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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, 2004 | ||
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 2004:
Ordinary shares, par value CHF 0.80 per share: 1,126,858,177 ordinary shares
(including 103,524,971 treasury shares)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 o Item 18 þ
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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 PPNs 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 | |
$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 | |
$23,000,000 PPNs due June 2010 | American Stock Exchange | |
$26,000,000 PPNs due August 2008 | American Stock Exchange | |
$10,000,000 PPNs due July 2010 | American Stock Exchange | |
$11,200,000 PPNs due February 2011 | American Stock Exchange | |
$7,750,000 PPNs due August 2010 | American Stock Exchange | |
$5,100,000 PPNs due September 2009 | American Stock Exchange | |
$4,500,000 PPNs due July 2009 | American Stock Exchange | |
$11,000,000 PPCNs due January 2012 | American Stock Exchange | |
$22,000,000 EASs due March 2005 | American Stock Exchange | |
$19,100,000 EASs due March 2005 | American Stock Exchange | |
$25,500,000 PPNs due January 2009 | American Stock Exchange | |
$26,000,000 EASs due April 2005 | American Stock Exchange | |
$11,500,000 CPNs due August 2009 | American Stock Exchange | |
$7,500,000 PPNs due February 2009 | American Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
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$1,500,000,000 8.622% Noncumulative Trust Preferred Securities
$1,500,000,000 8.622% Noncumulative Company Preferred Securities
$500,000,000 7.247% Noncumulative Trust Preferred Securities
$500,000,000 7.247% Noncumulative Company Preferred Securities
Subordinated Guarantee of UBS AG with respect to Company Preferred Securities
$14,000,000 Equity Linked Notes due February 1, 2007
$4,976,000 Equity Linked Notes due June 20, 2007
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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EX-1.1: ARTICLES OF ASSOCIATION | ||||||||
EX-1.2: ORGANIZATION REGULATIONS | ||||||||
EX-7: STATEMENT REGARDING RATIO OF EARNINGS TO FIXED CHARGES | ||||||||
EX-12: CERTIFICATIONS | ||||||||
EX-13: CERTIFICATIONS | ||||||||
EX-15: CONSENT OF ERNST & YOUNG LTD. |
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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, including the possibility of further losses in Private Equity in 2005; | |||
• | The development of operating expenses; | |||
• | The anticipated level of capital expenditures and associated depreciation expense; | |||
• | The expected impact of the risks that affect UBS’s business, including the risk of loss resulting from the default of an obligor or counterparty; | |||
• | Expected credit losses based upon UBS’s credit review; and | |||
• | Other statements relating to UBS’s future business development and economic performance. |
There can be no assurance that forward-looking statements will approximate actual experience. Several important factors exist that could cause UBS’s actual results to differ materially from expected results as described in the forward-looking statements. Such factors include:
• | General economic conditions, including prevailing interest rates and performance of financial markets, which may affect demand for products and services and the value of our assets; | |||
• | Changes in UBS’s expenses associated with acquisitions and dispositions; | |||
• | General competitive factors, locally, nationally, regionally and globally; | |||
• | Industry consolidation and competition; | |||
• | Changes affecting the banking industry generally and UBS’s banking operations specifically, including asset quality; | |||
• | Developments in technology; | |||
• | Credit ratings and the financial position of obligors and counterparties; | |||
• | UBS’s ability to control risk in its businesses; | |||
• | Changes in tax laws in the countries in which UBS operates, which could adversely affect the tax advantages of certain of UBS’s products or subject it to increased taxation; | |||
• | Changes in accounting standards applicable to UBS, as more fully described below; | |||
• | Changes in investor confidence in the future performance of financial markets, affecting the level of transactions they |
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undertake, and hence the levels of transaction-based fees UBS earns; | ||||
• | Changes in the market value of securities held by UBS’s clients, affecting the level of asset-based fees UBS can earn on the services it provides; and | |||
• | Changes in currency exchange rates, including the exchange rate for the Swiss franc into US dollars. |
UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
The effect of future changes in accounting standards
Included in the Notes to the Financial Statements is a description of the expected effect of accounting standards that have been issued but have not yet been adopted, for both IFRS and US GAAP.
Although we believe that description includes all significant matters that have been approved by the IASB and the FASB, those standard-setting bodies have a large number of projects in process that could result in significant new accounting standards or significant changes to existing standards.
This increased level of activity includes normal ongoing development and efforts to improve the existing body of accounting standards, and also is in response to a number of perceived deficiencies in accounting standards exemplified by reported abuses by various companies.
We believe it is likely that several new accounting standards will be issued in the near future, and that those new standards could have a significant effect on our reported results of operations and financial position, but cannot predict the precise nature or amounts of any such changes.
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PART I
Item 1. Identity of Directors, Senior Management and Advisors.
Not required because this Form 20-F is filed as an annual report.
Item 2. Offer Statistics and Expected Timetable.
Not required because this Form 20-F is filed as an annual report.
Item 3. Key Information.
A—Selected Financial Data.
Please see pages 207 to 211 of the attached Financial Report 2004 (U.S. Version), also referred to as “Financial Report 2004”.
Ratio of Earnings to Fixed Charges
Please see page 211 of the attached Financial Report 2004, and Exhibit 7 to this Form 20-F.
B—Capitalization and Indebtedness.
Not required because this Form 20-F is filed as an annual report.
C—Reasons for the Offer and Use of Proceeds.
Not required because this Form 20-F is filed as an annual report.
D—Risk Factors.
Please see pages 16 and 17 of the attached Financial Report 2004.
Item 4. Information on the Company.
A—History and Development of the Company.
1-3 | Please see page 5 of the attached Handbook 2004/2005 (U.S. version), also referred to as “Handbook 2004/2005”, and page 5 of the attached Financial Report 2004. | |
4 | Please see page 15 of the attached Handbook 2004/2005. | |
5, 6 | None. | |
7 | Not applicable. |
B—Business Overview.
1, 2, 3, 5, 7 | Please see sectionThe Business Groupson pages 17 to 40 of the attached Handbook 2004/2005 and the sectionSeasonal Characteristicson page 9 of the attached Financial Report 2004. 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 101 to 108 of the attached Financial Report 2004. | |
4, 6 | Not applicable. | |
8 | Please see the sectionRegulation and Supervisionon pages 111 to 113 of the attached Handbook 2004/2005. |
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C—Organizational Structure.
Please see Note 36 to the Financial Statements on pages 162 to 165 of the attached Financial Report 2004.
D—Property, Plant and Equipment.
Please see the sectionProperty, Plant and Equipmenton page 211 of the attached Financial Report 2004.
Information Required by Industry Guide 3
Please see pages 212 to 227 of the attached Financial Report 2004.
Item 5. Operating and Financial Review and Prospects.
A—Operating Results.
Please see sectionsPresentation of Financial Information, UBS, UBS Performance Indicators, Financial Businesses, Industrial HoldingsandBalance Sheet and Cash Flowson pages 7 to 72 of the attached Financial Report 2004.
Please also see Note 41 to the Financial StatementsReconciliation of International Financial Reporting Standards (IFRS) to United States Generally Accepted Accounting Principles (US GAAP)on pages 172 to 182 of the attached Financial Report 2004 and theManagement of non-trading currency risksubsection of theFinancial Managementsection, on page 64 of the attached Handbook 2004/2005.
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 65 and 66 of the attached Handbook 2004/2005, and Note 18 to the Financial StatementsFinancial Liabilities designated at fair value and debt issuedon pages 123 and 124 of the attached Financial Report 2004.
For a discussion of UBS’s balance sheet and cash flows, please see pages 67 to 72 of the attached Financial Report 2004.
For a discussion of UBS’s long term credit ratings, please see theCapital Strengthsubsection of the sectionCapital Management & the UBS Shareon page 73 of the attached Handbook 2004/2005.
C—Research and Development, Patents and Licenses, etc.
Not applicable.
D—Trend Information.
Please seeOutlook 2004subsection of the sectionFinancial Businesses-Resultson page 28 of the attached Financial Report 2004, and pages 10 to 12, 20, 28, 33 and 37 of the attached Handbook 2004/2005, which contain more detailed trend information.
E—Off-balance Sheet Arrangements.
Please seeOff-balance sheet arrangementssubsection of the sectionBalance Sheet and off-balance sheeton pages 69 and 70 of the attached Financial Report 2004.
F—Tabular Disclosure of Contractual Obligations.
Please seeContractual obligationssubsection of the sectionBalance Sheet and off-balance sheeton page 69 of the attached Financial Report 2004.
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Item 6. Directors, Senior Management and Employees.
A— Directors and Senior Management.
1, 2, 3 | Please see pages 87 to 95 of the attached Handbook 2004/2005. | |
4 and 5 | None. |
B—Compensation.
Please see theCompensation, shareholdings and loanssection on pages 96 to 103 of the attached Handbook 2004/2005 and also Notes 32 and 33 to the Financial Statements on pages 155 to 160 of the attached Financial Report 2004.
C—Board Practices.
Please see pages 87 to 92 of the attached Handbook 2004/2005 and Note 33 to the Financial Statements on pages 159 and 160 of the attached Financial Report 2004.
D—Employees.
Please see pages 28 and 29 of the attached Financial Report 2004.
E—Share Ownership.
Please see the subsectionCompensation, shareholdings and loansin theCorporate Governance section on pages 96 to 103 of the attached Handbook 2004/2005 and also Notes 32 and 33 to the Financial Statements on 155 to 160 of the attached Financial Report 2004.
Item 7. Major Shareholders and Related Party Transactions.
A—Major Shareholders.
Please see pages 83 and 84 of the attached Handbook 2004/2005.
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 21 April 2005), and the Group Executive Board and parties closely linked to them was 3,562,110 at 31 December 2004, 3,152,617 at 31 December 2003 and 2,139,371 at 31 December 2002. No member of the Board of Directors or Group Executive Board is the beneficial owner of more than 1% of the Group’s shares at 31 December 2004.
Please see Note 33 to the Financial Statements on pages 159 and 160 of the attached Financial Report 2004.
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.
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UBS is not aware of any significant change that has occurred since the date of the annual financial statements included in this Form 20-F.
Item 9. The Offer and Listing.
A—Offer and Listing Details.
1, 2, 3, 5, 6, 7 | Not required because this Form 20-F is filed as an annual report. | |
4 | Please see page 79 of the attached Handbook 2004/2005. |
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 77 of the attached Handbook 2004/2005.
Trading on virt-x
Since July 2001, Swiss blue chip stocks have no longer been traded on the SWX Swiss Exchange. All trading in the shares of members of the Swiss Market Index (SMI) now takes place on virt-x, although these stocks remain listed on the SWX Swiss Exchange. Altogether, approximately 270 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 ask 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 account 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
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Enlarged Risk Trades are subject to minimum trade size criteria. During normal trading hours all other transactions must be reported within three minutes. The Enlarged Risk Trades provisions enable a member to protect a client’s interest while the member works a large trade on behalf of the client. The Block Trade provisions allow a member a publication delay when the member has executed a large transaction for a client; the delay gives the member time in which to offset the risk of the large trade.
In the event of extraordinary situations such as large price fluctuations and other situations likely to hamper fair and orderly trading, virt-x may take whatever measures it deems necessary to maintain fair and orderly markets. A listed security may be suspended, the opening of trading in that security may be delayed or continuous trading may be interrupted.
Trading on the New York Stock Exchange
UBS listed its shares on the New York Stock Exchange (“NYSE”) on 16 May 2000.
As of 31 December 2004, the equity securities of nearly 2,800 corporations were listed on the NYSE. Non-US issuers, currently nearly 460 in number with a combined market valuation of USD 7.1 trillion, are playing an increasingly important role on the NYSE.
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.
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A—Share Capital.
Not required because this Form 20-F is filed as an annual report.
B—Memorandum and Articles of Association.
Please see:
a) | Item 14 of our registration statement on Form 20-F filed 9 May 2000. Please see Articles of Association of UBS AG and Organization Regulations of UBS AG filed as Exhibits 1.1 and 1.2, respectively. | |||
b) | The sectionCapital Structureon pages 85 and 86 of the attached Handbook 2004/2005. | |||
c) | Pages 6 and 76 of the attached Handbook 2004/2005 which provide details of our transfer agent in the US, Mellon Investor Services. |
C—Material Contracts.
None.
D—Exchange Controls.
There are no restrictions under UBS’s Articles of Association or Swiss law, presently in force, that limit the right of non-resident or foreign owners to hold UBS’s securities freely. There are currently no Swiss foreign exchange controls or other Swiss laws restricting the import or export of capital by UBS or its subsidiaries. In addition, there are currently no restrictions under Swiss law affecting the remittance of dividends, interest or other payments to non-resident holders of UBS securities.
E—Taxation.
This section outlines the material Swiss tax and United States federal income tax consequences of the ownership of UBS ordinary shares by a US holder (as defined below) who holds UBS ordinary shares as capital assets. It is designed to explain the major interactions between Swiss and US taxation for US persons who hold UBS shares.
The discussion does not address the tax consequences to persons who hold UBS ordinary shares in particular circumstances, such as tax-exempt entities, banks, financial institutions, insurance companies, broker-dealers, traders in securities that elect to mark to market, holders liable for alternative minimum tax, holders that actually or constructively own 10% or more of the voting stock of UBS, holders that hold UBS ordinary shares as part of a straddle or a hedging or conversion transaction or US holders (as defined below) whose functional currency for US tax purposes is not the US dollar. This discussion also does not apply to holders who acquired their UBS ordinary shares pursuant to the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan.
The discussion is based on the tax laws of Switzerland and the United States, including the US Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations under the Internal Revenue Code, published rulings and court decisions, as in effect on the date of this document, as well as the convention between the United States of America and Switzerland, which we call the “Treaty,” all of which may be subject to change or change in interpretation, possibly with retroactive effect.
For purposes of this discussion, a “US holder” is any beneficial owner of UBS ordinary shares that is for US federal income tax purposes:
• | a citizen or resident of the United States, | |||
• | a domestic corporation or other entity taxable as a corporation, | |||
• | an estate, the income of which is subject to United States federal income tax without regard to its source, or |
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• | a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust. |
The discussion does not generally address any aspects of Swiss taxation other than income and capital taxation or of United States taxation other than federal income taxation. Holders of UBS shares are urged to consult their tax advisors regarding the United States federal, state and local and the Swiss and other tax consequences of owning and disposing of these shares 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.
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.
Mellon Investor Services, the registrar for UBS AG shares in the US, is offering tax reclamation services for the cash dividends.
Repayment of capital in the form of a par value reduction is not subject to Swiss withholding tax.
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 before January 1, 2009 that constitute qualified dividend income will be taxable to the holder at a maximum rate of 15%, provided that the holder has a holding period in the shares of more than 61 days during the 120-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. Dividends paid by UBS with respect to the shares will generally be qualified dividend income.
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For United States federal income tax purposes, a dividend will include a distribution characterized as a repayment of capital in the form of a par value reduction, if the distribution is made out of current or accumulated earnings and profits, as described above.
Dividends will be income from sources outside the United States for foreign tax credit limitation purposes, but generally will be “passive income” or “financial services income,” which are treated separately from other types of income for foreign tax credit limitation purposes. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% rate. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations.
The amount of the dividend distribution included in income of a US holder will be the US dollar value of the Swiss franc payments made, determined at the spot Swiss franc/US dollar rate on the date such dividend distribution is included in the income of the US holder, regardless of whether the payment is in fact converted into US dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend distribution is included in income to the date such dividend distribution is converted into US dollars will be treated as ordinary income or loss. Such gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a return of capital to the extent of the US holder’s basis in its UBS ordinary shares and thereafter as capital gain.
Subject to certain limitations, the Swiss tax withheld in accordance with the Treaty and paid over to Switzerland will be creditable against the US holder’s United States federal income tax liability. To the extent a refund of the tax withheld is available to a US holder under the laws of Switzerland or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against the US holder’s United States federal income tax liability, whether or not the refund is actually obtained.
Stock dividends to US holders that are made as part of a pro rata distribution to all shareholders of UBS generally will not be subject to United States federal income tax. US holders that received a stock dividend that is subject to Swiss tax but not US tax may not have enough foreign income for US tax purposes to receive the benefit of the foreign tax credit associated with that tax, unless the holder has foreign income from other sources.
Transfers of UBS Ordinary Shares
Subject to the passive foreign investment company rules discussed below, a US holder that sells or otherwise disposes of UBS ordinary shares generally will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the US dollar value of the amount realized and the tax basis, determined in US dollars, in the UBS ordinary shares. Capital gain of a non-corporate US holder that is recognized before January 1, 2009 is generally taxed at a maximum rate of 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.
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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.
I—Subsidiary Information.
Not applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
A—Quantitative Information About Market Risk.
Please see the sectionMarket Riskon pages 58 to 64 of the attached Handbook 2004/2005.
B—Qualitative Information About Market Risk.
Please see the sectionMarket Riskon pages 58 to 64 of the attached Handbook 2004/2005.
C—Interim Periods.
Not applicable.
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 110 of the attached Handbook 2004/2005.
Item 16.A Audit Committee Financial Expert
See subsectionCompliance with NYSE Listing Standards on Corporate Governancein ourCorporate Governancesection on page 114 of the attached Handbook 2004/2005. Please also see page 91 of the attached Handbook 2004/2005.
Item 16.B Code of Ethics
See subsectionCompliance with NYSE Listing Standards on Corporate Governancein ourCorporate Governancesection on page 115 of the attached Handbook 2004/2005. The code is published on our website under http://www.ubs.com/about.
Item 16.C Principal Accountant Fees and Services
See subsectionAuditorsin ourCorporate Governancesection on pages 107 and 108 of the attached Handbook 2004/2005.
Item 16.D Exemptions from the Listing Standards for Audit Committee
Not applicable.
Item 16.E Purchases of Equity Securities by the Issuer and Affiliated Purchasers
See subsectionTreasury Sharesin sectionCapital Management & the UBS shareon page 75 of the attached Handbook 2004/2005.
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PART III
Item 17. Financial Statements.
Not applicable.
Item 18. Financial Statements.
The Financial Statements included on pages 81 to 190 of the attached Financial Report 2004 are incorporated by reference herein.
Item 19. Exhibits.
Exhibit | ||
Number | Description | |
1.1. | Articles of Association of UBS AG. | |
1.2. | Organization Regulations of UBS AG. | |
2(b) | Instruments defining the rights of the holders of long-term debt issued by UBS AG and its subsidiaries. We agree to furnish to the SEC upon request, copies of the instruments, including indentures, defining the rights of the holders of our long-term debt and of our subsidiaries’ long-term debt. | |
7. | Statement regarding ratio of earnings to fixed charges. | |
8. | Significant Subsidiaries of UBS AG. | |
Please see Note 36 on pages 162 to 165 of the attached Financial Report 2004. | ||
12. | The certifications required by Rule 13(a)-14(a) (17 CFR 240.13a-14(a)). | |
13. | The certifications required by Rule 13(a)-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). | |
15. | Consent of Ernst & Young Ltd. |
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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/ Clive Standish | ||||
Name: | Clive Standish | |||
Title: | Group Chief Financial Officer | |||
Date: March 16, 2005
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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. | |
2(b) | Instruments defining the rights of the holders of long-term debt issued by UBS AG and its subsidiaries. We agree to furnish to the SEC upon request, copies of the instruments, including indentures, defining the rights of the holders of our long-term debt and of our subsidiaries’ long-term debt. | |
7. | Statement regarding ratio of earnings to fixed charges. | |
8. | Significant Subsidiaries of UBS AG. | |
Please see Note 36 on pages 162 to 165 of the attached Financial Report 2004. | ||
12. | The certifications required by Rule 13(a)-14(a) (17 CFR 240.13a-14(a)). | |
13. | The certifications required by Rule 13(a)-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). | |
15. | Consent of Ernst & Young Ltd. |
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Financial Report 2004 – U.S. Version
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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 2004 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 2004 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
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Introduction
UBS financial highlights
UBS Income Statement | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Net profit | 8,089 | 6,239 | 3,530 | 30 | ||||||||||||
Basic earnings per share (CHF)1 | 7.68 | 5.59 | 2.92 | 37 | ||||||||||||
Diluted earnings per share (CHF)1 | 7.47 | 5.48 | 2.87 | 36 | ||||||||||||
Return on shareholders’ equity (%)2 | 24.7 | 17.8 | 8.9 | |||||||||||||
Financial Businesses3 | ||||||||||||||||
Operating income | 37,402 | 33,790 | 34,107 | 11 | ||||||||||||
Operating expenses | 26,935 | 25,613 | 29,570 | 5 | ||||||||||||
Net profit | 8,044 | 6,239 | 3,530 | 29 | ||||||||||||
Cost/income ratio (%)4 | 72.6 | 75.6 | 86.4 | |||||||||||||
Net new money, wealth management businesses (CHF billion)5 | 59.4 | 50.8 | 36.2 | |||||||||||||
Headcount (full-time equivalents) | 67,424 | 65,929 | 69,061 | 2 | ||||||||||||
UBS balance sheet and capital management | ||||||||||||||||
As at | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Balance sheet key figures | ||||||||||||||||
Total assets | 1,734,784 | 1,550,056 | 1,346,678 | 12 | ||||||||||||
Shareholders’ equity | 34,978 | 35,310 | 38,952 | (1 | ) | |||||||||||
Market capitalization | 103,638 | 95,401 | 79,448 | 9 | ||||||||||||
BIS capital ratios | ||||||||||||||||
Tier 1 (%)6 | 11.8 | 11.8 | 11.3 | |||||||||||||
Total BIS (%) | 13.6 | 13.3 | 13.8 | |||||||||||||
Risk-weighted assets | 264,125 | 251,901 | 238,790 | 5 | ||||||||||||
Invested assets (CHF billion) | 2,250 | 2,133 | 1,959 | 5 | ||||||||||||
Long-term ratings | ||||||||||||||||
Fitch, London | AA+ | AA+ | AAA | |||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||||||
From third quarter 2004 onwards, Motor-Columbus has been fully consolidated in UBS’s Financial Statements. The reporting structure is split into two components: Financial Businesses and Industrial Holdings.
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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 2004 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. 80531-0501).
Annual Review 2004
Handbook 2004/2005
Quarterly reports
The compensation report
The making of UBS
How to order reports
Information tools for investors
Website
Messaging service
Results presentations
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 Form 20-F; our Annual Report filed pursuant to the US Securities Exchange Act of 1934.
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Introduction
Contacts
Switchboards | ||||||
For all general queries. | Zurich | +41-44-234 1111 | ||||
London | +44-20-7568 0000 | |||||
New York | +1-212-821 3000 | |||||
Hong Kong | +852-2971 8888 | |||||
Investor Relations | ||||||
Our Investor Relations team supports institutional, professional and retail investors from our office in Zurich. | Zurich | |||||
Hotline | +41-44-234 4100 | UBS AG | ||||
www.ubs.com/investors | Matthew Miller | +41-44-234 4360 | Investor Relations | |||
Patrick Zuppiger | +41-44-234 3614 | P.O. Box | ||||
Caroline Ryton | +41-44-234 2281 | CH-8098 Zurich, Switzerland | ||||
Fax | +41-44-234 3415 | sh-investorrelations@ubs.com | ||||
Media Relations | ||||||
Our Media Relations team supports global media and journalists from offices in Zurich, London, New York and Hong Kong. | Zurich | +41-44-234 8500 | mediarelations@ubs.com | |||
London | +44-20-7567 4714 | ubs-media-relations@ubs.com | ||||
www.ubs.com/media | New York | +1-212-882 5857 | mediarelations-ny@ubs.com | |||
Hong Kong | +852-2971 8200 | sh-mediarelations-ap@ubs.com | ||||
Shareholder Services | ||||||
UBS Shareholder Services, a unit of the Company Secretary, is responsible for the registration of the Global Registered Shares. | Hotline | +41-44-235 6202 | UBS AG | |||
Fax | +41-44-235 3154 | Shareholder Services | ||||
P.O. Box | ||||||
CH-8098 Zurich, Switzerland | ||||||
sh-shareholder-services@ubs.com | ||||||
US Transfer Agent | ||||||
For all Global Registered Share- related queries in the US. www.melloninvestor.com | Calls from the US | +1-866-541 9689 | Mellon Investor Services | |||
Calls outside the US | +1-201-329 8451 | Overpeck Centre | ||||
Fax | +1-201-296 4801 | 85 Challenger Road | ||||
Ridgefield Park, NJ 07660, USA | ||||||
sh-relations@melloninvestor.com | ||||||
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Presentation of Financial Information
UBS reporting structure
Changes to reporting structure in 2004
We implemented a new reporting structure during 2004, under which we separate the analysis of our financial businesses from the impact of our industrial holdings. We adopted this new reporting structure on assuming majority ownership of the holding company Motor-Columbus after purchasing an additional 20% stake on 1 July 2004. Motor-Columbus’s only significant asset is a 59.3% interest in the Atel Group. Atel, based in Olten, Switzerland, is an energy provider focused on domestic and international power generation, electricity transmission, energy services as well as electricity trading and marketing. Due to the increased complexity that the consolidation of this energy utility adds to our financial reporting, we have split the commentary of our results into two parts. We have provided commentary and analysis of our financial businesses – which include all our pre-existing business units – separately from the new industrial holdings unit, housing Motor-Columbus. In this way, we aim for complete continuity in the presentation and analysis of our core businesses. The new reporting structure is shown in detail in the diagram below.
Changes to accounting in 2004
At the start of 2004, we implemented the following changes in accounting:
– | early adoption of revisedIAS 32 Financial Instruments: Disclosure and Presentationand revisedIAS 39 Financial Instruments: Recognition and Measurement. |
– | change in the accounting for investment property from historical cost less accumulated depreciation to the fair value method. | |
– | change in accounting for credit losses on over-the-counter (OTC) derivatives which are now reported as incurred in net trading income and no longer charged to credit loss expense (and deferred over three years for internal management reporting and in the results discussion). | |
– | exclusion from invested assets of corporate client assets in the Business Banking Switzerland unit (except for pension fund assets). |
Other new disclosures
As part of our continuing effort to improve the transparency of our financial reporting and provide the best possible understanding of our business, we have made a number of enhancements to our disclosure.
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Measurement and analysis of performance
UBS’s performance is reported in accordance with International Financial Reporting Standards (IFRS).
Seasonal characteristics
Our main businesses do not generally show significant seasonal patterns – except for the Investment Bank Business Group, where revenues are impacted by the seasonal characteristics of general financial market activity and deal flows in investment banking.
Performance indicators
UBS performance indicators
– | return on equity | |
– | growth in basic earnings per share (EPS) | |
– | cost/income ratio | |
– | net new money in our wealth management units (Wealth Management and Wealth Management USA |
Business Group performance indicators
externally reported value drivers, avoiding the risk of management to purely internal performance measures.
Client / invested assets reporting
– | Client assetsare all client assets managed by or deposited with UBS including custody-only assets and assets held for purely transactional purposes. | |
– | Invested assetsis a more restrictive term and includes all client assets managed by or deposited with UBS for investment purposes. |
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Presentation of Financial Information
Performance indicators
Business | Performance indicators | Definition | ||
Financial businesses | Cost/income ratio | Total operating expenses/total operating income before adjusted expected credit loss. | ||
Wealth and asset management businesses and Business Banking Switzerland | Invested assets | Assets managed by or deposited with UBS for investment purposes only (for further details please refer to page 11). | ||
Net new money | Inflow of invested assets from new clients | |||
– outflows due to client defection | ||||
+/– inflows/outflows from existing clients. | ||||
(for further details please refer to page 11). | ||||
Wealth and asset management businesses | Gross margin on invested assets | Operating income before adjusted expected credit loss/average invested assets. | ||
Wealth Management | Client advisors (CAs) | Expressed in full-time equivalents. | ||
Business Banking Switzerland | Non-performing loans (%) | Non-performing loans/gross loans. | ||
Impaired loans (%) | Impaired loans/gross loans. | |||
Investment Bank | Compensation ratio (%) | Personnel expenses/operating income before adjusted expected credit loss. | ||
Non-performing loans (%) | Non-performing loans/gross loans. | |||
Impaired loans (%) | Impaired loans/gross loans. | |||
Average VaR (10-day 99%) | VaR expresses the potential loss on a trading portfolio assuming a 10-day time horizon before positions can be adjusted, and measured to a 99% level of confidence. | |||
Value creation (private equity) | Value creation adds the increase in the unrealized portfolio gains/(losses) to realized gains/(losses) for the period. | |||
Investment (private equity) | Historical cost of investment made, less divestments and impairments. | |||
Portfolio fair value (private equity) | The fair value of a portfolio is the estimated amount for which the assets could be exchanged between willing buyers and willing sellers in an arm’s length transaction after an orderly sale process where the parties each act knowledgeably, prudently and without compulsion. | |||
Wealth Management USA | Recurring fees | Asset-based fees for portfolio management and fund distribution, account-based and advisory fees (as opposed to transactional fees). | ||
Financial advisor productivity | Private client revenues divided by average number of financial advisors. | |||
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Accounting treatment and presentation of private equity investments
–full consolidation (according to IAS 27) for investments in which we have a controlling interest | ||
–equity method accounting (according to IAS 28) for investments in which we have significant influence | ||
–treatment as “Financial investments available-for-sale” for all remaining private equity investments. |
Full consolidation according to IAS 27
Equity method according to IAS 28
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Changes in presentation
IFRS 2 Share-based payment
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IFRS 3 Business Combinations, IAS 36 Impairment of Assets and IAS 38 Intangible Assets
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
Minority interests
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UBS
Results
In 2004, UBS reported net profit of CHF 8,089 million, up 30% from CHF 6,239 million a year earlier and up 129% from CHF 3,530 million in 2002.
Dividend
The Board of Directors will recommend at the Annual General Meeting on 21 April 2005 that UBS should pay a dividend of CHF 3.00 per share for the 2004 financial year, an increase of 15% or CHF 0.40 from the CHF 2.60 dividend paid for the 2003 financial year and up 50% or CHF 1.00 from the CHF 2.00 dividend paid for the 2002 financial year.
Interest rates, equity prices, foreign exchange levels and other market fluctuations may affect earnings
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Counterparty failure may lead to credit loss
Operational risk may increase costs and impact revenues
Legal claims may arise in the conduct of our business
Competitive forces may influence business direction
Our global presence exposes us to other risks
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UBS Performance Indicators
For the year ended | ||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | ||||||||||
RoE (%)1 | 24.7 | 17.8 | 8.9 | |||||||||
Basic EPS (CHF)2 | 7.68 | 5.59 | 2.92 | |||||||||
Cost/income ratio of the financial businesses (%)3, 4 | 72.6 | 75.6 | 86.4 | |||||||||
Net new money, wealth management businesses (CHF billion)5 | ||||||||||||
Wealth Management | 42.3 | 29.7 | 17.7 | |||||||||
Wealth Management USA | 17.1 | 21.1 | 18.5 | |||||||||
Total | 59.4 | 50.8 | 36.2 | |||||||||
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2004
We focus on four main performance indicators, which indicate how we focus on continually improving returns to our shareholders.
standing due to our continuing repurchase of shares. Amortization of goodwill and other intangible assets reduced basic earnings per share by CHF 0.92 in 2004 and by CHF 0.84 in 2003.
Invested assets
As at | % change from | |||||||||||||||
CHF billion | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
UBS | 2,250 | 2,133 | 1,959 | 5 | ||||||||||||
Wealth Management & Business Banking | ||||||||||||||||
Wealth Management | 778 | 701 | 642 | 11 | ||||||||||||
Business Banking Switzerland | 140 | 136 | 127 | 3 | ||||||||||||
Global Asset Management | ||||||||||||||||
Institutional | 344 | 313 | 274 | 10 | ||||||||||||
Wholesale intermediary | 257 | 261 | 259 | (2 | ) | |||||||||||
Investment Bank | 0 | 4 | 3 | (100 | ) | |||||||||||
Wealth Management USA | 639 | 634 | 584 | 1 | ||||||||||||
Corporate Center | ||||||||||||||||
Private Banks & GAM | 92 | 84 | 70 | 10 | ||||||||||||
Net new money1
For the year ended | ||||||||||||
CHF billion | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
UBS | 88.9 | 69.1 | 36.9 | |||||||||
Wealth Management & Business Banking | ||||||||||||
Wealth Management | 42.3 | 29.7 | 17.7 | |||||||||
Business Banking Switzerland | 2.6 | 2.5 | 3.7 | |||||||||
Global Asset Management | ||||||||||||
Institutional | 23.7 | 12.7 | (1.4 | ) | ||||||||
Wholesale intermediary | (4.5 | ) | (5.0 | ) | (6.3 | ) | ||||||
Investment Bank | 0.0 | 0.9 | 0.5 | |||||||||
Wealth Management USA | 17.1 | 21.1 | 18.5 | |||||||||
Corporate Center | ||||||||||||
Private Banks & GAM | 7.7 | 7.2 | 4.2 | |||||||||
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UBS Performance Indicators
strong CHF 13.7 billion inflow into our European wealth management business. In our Wealth Management USA business, net new money was CHF 17.1 billion, down from CHF 21.1 billion a year earlier, reflecting a slow asset-gathering performance at the beginning of the year as well as the US dollar’s weakening against the Swiss franc.
2003
We have four main performance indicators, which indicate how we focus on continually improving returns to our shareholders.
– | Our return on equity for 2003 was 17.8%, up from 8.9% a year ago and within our target range of 15% to 20%. The increase reflects our much improved net profit combined with a lower average level of equity resulting from our continued buyback programs. In 2002, return on equity saw a 0.5 percentage point boost from the Klinik Hirslanden and Hyposwiss divestments, although the writedown of the PaineWebber brand lowered it by 2.4 percentage points. Amortization of goodwill and other intangible assets accounted for 2.7 percentage points of the ratio in 2003, compared to 5.5 percentage points of the ratio in 2002. Excluding these divestment gains and the amortization of goodwill and other intangibles, return on equity increased by 6.6 percentage points. | |
– | Basic earnings per share (EPS) were CHF 5.59, an increase of 91% from 2002, reflecting the increase in profit as well as the 8% reduction in average number of shares outstand- |
ing due to our continued share buybacks. In 2002, basic EPS was boosted by CHF 0.15 from Klinik Hirslanden and Hyposwiss divestments, but lowered by CHF 0.79 through the writedown of the PaineWebber brand. Amortization of goodwill and other intangible assets accounted for CHF 0.84 of our 2003 basic earnings per share, compared to CHF 1.80 in 2002. Excluding these divestment gains and the amortization of goodwill and other intangible assets, basic earnings per share increased by CHF 1.86. | ||
– | The cost/income ratio was 75.6% in 2003, an improvement from 86.4% in 2002. Operating expenses fell at a faster pace than income, reflecting ongoing cost management initiatives, the downward pressure on compensation ratios, and the difficult market environment in first half. In 2002, the ratio improved by 0.6 percentage points from the Klinik Hirslanden and Hyposwiss divestments, although the PaineWebber brand writedown increased the ratio by 3.6 percentage points. Amortization of goodwill and other intangible assets accounted for 2.7 percentage points of the ratio in 2003, compared to 7.2 percentage points in 2002. Excluding these divestment gains and the amortization of goodwill and other intangibles, the ratio decreased by 6.5 percentage points between 2003 and 2002. |
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Financial Businesses
Results
Results
Income statement1
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Operating income | ||||||||||||||||
Interest income | 39,398 | 40,159 | 39,963 | (2 | ) | |||||||||||
Interest expense | (27,538 | ) | (27,860 | ) | (29,417 | ) | (1 | ) | ||||||||
Net interest income | 11,860 | 12,299 | 10,546 | (4 | ) | |||||||||||
Credit loss (expense)/recovery | 276 | (72 | ) | (115 | ) | |||||||||||
Net interest income after credit loss expense | 12,136 | 12,227 | 10,431 | (1 | ) | |||||||||||
Net fee and commission income | 19,416 | 17,345 | 18,221 | 12 | ||||||||||||
Net trading income | 4,972 | 3,756 | 5,451 | 32 | ||||||||||||
Other income | 878 | 462 | 4 | 90 | ||||||||||||
Total operating income | 37,402 | 33,790 | 34,107 | 11 | ||||||||||||
Operating expenses | ||||||||||||||||
Personnel expenses | 18,189 | 17,231 | 18,524 | 6 | ||||||||||||
General and administrative expenses | 6,577 | 6,086 | 7,072 | 8 | ||||||||||||
Depreciation of property and equipment | 1,282 | 1,353 | 1,514 | (5 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 887 | 943 | 2,460 | (6 | ) | |||||||||||
Total operating expenses | 26,935 | 25,613 | 29,570 | 5 | ||||||||||||
Operating profit before tax and minority interests | 10,467 | 8,177 | 4,537 | 28 | ||||||||||||
Tax expense | 2,086 | 1,593 | 676 | 31 | ||||||||||||
Net profit before minority interests | 8,381 | 6,584 | 3,861 | 27 | ||||||||||||
Minority interests | (337 | ) | (345 | ) | (331 | ) | (2 | ) | ||||||||
Net profit | 8,044 | 6,239 | 3,530 | 29 | ||||||||||||
Additional information | As at | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Headcount (full-time equivalents) | 67,424 | 65,929 | 69,061 | 2 | ||||||||||||
2004
Results
Our 2004 result was the best ever. The first quarter saw an all-time performance record and the year ended with our best-ever fourth quarter. Net profit in 2004 was CHF 8,044 million, up by 29% from CHF 6,239 million in 2003. Before goodwill and excluding the sale of our Correspondent Services Corporation (CSC) clearing subsidiary, completed in second quarter 2003, net profit rose by 24%. The increase was driven by higher revenues in all categories, clearly outpacing cost growth. Our asset-based revenues showed particular strength, reflecting improved market valuations as well as strong inflows of net new money into our wealth and asset management businesses. Overall, we attracted CHF 88.9 billion in net new money in 2004, up 29% from CHF 69.1 billion in 2003. As a
result, our invested asset base rose to CHF 2.25 trillion. We also saw a strong increase in brokerage, corporate finance and underwriting fees. Overall fee and commission income now contributes 52% to total operating income. Trading income also contributed to the growth, as improved market conditions boosted opportunities, particularly in the first and fourth quarters. We also saw improving results in our private equity business, which recorded positive revenues for the first time in three years on higher divestment gains and lower write-downs. We also reported record credit loss recoveries. Performance-related compensation rose in line with revenues. Higher general and administrative expenses were driven by higher legal provisions, and operational risk costs.
