended 31.12.01 | ||||||||||||||||||||||||||||||||||||||||||||||||||
CHF million | Limits | Min. | Max. | Average | 31.12.03 | Min. | Max. | Average | 31.12.02 | Min. | Max. | Average | 31.12.01 | |||||||||||||||||||||||||||||||||||||||
Business Groups | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment Bank 1 | 450 | 290 | 447 | 354 | 411 | 198 | 390 | 275 | 310 | 180 | 470 | 252 | 271 | |||||||||||||||||||||||||||||||||||||||
Wealth Management USA | 50 | 8 | 21 | 14 | 17 | 11 | 36 | 19 | 14 | 13 | 37 | 20 | 24 | |||||||||||||||||||||||||||||||||||||||
Global Asset Management | 30 | 7 | 16 | 11 | 8 | 7 | 13 | 9 | 9 | |||||||||||||||||||||||||||||||||||||||||||
Wealth Management & Business Banking 2 | 50 | 1 | 5 | 2 | 1 | 4 | 9 | 5 | 4 | 4 | 5 | 5 | 5 | |||||||||||||||||||||||||||||||||||||||
Corporate Center 2, 3 | 150 | 40 | 83 | 58 | 49 | 30 | 64 | 40 | 62 | 31 | 63 | 37 | 41 | |||||||||||||||||||||||||||||||||||||||
Reserve 1 | 150 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Diversification effect | 4 | 4 | (76 | ) | (72 | ) | 4 | 4 | (68 | ) | (87 | ) | 4 | 4 | (49 | ) | (36 | ) | ||||||||||||||||||||||||||||||||||
Total | 600 | 297 | 462 | 363 | 414 | 211 | 374 | 280 | 312 | 192 | 482 | 266 | 305 | |||||||||||||||||||||||||||||||||||||||
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ket opportunities we see, we have decided to raise the VaR limit for the Investment Bank, which has remained unchanged since 1999. From 2004, the VaR limit for the Investment Bank will increase to CHF 600 million and the limit for UBS as a whole to CHF 750 million.
Operational risk
Operational Risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external causes, whether deliberate, accidental or natural. It is inherent in all our activities, not only in the business we conduct but also from the fact that wearea business – an employer, owning and occu-
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pying property, and holding assets, including information, belonging to ourselves and our clients. Our operational risk framework is not designed to eliminate risk per se but, rather, to contain it within acceptable levels, as determined by senior management, and to ensure that we have sufficient information to make informed decisions about additional controls, adjustments to controls, or risk mitigation efforts.
Operational risk framework
does not lead to a direct or indirect financial loss, may indicate that our standards are not being complied with or that they are ineffective, and that remedial action must be taken.
Measurement of operational risk
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Our approach to stress loss is primarily to consider extreme but plausible events that might occur (e.g., major litigation or extreme physical disasters) and to identify the management steps that can be taken to limit the losses they might cause. We also use this form of scenario analysis to develop contingency/crisis and business continuity plans to cover extreme events, affecting a limited area (e.g. one IT system or server) or a
significant part of the business (e.g. all operations in one location), as an essential complement to our day to day operational risk controls.
While industry standards are still evolving, we believe that our operational risk control framework meets current best practice and will provide the necessary foundation for Basel II compliance.
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Financial Management
Treasury
Treasury
The Treasury activities of UBS are the responsibility of the Group Treasurer and encompass management of most of the non-trading market risk arising outside Investment Bank, as well as our funding and liquidity position and capital.
Interest rate risk management
Most non-trading interest rate risks are transferred from the originating business units to one of the two centralized risk management units, Group Treasury and the Investment Bank’s Cash and Collateral Trading unit (CCT), who manage the risks by exploiting UBS’s entire netting potential. The independent private banking subsidiaries are exceptions, managing their own non-trading interest rate risk, although the risk they hold is not material to UBS as a whole.
2003, and the increased client demand for floating rate investment accounts, temporary adjustments, deviating from long-term observations, were made to the model that replicates client behavior.
– | Interest rate sensitivity, which expresses the impact of a one basis point (0.01%) parallel rise in interest rates on the fair value (net present value) of the interest rate risk positions. |
– | Economic value sensitivity, which measures the potential change in fair value of Group Treasury’s interest rate positions resulting from a large instantaneous shock to interest rates. |
– | Net interest income at risk, which is defined as the potential change in net interest income resulting from adverse movements in interest rates over the next twelve months. |
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interest rate risk. The economic value sensitivity measure provides a long-term view and a view of the whole book, since it takes into account the present value of all future cash flows generated from existing balance sheet positions. By contrast, the net interest income at risk measure considers only the re-pricing effect from positions maturing over the next twelve months, and thus provides a shorter-term view. In all three measures we assess the exposure both including and excluding the replication portfolio representing our equity. When this portfolio is excluded, the exposure under all three measures increases.
Interest rate risk development
Interest rate sensitivity of the bank book
As at 31.12.03 | ||||||||||||||||||||||||
CHF thousand per | Within 1 | 1 to 3 | 3 to 12 | 1 to 5 | Over 5 | |||||||||||||||||||
basis point increase | month | months | months | years | years | Total | ||||||||||||||||||
CHF | (44 | ) | (57 | ) | (64 | ) | (110 | ) | 44 | (231 | ) | |||||||||||||
USD | 41 | (42 | ) | (28 | ) | (65 | ) | 676 | 582 | |||||||||||||||
EUR | 7 | (3 | ) | 41 | 168 | 12 | 225 | |||||||||||||||||
GBP | 0 | (2 | ) | (52 | ) | 75 | 560 | 581 | ||||||||||||||||
JPY | 0 | 0 | 0 | (4 | ) | 0 | (4 | ) | ||||||||||||||||
Others | 0 | 0 | 0 | (1 | ) | (2 | ) | (3 | ) | |||||||||||||||
Total1 | 4 | (104 | ) | (103 | ) | 63 | 1,290 | 1,150 | ||||||||||||||||
of which equity replicating portfolio (CHF) | 6 | 30 | 270 | 4,132 | 3,635 | 8,073 | ||||||||||||||||||
of which equity replicating portfolio (USD) | 2 | 4 | 104 | 2,102 | 2,131 | 4,343 | ||||||||||||||||||
of which equity replicating portfolio (EUR) | 0 | 1 | 17 | 286 | 204 | 508 | ||||||||||||||||||
of which equity replicating portfolio (GBP) | 0 | 1 | 6 | 113 | 80 | 200 | ||||||||||||||||||
Total equity replicating portfolio | 8 | 36 | 397 | 6,633 | 6,050 | 13,124 | ||||||||||||||||||
Bank book without equity replicating portfolio (total) | (4 | ) | (140 | ) | (500 | ) | (6,570 | ) | (4,760 | ) | (11,974 | ) | ||||||||||||
Change in risk under the two methodologies
As at | ||||||||||||
CHF million | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Net interest income at risk | (233 | ) | (151 | ) | (313 | ) | ||||||
Economic value sensitivity | (1,169 | ) | (1,246 | ) | (1,319 | ) | ||||||
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The net interest income at risk figure shown is the worst case among various interest rate scenarios that have been analyzed, and results from an assumed downward interest rate shock (parallel shift) of 200 basis points. On 31 December 2003, the difference in the projected outcome in this scenario from that projected in a constant market rate scenario represented a reduction of CHF 233 million in the year’s total net interest income, compared with a reduction of CHF 151 million on 31 December 2002.
Liquidity and funding management
UBS’s range of business activities naturally generates asset and liability portfolios which are highly diversified with respect to market, product and currency. This reduces our exposure to individual funding sources, and also provides a broad range of investment opportunities, which in turn reduces liquidity risk. We adopt a centralized approach to liquidity and funding management to exploit these advantages to the full.
Liquidity management approach
limits are set by the GEB and monitored by Group Treasury and our liquidity exposure is regularly assessed by the Treasury Committee, chaired by the Treasurer. Moreover, detailed contingency plans have been developed for liquidity crisis management and have been incorporated into our global crisis management concept, which covers all types of crisis events. Regional committees monitor the markets in which UBS operates for potential threats and regularly report their findings to Group Treasury. In the event of a liquidity crisis, regional crisis task forces would implement contingency plans under the direction of senior management.
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UBS-specific crisis: liquidity gap and contingency funding
As at | ||||||||||||||||||||
CHF billion | 31.12.03 | 30.9.03 | 30.6.03 | 31.3.03 | 31.12.02 | |||||||||||||||
Crisis liquidity gap | (36 | ) | (35 | ) | (36 | ) | (42 | ) | (26 | ) | ||||||||||
Secured contingency funding | 74 | 81 | 78 | 72 | 71 | |||||||||||||||
Net position | 38 | 46 | 42 | 30 | 45 | |||||||||||||||
were to suffer a severe downgrading of our credit ratings. It further encompasses potential liquidity outflows due to contingent liabilities, in particular those due to the drawdown of committed credit lines. Exposures to other contingent commitments, such as guarantees and letters of credit, are also included in this analysis, even though these are not as vulnerable since they are generally not unconditional but are, rather, linked to other, independent conditions being fulfilled. The scenario also assumes that the crisis would engulf UBS’s source of retail deposits, thereby leading to massive withdrawals from current accounts, savings accounts and deposits. Furthermore, access to the client collateral pool is assumed to be limited as a result of securities lending agreements being cancelled during such a crisis.
Funding sources and approach
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UBS funding by product type UBS funding by currency |
5% 9% 13% 10% Retail savings/deposits 16% CHF 12% Demand deposits EUR Fiduciary USD Time deposits Others 5% Long-term debt 18% Securities lending 9% Repurchase agreements Inter-bank Money market papers 6% 53% 39% 5% As at 31.12.03 As at 31.12.03 |
Currency management
We report our results in Swiss francs, the currency of the country in which we are incorporated.