Operating income
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level ever. The increase was driven by our ability to capture opportunities in increasingly active financial markets. The increase in market levels positively impacted the asset base of our wealth and asset management businesses, prompting fee-based revenues to rise. Trading and brokerage income also profited from the improved market environment that boosted institutional and private client transaction activity. Private equity made a positive contribution, reflecting lower writedowns and higher divestment gains. We also recorded higher credit loss recoveries in 2004. The overall rise in 2004’s revenues, however, was partially offset by the weakening of the US dollar against the Swiss franc.
lion compared to year-end 2003, reduced interest margin on client cash and savings accounts, as well as declining revenues from US dollar-denominated accounts.
Net interest and trading income
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Net interest income | 11,860 | 12,299 | 10,546 | (4 | ) | |||||||||||
Net trading income | 4,972 | 3,756 | 5,451 | 32 | ||||||||||||
Total net interest and trading income | 16,832 | 16,055 | 15,997 | 5 | ||||||||||||
Breakdown by business activity | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Net income from interest margin products | 5,139 | 5,077 | 5,275 | 1 | ||||||||||||
Equities | 3,098 | 2,445 | 2,777 | 27 | ||||||||||||
Fixed income | 6,264 | 6,474 | 5,977 | (3 | ) | |||||||||||
Foreign exchange | 1,467 | 1,436 | 1,506 | 2 | ||||||||||||
Other | 273 | 326 | 245 | (16 | ) | |||||||||||
Net income from trading activities | 11,102 | 10,681 | 10,505 | 4 | ||||||||||||
Net income from treasury activities | 1,298 | 1,417 | 1,646 | (8 | ) | |||||||||||
Other1 | (707 | ) | (1,120 | ) | (1,429 | ) | 37 | |||||||||
Total net interest and trading income | 16,832 | 16,055 | 15,997 | 5 | ||||||||||||
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Financial Businesses
Results
Credit loss (expense)/recovery
For the year ended | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Wealth Management & Business Banking | 91 | (67 | ) | (238 | ) | |||||||
Wealth Management | (1 | ) | 4 | 1 | ||||||||
Business Banking Switzerland | 92 | (71 | ) | (239 | ) | |||||||
Investment Bank | 240 | (4 | ) | 126 | ||||||||
Wealth Management USA | 3 | (3 | ) | (15 | ) | |||||||
Corporate Center | (58 | ) | 2 | 12 | ||||||||
Private Banks & GAM | (58 | ) | 2 | (3 | ) | |||||||
Corporate Functions | 0 | 0 | 15 | |||||||||
UBS | 276 | (72 | ) | (115 | ) | |||||||
Other net trading and interest incomewas negative CHF 707 million in 2004 compared to negative CHF 1,120 million a year earlier. The improvement was due to lower goodwill funding costs, as well as declining costs for funding our private equity portfolio.
exposures, please see the “Financial Management” chapter of our Handbook 2004/2005.
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Net fee and commission income
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Equity underwriting fees | 1,430 | 1,270 | 1,166 | 13 | ||||||||||||
Bond underwriting fees | 1,114 | 1,084 | 968 | 3 | ||||||||||||
Total underwriting fees | 2,544 | 2,354 | 2,134 | 8 | ||||||||||||
Corporate finance fees | 1,078 | 761 | 848 | 42 | ||||||||||||
Brokerage fees | 5,916 | 5,608 | 5,987 | 5 | ||||||||||||
Investment fund fees | 4,588 | 3,895 | 4,033 | 18 | ||||||||||||
Fiduciary fees | 220 | 241 | 300 | (9 | ) | |||||||||||
Custodian fees | 1,261 | 1,201 | 1,302 | 5 | ||||||||||||
Portfolio and other management and advisory fees | 4,611 | 3,855 | 4,065 | 20 | ||||||||||||
Insurance-related and other fees | 342 | 355 | 417 | (4 | ) | |||||||||||
Total securities trading and investment activity fees | 20,560 | 18,270 | 19,086 | 13 | ||||||||||||
Credit-related fees and commissions | 266 | 249 | 275 | 7 | ||||||||||||
Commission income from other services | 988 | 1,087 | 1,006 | (9 | ) | |||||||||||
Total fee and commission income | 21,814 | 19,606 | 20,367 | 11 | ||||||||||||
Brokerage fees paid | 1,399 | 1,483 | 1,349 | (6 | ) | |||||||||||
Other | 999 | 778 | 797 | 28 | ||||||||||||
Total fee and commission expense | 2,398 | 2,261 | 2,146 | 6 | ||||||||||||
Net fee and commission income | 19,416 | 17,345 | 18,221 | 12 | ||||||||||||
Other incomeincreased by 90% to CHF 878 million in 2004 from CHF 462 million in 2003. The increase was driven by higher disposal gains from private equity investments (up CHF 205 million) and lower impairment charges (down CHF 318 million). This was partially offset by lower gains from the divestment of associates and subsidiaries which dropped by nearly 50% to CHF 84 million in 2004 (the major disposal being the Noga Hilton hotel in Geneva) from CHF 162 million in 2003 (the major disposal being Correspondent Services Corporation (CSC)).
Operating expenses
Tax
In 2004, we incurred a tax expense of CHF 2,086 million, reflecting an effective tax rate of 19.9% for the full year. That compares to 2003’s full-year rate of 19.5%. The 2003 tax rate was positively influenced by a favorable regional profit mix. The higher rate for 2004 was driven by an increase in profitability in higher tax jurisdictions, mainly the US. We believe that a similar underlying tax rate is a reasonable indicator for 2005.
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Financial Businesses
Results
Indicative pre-goodwill tax rates for financial businesses
For the year ended | |||||||||||||
in % | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||
Wealth Management & Business Banking | 18 | 18 | 19 | ||||||||||
Wealth Management | 18 | 16 | 18 | ||||||||||
Business Banking Switzerland | 19 | 20 | 20 | ||||||||||
Global Asset Management | 21 | 20 | 22 | ||||||||||
Investment Bank | 30 | 32 | 38 | ||||||||||
Wealth Management USA | 37 | 38 | 37 | ||||||||||
Business Group tax rates
Headcount
Headcount in our financial businesses was 67,424 on 31 December 2004, up 1,495 from 65,929 on 31 December 2003. The increase was driven by the expansion of UBS’s wealth management and securities businesses around the globe.
Fair value disclosure of options
The fair value of options granted in 2004 was CHF 508 million (pre-tax: CHF 543 million) compared to CHF 439 million
Outlook
A record result is always challenging to beat. As every year, our investment banking and securities business will have to contend with the somewhat unpredictable rise and fall of the world’s financial markets. But 2004 showed that our wealth and asset
Headcount (in FTE)1: regional distribution
Headcount financial businesses
As at | % change from | |||||||||||||||
Full-time equivalents | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Switzerland | 25,990 | 26,662 | 27,972 | (3 | ) | |||||||||||
Rest of Europe / Africa / Middle East | 10,764 | 9,906 | 10,009 | 9 | ||||||||||||
Americas | 26,232 | 25,511 | 27,350 | 3 | ||||||||||||
Asia Pacific | 4,438 | 3,850 | 3,730 | 15 | ||||||||||||
Total | 67,424 | 65,929 | 69,061 | 2 | ||||||||||||
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management businesses can provide both growth momentum and earnings quality, even if trading conditions fluctuate. We will continue re-investing in our growth businesses and expect 2005 to be the next exciting step on a journey we believe will be very rewarding for our long-term investors.
2003
Results
In 2003, all businesses reported stronger results compared to 2002. Our net profit in full-year 2003 was CHF 6,239 million, up from CHF 3,530 million in 2002 – an increase of 77%. In 2002, our results were negatively influenced by the CHF 953 million writedown of the value of the PaineWebber brand. At the same time, they benefited from the sale of private bank Hyposwiss, which resulted in a net gain of CHF 125 million, and the divestment of Klinik Hirslanden, a private hospital group, which contributed a net gain of CHF 60 million. Excluding these items and before the amortization of goodwill and other intangibles, net profit increased 30% between 2002 and 2003. The gain reflected our tight management of costs and ability to build market share and capture revenues as financial markets steadily recovered as the year progressed. In particular, asset-based revenues recovered from the lows posted in 2002. Our result was further helped by much improved trading opportunities, a gradual improvement in investor sentiment and significantly lower writedowns in our private equity business. At the same time, expenses remained under tight control. We recorded reductions in all cost categories compared to 2002, with non-personnel expenses falling below their level in 2000.
Operating income
29
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Financial Businesses
Results
Operating expenses
30
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Tax
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Financial Businesses
Wealth Management & Business Banking
Wealth Management & Business Banking
In 2004, Wealth Management’s pre-tax profit was CHF 3,435 million, a 32% increase from 2003. Strong inflows from most markets resulted in net new money rising to CHF 42.3 billion from CHF 29.7 billion a year earlier. Business Banking Switzerland’s 2004 pre-tax profit fell 5% to CHF 2,045 million, reflecting lower interest income.
Business Group reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Income | 12,764 | 12,044 | 12,184 | 6 | ||||||||||||
Adjusted expected credit loss1 | (33 | ) | (131 | ) | (312 | ) | 75 | |||||||||
Total operating income | 12,731 | 11,913 | 11,872 | 7 | ||||||||||||
Personnel expenses | 4,473 | 4,350 | 4,338 | 3 | ||||||||||||
General and administrative expenses | 1,706 | 1,694 | 1,922 | 1 | ||||||||||||
Services to/from other business units | 862 | 870 | 837 | (1 | ) | |||||||||||
Depreciation | 135 | 170 | 198 | (21 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 75 | 75 | 97 | 0 | ||||||||||||
Total operating expenses | 7,251 | 7,159 | 7,392 | 1 | ||||||||||||
Business Group performance before tax | 5,480 | 4,754 | 4,480 | 15 | ||||||||||||
Additional information | ||||||||||||||||
Regulatory equity allocated (average) | 9,400 | 8,750 | 8,600 | 7 | ||||||||||||
Cost/income ratio (%)2 | 56.8 | 59.4 | 60.7 | |||||||||||||
Fair value of employee stock options granted3 | 127 | 64 | 92 | 98 | ||||||||||||
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Wealth Management
Business Unit reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Income | 7,701 | 6,797 | 6,690 | 13 | ||||||||||||
Adjusted expected credit loss1 | (8 | ) | (4 | ) | (26 | ) | (100 | ) | ||||||||
Total operating income | 7,693 | 6,793 | 6,664 | 13 | ||||||||||||
Personnel expenses | 2,080 | 1,944 | 1,869 | 7 | ||||||||||||
General and administrative expenses | 642 | 604 | 617 | 6 | ||||||||||||
Services to/from other business units | 1,395 | 1,479 | 1,475 | (6 | ) | |||||||||||
Depreciation | 66 | 82 | 93 | (20 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 75 | 75 | 97 | 0 | ||||||||||||
Total operating expenses | 4,258 | 4,184 | 4,151 | 2 | ||||||||||||
Business Unit performance before tax | 3,435 | 2,609 | 2,513 | 32 | ||||||||||||
Performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 778 | 701 | 642 | 11 | ||||||||||||
Net new money (CHF billion)2 | 42.3 | 29.7 | 17.7 | |||||||||||||
Gross margin on invested assets (bps)3 | 103 | 101 | 97 | 2 | ||||||||||||
Cost/income ratio (%)4 | 55.3 | 61.6 | 62.0 | |||||||||||||
Client advisors (full-time equivalents) | 3,744 | 3,300 | 3,001 | 13 | ||||||||||||
International clients | ||||||||||||||||
Income | 5,429 | 4,734 | 4,640 | 15 | ||||||||||||
Invested assets (CHF billion) | 562 | 491 | 447 | 14 | ||||||||||||
Net new money (CHF billion)2 | 40.4 | 29.7 | 20.2 | |||||||||||||
Gross margin on invested assets (bps)3 | 102 | 101 | 98 | 1 | ||||||||||||
European wealth management (part of international clients) | ||||||||||||||||
Income | 437 | 267 | 186 | 64 | ||||||||||||
Invested assets (CHF billion) | 82 | 46 | 28 | 78 | ||||||||||||
Net new money (CHF billion)2 | 13.7 | 10.8 | 7.6 | |||||||||||||
Client advisors (full-time equivalents) | 838 | 672 | 551 | 25 | ||||||||||||
Swiss clients | ||||||||||||||||
Income | 2,272 | 2,063 | 2,050 | 10 | ||||||||||||
Invested assets (CHF billion) | 216 | 210 | 195 | 3 | ||||||||||||
Net new money (CHF billion)2 | 1.9 | 0.0 | (2.5 | ) | ||||||||||||
Gross margin on invested assets (bps)3 | 106 | 102 | 95 | 4 | ||||||||||||
Additional information | As at or for the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Client assets (CHF billion) | 972 | 884 | 788 | 10 | ||||||||||||
Regulatory equity allocated (average) | 3,150 | 2,650 | 2,900 | 19 | ||||||||||||
Fair value of employee stock options granted5 | 81 | 37 | 54 | 119 | ||||||||||||
Headcount (full-time equivalents) | 10,093 | 9,176 | 9,399 | 10 | ||||||||||||
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Financial Businesses
Wealth Management & Business Banking
Components of operating income
Wealth Management derives its operating income principally from:
– fees for financial planning and wealth management services;
– fees for investment management services;
– transaction-related fees; and
– net interest income.
Wealth Management’s fees are based on the market value of invested assets and the level of transaction-related activity. As a result, operating income is affected by factors such as fluctuations in invested assets, changes in market conditions, investment performance and inflows and outflows of client funds.
2004
Performance indicators
In 2004, net new money inflows totaled CHF 42.3 billion, up 42% from CHF 29.7 billion in 2003, representing an annual growth rate of 6% of the underlying invested asset base at end-2003. This excellent performance was driven by gains in all geographical areas, especially from Asian clients, and a particularly strong CHF 13.7 billion inflow into our European wealth management business.
Invested assets, at CHF 778 billion on 31 December 2004, were up 11% from CHF 701 billion a year earlier, mainly reflecting the strong inflow of net new money and CHF 22.6 billion in new assets gained from acquisitions we integrated in 2004. Rising equity markets also had a positive impact on asset levels, helping to compensate for the negative effect of the US dol-
The gross margin on invested assets was 103 basis points in 2004, up 2 basis points from 101 basis points a year earlier, as revenues increased more than the average asset base. Overall, recurring income made up 76 basis points of the margin in 2004, up from 71 basis points in 2003. Non-recurring income comprised 27 basis points of the margin in 2004, against 30 basis points in 2003.
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European wealth management
Our European wealth management business continued to make significant progress. With a particularly good performance in the UK and Germany, the inflow of net new money in 2004 was CHF 13.7 billion, up 27% from the previous year’s intake of CHF 10.8 billion. The result reflects an annual net new money in-flow rate of 30% of the underlying asset base at year-end 2003.
The level of invested assets was a record CHF 82 billion on 31 December 2004, almost double the CHF 46 billion a year earlier, with the gain reflecting healthy inflows of net new money, and the integration of acquisitions made during the year.
In 2004, income from our European wealth management business was CHF 437 million, up 64% from a year earlier, reflecting our growing asset and client base.
Results
In 2004, pre-tax profit, at CHF 3,435 million, was up 32% from 2003. This increase reflects the recovery in major financial markets that started in mid-2003, driving a 13% increase in revenues through higher asset-based fees. Rising interest income, a reflection of the expansion of our margin lending
Operating income
13% from CHF 6,793 million a year earlier. This was the highest level ever, reflecting a rise in recurring as well as in non-recurring revenues. Recurring income increased 19% on rising asset-based fees, benefiting from gains in asset levels. This was accentuated by higher interest income due to the expansion of our margin lending activities. Non-recurring income rose due to higher brokerage fees, reflecting an increase in client activity levels, which were particularly strong in the first and fourth quarters of the year. These positive effects were somewhat offset by the weakening of the US dollar against the Swiss franc as well as lower divestment gains (in 2003 we sold a stake in Deutsche Börse).
Operating expenses
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Financial Businesses
Wealth Management & Business Banking
Headcount
Headcount, at 10,093 on 31 December 2004, increased by 917 from 31 December 2003. One of the major reasons lies in the integration of acquisitions we made last year, which added 379 employees. In 2004, the number of client advisors increased to 3,744, up 13% or 444 advisors from a year earlier.
2003
Performance indicators
In 2003, net new money inflows totaled CHF 29.7 billion, up 68% from CHF 17.7 billion in 2002. The excellent performance was due to strong inflows into our European wealth management business as well as significant inflows from clients in Asia and Eastern Europe.
European wealth management
Our European wealth management business continued to make significant progress. After three years of intense effort, the total level of invested assets in Germany, France, the UK, Spain and Italy reached CHF 46 billion.
Results
Wealth Management’s 2003 pre-tax profit, at CHF 2,609 million, increased 4% from 2002 on the financial market recovery in the second half of the year, which resulted in higher revenues.
Operating income
Operating expenses
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Headcount
Headcount, at 9,176 on 31 December 2003, decreased by 223 from 31 December 2002. Although we continued to hire client advisors, we reduced headcount in non-client facing areas as we further streamlined processes and structures. In 2003, the number of client advisors increased to 3,300, up 10% from a year earlier.
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Financial Businesses
Wealth Management & Business Banking
Business Banking Switzerland
Business Unit reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Interest income | 3,390 | 3,542 | 3,677 | (4 | ) | |||||||||||
Non-interest income | 1,673 | 1,705 | 1,817 | (2 | ) | |||||||||||
Income | 5,063 | 5,247 | 5,494 | (4 | ) | |||||||||||
Adjusted expected credit loss1 | (25 | ) | (127 | ) | (286 | ) | 80 | |||||||||
Total operating income | 5,038 | 5,120 | 5,208 | (2 | ) | |||||||||||
Personnel expenses | 2,393 | 2,406 | 2,469 | (1 | ) | |||||||||||
General and administrative expenses | 1,064 | 1,090 | 1,305 | (2 | ) | |||||||||||
Services to/from other business units | (533 | ) | (609 | ) | (638 | ) | 12 | |||||||||
Depreciation | 69 | 88 | 105 | (22 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 0 | 0 | 0 | |||||||||||||
Total operating expenses | 2,993 | 2,975 | 3,241 | 1 | ||||||||||||
Business Unit performance before tax | 2,045 | 2,145 | 1,967 | (5 | ) | |||||||||||
Performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 140 | 136 | 127 | 3 | ||||||||||||
Net new money (CHF billion)2 | 2.6 | 2.5 | 3.7 | |||||||||||||
Cost/income ratio (%)3 | 59.1 | 56.7 | 59.0 | |||||||||||||
Non-performing loans/gross loans (%) | 2.3 | 3.2 | 3.6 | |||||||||||||
Impaired loans/gross loans (%) | 3.0 | 4.6 | 6.0 | |||||||||||||
Additional information | As at or for the period ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Deferral (included in adjusted expected credit loss) | 411 | 383 | 240 | 7 | ||||||||||||
Client assets (CHF billion) | 655 | 622 | 494 | 5 | ||||||||||||
Regulatory equity allocated (average) | 6,250 | 6,100 | 5,700 | 2 | ||||||||||||
Fair value of employee stock options granted4 | 46 | 27 | 38 | 70 | ||||||||||||
Headcount (full-time equivalents) | 15,508 | 16,181 | 16,967 | (4 | ) | |||||||||||
Components of operating income
Business Banking Switzerland derives its operating income principally from:
– | net interest income from its loan portfolio and customer deposits; | |
– | fees for investment management services; and | |
– | transaction fees. |
As a result, operating income is affected by movements in interest rates, fluctuations in invested assets, client activity levels, investment performance, changes in market conditions and the credit environment.
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2004
Performance indicators
Net new money was CHF 2.6 billion in 2004, slightly higher than the inflow of CHF 2.5 billion in 2003.
Business Banking Switzerland’s loan portfolio was CHF 137 billion on 31 December 2004, down CHF 2 billion from the previous year. An increase in volumes of private client mortgages was offset by lower credit demand from corporate clients and a further reduction in the recovery portfolio, which fell to CHF 4.4 billion on 31 December 2004 from CHF 6.4 billion a year earlier. This positive development was also reflected in the key credit quality ratios: the non-performing loan ratio improved to 2.3% from 3.2%, while the ratio of impaired loans to gross loans was 3.0% compared to 4.6% in 2003.
Results
Pre-tax profit in 2004 was CHF 2,045 million, only CHF 100 million or 5% lower than the record result achieved in 2003. It was achieved despite a CHF 184 million fall in income, driven mainly by lower interest income. The result shows the continued tight management of our cost base, with lower credit loss expenses reflecting the structural improvement in our loan portfolio in recent years. In 2004, personnel expenses and depreciation reached their lowest levels since the UBS-SBC merger in 1998.
Operating income
Operating expenses
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Financial Businesses
Wealth Management & Business Banking
because of lower charge-outs for IT services. Depreciation in 2004 dropped to CHF 69 million from CHF 88 million in 2003 due to lower expenses for information technology equipment.
Headcount
Business Banking Switzerland’s headcount was 15,508 on 31 December 2004, a decline of 673 from 31 December 2003, reflecting our continued investment in technology and automation, as well as the ongoing streamlining of processes and structures.
2003
Performance indicators
Net new money was CHF 2.5 billion in 2003 compared with an inflow of CHF 3.7 billion in 2002.
to 3.2% from 3.6%, while the ratio of impaired loans to gross loans was 4.6% compared with 6.0% in 2002.
Results
Pre-tax profit in 2003 was CHF 2,145 million, up 9% from 2002. The result was achieved despite slightly lower revenues in difficult market conditions. This performance is also evidence of the continued tight management of our cost base, and lower credit loss expenses reflecting the deferred benefit of the structural improvement in our loan portfolio in recent years.
Operating income
Operating expenses
Headcount
Business Banking Switzerland’s headcount was 16,181 on 31 December 2003, a decline of 786 from 31 December 2002, reflecting our continued investment in technology and automation, as well as the ongoing streamlining of processes and structures.
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Financial Businesses
Global Asset Management
Global Asset Management
Pre-tax profit was CHF 544 million, an increase of 64% from the 2003 pre-tax profit of CHF 332 million. The increase was driven by higher operating income, which rose 16%, reflecting strong net new money inflows, a continuing change in asset mix towards higher-margin products, and a rise in market valuations resulting in increased asset levels and revenues.
Business Group reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Institutional fees | 1,085 | 922 | 865 | 18 | ||||||||||||
Wholesale intermediary fees | 937 | 815 | 790 | 15 | ||||||||||||
Total operating income | 2,022 | 1,737 | 1,655 | 16 | ||||||||||||
Personnel expenses | 901 | 806 | 763 | 12 | ||||||||||||
General and administrative expenses | 299 | 265 | 301 | 13 | ||||||||||||
Services to/from other business units | 126 | 156 | 164 | (19 | ) | |||||||||||
Depreciation | 23 | 25 | 22 | (8 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 129 | 153 | 186 | (16 | ) | |||||||||||
Total operating expenses | 1,478 | 1,405 | 1,436 | 5 | ||||||||||||
Business Group performance before tax | 544 | 332 | 219 | 64 | ||||||||||||
Performance indicators | ||||||||||||||||
Cost/income ratio (%)1 | 73.1 | 80.9 | 86.8 | |||||||||||||
Institutional | ||||||||||||||||
Invested assets (CHF billion) | 344 | 313 | 274 | 10 | ||||||||||||
of which: money market funds | 17 | 14 | 19 | 21 | ||||||||||||
Net new money (CHF billion)2 | 23.7 | 12.7 | (1.4 | ) | ||||||||||||
of which: money market funds | (1.2 | ) | (5.0 | ) | (1.8 | ) | ||||||||||
Gross margin on invested assets (bps)3 | 32 | 32 | 29 | 0 | ||||||||||||
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Financial Businesses
Global Asset Management
Global Asset Management (continued)
Wholesale intermediary | As at or for the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Invested assets (CHF billion) | 257 | 261 | 259 | (2 | ) | |||||||||||
of which: money market funds | 64 | 87 | 106 | (26 | ) | |||||||||||
Net new money (CHF billion)1 | (4.5 | ) | (5.0 | ) | (6.3 | ) | ||||||||||
of which: money market funds | (20.6 | ) | (23.0 | ) | (6.9 | ) | ||||||||||
Gross margin on invested assets (bps)2 | 36 | 31 | 27 | 16 | ||||||||||||
Additional information | As at or for the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Client assets (CHF billion) | 601 | 574 | 533 | 5 | ||||||||||||
Regulatory equity allocated (average) | 950 | 1,000 | 1,100 | (5 | ) | |||||||||||
Fair value of employee stock options granted3 | 43 | 41 | 43 | 5 | ||||||||||||
Headcount (full-time equivalents) | 2,665 | 2,627 | 2,668 | 1 | ||||||||||||
Components of operating income
Global Asset Management generates its revenue from the asset management and fund administration services it provides to financial intermediaries and institutional investors. Fees charged to institutional clients and wholesale intermediary clients are based on the market
value of invested assets and on successful investment performance. As a result, revenues are affected by changes in market and currency valuation levels, as well as flows of client funds, and relative investment performance.
2004
Performance indicators
For 2004, the cost/income ratio was 73.1%, a strong improvement of of 7.8 percentage points from 2003. This was a result of improving operating income combined with modest cost growth. Higher market valuations coupled with strong net new money inflows resulted in increased invested asset levels and, subsequently, higher asset-based fees. The continuing change in asset-mix towards higher-margin products increased operating income and overall profitability. Goodwill and other intangible asset amortization accounted for 6.4 per-
Institutional
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Wholesale intermediary
Money market sweep accounts
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Financial Businesses
Global Asset Management
We do not expect further major outflows from our money market funds into UBS Bank USA in 2005.
Investment capabilities and performance
Financial markets experienced greater volatility in 2004 than in the previous year due to rising oil prices and continued geopolitical instability. Still, equity markets made progress, with strong gains during fourth quarter. Most of our actively managed global and regional equity strategies outperformed their benchmarks, with particularly strong performances in European and US asset classes. The Global Equity composite performed marginally below benchmark (after fees) for the year.
Results
We reported a very strong full-year result in 2004. Pre-tax profit was CHF 544 million, an increase of 64% from the 2003
pre-tax profit of CHF 332 million. The increase was driven by higher operating income, which rose 16%, reflecting strong net new money inflows, a continuing change in asset mix towards higher-margin products, and a rise in market valuations resulting in increased asset levels and revenues. This was only partially offset by a slight rise in operating expenses, mainly due to higher incentive-based compensation as a result of the higher revenues.
Operating income
Operating expenses
Annualized | ||||||||||||||||||
Composite | 1 year | 3 years | 5 years | 10 years | ||||||||||||||
Global Equity Composite vs. MSCI World Equity (Free) Index | – | – | + | + | ||||||||||||||
Global Bond Composite vs. Citigroup World Government Bond Index | – | + | + | + | ||||||||||||||
Global Securities Composite vs. Global Securities Markets Index | + | + | + | + | ||||||||||||||
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2003. This increase was mainly due to a restructuring provision in our business in the Americas booked in third quarter 2004 and the damage caused by Hurricane Ivan in the Cayman Islands. Travel and entertainment costs, IT expenses and professional fees increased year-on-year. Net charges from other business units decreased by CHF 30 million to CHF 126 million in 2004 from CHF 156 million in 2003, partly due to higher charge-outs to the wealth management businesses reflecting the increase in the distribution of alternative investment products. Over the same period, depreciation remained virtually unchanged at CHF 23 million, down by only CHF 2 million. Amortization of goodwill decreased to CHF 129 million in 2004 from CHF 153 million a year earlier, due to the full amortization of the goodwill of some businesses and the US dollar’s decline against the Swiss franc.
Headcount
Headcount was 2,665 on 31 December 2004, up by 38 from 2,627 on 31 December 2003. The increase of 1% is mainly attributable to our expansion of the European real estate business as well as our growing businesses in alternative and quantitative investments and fund services.
2003
Performance indicators
For 2003, the cost/income ratio was 80.9%, a significant improvement of 5.9 percentage points from 2002. This was a result of improving operating income and operating expenses. The recovery in equity markets experienced in the second half of 2003 resulted in higher invested asset levels and, consequently, higher asset-based revenues. Strong inflows of net new money (excluding lower fee money market funds), combined with improved investment performance, especially in the alternative and quantitative platform, helped revenues to rise. These developments were supported by ongoing cost control initiatives that drove operating expenses down by 2%. Goodwill and other intangible asset amortization accounted
for 8.8 percentage points of the ratio in 2003 and for 11.3 percentage points in 2002. Pre-goodwill, the ratio dropped by 3.4 percentage points.
Institutional
Wholesale intermediary
Results
Global Asset Management reported a pre-tax profit of CHF 332 million in 2003, an increase of 52% from 2002’s pre-tax profit of CHF 219 million. The recovery in the second half of 2003 in equity market valuations, coupled with strong inflows into alternative investments, equities and fixed income mandates, resulted in higher invested asset levels and, consequently, increased asset-based revenues. Performance-related fees, especially in the alternative and quantitative business, showed significant improvement over 2002. Ongoing cost control initiatives that systematically reduced operating expenses contributed significantly to improved profitability. Lower IT and premises costs prompted general and administrative expenses to decline. Amortization ex-
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Financial Businesses
Global Asset Management
penses fell as the goodwill of some assets became fully amortized. These developments were partially offset by higher incentive-based compensation resulting from the increase in operating income.
Operating income
Operating expenses
Headcount
Headcount was 2,627 on 31 December 2003, down by 41 from 2,668 on 31 December 2002. The decrease of 2% primarily reflects cost-saving efforts in the traditional investments business.
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Financial Businesses
Investment Bank
Investment Bank
In 2004, the Investment Bank’s pre-tax profit was CHF 4,540 million, up 18% from a year earlier. Results were driven by strong performances across all businesses and fueled by a pick-up in market activity.
Business Group reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Investment banking | 1,909 | 1,703 | 1,915 | 12 | ||||||||||||
Equities | 5,906 | 4,875 | 5,608 | 21 | ||||||||||||
Fixed income, rates and currencies | 7,912 | 7,490 | 6,498 | 6 | ||||||||||||
Private equity | 257 | (77 | ) | (1,602 | ) | |||||||||||
Income | 15,984 | 13,991 | 12,419 | 14 | ||||||||||||
Adjusted expected credit loss1 | (7 | ) | (55 | ) | (90 | ) | 87 | |||||||||
Total operating income | 15,977 | 13,936 | 12,329 | 15 | ||||||||||||
Personnel expenses | 8,156 | 7,303 | 7,815 | 12 | ||||||||||||
General and administrative expenses | 2,535 | 2,074 | 2,359 | 22 | ||||||||||||
Services to/from other business units | 219 | 180 | 140 | 22 | ||||||||||||
Depreciation | 239 | 246 | 320 | (3 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 288 | 278 | 364 | 4 | ||||||||||||
Total operating expenses | 11,437 | 10,081 | 10,998 | 13 | ||||||||||||
Business Group performance before tax | 4,540 | 3,855 | 1,331 | 18 | ||||||||||||
Performance indicators | ||||||||||||||||
Compensation ratio (%)2 | 51 | 52 | 63 | |||||||||||||
Cost/income ratio (%)3 | 71.6 | 72.1 | 88.6 | |||||||||||||
Non-performing loans/gross loans (%) | 0.6 | 0.8 | 1.5 | |||||||||||||
Impaired loans/gross loans (%) | 0.8 | 1.4 | 2.5 | |||||||||||||
Average VaR (10-day 99%) | 358.0 | 294.8 | 21 | |||||||||||||
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Financial Businesses
Investment Bank
Investment Bank (continued)
Private equity | As at or for the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Value creation (CHF billion) | 0.6 | (0.3 | ) | (1.4 | ) | |||||||||||
Investment (CHF billion)1 | 1.9 | 2.3 | 3.1 | (17 | ) | |||||||||||
Portfolio fair value (CHF billion) | 2.7 | 2.9 | 3.8 | (7 | ) | |||||||||||
Additional information | As at or for the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Deferral (included in adjusted expected credit loss) | 85 | 29 | 8 | 193 | ||||||||||||
Client assets (CHF billion) | 147 | 143 | 133 | 3 | ||||||||||||
Regulatory equity allocated (average) | 14,100 | 12,700 | 13,100 | 11 | ||||||||||||
Fair value of employee stock options granted2 | 258 | 391 | 582 | (34 | ) | |||||||||||
Headcount (full-time equivalents) | 16,568 | 15,277 | 15,791 | 8 | ||||||||||||
Components of operating income
The Investment Bank generates operating income from:
– | commissions on agency transactions and spreads or markups on principal transactions; | |
– | fees from debt and equity capital markets transactions, leveraged finance, and the structuring of derivatives and complex transactions; | |
– | mergers and acquisitions and other advisory fees; | |
– | interest income on principal transactions and from the loan portfolio; and |
– | gains and losses on market making, proprietary, and arbitrage positions. |
2004
Performance indicators
The cost/income ratio improved to 71.6% in 2004 from 72.1% a year earlier. It reflected a strong revenue performance in all businesses. Goodwill and other intangible asset amortization accounted for 1.8 percentage points of the ratio in 2004 and for 2.0 percentage points in 2003. Pre-goodwill, the ratio dropped by 0.3 percentage points.
investment banking hiring program. Payout levels are driven by the revenue mix across business areas and are managed in line with market levels.
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1.9 billion on 31 December 2004, a decline of 17% from CHF 2.3 billion on 31 December 2003, reflecting writedowns and successful divestments. Unfunded commitments fell by 47% to CHF 0.8 billion on 31 December 2004 from CHF 1.5 billion a year ago. The fair value of the portfolio on 31 December 2004 was CHF 2.7 billion, down from CHF 2.9 billion on 31 December 2003, driven by exits and revaluations.
Results
Pre-tax profit was CHF 4,540 million in 2004, up 18% from a year earlier and at its highest level since 2000. Our result was achieved despite the significant weakening of the US dollar against the Swiss franc and reflects revenue growth across all our businesses. In particular, our fixed income, rates and cur-
rencies business posted a record result, up 6% from 2003, while the equities business reported a 21% increase in revenues on the strong improvement in market conditions. Private equity also contributed to our result, recording revenues of CHF 257 million, a significant improvement. At the same time, costs increased as our businesses continued to expand, with specific operational provisions also a factor.
Operating income
Operating expenses
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Financial Businesses
Investment Bank
enues, as well as an increase in salaries reflecting the 8% additional headcount. General and administrative expenses were CHF 2,535 million in 2004, up 22% from 2003’s CHF 2,074 million. The increase reflected higher operational provisions, rising professional fees and raised IT spending. This was partially offset by a drop in administration and occupancy expenses. Services from other business units increased to CHF 219 million in 2004 from CHF 180 million in 2003. Depreciation eased 3% to CHF 239 million in 2004 from CHF 246 million in 2003 on a decline in writeoffs. Amortization of goodwill and other intangibles, at CHF 288 million in 2004, was up 4% from CHF 278 million a year earlier, reflecting the ABN Amro acquisition.