Non-trading currency risk VaR
CHF million | 2003 | 2002 | 2001 | |||||||||
Minimum | 0.7 | 0.7 | 0.9 | |||||||||
Maximum | 32.0 | 14.2 | 16.2 | |||||||||
Average | 12.3 | 3.0 | 3.6 | |||||||||
End of period | 28.3 | 0.7 | 1.0 | |||||||||
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sustained downward or upward move of one of the main currencies against the Swiss franc.
Capital management
We are dedicated to remaining one of the best capitalized financial services firms in the world with sound capital ratios and strong debt ratings
– both are key to our attractiveness to clients and investors. Our overall capital needs are continually reviewed to ensure that our capital base appropriately supports our current and planned business and regulatory capital requirements. We use a variety of instruments, including trust-preferred securities, to meet our overall capital needs, in order to support our efforts to enhance shareholder value.
Sound capitalization
– | where BIS guidelines apply a maximum risk weight of 100%, the SFBC applies risk weights above 100% to certain asset classes (for example real estate, fixed assets, intangibles, non-trading equity positions) |
– | where the BIS guidelines apply a 20% risk weight to obligations of OECD banks, the SFBC applies risk weights of 25% to 75%, depending on maturity. |
Capital adequacy
As at | ||||||||||||
CHF million, except ratios | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
BIS Tier 1 capital | 29,765 | 27,047 | 29,322 | |||||||||
of which hybrid Tier 1 capital1 | 3,224 | 3,182 | 3,848 | |||||||||
BIS total capital | 33,581 | 33,009 | 37,471 | |||||||||
BIS Tier 1 capital ratio (%) | 11.8 | 11.3 | 11.6 | |||||||||
BIS total capital ratio (%) | 13.3 | 13.8 | 14.8 | |||||||||
Balance sheet assets | 212,176 | 205,401 | 214,481 | |||||||||
Off balance sheet and other positions | 21,456 | 18,122 | 25,935 | |||||||||
Market risk positions | 18,269 | 15,267 | 13,319 | |||||||||
Total BIS risk-weighted assets | 251,901 | 238,790 | 253,735 | |||||||||
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lations than under the BIS guidelines. Nevertheless, UBS and its predecessor banks have always had total capital and Tier 1 capital in excess of the minimum requirements of both the BIS and the SFBC since their implementation in 1988.
Capital management in 2003
Share buyback and cancellation
exchange under a special security code which clearly identifies the time and quantity of shares repurchased for this purpose.
Dividends
Effect of second trading line program on basic earnings per share (EPS)
For the year ended | ||||||||||||
31.12.03 | 31.12.02 | 31.12.01 | ||||||||||
Weighted average shares for basic EPS after treasury shares | 1,116,953,623 | 1,208,586,678 | 1,266,038,193 | |||||||||
Weighted average second trading line treasury shares | 182,301,119 | 118,594,983 | 65,624,005 | |||||||||
Basic EPS | 5.72 | 2.92 | 3.93 | |||||||||
Cumulative impact of treasury shares on basic EPS (CHF)1 | 0.80 | 0.26 | 0.19 | |||||||||
Cumulative impact of treasury shares on basic EPS (%)1 | 14.0 | 8.9 | 4.9 | |||||||||
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Capital management plans for 2004
New second line buyback program
Dividend
Our financial stability stems from the fact that we are one of the best capitalized banks in the world. We believe that this financial strength is a key part of our value proposition for both our clients and our investors.
tional securities activities. Organizational fine-tuning is positioning the group to reap good benefits from economic recovery and a stabilization of equity markets, as well as to garner more synergies from the key group activities,” the agency said in a press release.
Long-term credit ratings
As at | ||||||||||||
31.12.03 | 31.12.02 | 31.12.01 | ||||||||||
Fitch, London | AA+ | AAA | AAA | |||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||
UBS’s ratings remain among the best of any major globally active financial institution. Well capitalized, with strong and balanced cash-flow generation, and a well controlled risk profile, UBS is one of the soundest financial institutions worldwide.
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Corporate Governance
Introduction and Principles
Introduction and Principles
UBS is committed to meeting high standards of corporate governance. Our corporate and executive bodies are organized in line with the leading codes of best practice.
Corporate governance – the way that the leadership and management of the firm are organized and how they operate in practice – ultimately aims at leading UBS to success, protecting the interests of its shareholders and creating value for them and for all stakeholders. Good corporate governance seeks to balance entrepreneurship, control and transparency, while supporting the firm’s success by ensuring efficient decision-making processes.
people, thus providing separation of powers. No member of one board may be a member of the other. This structure establishes checks and balances and creates an institutional independence of the Board of Directors from the day-to-day management of the firm, for which responsibility is conferred on the Group Executive Board.
SWX Swiss Exchange Reporting on Corporate Governance
This Corporate Governance section contains the following information required by the SWX Swiss Exchange Directive on Information relating to Corporate Governance:
– | group structure and shareholders | |
– | capital structure | |
– | Board of Directors | |
– | Group Executive Board | |
– | compensation, shareholdings and loans to corporate bodies | |
– | shareholders’ participation rights | |
– | change of control and defense measures | |
– | auditors | |
– | information policy |
In addition, this section summarizes the regulatory and supervisory environment of UBS in its principal locations of activity, describes the compliance of UBS with the NYSE listing standards on corporate governance, and contains a list of the members of the Group Managing Board of UBS, the next layer of management responsibility below the Group Executive Board.
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Corporate Governance
Group Structure and Shareholders
Group Structure and Shareholders
Under Swiss company law, UBS is organized as an “Aktiengesellschaft (AG)”, a corporation that has issued shares of common stock to investors. UBS AG is the parent company of the UBS Group.
UBS Group legal entity structure
The legal entity structure of UBS is designed to support the Group’s businesses within an efficient legal, tax, regulatory and funding framework. None of the Business Groups of UBS or Corporate Center operate through separate legal entities, but rather they generally operate out of the parent bank, UBS AG, through its branches worldwide.
Operational Group structure
The four Business Groups – Wealth Management & Business Banking (with its two business units Wealth Management and Business Banking Switzerland), Investment Bank (comprising the two business units Investment Banking & Securities and Private Equity), Wealth Management USA, and Global Asset Management – together with the Corporate Center, form the operational structure of the Group. Group performance is reported according to this structure (see the Financial Report 2003). A description of the Business Groups, their strategy, structure, organization, products and services is contained in this Handbook on pages 17–44.
Listed and non-listed companies
belonging to the Group
The following listed company is included in the Group’s financial statements on an equity participation basis:
Significant shareholders
Chase Nominees Ltd., London, acting in its capacity as a nominee for other investors, was registered with 8.27% of all shares issued as of 31 December 2003, compared to 7.68% at year-end 2002. According to UBS’s Regulation on the Registration of Shares, voting rights of nominees are restricted to 5%. As in previous years, no other shareholder was registered with more than 5% of all shares issued. Ownership of UBS shares is widely spread, as can be seen from the tables on the next page, which also provide information about the distribution by category of shareholders and by geography.
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Group Structure and Shareholders
Distribution of UBS shares
As at 31.12.03 | Shareholders registered | Shares registered | |||||||||||||||||
Number of shares registered | Number | % | Number | % of shares issued | |||||||||||||||
1–100 | 46,071 | 22.1 | 2,447,526 | 0.2 | |||||||||||||||
101–1,000 | 126,940 | 60.9 | 48,592,426 | 4.1 | |||||||||||||||
1,001–10,000 | 32,872 | 15.8 | 81,182,005 | 6.9 | |||||||||||||||
10,001–100,000 | 2,307 | 1.1 | 57,611,168 | 4.9 | |||||||||||||||
100,001–1,000,000 | 298 | 0.1 | 84,193,059 | 7.1 | |||||||||||||||
1,000,001–5,000,000 | 55 | 0.0 | 117,412,209 | 9.9 | |||||||||||||||
5,000,001–11,830,467 (1%) | 11 | 0.0 | 67,775,354 | 5.7 | |||||||||||||||
1–2% | 3 | 0.0 | 50,156,159 | 4.2 | |||||||||||||||
2–3% | 1 | 0.0 | 24,643,927 | 2.1 | |||||||||||||||
3–4% | 0 | 0.0 | 0 | 0.0 | |||||||||||||||
4–5% | 1 | 0.0 | 53,756,375 | 4.5 | |||||||||||||||
Over 5% | 1 | 1 | 0.0 | 97,792,404 | 8.3 | ||||||||||||||
Total registered | 208,560 | 100.0 | 685,562,6123 | 57.9 | |||||||||||||||
Unregistered2 | 497,484,152 | 42.1 | |||||||||||||||||
Total shares issued | 1,183,046,764 | 100.0 | |||||||||||||||||
Shareholders: type and distribution
Shareholders | Shares | |||||||||||||||
As at 31.12.03 | Number | % | Number | % | ||||||||||||
Individual shareholders | 200,346 | 96.1 | 157,734,755 | 13.3 | ||||||||||||
Legal entities | 7,616 | 3.6 | 171,901,983 | 14.5 | ||||||||||||
Nominees, fiduciaries | 598 | 0.3 | 355,925,874 | 30.1 | ||||||||||||
Unregistered | 497,484,152 | 42.1 | ||||||||||||||
Total | 208,560 | 100.0 | 1,183,046,764 | 100.0 | ||||||||||||
Switzerland | 192,070 | 92.1 | 308,364,680 | 26.0 | ||||||||||||
Europe | 11,837 | 5.7 | 243,605,541 | 20.6 | ||||||||||||
North America | 2,730 | 1.3 | 89,480,078 | 7.6 | ||||||||||||
Other countries | 1,923 | 0.9 | 44,112,313 | 3.7 | ||||||||||||
Unregistered | 497,484,152 | 42.1 | ||||||||||||||
Total | 208,560 | 100.0 | 1,183,046,764 | 100.0 | ||||||||||||
Since 13 September 2002, UBS’s holdings of its own shares have been above the 5% threshold requiring disclosure under the Swiss Stock Exchange law. Primarily due to share repurchases for subsequent cancellation, UBS’s holdings surpassed the 10% limit as of 5 June 2003 and dropped below 10% on 10 July following the cancellation of 76 million shares repurchased under the two 2002/2003 share buyback programs. A press release was issued on 8 June 2003 in that respect. On 11 July 2003, UBS’s holdings consisted of 5.9% of its own shares, and an additional 0.8% of its own shares through derivatives. UBS’s position in its own shares stood
between 5 and 10% for the remainder of the year.