Headcount
Headcount, at 16,568 on 31 December 2004, was up 8% from a year earlier. Staffing increases were driven by continued business expansion and included the impact of integrating personnel from the Charles Schwab Capital Markets division and the hiring of additional operational risk management and compliance staff.
2003
Performance indicators
The cost/income ratio decreased to 72.1% in 2003 from 88.6% in 2002. The fall reflects an increase in revenues, driven by our fixed income, rates and currencies business and our private equity business, set against the drop in operating expenses, which reflected our disciplined cost control. Both revenues and expenses were affected by the weakening of major currencies, mainly the US dollar, against the Swiss franc. Goodwill and other intangible asset amortization accounted for 2.0 percentage points of the ratio in 2003 and for 3.0 percentage points in 2002. Pre-goodwill, the ratio dropped by 15.5 percentage points.
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CHF 3.8 billion a year earlier. Unfunded commitments continued to fall, totaling CHF 1.5 billion at end-2003, down from CHF 2.1 billion a year earlier.
Results
Pre-tax profit was CHF 3,855 million in full-year 2003, up 190% from a year earlier. This result was achieved despite the weakening of the US dollar against the Swiss franc and reflects strong performances in all our businesses. In particular, the private equity business showed a marked improvement of CHF 1.5 billion, reflecting lower levels of writedowns and a number of successful exits. Writedowns in 2003 totaled CHF 353 million, compared to CHF 1.7 billion in 2002. This was accentuated by a strong result in our fixed income, rates and currencies business, gaining 15% from 2002, reflecting the breadth of our capabilities and our expanding franchise. At the same time, costs were tightly controlled. Both personnel expenses and general and administrative expenses fell because of currency fluctuations. Excluding the impact of currency movements, personnel expenses rose in 2003, reflecting improved revenues, while general and administrative expenses remained largely unchanged from 2002.
Operating income
somewhat offset by negative revenues of CHF 678 million relating to Credit Default Swaps (CDSs) hedging existing credit exposure in the loan book. Private equity income for 2003 was negative CHF 77 million, compared to negative CHF 1,602 million in 2002. The significant improvement in performance was primarily driven by a sharp fall in investment writedowns.
Operating expenses
Headcount
Headcount, at 15,277 on 31 December 2003, fell 3% from a year earlier. The drop reflects ongoing, regular reviews of our cost structure and staffing needs, taking into account productivity gains and the automation of services. That was partially offset by the acquisition of ABN Amro’s prime brokerage business and continued investment in specific areas, including our US investment banking and fixed income, rates and currencies businesses.
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Financial Businesses
Wealth Management USA
Wealth Management USA
In 2004, Wealth Management USA reported a pre-tax gain of CHF 179 million compared to a loss of CHF 5 million in 2003. In US dollar terms, operational performance excluding acquisition costs was the best since PaineWebber became part of UBS, reflecting record recurring fees and increased net interest revenue.
Business Group reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Private client revenues | 4,906 | 4,959 | 1 | 5,471 | (1 | ) | ||||||||||
Municipal finance revenues | 372 | 462 | 480 | (19 | ) | |||||||||||
Net goodwill funding | (180 | ) | (231 | ) | (390 | ) | 22 | |||||||||
Income | 5,098 | 5,190 | 5,561 | (2 | ) | |||||||||||
Adjusted expected credit loss2 | (5 | ) | (8 | ) | (13 | ) | 38 | |||||||||
Total operating income | 5,093 | 5,182 | 5,548 | (2 | ) | |||||||||||
Personnel expenses3 | 3,437 | 3,627 | 4,158 | (5 | ) | |||||||||||
General and administrative expenses | 800 | 719 | 926 | 11 | ||||||||||||
Services to/from other business units | 302 | 433 | 492 | (30 | ) | |||||||||||
Depreciation | 71 | 72 | 81 | (1 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 304 | 336 | 1,691 | 4 | (10 | ) | ||||||||||
Total operating expenses | 4,914 | 5,187 | 7,348 | (5 | ) | |||||||||||
Business Group performance before tax | 179 | (5 | ) | (1,800 | ) | |||||||||||
Additional information | For the year ended | % change from | ||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Net goodwill funding 5 | 180 | 231 | 390 | (22 | ) | |||||||||||
Retention payments | 99 | 263 | 351 | (62 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 304 | 336 | 457 | (10 | ) | |||||||||||
Total acquisition costs | 583 | 830 | 1,198 | (30 | ) | |||||||||||
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Wealth Management USA (continued)
Performance indicators | As at or for the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Invested assets (CHF billion) | 639 | 634 | 584 | 1 | ||||||||||||
Net new money (CHF billion)1 | 17.1 | 21.1 | 18.5 | |||||||||||||
Interest and dividend income (CHF billion)2 | 16.0 | 15.8 | 17.9 | 1 | ||||||||||||
Gross margin on invested assets (bps)3 | 79 | 86 | 82 | (8 | ) | |||||||||||
Cost/income ratio (%)4 | 96.4 | 99.9 | 132.1 | |||||||||||||
Recurring fees5 | 2,057 | 1,927 | 2,199 | 7 | ||||||||||||
Financial advisor productivity (CHF thousand)6 | 655 | 597 | 639 | 13 | ||||||||||||
Additional information | As at or for the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Client assets (CHF billion) | 679 | 690 | 650 | (2 | ) | |||||||||||
Regulatory equity allocated (average) | 5,100 | 5,700 | 7,450 | (11 | ) | |||||||||||
Fair value of employee stock options granted7 | 101 | 62 | 73 | 63 | ||||||||||||
Headcount (full-time equivalents) | 17,388 | 17,435 | 19,029 | 0 | ||||||||||||
Financial advisors (full-time equivalents) | 7,519 | 7,766 | 8,857 | (3 | ) | |||||||||||
Components of operating income
Wealth Management USA principally derives its operating income from:
– fees for financial planning and wealth management services; | ||
– fees for discretionary management services; | ||
– transaction-related fees; and | ||
– interest income from client loans. |
These fees are based on the market value of invested assets, the level of transaction-related activity and the size of the loan book. As a result, operating income is affected by such factors as fluctuations in invested assets, changes in market conditions, investment performance, inflows and outflows of client funds, and investor activity levels.
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Financial Businesses
Wealth Management USA
2004
Performance indicators
Wealth Management USA had CHF 639 billion in invested assets on 31 December 2004, up 1% from CHF 634 billion on 31 December 2003. The increase was due to inflows of net new money and the effects of market appreciation, partly offset by the weakening of the US dollar against the Swiss franc. In US dollar terms, invested assets were 10% higher on 31 December 2004 than they were on the same date in 2003.
We continue to report strong inflows of net new money compared to peers. In 2004, inflows were CHF 17.1 billion, CHF 4 billion lower than the CHF 21.1 billion reported in 2003. Including interest and dividends, net new money in 2004 was CHF 33.1 billion, lower than the CHF 36.9 billion reported in 2003. The decline in net new money mainly occurred in a slow first half-year, when investor confidence lagged.
The gross margin on invested assets was 79 basis points in 2004, down from 86 basis points in 2003. The increase in average invested asset levels outpaced the gain in revenues as higher private client revenues were mostly offset by lower municipal finance revenues. The gain from the sale of the CSC business helped the margin in 2003 by 3 basis points, whereas goodwill funding lowered the margin by 4 basis points in 2003 and by 3 basis points in 2004.
The cost/income ratio was 96.4% for 2004, compared to 99.9% in 2003. The improvement in the cost/income ratio reflects our continuous cost control as well as the excellent performance of our core private clients business. Excluding acquisition costs (net goodwill funding, retention payments, amortization of goodwill and other intangible assets) and the
sale of our CSC business in 2002, the ratio decreased by 1.7 percentage points.
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Flows into managed account products were USD 12.4 billion in full-year 2004, comparing favorably to the USD 10.2 billion flow for full-year 2003. Recurring fees combined with the net interest income, principally from our lending business, now represent around half of our total revenues.
Productivity per advisor increased in 2004 to CHF 655,000 from CHF 597,000 in 2003 as a lower number of financial advisors were able to produce roughly the same revenues as a year earlier. The number of financial advisors decreased to 7,519 in 2004 from 7,766 a year earlier due to attrition among less productive financial advisors. In the second half of 2003, we resumed our trainee program and we continued to recruit financial advisors throughout 2004, with our focus primarily on talented and highly productive advisors. As a result, we expect renewed growth in our advisor force.
Results
In 2004, we reported a pre-tax gain of CHF 179 million compared to a loss of CHF 5 million in 2003. The 2003 results include a pre-tax gain of CHF 161 million from the sale of Correspondent Services Corporation (CSC) in second quarter. As our business is almost entirely conducted in US dollars, comparisons of 2004 and 2003 results are affected by the depreciation of the US dollar versus the Swiss franc. In US dollar terms, operational performance (excluding acquisition costs and sale of CSC) in 2004 was 24% higher than in 2003.
This represents the best result since PaineWebber became part of UBS, reflecting record recurring fees and increased net interest revenue benefiting from the first full-year impact of UBS Bank USA. In municipal finance, revenues fell due to lower transaction and underwriting volumes and reduced derivative activity. Still, aBloombergarticle reported that we became the top-ranked firm in lead-managed negotiated underwriting volume in 2004 by increasing our market share to 14.2%, up from last year’s 12.5%.
Operating income
Operating expenses
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Wealth Management USA
charges and increased consulting fees related to key initiatives in the private client business. This was partially offset by lower depreciation due to a drop in infrastructure charges (down CHF 1 million) as well as a decline in goodwill amortization due to the sale of CSC (down CHF 32 million).
Headcount
Our headcount decreased by 47 during 2004 to 17,388 as financial advisor headcount fell 3% to 7,519, principally reflecting attrition among lower producing financial advisors. Non-financial advisor headcount increased 200 or 2% in 2004 from a year earlier due to additional personnel to support key initiatives within the private clients area.
2003
Performance indicators
Wealth Management USA had CHF 634 billion in invested assets on 31 December 2003, up 9% from CHF 584 billion on 31 December 2002. The increase was due to inflows of net new money and the effects of market appreciation. In US dollar terms, invested assets were 21% higher on 31 December 2003 than they were at the same time in 2002.
the gain was accentuated by higher recurring fees in the municipal securities business.
Results
As our business is almost entirely conducted in US dollars, comparisons of 2003 and 2002 results are affected by the depreciation of the US dollar versus the Swiss franc.
Operating income
Operating expenses
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expenses fell 22% from CHF 926 million in 2002 to CHF 719 million in 2003. Excluding the impact of currency fluctuations, general and administrative expenses dropped 11% compared to 2002 due to the strict cost management discipline that we have exerted in the past three years. Operational provisions also fell as 2002 included the equity research settlement charge of CHF 21 million. The drop was further accentuated by the sale of the CSC business. Services rendered from other business units decreased by 12% to CHF 433 million in 2003 from CHF 492 million in 2002. Depreciation decreased CHF 9 million to CHF 72 million in 2003 from CHF 81 million in 2002. Goodwill and other intangible amortization decreased from CHF 1,691 million in 2002 to CHF
336 million in 2003. This decrease was due to the writedown of the PaineWebber brand name in 2002, and the sale of CSC. Excluding the writedown and the sale of CSC, amortization charges dropped by 26% as a result of the weakening US dollar against the Swiss franc.
Headcount
Wealth Management USA’s headcount decreased 8% during 2003 to 17,435, reflecting continued cost management initiatives, the curtailment of the trainee program, and the sale of CSC. Non-financial advisor headcount was down by 503 or 5% compared to the end of 2002.
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Financial Businesses
Corporate Center
Corporate Center
Corporate Center reported a pre-tax loss of CHF 276 million in 2004, compared to a loss of CHF 759 million in 2003.
Business Group reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Income | 1,258 | 900 | 2,403 | 1 | 40 | |||||||||||
Credit loss (expense)/recovery2 | 321 | 122 | 300 | 163 | ||||||||||||
Total operating income | 1,579 | 1,022 | 2,703 | 55 | ||||||||||||
Personnel expenses | 1,222 | 1,145 | 1,450 | 7 | ||||||||||||
General and administrative expenses | 1,237 | 1,334 | 1,564 | (7 | ) | |||||||||||
Services to/from other business units | (1,509 | ) | (1,639 | ) | (1,633 | ) | 8 | |||||||||
Depreciation | 814 | 840 | 893 | (3 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 91 | 101 | 122 | (10 | ) | |||||||||||
Total operating expenses | 1,855 | 1,781 | 2,396 | 4 | ||||||||||||
Business Group performance before tax | (276 | ) | (759 | ) | 307 | 64 | ||||||||||
Additional information | For the year ended | % change from | ||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Fair value of employee stock options granted3 | 14 | 18 | 37 | (22 | ) | |||||||||||
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Private Banks & GAM
Business Unit reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Income | 1,145 | 880 | 1,038 | 1 | 30 | |||||||||||
Adjusted expected credit loss2 | (6 | ) | (2 | ) | (2 | ) | (200 | ) | ||||||||
Total operating income | 1,139 | 878 | 1,036 | 30 | ||||||||||||
Personnel expenses | 432 | 381 | 386 | 13 | ||||||||||||
General and administrative expenses | 160 | 169 | 120 | (5 | ) | |||||||||||
Services to/from other business units | 10 | 11 | 12 | (9 | ) | |||||||||||
Depreciation | 20 | 28 | 40 | (29 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 74 | 81 | 98 | (9 | ) | |||||||||||
Total operating expenses | 696 | 670 | 656 | 4 | ||||||||||||
Business Unit performance before tax | 443 | 208 | 380 | 113 | ||||||||||||
Performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 92 | 84 | 70 | 10 | ||||||||||||
Net new money (CHF billion)3 | 7.7 | 7.2 | 4.2 | |||||||||||||
Cost/income ratio (%)4 | 60.8 | 76.1 | 63.2 | |||||||||||||
Additional information | ||||||||||||||||
As at or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Regulatory equity allocated (average) | 650 | 700 | 850 | (7 | ) | |||||||||||
Headcount (full-time equivalents) | 1,649 | 1,672 | 1,702 | (1 | ) | |||||||||||
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Financial Businesses
Corporate Center
2004
Performance indicators
In 2004, Private Banks & GAM reported a record net new money inflow of CHF 7.7 billion, up from the previous record of CHF 7.2 billion in 2003. Performance was driven by GAM’s continued business strength.
Results
Pre-tax profit was a record CHF 443 million in 2004, up 113% from CHF 208 million a year earlier, reflecting improved market conditions, which produced a 10% growth in the asset base, and resulted in higher asset-based revenues. Results were helped by a 9% decline in non-personnel costs, which continued to be tightly controlled.
Headcount
Headcount was 1,649 on 31 December 2004, down 1% from 1,672 on 31 December 2003.
2003
Performance indicators
Invested assets in Private Banks & GAM totaled CHF 84 billion on 31 December 2003, up from CHF 70 billion on 31 December 2002, reflecting strong net new money inflows, and positive financial markets as well as the acquisition of Banque Notz Stucki S.A. by Ferrier Lullin & Cie S.A., which was completed in December 2003.
Results
Pre-tax profit, at CHF 208 million in 2003, dropped by 45% from CHF 380 million a year earlier.
Headcount
Headcount decreased by 30 to 1,672 on 31 December 2003 from 1,702 a year earlier, mainly due to the rationalization within the individual private banks. This was partially offset by the acquisition of Banque Notz Stucki S.A. as well as an increase in headcount at GAM due to the growth of the business.
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Corporate Functions
Business Unit reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Income | 113 | 20 | 1,365 | 1 | 465 | |||||||||||
Credit loss (expense)/recovery2 | 327 | 124 | 302 | 164 | ||||||||||||
Total operating income | 440 | 144 | 1,667 | 206 | ||||||||||||
Personnel expenses | 790 | 764 | 1,064 | 3 | ||||||||||||
General and administrative expenses | 1,077 | 1,165 | 1,444 | (8 | ) | |||||||||||
Services to/from other business units | (1,519 | ) | (1,650 | ) | (1,645 | ) | 8 | |||||||||
Depreciation | 794 | 812 | 853 | (2 | ) | |||||||||||
Amortization of goodwill and other intangible assets | 17 | 20 | 24 | (15 | ) | |||||||||||
Total operating expenses | 1,159 | 1,111 | 1,740 | 4 | ||||||||||||
Business Unit performance before tax | (719 | ) | (967 | ) | (73 | ) | 26 | |||||||||
Additional information
As at or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Regulatory equity allocated (average) | 6,950 | 8,450 | 9,400 | (18 | ) | |||||||||||
Headcount (full-time equivalents) | 3,553 | 3,561 | 3,505 | 0 | ||||||||||||
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Financial Businesses
Corporate Center
2004
Results
Corporate Functions recorded a pre-tax loss of CHF 719 million in full-year 2004, compared to a loss of CHF 967 million a year earlier. The improvement was driven by a CHF 93 million rise in income and significantly higher credit loss recoveries (up CHF 203 million). Operating expenses increased CHF 48 million, reflecting higher personnel expenses. There were lower charges to other business units, reflecting cost savings at the Information Technology Infrastructure unit (ITI) and lower insurance premiums.
Operating income
Operating expenses
Headcount
Corporate Functions headcount outside the ITI unit was 1,199 on 31 December 2004, down by 7 from 1,206 on 31 December 2003. Over the same period, ITI headcount dropped 1 to 2,354.
2003
Results
Corporate Functions recorded a pre-tax loss of CHF 967 million in full-year 2003, against a CHF 73 million loss a year earlier.
Operating income
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Operating expenses
At CHF 20 million in 2003, amortization of goodwill and other intangibles dropped by 17% from CHF 24 million in 2002, reflecting the drop of the US dollar against the Swiss franc.
Headcount
Corporate Functions headcount was 3,561 on 31 December 2003, an increase of 56 from the 3,505 on 31 December 2002. The increase was mainly due to the first-time consolidation of Hotel Widder as well as an increase in our human resources and risk functions. This was nearly offset by a decline in the number of trainees, a transfer of some employees to the Business Groups, and lower headcount in the Chief Communication Officer area.
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Industrial Holdings
Industrial Holdings
Income statement1
For the year ended | ||||
CHF million, except where indicated | 31.12.04 | 2 | ||
Income3 | 3,667 | |||
Total operating income | 3,667 | |||
Personnel expenses | 326 | |||
General and administrative expenses | 126 | |||
Depreciation | 70 | |||
Amortization of goodwill and other intangible assets | 77 | |||
Goods and materials purchased | 2,861 | |||
Total operating expenses | 3,460 | |||
Operating profit before tax and minority interests | 207 | |||
Tax expense | 49 | |||
Net profit before minority interests | 158 | |||
Minority interests4 | (113 | ) | ||
Net profit | 45 | |||
Additional information | As at | |||
31.12.04 | ||||
Headcount (full-time equivalents) | 8,020 | |||
Major participations
The Industrial Holdings segment is a new segment, currently made up of UBS’s majority stake in Motor-Columbus, a financial holding company whose only significant asset is a 59.3% interest in the Atel Group (Aare-Tessin Ltd. for Electricity). Atel, based in Olten, Switzerland, is a European energy provider focused on electricity trading and marketing, domestic and international power generation, electricity transmission and energy services. Motor-Columbus also holds several other finance and property companies.
Transfer of private equity stakes
In first quarter 2005, our private equity investments, currently part of the Investment Bank, will be reported within the Industrial Holdings segment. This matches our strategy of de-emphasizing and reducing exposure to this asset class while capitalizing on orderly exit opportunities when they arise. Current management will continue to look after the portfolio.
Results
UBS’s consolidation of Motor-Columbus into its accounts at the beginning of third quarter 2004 resulted in a revaluation of the latter’s assets and liabilities. These are no longer comparable with those previously published in Motor-Columbus’s separate consolidated financial statements. The comparative analysis provided here is based on unaudited proforma 2003 results.
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Balance Sheet and Cash Flows
Balance sheet and off-balance sheet
Balance sheet and off-balance sheet
UBS’s total assets stood at CHF 1,734.8 billion on 31 December 2004, up from CHF 1,550.1 billion on 31 December 2003. The increase in total assets was the net result of growth in the trading portfolio (up CHF 67.6 billion), collateral trading assets (up CHF 43.0 billion), derivatives (up CHF 36.4 billion) and the loan book (up CHF 19.7 billion). Total liabilities rose due to higher borrowings (up CHF 80.8 billion), derivatives (up CHF 48.9 billion), trading portfolio liabilities (up CHF 27.1 billion) and collateral trading liabilities (up CHF 15.0 billion).
Motor-Columbus
Lending and borrowing
Lending
Borrowing
tially offset by early redemptions, repurchases and cancelled bonds totaling CHF 24.7 billion. We believe the maturity profile of our long-term debt portfolio balances well and matches the maturity profile of our assets. For further details, please refer to note 18 to the financial statements. The due to customers line was up CHF 29.4 billion, in connection with both prime brokerage and wealth management business growth, especially in the US (additional FDIC-insured deposits of CHF 7.7 billion), Europe and Asia.
Repo and securities borrowing/lending
Trading portfolio
Replacement values
Other assets/liabilities and minority interests
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tion of several wealth management businesses, the acquisition of the capital market business of Charles Schwab as well as the consolidation of Motor-Columbus. This was only partially offset by amortization charges of CHF 964 million during 2004.
Shareholders’ equity
Contractual obligations
The table below summarizes our contractual obligations as of 31 December 2004. All contracts, with the exception of purchase obligations (those where we are committed to purchase determined volumes of goods and services), are either recognized as liabilities on our balance sheet or, in the case of operating leases, are disclosed in note 26 to the financial statements.
Off-balance sheet arrangements
In the normal course of business, UBS enters into arrangements that, under IFRS, are not recognized on the balance
sheet and do not affect the income statement. These types of arrangements are kept off-balance sheet as long as UBS does not incur an obligation from them or become entitled to an asset itself. As soon as an obligation is incurred, it is recognized on the balance sheet, with the resulting loss recorded in the income statement. It should be noted, however, that the amount recognized on the balance sheet does not, in many instances, represent the full loss potential inherent in such arrangements.
Guarantees
Retained interests
Contractual obligations
Payment due by period | ||||||||||||||||
CHF million | Less than 1 year | 1–3 years | 3–5 years | More than 5 years | ||||||||||||
Long-term debt | 17,847 | 26,978 | 23,805 | 31,402 | ||||||||||||
Capital lease obligations | 104 | 163 | 44 | 0 | ||||||||||||
Operating leases | 886 | 1,524 | 1,231 | 4,060 | ||||||||||||
Purchase obligations | 10,580 | 5,545 | 2,075 | 9,398 | ||||||||||||
Other long term liabilities | 173 | 2 | 959 | 0 | ||||||||||||
Total | 29,590 | 34,212 | 28,114 | 44,860 | ||||||||||||
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Balance Sheet and Cash Flows
Balance sheet and off-balance sheet
beneficial interests in the form of securities. Generally, the beneficial interests are sold to third parties shortly after the securitization. We do not provide guarantees or other forms of credit support to these SPEs. Assets are no longer reported in our consolidated financial statements as soon as their risk or reward is transferred to a third party. For further discussion of our securitization activities, see note 34 to the financial statements.
Derivative instruments recorded in shareholders’ equity
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Balance Sheet and Cash Flows
Cash flows
Cash flows
At end-2004, the level of cash and cash equivalents rose to CHF 82.8 billion, up CHF 9.4 billion from 73.4 billion at end-2003.
Operating activities
Investing activities
Financing activities
2003, and because we issued CHF 21.4 billion in money market paper in 2004 after repaying CHF 14.7 billion a year earlier.
2003
In the full year to 31 December 2003, cash and cash equivalents decreased by CHF 9.0 billion, principally as a result of financing activities, which generated negative cash flows of CHF 13.3 billion. Significant cash outflows resulted from CHF 14.7 billion in repayments of money market paper, CHF 6.8 billion from movements in treasury shares and derivative activity in own equity, and CHF 2.3 billion from dividends paid. Issuance of long-term debt of CHF 23.6 billion and repayments of CHF 13.6 billion brought a net cash inflow of CHF 10.0 billion. When compared to 2002, cash outflows from financing activities fell by approximately CHF 19 billion. The main reasons for the reduced outflows were an approximate CHF 12 billion decline in repayments of money market paper and higher net inflows of roughly CHF 8 billion in both issuance and repayment of long-term debt. Increased buybacks of treasury shares in 2003, coupled with a higher average price for our shares, resulted in a higher cash outflow of approximately CHF 1.2 billion in 2003.
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Balance Sheet and Cash Flows
Cash flows
flecting a pick-up in activities in 2003 related to the rebound of the financial markets. Payments to tax authorities were CHF 1.1 billion, an increase of CHF 532 million compared to 2002.
2.3 billion while the sale of the CSC clearing business and a few smaller subsidiaries and associates generated CHF 834 million. Purchases of property and equipment amounted to CHF 1.4 billion, of which the largest portion was spent for IT, software and communication equipment. Comparative amounts in 2002 did not deviate materially from 2003.
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Accounting Standards and Policies
Accounting principles
Accounting principles
The UBS financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). As a US listed company, we also provide a description in note 41 to the financial statements of the significant differences which would arise were our accounts to be presented under the United States Generally Accepted Accounting Principles (US GAAP), and a detailed reconciliation of IFRS shareholders’ equity and net profit to US GAAP.
Standards for management accounting
Our management reporting systems and policies determine the revenues and expenses directly attributable to each business unit. Internal charges and transfer pricing adjustments are reflected in the performance of each business unit.
Inter-business unit revenues and expenses.Revenue-sharing agreements are used to allocate external customer revenues to business units on a reasonable basis. Transactions between business units are conducted at arm’s length. Inter-business unit charges are reported in the line “Services to/from other business units” for both business units concerned. Corporate Functions expenses are allocated to the operating business units to the extent that it is appropriate.
Credit loss expense charged to the business groups
Wealth | ||||||||||||||||||||||||
Wealth Management & | Investment | Management | Corporate | |||||||||||||||||||||
Business Banking | Bank | USA | Center | |||||||||||||||||||||
CHF million | Wealth | Business | Private Banks | |||||||||||||||||||||
For the year ended 31.12.04 | Management | Banking CH | & GAM | Total | ||||||||||||||||||||
Expected credit loss | (45 | ) | (436 | ) | (92 | ) | (8 | ) | (2 | ) | (583 | ) | ||||||||||||
Deferral | 37 | 411 | 85 | 3 | (4 | ) | 532 | ) | ||||||||||||||||
Adjusted expected credit loss | (8 | ) | (25 | ) | (7 | ) | (5 | ) | (6 | ) | (51 | ) | ||||||||||||
Credit loss (expense)/recovery | (1 | ) | 92 | 240 | 3 | (58 | ) | 276 | ||||||||||||||||
Balancing item charged as credit loss (expense)/recovery in Corporate Functions | 327 | |||||||||||||||||||||||
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additional buffer of 10% above the individually determined business unit regulatory equity requirement. The remaining equity, which mainly covers real estate, and any other unallocated equity, remains reported in the Corporate Functions unit.
hours normally worked by permanent full-time staff and is used to track the number of individuals employed by UBS. FTE cannot exceed 1.0 for any particular individual. Head-count includes all staff and trainees other than short-term temporary workers (hired for less than 90 calendar days) and contractors.
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Accounting Standards and Policies
Critical accounting policies
Critical accounting policies
Basis of preparation and selection of policies
We prepare our financial statements in accordance with IFRS, and provide a reconciliation to US GAAP. The application of certain of these accounting principles requires a significant amount of judgment based upon estimates and assumptions that involve significant uncertainty at the time they are made. Changes in assumptions may have a significant impact on the financial statements in the periods where assumptions are changed. Accounting treatments where significant assumptions and estimates are used are discussed in this section, as a guide to understanding how their application affects our reported results. A broader and more detailed description of the accounting policies we employ is shown in note 1 to the financial statements.
Fair value of financial instruments
Assets and liabilities in our trading portfolio, financial assets and liabilities designated as held at fair value, and derivative instruments are recorded at fair value on the balance sheet, with changes in fair value recorded in net trading income in the income statement. Key judgments affecting this accounting policy relate to how we determine fair value for such assets and liabilities.
derivatives and unlisted securities with embedded derivatives. All valuation models are validated before they are used as a basis for financial reporting, and periodically reviewed thereafter, by qualified personnel independent of the area that created the model. Wherever possible, we compare valuations derived from models with quoted prices of similar financial instruments, and with actual values when realized, in order to further validate and calibrate our models.
Fair value option
We adopted revised IAS 32 and revised IAS 39 early (at 1 January 2004). We restated the two comparative prior years. Revised IAS 39 permits an entity to designate any financial
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asset or financial liability as held at fair value and to recognize fair value changes in profit and loss. We apply the fair value option primarily to compound debt instruments, which permits us to fair value the entire instrument instead of separating the embedded derivative from the host contract and carrying the host contract at amortized cost. In addition, financial assets and financial liabilities designated at fair value are presented in the balance sheet in separate lines. At 31 December 2004, we carried compound debt instruments designated as held at fair value in the amount of CHF 65,756 million on the balance sheet. In 2004, the change in fair value of these instruments was an expense of CHF 1,203 million, of which CHF 402 million was attributable to changes in LIBOR and CHF 801 million was due to changes in fair value of embedded derivatives.
Recognition of deferred Day 1 Profit and Loss
We have entered into transactions, some of which will mature after more than ten years, where we determine fair value using valuation models for which not all inputs are market observable prices or rates. We initially recognize a financial instrument at the transaction price, which is the best indicator of fair value, although the value obtained from the relevant valuation model may differ. Such a difference between the transaction price and the model value is commonly referred to as “Day 1 profit and loss”. In accordance with applicable accounting literature, we do not recognize that initial difference, usually a gain, immediately in profit and loss. While applicable accounting literature prohibits immediate recognition of Day 1 profit and loss, it does not address when it is appropriate to recognize Day 1 profit in the income statement. It also does not address subsequent measurement of these instruments.
Securitizations and Special Purpose Entities
UBS sponsors the formation of Special Purpose Entities (SPEs) primarily to allow clients to hold investments, for asset securitization transactions, and for buying or selling credit protection. In accordance with IFRS we do not consolidate SPEs that we do not control. As it can sometimes be difficult to determine whether we exercise control over an SPE, we have to make judgments about risks and rewards as well as our ability to make operational decisions for the SPE. In many instances, elements are present that, considered in isolation, indicate control or lack of control over an SPE, but when considered together make it difficult to reach a clear conclusion. When assessing whether we have to consolidate an SPE we evaluate a range of factors, including whether (a) we will obtain the majority of the benefits of the activities of an SPE, (b) we retain the majority of the residual ownership risks related to the assets in order to obtain the benefits from its activities, (c) we have decision-making powers to obtain the majority of the benefits, or (d) the activities of the SPE are being conducted on our behalf according to our specific business needs so that we obtain the benefits from the SPE’s operations. We consolidate an SPE if our assessment of the relevant factors indicates that we obtain the majority of the benefits of its activities.
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Accounting Standards and Policies
Critical accounting policies
In some cases UBS does retain exposure to some of the returns from the assets sold to the SPE, for example first loss on a loan portfolio. In these cases we consolidate the SPE and then derecognize the assets to the extent that we do not have 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, where they are not held for the purpose of generating short-term trading gains, but rather for mid-to-long-term capital appreciation. Changes in fair value of these financial assets are reflected in shareholders’ equity rather than income. 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.
we believe that the estimates and assumptions made in determining the fair value of each investment are reasonable and supportable.
Allowances and provisions for credit losses
Assets accounted for at amortized cost are evaluated for impairment and required allowances and provisions are estimated in accordance with IAS 39. Impairment exists if the book value of a claim or a portfolio of claims exceeds the present value of the cash flows actually expected in future periods. These cash flows include scheduled interest payments, principal repayments, or other payments due (for example on guarantees), including liquidation of collateral where available.
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Further details on this subject are given in note 1(q) to the financial statements and in the risk analysis section of the Handbook 2004 / 2005, on pages 47 to 57.
Equity compensation
The IFRS requirements applicable to our financial statements have not previously specifically addressed the recognition and measurement of equity-based compensation plans, including employee option plans. IFRS 2, Share-based Payment, addresses the accounting for share-based employee compensation and was adopted by UBS on 1 January 2005 on a fully retrospective basis. Until the end of 2004, we recognized compensation expense for awards issued to employees as part of annual bonuses during the year of corresponding performance, aligning with the revenue produced. Subsequent changes in intrinsic value were not recognized. For share awards, we recognized compensation expense in the amount of the fair value of the share at the grant date. For option awards granted, the exercise price is generally set either equal
to or slightly higher than the fair value of the underlying share at the grant date. Accordingly, these options have no intrinsic value when granted, and therefore, we did not recognize compensation expense for these awards. Had we recognized the fair value of stock option grants on grant date as compensation expense, net income would have been lower by CHF 508 million in 2004, CHF 439 million in 2003, and CHF 690 million in 2002.