Cross shareholdings
UBS has no cross shareholdings in excess of a reciprocal 5% of capital or voting rights with any other company.
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Corporate Governance
Capital Structure
Capital Structure
UBS is committed to capital management that is driven by shareholder value considerations. At the same time, UBS is dedicated to remaining one of the best-capitalized financial services firms in the world.
Capital
At the Annual General Meeting on 16 April 2003 shareholders gave the Board of Directors a mandate to continue a repurchase program during 2003/2004 for a maximum amount of CHF 5 billion. At the AGM on 15 April 2004, shareholders will be asked to approve the cancellation of 59,482,000 shares repurchased under this program.
Conditional and authorized share capital
Changes of capital
Shareholders’ equity on 31 December 2003 amounted to CHF 35,446 million, down 9% from a year earlier. For all details on changes in shareholders equity over the last three years, please refer to page 84 in the Financial Statements.
Shares, participation and bonus certificates
UBS shares are issued as Global Registered Shares with a par value of CHF 0.80 each, with each carrying one vote. Voting rights may, however, only be exercised if the holder expressly declares having acquired these shares in his own name and for his own account. Global Registered Shares provide direct and equal ownership for all shareholders, irrespective of the country and stock exchange where they are traded. For details see the Shareholders’ participation rights section on pages 96–97 of this Handbook.
Ordinary share capital
Share capital in CHF | Number of shares | Par value in CHF | ||||||||||
As at 31 December 2002 | 1,005,038,142 | 1,256,297,678 | 0.80 | |||||||||
Share repurchase programs 2002/2003 and 2002b: | ||||||||||||
Cancelation of shares upon AGM decision of 16 April 2003 | (60,776,064 | ) | (75,970,080 | ) | 0.80 | |||||||
Options exercised from conditional capital | 2,175,333 | 2,719,166 | 0.80 | |||||||||
As at 31 December 2003 | 946,437,411 | 1,183,046,764 | 0.80 | |||||||||
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Capital Structure
UBS has not issued any participation certificates or bonus certificates.
Limitation on transferability
and nominee registration
UBS does not apply any restrictions or limitations on the transferability of its shares. Shares registered according to the provisions in the Articles of Association (express declaration of beneficial ownership) may be voted without any limit in scope.
Convertible bonds and options
UBS has currently no convertible debt on UBS shares outstanding. The only options outstanding were 109,040,026 employee options on UBS shares as reported in Note 32c to the Financial Statements. For a total of 6,871,752 of those options, exercise will be satisfied through the creation of newly issued shares (conditional capital). Share capital would therefore be increased by a maximum of CHF 5,497,401.60. For the other employee options, exercise would be satisfied by the delivery of already issued treasury shares.
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Corporate Governance
Board of Directors
Board of Directors
The Board of Directors is the most senior body with ultimate responsibility for the strategy and management of the company and for the supervision of its executive management. The shareholders elect each member of the Board, which appoints the Chairman, the Vice Chairmen and the various Board Committees.
Members of the Board of Directors
The table below provides information on the composition of the Board of Directors as at 31 December 2003. It shows each member’s functions in UBS, nationality, year of initial appointment to the Board and current term of
office, professional history and education, date of birth, and other activities and functions such as mandates on boards of important corporations, organizations and foundations, permanent functions for important interest and pressure groups and official functions and political mandates.
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | |
Function in UBS | Chairman | |
Nationality | Swiss | |
Year of initial appointment | 2001 | |
Current term of office runs until | 2005 | |
Other activities and functions
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | |
Function in UBS | Executive Vice Chairman | |
Nationality | Swiss | |
Year of initial appointment | 1998 | |
Current term of office runs until | 2005 | |
Other activities and functions
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Address | Böckli Bodmer & Partners St. Jakobsstrasse 41 CH-4002 Basel | |
Functions in UBS | Non-executive Vice Chairman Chairman of the Nominating Committee | |
Nationality | Swiss | |
Year of initial appointment | 1998 | |
Current term of office runs until | 2006 | |
Other activities and functions
Address | Serono International SA Ch. des Mines 15bis CH-1211 Geneva 20 | |
Function in UBS | Member of the Com- pensation Committee | |
Nationality | Swiss | |
Year of initial appointment | 2002 | |
Current term of office runs until | 2006 | |
Other activities and functions
Address | J Sainsbury plc 33 Holborn London EC1N 2HT | |
Functions in UBS | Member of the Audit Committee Member of the Nominating Committee | |
Nationality | British | |
Year of initial appointment | 2001 | |
Current term of office runs until | 2004 (proposed for re-election at the 2004 AGM) | |
Other activities and functions
Address | GAM Klausstrasse 10 CH-8008 Zurich | |
Functions in UBS | Member of the Board Executive Vice Chairman until February 2003 | |
Nationality | Dutch | |
Year of initial appointment | 2001 | |
Current term of office runs until | 2006 (stepping down as per AGM 2004) | |
Other activities and functions
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Address | Heiniweidstrasse 18 CH-8806 Bäch | |
Functions in UBS | Chairman of the Com- pensation Committee Member of the Audit Committee | |
Nationality | Swiss | |
Year of initial appointment | 1998 | |
Current term of office runs until | 2006 | |
Other activities and functions
Address | Sika AG Wiesenstrasse 7 CH-8008 Zurich | |
Functions in UBS | Member of the Com- pensation Committee Member of the Nominating Committee | |
Nationality | Swiss | |
Year of initial appointment | 1998 | |
Current term of office runs until | 2004 (not standing for re-election) | |
Other activities and functions
Address | Unisys Corporation Unisys Way Blue Bell, PA 19424 | |
Function in UBS | Chairman of the Audit Committee | |
Nationality | American (US) | |
Year of initial appointment | 2001 | |
Current term of office runs until | 2005 | |
Other activities and functions
Organizational principles and personnel changes
The Board, and in particular its Chairman, takes responsibility for the mid- and long-term strategic direction of the Group, for appointments and dismissals at top management levels, for mid-term succession planning and for compensation principles. It defines the firm’s risk parameters and principles. A majority of the Board members
are non-executive and independent. The Chairman and at least one Vice Chairman have executive roles in line with Swiss banking laws, and assume supervisory and leadership responsibilities. As at 31 December 2003, the Board consisted of nine directors.
Changes in 2004
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down from the Board due to his new function as Chairman of SBC Wealth Management, the holding company established in 2003 within the UBS Group, with which the independent private banks and GAM have been integrated. Hans Peter Ming, whose term of office expires in 2004, is not standing for re-election as he has reached retirement age. The Board of Directors will propose the following new members for election: Stephan Haeringer, currently Deputy President of the UBS Group Executive Board, Helmut Panke, Chairman of the Board of Management of BMW AG, Munich, Germany, and Peter Spuhler, owner of Stadler Rail AG, Bussnang, Switzerland. The Board of Directors will consist of ten members – three executive and seven non-executive directors – after these changes.
Executive responsibilities
Non-executive Board members
or service contracts with any of them. They receive fixed fees for their Board mandate and for the special functions they assume in the various Board Committees.
Important business connections of non-executive Board members with UBS
Elections and term of office
The members of the Board of Directors are elected 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 all the members has to be newly elected or reelected every year.
Internal organization
After each Annual General Meeting of Shareholders, the Board elects its Chairman and one or more Vice Chairmen and appoints its Secretary. It meets as often as business requires, but at least six times per year. In 2003 the Board held six meetings with the members of the Group Executive Board participating, one telephone
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conference for the final sign-off on the annual financial statements and a two-day strategy seminar. In addition, the Board met five times without participation of executive management. The Board is organized as follows:
Chairman’s Office
Audit Committee
2002. The Audit Committee does not itself perform audits, but supervises the work of the auditors. Its primary responsibility is thereby to monitor and review the organization and efficiency of internal control procedures and the financial reporting process. As of 31 December 2003, Lawrence A. Weinbach was the chairman and Sir Peter Davis and Rolf A. Meyer the additional members of the Committee. The Audit Committee met five times in 2003, with representatives of the external auditors, the Group Controller and the Head of Group Internal Audit participating. It also held a separate meeting with the Group CEO and two sessions without management participation.
Compensation Committee
Nominating Committee
Corporate Responsibility Committee
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and sustainable development, supports awareness within UBS for adherence to international standards in these areas and advises the GEB and other bodies on corporate responsibility. As of 31 December 2003, the Committee was chaired by Marcel Ospel. Additional members were Hans Peter Ming, representing the Board, Peter Wuffli, Group CEO, Peter Kurer, Group General Counsel, Clive Standish, Chairman & CEO Asia Pacific, Mark Branson, Chief Communication Officer, Marco Suter, Group Chief Credit Officer, Bob Silver, President and COO of UBS Wealth Management USA, and Raoul Weil, Head of Wealth Management International. The Corporate Responsibility Committee met twice during 2003.
Charters and additional information
Areas of responsibility of Board of Directors and Group Executive Board
The ultimate responsibility for the strategy and the management of UBS lies with the Board of Directors. In line with Swiss banking law, the Board has delegated the responsibility for day-to-day management to the Group Executive Board. No one may be a member of both bodies. The supervision and control of the executive management remains with the Board of Directors. All details as to authorities and responsibilities of the two bodies are governed by the Articles of Association, the Organization Regulations and their Appendices. Please refer to www.ubs.com/corporate-governance.
Information and control instruments vis-à-vis the Group Executive Board
The Board of Directors is kept informed of the activities of the Group Executive Board in various ways. The Chairman of the Board or the Executive Vice Chairman participate in each meeting of the GEB in an advisory capacity, thus keeping the Chairman’s Office apprised of all current developments. The minutes of the GEB are filed with the executive Board members and made available for inspection to the non-executive members. At Board meetings, the Group CEO and the members of the GEB regularly update the Board on important issues.
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Corporate Governance
Group Executive Board
Group Executive Board
The Group Executive Board (GEB) has business management responsibility for UBS. The Group CEO and the members of the GEB are appointed by the Board of Directors and are accountable to the Chairman and the Board for the firm’s results.
Members of the Group Executive Board
The table below provides information on the composition of the Group Executive Board as at 31 December 2003. 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 and pressure groups and official functions and political mandates.
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Group Chief | |
Executive Officer | ||
Nationality | Swiss | |
Year of initial appointment to the GEB | 1998 | |
Other activities and functions
Peter Wuffli is a Board member of the Zurich Opera House and of the Institute of International Finance Inc., Washington DC. He is the Vice Chairman of the Board of IMD International Institute for Management Development in Lausanne (Switzerland) and the Treasurer of the Swiss-American Chamber of Commerce in Zurich.
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Deputy President of the Group Executive Board | |
Nationality | Swiss | |
Year of initial appointment to the GEB | 1998 (proposed for election to the Board of Directors at the AGM 2004) | |
Other activities and functions
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Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Chairman and Chief Executive Officer Investment Bank | |
Nationality | American (US) | |
Year of initial appointment to the GEB | 2001 | |
Other activities and functions
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Chairman and Chief Executive Officer Global Asset Management | |
Nationality | Australian | |
Year of initial appointment to the GEB | 2002 | |
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Functions in UBS | Chairman Wealth Management & Business Banking | |
Nationality | Swiss | |
Year of initial appointment to the GEB | 2001 | |
Other activities and functions
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Chairman and Chief Executive Officer Wealth Management USA | |
Nationality | American (US) | |
Year of initial appointment to the GEB | 2001 (stepped down from the GEB in January 2004) | |
Other activities and functions
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Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Group General Counsel | |
Nationality | Swiss | |
Year of initial appointment to the GEB | 2002 | |
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Chief Executive Officer Wealth Management & Business Banking | |
Nationality | Swiss | |
Year of initial appointment to the GEB | 2002 | |
Other activities and functions
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Chairman & Chief Executive Officer Asia Pacific (Group Chief Financial Officer from 1 April 2004) | |
Nationality | British | |
Year of initial appointment to the GEB | 2002 | |
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | President and Chief Operating Officer Wealth Management USA (CEO as from 2004) | |
Nationality | American (US) | |
Year of initial appointment to the GEB | 2002 |
Other activities and functions
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Group Executive Board
Responsibilities, authorities and organizational principles
The GEB has executive management responsibility for the Group and is accountable to the Board for the firm’s results. The GEB, and in particular the CEO, is responsible for the implementation and results of the firm’s business strategies, for the alignment of the Business Groups to UBS’s integrated business model and for the exploitation of synergies across the firm. The GEB fosters an entrepreneurial leadership spirit throughout the firm. Together with the Chairman’s Office, the GEB assumes overall responsibility for the development of UBS’s strategies. The authorities of the GEB are defined in the Organization Regulations, which are available on the internet at www.ubs.com/corporate-governance.
Personnel changes in 2004
Management contracts
UBS has not entered into any management contracts.
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Corporate Governance
Compensation, Shareholdings and Loans
Compensation, Shareholdings and Loans
UBS seeks to attract, motivate, develop and retain highly qualified people for senior management positions. Compensation of senior executives is closely linked to the achievement of sustainable shareholder returns and provides appropriate incentives for long-term value creation.
Compensation principles
Components of senior executive compensation
executives, motivating and retaining valuable employees, and delivering sustained superior returns to shareholders.
Executive share ownership programs
– | A significant portion (25% to 50%) of each senior executive’s or GMB member’s annual performance-based incentive compensation is delivered on a mandatory basis in the form of restricted or deferred UBS shares. Shares of Swiss participants are restricted from sale for five years, due to tax reasons. Normally shares of all participants are vesting during a period of five years. Prior to vesting, the shares can be forfeited in clearly defined circumstances, primarily if the executive is joining a competitor. | |
– | Executives are also eligible for discretionary stock option awards, which vest three years after grant date, and are made separately as long-term incentives, to reward exemplary performance as well as superior leadership skills and potential. The strike price for such options is set at up to 110% of the average high and low sale price of the UBS shares at a defined date. Options normally vest after three years and remain exercisable for a further seven years. Any unvested options will generally be forfeited if the executive leaves the company. | |
– | Additional incentives are provided for senior executives and GMB members who voluntarily elect to take an even greater portion of their annual performance-based incentive compensation in the form of restricted or deferred UBS shares. Executives opting to |
the Board of Directors and the members of the Group Executive Board.
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take a greater than mandatory proportion of their annual incentive in restricted or deferred UBS shares receive additional stock options. | ||
– | Senior executives and GMB members are required to accumulate over a certain period of time, and then hold, a significant number of UBS shares. |
Components of non-executive directors’ remuneration
Governance
No one at UBS has any approval authority for his/her own compensation. The approval of senior executive compensation recommendations and the design of senior executive compensation systems (plan design, performance measures, pay/performance relationship) are subject to a rigorous process which ensures that decisions are taken at least at two organizational levels above the executive concerned. The following is a description of the decision making process for different executive populations and the non-executive directors:
– | Group Managing Board members: compensation recommendations are developed by the responsible member of the Group Executive Board. Recommendations are reviewed and approved by the Group CEO. For GMB members in the Corporate Center, who report directly to the Group CEO, approval by the Chairman is required. The compensation system for the Group Managing Board is subject to the approval of the Chairman’s Office. | |
– | Group Executive Board members: Compensation recommendations are developed jointly by the Group CEO and the Chairman of the Board. The Compensation Committee of the Board of Directors reviews and approves the design of the compensation system for the Group Executive Board and all resulting compensation recommendations. |
– | Group CEO and Executive Vice Chairmen: Compensation recommendations are developed by the Chairman of the Board. The Compensation Committee of the Board of Directors reviews and approves the design of the compensation system for the Group CEO and the Executive Vice Chairmen and all resulting compensation recommendations. | |
– | Chairman of the Board: On behalf of the full Board of Directors, the Compensation Committee has authority to develop and approve the design of the compensation system for the Chairman of the Board and all resulting compensation decisions. | |
– | Non-executive members of the Board: The remuneration system for the non-executive directors is developed by the Compensation Committee and submitted to the executive Board members for approval. Individual remuneration of each non-executive director is related to the positions they hold. |
Compensation for acting members of the Board of Directors (BoD) and the Group Executive Board (GEB)
Executive members of the Board and members of the GEB
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Compensation for executive members of the BoD and members of the GEB 1
in CHF | ||||||||
For the year ended | 31.12.03 | 31.12.02 2 | ||||||
Cash component (base salary, cash portion of bonus) | 79,204,558 | 89,499,015 | ||||||
Employer’s contributions to retirement benefit plans | 1,225,543 | 1,320,220 | ||||||
Benefits in kind, fringe benefits (at market value) | 993,719 | 1,019,000 | ||||||
Restricted UBS shares (at fair value) 3 | 64,176,428 | 41,006,156 | ||||||
Restricted UBS options (at fair value) 4 | 12,752,019 | 14,268,501 | ||||||
Compensation for non-executive members of the BoD
in CHF | ||||||||
For the year ended | 31.12.03 | 31.12.02 1 | ||||||
Cash component | 1,889,097 | 1,825,000 | ||||||
Restricted UBS shares (at fair value) 2 | 3,513,044 | 1,705,865 | ||||||
Non-executive members of the Board
Additional severance payments
Compensation for former members of the Board and GEB
Former members of the Board of Directors or the Group Executive Board were not paid any compensation during the year under review, neither in cash nor in kind.
Share grants for the year under review
Executive Board members and members of the GEB
Non-executive Board members
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Compensation, Shareholdings and Loans
Share ownership
Executive Board members and members of the GEB
Non-executive Board members
Options grants for the year under review
Executive Board members and members of the GEB
options in 2003 as a long-term incentive. The strike price was CHF 65 and USD 48 respectively, ten percent above the average high and low sale price at the virt-x and the NYSE respectively on the last trading day in January 2003. Options vest three years after grant and will expire ten or ten and a half years from the date of grant.