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Financial Statements
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Financial Statements
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83 | ||||||
84 | ||||||
84 | ||||||
85 | ||||||
86 | ||||||
88 | ||||||
90 | ||||||
1 | Summary of Significant Accounting Policies | 90 | ||||
2a | Segment Reporting by Business Group | 101 | ||||
2b | Segment Reporting by Geographic Location | 108 | ||||
109 | ||||||
3 | Net Interest and Trading Income | 109 | ||||
4 | Net Fee and Commission Income | 110 | ||||
5 | Other Income | 111 | ||||
6 | Personnel Expenses | 111 | ||||
7 | General and Administrative Expenses | 111 | ||||
8 | Earnings per Share (EPS) and Shares Outstanding | 112 | ||||
113 | ||||||
9a | Due from Banks and Loans | 113 | ||||
9b | Allowances and Provisions for Credit Losses | 114 | ||||
9c | Impaired Due from Banks and Loans | 114 | ||||
9d | Non-Performing Due from Banks and Loans | 115 | ||||
10 | Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements | 116 | ||||
11 | Trading Portfolio | 117 | ||||
12 | Financial Investments(available-for-sale) | 118 | ||||
13 | Investments in Associates | 120 | ||||
14 | Property and Equipment | 120 | ||||
15 | Goodwill and Other Intangible Assets | 121 | ||||
16 | Other Assets | 122 | ||||
123 | ||||||
17 | Due to Banks and Customers | 123 | ||||
18 | Financial liabilities designated at fair value and debt issued | 123 | ||||
19 | Other Liabilities | 125 | ||||
20 | Provisions | 125 |
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Financial Statements
Financial Statements
Income Statement
For the year ended | % change from | |||||||||||||||||||
CHF million, except per share data | Note | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 3 | 39,398 | 40,159 | 39,963 | (2 | ) | ||||||||||||||
Interest expense | 3 | (27,538 | ) | (27,860 | ) | (29,417 | ) | (1 | ) | |||||||||||
Net interest income | 11,860 | 12,299 | 10,546 | (4 | ) | |||||||||||||||
Credit loss (expense)/recovery | 276 | (72 | ) | (115 | ) | |||||||||||||||
Net interest income after credit loss expense | 12,136 | 12,227 | 10,431 | (1 | ) | |||||||||||||||
Net fee and commission income | 4 | 19,416 | 17,345 | 18,221 | 12 | |||||||||||||||
Net trading income | 3 | 4,972 | 3,756 | 5,451 | 32 | |||||||||||||||
Other income | 5 | 897 | 462 | 4 | 94 | |||||||||||||||
Income from industrial holdings | 3,648 | |||||||||||||||||||
Total operating income | 41,069 | 33,790 | 34,107 | 22 | ||||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 6 | 18,515 | 17,231 | 18,524 | 7 | |||||||||||||||
General and administrative expenses | 7 | 6,703 | 6,086 | 7,072 | 10 | |||||||||||||||
Depreciation of property and equipment | 14 | 1,352 | 1,353 | 1,514 | 0 | |||||||||||||||
Amortization of goodwill and other intangible assets | 15 | 964 | 943 | 2,460 | 2 | |||||||||||||||
Goods and materials purchased | 2,861 | |||||||||||||||||||
Total operating expenses | 30,395 | 25,613 | 29,570 | 19 | ||||||||||||||||
Operating profit before tax and minority interests | 10,674 | 8,177 | 4,537 | 31 | ||||||||||||||||
Tax expense | 21 | 2,135 | 1,593 | 676 | 34 | |||||||||||||||
Net profit before minority interests | 8,539 | 6,584 | 3,861 | 30 | ||||||||||||||||
Minority interests | 22 | (450 | ) | (345 | ) | (331 | ) | 30 | ||||||||||||
Net profit | 8,089 | 6,239 | 3,530 | 30 | ||||||||||||||||
Basic earnings per share (CHF) | 8 | 7.68 | 5.59 | 2.92 | 37 | |||||||||||||||
Diluted earnings per share (CHF) | 8 | 7.47 | 5.48 | 2.87 | 36 | |||||||||||||||
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Balance Sheet
% change from | ||||||||||||||||
CHF million | Note | 31.12.04 | 31.12.03 | 31.12.03 | ||||||||||||
Assets | ||||||||||||||||
Cash and balances with central banks | 6,036 | 3,584 | 68 | |||||||||||||
Due from banks | 9 | 35,264 | 31,740 | 11 | ||||||||||||
Cash collateral on securities borrowed | 10 | 220,242 | 213,932 | 3 | ||||||||||||
Reverse repurchase agreements | 10 | 357,164 | 320,499 | 11 | ||||||||||||
Trading portfolio assets | 11 | 370,259 | 341,013 | 9 | ||||||||||||
Trading portfolio assets pledged as collateral | 11 | 159,115 | 120,759 | 32 | ||||||||||||
Positive replacement values | 23 | 284,577 | 248,206 | 15 | ||||||||||||
Financial assets designated at fair value | 653 | 0 | ||||||||||||||
Loans | 9 | 232,387 | 212,679 | 9 | ||||||||||||
Financial investments | 12 | 5,049 | 5,139 | (2 | ) | |||||||||||
Accrued income and prepaid expenses | 5,876 | 6,218 | (6 | ) | ||||||||||||
Investments in associates | 13 | 2,427 | 1,616 | 50 | ||||||||||||
Property and equipment | 14 | 8,736 | 7,683 | 14 | ||||||||||||
Goodwill and other intangible assets | 15 | 12,149 | 11,529 | 5 | ||||||||||||
Other assets | 16,21 | 34,850 | 25,459 | 37 | ||||||||||||
Total assets | 1,734,784 | 1,550,056 | 12 | |||||||||||||
Liabilities | ||||||||||||||||
Due to banks | 17 | 118,901 | 127,012 | (6 | ) | |||||||||||
Cash collateral on securities lent | 10 | 61,545 | 53,278 | 16 | ||||||||||||
Repurchase agreements | 10 | 422,587 | 415,863 | 2 | ||||||||||||
Trading portfolio liabilities | 11 | 171,033 | 143,957 | 19 | ||||||||||||
Negative replacement values | 23 | 303,712 | 254,768 | 19 | ||||||||||||
Financial liabilities designated at fair value | 18 | 65,756 | 35,286 | 86 | ||||||||||||
Due to customers | 17 | 376,083 | 346,633 | 8 | ||||||||||||
Accrued expenses and deferred income | 14,685 | 13,673 | 7 | |||||||||||||
Debt issued | 18 | 117,828 | 88,843 | 33 | ||||||||||||
Other liabilities | 19,20,21 | 42,342 | 31,360 | 35 | ||||||||||||
Total liabilities | 1,694,472 | 1,510,673 | 12 | |||||||||||||
Minority interests | 22 | 5,334 | 4,073 | 31 | ||||||||||||
Shareholders’ equity | ||||||||||||||||
Share capital | 901 | 946 | (5 | ) | ||||||||||||
Share premium account | 7,348 | 6,935 | 6 | |||||||||||||
Net gains/(losses) not recognized in the income statement, net of tax | (1,644 | ) | (983 | ) | (67 | ) | ||||||||||
Revaluation reserve from step acquisitions | 90 | 0 | ||||||||||||||
Retained earnings | 37,455 | 36,641 | 2 | |||||||||||||
Equity classified as obligation to purchase own shares | (96 | ) | (49 | ) | (96 | ) | ||||||||||
Treasury shares | (9,076 | ) | (8,180 | ) | (11 | ) | ||||||||||
Total shareholders’ equity | 34,978 | 35,310 | (1 | ) | ||||||||||||
Total liabilities, minority interests and shareholders’ equity | 1,734,784 | 1,550,056 | 12 | |||||||||||||
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Financial Statements
Statement of Changes in Equity
For the year ended | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Issued and paid up share capital | ||||||||||||
Balance at the beginning of the year | 946 | 1,005 | 3,589 | |||||||||
Issue of share capital | 2 | 2 | 6 | |||||||||
Capital repayment by par value reduction1 | (2,509 | ) | ||||||||||
Cancellation of second trading line treasury shares (2001 program) | (81 | ) | ||||||||||
Cancellation of second trading line treasury shares (2002 program) | (61 | ) | ||||||||||
Cancellation of second trading line treasury shares (2003 program) | (47 | ) | ||||||||||
Balance at the end of the year | 901 | 946 | 1,005 | |||||||||
Share premium | ||||||||||||
Balance at the beginning of the year, restated | 6,935 | 12,641 | 14,408 | |||||||||
Premium on shares issued and warrants exercised | 379 | 92 | 157 | |||||||||
Net premium/(discount) on treasury share and own equity derivative activity | 26 | (330 | ) | 285 | ||||||||
Employee stock option plan | 8 | |||||||||||
Cancellation of second trading line treasury shares (2001 program) | (2,209 | ) | ||||||||||
Cancellation of second trading line treasury shares (2002 program) | (5,468 | ) | ||||||||||
Balance at the end of the year | 7,348 | 6,935 | 12,641 | |||||||||
Net gains/(losses) not recognized in the income statement, net of taxes | ||||||||||||
Foreign currency translation | ||||||||||||
Balance at the beginning of the year | (1,644 | ) | (849 | ) | (769 | ) | ||||||
Movements during the year | (818 | ) | (795 | ) | (80 | ) | ||||||
Subtotal – balance at the end of the year | (2,462 | ) | (1,644 | ) | (849 | ) | ||||||
Net unrealized gains/(losses) on available-for-sale investments, net of taxes | ||||||||||||
Balance at the beginning of the year | 805 | 946 | 1,035 | |||||||||
Net unrealized gains/(losses) on available-for-sale investments | 474 | (108 | ) | (144 | ) | |||||||
Impairment charges reclassified to the income statement | 192 | 285 | 635 | |||||||||
Realized gains reclassified to the income statement | (353 | ) | (340 | ) | (600 | ) | ||||||
Realized losses reclassified to the income statement | 22 | 22 | 20 | |||||||||
Subtotal – balance at the end of the year | 1,140 | 805 | 946 | |||||||||
Change in fair value of derivative instruments designated as cash flow hedges, net of taxes | ||||||||||||
Balance at the beginning of the year | (144 | ) | (256 | ) | (459 | ) | ||||||
Net unrealized gains/(losses) on the revaluation of cash flow hedges | (223 | ) | 116 | (11 | ) | |||||||
Net realized (gains)/losses reclassified to the income statement | 45 | (4 | ) | 214 | ||||||||
Subtotal – balance at the end of the year | (322 | ) | (144 | ) | (256 | ) | ||||||
Balance at the end of the year | (1,644 | ) | (983 | ) | (159 | ) | ||||||
Revaluation reserve from step acquisitions, net of taxes | ||||||||||||
New acquisitions | 90 | |||||||||||
Balance at the end of the year | 90 | |||||||||||
Retained earnings | ||||||||||||
Balance at the beginning of the year, restated | 36,641 | 32,700 | 29,103 | |||||||||
Net profit for the year | 8,089 | 6,239 | 3,597 | |||||||||
Dividends paid1 | (2,806 | ) | (2,298 | ) | ||||||||
Cancellation of second trading line treasury shares (2003 program)2 | (4,469 | ) | ||||||||||
Balance at the end of the year | 37,455 | 36,641 | 32,700 | |||||||||
Equity classified as obligation to purchase own shares | ||||||||||||
Balance at the beginning of the year, restated | (49 | ) | (104 | ) | ||||||||
Net movements | (47 | ) | 55 | (104 | ) | |||||||
Balance at the end of the year | (96 | ) | (49 | ) | (104 | ) | ||||||
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Statement of Changes in Equity (continued)
For the year ended | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Treasury shares, at cost | ||||||||||||
Balance at the beginning of the year | (8,180 | ) | (7,131 | ) | (3,377 | ) | ||||||
Acquisitions | (8,813 | ) | (8,424 | ) | (8,313 | ) | ||||||
Disposals | 3,401 | ) | 1,846 | 2,269 | ||||||||
Cancellation of second trading line treasury shares (2001 program) | 2,290 | |||||||||||
Cancellation of second trading line treasury shares (2002 program) | 5,529 | |||||||||||
Cancellation of second trading line treasury shares (2003 program) | 4,516 | |||||||||||
Balance at the end of the year | (9,076 | ) | (8,180 | ) | (7,131 | ) | ||||||
Total shareholders’ equity | 34,978 | 35,310 | 38,952 | |||||||||
Shares issued | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
Number of shares | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Balance at the beginning of the year | 1,183,046,764 | 1,256,297,678 | 1,281,717,499 | (6 | ) | |||||||||||
Issue of share capital | 3,293,413 | 2,719,166 | 3,398,869 | 21 | ||||||||||||
Cancellation of second trading line treasury shares (2001 program) | (28,818,690 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2002 program) | (75,970,080 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2003 program) | (59,482,000 | ) | ||||||||||||||
Balance at the end of the year | 1,126,858,177 | ) | 1,183,046,764 | 1,256,297,678 | (5 | ) | ||||||||||
Treasury shares | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
Number of shares | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Balance at the beginning of the year | 111,360,692 | 97,181,094 | 41,254,951 | 15 | ||||||||||||
Acquisitions | 96,139,004 | 116,080,976 | 110,710,741 | (17 | ) | |||||||||||
Disposals | (44,492,725 | ) | (25,931,298 | ) | (25,965,908 | ) | (72 | ) | ||||||||
Cancellation of second trading line treasury shares (2001 program) | (28,818,690 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2002 program) | (75,970,080 | ) | 100 | |||||||||||||
Cancellation of second trading line treasury shares (2003 program) | (59,482,000 | ) | ||||||||||||||
Balance at the end of the year | 103,524,971 | 111,360,692 | 97,181,094 | (7 | ) | |||||||||||
During the year a total of 59,482,000 shares acquired under the second trading line buyback program 2003 were cancelled. On 31 December 2004, a maximum of 3,533,012 shares can be issued against the exercise of options from former PaineWebber employee option plans. These shares are shown as conditional share capital in the UBS AG (Parent Bank) disclosure. Out of the total number of 103,524,971 treasury
shares, 39,935,094 shares (CHF 3,543 million) have been repurchased for cancellation. The Board of Directors will propose to the Annual General Meeting on 21 April 2005 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
Statement of Cash Flows | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Cash flow from/(used in) operating activities | ||||||||||||
Net profit | 8,089 | 6,239 | 3,530 | |||||||||
Adjustments to reconcile net profit to cash flow from/(used in) operating activities | ||||||||||||
Non-cash items included in net profit and other adjustments: | ||||||||||||
Depreciation of property and equipment | 1,352 | 1,353 | 1,514 | |||||||||
Amortization of goodwill and other intangible assets | 964 | 943 | 2,460 | |||||||||
Credit loss expense/(recovery) | (276 | ) | 72 | 115 | ||||||||
Equity in income of associates | (65 | ) | (123 | ) | (7 | ) | ||||||
Deferred tax expense/(benefit) | 3 | 489 | (511 | ) | ||||||||
Net loss/(gain) from investing activities | (475 | ) | (63 | ) | 986 | |||||||
Net loss/(gain) from financing activities | 1,203 | 115 | (446 | ) | ||||||||
Net (increase)/decrease in operating assets: | ||||||||||||
Net due from/to banks | (11,679 | ) | 42,921 | (22,382 | ) | |||||||
Reverse repurchase agreements and cash collateral on securities borrowed | (42,975 | ) | (101,381 | ) | (944 | ) | ||||||
Trading portfolio and net replacement values | (19,834 | ) | (52,197 | ) | 22,427 | |||||||
Loans/due to customers | 10,035 | 38,638 | (11,446 | ) | ||||||||
Accrued income, prepaid expenses and other assets | (6,927 | ) | (16,100 | ) | 2,875 | |||||||
Net increase/(decrease) in operating liabilities: | ||||||||||||
Repurchase agreements and cash collateral on securities lent | 14,991 | 65,413 | 4,791 | |||||||||
Accrued expenses and other liabilities | 19,032 | 18,188 | (4,754 | ) | ||||||||
Income taxes paid | (1,336 | ) | (1,104 | ) | (572 | ) | ||||||
Net cash flow from/(used in) operating activities | (27,898 | ) | 3,403 | (2,364 | ) | |||||||
Cash flow from/(used in) investing activities | ||||||||||||
Investments in subsidiaries and associates | (2,511 | ) | (428 | ) | (60 | ) | ||||||
Disposal of subsidiaries and associates | 800 | 834 | 984 | |||||||||
Purchase of property and equipment | (1,149 | ) | (1,376 | ) | (1,763 | ) | ||||||
Disposal of property and equipment | 704 | 123 | 67 | |||||||||
Net (investment in)/divestment of financial investments | 686 | 2,317 | 2,153 | |||||||||
Net cash flow from/(used in) investing activities | (1,470 | ) | 1,470 | 1,381 | ||||||||
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Statement of Cash Flows (continued) | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Cash flow from/(used in) financing activities | ||||||||||||
Net money market paper issued/(repaid) | 21,379 | (14,737 | ) | (26,206 | ) | |||||||
Net movements in treasury shares and own equity derivative activity | (4,999 | ) | (6,810 | ) | (5,605 | ) | ||||||
Capital issuance | 2 | 2 | 6 | |||||||||
Capital repayment by par value reduction | (2,509 | ) | ||||||||||
Dividends paid | (2,806 | ) | (2,298 | ) | ||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 51,211 | 23,644 | 17,132 | |||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (24,717 | ) | (13,615 | ) | (14,911 | ) | ||||||
Increase in minority interests1 | 102 | 755 | ||||||||||
Dividend payments to/purchase from minority interests | (332 | ) | (278 | ) | (377 | ) | ||||||
Net cash flow from/(used in) financing activities | 39,840 | (13,337 | ) | (32,470 | ) | |||||||
Effects of exchange rate differences | (1,052 | ) | (524 | ) | (462 | ) | ||||||
Net increase/(decrease) in cash equivalents | 9,420 | (8,988 | ) | (33,915 | ) | |||||||
Cash and cash equivalents, beginning of the year | 73,356 | 82,344 | 116,259 | |||||||||
Cash and cash equivalents, end of the year | 82,776 | 73,356 | 82,344 | |||||||||
Cash and cash equivalents comprise: | ||||||||||||
Cash and balances with central banks | 6,036 | 3,584 | 4,271 | |||||||||
Money market paper2 | 45,409 | 40,599 | 46,183 | |||||||||
Due from banks maturing in less than three months | 31,331 | 29,173 | 31,890 | |||||||||
Total | 82,776 | 73,356 | 82,344 | |||||||||
Significant non-cash investing and financing activities | ||||||||||||
Hyposwiss, Zurich, deconsolidation | ||||||||||||
Financial investments | 53 | |||||||||||
Property and equipment | 18 | |||||||||||
Debt issued | 63 | |||||||||||
Hirslanden Holding AG, Zurich, deconsolidation | ||||||||||||
Financial investments | 3 | |||||||||||
Property and equipment | 718 | |||||||||||
Goodwill and other intangible assets | 15 | |||||||||||
Consolidation of special purpose entities | ||||||||||||
Debt issued | 2,322 | |||||||||||
Provisions for reinstatement costs | ||||||||||||
Property and equipment | 137 | |||||||||||
Motor-Columbus, Baden, from valuation at equity to full consolidation | ||||||||||||
Financial investments | 644 | |||||||||||
Investments in associates | 261 | |||||||||||
Property and equipment | 2,083 | |||||||||||
Goodwill and other intangible assets | 1,194 | |||||||||||
Debt issued | 727 | |||||||||||
Minority interests | 1,742 | |||||||||||
Investment funds transferred to other liabilities according to IAS 32 | ||||||||||||
Minority interests | 336 | |||||||||||
Cash paid for interest during 2004 was CHF 18,614 million.
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Financial Statements
Notes to the Financial Statements
Notes to the Financial Statements
Note 1 Summary of Significant Accounting Policies
a) Basis of accounting
b) Use of estimates in the preparation of Financial Statements
c) Consolidation
UBS owns 20% or more of a company’s voting rights. Investments in associates are initially recorded at cost and the carrying amount is increased or decreased to recognize the Group’s share of the investee’s profits or losses after the date of acquisition. Investments in associates for which significant influence is intended to be temporary because the investments are acquired and held exclusively with a view to their subsequent disposal, are recorded as Financial investments.
d) Derecognition
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In certain transactions, UBS retains rights to service a transferred financial asset for a fee. The transferred asset is derecognized in its entirety, if it meets the derecognition criteria. An asset or liability is recognized for the servicing rights, depending on whether the servicing fee is more than adequate to cover servicing expenses (asset) or is less than adequate for performing the servicing (liability).
e) Securitizations
f) Securities borrowing and lending
g) Repurchase and reverse repurchase transactions
curities is obtained or relinquished. UBS monitors the market value of the securities received or delivered on a daily basis and provides or requests additional collateral in accordance with the underlying agreements.
h) Segment reporting
i) Foreign currency translation
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Financial Statements
Notes to the Financial Statements
j) Cash and cash equivalents
k) Fee income
l) Determination of fair value
m) Trading portfolio
n) Financial instruments designated as held at fair value through profit and loss
92
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o) Derivative instruments and hedging
p) Loans
93
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Financial Statements
Notes to the Financial Statements
q) Allowance and provision for credit losses
r) Financial investments
94
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s) Property and equipment
Properties, excluding land | Not exceeding 50 years | |
Leasehold improvements | Residual lease term, | |
but not exceeding 10 years | ||
Other machines and equipment | Not exceeding 10 years | |
IT, software and communication | Not exceeding 5 years | |
Plant and manufacturing equipment: | ||
- Power plants | 25 to 80 years | |
- Transmission grids and equipment | 15 to 40 years | |
Property formerly own-used or leased to third parties under an operating lease, which the Group has decided to dispose of, and foreclosed property are defined as Properties held for resale and recorded in Other assets. They are carried at the lower of cost or recoverable value.
t) Goodwill and other intangible assets
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Financial Statements
Notes to the Financial Statements
With the introduction ofIFRS 3 Business Combinationsgoodwill acquired in business combinations entered into after 31 March 2004 is not amortized, but tested annually for impairment. The impairment test is conducted at the segment level as reported in Note 2. The segment has been determined as the cash generating unit for impairment testing purposes as this is the level at which the performance of an investment is reviewed and assessed by management. During 2004, UBS recorded goodwill of CHF 631 million from business combinations entered into after 31 March 2004.
u) Income taxes
v) Debt issued
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w) Treasury shares and contracts on UBS shares
x) Retirement benefits
a) | 10% of present value of the defined benefit obligation at that date (before deducting plan assets); and | |
b) | 10% of the fair value of any plan assets at that date. | |
The unrecognized actuarial gains and losses exceeding the greater of these two values are recognized in the income statement over the expected average remaining working lives of the employees participating in the plans.
If an excess of the fair value of the plan assets over the present value of the defined benefit obligation cannot be recovered fully through refunds or reductions in future contributions, no gain is recognized solely as a result of deferral of an actuarial loss or past service cost in the current period or no loss is recognized solely as a result of deferral of an actuarial gain in the current period.
y) Equity participation plans
z) Earnings per share (EPS)
aa) Changes in accounting policies and comparability
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Financial Statements
Notes to the Financial Statements
Revised IAS 32 provides that netting is permitted only if, in addition to all other netting conditions, normal settlement is intended to take place on a net basis. In general, that condition is not met for derivative instruments and therefore replacement values are now reported on a gross basis. In the 31 December 2003 balance sheet, replacement values of CHF 165,050 million that were previously offset are now reported gross.
Investment properties
Credit losses incurred on OTC derivatives
Segment reporting
Business combinations
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Amended IAS 19, Employee Benefits
Change in treatment of corporate client assets
ab) International Financial Reporting Standards to be adopted in 2005
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Financial Statements
Notes to the Financial Statements
In 2005, these entities, along with all other investments made by the Private Equity business unit, will be reclassified from the Investment Bank segment to the Industrial Holdings segment. In addition, seven of the newly consolidated investments held at 1 January 2003 were sold during 2003 and 2004 and will be presented as discontinued operations in the restated comparative prior periods in accordance with IFRS 5 which is discussed below. Gain on sale in the amount of CHF 90 million and CHF 194 million have been reported related to private equity investments sold in 2004 and 2003, respectively. On a restated basis, the net profit from discontinued operations related to these entities will be CHF 145 million and CHF 186 million in 2004 and 2003, respectively.
IFRS 2 Share-based Payment
IFRS 3 Business Combinations, IAS 36 Impairment of Assets and IAS 38 Intangible Assets
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IFRS 4 Insurance Contracts
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
Note 2a Segment Reporting by Business Group
UBS’s financial businesses are organized on a worldwide basis into four Business Groups and the Corporate Center. Wealth Management & Business Banking is segregated into two segments, Wealth Management and Business Banking Switzerland. The Corporate Center also consists of two segments, Private Banks & GAM and Corporate Functions. The Industrial Holdings segment holds all industrial operations controlled by the Group. In total, UBS now reports eight business segments.
Wealth Management & Business Banking
Global Asset Management
Investment Bank
Wealth Management USA
Corporate Center
Industrial Holdings
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Financial Statements
Notes to the Financial Statements
Note 2a Reporting by Business Group (continued)
For the year ended 31 December 2004
CHF million
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue-sharing agreements are used to allocate external customer revenues to a Business Group on a reasonable basis. Transactions between Business Groups are conducted at arm’s length.
Income2 | ||
Credit loss (expense)/recovery | ||
Total operating income | ||
Personnel expenses | ||
General and administrative expenses | ||
Services to/from other business units | ||
Depreciation | ||
Amortization of goodwill and other intangible assets3 | ||
Goods and materials purchased | ||
Total operating expenses | ||
Business Group performance before tax | ||
Tax expense | ||
Net profit before minority interests | ||
Minority interests | ||
Net profit | ||
Additional information4 | ||
Total assets | ||
Total liabilities and minority interests | ||
Capital expenditure |
Management reporting based on expected credit loss
For internal management reporting purposes, we measure credit loss using an expected loss concept. This table shows Business Group performance consistent with the way in which our businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the average annual costs that are expected to arise from positions in the current portfolio that become impaired. The Adjusted expected credit loss reported for each Business Group is the expected credit loss on its portfolio plus the difference between Credit loss expense and expected credit loss, amortized over a three year period. The difference between these Adjusted expected credit loss figures and the Credit loss expense recorded at Group level for reporting purposes is reported in Corporate Functions.
Income2 | ||
Adjusted expected credit loss | ||
Total operating income | ||
Personnel expenses | ||
General and administrative expenses | ||
Services to/from other business units | ||
Depreciation | ||
Amortization of goodwill and other intangible assets3 | ||
Goods and materials purchased | ||
Total operating expenses | ||
Business Group performance before tax | ||
Tax expense | ||
Net profit before minority interests | ||
Minority interests | ||
Net profit |
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Industrial | ||||||||||||||||||||||||||||||||||||
Financial Businesses | Holdings1 | UBS | ||||||||||||||||||||||||||||||||||
Wealth Management & | ||||||||||||||||||||||||||||||||||||
Business Banking | Corporate Center | |||||||||||||||||||||||||||||||||||
Business Banking | Global Asset | Wealth | Private | Corporate | ||||||||||||||||||||||||||||||||
Wealth Management | Switzerland | Management | Investment Bank | Management USA | Banks & GAM | Functions | ||||||||||||||||||||||||||||||
7,701 | 5,063 | 2,022 | 15,984 | 5,098 | 1,145 | 113 | 3,667 | 40,793 | ||||||||||||||||||||||||||||
(1 | ) | 92 | 0 | 240 | 3 | (58 | ) | 0 | 0 | 276 | ||||||||||||||||||||||||||
7,700 | 5,155 | 2,022 | 16,224 | 5,101 | 1,087 | 113 | 3,667 | 41,069 | ||||||||||||||||||||||||||||
2,080 | 2,393 | 901 | 8,156 | 3,437 | 432 | 790 | 326 | 18,515 | ||||||||||||||||||||||||||||
642 | 1,064 | 299 | 2,535 | 800 | 160 | 1,077 | 126 | 6,703 | ||||||||||||||||||||||||||||
1,395 | (533 | ) | 126 | 219 | 302 | 10 | (1,519 | ) | 0 | |||||||||||||||||||||||||||
66 | 69 | 23 | 239 | 71 | 20 | 794 | 70 | 1,352 | ||||||||||||||||||||||||||||
75 | 0 | 129 | 288 | 304 | 74 | 17 | 77 | 964 | ||||||||||||||||||||||||||||
2,861 | 2,861 | |||||||||||||||||||||||||||||||||||
4,258 | 2,993 | 1,478 | 11,437 | 4,914 | 696 | 1,159 | 3,460 | 30,395 | ||||||||||||||||||||||||||||
3,442 | 2,162 | 544 | 4,787 | 187 | 391 | (1,046 | ) | 207 | 10,674 | |||||||||||||||||||||||||||
2,135 | ||||||||||||||||||||||||||||||||||||
8,539 | ||||||||||||||||||||||||||||||||||||
(450 | ) | |||||||||||||||||||||||||||||||||||
8,089 | ||||||||||||||||||||||||||||||||||||
164,720 | 210,133 | 29,334 | 1,473,726 | 51,850 | 8,043 | (210,909 | ) | 7,887 | 1,734,784 | |||||||||||||||||||||||||||
161,046 | 204,479 | 28,501 | 1,459,757 | 47,259 | 7,480 | (216,342 | ) | 7,626 | 1,699,806 | |||||||||||||||||||||||||||
304 | 212 | 8 | 322 | 50 | 19 | 599 | 50 | 1,564 | ||||||||||||||||||||||||||||
7,701 | 5,063 | 2,022 | 15,984 | 5,098 | 1,145 | 113 | 3,667 | 40,793 | ||||||||||||||||||||||||||||
(8 | ) | (25 | ) | 0 | (7 | ) | (5 | ) | (6 | ) | 327 | 276 | ||||||||||||||||||||||||
7,693 | 5,038 | 2,022 | 15,977 | 5,093 | 1,139 | 440 | 3,667 | 41,069 | ||||||||||||||||||||||||||||
2,080 | 2,393 | 901 | 8,156 | 3,437 | 432 | 790 | 326 | 18,515 | ||||||||||||||||||||||||||||
642 | 1,064 | 299 | 2,535 | 800 | 160 | 1,077 | 126 | 6,703 | ||||||||||||||||||||||||||||
1,395 | (533 | ) | 126 | 219 | 302 | 10 | (1,519 | ) | 0 | |||||||||||||||||||||||||||
66 | 69 | 23 | 239 | 71 | 20 | 794 | 70 | 1,352 | ||||||||||||||||||||||||||||
75 | 0 | 129 | 288 | 304 | 74 | 17 | 77 | 964 | ||||||||||||||||||||||||||||
2,861 | 2,861 | |||||||||||||||||||||||||||||||||||
4,258 | 2,993 | 1,478 | 11,437 | 4,914 | 696 | 1,159 | 3,460 | 30,395 | ||||||||||||||||||||||||||||
3,435 | 2,045 | 544 | 4,540 | 179 | 443 | (719 | ) | 207 | 10,674 | |||||||||||||||||||||||||||
2,135 | ||||||||||||||||||||||||||||||||||||
8,539 | ||||||||||||||||||||||||||||||||||||
(450 | ) | |||||||||||||||||||||||||||||||||||
8,089 | ||||||||||||||||||||||||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 2a Reporting by Business Group (continued)
For the year ended 31 December 2003
CHF million
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue-sharing agreements are used to allocate external customer revenues to a Business Group on a reasonable basis. Transactions between Business Groups are conducted at arm’s length.
Income1 | ||||
Credit loss (expense)/recovery | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services to/from other business units | ||||
Depreciation | ||||
Amortization of goodwill and other intangible assets2 | ||||
Total operating expenses | ||||
Business Group performance before tax | ||||
Tax expense | ||||
Net profit before minority interests | ||||
Minority interests | ||||
Net profit | ||||
Additional information3 | ||||
Total assets | ||||
Total liabilities and minority interests | ||||
Capital expenditure |
Management reporting based on expected credit loss
For internal management reporting purposes, we measure credit loss using an expected loss concept. This table shows Business Group performance consistent with the way in which our businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the average annual costs that are expected to arise from positions in the current portfolio that become impaired. The Adjusted expected credit loss reported for each Business Group is the expected credit loss on its portfolio plus the difference between Credit loss expense and expected credit loss, amortized over a three year period. The difference between these Adjusted expected credit loss figures and the Credit loss expense recorded at Group level for reporting purposes is reported in Corporate Functions.
Income1 | ||
Adjusted expected credit loss | ||
Total operating income | ||
Personnel expenses | ||
General and administrative expenses | ||
Services to/from other business units | ||
Depreciation | ||
Amortization of goodwill and other intangible assets2 | ||
Total operating expenses | ||
Business Group performance before tax | ||
Tax expense | ||
Net profit before minority interests | ||
Minority interests | ||
Net profit |
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Wealth Management & | ||||||||||||||||||||||||||||||||
Business Banking | Corporate Center | |||||||||||||||||||||||||||||||
Business Banking | Global Asset | Wealth | Private | Corporate | ||||||||||||||||||||||||||||
Wealth Management | Switzerland | Management | Investment Bank | Management USA | Banks & GAM | Functions | UBS | |||||||||||||||||||||||||
6,797 | 5,247 | 1,737 | 13,991 | 5,190 | 880 | 20 | 33,862 | |||||||||||||||||||||||||
4 | (71 | ) | 0 | (4 | ) | (3 | ) | 2 | 0 | (72 | ) | |||||||||||||||||||||
6,801 | 5,176 | 1,737 | 13,987 | 5,187 | 882 | 20 | 33,790 | |||||||||||||||||||||||||
1,944 | 2,406 | 806 | 7,303 | 3,627 | 381 | 764 | 17,231 | |||||||||||||||||||||||||
604 | 1,090 | 265 | 2,074 | 719 | 169 | 1,165 | 6,086 | |||||||||||||||||||||||||
1,479 | (609 | ) | 156 | 180 | 433 | 11 | (1,650 | ) | 0 | |||||||||||||||||||||||
82 | 88 | 25 | 246 | 72 | 28 | 812 | 1,353 | |||||||||||||||||||||||||
75 | 0 | 153 | 278 | 336 | 81 | 20 | 943 | |||||||||||||||||||||||||
4,184 | 2,975 | 1,405 | 10,081 | 5,187 | 670 | 1,111 | 25,613 | |||||||||||||||||||||||||
2,617 | 2,201 | 332 | 3,906 | 0 | 212 | (1,091 | ) | 8,177 | ||||||||||||||||||||||||
1,593 | ||||||||||||||||||||||||||||||||
6,584 | ||||||||||||||||||||||||||||||||
(345 | ) | |||||||||||||||||||||||||||||||
6,239 | ||||||||||||||||||||||||||||||||
150,285 | 192,517 | 21,929 | 1,316,897 | 46,837 | 9,084 | (187,493 | ) | 1,550,056 | ||||||||||||||||||||||||
147,479 | 186,185 | 20,917 | 1,303,281 | 41,732 | 8,406 | (193,254 | ) | 1,514,746 | ||||||||||||||||||||||||
167 | 261 | 17 | 518 | 68 | 17 | 427 | 1,475 | |||||||||||||||||||||||||
6,797 | 5,247 | 1,737 | 13,991 | 5,190 | 880 | 20 | 33,862 | |||||||||||||||||||||||||
(4 | ) | (127 | ) | 0 | (55 | ) | (8 | ) | (2 | ) | 124 | (72 | ) | |||||||||||||||||||
6,793 | 5,120 | 1,737 | 13,936 | 5,182 | 878 | 144 | 33,790 | |||||||||||||||||||||||||
1,944 | 2,406 | 806 | 7,303 | 3,627 | 381 | 764 | 17,231 | |||||||||||||||||||||||||
604 | 1,090 | 265 | 2,074 | 719 | 169 | 1,165 | 6,086 | |||||||||||||||||||||||||
1,479 | (609 | ) | 156 | 180 | 433 | 11 | (1,650 | ) | 0 | |||||||||||||||||||||||
82 | 88 | 25 | 246 | 72 | 28 | 812 | 1,353 | |||||||||||||||||||||||||
75 | 0 | 153 | 278 | 336 | 81 | 20 | 943 | |||||||||||||||||||||||||
4,184 | 2,975 | 1,405 | 10,081 | 5,187 | 670 | 1,111 | 25,613 | |||||||||||||||||||||||||
2,609 | 2,145 | 332 | 3,855 | (5 | ) | 208 | (967 | ) | 8,177 | |||||||||||||||||||||||
1,593 | ||||||||||||||||||||||||||||||||
6,584 | ||||||||||||||||||||||||||||||||
(345 | ) | |||||||||||||||||||||||||||||||
6,239 | ||||||||||||||||||||||||||||||||
1 Impairments on private equity and other financial investments for the year ended 31 December 2003 were as follows: Wealth Management & Business Banking CHF 18 million; Global Asset Management CHF 2 million; Investment Bank CHF 371 million; Wealth Management USA CHF 1 million; Corporate Center CHF 149 million.2 For further information regarding goodwill and other intangible assets by Business Group, please see Note 15: Goodwil and Other Intangible Assets.3 The funding surplus or requirement is reflected in each Business Group and adjusted in Corporate Center.
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Table of Contents
Financial Statements
Notes to the Financial Statements
Note 2a Reporting by Business Group (continued)
For the year ended 31 December 2002
CHF million
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue-sharing agreements are used to allocate external customer revenues to a Business Group on a reasonable basis. Transactions between Business Groups are conducted at arm’s length.
Income1 | ||||
Credit loss (expense)/recovery | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services to/from other business units | ||||
Depreciation | ||||
Amortization of goodwill and other intangible assets2 | ||||
Total operating expenses | ||||
Business Group performance before tax | ||||
Tax expense | ||||
Net profit before minority interests | ||||
Minority interests | ||||
Net profit | ||||
Additional information3 | ||||
Total assets | ||||
Total liabilities and minority interests | ||||
Capital expenditure |
Management reporting based on expected credit loss
For internal management reporting purposes, we measure credit loss using an expected loss concept. This table shows Business Group performance consistent with the way in which our businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the average annual costs that are expected to arise from positions in the current portfolio that become impaired. The Adjusted expected credit loss reported for each Business Group is the expected credit loss on its portfolio plus the difference between Credit loss expense and expected credit loss, amortized over a three year period. The difference between these Adjusted expected credit loss figures and the Credit loss expense recorded at Group level for reporting purposes is reported in Corporate Functions.
Income1 | ||||
Adjusted expected credit loss | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services to/from other business units | ||||
Depreciation | ||||
Amortization of goodwill and other intangible assets2 | ||||
Total operating expenses | ||||
Business Group performance before tax | ||||
Tax expense | ||||
Net profit before minority interests | ||||
Minority interests | ||||
Net profit |
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Wealth Management & | ||||||||||||||||||||||||||||||||
Business Banking | Corporate Center | |||||||||||||||||||||||||||||||
Business Banking | Global Asset | Wealth | Private | Corporate | ||||||||||||||||||||||||||||
Wealth Management | Switzerland | Management | Investment Bank | Management USA | Banks & GAM | Functions | UBS | |||||||||||||||||||||||||
6,690 | 5,494 | 1,655 | 12,419 | 5,561 | 1,038 | 1,365 | 34,222 | |||||||||||||||||||||||||
1 | (239 | ) | 0 | 126 | (15 | ) | (3 | ) | 15 | (115 | ) | |||||||||||||||||||||
6,691 | 5,255 | 1,655 | 12,545 | 5,546 | 1,035 | 1,380 | 34,107 | |||||||||||||||||||||||||
1,869 | 2,469 | 763 | 7,815 | 4,158 | 386 | 1,064 | 18,524 | |||||||||||||||||||||||||
617 | 1,305 | 301 | 2,359 | 926 | 120 | 1,444 | 7,072 | |||||||||||||||||||||||||
1,475 | (638 | ) | 164 | 140 | 492 | 12 | (1,645 | ) | 0 | |||||||||||||||||||||||
93 | 105 | 22 | 320 | 81 | 40 | 853 | 1,514 | |||||||||||||||||||||||||
97 | 186 | 364 | 1,691 | 98 | 24 | 2,460 | ||||||||||||||||||||||||||
4,151 | 3,241 | 1,436 | 10,998 | 7,348 | 656 | 1,740 | 29,570 | |||||||||||||||||||||||||
2,540 | 2,014 | 219 | 1,547 | (1,802 | ) | 379 | (360 | ) | 4,537 | |||||||||||||||||||||||
676 | ||||||||||||||||||||||||||||||||
3,861 | ||||||||||||||||||||||||||||||||
(331 | ) | |||||||||||||||||||||||||||||||
3,530 | ||||||||||||||||||||||||||||||||
189,061 | 121,661 | 4,428 | 1,099,410 | 39,610 | 7,004 | (114,496 | ) | 1,346,678 | ||||||||||||||||||||||||
186,346 | 115,926 | 2,937 | 1,087,019 | 33,225 | 6,270 | (123,997 | ) | 1,307,726 | ||||||||||||||||||||||||
156 | 224 | 20 | 473 | 466 | 37 | 668 | 2,044 | |||||||||||||||||||||||||
6,690 | 5,494 | 1,655 | 12,419 | 5,561 | 1,038 | 1,365 | 34,222 | |||||||||||||||||||||||||
(26 | ) | (286 | ) | (90 | ) | (13 | ) | (2 | ) | 302 | (115 | ) | ||||||||||||||||||||
6,664 | 5,208 | 1,655 | 12,329 | 5,548 | 1,036 | 1,667 | 34,107 | |||||||||||||||||||||||||
1,869 | 2,469 | 763 | 7,815 | 4,158 | 386 | 1,064 | 18,524 | |||||||||||||||||||||||||
617 | 1,305 | 301 | 2,359 | 926 | 120 | 1,444 | 7,072 | |||||||||||||||||||||||||
1,475 | (638 | ) | 164 | 140 | 492 | 12 | (1,645 | ) | 0 | |||||||||||||||||||||||
93 | 105 | 22 | 320 | 81 | 40 | 853 | 1,514 | |||||||||||||||||||||||||
97 | 186 | 364 | 1,691 | 98 | 24 | 2,460 | ||||||||||||||||||||||||||
4,151 | 3,241 | 1,436 | 10,998 | 7,348 | 656 | 1,740 | 29,570 | |||||||||||||||||||||||||
2,513 | 1,967 | 219 | 1,331 | (1,800 | ) | 380 | (73 | ) | 4,537 | |||||||||||||||||||||||
676 | ||||||||||||||||||||||||||||||||
3,861 | ||||||||||||||||||||||||||||||||
(331 | ) | |||||||||||||||||||||||||||||||
3,530 | ||||||||||||||||||||||||||||||||
1 Impairments on private equity and other financial investments for the year ended 31 December 2002 were as follows: Wealth Management & Business Banking CHF 32 million; Global Asset Management CHF 1 million; Investment Bank CHF 1,703 million; Corporate Center CHF 208 million. 2 For further information regarding goodwill and other intangible assets by Business Group, please see Note 15: Goodwill and Other Intangible Assets. 3 The funding surplus or requirement is reflected in each Business Group and adjusted in Corporate Center.
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Table of Contents
Financial Statements
Notes to the Financial Statements
Note 2b Segment Reporting by Geographic Location
The geographic analysis of total assets is based on customer domicile whereas operating income and capital expenditure is based on the location of the office in which the transactions and assets are recorded. Because of the global nature of financial markets the Group’s business is managed on an integrated basis worldwide, with a view to profitability by product line.
The geographical analysis of operating income, total assets, and capital expenditure is provided in order to comply with IFRS, and does not reflect the way the Group is managed. Management believes that analysis by Business Group, as shown in Note 2a to these Financial Statements, is a more meaningful representation of the way in which the Group is managed.
For the year ended 31 December 2004 | ||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 14,949 | 37 | 189,019 | 11 | 799 | 51 | ||||||||||||||||||
Rest of Europe / Africa / Middle East | 10,379 | 25 | 564,336 | 32 | 388 | 25 | ||||||||||||||||||
Americas | 13,615 | 33 | 829,845 | 48 | 293 | 19 | ||||||||||||||||||
Asia Pacific | 2,126 | 5 | 151,584 | 9 | 84 | 5 | ||||||||||||||||||
Total | 41,069 | 100 | 1,734,784 | 100 | 1,564 | 100 | ||||||||||||||||||
For the year ended 31 December 2003 | ||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 13,176 | 39 | 182,280 | 12 | 689 | 47 | ||||||||||||||||||
Rest of Europe / Africa / Middle East | 5,977 | 18 | 535,501 | 34 | 242 | 16 | ||||||||||||||||||
Americas | 12,923 | 38 | 738,189 | 48 | 510 | 35 | ||||||||||||||||||
Asia Pacific | 1,714 | 5 | 94,086 | 6 | 34 | 2 | ||||||||||||||||||
Total | 33,790 | 100 | 1,550,056 | 100 | 1,475 | 100 | ||||||||||||||||||
For the year ended 31 December 2002 | ||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 14,327 | 42 | 176,544 | 13 | 885 | 43 | ||||||||||||||||||
Rest of Europe / Africa / Middle East | 6,816 | 20 | 363,706 | 27 | 199 | 10 | ||||||||||||||||||
Americas | 11,055 | 32 | 719,703 | 54 | 916 | 45 | ||||||||||||||||||
Asia Pacific | 1,909 | 6 | 86,725 | 6 | 44 | 2 | ||||||||||||||||||
Total | 34,107 | 100 | 1,346,678 | 100 | 2,044 | 100 | ||||||||||||||||||
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Income Statement
Note 3 Net Interest and Trading Income
Accounting standards require separate disclosure of net interest income and net trading income (see the second and the third table). This required disclosure, however, does not take into account that net interest and trading income are generated by a range of different business activities. In many cases, a particular business activity can generate both net interest and trading income. Fixed income trading activity, for example, generates both trading profits and coupon income. UBS management therefore analyzes net interest and trading income ac-
cording to the business activity generating it. The first table below (labeled Net interest and trading income) provides information that corresponds to this management view. For example, net income from trading activities is further broken down into the four sub-components of Equities, Fixed income, Foreign exchange and Other. These activities generate both types of income (interest and trading revenue) and therefore this analysis is not comparable to the breakdown provided in the third table on the next page (Net trading income only).
Net interest and trading income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Net interest income | 11,860 | 12,299 | 10,546 | (4 | ) | |||||||||||
Net trading income | 4,972 | 3,756 | 5,451 | 32 | ||||||||||||
Total net interest and trading income | 16,832 | 16,055 | 15,997 | 5 | ||||||||||||
Breakdown by business activity | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Net income from interest margin products | 5,139 | 5,077 | 5,275 | 1 | ||||||||||||
Equities | 3,098 | 2,445 | 2,777 | 27 | ||||||||||||
Fixed income | 6,264 | 6,474 | 5,977 | (3 | ) | |||||||||||
Foreign exchange | 1,467 | 1,436 | 1,506 | 2 | ||||||||||||
Other | 273 | 326 | 245 | (16 | ) | |||||||||||
Net income from trading activities | 11,102 | 10,681 | 10,505 | 4 | ||||||||||||
Net income from treasury activities | 1,298 | 1,417 | 1,646 | (8 | ) | |||||||||||
Other1 | (707 | ) | (1,120 | ) | (1,429 | ) | 37 | |||||||||
Total net interest and trading income | 16,832 | 16,055 | 15,997 | 5 | ||||||||||||
Net interest income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Interest income | ||||||||||||||||
Interest earned on loans and advances | 9,021 | 10,542 | 11,600 | (14 | ) | |||||||||||
Interest earned on securities borrowed and reverse repurchase agreements | 11,006 | 11,148 | 11,184 | (1 | ) | |||||||||||
Interest and dividend income from financial investments | 93 | 75 | 165 | 24 | ||||||||||||
Interest and dividend income from trading portfolio | 19,278 | 18,394 | 17,014 | 5 | ||||||||||||
Total | 39,398 | 40,159 | 39,963 | (2 | ) | |||||||||||
Interest expense | ||||||||||||||||
Interest on amounts due to banks and customers | 5,529 | 5,072 | 6,383 | 9 | ||||||||||||
Interest on securities lent and repurchase agreements | 10,014 | 9,623 | 10,081 | 4 | ||||||||||||
Interest and dividend expense from trading portfolio | 7,993 | 9,925 | 8,226 | (19 | ) | |||||||||||
Interest on financial liabilities designated at fair value | 1,168 | 751 | 341 | 56 | ||||||||||||
Interest on debt issued | 2,834 | 2,489 | 4,386 | 14 | ||||||||||||
Total | 27,538 | 27,860 | 29,417 | (1 | ) | |||||||||||
Net interest income | 11,860 | 12,299 | 10,546 | (4 | ) | |||||||||||
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Financial Statements
Notes to the Financial Statements
Note 3 Net Interest and Trading Income (continued)
Net trading income1 | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Equities | 2,254 | 1,660 | 2,621 | 36 | ||||||||||||
Fixed income2 | 131 | 396 | 997 | (67 | ) | |||||||||||
Foreign exchange and other | 2,587 | 1,700 | 1,833 | 52 | ||||||||||||
Net trading income | 4,972 | 3,756 | 5,451 | 32 | ||||||||||||
Included in the Net trading income table are fair value changes of CHF (1,203) million for the year ended 31 December 2004, CHF (115) million for the year ended 31 December 2003, and CHF 446 million for the year ended 31 December 2002 related to financial liabilities designated as held at fair value through profit and loss. For 2004, CHF (801) million of the total fair value change was attributable to changes in fair value
of embedded derivatives, while CHF (402) million was attributable to changes in LIBOR. The exposure from embedded derivatives is economically hedged with derivatives whose change in fair value is also reported in Net trading income, offsetting the fair value changes related to financial liabilities designated as held at fair value.
Note 4 Net Fee and Commission Income
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Equity underwriting fees | 1,430 | 1,270 | 1,166 | 13 | ||||||||||||
Bond underwriting fees | 1,114 | 1,084 | 968 | 3 | ||||||||||||
Total underwriting fees | 2,544 | 2,354 | 2,134 | 8 | ||||||||||||
Corporate finance fees | 1,078 | 761 | 848 | 42 | ||||||||||||
Brokerage fees | 5,916 | 5,608 | 5,987 | 5 | ||||||||||||
Investment fund fees | 4,588 | 3,895 | 4,033 | 18 | ||||||||||||
Fiduciary fees | 220 | 241 | 300 | (9 | ) | |||||||||||
Custodian fees | 1,261 | 1,201 | 1,302 | 5 | ||||||||||||
Portfolio and other management and advisory fees | 4,611 | 3,855 | 4,065 | 20 | ||||||||||||
Insurance-related and other fees | 342 | 355 | 417 | (4 | ) | |||||||||||
Total securities trading and investment activity fees | 20,560 | 18,270 | 19,086 | 13 | ||||||||||||
Credit-related fees and commissions | 266 | 249 | 275 | 7 | ||||||||||||
Commission income from other services | 988 | 1,087 | 1,006 | (9 | ) | |||||||||||
Total fee and commission income | 21,814 | 19,606 | 20,367 | 11 | ||||||||||||
Brokerage fees paid | 1,399 | 1,483 | 1,349 | (6 | ) | |||||||||||
Other | 999 | 778 | 797 | 28 | ||||||||||||
Total fee and commission expense | 2,398 | 2,261 | 2,146 | 6 | ||||||||||||
Net fee and commission income | 19,416 | 17,345 | 18,221 | 12 | ||||||||||||
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Note 5 Other Income
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Gains/(losses) from disposal of associates and subsidiaries | ||||||||||||||||
Net gain from disposal of: | ||||||||||||||||
Consolidated subsidiaries | 83 | 160 | 228 | (48 | ) | |||||||||||
Investments in associates | 1 | 2 | 0 | (50 | ) | |||||||||||
Total | 84 | 162 | 228 | (48 | ) | |||||||||||
Financial investments available-for-sale | ||||||||||||||||
Net gain from disposal of: | ||||||||||||||||
Private equity investments | 557 | 352 | 273 | 58 | ||||||||||||
Other financial investments | 46 | 90 | 457 | (49 | ) | |||||||||||
Impairment charges on private equity investments and other financial investments | (223 | ) | (541 | ) | (1,944 | ) | 59 | |||||||||
Total | 380 | (99 | ) | (1,214 | ) | |||||||||||
Net income from investments in property1 | 65 | 75 | 90 | (13 | ) | |||||||||||
Equity in income of associates | 65 | 123 | 7 | (47 | ) | |||||||||||
Gains/(losses) from investment properties2 | 11 | (42 | ) | 17 | ||||||||||||
Other | 292 | 243 | 876 | 20 | ||||||||||||
Total other income | 897 | 462 | 4 | 94 | ||||||||||||
Note 6 Personnel Expenses
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Salaries and bonuses | 14,835 | 13,478 | 14,219 | 10 | ||||||||||||
Contractors | 572 | 539 | 579 | 6 | ||||||||||||
Insurance and social contributions | 1,093 | 923 | 939 | 18 | ||||||||||||
Contribution to retirement plans | 707 | 721 | 676 | (2 | ) | |||||||||||
Other personnel expenses | 1,308 | 1,570 | 2,111 | (17 | ) | |||||||||||
Total personnel expenses | 18,515 | 17,231 | 18,524 | 7 | ||||||||||||
Note 7 General and Administrative Expenses
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Occupancy | 1,274 | 1,304 | 1,354 | (2 | ) | |||||||||||
Rent and maintenance of machines and equipment | 686 | 708 | 665 | (3 | ) | |||||||||||
Telecommunications and postage | 835 | 864 | 1,019 | (3 | ) | |||||||||||
Administration | 660 | 599 | 819 | 10 | ||||||||||||
Marketing and public relations | 442 | 398 | 453 | 11 | ||||||||||||
Travel and entertainment | 634 | 526 | 600 | 21 | ||||||||||||
Professional fees | 705 | 589 | 568 | 20 | ||||||||||||
IT and other outsourcing | 953 | 844 | 1,036 | 13 | ||||||||||||
Other | 514 | 254 | 558 | 102 | ||||||||||||
Total general and administrative expenses | 6,703 | 6,086 | 7,072 | 10 | ||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 8 Earnings per Share (EPS) and Shares Outstanding
For the year ended | % change from | |||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Basic earnings (CHF million) | ||||||||||||||||
Net profit | 8,089 | 6,239 | 3,530 | 30 | ||||||||||||
Diluted earnings (CHF million) | ||||||||||||||||
Net profit | 8,089 | 6,239 | 3,530 | 30 | ||||||||||||
Less: Profit on equity derivative contracts | (5 | ) | 1 | (20 | ) | |||||||||||
Net profit for diluted EPS | 8,084 | 6,240 | 3,510 | 30 | ||||||||||||
Weighted average shares outstanding | ||||||||||||||||
Weighted average shares outstanding | 1,052,914,417 | 1,116,953,623 | 1,208,586,678 | (6 | ) | |||||||||||
Potentially dilutive ordinary shares resulting from options and warrants outstanding1 | 29,046,943 | 21,847,002 | 14,796,264 | 33 | ||||||||||||
Weighted average shares outstanding for diluted EPS | 1,081,961,360 | 1,138,800,625 | 1,223,382,942 | (5 | ) | |||||||||||
Earnings per share (CHF) | ||||||||||||||||
Basic | 7.68 | 5.59 | 2.92 | 37 | ||||||||||||
Diluted | 7.47 | 5.48 | 2.87 | 36 | ||||||||||||
Shares outstanding
As at | % change from | |||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | |||||||||||||
Total ordinary shares issued | 1,126,858,177 | 1,183,046,764 | 1,256,297,678 | (5 | ) | |||||||||||
Second trading line treasury shares | ||||||||||||||||
2002 first program | 67,700,000 | |||||||||||||||
2002 second program | 6,335,080 | |||||||||||||||
2003 program | 56,707,000 | |||||||||||||||
2004 program | 39,935,094 | |||||||||||||||
Other treasury shares | 63,589,877 | 54,653,692 | 23,146,014 | 16 | ||||||||||||
Total treasury shares | 103,524,971 | 111,360,692 | 97,181,094 | (7 | ) | |||||||||||
Shares outstanding | 1,023,333,206 | 1,071,686,072 | 1,159,116,584 | (5 | ) | |||||||||||
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Balance Sheet: Assets
Note 9a Due from Banks and Loans
By type of exposure | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Banks1 | 35,520 | 32,024 | ||||||
Allowance for credit losses | (256 | ) | (284 | ) | ||||
Net due from banks | 35,264 | 31,740 | ||||||
Loans | ||||||||
Residential mortgages | 117,731 | 109,980 | ||||||
Commercial mortgages | 18,950 | 19,162 | ||||||
Other Loans | 98,081 | 86,829 | ||||||
Subtotal | 234,762 | 215,971 | ||||||
Allowance for credit losses | (2,375 | ) | (3,292 | ) | ||||
Net loans | 232,387 | 212,679 | ||||||
Net due from banks and loans | 267,651 | 244,419 | ||||||
By geographic region (based on the location of the borrower) | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Switzerland | 152,433 | 152,358 | ||||||
Rest of Europe/Africa/Middle East | 45,712 | 43,842 | ||||||
Americas | 61,751 | 42,653 | ||||||
Asia Pacific | 10,386 | 9,142 | ||||||
Subtotal | 270,282 | 247,995 | ||||||
Allowance for credit losses | (2,631 | ) | (3,576 | ) | ||||
Net due from banks and loans | 267,651 | 244,419 | ||||||
By type of collateral | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Secured by real estate | 138,692 | 130,740 | ||||||
Collateralized by securities | 38,872 | 28,062 | ||||||
Guarantees and other collateral | 18,973 | 18,295 | ||||||
Unsecured | 73,745 | 70,898 | ||||||
Subtotal | 270,282 | 247,995 | ||||||
Allowance for credit losses | (2,631 | ) | (3,576 | ) | ||||
Net due from banks and loans | 267,651 | 244,419 | ||||||
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Financial Statements
Notes to the Financial Statements
Note 9b Allowances and Provisions for Credit Losses
Specific allowances | Collective loan | Total | Total | ||||||||||||||
CHF million | and provisions | loss provision | 31.12.04 | 31.12.03 | 2 | ||||||||||||
Balance at the beginning of the year1 | 3,692 | 262 | 3,954 | 5,232 | |||||||||||||
Write-offs | (854 | ) | (3 | ) | (857 | ) | (1,436 | ) | |||||||||
Recoveries | 59 | 59 | 87 | ||||||||||||||
Increase / (decrease) in credit loss allowance and provision | (251 | ) | (25 | ) | (276 | ) | 72 | ||||||||||
Foreign currency translation and other adjustments | 30 | (27 | ) | 3 | (1 | ) | |||||||||||
Balance at the end of the year | 2,676 | 207 | 2,883 | 3,954 | |||||||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
As a reduction of Due from banks | 256 | 284 | ||||||
As a reduction of Loans | 2,375 | 3,292 | ||||||
As a reduction of other balance sheet positions | 41 | 88 | ||||||
Subtotal | 2,672 | 3,664 | ||||||
Included in other liabilities related to commitments and contingent liabilities | 211 | 290 | ||||||
Total allowances and provisions for credit losses | 2,883 | 3,954 | ||||||
Note 9c Impaired Due from Banks and Loans
CHF million | 31.12.04 | 31.12.03 | ||||||
Total gross impaired due from banks and loans1, 2 | 4,861 | 7,209 | ||||||
Allowance for impaired due from banks | 239 | 245 | ||||||
Allowance for impaired loans | 2,266 | 3,213 | ||||||
Total allowances for credit losses related to impaired due from banks and loans | 2,505 | 3,458 | ||||||
Average total gross impaired due from banks and loans3 | 6,038 | 8,594 | ||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Total gross impaired due from banks and loans | 4,861 | 7,209 | ||||||
Estimated liquidation proceeds of collateral | 1,758 | 2,465 | ||||||
Net impaired due from banks and loans | 3,103 | 4,744 | ||||||
Specific allowances and provisions | 2,505 | 3,458 | ||||||
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Note 9d Non-Performing Due from Banks and Loans
A loan (included in due from banks or loans) is classified as non-performing: 1) when the payment of interest, principal or fees is overdue by more than 90 days and there is no firm evidence that they will be made good by later payments or
the liquidation of collateral; 2) when insolvency proceedings have commenced; or 3) when obligations have been restructured on concessionary terms.
CHF million | 31.12.04 | 31.12.03 | ||||||
Total gross non-performing due from banks and loans | 3,696 | 4,901 | ||||||
Total allowances for credit losses related to non-performing due from banks and loans | 2,264 | 2,764 | ||||||
Average total gross non-performing due from banks and loans1 | 4,338 | 5,410 | ||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Non-performing due from banks and loans at the beginning of the year | 4,901 | 6,000 | ||||||
Net additions/(reductions) | (496 | ) | 317 | |||||
Write-offs and disposals | (709 | ) | (1,416 | ) | ||||
Non-performing due from banks and loans at the end of the year | 3,696 | 4,901 | ||||||
By type of exposure | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Banks | 242 | 253 | ||||||
Loans | ||||||||
Mortgages | 1,011 | 1,470 | ||||||
Other | 2,443 | 3,178 | ||||||
Total loans | 3,454 | 4,648 | ||||||
Total non-performing due from banks and loans | 3,696 | 4,901 | ||||||
By geographic region (based on the location of borrower) | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Switzerland | 2,772 | 4,012 | ||||||
Rest of Europe/Africa/Middle East | 607 | 488 | ||||||
Americas | 220 | 366 | ||||||
Asia Pacific | 97 | 35 | ||||||
Total non-performing due from banks and loans | 3,696 | 4,901 | ||||||
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Financial Statements
Notes to the Financial Statements
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 cred-
it risk associated with these activities by monitoring counter-party credit exposure and collateral values on a daily basis and requiring additional collateral to be deposited with or returned to the Group when deemed necessary.
Balance sheet assets | ||||||||||||||||
Cash collateral on | Reverse repurchase | Cash collateral on | Reverse repurchase | |||||||||||||
securities borrowed | agreements | securities borrowed | agreements | |||||||||||||
CHF million | 31.12.04 | 31.12.04 | 31.12.03 | 31.12.03 | ||||||||||||
By counterparty | ||||||||||||||||
Banks | 167,567 | 243,890 | 172,783 | 237,148 | ||||||||||||
Customers | 52,675 | 113,274 | 41,149 | 83,351 | ||||||||||||
Total | 220,242 | 357,164 | 213,932 | 320,499 | ||||||||||||
Balance sheet liabilities | ||||||||||||||||
Cash collateral on | Repurchase | Cash collateral on | Repurchase | |||||||||||||
securities lent | agreements | securities lent | agreements | |||||||||||||
CHF million | 31.12.04 | 31.12.04 | 31.12.03 | 31.12.03 | ||||||||||||
By counterparty | ||||||||||||||||
Banks | 40,580 | 252,151 | 39,587 | 263,905 | ||||||||||||
Customers | 20,965 | 170,436 | 13,691 | 151,958 | ||||||||||||
Total | 61,545 | 422,587 | 53,278 | 415,863 | ||||||||||||
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 2004 and 31 December 2003 were as follows:
CHF million | 31.12.04 | 31.12.03 | ||||||
Securities received under reverse repurchase and / or securities borrowing arrangements which can be repledged or resold | 949,570 | 827,602 | ||||||
thereof repledged / transferred to others in connection with financing activities or to satisfy commitments under short sale transactions | 639,865 | 593,049 | ||||||
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Note 11 Trading Portfolio
The Group trades in debt instruments (including money market paper and tradeable loans), equity instruments, precious metals, commodities and derivatives to meet the financial needs of its customers and to generate revenue. Note 23 pro-
vides 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 | 31.12.04 | 31.12.03 | ||||||
Trading portfolio assets | ||||||||
Money market paper | 44,842 | 40,003 | ||||||
thereof pledged as collateral with central banks | 4,706 | 6,208 | ||||||
thereof pledged as collateral and can be repledged or resold by counterparty | 12,580 | 0 | ||||||
Debt instruments | ||||||||
Swiss government and government agencies | 776 | 1,011 | ||||||
US Treasury and government agencies | 92,330 | 92,250 | ||||||
Other government agencies | 79,340 | 69,755 | ||||||
Corporate listed | 140,500 | 152,413 | ||||||
Other unlisted | 35,646 | 8,457 | ||||||
Total | 348,592 | 323,886 | ||||||
thereof pledged as collateral | 147,525 | 130,093 | ||||||
thereof can be repledged or resold by counterparty | 120,317 | 104,402 | ||||||
Equity instruments | ||||||||
Listed | 90,594 | 64,116 | ||||||
Unlisted | 18,119 | 10,507 | ||||||
Total | 108,713 | 74,623 | ||||||
thereof pledged as collateral | 27,140 | 16,426 | ||||||
thereof can be repledged or resold by counterparty | 26,218 | 16,357 | ||||||
Traded loans | 16,077 | 12,650 | ||||||
Precious metals, commodities1 | 11,150 | 10,610 | ||||||
Total trading portfolio assets | 529,374 | 461,772 | ||||||
Trading portfolio liabilities | ||||||||
Debt instruments | ||||||||
Swiss government and government agencies | 511 | 586 | ||||||
US Treasury and government agencies | 54,848 | 52,377 | ||||||
Other government agencies | 49,512 | 38,369 | ||||||
Corporate listed | 27,413 | 13,537 | ||||||
Other unlisted | 2,600 | 10,851 | ||||||
Total | 134,884 | 115,720 | ||||||
Equity instruments | 36,149 | 28,237 | ||||||
Total trading portfolio liabilities | 171,033 | 143,957 | ||||||
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Financial Statements
Notes to the Financial Statements
Note 12 Financial Investments (available-for-sale)
CHF million | 31.12.04 | 31.12.03 | ||||||
Money market paper | 567 | 596 | ||||||
Other debt instruments | ||||||||
Listed | 261 | 189 | ||||||
Unlisted | 21 | 72 | ||||||
Total | 282 | 261 | ||||||
Equity instruments | ||||||||
Listed | 504 | 387 | ||||||
Unlisted | 687 | 630 | ||||||
Total | 1,191 | 1,017 | ||||||
Private equity investments | 3,009 | 3,265 | ||||||
Total financial investments | 5,049 | 5,139 | ||||||
thereof eligible for discount at central banks | 86 | 196 | ||||||
The following tables show the unrealized gains and losses not recognized in the income statement for the years ended 2004 and 2003:
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 2004 | ||||||||||||||||||||||||
Money market paper | 567 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by Swiss national government and agencies | 10 | 1 | 0 | 1 | 0 | 1 | ||||||||||||||||||
Debt securities issued by Swiss local governments | 20 | 1 | 0 | 1 | 0 | 1 | ||||||||||||||||||
Debt securities issued by US Treasury and agencies | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by foreign governments and official institutions | 40 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Corporate debt securities | 140 | 7 | (4 | ) | 3 | 0 | 3 | |||||||||||||||||
Mortgage-backed securities | 72 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Other debt securities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Equity securities | 1,191 | 455 | (5 | ) | 450 | (83 | ) | 367 | ||||||||||||||||
Private equity investments | 3,009 | 979 | (44 | ) | 935 | (89 | ) | 846 | ||||||||||||||||
Total | 5,049 | 1,443 | (53 | ) | 1,390 | (172 | ) | 1,218 | ||||||||||||||||
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 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 | ||||||||||||||||
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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 and the duration of the unrealized losses.
Fair Value | Unrealized Losses | |||||||||||||||||||||||
Investments | Investments | Investments | Investments | |||||||||||||||||||||
with unrealized | with unrealized | with unrealized | with unrealized | |||||||||||||||||||||
loss less than | loss more than | loss less than | loss more than | |||||||||||||||||||||
CHF million | 12 months | 12 months | Total | 12 months | 12 months | Total | ||||||||||||||||||
31 December 2004 | ||||||||||||||||||||||||
Money market paper | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by the Swiss national government and agencies | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by Swiss local governments | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by US Treasury and agencies | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by foreign governments and official institutions | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Corporate debt securities | 0 | 0 | 0 | 0 | (4 | ) | (4 | ) | ||||||||||||||||
Mortgage-backed securities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Other debt securities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Equity securities | 1 | 24 | 25 | (1 | ) | (4 | ) | (5 | ) | |||||||||||||||
Private equity investments | 424 | 82 | 506 | (5 | ) | (39 | ) | (44 | ) | |||||||||||||||
Total | 425 | 106 | 531 | (6 | ) | (47 | ) | (53 | ) | |||||||||||||||
Contractual maturities of the investments in debt instruments1 | ||||||||||||||||||||||||||||||||
Within 1 year | 1–5 years | 5–10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 2004 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 1 | 5.50 | 2 | 4.29 | 6 | 3.80 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 10 | 3.97 | 10 | 4.14 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Foreign governments and official institutions | 36 | 2.13 | 4 | 1.25 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Corporate debt securities | 57 | 2.74 | 50 | 2.92 | 0 | 0 | 33 | 0 | ||||||||||||||||||||||||
Mortgage-backed securities | 3 | 2.50 | 0 | 0 | 5 | 3.21 | 64 | 4.36 | ||||||||||||||||||||||||
Other debt securities | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total fair value | 107 | 66 | 11 | 98 | ||||||||||||||||||||||||||||
Proceeds from sales and maturities of investment securities available-for-sale, excluding private equity, were as follows:
CHF million | 31.12.04 | 31.12.03 | ||||||
Proceeds | 277 | 1,379 | ||||||
Gross realized gains | 49 | 112 | ||||||
Gross realized losses | (4 | ) | (23 | ) | ||||
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Financial Statements
Notes to the Financial Statements
Note 13 Investments in Associates
CHF million | 31.12.04 | 31.12.03 | ||||||
Carrying amount at the beginning of the year | 1,616 | 705 | ||||||
Additions | 1,896 | 1 | 88 | |||||
Disposals | (684 | ) | (142 | ) | ||||
Transfers | (378 | ) | 1,001 | |||||
Income | 65 | 123 | ||||||
Dividend paid | (32 | ) | (30 | ) | ||||
Foreign currency translation | (56 | ) | (129 | ) | ||||
Carrying amount at the end of the year | 2,427 | 1,616 | ||||||
Note 14 Property and Equipment
Other | Plant and | |||||||||||||||||||||||||||||||||||
Leasehold | IT, software | machines | manu- | |||||||||||||||||||||||||||||||||
Own used | Investment | improve- | and com- | and | facturing | Projects in | ||||||||||||||||||||||||||||||
CHF million | properties | properties | ments | munication | equipment | equipment | progress | 31.12.04 | 31.12.03 | |||||||||||||||||||||||||||
Historical cost | ||||||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 9,408 | 2,545 | 4,241 | 1,425 | 0 | 266 | 17,885 | 17,390 | ||||||||||||||||||||||||||||
Additions | 232 | 235 | 460 | 123 | 29 | 149 | 1,228 | 1,352 | ||||||||||||||||||||||||||||
Additions from acquired companies | 179 | 0 | 0 | 0 | 1,880 | 34 | 2,093 | 24 | ||||||||||||||||||||||||||||
Disposals / write-offs1 | (436 | ) | (175 | ) | (619 | ) | (46 | ) | (11 | ) | (52 | ) | (1,339 | ) | (1,030 | ) | ||||||||||||||||||||
Reclassifications | (60 | ) | 85 | 5 | (63 | ) | 0 | (153 | ) | (186 | ) | 457 | ||||||||||||||||||||||||
Foreign currency translation | 6 | (100 | ) | (107 | ) | (40 | ) | 38 | (2 | ) | (205 | ) | (308 | ) | ||||||||||||||||||||||
Balance at the end of the year | 9,329 | 2,590 | 3,980 | 1,399 | 1,936 | 242 | 19,476 | 17,885 | ||||||||||||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 4,365 | 1,570 | 3,334 | 1,165 | 0 | 4 | 10,438 | 9,870 | ||||||||||||||||||||||||||||
Depreciation | 247 | 201 | 775 | 68 | 61 | 1,352 | 1,353 | |||||||||||||||||||||||||||||
Disposals / write-offs1 | (7 | ) | (53 | ) | (636 | ) | (43 | ) | (10 | ) | 0 | (749 | ) | (936 | ) | |||||||||||||||||||||
Reclassifications | (42 | ) | 2 | 0 | 1 | 0 | (4 | ) | (43 | ) | 330 | |||||||||||||||||||||||||
Foreign currency translation | 0 | (61 | ) | (98 | ) | (21 | ) | 2 | 0 | (178 | ) | (179 | ) | |||||||||||||||||||||||
Balance at the end of the year | 4,563 | 1,659 | 3,375 | 1,170 | 53 | 0 | 10,820 | 10,438 | ||||||||||||||||||||||||||||
Fair value | 41 | 39 | 80 | 236 | ||||||||||||||||||||||||||||||||
Net book value at the end of the year2 | 4,766 | 41 | 931 | 605 | 229 | 1,883 | 281 | 8,736 | 7,683 | |||||||||||||||||||||||||||
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Note 15 Goodwill and Other Intangible Assets
Goodwill | Other intangible assets | |||||||||||||||||||||||
Customer | ||||||||||||||||||||||||
relationships, | ||||||||||||||||||||||||
contractual | ||||||||||||||||||||||||
CHF million | Total | Infrastructure | rights and other | Total | 31.12.04 | 31.12.03 | ||||||||||||||||||
Historical cost | ||||||||||||||||||||||||
Balance at the beginning of the year | 12,032 | 958 | 1,915 | 2,873 | 14,905 | 17,022 | ||||||||||||||||||
Additions and reallocations | 960 | 0 | 1,531 | 1,531 | 2,491 | 340 | ||||||||||||||||||
Disposals and other reductions | (62 | ) | 0 | 14 | 14 | (48 | ) | (371 | ) | |||||||||||||||
Write-offs1 | (105 | ) | 0 | (1 | ) | (1 | ) | (106 | ) | (508 | ) | |||||||||||||
Foreign currency translation | (966 | ) | (78 | ) | (154 | ) | (232 | ) | (1,198 | ) | (1,578 | ) | ||||||||||||
Balance at the end of the year | 11,859 | 880 | 3,305 | 4,185 | 16,044 | 14,905 | ||||||||||||||||||
Accumulated amortization | ||||||||||||||||||||||||
Balance at the beginning of the year | 2,684 | 152 | 540 | 692 | 3,376 | 3,326 | ||||||||||||||||||
Amortization | 713 | 53 | 198 | 251 | 964 | 943 | ||||||||||||||||||
Disposals | (9 | ) | 0 | 0 | 0 | (9 | ) | (70 | ) | |||||||||||||||
Write-offs1 | (105 | ) | 0 | (1 | ) | (1 | ) | (106 | ) | (508 | ) | |||||||||||||
Foreign currency translation | (271 | ) | (21 | ) | (38 | ) | (59 | ) | (330 | ) | (315 | ) | ||||||||||||
Balance at the end of the year | 3,012 | 184 | 699 | 883 | 3,895 | 3,376 | ||||||||||||||||||
Net book value at the end of the year | 8,847 | 696 | 2,606 | 3,302 | 12,149 | 11,529 | ||||||||||||||||||
The following table presents the disclosure of goodwill and other intangible assets by business unit for the year ended 31 December 2004.
Balance at | Balance at | |||||||||||||||||||||||
the beginning | Additions and | Disposals and | Foreign currency | the end | ||||||||||||||||||||
CHF million | of the year | reallocations | other reductions | Amortization | translation | of the year | ||||||||||||||||||
Goodwill | ||||||||||||||||||||||||
Wealth Management | 837 | 486 | (5 | ) | (67 | ) | (75 | ) | 1,176 | |||||||||||||||
Business Banking Switzerland | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Global Asset Management | 1,401 | 2 | (1 | ) | (129 | ) | (84 | ) | 1,189 | |||||||||||||||
Investment Bank | 3,372 | 352 | (16 | ) | (252 | ) | (257 | ) | 3,199 | |||||||||||||||
Wealth Management USA | 3,315 | 0 | (16 | ) | (197 | ) | (250 | ) | 2,852 | |||||||||||||||
Private Banks & GAM | 421 | 0 | (15 | ) | (68 | ) | (27 | ) | 311 | |||||||||||||||
Corporate Functions | 2 | 0 | 0 | 0 | (2 | ) | 0 | |||||||||||||||||
Industrial Holdings | 0 | 120 | 0 | 0 | 0 | 120 | ||||||||||||||||||
UBS | 9,348 | 960 | (53 | ) | (713 | ) | (695 | ) | 8,847 | |||||||||||||||
Other intangible assets | ||||||||||||||||||||||||
Wealth Management | 4 | 169 | 0 | (8 | ) | (6 | ) | 159 | ||||||||||||||||
Business Banking Switzerland | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Global Asset Management | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Investment Bank | 324 | 158 | 0 | (36 | ) | (28 | ) | 418 | ||||||||||||||||
Wealth Management USA | 1,805 | 0 | 0 | (107 | ) | (138 | ) | 1,560 | ||||||||||||||||
Private Banks & GAM | 4 | 0 | 15 | (6 | ) | 1 | 14 | |||||||||||||||||
Corporate Functions | 44 | 0 | 0 | (17 | ) | (3 | ) | 24 | ||||||||||||||||
Industrial Holdings | 0 | 1,204 | (1 | ) | (77 | ) | 1 | 1,127 | ||||||||||||||||
UBS | 2,181 | 1,531 | 14 | (251 | ) | (173 | ) | 3,302 | ||||||||||||||||
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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Notes to the Financial Statements
Note 15 Goodwill and Other Intangible Assets (continued)
The estimated, aggregated amortization expenses for other intangible assets are as follows:
CHF million | Other intangible assets | |||
Estimated, aggregated amortization expenses for: | ||||
2005 | 284 | |||
2006 | 273 | |||
2007 | 264 | |||
2008 | 252 | |||
2009 | 219 | |||
2010 and thereafter | 1,000 | |||
Total | 2,292 | |||
Due to the issuance ofIFRS 3 Business Combinations,goodwill amortization will cease from 1 January 2005. In addition, certain intangible assets will be reclassified to goodwill at 1 January 2005 and have been excluded for the purpose of
calculating estimated (aggregated) amortization expenses for Other intangible assets. See Notes 1aa) and 1ab) for further details.