Non-executive Board members
Options held
Executive Board members and members of the GEB
Options held as of 31 December 2003
Number | Year | Vesting | Expiry | Subscription | Strike | |||||
of options | of grant | date | date | ratio | price | |||||
87,882 | 1998 | 26/05/03 | 26/05/04 | 1:1 | CHF 85.12 | |||||
64,616 | 1998 | 26/05/03 | 26/08/04 | 1:1 | CHF 85.12 | |||||
72,006 | 1998 | 01/07/03 | 30/06/04 | 1:1 | CHF 56.67 | |||||
79,566 | 1999 | 26/02/02 | 26/02/05 | 1:1 | CHF 79.00 | |||||
396,000 | 2000 | 01/02/03 | 01/02/06 | 1:1 | CHF 66.67 | |||||
360,000 | 2001 | 24/01/04 | 24/01/08 | 1:1 | USD 57.80 | |||||
3,000 | 2001 | 28/02/04 | 29/02/08 | 1:1 | USD 53.39 | |||||
2,006,490 | 2001 | 20/02/04 | 20/02/09 | 1:1 | CHF 100.00 | |||||
290,828 | 2002 | 20/02/05 | 31/01/12 | 1:1 | CHF 77.75 | |||||
568,663 | 2002 | 31/01/05 | 31/01/12 | 1:1 | USD 45.26 | |||||
2,000 | 2002 | 28/02/04 | 29/02/12 | 1:1 | USD 46.24 | |||||
255,000 | 2002 | 28/06/07 | 28/06/12 | 1:1 | CHF 80.75 | |||||
380,000 | 2002 | 28/06/05 | 28/06/12 | 1:1 | USD 54.50 | |||||
367,960 | 2002 | 20/02/05 | 31/07/12 | 1:1 | CHF 77.75 | |||||
215,000 | 2002 | 28/06/05 | 28/12/12 | 1:1 | CHF 80.75 | |||||
60,000 | 2003 | 31/01/06 | 31/01/13 | 1:1 | CHF 65.00 | |||||
580,000 | 2003 | 31/01/06 | 31/01/13 | 1:1 | USD 48.00 | |||||
2,000 | 2003 | 28/02/05 | 28/02/13 | 1:1 | USD 41.61 | |||||
427,000 | 2003 | 31/01/06 | 31/07/13 | 1:1 | CHF 65.00 | |||||
In addition, this group of senior executives held the following warrants as of 31 December 2003: | ||||||||||
120,264 | 2000 | 20/03/03 | 01/04/04 | 16.67:1 | CHF 75.00 | |||||
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Non-executive Board members
Additional honorariums and remuneration
No material additional honorariums and remuneration were paid to any of the Board or GEB members.
Loans granted to members of
the Board and the GEB
Granting loans is part of the ordinary business of UBS. Executive members of the Board and the members of the GEB have been granted loans, fixed advances and mortgages at the same terms and conditions as other employees, based on third-party conditions adjusted for reduced credit risk. In 2002, a thorough review of outstanding loans to senior executives was performed to ensure compliance with the US Sarbanes-Oxley Act of 2002. New loans and mortgages are now granted at general market conditions with no preferential rates.
Loans granted to executive Board members and members of the GEB
of senior executives and their close family members.
Loans granted to non-executive Board members
Highest total compensation
Total compensation of the highest paid member of the Board of Directors, Chairman Marcel Ospel, amounted to CHF 17,232,588 for financial year 2003, including 78,698 restricted UBS shares. In addition, 127,000 options were granted as a long-term incentive award. At fair value these options were worth CHF 1,565,910.
Additional information on equity-based compensation and retirement benefit plans
Note 32 to the Financial Statements provides comprehensive information on the Group’s equity participation plans for employees on various levels of the organization. It shows pro-forma results under the assumption of expensing options at fair value rather than charging their intrinsic value at grant date. The Financial Report 2003 also provides information on how business unit results would have been impacted if options granted to employees had been expensed (please refer to the Business Group Results on page 41).
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Shareholders’ Participation Rights
Shareholders’ Participation Rights
UBS is committed to making it as easy as possible for shareholders to take part in its decision-making processes. All 210,000 registered shareholders and some 50,000 US shareholders registered via nominee companies receive regular written information about the firm’s activities and performance and are personally invited to shareholder meetings.
Relations with shareholders
UBS fully subscribes to the principle of equal treatment of all shareholders, ranging from large investment institutions to individual investors, and regularly informs them about the development of the company of which they are co-owners.
Voting rights, restrictions and representation
UBS is committed to making it as easy as possible for shareholders to take part in its decision-making processes and therefore places no restrictions on share ownership and voting rights. Only voting rights of nominee companies and trustees, who normally represent a great number of individual shareholders, are limited to a maximum of 5% of outstanding UBS shares in order to avoid the risk of unknown shareholders with large stakes being entered into the share register. Securities clearing organizations such as the Depository Trust Company (DTC) in New York and SegaInterSettle (SIS) in Switzerland are exempt from the 5% voting limit.
accept, reject or abstain on each individual item on the meeting agenda by either giving instructions to an Independent Proxy designated by UBS (as required under Swiss company law) or by appointing UBS, another bank or another registered shareholder of their choice, to vote on their behalf.
Statutory quorums
Shareholder resolutions, the election and re-election of Board members and the appointment of the Group and Statutory Auditors are decided at the General Meeting of Shareholders by an absolute majority of the votes cast, excluding blank and invalid ballots. Article 704 of the Swiss Code of Obligations (Company Law) requires that for certain specific issues a majority of two-thirds of the votes represented at the meeting vote in favor of the resolution. These issues include the introduction of voting shares, the introduction of restrictions on the transferability of registered shares, conditional and authorized capital increases, restrictions or exclusion of shareholders’ pre-emptive rights.
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Convocation of General Meetings of Shareholders
The Annual General Meeting of Shareholders (AGM) normally takes place in April, but in any case within six months after 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 at www.ubs.com/shareholder-meeting.
Placing of items on the agenda
Shareholders individually or jointly representing shares with an aggregate par value of CHF 250,000 may submit proposals for matters to be placed on the agenda for consideration by the shareholders’ meeting.
Registrations in share register
The general rules for being entered with voting rights in the Swiss or US Share Register of UBS also apply before General Meetings of Shareholders (for details see previous page). Registrations including the transfer of voting rights are processed for as long as technically possible.
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Change of Control and Defensive Measures
Change of Control and Defensive Measures
UBS refrains from restrictions that would hinder developments otherwise initiated or supported by the financial markets. There are no specific protections against hostile takeover in place.
Duty to make an offer
An investor who acquires 33 1/3% of all voting rights, whether they are exercisable or not, has to submit a takeover offer for all shares outstanding, according to the 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 executive Board members, of the members of the Group Executive Board and of the Group Managing Board do not contain clauses on change of control. UBS does not offer “golden parachutes” to its senior executives. Employment contracts contain notice periods of 12 months for GEB members and six months for GMB members, during which they are entitled to running salary and bonuses.
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Corporate Governance
Auditors
Auditors
Audit, with its various functions and authorities, plays an important role in corporate governance. While remaining independent, the external auditors and Group Internal Audit closely coordinate their work, thereby ensuring the most effective performance of their responsibilities. The Chairman’s Office, the Audit Committee and ultimately the Board of Directors supervise the functioning of audit work.
External, independent Auditors
Ernst & Young Ltd., Basel, have been assigned the mandate to serve as global auditors for the UBS Group. They assume all auditing functions according to laws, regulatory requests, and the UBS Articles of Association (see also the paragraph about auditors responsibilities in the Regulation and supervision section on page 104–105). The Audit Committee of the Board has determined that Ernst & Young Ltd. meets 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 is with the Audit Committee, ensuring that independence of the auditors is not jeopardized by conflicts of interests through additional mandates. Ernst & Young Ltd. inform the Audit Committee annually of the measures it takes to ensure its and its employees’ independ-
ence from UBS. The Audit Committee assesses this information on behalf of the Board and informs the Board accordingly.
Duration of the mandate and term of office of the lead auditor
Fees paid to auditors
in CHF | ||||||||
For the year ended | 31.12.03 | 31.12.02 | ||||||
Audit | ||||||||
Global audit fees | 27,645,000 | 26,023,000 | ||||||
Additional services classified as audit (services required by law or statute, including work of non-recurring nature mandated by regulators) | 4,589,000 | 6,106,000 | ||||||
Total audit | 32,234,000 | 32,129,000 | ||||||
Non-audit | ||||||||
Audit-related services | 10,267,000 | 9,342,000 | ||||||
Tax advisory | 5,947,000 | 11,047,000 | ||||||
Other | 3,404,000 | 3,452,000 | ||||||
Total non-audit | 19,618,000 | 23,841,000 | ||||||
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through 2003 annually confirmed their mandate, and they will be proposed for re-election at the AGM 2004.
Fees paid to principal external auditors
Chief Financial Officer). These pre-approvals have to be brought to the Audit Committee for approval at its next meeting.
Group Internal Audit
With around 240 professionals worldwide at 31 December 2003, Group Internal Audit provides an independent review of the effectiveness of the system of internal controls and compliance with key rules and regulations. It specifically verifies or assesses whether the internal controls are commensurate with the risks and are working effectively, whether activities within the firm are being conducted and recorded properly, correctly and fully, and whether the organization of operations, including information technology, is efficient and the information is reliable. All key issues raised by Group Internal Audit are communicated to the management responsible, to the Group CEO and to the executive members of the Board of Directors via formal Audit Reports. The Chairman’s Office and the Audit Committee of the Board are regularly informed of important findings.
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the agreement of the Chairman, may instruct Group Internal Audit to conduct such audits.
Supervisory and control instruments vis-à-vis the external auditors
The Audit Committee, on behalf of the Board of Directors, monitors the qualification, independence and performance of the Group Auditors and the lead partners. It prepares proposals for appointment or removal of the external auditors for review by the full Board, which then submits the proposal to the AGM.
The external auditors provide timely reports to the Audit Committee on critical accounting policies and practices used, on alternative treatments of financial information discussed with management, and other material written communication between external auditors and management.
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Information Policy
Information Policy
Our financial disclosure policies aim at achieving a fair market value for UBS shares through open, transparent and consistent communication with investors and financial markets.
Main sources of information
UBS provides regular information to its shareholders and to the financial community.
Financial results will be published as follows:
First Quarter | 4 May 2004 | |||
Second Quarter | 10 August 2004 | |||
Third Quarter | 2 November 2004 | |||
Fourth Quarter | 8 February 2005 | |||
The Annual General Meeting of Shareholders will take place as follows:
2004 | 15 April 2004 | |||
2005 | 21 April 2005 | |||
UBS meets regularly with institutional investors throughout the year, holding results presentations, specialist investor seminars, road shows and one-to-one or group meetings across the world. Where possible, these events involve UBS senior management as well as the UBS Investor Relations team. As a means of further widening our audience and maintaining contact with our shareholders around the world, we also make use of diverse technologies such as webcasting, audio links and cross-location video-conferencing.
an overview of the firm and its activities during the year as well as key financial information. Each quarter, they are also mailed an update about our ongoing initiatives as well as information on our quarterly financial performance. If they want more detailed information, shareholders can request our complete financial reports, produced on a quarterly and annual basis, free of charge.
Financial disclosure principles
Based on our discussions with analysts and investors, we believe that the market rewards companies that provide clear, consistent and informative disclosure about their business. Our aim therefore is to communicate UBS’s strategy and results in such a way that shareholders and investors can gain a full and accurate understanding of how the company works, what its growth prospects are and what risks exist that this growth will not be realized.
– | Transparency:our disclosure is designed to enhance understanding of the economic drivers and detailed results of the business, in order to build trust and credibility | |
– | Consistency:we aim to ensure that our disclosure is consistent and comparable within each reporting period and between reporting periods |
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– | Simplicity:we try to disclose information in as simple a manner as possible consistent with allowing readers to gain the appropriate level of understanding of our businesses’ performance | |
– | Relevance:we aim to avoid information overload by focusing our disclosure on what is relevant to UBS’s stakeholders, or required by regulation or statute | |
– | Best practice:we strive to ensure that our disclosure is in line with industry norms, and if possible leads the way to improved standards. |
Financial reporting policies
We report UBS’s results quarterly, including a breakdown of results by Business Groups and business units and extensive disclosures relating to credit and market risk.
we restate UBS’s results for previous periods to show how they would have been reported according to the new basis, and provide clear explanations of all changes.
US regulatory disclosure requirements
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Regulation and Supervision
Regulation and Supervision
We aim to monitor regulatory developments, to comply with all applicable provisions and to work closely and maintain good relations with the regulators in all jurisdictions where we conduct business.
As a Swiss-registered company, UBS’s main regulator is the Swiss Federal Banking Commission (SFBC).
Regulation and supervision in Switzerland
General
Regulatory policy
primary and secondary legislation issued by Parliament and the Swiss Federal Council. The SFBC has substantial influence on the drafting of these regulatory statutes. On more technical policy, the SFBC is empowered to issue so-called circulars, 23 of which are presently effective. The latest was issued on 14 October 2003 and sets minimum standards for the use of guarantees and credit derivatives, while the ordinance concerning the prevention of money laundering came into force on 1 July 2003. In certain fields, the SFBC officially endorses self-regulatory guidelines issued by the banking industry (through the Swiss Bankers’ Association), which thus become an integral part of banking regulation. Examples are:
– | Guidelines concerning a Code of Conduct with regard to the Exercise of Due Diligence by Banks, 1998 | |
– | Guidelines concerning the Treatment of Accounts, Custody Deposits and Safe Deposit Boxes Remaining Dormant at Swiss Banks, 2000 | |
– | Guidelines concerning the Exercise of Asset Management Mandates, 2000 | |
– | Guidelines on Internal Control, 2002 | |
– | Directives on the Independence of Financial Research, 2003. |
Certain aspects of securities broking, such as the organization of trading, are subject to self-regulation through the SWX Swiss Exchange and the Swiss Bankers’ Association, under the overall supervision of the SFBC
Role of external auditors and direct
supervision of large banking groups
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not only encompasses the audit of Financial Statements but also entails the review of banks’ compliance with all prudential requirements.
Reporting requirements and capital
requirements
Disclosures to the Swiss National Bank
condition and quarterly stress testing results. The SNB can also require UBS to make additional disclosures of financial condition and other information relevant to its regulatory oversight.
Regulation and supervision in the US
Banking regulation
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federal power may preempt the state insolvency regimes that would otherwise be applicable to our state-licensed offices. As a result, if the Office of the Comptroller of the Currency exercised its authority over the US banking offices of UBS AG pursuant to federal law in the event of a UBS insolvency, all of UBS’s US assets would be applied first to satisfy creditors of our US banking offices as a group, and then made available for application pursuant to any Swiss insolvency proceeding.
US regulation of other US operations
– | sales methods | |
– | trade practices among broker-dealers | |
– | use and safekeeping of customers’ funds and securities | |
– | capital structure | |
– | record-keeping | |
– | the financing of customers’ purchases | |
– | the conduct of directors, officers and employees. |
These entities are regulated by a number of different government agencies and self-regulatory organizations, including the Securities and Exchange Commission and the National Association of Securities Dealers. Depending upon the specific nature of a broker-dealer’s business, it may also be regulated by some or all of the New York Stock Exchange, the Municipal Securities Rulemaking Board, the US Department of the Treasury, the Commodities Futures Trading Commission, and other exchanges of which it may be a member. These regulators have available a variety of sanctions, including the authority to con-
duct administrative proceedings that can result in censure, fines, the issuance of cease-and-desist orders or the suspension or expulsion of the broker-dealer or its directors, officers or employees.
Regulation and supervision in the
United Kingdom
UBS’s operations in the United Kingdom are regulated by the Financial Services Authority (FSA), as the UK’s unified regulator, which establishes a regime of rules and guidance governing all relevant aspects of financial services business.
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Corporate Governance
Compliance with NYSE Listing Standards
on Corporate Governance
Compliance with NYSE Listing Standards
on Corporate Governance
UBS aims to comply with all relevant standards on corporate governance. As a foreign company, listed at the New York Stock Exchange (NYSE), we only have to fully comply with the rules for Audit Committees. UBS, however, is also in compliance with the overwhelming majority of the NYSE rules for US companies.
Introduction
On 4 November 2003, the Securities and Exchange Commission (SEC) approved the revised New York Stock Exchange corporate governance rules, as filed on 8 October 2003 by the NYSE. Foreign private issuers – such as UBS – must comply with the rules on Audit Committees by 31 July 2005 and disclose significant differences and material non-compliance with the NYSE standards by the first annual shareholders meeting after 15 January 2004.
Independence of directors
In line with the NYSE rules, the UBS Board of Directors has established the following criteria for a director to be considered independent:
– | The UBS Board of Directors has determined that the director has no material relationship with UBS, either directly or as a partner, shareholder of officer of a company that has a relationship with UBS. | |
– | The director has not been employed by UBS during the last three years. | |
– | Immediate family members of the director have not been employed by UBS as an executive officer during the last three years. | |
– | The director did not receive more than USD 100,000 per year in direct compensation from UBS within the past three years (other than director and committee fees). | |
– | Immediate family members of the director did not receive more than USD 100,000 per year in direct compensation from UBS (other than |
as an employee at a level below executive officer) within the past three years. | ||
– | The director has not been affiliated with or employed by UBS’s principal auditors, Ernst & Young Ltd. during the last three years. | |
– | Immediate family members of the director have not been affiliated with or employed in a professional capacity by Ernst & Young Ltd. during the past three years. | |
– | The director or an immediate family member is not and has not been employed as an executive officer of a company whose compensation committee includes an executive officer of UBS. | |
– | The director has not been an executive officer or employee within the past three years of a company that makes or receives payments to or from UBS in any fiscal year in excess of the greater of USD 1 million or 2% of the consolidated revenues of such company. | |
– | Immediate family members have not been an executive officer within the past three years of a company that makes or receives payments to or from UBS in any fiscal year in excess of the greater of USD 1 million or 2% of the consolidated revenues of such company. | |
– | The director, his immediate family members and / or companies controlled by him do not have banking relationships with UBS that are not in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable transactions with other clients. | |
– | The director has not entered into consulting contracts with UBS. | |
– | The director does not hold any other Board mandates that might infringe on his independence. | |
– | There were no interlocking directorships over the past three years between the companies related to the director and UBS. |
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Compliance with NYSE Listing Standards
on Corporate Governance
The Board of Directors, based on an individual assessment of its external members and their relationships with UBS, and after having carefully considered the detailed information provided by them as to the independence standards listed above, has determined that Peter Böckli, Sir Peter Davis, Rolf A. Meyer, Hans Peter Ming and Lawrence A. Weinbach are independent in accordance with the criteria mentioned above and therefore meet the independence requirements established by the NYSE.
tors, although the two executive members of the Chairman’s Office are former members of the executive management and have entered into employment contracts with UBS in connection with their functions as Board members. The Board meets regularly without executive management, but including the executive members of the Board.
Board Committees
UBS has established an Audit, a Compensation and a Nominating Committee. The charters for all the Board Committees are published on www.ubs.com/corporate-governance. Additional information on the Board Committee’s mandates, responsibilities and authorities can be found on page 85 of this Section.
Differences from NYSE standards
For US listed companies the NYSE rules require:
– | responsibility of the Audit Committee for appointment, compensation, retention and oversight of the Independent Auditors. UBS’s Audit Committee has been assigned all these responsibilities, except for appointment of the Independent Auditors, which – according to Swiss Company Law – is an authority of the Shareholders Meeting. The Audit Committee assesses the performance and qualification of the External Auditors and submits its proposal for appointment, re-appointment or removal to the full Board, which brings this proposal to the AGM for decision. | |
– | discussion on risk assessment and risk management between management and the Audit Committee. UBS, as a global financial services firm, has a very sophisticated and complex system of risk management and control. Risk management and control is the clear responsi- |
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bility of the business and not of the Board or of its Committees. The full Board has authority to define the firm’s risk framework, principles and capacity. The Chairman’s Office, on behalf of the full Board, is responsible for monitoring the adherence to the defined risk principles and for reviewing whether the business and control units run appropriate systems of management and control of risks. For further details see the Risk Management and Control section of this Handbook on page 46–49. | ||
– | supervision of internal audit by Audit Committee. In accordance with the Swiss Federal Banking Commission’s Circular Letter on Internal Audit, dated 14 December 1995, UBS gave the Chairman’s Office responsibility and authority for supervising the internal audit function. The complexity of the financial services industry requires in-depth knowledge of the global businesses to allow for an effective supervision of the internal audit function. The Chairman’s Office reports back to the full Board on all important findings, and the Audit Committee is regularly updated directly by the head of Group Internal Audit. | |
– | responsibility of the Nominating Committee for oversight of management and Board evaluation. Management evaluation (performance of the Group CEO and the members of the Group Executive Board) is done by the Chairman’s Office and reported to the full Board. All Board Committees perform a self-assessment of their activities and report back to the full Board. The Board has direct responsibility and authority to evaluate the Board’s own performance, without preparation by a Board Committee. | |
– | proxy statement reports of the Audit and Compensation Committees. Under Swiss Company Law, all reports addressed to share- |
holders are provided and signed by the full Board. The Committees submit their reports to the Board. | ||
– | shareholders’ votes on equity compensation plans. Under Swiss Company Law, the approval of compensation plans is not within the authority of the AGM, but of the Board of Directors. The reason for this approach is the fact that the capital of a Swiss company is determined in the Articles of Association and, therefore, each increase of capital has to be submitted for shareholders’ approval. If equity-based compensation plans result in a need for a capital increase, AGM approval is mandatory. If, however, shares for such plans are purchased in the market, shareholders do not have the authority to vote. |
Corporate Governance Guidelines,
Code of Business Conduct and Ethics, and
Whistleblowing Protection
The UBS Board of Directors has adopted corporate governance guidelines, which are published on the UBS website at www.ubs.com/corporate-governance.