Note 16 Other Assets
CHF million | Note | 31.12.04 | 31.12.03 | |||||||||
Deferred tax assets | 21 | 2,663 | 2,276 | |||||||||
Settlement and clearing accounts | 4,747 | 2,874 | ||||||||||
VAT and other tax receivables | 326 | 338 | ||||||||||
Prepaid pension costs | 804 | 862 | ||||||||||
Properties held for resale | 534 | 754 | ||||||||||
Life insurance assets | 19,224 | 13,544 | ||||||||||
Other receivables | 6,486 | 4,811 | ||||||||||
Accounts receivable trade | 66 | 0 | ||||||||||
Total other assets | 34,850 | 25,459 | ||||||||||
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Balance Sheet: Liabilities
Note 17 Due to Banks and Customers | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Due to banks | 118,901 | 127,012 | ||||||
Due to customers in savings and investment accounts | 101,081 | 94,914 | ||||||
Other amounts due to customers | 275,002 | 251,719 | ||||||
Total due to customers | 376,083 | 346,633 | ||||||
Total due to banks and customers | 494,984 | 473,645 | ||||||
Note 18 Financial liabilities designated at fair value and debt issued
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Financial Statements
Notes to the Financial Statements
Note 18 Financial Liabilities Designated at Fair Value and Debt Issued (continued)
Financial liabilities designated at fair value | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Unsecuritized compound debt instruments | 4,110 | 0 | ||||||
Bonds and compound debt instruments | 61,646 | 35,286 | ||||||
Total | 65,756 | 35,286 | ||||||
Debt issued (held at amortized cost) | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Short-term debt: Money market paper issued | 79,442 | 58,115 | ||||||
Long-term debt: | ||||||||
Bonds | ||||||||
Senior | 28,035 | 19,883 | ||||||
Subordinated | 8,605 | 8,061 | ||||||
Shares in bond issues of the Swiss Regional or Cantonal Banks’ Central Bond Institutions | 60 | 210 | ||||||
Medium-term notes | 1,686 | 2,574 | ||||||
Subtotal long-term debt | 38,386 | 30,728 | ||||||
Total | 117,828 | 88,843 | ||||||
The following table shows the split between fixed and floating rate debt issues based on the contractual terms. However it should be noted that the Group uses interest rate
swaps to hedge many of the fixed rate debt issues, which changes their re-pricing characteristics into that of floating rate debt.
Contractual maturity dates | ||||||||||||||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 2005 | 2006 | 2007 | 2008 | 2009 | 2010-2014 | Thereafter | 31.12.04 | 31.12.03 | |||||||||||||||||||||||||||
UBS AG Parent Bank | ||||||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 35,193 | 7,220 | 8,879 | 4,367 | 5,239 | 7,405 | 1,110 | 69,413 | 52,174 | |||||||||||||||||||||||||||
Interest rates (range in %) | 0–19 | 0–16.5 | 0–11 | 0–20 | 0–13.5 | 0–15 | 0–10 | |||||||||||||||||||||||||||||
Floating rate | 6,662 | 1,369 | 1,047 | 527 | 1,622 | 2,435 | 8,923 | 22,585 | 12,542 | |||||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 1,488 | 1,573 | 1,379 | 0 | 524 | 1,902 | 1,381 | 8,247 | 7,514 | |||||||||||||||||||||||||||
Interest rates (range in %) | 4–8.75 | 4.25–7.25 | 5.75–8 | 5.88 | 3.13–4.5 | 7–8.75 | ||||||||||||||||||||||||||||||
Floating rate | 0 | 0 | 0 | 0 | 0 | 0 | 342 | 342 | 506 | |||||||||||||||||||||||||||
Subtotal | 43,343 | 10,162 | 11,305 | 4,894 | 7,385 | 11,742 | 11,756 | 100,587 | 72,736 | |||||||||||||||||||||||||||
Subsidiaries | ||||||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 53,099 | 3,632 | 1,418 | 5,628 | 4,671 | 1,532 | 1,010 | 70,990 | 43,579 | |||||||||||||||||||||||||||
Interest rates (range in %) | 0–10 | 0–10 | 0–10 | 0–10 | 0–18.5 | 0–35 | 0–35 | |||||||||||||||||||||||||||||
Floating rate | 718 | 265 | 314 | 810 | 426 | 2,121 | 3,227 | 7,881 | 7,773 | |||||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 0 | 0 | 0 | 0 | 0 | 0 | 16 | 16 | 41 | |||||||||||||||||||||||||||
Interest rates (range in %) | 9 | |||||||||||||||||||||||||||||||||||
Floating rate | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Subtotal | 53,817 | 3,897 | 1,732 | 6,438 | 5,097 | 3,653 | 4,253 | 78,887 | 51,393 | |||||||||||||||||||||||||||
Total | 97,160 | 14,059 | 13,037 | 11,332 | 12,482 | 15,395 | 16,009 | 179,474 | 124,129 | |||||||||||||||||||||||||||
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Note 19 Other Liabilities | ||||||||||||
CHF million | Note | 31.12.04 | 31.12.03 | |||||||||
Provisions | 20 | 1,947 | 1,361 | |||||||||
Provision for commitments and contingent liabilities | 9b | 211 | 290 | |||||||||
Current tax liabilities | 2,298 | 1,754 | ||||||||||
Deferred tax liabilities | 21 | 2,984 | 2,208 | |||||||||
VAT and other tax payables | 520 | 544 | ||||||||||
Settlement and clearing accounts | 2,185 | 2,608 | ||||||||||
Obligations under life insurance policies | 22,057 | 13,544 | ||||||||||
Accounts payable | 1,241 | 0 | ||||||||||
Other payables | 8,899 | 9,051 | ||||||||||
Total other liabilities | 42,342 | 31,360 | ||||||||||
Note 20 Provisions | ||||||||||||||||
Total | Total | |||||||||||||||
CHF million | Operational/Other1 | Litigation | 31.12.04 | 31.12.03 | ||||||||||||
Balance at the beginning of the year | 855 | 506 | 1,361 | 1,375 | ||||||||||||
Additions from acquired companies | 698 | 0 | 698 | 0 | ||||||||||||
New provisions charged to income | 127 | 414 | 541 | 330 | ||||||||||||
Capitalized reinstatement costs | 66 | 0 | 66 | 155 | ||||||||||||
Recoveries | 14 | 26 | 40 | 40 | ||||||||||||
Provisions applied | (270 | ) | (415 | ) | (685 | ) | (452 | ) | ||||||||
Foreign currency translation | (37 | ) | (37 | ) | (74 | ) | (87 | ) | ||||||||
Balance at the end of the year | 1,453 | 494 | 1,947 | 1,361 | ||||||||||||
Note 21 Income Taxes | |||||||||||||
For the year ended | |||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||
Domestic | |||||||||||||
Current | 1,336 | 810 | 938 | ||||||||||
Deferred | 37 | 118 | (34 | ) | |||||||||
Foreign | |||||||||||||
Current | 796 | 294 | 249 | ||||||||||
Deferred | (34 | ) | 371 | (477 | ) | ||||||||
Total income tax expense | 2,135 | 1,593 | 676 | ||||||||||
The Group made net tax payments, including domestic and foreign taxes, of CHF 1,336 million, CHF 1,104 million and CHF 572 million for the full years of 2004, 2003 and 2002, 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:
For the year ended | |||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||
Operating profit before tax | 10,674 | 8,177 | 4,537 | ||||||||||
Domestic | 6,219 | 5,384 | 6,542 | ||||||||||
Foreign | 4,455 | 2,793 | (2,005 | ) | |||||||||
Income taxes at Swiss Statutory rate of 24% in 2004, 24% in 2003 and 25% in 2002, respectively | 2,561 | 1,962 | 1,134 | ||||||||||
Increase / (decrease) resulting from: | |||||||||||||
Applicable tax rates differing from Swiss statutory rate | 139 | (233 | ) | (341 | ) | ||||||||
Tax losses not recognized | 103 | 42 | 51 | ||||||||||
Previously unrecorded tax losses now recognized | (249 | ) | (291 | ) | (349 | ) | |||||||
Lower taxed income | (660 | ) | (366 | ) | (378 | ) | |||||||
Non-deductible goodwill amortization | 262 | 386 | 291 | ||||||||||
Other non-deductible expenses | 219 | 186 | 301 | ||||||||||
Adjustments related to prior years and other | (296 | ) | (191 | ) | (122 | ) | |||||||
Change in deferred tax valuation allowance | 56 | 98 | 89 | ||||||||||
Income tax expense | 2,135 | 1,593 | 676 | ||||||||||
Significant components of the Group’s gross deferred income tax assets and liabilities are as follows:
CHF million | 31.12.04 | 31.12.03 | ||||||
Deferred tax assets | ||||||||
Compensation and benefits | 1,716 | 1,538 | ||||||
Allowance for credit losses | 12 | 4 | ||||||
Net operating loss carry forwards | 2,246 | 2,626 | ||||||
Trading assets | 483 | 306 | ||||||
Other | 874 | 685 | ||||||
Total | 5,331 | 5,159 | ||||||
Valuation allowance | (2,668 | ) | (2,883 | ) | ||||
Net deferred tax assets | 2,663 | 2,276 | ||||||
Deferred tax liabilities | ||||||||
Property and equipment | 773 | 307 | ||||||
Investments | 343 | 390 | ||||||
Other provisions | 313 | 401 | ||||||
Trading assets | 408 | 348 | ||||||
Other | 1,147 | 762 | ||||||
Total deferred tax liabilities | 2,984 | 2,208 | ||||||
The change in the balance of net deferred tax assets and deferred tax liabilities does not equal the deferred tax expense in those years. This is mainly due to the impact of the acqui-
sition of Motor-Columbus, as well as the effect of foreign currency rate changes on tax assets and liabilities denominated in currencies other than CHF.
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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 2,668 million (CHF 2,883 million at 31 December 2003). For companies that suffered tax losses in either the current or preceding year an amount of CHF 431 million (CHF 542 million at 31 December 2003) has been recognized as deferred tax assets based on expectations that sufficient taxable income will be generated in future years to utilize the tax loss carry forwards.
The carry forwards expire as follows: | 31.12.04 | |||||||
Within 1 year | 46 | |||||||
From 2 to 4 years | 106 | |||||||
After 4 years | 5,680 | |||||||
Total | 5,832 | |||||||
Note 22 Minority Interests | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Balance at the beginning of the year | 4,073 | 3,529 | ||||||
Issuance of trust preferred securities | 0 | 372 | ||||||
Other increases | 1,922 | 1 | 573 | |||||
Decreases and dividend payments | (668 | ) | (357 | ) | ||||
Foreign currency translation | (443 | ) | (389 | ) | ||||
Minority interest in net profit | 450 | 345 | ||||||
Balance at the end of the year | 5,334 | 4,073 | ||||||
Note 23 Derivative Instruments
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Financial Statements
Notes to the Financial Statements
Types of derivative instruments
– | Interest rate swap contracts generally entail the contractual exchange of fixed and floating rate interest payments in a single currency, based on a notional amount and a reference interest rate, e. g. LIBOR. | |
– | Cross currency swaps involve the exchange of interest payments based on two different currency principal balances and reference interest rates and generally also entail exchange of principal amounts at the start and / or end of the contract. | |
– | Credit default swaps (CDSs) are the most common form of credit derivative, under which the party buying protection makes one or more payments to the party selling protection in exchange for an undertaking by the seller to make a payment to the buyer following a credit event (as defined in the contract) with respect to a third party. Settlement following a credit event may be a net cash amount, or cash in return for physical delivery of one or more obligations of the credit entity (as defined in the contract) and is made regardless of whether the protection buyer has actually suffered a loss. After a credit event and settlement, the contract is terminated. | |
– | Total rate of return swaps give the total return receiver exposure to all of the cash flows and economic benefits and risks of an underlying asset, without having to own the asset, in exchange for a series of payments, often based on a reference interest rate, e. g. LIBOR. The total return payer has an equal and opposite position. |
Derivatives transacted for trading purposes
Derivatives transacted for hedging purposes
Fair value hedges
Cash flow hedges of forecast transactions
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CHF billion | < 1 year | 1-3 years | 3-5 years | 5-10 years | over 10 years | |||||||||||||||
Cash inflows (Assets) | 135 | 255 | 180 | 153 | 8 | |||||||||||||||
Cash outflows (Liabilities) | 88 | 142 | 87 | 91 | 72 | |||||||||||||||
Net cash flows | 47 | 113 | 93 | 62 | (64 | ) | ||||||||||||||
Risks of derivative instruments
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Financial Statements
Notes to the Financial Statements
Note 23 Derivative Instruments (continued) | |||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2004 | Term to maturity | Total | |||||||||||||||||||||||||||||||||||||||||||
notional | |||||||||||||||||||||||||||||||||||||||||||||
Within 3 months | 3-12 months | 1-5 years | Over 5 years | Total | Total | amount | |||||||||||||||||||||||||||||||||||||||
CHF million | PRV1 | NRV2 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | NRV | CHF bn | ||||||||||||||||||||||||||||||||||
Interest rate contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 440 | 495 | 112 | 144 | 58 | 34 | 90 | 166 | 700 | 839 | 843.6 | ||||||||||||||||||||||||||||||||||
Swaps | 4,305 | 4,002 | 11,015 | 11,921 | 65,419 | 64,487 | 76,470 | 75,287 | 157,209 | 155,697 | 9,871.0 | ||||||||||||||||||||||||||||||||||
Options | 806 | 722 | 1,845 | 2,239 | 6,553 | 8,292 | 5,942 | 6,479 | 15,146 | 17,732 | 1,181.4 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 2,073.0 | ||||||||||||||||||||||||||||||||||||||||||||
Options | 86 | 87 | 133 | 103 | 5 | 5 | 224 | 195 | 817.9 | ||||||||||||||||||||||||||||||||||||
Total | 5,637 | 5,306 | 13,105 | 14,407 | 72,035 | 72,818 | 82,502 | 81,932 | 173,279 | 174,463 | 14,786.9 | ||||||||||||||||||||||||||||||||||
Credit derivative contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 7 | 10 | 51 | 99 | 3,819 | 5,409 | 2,401 | 1,501 | 6,278 | 7,019 | 639.2 | ||||||||||||||||||||||||||||||||||
Total rate of return swaps | 31 | 15 | 57 | 69 | 433 | 1,076 | 376 | 272 | 897 | 1,432 | 27.1 | ||||||||||||||||||||||||||||||||||
Total | 38 | 25 | 108 | 168 | 4,252 | 6,485 | 2,777 | 1,773 | 7,175 | 8,451 | 666.3 | ||||||||||||||||||||||||||||||||||
Foreign exchange contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 3,496 | 4,585 | 807 | 1,316 | 186 | 449 | 68 | 240 | 4,557 | 6,590 | 355.6 | ||||||||||||||||||||||||||||||||||
Interest and currency swaps | 27,587 | 28,094 | 15,101 | 14,907 | 20,897 | 15,484 | 7,189 | 7,240 | 70,774 | 65,725 | 2,811.4 | ||||||||||||||||||||||||||||||||||
Options | 2,224 | 2,202 | 2,809 | 2,553 | 508 | 503 | 4 | 4 | 5,545 | 5,262 | 559.2 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 2.9 | ||||||||||||||||||||||||||||||||||||||||||||
Options | 9 | 9 | 81 | 79 | 11 | 10 | 101 | 98 | 5.9 | ||||||||||||||||||||||||||||||||||||
Total | 33,316 | 34,890 | 18,798 | 18,855 | 21,602 | 16,446 | 7,261 | 7,484 | 80,977 | 77,675 | 3,735.0 | ||||||||||||||||||||||||||||||||||
Precious metals contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 130 | 113 | 150 | 201 | 447 | 192 | 9 | 24 | 736 | 530 | 13.5 | ||||||||||||||||||||||||||||||||||
Options | 156 | 115 | 281 | 251 | 683 | 615 | 34 | 28 | 1,154 | 1,009 | 43.4 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 0.8 | ||||||||||||||||||||||||||||||||||||||||||||
Options | 215 | 237 | 195 | 259 | 18 | 33 | 428 | 529 | 2.5 | ||||||||||||||||||||||||||||||||||||
Total | 501 | 465 | 626 | 711 | 1,148 | 840 | 43 | 52 | 2,318 | 2,068 | 60.2 | ||||||||||||||||||||||||||||||||||
Equity/index contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 795 | 506 | 572 | 419 | 1,912 | 928 | 129 | 24 | 3,408 | 1,877 | 103.6 | ||||||||||||||||||||||||||||||||||
Options | 2,017 | 7,807 | 2,057 | 7,245 | 7,367 | 16,290 | 455 | 2,144 | 11,896 | 33,486 | 223.6 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 8.1 | ||||||||||||||||||||||||||||||||||||||||||||
Options | 1,212 | 1,040 | 947 | 1,142 | 1,711 | 1,979 | 98 | 109 | 3,968 | 4,270 | 401.6 | ||||||||||||||||||||||||||||||||||
Total | 4,024 | 9,353 | 3,576 | 8,806 | 10,990 | 19,197 | 682 | 2,277 | 19,272 | 39,633 | 736.9 | ||||||||||||||||||||||||||||||||||
Commodity contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 338 | 343 | 519 | 491 | 420 | 379 | 1,277 | 1,213 | 35.4 | ||||||||||||||||||||||||||||||||||||
Options | 76 | 73 | 85 | 79 | 118 | 57 | 279 | 209 | 4.7 | ||||||||||||||||||||||||||||||||||||
Total | 414 | 416 | 604 | 570 | 538 | 436 | 0 | 0 | 1,556 | 1,422 | 40.1 | ||||||||||||||||||||||||||||||||||
Total derivative instruments | 43,930 | 50,455 | 36,817 | 43,517 | 110,565 | 116,222 | 93,265 | 93,518 | 284,577 | 303,712 | |||||||||||||||||||||||||||||||||||
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Note 23 Derivative Instruments (continued) | |||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2004 | Term to maturity | Total | |||||||||||||||||||||||||||||||||||||||||||
notional | |||||||||||||||||||||||||||||||||||||||||||||
Within 3 months | 3-12 months | 1-5 years | Over 5 years | Total | Total | amount | |||||||||||||||||||||||||||||||||||||||
CHF million | PRV1 | NRV2 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | NRV | CHF bn | ||||||||||||||||||||||||||||||||||
Interest rate contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 424 | 586 | 258 | 312 | 71 | 130 | 5 | 4 | 758 | 1,032 | 1,128.4 | ||||||||||||||||||||||||||||||||||
Swaps | 3,831 | 4,388 | 8,698 | 5,991 | 64,216 | 65,075 | 52,019 | 50,517 | 128,764 | 125,971 | 8,065.4 | ||||||||||||||||||||||||||||||||||
Options | 464 | 978 | 868 | 992 | 4,686 | 5,967 | 4,223 | 5,334 | 10,241 | 13,271 | 815.4 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 243.7 | ||||||||||||||||||||||||||||||||||||||||||||
Options | 7 | 9 | 2 | 8 | 9 | 17 | 63.4 | ||||||||||||||||||||||||||||||||||||||
Total | 4,726 | 5,961 | 9,826 | 7,303 | 68,973 | 71,172 | 56,247 | 55,855 | 139,772 | 140,291 | 10,316.3 | ||||||||||||||||||||||||||||||||||
Credit derivative contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 109 | 102 | 39 | 61 | 3,443 | 3,536 | 1,928 | 1,880 | 5,519 | 5,579 | 289.3 | ||||||||||||||||||||||||||||||||||
Total rate of return swaps | 27 | 2 | 29 | 576 | 197 | 470 | 112 | 305 | 365 | 1,353 | 12.0 | ||||||||||||||||||||||||||||||||||
Total | 136 | 104 | 68 | 637 | 3,640 | 4,006 | 2,040 | 2,185 | 5,884 | 6,932 | 301.3 | ||||||||||||||||||||||||||||||||||
Foreign exchange contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 3,045 | 3,879 | 1,978 | 2,573 | 161 | 317 | 15 | 12 | 5,199 | 6,781 | 298.4 | ||||||||||||||||||||||||||||||||||
Interest and currency swaps | 24,929 | 25,242 | 14,258 | 12,428 | 17,780 | 14,394 | 6,002 | 5,250 | 62,969 | 57,314 | 2,254.4 | ||||||||||||||||||||||||||||||||||
Options | 3,232 | 3,348 | 3,211 | 2,550 | 513 | 356 | 9 | 1 | 6,965 | 6,255 | 576.8 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 5.0 | ||||||||||||||||||||||||||||||||||||||||||||
Options | 3 | 3 | 119 | 116 | 122 | 119 | 13.2 | ||||||||||||||||||||||||||||||||||||||
Total | 31,209 | 32,472 | 19,566 | 17,667 | 18,454 | 15,067 | 6,026 | 5,263 | 75,255 | 70,469 | 3,147.8 | ||||||||||||||||||||||||||||||||||
Precious metals contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 246 | 247 | 377 | 305 | 333 | 270 | 18 | 23 | 974 | 845 | 15.9 | ||||||||||||||||||||||||||||||||||
Options | 304 | 193 | 308 | 386 | 668 | 629 | 116 | 54 | 1,396 | 1,262 | 35.1 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 1.1 | ||||||||||||||||||||||||||||||||||||||||||||
Options | 9 | 40 | 21 | 63 | 3 | 4 | 33 | 107 | 2.3 | ||||||||||||||||||||||||||||||||||||
Total | 559 | 480 | 706 | 754 | 1,004 | 903 | 134 | 77 | 2,403 | 2,214 | 54.4 | ||||||||||||||||||||||||||||||||||
Equity/index contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 509 | 529 | 763 | 583 | 917 | 449 | 1,408 | 501 | 3,597 | 2,062 | 57.9 | ||||||||||||||||||||||||||||||||||
Options | 1,841 | 2,788 | 3,482 | 7,847 | 11,111 | 13,646 | 1,328 | 4,560 | 17,762 | 28,841 | 213.8 | ||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | 8.6 | ||||||||||||||||||||||||||||||||||||||||||||
Options | 708 | 858 | 892 | 1,363 | 883 | 768 | 54 | 117 | 2,537 | 3,106 | 62.6 | ||||||||||||||||||||||||||||||||||
Total | 3,058 | 4,175 | 5,137 | 9,793 | 12,911 | 14,863 | 2,790 | 5,178 | 23,896 | 34,009 | 342.9 | ||||||||||||||||||||||||||||||||||
Commodity contracts | |||||||||||||||||||||||||||||||||||||||||||||
Over the counter (OTC) contracts | |||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 206 | 181 | 456 | 424 | 93 | 42 | 755 | 647 | 10.6 | ||||||||||||||||||||||||||||||||||||
Options | 168 | 153 | 73 | 53 | 241 | 206 | 1.6 | ||||||||||||||||||||||||||||||||||||||
Total | 374 | 334 | 529 | 477 | 93 | 42 | 0 | 0 | 996 | 853 | 12.2 | ||||||||||||||||||||||||||||||||||
Total derivative instruments | 40,062 | 43,526 | 35,832 | 36,631 | 105,075 | 106,053 | 67,237 | 68,558 | 248,206 | 254,768 | |||||||||||||||||||||||||||||||||||
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Financial Statements
Notes to the Financial Statements
Off-Balance Sheet Information
Note 24 Fiduciary Transactions
Fiduciary placement represents funds which customers have instructed the Group to place in foreign banks. The Group is not liable to the customer for any default by the foreign bank nor do creditors of the Group have a claim on the assets placed.
CHF million | 31.12.04 | 31.12.03 | ||||||
Placements with third parties | 39,588 | 37,851 | ||||||
Fiduciary credits and other fiduciary financial transactions | 57 | 74 | ||||||
Total fiduciary transactions | 39,645 | 37,925 | ||||||
The Group also acts in its own name as trustee or in fiduciary capacities for the account of third parties. The assets managed in such capacities are not reported on the balance sheet unless they are invested with UBS. UBS earns commission and fee income from such transactions and assets. These activities potentially expose UBS to liability risks in cases of gross negligence with regard to non-compliance with its fiduciary and contractual duties. The risks associated with this business are covered by the standard UBS risk framework.
Note 25 Commitments and Contingent Liabilities
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Note 25 Commitments and Contingent Liabilities (continued) | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Contingent liabilities | ||||||||
Credit guarantees and similar instruments1 | 10,252 | 10,832 | ||||||
Sub-participations | (621 | ) | (765 | ) | ||||
Total | 9,631 | 10,067 | ||||||
Performance guarantees and similar instruments2 | 2,536 | 2,760 | ||||||
Sub-participations | (415 | ) | (276 | ) | ||||
Total | 2,121 | 2,484 | ||||||
Irrevocable commitments and documentary credits | 2,106 | 1,971 | ||||||
Sub-participations | (272 | ) | (373 | ) | ||||
Total | 1,834 | 1,598 | ||||||
Gross contingent liabilities | 14,894 | 15,563 | ||||||
Sub-participations | (1,308 | ) | (1,414 | ) | ||||
Net contingent liabilities | 13,586 | 14,149 | ||||||
Irrevocable commitments | ||||||||
Undrawn irrevocable credit facilities | 53,168 | 46,623 | ||||||
Sub-participations | (7 | ) | (235 | ) | ||||
Total | 53,161 | 46,388 | ||||||
Liabilities for calls on shares and other equities | 19 | 337 | ||||||
Gross irrevocable commitments | 53,187 | 46,960 | ||||||
Sub-participations | (7 | ) | (235 | ) | ||||
Net irrevocable commitments | 53,180 | 46,725 | ||||||
Gross commitments and contingent liabilities | 68,081 | 62,523 | ||||||
Sub-participations | (1,315 | ) | (1,649 | ) | ||||
Net commitments and contingent liabilities | 66,766 | 60,874 | ||||||
Market value guarantees in form of written put options | 352,509 | 218,638 | ||||||
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Financial Statements
Notes to the Financial Statements
Note 25 Commitments and Contingent Liabilities (continued)
CHF million | Mortgage collateral | Other collateral | Unsecured | Total | ||||||||||||
Overview of collateral | ||||||||||||||||
Gross contingent liabilities | 347 | 7,661 | 6,886 | 14,894 | ||||||||||||
Gross irrevocable commitments | 3,252 | 22,384 | 27,532 | 53,168 | ||||||||||||
Liabilities for calls on shares and other equities | 0 | 0 | 19 | 19 | ||||||||||||
Total 31.12.04 | 3,599 | 30,045 | 34,437 | 68,081 | ||||||||||||
Total 31.12.03 | 2,637 | 30,870 | 29,016 | 62,523 | ||||||||||||
Other commitments
Note 26 Operating Lease Commitments
At 31 December 2004, UBS was obligated under a number of non-cancellable operating leases for premises and equipment used primarily for banking purposes. The significant premises leases usually include renewal options and escalation clauses in line with general office rental market conditions as well as rent adjustments based on price indices. However, the lease agreements do not contain contingent rent payment clauses and purchase options. The leases also do not impose any restrictions on UBS’s ability to pay dividends, engage in debt financing transactions or enter into further lease agreements.
CHF million | 31.12.04 | |||
Operating leases due | ||||
2005 | 886 | |||
2006 | 805 | |||
2007 | 719 | |||
2008 | 647 | |||
2009 | 584 | |||
2010 and thereafter | 4,060 | |||
Subtotal commitments for minimum payments under operating leases | 7,701 | |||
Less: Sublease rentals under non-cancellable leases | 547 | |||
Net commitments for minimum payments under operating leases | 7,154 | |||
Operating expenses include CHF 1,214 million and CHF 1,233 million of gross operating lease rentals which were reduced by CHF 43 million and CHF 43 million of sublease income for the years ended 31 December 2004 and 31 December 2003, respectively. Operating expenses for the year ended 31 December 2002 include CHF 1,193 million in respect of operating lease rentals.
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Additional Information
Note 27 Pledged Assets
Assets are pledged as collateral for collateralized credit lines with central banks, loans from central mortgage institutions, deposit guarantees for savings banks, security deposits relating to stock exchange membership and mortgages on the Group’s property. No financial assets are pledged for contingent liabilities. The following table shows additional information about assets pledged or assigned as security for liabilities and assets subject to reservation of title for the years ended 31 December 2004 and 31 December 2003.
Carrying amount | Related liability | Carrying amount | Related liability | |||||||||||||
CHF million | 31.12.04 | 31.12.04 | 31.12.03 | 31.12.03 | ||||||||||||
Mortgage loans | 175 | 60 | 428 | 209 | ||||||||||||
Securities | 193,028 | 131,462 | 157,639 | 121,984 | ||||||||||||
Property and equipment | 320 | 0 | 0 | 0 | ||||||||||||
Total pledged assets | 193,523 | 131,522 | 158,067 | 122,193 | ||||||||||||
Note 28 Litigation
Due to the nature of their business, the bank and other companies within the UBS Group are involved in various claims, disputes and legal proceedings, arising in the ordinary course of business. The Group makes provisions for such matters when, in the opinion of management and its professional advisors, it is probable that a payment will be made by the Group, and the amount can be reasonably estimated (see Note 20).
Note 29 Financial Instruments Risk Position
This section presents information about 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 (part a) is exposure to market variables such as interest rates, exchange rates and equity markets | |
– | credit risk (part b) is the risk of loss resulting from client or counterparty default and arises on credit exposure in all forms, including settlement risk | |
– | liquidity and funding risk (part c) is the risk that 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. |
135
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Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
a) Market Risk
(i) Overview
(ii) Interest Rate Risk
136
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Note 29 Financial Instruments Risk Position (continued)
a) Market Risk (continued)
Interest rate sensitivity position1
Interest rate sensitivity by time bands at 31.12.04 | ||||||||||||||||||||||||||
Within 1 | 1 to 3 | 3 to 12 | 1 to 5 | Over 5 | ||||||||||||||||||||||
CHF thousand gain / (loss) per basis point increase | month | months | months | years | years | Total | ||||||||||||||||||||
CHF | Trading | 65 | 69 | (83 | ) | 24 | 120 | 195 | ||||||||||||||||||
Non-trading | (203 | ) | (13 | ) | (313 | ) | (3,575 | ) | (2,641 | ) | (6,745 | ) | ||||||||||||||
USD | Trading | 49 | (236 | ) | (1,184 | ) | 886 | 127 | (358 | ) | ||||||||||||||||
Non-trading | 30 | (158 | ) | (121 | ) | (2,010 | ) | (2,472 | ) | (4,731 | ) | |||||||||||||||
EUR | Trading | 192 | (276 | ) | 342 | (366 | ) | (814 | ) | (922 | ) | |||||||||||||||
Non-trading | (8 | ) | 1 | (22 | ) | (180 | ) | (200 | ) | (409 | ) | |||||||||||||||
GBP | Trading | (19 | ) | 52 | 60 | (380 | ) | (32 | ) | (319 | ) | |||||||||||||||
Non-trading | (1 | ) | (7 | ) | (34 | ) | (290 | ) | 270 | (62 | ) | |||||||||||||||
JPY | Trading | (17 | ) | 630 | (562 | ) | (1,804 | ) | 781 | (972 | ) | |||||||||||||||
Non-trading | (1 | ) | 1 | (1 | ) | (4 | ) | (1 | ) | (6 | ) | |||||||||||||||
Other | Trading | 75 | (121 | ) | (8 | ) | 5 | 145 | 96 | |||||||||||||||||
Non-trading | (1 | ) | 1 | 1 | (1 | ) | (2 | ) | (2 | ) | ||||||||||||||||
Interest rate sensitivity by time bands at 31.12.03 | ||||||||||||||||||||||||||
Within 1 | 1 to 3 | 3 to 12 | 1 to 5 | Over 5 | ||||||||||||||||||||||
CHF thousand gain / (loss) per basis point increase | month | months | months | years | years | Total | ||||||||||||||||||||
CHF | Trading | 19 | (185 | ) | (6 | ) | 311 | (91 | ) | 48 | ||||||||||||||||
Non-trading | (38 | ) | (99 | ) | (359 | ) | (4,288 | ) | (3,587 | ) | (8,371 | ) | ||||||||||||||
USD | Trading | (17 | ) | (690 | ) | (638 | ) | (941 | ) | 1,190 | (1,096 | ) | ||||||||||||||
Non-trading | 50 | (55 | ) | (92 | ) | (2,213 | ) | (1,702 | ) | (4,012 | ) | |||||||||||||||
EUR | Trading | (84 | ) | (206 | ) | 398 | (1,018 | ) | 649 | (261 | ) | |||||||||||||||
Non-trading | 4 | 6 | (21 | ) | (131 | ) | (196 | ) | (338 | ) | ||||||||||||||||
GBP | Trading | 24 | 31 | 131 | (736 | ) | 536 | (14 | ) | |||||||||||||||||
Non-trading | 0 | (10 | ) | (55 | ) | (40 | ) | 481 | 376 | |||||||||||||||||
JPY | Trading | 59 | (326 | ) | (34 | ) | 410 | (273 | ) | (164 | ) | |||||||||||||||
Non-trading | (4 | ) | 3 | (1 | ) | (5 | ) | (2 | ) | (9 | ) | |||||||||||||||
Other | Trading | (43 | ) | 22 | 80 | (464 | ) | 335 | (70 | ) | ||||||||||||||||
Non-trading | (1 | ) | 0 | (6 | ) | (1 | ) | (3 | ) | (11 | ) | |||||||||||||||
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) and off balance sheet commitments on which an interest rate has been fixed. This distinction differs somewhat from the accounting classification of trading and non-trading assets and liabilities.
forward foreign exchange contracts. Off-balance sheet commitments on which an interest rate has been fixed are primarily forward starting fixed term loans.
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)
in the market risk limits described in (a)(i). The margin risks embedded in retail products remain with, and are subject to additional analysis and control by, the originating business units.
(iii) Currency Risk
Trading
Non-Trading
(iv) Equity Risk
(v) Issuer Risk
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Note 29 Financial Instruments Risk Position (continued)
b) Credit Risk
Breakdown of credit exposure1
Amounts for each product type are shown gross before allowances and provisions.
CHF million | 31.12.04 | 31.12.03 | ||||||
Banking products | ||||||||
Loans to customers and due from banks2 | 269,518 | 247,995 | ||||||
Contingent liabilities (gross – before participations)3 | 14,894 | 15,563 | ||||||
Undrawn irrevocable credit facilities (gross – before participations)3 | 53,168 | 46,623 | ||||||
Traded products4 | ||||||||
Derivatives positive replacement values (before collateral but after netting)5 | 78,317 | 84,334 | ||||||
Securities borrowing and lending, repos and reverse repos6, 7 | 24,768 | 30,833 | ||||||
Allowances and provisions8 | (2,883 | ) | (3,954 | ) | ||||
Total credit exposure net of allowances and provisions | 437,782 | 421,394 | ||||||
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Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
b) Credit Risk (continued)
UBS manages and controls concentrations of credit risk wherever they are identified, in particular to individual counterparties and groups, and to industries and countries. UBS sets limits on its credit exposure to both individual counterparties and counterparty groups. Concentrations of credit risk exist if clients are engaged in similar activities, or are located in the same geographic region or have comparable economic characteristics such that their ability to meet contractual obligations would be similarly affected by changes in economic, political or other conditions. Stress measures are applied to assess the impact of variations in default rates and asset values, taking into account risk concentrations in each portfolio. Stress loss limits are applied where considered necessary, including limits on credit exposure to all but the best-rated countries. With the exceptions of private households (CHF 135,397 million), banks and financial institutions (CHF 75,311 million) and real estate and rentals in Switzerland (CHF 11,466 million), there are no material concentrations of loans at 31 December 2004, and the vast majority of those to private households and to real estate and rentals are secured. Derivatives exposure is predominantly to investment grade banks and financial institutions.
Impaired claims
140
Table of Contents
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 en-
Maturity analysis of assets and liabilities | ||||||||||||||||||||||||||||
Due | Due | |||||||||||||||||||||||||||
Due | between | between | ||||||||||||||||||||||||||
On | Subject | within | 3 and | 1 and | Due after | |||||||||||||||||||||||
CHF billion | demand | to notice | 1 | 3 months | 12 months | 5 years | 5 years | Total | ||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Cash and balances with central banks | 6.0 | 6.0 | ||||||||||||||||||||||||||
Due from banks | 20.0 | 0.4 | 10.5 | 1.1 | 2.1 | 1.2 | 35.3 | |||||||||||||||||||||
Cash collateral on securities borrowed | 0.0 | 186.0 | 32.0 | 2.1 | 0.1 | 0.0 | 220.2 | |||||||||||||||||||||
Reverse repurchase agreements | 0.0 | 49.6 | 255.0 | 46.0 | 5.5 | 1.1 | 357.2 | |||||||||||||||||||||
Trading portfolio assets2 | 370.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 370.3 | |||||||||||||||||||||
Trading portfolio assets pledged as collateral | 159.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 159.1 | |||||||||||||||||||||
Positive replacement values2 | 284.6 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 284.6 | |||||||||||||||||||||
Financial assets designated at fair value | 0.7 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.7 | |||||||||||||||||||||
Loans | 23.1 | 35.8 | 47.3 | 30.2 | 79.6 | 16.4 | 232.4 | |||||||||||||||||||||
Financial investments | 4.1 | 0.0 | 0.6 | 0.1 | 0.2 | 0.1 | 5.1 | |||||||||||||||||||||
Accrued income and prepaid expenses | 5.9 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 5.9 | |||||||||||||||||||||
Investments in associates | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 2.4 | 2.4 | |||||||||||||||||||||
Property and equipment | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 8.7 | 8.7 | |||||||||||||||||||||
Goodwill and other intangible assets | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 12.1 | 12.1 | |||||||||||||||||||||
Other assets | 15.6 | 19.2 | 0.0 | 0.0 | 0.0 | 0.0 | 34.8 | |||||||||||||||||||||
Total 31.12.04 | 889.4 | 291.0 | 345.4 | 79.5 | 87.5 | 42.0 | 1,734.8 | |||||||||||||||||||||
Total 31.12.03 | 832.4 | 260.6 | 271.2 | 82.6 | 72.2 | 31.1 | 1,550.1 | |||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Due to banks | 30.8 | 6.5 | 77.8 | 1.5 | 1.9 | 0.4 | 118.9 | |||||||||||||||||||||
Cash collateral on securities lent | 0.0 | 51.7 | 9.8 | 0.0 | 0.0 | 0.0 | 61.5 | |||||||||||||||||||||
Repurchase agreements | 0.0 | 20.2 | 363.2 | 37.8 | 1.2 | 0.2 | 422.6 | |||||||||||||||||||||
Trading portfolio liabilities2 | 171.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 171.0 | |||||||||||||||||||||
Negative replacement values2 | 303.7 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 303.7 | |||||||||||||||||||||
Financial liabilities designated at fair value | 0.0 | 0.0 | 2.3 | 9.0 | 46.4 | 8.1 | 65.8 | |||||||||||||||||||||
Due to customers | 119.1 | 112.0 | 135.4 | 5.2 | 1.5 | 2.9 | 376.1 | |||||||||||||||||||||
Accrued expenses and deferred income | 14.7 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 14.7 | |||||||||||||||||||||
Debt issued | 0.0 | 0.0 | 74.9 | 12.1 | 5.0 | 25.8 | 117.8 | |||||||||||||||||||||
Other liabilities | 20.3 | 22.1 | 0.0 | 0.0 | 0.0 | 0.0 | 42.4 | |||||||||||||||||||||
Total 31.12.04 | 659.6 | 212.5 | 663.4 | 65.6 | 56.0 | 37.4 | 1,694.5 | |||||||||||||||||||||
Total 31.12.03 | 795.0 | 188.0 | 338.5 | 130.4 | 36.5 | 22.3 | 1,510.7 | |||||||||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
d) Capital Adequacy
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)
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Note 29 Financial Instruments Risk Position (continued)
d) Capital Adequacy (continued)
Risk-weighted assets (BIS) | ||||||||||||||||
Risk-weighted | Risk-weighted | |||||||||||||||
Exposure | amount | Exposure | 1 | amount | ||||||||||||
CHF million | 31.12.04 | 31.12.04 | 31.12.03 | 31.12.03 | ||||||||||||
Balance sheet exposures | ||||||||||||||||
Due from banks and other collateralized lendings2 | 556,947 | 7,820 | 531,098 | 8,565 | ||||||||||||
Net positions in securities3, 4 | 8,227 | 6,914 | 7,277 | 6,182 | ||||||||||||
Positive replacement values5 | 78,317 | 17,121 | 84,334 | 22,324 | ||||||||||||
Loans, net of allowances for credit losses and other collateralized lendings2 | 429,186 | 164,620 | 359,154 | 153,537 | ||||||||||||
Accrued income and prepaid expenses | 5,790 | 3,573 | 6,218 | 4,284 | ||||||||||||
Property and equipment | 8,772 | 8,772 | 9,611 | 9,611 | ||||||||||||
Other assets | 32,725 | 8,949 | 24,918 | 7,673 | ||||||||||||
Off-balance sheet exposures | ||||||||||||||||
Contingent liabilities | 14,894 | 7,569 | 15,563 | 8,167 | ||||||||||||
Irrevocable commitments | 53,187 | 11,764 | 46,960 | 6,863 | ||||||||||||
Forward and swap contracts6 | 14,419,106 | 8,486 | 11,746,880 | 4,710 | ||||||||||||
Purchased options6 | 2,306,605 | 386 | 1,183,708 | 1,716 | ||||||||||||
Market risk positions7 | 18,151 | 18,269 | ||||||||||||||
Total risk-weighted assets | 264,125 | 251,901 | ||||||||||||||
BIS capital ratios | ||||||||||||||||
Capital | Ratio | Capital | Ratio | |||||||||||||
CHF million | % | CHF million | % | |||||||||||||
31.12.04 | 31.12.04 | 31.12.03 | 31.12.03 | |||||||||||||
Tier 1 | 31,051 | 11.8 | 29,765 | 11.8 | ||||||||||||
of which hybrid Tier 1 | 2,963 | 1.1 | 3,224 | 1.3 | ||||||||||||
Tier 2 | 4,815 | 1.8 | 3,816 | 1.5 | ||||||||||||
Total BIS | 35,866 | 13.6 | 33,581 | 13.3 | ||||||||||||
The Tier 1 capital includes CHF 2,963 million (USD 2,600 million) in trust preferred securities at 31 December 2004 and CHF 3,224 million (USD 2,600 million) at 31 December 2003.
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Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
e) Financial Instruments Risk Position in Motor-Columbus
The Atel Group, the operating arm of Motor-Columbus, is exposed to electricity price risk, interest rate risk, currency risk, credit risk, and other business risks.
Energy price risk
Interest rate risk
Currency risks
Credit risk
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Note 30 Fair Value of Financial Instruments
30a Fair Value of Financial Instruments
The following table presents the fair value of financial instruments, including those not reflected in the financial statements at fair value. It is accompanied by a discussion of the methods used to determine fair value for financial instruments.
Carrying | Fair | Unrealized | Carrying | Fair | Unrealized | ||||||||||||||||||||
value | value | gain / (loss) | value | value | gain / (loss) | ||||||||||||||||||||
CHF billion | 31.12.04 | 31.12.04 | 31.12.04 | 31.12.03 | 31.12.03 | 31.12.03 | |||||||||||||||||||
Assets | |||||||||||||||||||||||||
Cash and balances with central banks | 6.0 | 6.0 | 0.0 | 3.6 | 3.6 | 0.0 | |||||||||||||||||||
Due from banks | 35.3 | 35.3 | 0.0 | 31.7 | 31.7 | 0.0 | |||||||||||||||||||
Cash collateral on securities borrowed | 220.2 | 220.2 | 0.0 | 213.9 | 213.9 | 0.0 | |||||||||||||||||||
Reverse repurchase agreements | 357.1 | 357.1 | 0.0 | 320.5 | 320.5 | 0.0 | |||||||||||||||||||
Trading portfolio assets | 370.3 | 370.3 | 0.0 | 341.0 | 341.0 | 0.0 | |||||||||||||||||||
Trading portfolio assets pledged as collateral | 159.1 | 159.1 | 0.0 | 120.8 | 120.8 | 0.0 | |||||||||||||||||||
Positive replacement values | 284.6 | 284.6 | 0.0 | 248.2 | 248.2 | 0.0 | |||||||||||||||||||
Financial assets designated at fair value | 0.7 | 0.7 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||||||||||||
Loans | 232.4 | 233.8 | 1.4 | 212.7 | 214.0 | 1.3 | |||||||||||||||||||
Financial investments | 5.0 | 5.0 | 0.0 | 5.1 | 5.1 | 0.0 | |||||||||||||||||||
Liabilities | |||||||||||||||||||||||||
Due to banks | 118.9 | 118.9 | 0.0 | 127.0 | 127.0 | 0.0 | |||||||||||||||||||
Cash collateral on securities lent | 61.5 | 61.5 | 0.0 | 53.3 | 53.3 | 0.0 | |||||||||||||||||||
Repurchase agreements | 422.6 | 422.6 | 0.0 | 415.9 | 415.9 | 0.0 | |||||||||||||||||||
Trading portfolio liabilities | 171.0 | 171.0 | 0.0 | 144.0 | 144.0 | 0.0 | |||||||||||||||||||
Negative replacement values | 303.7 | 303.7 | 0.0 | 254.8 | 254.8 | 0.0 | |||||||||||||||||||
Financial liabilities designated at fair value | 65.8 | 65.8 | 0.0 | 35.3 | 35.3 | 0.0 | |||||||||||||||||||
Due to customers | 376.1 | 376.1 | 0.0 | 346.6 | 346.6 | 0.0 | |||||||||||||||||||
Debt issued | 117.8 | 118.9 | (1.1 | ) | 88.8 | 90.0 | (1.2 | ) | |||||||||||||||||
Subtotal | 0.3 | 0.1 | |||||||||||||||||||||||
Unrealized gains and losses recorded in Shareholders’ equity before tax on: | |||||||||||||||||||||||||
Financial investments | 1.4 | 0.8 | |||||||||||||||||||||||
Derivative instruments designated as cash flow hedges | (0.4 | ) | (0.2 | ) | |||||||||||||||||||||
Net unrealized gains and losses not recognized in the income statement | 1.3 | 0.7 | |||||||||||||||||||||||
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. For financial instruments carried at fair value, market prices or rates are used to determine fair value where an active market exists (such as a recognized stock exchange), as it is the best evidence of the fair value of a financial instrument.
(a) | trading portfolio assets and liabilities, trading portfolio assets pledged as collateral, financial assets and liabilities designated at fair value, derivatives, and other transactions |
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Notes to the Financial Statements
Note 30 Fair Value of Financial Instruments (continued)
30a Fair Value of Financial Instruments (continued)
undertaken for trading purposes are measured at fair value by reference to quoted market prices when available. If quoted market prices are not available, then fair values are estimated on the basis of pricing models, or other recognized valuation techniques. 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. Fair value is equal to the carrying amount for these items, and unrealized gains and 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 carrying and fair values; | |
(f) | the fair value of fixed rate loans and mortgages carried at amortized cost is estimated by comparing market interest rates when the loans were granted with current market rates offered on similar loans. Changes in the credit quality of loans within the portfolio are not taken into account in determining gross fair values, as the impact of credit risk is recognized separately by deducting the amount of the allowance for credit losses from both carrying and fair values. |
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Note 30 Fair Value of Financial Instruments (continued)
30b Determination of Fair Values from Quoted Market Prices or Valuation Techniques
Valuation technique – | Valuation technique – non- | |||||||||||||||
CHF billion | Quoted market price | market observable inputs | market observable inputs | Total | ||||||||||||
Trading portfolio assets | 209.6 | 159.7 | 1.0 | 370.3 | ||||||||||||
Trading portfolio assets pledged as collateral | 156.0 | 3.1 | 0.0 | 159.1 | ||||||||||||
Positive replacement values | 6.2 | 265.2 | 13.2 | 284.6 | ||||||||||||
Financial assets designated at fair value | 0.7 | 0.0 | 0.0 | 0.7 | ||||||||||||
Financial investments | 1.1 | 0.4 | 3.5 | 5.0 | ||||||||||||
Total assets | 373.6 | 428.4 | 17.7 | 819.7 | ||||||||||||
Trading portfolio liabilities | 161.3 | 9.7 | 0.0 | 171.0 | ||||||||||||
Negative replacement values | 9.8 | 270.1 | 23.8 | 303.7 | ||||||||||||
Financial liabilities designated at fair value | 0.0 | 65.8 | 0.0 | 65.8 | ||||||||||||
Total liabilities | 171.1 | 345.6 | 23.8 | 540.5 | ||||||||||||
30c Sensitivity of Fair Values to Changing Significant Assumptions to Reasonably Possible Alternatives
Included in the fair value of financial instruments carried at fair value on the balance sheet are those estimated in full or in part using valuation techniques based on assumptions that are not supported by observable market prices or rates. Models used in these situations undergo an internal validation process before they are certified for use. Any related model valuation uncertainty is quantified, and deducted from the fair values produced by the models. Based on the controls and procedural safeguards we employ, management believes the resulting estimated fair values recorded in the balance sheet and the changes in fair values recorded in the income statement are reasonable, and are the most appropriate at the balance sheet date.
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Financial Statements
Notes to the Financial Statements
Note 30 Fair Value of Financial Instruments (continued)
30d Changes in Fair Value Recognized in Profit or Loss during the Period which were Estimated using Valuation Techniques
other risk management techniques, which may result in different portions of the transaction being priced using different methods.
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Note 30 Fair Value of Financial Instruments (continued)
30e Continuing Involvement in Assets that have been Transferred
The following table presents details of assets which have been sold or otherwise transferred, but which continue to be recognized, either in full or to the extent of UBS’s continuing involvement:
Continued asset recognition in full | ||||||||
CHF billion | Total assets | Associated liability | ||||||
Nature of transaction | ||||||||
Securities lending agreements | 37.3 | 13.8 | ||||||
Repurchase agreements | 121.8 | 117.6 | ||||||
Other collateralized securities trading | 2.9 | 2.1 | ||||||
Total 31.12.04 | 162.0 | 133.5 | ||||||
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Notes to the Financial Statements
Note 31 Pension and Other Post-Retirement Benefit Plans
a) Defined benefit plans
Swiss pension plans
Foreign pension plans
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Note 31 Pension and Other Post-Retirement Benefit Plans (continued)
a) Defined benefit plans | ||||||||||||||||||||||||
Swiss | Foreign | |||||||||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||
Defined benefit obligation at the beginning of the year | (18,216 | ) | (19,204 | ) | (17,879 | ) | (3,663 | ) | (3,436 | ) | (3,553 | ) | ||||||||||||
Service cost | (548 | ) | (564 | ) | (554 | ) | (83 | ) | (91 | ) | (108 | ) | ||||||||||||
Interest cost | (672 | ) | (703 | ) | (699 | ) | (212 | ) | (197 | ) | (210 | ) | ||||||||||||
Special termination benefits | (35 | ) | (70 | ) | (209 | ) | ||||||||||||||||||
Actuarial gain / (loss) | (1,392 | ) | 1,395 | (681 | ) | (296 | ) | (201 | ) | (177 | ) | |||||||||||||
Benefits paid | 910 | 930 | 818 | 125 | 124 | 111 | ||||||||||||||||||
Curtailment / settlement | 74 | |||||||||||||||||||||||
Acquisitions | (272 | ) | (159 | ) | ||||||||||||||||||||
Foreign currency translation | 146 | 138 | 427 | |||||||||||||||||||||
Defined benefit obligation at the end of the year | (20,225 | ) | (18,216 | ) | (19,204 | ) | (4,142 | ) | (3,663 | ) | (3,436 | ) | ||||||||||||
Fair value of plan assets at the beginning of the year | 17,619 | 16,566 | 18,289 | 3,402 | 2,382 | 2,887 | ||||||||||||||||||
Actual return on plan assets | 980 | 1,411 | (1,350 | ) | 370 | 429 | (240 | ) | ||||||||||||||||
Employer contributions | 411 | 370 | 236 | 65 | 831 | 164 | ||||||||||||||||||
Plan participant contributions | 203 | 202 | 209 | |||||||||||||||||||||
Benefits paid | (910 | ) | (930 | ) | (818 | ) | (125 | ) | (124 | ) | (111 | ) | ||||||||||||
Acquisitions | 272 | |||||||||||||||||||||||
Foreign currency translation | (132 | ) | (116 | ) | (318 | ) | ||||||||||||||||||
Fair value of plan assets at the end of the year | 18,575 | 17,619 | 16,566 | 3,580 | 3,402 | 2,382 | ||||||||||||||||||
Funded status | (1,650 | ) | (597 | ) | (2,638 | ) | (562 | ) | (261 | ) | (1,054 | ) | ||||||||||||
Unrecognized net actuarial (gains) / losses | 3,006 | 1,716 | 3,892 | 1,046 | 970 | 1,126 | ||||||||||||||||||
Unrecognized prior service cost | 1 | 1 | 1 | |||||||||||||||||||||
Unrecognized asset | (1,356 | ) | (1,119 | ) | (1,221 | ) | ||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 33 | 485 | 710 | 73 | ||||||||||||||||||
Movement in the net (liability) or asset | ||||||||||||||||||||||||
(Accrued) / prepaid pension cost at the beginning of the year | 0 | 33 | 356 | 710 | 73 | 9 | ||||||||||||||||||
Net periodic pension cost | (411 | ) | (403 | ) | (559 | ) | (105 | ) | (168 | ) | (83 | ) | ||||||||||||
Employer contributions | 411 | 370 | 236 | 65 | 831 | 164 | ||||||||||||||||||
Acquisitions | (159 | ) | ||||||||||||||||||||||
Foreign currency translation | (26 | ) | (26 | ) | (17 | ) | ||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 33 | 485 | 710 | 73 | ||||||||||||||||||
Amounts recognized in the Balance Sheet | ||||||||||||||||||||||||
Prepaid pension cost | 33 | 805 | 862 | 220 | ||||||||||||||||||||
Accrued pension liability | (320 | ) | (152 | ) | (147 | ) | ||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 33 | 485 | 710 | 73 | ||||||||||||||||||
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Notes to the Financial Statements
Note 31 Pension and Other Post-Retirement Benefit Plans (continued)
a) Defined benefit plans (continued) | ||||||||||||||||||||||||
CHF million | Swiss | Foreign | ||||||||||||||||||||||
for the year ended | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||
Components of net periodic pension cost | ||||||||||||||||||||||||
Service cost | 548 | 564 | 554 | 83 | 91 | 108 | ||||||||||||||||||
Interest cost | 672 | 703 | 699 | 212 | 197 | 210 | ||||||||||||||||||
Expected return on plan assets | (878 | ) | (818 | ) | (900 | ) | (248 | ) | (178 | ) | (199 | ) | ||||||||||||
Increase / (decrease) of unrecognized assets | 237 | (102 | ) | 206 | ||||||||||||||||||||
Special termination benefits | 35 | 70 | 209 | |||||||||||||||||||||
Amortization of unrecognized prior service cost | 1 | |||||||||||||||||||||||
Amortization of unrecognized net (gains) / losses | 188 | 58 | 58 | 22 | ||||||||||||||||||||
Curtailment / settlement | (59 | ) | ||||||||||||||||||||||
Employee contributions | (203 | ) | (202 | ) | (209 | ) | ||||||||||||||||||
Net periodic pension cost | 411 | 403 | 559 | 105 | 168 | 83 | ||||||||||||||||||
Principal weighted average actuarial assumptions used (%) | ||||||||||||||||||||||||
Assumptions used to determine defined benefit obligations at the end of the year | ||||||||||||||||||||||||
Discount rate | 3.3 | 3.8 | 3.8 | 5.5 | 5.7 | 5.8 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.4 | 4.6 | 4.4 | ||||||||||||||||||
Rate of pension increase | 1.0 | 1.0 | 1.5 | 1.9 | 1.9 | 1.5 | ||||||||||||||||||
Assumptions used to determine net periodic pension cost for the year ended | ||||||||||||||||||||||||
Discount rate | 3.8 | 3.8 | 4.0 | 5.7 | 5.8 | 6.2 | ||||||||||||||||||
Expected rate of return on plan assets | 5.0 | 5.0 | 5.0 | 7.2 | 7.1 | 7.3 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.6 | 4.4 | 4.4 | ||||||||||||||||||
Rate of pension increase | 1.0 | 1.5 | 1.5 | 1.9 | 1.5 | 1.5 | ||||||||||||||||||
CHF million | ||||||||||||||||||||||||
Expected future benefit payments | ||||||||||||||||||||||||
2005 | 935 | 116 | ||||||||||||||||||||||
2006 | 951 | 112 | ||||||||||||||||||||||
2007 | 967 | 121 | ||||||||||||||||||||||
2008 | 990 | 131 | ||||||||||||||||||||||
2009 | 1,015 | 140 | ||||||||||||||||||||||
2010–2014 | 5,252 | 864 | ||||||||||||||||||||||
Plan assets | ||||||||||||||||||||||||
Actual plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 43 | 39 | 35 | 54 | 52 | 57 | ||||||||||||||||||
Debt instruments | 41 | 43 | 47 | 41 | 30 | 36 | ||||||||||||||||||
Real estate | 12 | 12 | 13 | 2 | 1 | 1 | ||||||||||||||||||
Other | 4 | 6 | 5 | 3 | 17 | 6 | ||||||||||||||||||
Total | 100 | 100 | 100 | 100 | 100 | 100 | ||||||||||||||||||
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Note 31 Pension and Other Post-Retirement Benefit Plans (continued)
a) Defined benefit plans (continued) | ||||||||||||||||||||||||
Swiss | Foreign | |||||||||||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||||||
Long-term target plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 34–49 | 49–55 | ||||||||||||||||||||||
Debt instruments | 30–53 | 44–47 | ||||||||||||||||||||||
Real estate | 12–19 | 1–2 | ||||||||||||||||||||||
Other | 0 | 0–6 | ||||||||||||||||||||||
Actual return on plan assets (%) | 5.5 | 8.6 | (7.5 | ) | 10.8 | 17.8 | (8.7 | ) | ||||||||||||||||
CHF million | ||||||||||||||||||||||||
Additional details to fair value of plan assets | ||||||||||||||||||||||||
UBS financial instruments and UBS bank accounts | 1,239 | 1,005 | 814 | |||||||||||||||||||||
UBS AG shares1 | 238 | 246 | 206 | |||||||||||||||||||||
Securities lent to UBS included in plan assets | 3,778 | 2,930 | 2,645 | |||||||||||||||||||||
Other assets used by UBS included in plan assets | 73 | 84 | 90 | |||||||||||||||||||||
b) Post-retirement medical and life plans
million). The net periodic post-retirement costs for the years ended 31 December 2004, 31 December 2003 and 31 December 2002 were CHF 16 million, CHF 22 million and CHF 25 million, respectively.
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Notes to the Financial Statements
Note 31 Pension and Other Post-Retirement Benefit Plans (continued)
b) Post-retirement medical and life plans | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Post-retirement benefit obligation at the beginning of the year | (179 | ) | (166 | ) | (145 | ) | ||||||
Service cost | (6 | ) | (11 | ) | (8 | ) | ||||||
Interest cost | (9 | ) | (10 | ) | (9 | ) | ||||||
Plan amendments | (3 | ) | ||||||||||
Actuarial gain / (loss) | 8 | (14 | ) | (31 | ) | |||||||
Benefits paid | 8 | 6 | 4 | |||||||||
Foreign currency translation | 12 | 16 | 26 | |||||||||
Post-retirement benefit obligation at the end of the year | (166 | ) | (179 | ) | (166 | ) | ||||||
Fair value of plan assets at the beginning of the year | 0 | 2 | 3 | |||||||||
Actual return on plan assets | 0 | 0 | 0 | |||||||||
Employer contributions | 8 | 4 | 3 | |||||||||
Benefits paid | (8 | ) | (6 | ) | (4 | ) | ||||||
Fair value of plan assets at the end of the year | 0 | 0 | 2 | |||||||||
The assumed average health care cost trend rate used in determining post-retirement benefit expense is assumed to be 11% for 2004 and to decrease to an ultimate trend rate of 5% in 2011. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in the assumed health care cost trend rates would change the US post-retirement benefit obligation and the service and interest cost components of the net periodic post-retirement benefit costs as follows:
CHF million | 1% increase | 1% decrease | ||||||
Effect on total service and interest cost | 3 | (3 | ) | |||||
Effect on the post-retirement benefit obligation | 22 | (18 | ) | |||||
c) Defined contribution plans
plans recognized as expense for the years ended 31 December 2004, 31 December 2003 and 31 December 2002 were CHF 187 million, CHF 141 million and CHF 133 million, respectively.
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Note 32 Equity Participation Plans
UBS has established several equity participation plans to further align the long-term interests of executives, managers, staff and shareholders. The plans are offered to eligible employees in approximately 50 countries and are designed to meet the complex legal, tax and regulatory requirements of each country in which they are offered. The explanations below describe the most significant plans in general, but specific plan rules and investment offerings may vary by country.
pensation in UBS shares or notional UBS shares instead of cash, on a mandatory basis. Up to and including 2004, participants in certain countries were eligible to receive a portion of their award in UBS shares with a matching contribution in UBS options or in Alternative Investment Vehicles (AIVs) (generally money market funds, UBS and non-UBS mutual funds and other UBS sponsored funds). In 2002 and 2003, certain employees received UBS options instead of UBS shares for a portion of their EOP award. In 2005, AIVs and options will no longer be granted as part of EOP. EOP awards 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
Stock compensation plans | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Unvested shares outstanding, at the beginning of the year | 31,383,890 | 48,136,561 | 52,299,332 | |||||||||
Shares awarded during the year | 11,713,406 | 11,023,553 | 13,511,655 | |||||||||
Vested during the year | (17,996,498 | ) | (26,915,860 | ) | (16,333,832 | ) | ||||||
Forfeited during the year | (463,979 | ) | (860,364 | ) | (1,340,594 | ) | ||||||
Unvested shares outstanding, at the end of the year | 24,636,819 | 31,383,890 | 48,136,561 | |||||||||
Weighted-average fair market value of shares awarded (in CHF) | 95 | 61 | 71 | |||||||||
Fair market value of outstanding shares at the end of the year (CHF billion) | 2.3 | 2.7 | 3.2 | |||||||||
ii) Stock purchase plans
Stock purchase plans | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Share quantity purchased through discounted purchase plans | 1,035,079 | 1,722,492 | 1,339,223 | |||||||||
Weighted-average purchase price (in CHF) | 45 | 31 | 40 | |||||||||
Share quantity purchased through EP at fair market value | 2,448,231 | 2,593,391 | 2,483,684 | |||||||||
Weighted-average purchase price (in CHF) | 93 | 61 | 77 | |||||||||
Weighted-average purchase price (in USD) | 73 | 49 | 46 | |||||||||
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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) | |||||||||||||||||||
31.12.04 | 31.12.04 | 1 | 31.12.03 | 31.12.03 | 1 | 31.12.02 | 31.12.02 | 1 | ||||||||||||||||
Outstanding, at the beginning of the year | 109,040,026 | 63 | 88,164,227 | 67 | 63,286,669 | 66 | ||||||||||||||||||
Granted during the year | 24,113,252 | 91 | 38,969,319 | 59 | 37,060,178 | 71 | ||||||||||||||||||
Exercised during the year | (29,396,959 | ) | 58 | (14,782,471 | ) | 54 | (9,595,133 | ) | 54 | |||||||||||||||
Forfeited during the year | (2,692,824 | ) | 66 | (2,721,970 | ) | 64 | (2,082,356 | ) | 71 | |||||||||||||||
Expired unexercised | (156,141 | ) | 76 | (589,079 | ) | 76 | (505,131 | ) | 77 | |||||||||||||||
Outstanding, at the end of the year | 100,907,354 | 69 | 109,040,026 | 63 | 88,164,227 | 67 | ||||||||||||||||||
Exercisable, at the end of the year | 37,941,280 | 65 | 34,726,720 | 59 | 21,765,482 | 51 | ||||||||||||||||||
The following table summarizes additional information about stock options outstanding at 31 December 2004:
Options outstanding | Options exercisable | |||||||||||||||||||||||
Range of exercise | Number of options | Weighted-average | Weighted-average | Number of | Weighted-average | |||||||||||||||||||
prices per share | outstanding | exercise price | remaining contractual life | options exercisable | exercise price | |||||||||||||||||||
CHF | CHF | Years | CHF | |||||||||||||||||||||
53.37–70.00 | 18,600,149 | 61.19 | 6.7 | 6,781,903 | 63.74 | |||||||||||||||||||
70.01–85.00 | 16,437,141 | 78.01 | 6.6 | 8,820,175 | 77.90 | |||||||||||||||||||
85.01–103.75 | 17,577,171 | 96.82 | 7.7 | 5,277,876 | 99.54 | |||||||||||||||||||
53.37–103.75 | 52,614,461 | 78.35 | 7.0 | 20,879,954 | 78.77 | |||||||||||||||||||
USD | USD | Years | USD | |||||||||||||||||||||
7.65–35.00 | 3,185,982 | 21.00 | 1.6 | 3,185,982 | 21.00 | |||||||||||||||||||
35.01–45.00 | 11,460,304 | 43.13 | 8.1 | 1,868,770 | 43.33 | |||||||||||||||||||
45.01–55.00 | 19,076,401 | 47.57 | 6.2 | 10,590,462 | 47.41 | |||||||||||||||||||
55.01–81.97 | 14,570,206 | 71.11 | 8.7 | 1,416,112 | 58.13 | |||||||||||||||||||
7.65–81.97 | 48,292,893 | 51.86 | 7.1 | 17,061,326 | 42.92 | |||||||||||||||||||
d) Compensation Expense
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 purchase 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 2004, 2003 and 2002 was CHF 1,406 million, CHF 833 million and CHF 592 million, respectively.
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Financial Statements
Notes to the Financial Statements
Note 32 Equity Participation Plans (continued)
e) Pro-Forma Net Income
The following table presents IFRS Net profit and Earnings per share for 2004, 2003 and 2002 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 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Net profit, as reported | 8,089 | 6,239 | 3,530 | |||||||||
Add: Equity-based employee compensation expense included in reported net income, net of tax | 1,131 | 630 | 493 | |||||||||
Deduct: Total equity-based employee compensation expense determined under the fair-value-based method for all awards, net of tax | (1,639 | ) | (1,069 | ) | (1,183 | ) | ||||||
Net profit, pro-forma | 7,581 | 5,800 | 2,840 | |||||||||
Earnings per share | ||||||||||||
Basic, as reported | 7.68 | 5.59 | 2.92 | |||||||||
Basic, pro-forma | 7.20 | 5.19 | 2.35 | |||||||||
Diluted, as reported | 7.47 | 5.48 | 2.87 | |||||||||
Diluted, pro-forma | 7.00 | 5.09 | 2.31 | |||||||||
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:
31.12.04 | 31.12.03 | 31.12.02 | ||||||||||
Expected volatility | 34% | 35% | 35% | |||||||||
Risk-free interest rate (CHF) | 2.03% | 1.70% | 3.28% | |||||||||
Risk-free interest rate (USD) | 3.70% | 3.17% | 4.65% | |||||||||
Expected dividend rate | 3.87% | 4.43% | 3.35% | |||||||||
Expected life (years) | 5.6 | 4.5 | 4.5 | |||||||||
The weighted-average fair value of options granted in 2004, 2003 and 2002 was CHF 25, CHF 15 and CHF 20 per share, respectively.
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Note 33 Related Parties
The Group defines related parties as Associated companies, private equity investees, the Board of Directors, the Group Executive Board, close family members and enterprises which are controlled by these individuals through their majority shareholding or their role as chairman and / or CEO in those companies. This definition is based on the requirements of the “Directive on Information Relating to Corporate Governance” issued by the SWX Swiss Exchange and effective from 1 July 2002 for all listed companies in Switzerland.
a) Remuneration and equity holdings
The number of long-term stock options outstanding to the executive members of the Board of Directors and Group Executive Board from equity participation plans was 6,004,997 (equivalent to the same number of shares) at 31 December 2004, 6,218,011 options (equivalent to the same number of shares) and 120,264 warrants (equivalent to 7,214 shares) at 31 December 2003 and 5,410,172 options (equivalent to the same number of shares) and 24,558,529 warrants (equivalent to 1,473,217 UBS shares) at 31 December 2002. These plans are further explained in Note 32, Equity Participation Plans.
b) Loans and advances to Board of Directors and senior executives
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Notes to the Financial Statements
Note 33 Related Parties (continued) | ||||||||
c) Loans to significant associated companies | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Balance at the beginning of the year | 63 | 40 | ||||||
Additions | 38 | 48 | ||||||
Reductions | (36 | ) | (25 | ) | ||||
Balance at the end of the year | 65 | 63 | ||||||
All loans to associated companies are transacted at arm’s length. At 31 December 2004 and 2003, there were commitments and contingent liabilities to significant associated companies of CHF 55 million and CHF 14 million, respectively. In addition, the Group routinely receives services from associated companies at arm’s length terms. For the years ended 31 December 2004, 31 December 2003 and 31 December 2002, the amount paid to significant associates for these services was CHF 248 million, CHF 106 million and CHF 60 million, respectively. Fees received for services provided to associated companies for the years ended 31 December 2004, 31 December 2003 and 31 December 2002 was CHF 180 million, CHF 122 million and CHF 2 million, respectively.
d) Loans to private equity investees | ||||||||
CHF million | 31.12.04 | 31.12.03 | ||||||
Balance at the beginning of the year | 366 | 338 | ||||||
Additions | 46 | 153 | ||||||
Reductions | (222 | ) | (125 | ) | ||||
Balance at the end of the year | 190 | 366 | ||||||
At 31 December 2004 and 31 December 2003, there were commitments and contingent liabilities to private equity companies of CHF 36 million and CHF 23 million, respectively. In addition the Group purchased services from private equity companies at arm’s length terms for the years ended 31 December 2004, 31 December 2003 and 31 December 2002 in the amount of CHF 0 million, CHF 14 million and CHF 116 million, respectively.
e) Other related party transactions
Other related party transactions | ||||||||
CHF million | 2004 | 2003 | ||||||
Goods sold and services provided by related parties to UBS | 34 | 43 | ||||||
Services provided to related parties by UBS (fees received) | 10 | 7 | ||||||
Loans granted to related parties by UBS1 | 294 | 79 | ||||||
As part of its sponsorship of Team Alinghi, defender for the “America’s Cup 2007”, UBS paid CHF 8.5 million (EUR 5.5 million) as sponsoring fee for 2004 and CHF 1.4 million (EUR 0.9 million) as sponsoring fee for the UBS Trophy in New Port, RI, USA. Team Alinghi’s controlling shareholder is UBS board member Ernesto Bertarelli.
UBS also engages in trading and risk management activities (e.g. swaps, options, forwards) with related parties. These transactions may give rise to credit risk either for UBS or for a related party towards UBS. As part of its normal course of business, UBS is also a market maker in equity and debt instruments and at times may hold positions in instruments of related parties.
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Note 34 Sales of Financial Assets in Securitizations
During the years ended 31 December 2004, 2003 and 2002, UBS securitized (i.e., transformed owned financial assets into securities through sales transactions) residential mortgage loans and securities, commercial mortgage loans and other financial assets, acting as lead or co-manager. UBS’s continuing involvement in these transactions was primarily limited to the temporary retention of various security interests.
Proceeds received at the time of securitization were as follows:
Proceeds received | ||||||||||||
CHF billion | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Residential mortgage securitizations | 91 | 131 | 143 | |||||||||
Commercial mortgage securitizations | 3 | 4 | 4 | |||||||||
Other financial asset securitizations | 9 | 2 | 6 | |||||||||
Related pre-tax gains (losses) recognized, including unrealized gains (losses) on retained interests, at the time of securitization were as follows:
Pre-tax gains / (losses) recognized | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Residential mortgage securitizations | 197 | 338 | 524 | |||||||||
Commercial mortgage securitizations | 141 | 214 | 206 | |||||||||
Other financial asset securitizations | 21 | 2 | (5 | ) | ||||||||
At 31 December 2004 and 2003, UBS retained CHF 2.4 billion and CHF 3.8 billion, respectively, in agency residential mortgage securities, backed by the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). The fair value of retained interests in residential mortgage securities is generally determined using observable market prices. Retained interests in other residential mortgage, commercial mortgage and other securities were not material at 31 December 2004 and 2003.