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Group Managing Board
Group Managing Board
The Group Managing Board (GMB) represents the next layer in the leadership of the Group below the Group Executive Board. Its members are drawn from the management teams of the Business Groups and the Corporate Center.
Role of the Group Managing Board
The purpose of the GMB is to align leadership with the firm’s agenda and targets according to strategic objectives, culture and incentives. Its
role is to understand, challenge and contribute to further developing the firm’s direction, values and principles and to promote and communicate its culture both throughout UBS and externally.
Wealth Management & Business Banking | ||
Michel Adjadj | Head of Wealth Management Middle East & Africa | |
Arthur Decurtins | Head of Wealth Management Germany & Benelux | |
Thomas Escher | Head of IT | |
Jürg Haller | Head of Products & Services | |
Eugen Haltiner | Head of Business Banking Switzerland | |
Marten Hoekstra | Head of Market Strategy & Development | |
Dieter Kiefer | Head of Wealth Management Western Europe | |
Martin Liechti | Head of Wealth Management Americas | |
Joe Rickenbacher | Chief Credit Officer | |
Alain Robert | Head of Wealth Management Switzerland | |
Kathryn Shih | Head of Wealth Management Asia Pacific | |
Jean Francis Sierro | Head of Resources | |
Richard Sipes | Head of Wealth Management UK & Northern, Eastern and Southern Europe (retired as of 31.12.03) | |
Anton Stadelmann | Chief Financial Officer | |
Vittorio Volpi | Head of Wealth Management Italy | |
Raoul Weil | Head of Wealth Management International | |
Stephan Zimmermann | Head of Operations | |
New members as from 1 March 2004: | ||
Hans-Ulrich Meister | Head of Business Unit Large Corporates & Multinationals | |
Jeremy Palmer | Head of Wealth Management UK, Northern & Eastern Europe | |
Werner Peyer | Head of Wealth Management Region Zurich | |
Investment Bank | ||
Andy Amschwand | Head of Investment Bank Switzerland Global Head of Foreign Exchange / CCT | |
Mike Bolin | Chief Administrative Officer | |
Jonathan Britton | Chief Financial Officer | |
Gary Bullock | Global Head of Infrastructure Logistics | |
Regina A. Dolan | Global Head of Strategic Planning and Business Development | |
Robert Gillespie | Joint Global Head of Investment Banking | |
Alan C. Hodson | Global Head of Equities |
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Corporate Governance | ||
Investment Bank (continued) | ||
Michael Hutchins | Global Head of Fixed Income, Rates & Currencies | |
Huw Jenkins | Head of Equities for the Americas | |
Ken Moelis | Head of Investment Banking for the Americas | |
Rory Tapner | Joint Global Head of Investment Banking | |
Robert Wolf | Global Head of Fixed Income | |
New members as from 1 March 2004: | ||
Stephan Keller | Chief Risk Officer | |
Philip J. Lofts | Credit Officer | |
Wealth Management USA | ||
Barry Buchsbaum | Director of the Branch Group (until 29 February 2004) | |
Bruce Bursey | Director of Investment Counseling Services (until 29 February 2004) | |
Luzius Cameron | Director of Strategic Planning and New Business Development | |
Tom Naratil | Director of Investment Products Group | |
James D. Price | Director of Investment and Marketing Solutions | |
Robert H. Silver | President and Chief Operating Officer | |
New members as from 1 March 2004: | ||
Robert J. Chersi | Chief Financial Officer | |
Mike Davis | Division Manager Western Division | |
James M. Pierce | Division Manager Central Division | |
Timothy J. Sennatt | Division Manager Eastern Division | |
Global Asset Management | ||
Gabriel Herrera | Head of Europe, Middle East & Africa | |
Thomas Madsen | Global Head of Equities | |
Joe Scoby | CEO Alternative & Quantitative Investments | |
Danny Schweizer | Deputy CEO Alternative & Quantitative Investments | |
Brian Singer | Global Head of Asset Allocation | |
Kai Sotorp | Head of Asia Pacific | |
Brian M. Storms | CEO Americas | |
Mark Wallace | Global Head of Logistics Infrastructure | |
Paul Yates | Head of UK | |
Corporate Center | ||
Mark Branson | Chief Communication Officer | |
Rolf Enderli | Group Treasurer | |
Thomas Hammer | Group Head of Human Resources | |
Robert Mann | Head UBS Leadership Institute | |
Hugo Schaub | Group Controller | |
Walter H. Stuerzinger | Group Chief Risk Officer | |
Marco Suter | Group Chief Credit Officer | |
New member as from 1 March 2004: | ||
Scott G. Abbey | Chief Technology Officer | |
Chairman’s Office | ||
Gertrud Erismann-Peyer | Company Secretary | |
Markus Ronner | Head of Group Internal Audit |
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Corporate Responsibility
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Corporate Responsibility
Corporate Responsibility
For us, responsible behavior is integral to everything we do, meaning that we want to create sustainable value for our shareholders, clients and employees, and at the same time, preserve our environment and contribute to the development of the communities we do business in.
UBS makes responsible behavior an important part of its culture, identity and business practices. As a leading global financial services firm, we want to provide our clients with value-added products and services, promote a corporate culture that adheres to the highest ethical standards, and generate superior but sustainable returns for our shareholders. For UBS, responsible corporate conduct means sometimes moving beyond purely profit oriented or legal and regulatory considerations when doing business.
Our corporate responsibility processes
Corporate responsibility is not simply another “issue” that needs to be managed. We believe it is an underlying principle of doing business.
In 2001, we created a Corporate Responsibility Committee. It discusses and judges how to meet the evolving expectations of our stakeholders related to responsible corporate conduct. If it comes to the conclusion that there is gap between what stakeholders expect and our practice, the committee suggests appropriate measures to management, which is then responsible for finding solutions.
Investing in our communities
The “raison d’être” behind our well established program of community investment is the recognition that our success does not only depend on the skill and resources of our people and the relationships we foster with clients, but also on the health and prosperity of the communities of
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which we are a part. Dedicated teams worldwide work closely with senior managers to build partnerships with organizations in the communities where we operate, focusing on education, regeneration and environmental projects.
closely monitors their implementation. The costs of managing and administering the UBS Optimus Foundation are borne in full by UBS, so that the full contribution from our clients reaches the projects.
Promoting environmental awareness
Our commitment to the environment is underpinned with a professional environmental management system certified under the ISO 14001 standard. We remain committed to integrating environmental considerations into all our business activities. To this end, our environmental policy focuses on taking advantage of the market for environmentally friendly products and services, and taking environmental risks into account in our risk management processes, especially in lending and investment banking. In our inhouse operations, we actively look for ways to reduce
The community investment programs we support are regionally focused and respond to a variety of needs in the communities we do business in around the world. A few examples of our activities last year:
were determined to respond to the SARS crisis in a way that not only allowed us and our employees to contribute in a sustainable way, but would also serve as a vehicle for clients to support efforts to fight the disease. Within six weeks of its launch, donations from corporate and individual donors exceeded USD 330,000 while donations from UBS employees in Hong Kong and elsewhere stood at more than USD 117,000. In addition to the USD 128,000 of seed capital provided by UBS, donations by employees qualify for our match-giving program. Furthermore, the Hong Kong government matches our donations.
the poverty index. By offering a range of services to unemployed people who are interested in working for a City firm, The Brokerage has helped more than 1,000 individuals find employment. To complement our financial contributions, our volunteers have hosted three-month internships for The Brokerage candidates and also run workshops for them in our London offices.
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the direct environmental impact of our business activities.
Our electricity consumption, our heating, our paper consumption and business travel are the major factors that have a direct impact on the environment. Following the successful extension in 2002 of our ISO 14001 certification of inhouse operations, we implemented a number of environmental improvement initiatives. One example is the comprehensive recycling program now established in all major buildings globally. In 2003, the top 20 largest offices outside Switzerland recycled an estimated 6,100 tons of waste, 43% more than in 2002. The proportion of recycled waste in these offices increased from 39% in 2002 to 50% in 2003. Annually, this equates to a saving of approximately 80,000 trees and 25,000 cubic meters of landfill.
Third-party ratings
A number of different independent rating agencies that assess corporate responsibility programs across the world have rated us among the leaders in the field.
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UBS Share
The Global Registered Share
The Global Registered Share
UBS ordinary shares are registered shares with a par value of CHF 0.80 each, fully paid up and non-assessable. They are issued in the form of Global Registered Shares (GRS) and listed on the Swiss Exchange (where they are traded on virt-x), and the New York and Tokyo stock exchanges.
Register
Share liquidity and currency effects
NYSE, Van der Moolen, is required to facilitate sufficient liquidity and an orderly market in the UBS share.
Dividends
UBS normally pays a regular annual dividend to shareholders registered as of the date of the Annual General Meeting (the record date). Payment is usually scheduled three business days thereafter.
Planned dividend for 2003
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UBS Share |
Trading volumes
For the year ended | ||||||||||||
1,000 shares | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
SWX total | 987,743 | 1,049,364 | 1,000,402 | |||||||||
SWX daily average | 3,951 | 4,148 | 4,002 | |||||||||
NYSE total | 71,096 | 48,850 | 54,768 | |||||||||
NYSE daily average | 282 | 194 | 221 | |||||||||
1 The trading volumes have been adjusted for the three-for-one share split effective 16 July 2001. |
Ticker symbols
Trading exchange | Bloomberg | Reuters | Telekurs | |||
virt-x | UBSN VX | UBSN.VX | UBSN, 380 | |||
New York Stock Exchange | UBS US | UBS.N | UBS, 65 | |||
Tokyo Stock Exchange | 8657 JP | UBS.T | N16631, 106 |
a dividend of CHF 2.60 per share for the 2003 financial year, 30% higher than last year’s CHF 2.00. This increase reflects the continuously high cash flow generation and strong equity base of the company, but also the fact that our shareholders have different preferences for receiving shareholder returns: some prefer cash dividends, some prefer share buybacks. By pursuing both avenues, we aim to attract and retain the widest, most diverse global shareholder base.
Previous dividends, par value reductions
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UBS Share
The UBS Share 2003
The UBS Share 2003
UBS Share Price Chart vs DJ Stoxx banks |
UBS share price performance in 2003
The global equity markets rebounded significantly in 2003 on evidence of a sustained recovery in corporate earnings and favorable leading economic indicators. Banking and financial stocks in particular gained considerably year on year, with most outperforming the main market indices. The UBS share was no exception and closed 2003 at CHF 84.7, up 26% from the year’s start. Over the same period, the Dow Jones Europe Stoxx Banks Index, our main benchmark, gained 22%.
Market capitalization |
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UBS share data
As at | ||||||||||||
Registered shares in 1000 units | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Total shares outstanding | 1,183,047 | 1,256,298 | 1,281,717 | |||||||||
Total shares ranking for dividend | 1,126,340 | 1,182,263 | 1,258,653 | |||||||||
Treasury shares | 111,361 | 97,181 | 41,255 | |||||||||
Weighted average shares (for basic EPS calculations) | 1,116,954 | 1,208,587 | 1,266,038 | |||||||||
Weighted average shares (for diluted EPS calculations) | 1,138,801 | 1,223,383 | 1,288,578 | |||||||||
For the year ended | ||||||||||||
CHF | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||
Earnings per share | ||||||||||||
Basic EPS | 5.72 | 2.92 | 3.93 | |||||||||
Diluted EPS | 5.61 | 2.87 | 3.78 | |||||||||
UBS shares and market capitalization
Number of shares, except where indicated | % change from | |||||||||||||||
As at | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.02 | ||||||||||||
Total ordinary shares issued | 1,183,046,764 | 1,256,297,678 | 1,281,717,499 | (6 | ) | |||||||||||
Second trading line treasury shares | ||||||||||||||||
2001 program | (23,064,356 | ) | ||||||||||||||
2002 first program | (67,700,000 | ) | ||||||||||||||
2002 second program | (6,335,080 | ) | ||||||||||||||
2003 program | (56,707,000 | ) | ||||||||||||||
Shares outstanding for market capitalization | 1,126,339,764 | 1,182,262,598 | 1,258,653,143 | (5 | ) | |||||||||||
Share price (CHF) | 84.70 | 67.20 | 83.80 | 26 | ||||||||||||
Market capitalization (CHF million) | 95,401 | 79,448 | 105,475 | 20 | ||||||||||||
Total treasury shares | 111,360,692 | 97,181,094 | 41,254,951 | 15 | ||||||||||||
The UBS share fluctuated between CHF 73.5 and CHF 80.5 in third quarter, following broader equity market developments, despite UBS itself reporting a strong set of second quarter results. Although investor confidence remained high in the market, there were latent concerns
Dividend yield1 4%3.59% 3%2.72% 2.63% 2.43% 2.41% 2% 1% 0%1999 2000 2001 2002 2003 1 Dividend and par value reduction paid / average share price of the year for which dividend or par value reduction were paid. |
about the general sustainability of the corporate earnings recovery then underway, as well as whether the upward spike in GDP growth in certain major industrial economies would last. The UBS share price reflected this by declining just over 1.7%.
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The UBS Share 2003
Stock exchange prices1
SWX Swiss Exchange | New York Stock Exchange 2 | |||||||||||||||||||||||
High | Low | Period end | High | Low | Period end | |||||||||||||||||||
(CHF) | (CHF) | (CHF) | (USD) | (USD) | (USD) | |||||||||||||||||||
2003 | 85.40 | 49.80 | 84.70 | 68.16 | 38.00 | 67.99 | ||||||||||||||||||
Fourth quarter 2003 | 85.40 | 74.85 | 84.70 | 68.16 | 57.54 | 67.99 | ||||||||||||||||||
December | 85.40 | 83.10 | 84.70 | 68.16 | 65.07 | 67.99 | ||||||||||||||||||
November | 84.35 | 80.20 | 83.25 | 64.38 | 59.52 | 64.18 | ||||||||||||||||||
October | 82.00 | 74.85 | 82.00 | 61.34 | 57.54 | 61.34 | ||||||||||||||||||
Third quarter 2003 | 80.50 | 73.50 | 74.10 | 59.25 | 54.38 | 56.23 | ||||||||||||||||||
September | 79.60 | 74.10 | 74.10 | 58.20 | 54.45 | 56.23 | ||||||||||||||||||
August | 80.50 | 75.55 | 75.55 | 59.25 | 54.38 | 54.38 | ||||||||||||||||||
July | 80.40 | 73.50 | 80.40 | 58.90 | 55.20 | 58.30 | ||||||||||||||||||
Second quarter 2003 | 75.75 | 58.90 | 75.35 | 58.35 | 43.58 | 55.40 | ||||||||||||||||||
June | 75.75 | 72.75 | 75.35 | 58.35 | 55.31 | 55.40 | ||||||||||||||||||
May | 71.40 | 64.60 | 70.20 | 55.14 | 47.39 | 54.72 | ||||||||||||||||||
April | 67.75 | 58.90 | 64.35 | 49.30 | 43.58 | 47.45 | ||||||||||||||||||
First quarter 2003 | 72.10 | 49.80 | 57.50 | 51.86 | 38.00 | 42.70 | ||||||||||||||||||
March | 63.20 | 49.80 | 57.50 | 46.09 | 38.00 | 42.70 | ||||||||||||||||||
February | 64.50 | 55.55 | 56.90 | 45.43 | 40.94 | 41.70 | ||||||||||||||||||
January | 72.10 | 59.05 | 59.05 | 51.86 | 43.75 | 43.92 | ||||||||||||||||||
2002 | 84.30 | 51.05 | 67.20 | 51.99 | 34.54 | 48.12 | ||||||||||||||||||
Fourth quarter 2002 | 75.45 | 51.05 | 67.20 | 50.88 | 34.54 | 48.12 | ||||||||||||||||||
Third quarter 2002 | 75.15 | 56.80 | 61.30 | 49.94 | 37.86 | 41.00 | ||||||||||||||||||
Second quarter 2002 | 84.15 | 69.80 | 74.85 | 51.99 | 46.90 | 49.89 | ||||||||||||||||||
First quarter 2002 | 84.30 | 73.00 | 82.80 | 50.50 | 43.27 | 49.75 | ||||||||||||||||||
2001 | 96.83 | 62.10 | 83.80 | 58.49 | 40.12 | 50.00 | ||||||||||||||||||
Fourth quarter 2001 | 86.85 | 69.70 | 83.80 | 52.83 | 43.23 | 50.00 | ||||||||||||||||||
Third quarter 2001 | 86.33 | 62.10 | 75.60 | 49.73 | 40.12 | 46.15 | ||||||||||||||||||
Second quarter 2001 | 92.00 | 77.50 | 85.83 | 51.47 | 44.87 | 47.02 | ||||||||||||||||||
First quarter 2001 | 96.83 | 72.33 | 83.17 | 58.49 | 43.02 | 47.68 | ||||||||||||||||||
2000 | 88.17 | 63.58 | 88.17 | 54.10 | 40.18 | 54.10 | ||||||||||||||||||
Fourth quarter 2000 | 88.17 | 71.17 | 88.17 | 54.10 | 40.18 | 54.10 | ||||||||||||||||||
Third quarter 2000 | 88.00 | 74.67 | 76.67 | 50.74 | 44.76 | 44.85 | ||||||||||||||||||
Second quarter 2000 | 83.33 | 69.83 | 79.67 | 50.66 | 42.99 | 48.67 | ||||||||||||||||||
First quarter 2000 | 72.83 | 63.58 | 72.83 | |||||||||||||||||||||
1999 | 80.00 | 67.50 | 71.67 | |||||||||||||||||||||
Fourth quarter 1999 | 79.92 | 67.50 | 71.67 | |||||||||||||||||||||
Third quarter 1999 | 82.25 | 67.50 | 70.50 | |||||||||||||||||||||
Second quarter 1999 | 88.00 | 73.67 | 77.33 | |||||||||||||||||||||
First quarter 1999 | 82.00 | 69.08 | 77.50 | |||||||||||||||||||||
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Publisher/Copyright: UBS AG, Switzerland
Languages: English, German. SAP-No. 80532E-0401
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UBS AG | ||
P.O. Box, CH-8098 Zurich | ||
P.O. Box, CH-4002 Basel | ||
www.ubs.com |