Note 35 Post-Balance Sheet Events
There have been no material post-balance sheet events which would require disclosure or adjustment to the 31 December 2004 Financial Statements.
On 3 February 2005, the Board of Directors reviewed the Financial Statements and authorized them for issue. These Financial Statements will be submitted to the Annual General Meeting of Shareholders to be held on 21 April 2005 for approval.
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Notes to the Financial Statements
Note 36 Significant Subsidiaries and Associates
The legal entity group structure of UBS is designed to support the Group’s businesses within an efficient legal, tax, regulatory and funding framework. Neither the Business Groups of UBS (namely Investment Bank, Wealth Management USA, Wealth Management & Business Banking and Global Asset Management) nor Corporate Center are replicated in their own individual legal entities but rather they generally operate out of the parent bank, UBS AG, through its Swiss and foreign branches.
Significant subsidiaries | ||||||||||||||
Share | Equity | |||||||||||||
Jurisdiction | Business | capital | interest | |||||||||||
Company | of incorporation | Group1 | in millions | accumulated in % | ||||||||||
Banco UBS SA | Rio de Janeiro, Brazil | IB | BRL | 52.9 | 100.0 | |||||||||
BDL Banco di Lugano | Lugano, Switzerland | CC | CHF | 50.0 | 100.0 | |||||||||
BDL Banco di Lugano (Singapore) Ltd | Singapore, Singapore | CC | SGD | 25.0 | 100.0 | |||||||||
Brunswick UBS Ltd | George Town, Cayman Islands | IB | USD | 25.0 | 100.0 | |||||||||
Cantrade Private Bank Switzerland (CI) Limited | St. Helier, Jersey | CC | GBP | 0.7 | 100.0 | |||||||||
Crédit Industriel SA | Zurich, Switzerland | WM&BB | CHF | 10.0 | 100.0 | |||||||||
Ehinger & Armand von Ernst AG | Zurich, Switzerland | CC | CHF | 21.0 | 100.0 | |||||||||
Factors AG | Zurich, Switzerland | WM&BB | CHF | 5.0 | 100.0 | |||||||||
Ferrier Lullin & Cie SA | Geneva, Switzerland | CC | CHF | 30.0 | 100.0 | |||||||||
GAM Holding AG | Zurich, Switzerland | CC | CHF | 50.0 | 100.0 | |||||||||
GAM Limited | Hamilton, Bermuda | CC | USD | 2.0 | 100.0 | |||||||||
Giubergia UBS SIM SpA | Milan, Italy | IB | EUR | 15.1 | 51.7 | |||||||||
Noriba Bank BSC | Manama, Bahrain | WM&BB | USD | 10.0 | 100.0 | |||||||||
PaineWebber Capital Inc | Delaware, USA | WM-US | USD | 25.8 | 2 | 100.0 | ||||||||
PT UBS Securities Indonesia | Jakarta, Indonesia | IB | IDR | 50,000.0 | 96.7 | |||||||||
SBC Wealth Management AG | Zug, Switzerland | CC | CHF | 290.1 | 100.0 | |||||||||
SBCI IB Limited | London, Great Britain | IB | GBP | 100.0 | 100.0 | |||||||||
SG Warburg & Co International BV | Amsterdam, the Netherlands | IB | GBP | 40.5 | 100.0 | |||||||||
Thesaurus Continentale Effekten-Gesellschaft in Zürich | Zurich, Switzerland | WM&BB | CHF | 0.1 | 100.0 | |||||||||
UBS (Bahamas) Ltd | Nassau, Bahamas | WM&BB | USD | 4.0 | 100.0 | |||||||||
UBS (France) SA | Paris, France | WM&BB | EUR | 10.7 | 100.0 | |||||||||
UBS (Italia) SpA | Milan, Italy | WM&BB | EUR | 42.0 | 100.0 | |||||||||
UBS (Luxembourg) SA | Luxembourg, Luxembourg | WM&BB | CHF | 150.0 | 100.0 | |||||||||
UBS (Monaco) SA | Monte Carlo, Monaco | WM&BB | EUR | 9.2 | 100.0 | |||||||||
UBS (Trust and Banking) Limited | Tokyo, Japan | Global AM | JPY | 11,150.0 | 100.0 | |||||||||
UBS Advisory and Capital Markets Australia Ltd | Sydney, Australia | IB | AUD | 580.8 | 2 | 100.0 | ||||||||
UBS Alternative and Quantitative Investments LLC | Delaware, USA | Global AM | USD | 0.0 | 100.0 | |||||||||
UBS Americas Inc | Delaware, USA | IB | USD | 4,550.8 | 2 | 100.0 | ||||||||
UBS Asesores SA | Panama, Panama | WM&BB | USD | 0.0 | 100.0 | |||||||||
UBS Australia Limited | Sydney, Australia | IB | AUD | 50.0 | 100.0 | |||||||||
UBS Bank (Canada) | Toronto, Canada | WM&BB | CAD | 8.5 | 100.0 | |||||||||
UBS Bank USA | Utah, USA | WM-US | USD | 1,700.0 | 2 | 100.0 | ||||||||
UBS Belgium SA/NV | Brussels, Belgium | WM&BB | EUR | 16.0 | 100.0 | |||||||||
UBS Beteiligungs-GmbH & Co KG | Frankfurt am Main, Germany | IB | EUR | 498.8 | 100.0 | |||||||||
UBS Capital (Jersey) Ltd | St. Helier, Jersey | IB | GBP | 226.0 | 100.0 | |||||||||
UBS Capital AG | Zurich, Switzerland | IB | CHF | 5.0 | 100.0 | |||||||||
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Note 36 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued) | ||||||||||||||
Share | Equity | |||||||||||||
Jurisdiction | Business | capital | interest | |||||||||||
Company | of incorporation | Group1 | in millions | accumulated in % | ||||||||||
UBS Capital Americas Investments II LLC | Delaware, USA | IB | USD | 130.0 | 2 | 100.0 | ||||||||
UBS Capital Americas Investments III Ltd | George Town, Cayman Islands | IB | USD | 61.1 | 2 | 100.0 | ||||||||
UBS Capital Asia Pacific Limited | George Town, Cayman Islands | IB | USD | 5.0 | 100.0 | |||||||||
UBS Capital BV | Amsterdam, the Netherlands | IB | EUR | 118.8 | 2 | 100.0 | ||||||||
UBS Capital II LLC | Delaware, USA | IB | USD | 2.6 | 2 | 100.0 | ||||||||
UBS Capital Latin America LDC | George Town, Cayman Islands | IB | USD | 113.0 | 2 | 100.0 | ||||||||
UBS Capital LLC | Delaware, USA | IB | USD | 378.5 | 2 | 100.0 | ||||||||
UBS Capital SpA | Milan, Italy | IB | EUR | 0.8 | 100.0 | |||||||||
UBS Card Center AG | Glattbrugg, Switzerland | WM&BB | CHF | 40.0 | 100.0 | |||||||||
UBS Corporate Finance Italia SpA | Milan, Italy | IB | EUR | 1.9 | 100.0 | |||||||||
UBS Corporate Finance South Africa (Proprietary) Limited | Sandton, South Africa | IB | ZAR | 0.0 | 100.0 | |||||||||
UBS Derivatives Hong Kong Limited | Hong Kong, China | IB | HKD | 60.0 | 100.0 | |||||||||
UBS Employee Benefits Trust Limited | St. Helier, Jersey | CC | CHF | 0.0 | 100.0 | |||||||||
UBS Energy Canada Ltd. | Calgary, Canada | IB | USD | 11.3 | 100.0 | |||||||||
UBS Energy LLC | Delaware, USA | IB | USD | 0.0 | 100.0 | |||||||||
UBS Equity Research Malaysia Sdn Bhd | Kuala Lumpur, Malaysia | IB | MYR | 0.5 | 70.0 | |||||||||
UBS España SA | Madrid, Spain | WM&BB | EUR | 54.2 | 100.0 | |||||||||
UBS Fiduciaria SpA | Milan, Italy | WM&BB | EUR | 0.2 | 100.0 | |||||||||
UBS Fiduciary Trust Company | New Jersey, USA | WM-US | USD | 4.4 | 2 | 99.6 | ||||||||
UBS Finance (Cayman Islands) Ltd | George Town, Cayman Islands | CC | USD | 0.5 | 100.0 | |||||||||
UBS Finance (Curação) NV | Willemstad, Netherlands Antilles | CC | USD | 0.1 | 100.0 | |||||||||
UBS Finance (Delaware) LLC | Delaware, USA | IB | USD | 37.3 | 2 | 100.0 | ||||||||
UBS Financial Services Inc. | Delaware, USA | WM-US | USD | 1,672.3 | 2 | 100.0 | ||||||||
UBS Financial Services Incorporated of Puerto Rico | Hato Rey, Puerto Rico | WM-US | USD | 31.0 | 2 | 100.0 | ||||||||
UBS Fund Advisor LLC | Delaware, USA | WM-US | USD | 0.0 | 100.0 | |||||||||
UBS Fund Holding (Luxembourg) SA | Luxembourg, Luxembourg | Global AM | CHF | 42.0 | 100.0 | |||||||||
UBS Fund Holding (Switzerland) AG | Basel, Switzerland | Global AM | CHF | 18.0 | 100.0 | |||||||||
UBS Fund Management (Switzerland) AG | Basel, Switzerland | Global AM | CHF | 1.0 | 100.0 | |||||||||
UBS Fund Services (Cayman) Ltd | George Town, Cayman Islands | Global AM | USD | 5.6 | 100.0 | |||||||||
UBS Fund Services (Ireland) Limited | Dublin, Ireland | Global AM | EUR | 0.5 | 100.0 | |||||||||
UBS Fund Services (Luxembourg) SA | Luxembourg, Luxembourg | Global AM | CHF | 2.5 | 100.0 | |||||||||
UBS Global Asset Management (Americas) Inc | Delaware, USA | Global AM | USD | 0.0 | 100.0 | |||||||||
UBS Global Asset Management (Australia) Ltd | Sydney, Australia | Global AM | AUD | 8.0 | 100.0 | |||||||||
UBS Global Asset Management (Canada) Co | Toronto, Canada | Global AM | CAD | 117.0 | 100.0 | |||||||||
UBS Global Asset Management (France) SA | Paris, France | WM&BB | EUR | 2.1 | 100.0 | |||||||||
UBS Global Asset Management (Hong Kong) Limited | Hong Kong, China | Global AM | HKD | 25.0 | 100.0 | |||||||||
UBS Global Asset Management (Italia) SIM SpA | Milan, Italy | Global AM | EUR | 2.0 | 100.0 | |||||||||
UBS Global Asset Management (Japan) Ltd | Tokyo, Japan | Global AM | JPY | 2,200.0 | 100.0 | |||||||||
UBS Global Asset Management (Singapore) Holdings Pte Ltd | Singapore, Singapore | Global AM | SGD | 4.0 | 100.0 | |||||||||
UBS Global Asset Management (Taiwan) Ltd | Taipei, Taiwan | Global AM | TWD | 340.0 | 97.1 | |||||||||
UBS Global Asset Management (US) Inc | Delaware, USA | Global AM | USD | 35.2 | 2 | 100.0 | ||||||||
UBS Global Asset Management Holding Ltd | London, Great Britain | Global AM | GBP | 33.0 | 100.0 | |||||||||
UBS Global Life AG | Vaduz, Liechtenstein | WM&BB | CHF | 5.0 | 100.0 | |||||||||
UBS Global Trust Corporation | St. John, Canada | WM&BB | CAD | 0.1 | 100.0 | |||||||||
UBS International Holdings BV | Amsterdam, the Netherlands | CC | EUR | 6.8 | 100.0 | |||||||||
UBS International Inc | New York, USA | WM&BB | USD | 34.3 | 2 | 100.0 | ||||||||
UBS International Life Limited | Dublin, Ireland | WM&BB | EUR | 1.0 | 100.0 | |||||||||
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Notes to the Financial Statements
Note 36 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued) | ||||||||||||||
Share | Equity | |||||||||||||
Jurisdiction | Business | capital | interest | |||||||||||
Company | of incorporation | Group1 | in millions | accumulated in % | ||||||||||
UBS Invest Kapitalanlagegesellschaft mbH | Frankfurt am Main, Germany | Global AM | EUR | 7.7 | 100.0 | |||||||||
UBS Investment Bank AG | Frankfurt am Main, Germany | IB | EUR | 155.7 | 100.0 | |||||||||
UBS Investment Bank Nederland BV | Amsterdam, the Netherlands | IB | EUR | 10.9 | 100.0 | |||||||||
UBS Laing and Cruickshank Limited | London, Great Britain | WM&BB | GBP | 2.5 | 100.0 | |||||||||
UBS Leasing AG | Brugg, Switzerland | WM&BB | CHF | 10.0 | 100.0 | |||||||||
UBS Life AG | Zurich, Switzerland | WM&BB | CHF | 25.0 | 100.0 | |||||||||
UBS Limited | London, Great Britain | IB | GBP | 21.2 | 100.0 | |||||||||
UBS Loan Finance LLC | Delaware, USA | IB | USD | 16.7 | 100.0 | |||||||||
UBS Mortgage Holdings LLC | Delaware, USA | WM-US | USD | 0.0 | 100.0 | |||||||||
UBS New Zealand Limited | Auckland, New Zealand | IB | NZD | 7.5 | 100.0 | |||||||||
UBS O’Connor LLC | Delaware, USA | Global AM | USD | 1.0 | 100.0 | |||||||||
UBS PaineWebber Life Insurance Company | California, USA | WM-US | USD | 39.3 | 2 | 100.0 | ||||||||
UBS Portfolio LLC | Delaware, USA | IB | USD | 0.1 | 100.0 | |||||||||
UBS Preferred Funding Company LLC I | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||
UBS Preferred Funding Company LLC II | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||
UBS Preferred Funding Company LLC III | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||
UBS Preferred Funding Company LLC IV | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||
UBS Principal Finance LLC | Delaware, USA | IB | USD | 0.1 | 100.0 | |||||||||
UBS Private Clients Australia Ltd | Melbourne, Australia | WM&BB | AUD | 53.9 | 100.0 | |||||||||
UBS Real Estate Investments Inc | Delaware, USA | IB | USD | 0.3 | 100.0 | |||||||||
UBS Real Estate Securities Inc | Delaware, USA | IB | USD | 0.4 | 100.0 | |||||||||
UBS Realty Investors LLC | Connecticut, USA | Global AM | USD | 9.3 | 100.0 | |||||||||
UBS Securities (Thailand) Ltd | Bangkok, Thailand | IB | THB | 400.0 | 100.0 | |||||||||
UBS Securities Asia Limited | Hong Kong, China | IB | HKD | 20.0 | 100.0 | |||||||||
UBS Securities Australia Ltd | Sydney, Australia | IB | AUD | 209.8 | 2 | 100.0 | ||||||||
UBS Securities Canada Inc | Toronto, Canada | IB | CAD | 10.0 | 50.0 | |||||||||
UBS Securities España Sociedad de Valores SA | Madrid, Spain | IB | EUR | 15.0 | 100.0 | |||||||||
UBS Securities France SA | Paris, France | IB | EUR | 22.9 | 100.0 | |||||||||
UBS Securities Hong Kong Limited | Hong Kong, China | IB | HKD | 230.0 | 100.0 | |||||||||
UBS Securities India Private Limited | Mumbai, India | IB | INR | 237.8 | 75.0 | |||||||||
UBS Securities International Limited | London, Great Britain | IB | GBP | 18.0 | 100.0 | |||||||||
UBS Securities Japan Ltd | George Town, Cayman Islands | IB | JPY | 60,000.0 | 100.0 | |||||||||
UBS Securities Limited | London, Great Britain | IB | GBP | 140.0 | 100.0 | |||||||||
UBS Securities Limited Seoul Branch | Seoul, South Korea | IB | KRW | 0.0 | 100.0 | |||||||||
UBS Securities LLC | Delaware, USA | IB | USD | 2,141.4 | 2 | 100.0 | ||||||||
UBS Securities Philippines Inc | Makati City, Philippines | IB | PHP | 150.0 | 100.0 | |||||||||
UBS Securities Singapore Pte Ltd | Singapore, Singapore | IB | SGD | 55.0 | 100.0 | |||||||||
UBS Services USA LLC | Delaware, USA | WM-US | USD | 0.0 | 100.0 | |||||||||
UBS Securities South Africa (Proprietary) Limited | Sandton, South Africa | IB | ZAR | 87.1 | 2 | 100.0 | ||||||||
UBS Trust (Canada) | Toronto, Canada | WM&BB | CAD | 12.5 | 100.0 | |||||||||
UBS Trust Company National Association | New York, USA | WM-US | USD | 5.0 | 2 | 100.0 | ||||||||
UBS Trustees (Bahamas) Ltd | Nassau, Bahamas | WM&BB | USD | 2.0 | 100.0 | |||||||||
UBS Trustees (Cayman) Ltd | George Town, Cayman Islands | WM&BB | USD | 2.0 | 100.0 | |||||||||
UBS Trustees (Jersey) Ltd | St. Helier, Jersey | WM&BB | GBP | 0.0 | 100.0 | |||||||||
UBS Trustees (Singapore) Limited | Singapore, Singapore | WM&BB | SGD | 3.3 | 100.0 | |||||||||
UBS UK Holding Limited | London, Great Britain | IB | GBP | 5.0 | 100.0 | |||||||||
UBS Wealth Management AG | Frankfurt, Germany | WM&BB | EUR | 51.0 | 100.0 | |||||||||
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Note 36 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued) | ||||||||||||||
Share | Equity | |||||||||||||
Jurisdiction | Business | capital | interest | |||||||||||
Company | of incorporation | Group1 | in millions | accumulated in % | ||||||||||
Motor-Columbus AG | Baden, Switzerland | IH | CHF | 253.0 | 55.6 | |||||||||
Aare-Tessin AG für Elektrizität3 | Olten, Switzerland | IH | CHF | 303.6 | 33.0 | |||||||||
Atel Energia S. r. l.3 | Milan, Italy | IH | EUR | 20.0 | 32.3 | |||||||||
Atel Installationstechnik AG3 | Olten, Switzerland | IH | CHF | 30.0 | 33.0 | |||||||||
Entrade GmbH3 | Schaffhausen, Switzerland | IH | CHF | 0.4 | 24.7 | |||||||||
GAH Beteiligungs AG3 | Heidelberg, Germany | IH | EUR | 25.0 | 33.0 | |||||||||
Società Elettrica Sopracenerina SA3 | Locarno, Switzerland | IH | CHF | 27.5 | 19.6 | |||||||||
Consolidated companies: changes in 2004 | ||||
Significant new companies | ||||
UBS Alternative and Quantitative Investments LLC – Delaware, USA | ||||
UBS Energy Canada Limited – Calgary, Canada | ||||
UBS Energy LLC – Delaware, USA | ||||
UBS Fund Services (Ireland) Limited – Dublin, Ireland | ||||
UBS Global Life AG – Vaduz, Liechtenstein | ||||
UBS Laing and Cruickshank Limited – London, Great Britain | ||||
UBS Securities Limited Seoul Branch – Seoul, South Korea | ||||
UBS Services USA LLC – Delaware, USA | ||||
Motor-Columbus AG – Baden, Switzerland | ||||
Aare-Tessin AG für Elektrizität – Olten, Switzerland | ||||
Atel Energia S.r.l. – Milan, Italy | ||||
Atel Installationstechnik AG – Olten, Switzerland | ||||
Entrade GmbH – Schaffhausen, Switzerland | ||||
GAH Beteiligungs AG – Heidelberg, Germany | ||||
Società Elettrica Sopracenerina SA – Locarno, Switzerland | ||||
Deconsolidated companies | ||||
Significant deconsolidated companies | Reason for deconsolidation | |||
UBS Finanzholding AG – Zurich, Switzerland | Merged | |||
Aventic AG – Zurich, Switzerland | Merged | |||
Significant associates | ||||||||||||
Equity interest | Share capital | |||||||||||
Company | Industry | in % | in millions | |||||||||
Electricité d’Emosson SA – Martigny, Switzerland | Electricity | 16 | CHF | 140 | ||||||||
Engadiner Kraftwerke AG – Zernez, Switzerland | Electricity | 7 | CHF | 140 | ||||||||
Kernkraftwerk Gösgen-Däniken AG – Däniken, Switzerland | Electricity | 13 | CHF | 350 | 1 | |||||||
Kernkraftwerk Leibstadt AG – Leibstadt, Switzerland | Electricity | 9 | CHF | 450 | ||||||||
SIS Swiss Financial Services Group AG – Zurich, Switzerland | Financial | 33 | CHF | 26 | ||||||||
Telekurs Holding AG – Zurich, Switzerland | Financial | 33 | CHF | 45 | ||||||||
Azienda Energetica Municipale S.p.A. – Milan, Italy | Electricity | 2 | EUR | 930 | ||||||||
UBS Currency Portfolio Ltd – George Town, Cayman Islands | Private Investment Company | 18 | USD | 1,831 | 2 | |||||||
UBS Global Equity Arbitrage Ltd – George Town, Cayman Islands | Private Investment Company | 37 | USD | 929 | 2 | |||||||
O’Connor Proprietary Series – Currency and Rates, Fundamental Long / Short and Convertible Arbitrage Limited – George Town, Cayman Islands | Private Investment Company | 44 | USD | 506 | 2 | |||||||
O’Connor Proprietary Series – Currency and Rates, Fundamental Long / Short and Convertible Arbitrage (EURO) Limited – George Town, Cayman Islands | Private Investment Company | 51 | EUR | 153 | 2 | |||||||
Volbroker.com Limited – London, Great Britain | Financial | 21 | GBP | 18 | ||||||||
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Notes to the Financial Statements
Note 37 Invested Assets and Net New Money
Invested assets include all client assets managed by or deposited with UBS for investment purposes only. They therefore exclude all assets held for purely transactional purposes. Assets included are, for example, managed fund assets, managed institutional assets, discretionary and advisory wealth management portfolios, fiduciary deposits, time deposits, savings accounts and wealth management securities or brokerage accounts. Custody-only assets and transactional cash or current accounts as well as non-bankable assets (e. g. art collections) and deposits from third-party banks for funding or trading purposes are excluded.
Group and sold in another, it is counted in both the Business Group that does the investment management and the one that distributes it. This results in double counting within UBS 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 | 31.12.04 | 31.12.03 | ||||||
Fund assets managed by UBS | 354 | 339 | ||||||
Discretionary assets | 570 | 507 | ||||||
Other invested assets | 1,326 | 1,287 | ||||||
Total invested assets | 2,250 | 2,133 | ||||||
thereof double count | 294 | 283 | ||||||
Net new money | 88.9 | 69.1 | ||||||
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Note 38 Business Combinations
During 2004, UBS completed several acquisitions that were accounted for as business combinations. Except Motor-Columbus, which is discussed separately, none of the acquisitions was individually significant to the financial statements, and therefore, they are presented aggregated per Business Group.
Wealth Management
Harris provides advice on pension and retirement benefit products, serving primarily executives and company directors with 28 employees. Subsequent to the acquisition both firms have been integrated into the UBS wealth management operations in the UK.
Step-up to | ||||||||||||
CHF million | Book value | fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 162 | 162 | |||||||||
Property and equipment | 3 | (1 | ) | 2 | ||||||||
Financial Investments | 5 | 0 | 5 | |||||||||
Goodwill | 0 | 521 | 521 | |||||||||
All other assets | 260 | 2 | 262 | |||||||||
Total assets | 268 | 684 | 952 | |||||||||
Liabilities | ||||||||||||
Provisions | 5 | 19 | 24 | |||||||||
Deferred tax liabilities | 0 | 54 | 54 | |||||||||
All other liabilities | 178 | 0 | 178 | |||||||||
Total liabilities | 183 | 73 | 256 | |||||||||
Net assets | 85 | 611 | 696 | |||||||||
Total liabilities and equity | 268 | 684 | 952 | |||||||||
Intangible assets recognized relate to the businesses’ existing customer relationships and have been assigned useful lives of twenty years, over which they will be amortized.
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Financial Statements
Notes to the Financial Statements
Note 38 Business Combinations (continued)
Investment Bank
sideration to the sellers of CHF 113 million (USD 99 million) and will pay a further CHF 75 million (USD 66 million) at the end of 2005 plus 20% of Brunswick UBS’s net profits for 2005. Formed in 1997, Brunswick UBS has developed a significant franchise in the Russian securities market, employing 120 people in Moscow. UBS has already consolidated Brunswick, so that the effects of this acquisition on the financial statements are minor.
Step-up to | ||||||||||||
CHF million | Book value | fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 21 | 133 | 154 | |||||||||
Property and equipment | 20 | (13 | ) | 7 | ||||||||
Financial investments | 99 | (2 | ) | 97 | ||||||||
Deferred tax assets | 37 | (37 | ) | – | ||||||||
Goodwill | – | 336 | 336 | |||||||||
All other assets | 361 | (1 | ) | 360 | ||||||||
Total assets | 538 | 416 | 954 | |||||||||
Liabilities | ||||||||||||
Deferred tax liabilities | – | 23 | 23 | |||||||||
All other liabilities | 364 | 32 | 396 | |||||||||
Total liabilities | 364 | 55 | 419 | |||||||||
Minority interests | 40 | (39 | ) | 1 | ||||||||
Equity | 134 | 400 | 534 | |||||||||
Total liabilities, minority interests and equity | 538 | 416 | 954 | |||||||||
Intangible assets recognized relate to the businesses’ existing customer relationships and have been assigned useful lives of five years in the case of Brunswick and eight years in the case of Schwab over which they will be amortized.
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Note 38 Business Combinations (continued)
Notz Stucki
Motor-Columbus
Elektrizität (Atel), a Swiss group engaged in the production, distribution and trading of electricity.
Step-up to | ||||||||||||
CHF million | Book value | fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 444 | 750 | 1,194 | |||||||||
Property and equipment | 1,939 | 144 | 2,083 | |||||||||
Investments in associates | 655 | 367 | 1,022 | |||||||||
Financial investments | 621 | 19 | 640 | |||||||||
Deferred tax assets | 113 | 67 | 180 | |||||||||
All other assets | 2,629 | – | 2,629 | |||||||||
Total assets | 6,401 | 1,347 | 7,748 | |||||||||
Liabilities | ||||||||||||
Provisions | 835 | 75 | 910 | |||||||||
Debt issued | 700 | 27 | 727 | |||||||||
Deferred tax liabilities | 293 | 308 | 601 | |||||||||
All other liabilities | 3,045 | – | 3,045 | |||||||||
Total liabilities | 4,873 | 410 | 5,283 | |||||||||
Minority interests | 784 | 382 | 1,166 | |||||||||
Equity | 744 | 555 | 1,299 | |||||||||
Total liabilities, minority interests and equity | 6,401 | 1,347 | 7,748 | |||||||||
The CHF 75 million step-up to fair value of provisions relates to contingent liabilities arising from guarantees and certain contractual obligations. UBS’s share in the equity at fair value of CHF 1,299 million is CHF 723 million, while the remaining CHF 576 million is recognized as additional minority interests, bringing total minority interest as of the acquisition date to CHF 1,742 million.
Useful economic lives between 4 and 25 years have been assigned to amortizable and depreciable assets based on contractual lives, where applicable, or estimates of the period during which the assets will benefit the operations.
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Financial Statements
Notes to the Financial Statements
Note 38 Business Combinations (continued)
Pro-forma information (unaudited)
and 2003, respectively. Adjustments have been made to reflect additional amortization and depreciation of assets and liabilities, which have been assigned fair values different from their carryover basis in purchase accounting.
For the year ended | ||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | ||||||
Total operating income | 44,812 | 39,536 | ||||||
Net profit | 8,112 | 6,277 | ||||||
Basic earnings per share (CHF) | 7.71 | 5.62 | ||||||
Note 39 Currency Translation Rates
The following table shows the principal rates used to translate the financial statements of foreign entities into Swiss francs:
Spot rate | Average rate | |||||||||||||||||||
As at | Year ended | |||||||||||||||||||
31.12.04 | 31.12.03 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||
1 USD | 1.14 | 1.24 | 1.24 | 1.34 | 1.54 | |||||||||||||||
1 EUR | 1.55 | 1.56 | 1.54 | 1.54 | 1.46 | |||||||||||||||
1 GBP | 2.19 | 2.22 | 2.27 | 2.20 | 2.33 | |||||||||||||||
100 JPY | 1.11 | 1.15 | 1.15 | 1.16 | 1.24 | |||||||||||||||
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Note 40 Swiss Banking Law Requirements
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. Consolidation
2. Financial investments
3. Cash flow hedges
der IFRS, when hedge accounting is applied for these instruments, the unrealized gain or loss on the effective portion of the derivatives is recorded in Shareholders’ equity until the hedged cash flows occur, at which time the accumulated gain or loss is realized and released to income.
4. Investment property
5. Fair value option
6. Goodwill
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Financial Statements
Notes to the Financial Statements
Note 41 Reconciliation of International Financial Reporting Standards (IFRS) to United States Generally Accepted Accounting Principles (US GAAP)
Note 41.1 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
due to recognition of deferred tax assets of Swiss Bank Corporation which had previously been subject to valuation reserves.
Other purchase accounting adjustments
b. Reversal of IFRS goodwill amortization
The adoption of SFAS 142 “Goodwill and Intangible Assets” resulted in two new reconciling items: 1) Intangible assets on the IFRS balance sheet with a book value of CHF 1.8 billion at 1 January 2002 were reclassified to Goodwill for US GAAP; 2) The amortization of IFRS Goodwill and the Intangible assets reclassified to Goodwill for US GAAP (CHF 778 million, CHF 831 million and CHF 1,017 million for the years ended 31 December 2004, 31 December 2003 and 31 December 2002, respectively) was reversed.
c. Purchase accounting under IFRS 3 and FAS 141
With the adoption of IFRS 3 on 31 March 2004, the accounting for business combinations generally converged with US GAAP with the exception of the measurement of minority interests and the recognition of a revaluation reserve in the case of a step acquisition.
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reserve. Under US GAAP, the existing ownership interest remains at its original valuation.
d. Derivative instruments
e. Financial investments and private equity
Financial investments available-for-sale
Private equity investments
CHF million, except for per share data | Pro-forma | |||||||||||
For the year ended | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Net profit under US GAAP | 8,818 | 6,513 | 4,907 | |||||||||
Basic earnings per share | 8.56 | 5.83 | 4.06 | |||||||||
Diluted earnings per share | 8.15 | 5.72 | 3.99 | |||||||||
See Note 2 for information regarding impairment charges recorded for private equity investments.
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Financial Statements
Notes to the Financial Statements
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.
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
As of the reporting date, IFRS does not have any standard in effect that specifically addresses the recognition and measurement requirements for equity participation plans.
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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 reconciliation item was the amortization of software capitalized in 1999 for US GAAP purposes. At 31 December 2002, this amount was fully utilized and there is no longer a difference between IFRS and US GAAP.
j. Consolidation of Variable Interest Entities (VIEs) and deconsolidation of trust preferred securities
IFRS and US GAAP generally require consolidation of entities on the basis of controlling a majority of voting rights. However, in certain situations, there are no voting rights, or control of a majority of voting rights is not a reliable indicator of the need to consolidate, such as when voting rights are significantly disproportionate to risks and rewards. There are differences in the approach of IFRS and US GAAP to those situations.
At 31 December 2003, the consolidation requirements of the predecessor standard, FIN 46, only applied to VIEs created after 31 January 2003.
k. Financial liabilities held at fair value through profit and loss
Revised IAS 39 provides the election to designate at initial recognition any financial asset or liability as held at fair value through profit and loss. UBS applies this fair value designation election to a significant portion of its issued debt. Many debt issues are in the form of hybrid instruments, consisting of a debt host with an embedded derivative. Regular debt instruments as well as hybrid instruments are carried in their entirety at fair value with all changes in fair value recorded in profit and loss. Under US GAAP, debt instruments have to be carried at amortized cost. Derivatives embedded in hybrid instruments are separated from the debt hosts and accounted for as if they were freestanding derivatives.
l. Physically settled written puts
With the adoption of revised IAS 32 and IAS 39 at 1 January 2004, the accounting for physically settled written put options on UBS shares changed. Previously, such put options were accounted for as derivatives whereas now the present value of the contractual amount is recorded as a liability, while the premium received is credited to equity. Subsequently, the liability is accreted over the life of the put option to its contractual amount recognizing interest expense in accordance with the effective interest method. Under US GAAP, physically settled written put options on UBS shares continue to be accounted for as derivative instruments. All other outstanding derivative contracts, except written put options with the UBS share as underlying, are treated as derivative instruments under both sets of accounting standards.
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Financial Statements
Notes to the Financial Statements
m. Investment properties
As at 1 January 2004, UBS changed its accounting for investment properties from the cost less depreciation method to the fair value method. Under the fair value method,
changes in fair value are recognized in the income statement, and depreciation is no longer recognized. Under US GAAP, investment properties continue to be carried at cost less accumulated depreciation.
Note 41.2 Recently Issued US Accounting Standards
In December 2003, the “Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the Act) was passed in the US. Commencing 1 January 2006, the Act introduces a prescription drug benefit for individuals eligible under Medicare (Medicare Part D) as well as a federal subsidy equal to 28% of certain post-65 prescription drug claims for sponsors of retiree health care plans with drug benefits that are at least actuarially equivalent to those to be offered under Medicare Part D.
UBS elected to adopt early the additional disclosures required for foreign plans as well as the prescribed SFAS 132-R disclosures in its 2003 Financial Statements. Pursuant to the transitional disclosure requirements, UBS included the disclosure of the estimated future benefit payments for the year ended 31 December 2004 in Note 31, Pension and Other Post-Retirement Benefit Plans.
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at 31 December 2003. Under FN 46-R, at 1 January 204, several of UBS’s employee equity compensation trusts were consolidated for the first time, while trust preferred security vehicles were deconsolidated.
Recently issued US accounting standards not yet adopted
share awards granted as part of annual bonuses in the year of corresponding performance, aligning with the revenue produced. For disclosure purposes, UBS recognized the fair value of option awards on the date of grant. Thus, for recognition and disclosure purposes, expense for share and option awards issued prior to but outstanding at the date of adoption of SFAS 123-R has been fully attributed to prior periods. Further, share awards issued in 2005 as part of the 2004 performance year, have been fully recognized in 2004. Therefore under SFAS 123-R, only option awards and certain share awards granted, modified or settled after the effective date are to be recognized in the 2005 financial statements. These awards will be recognized over the requisite service period as newly defined in SFAS 123-R, which is expected to result in a ramp-up of compensation expense over the next several years as these awards move through their vesting periods. Therefore, compensation expense is expected to decrease in 2005 compared to 2004 as the ramp-up effect for the share awards will offset the first-time recognition of the fair value of option awards. However, compensation cost will increase as awards to which the new measurement and attribution requirements apply move through their vesting period. Once these initial awards are fully vested (generally three years), compensation expense under SFAS 123-R is not expected to be materially different than what would be disclosed in the pro-forma disclosures under SFAS 123.
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Financial Statements
Notes to the Financial Statements
Note 41.3 Reconciliation of IFRS Shareholders’ Equity and Net profit to US GAAP
Note 41.1 | Shareholders’ equity | Net profit | ||||||||||||||||||||||
CHF million | Reference | 31.12.04 | 31.12.03 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||
Amounts determined in accordance with IFRS | 34,978 | 35,310 | 8,089 | 6,239 | 3,530 | |||||||||||||||||||
Adjustments in respect of: | ||||||||||||||||||||||||
SBC purchase accounting goodwill and other purchase accounting adjustments | a | 15,152 | 15,196 | (44 | ) | (89 | ) | (128 | ) | |||||||||||||||
Reversal of IFRS goodwill amortization | b | 2,603 | 1,825 | 778 | 808 | 1,017 | ||||||||||||||||||
Purchase accounting under IFRS 3 and FAS 141 | c | (88 | ) | 0 | 3 | 0 | 0 | |||||||||||||||||
Derivative instruments | d | (75 | ) | (94 | ) | (217 | ) | 188 | 342 | |||||||||||||||
Financial investments and private equity | e | (266 | ) | (84 | ) | 304 | (159 | ) | 767 | |||||||||||||||
Pension plans | f | 372 | 1,303 | (110 | ) | (235 | ) | (156 | ) | |||||||||||||||
Other post-retirement benefit plans | g | (1 | ) | (1 | ) | 0 | 0 | 7 | ||||||||||||||||
Equity participation plans | h | (80 | ) | (112 | ) | (98 | ) | (152 | ) | 63 | ||||||||||||||
Software capitalization | i | 0 | 0 | 0 | 0 | (60 | ) | |||||||||||||||||
Consolidation of variable interest entities (VIEs) and deconsolidation of trust preferred securities | j | 47 | (10 | ) | 18 | (10 | ) | 0 | ||||||||||||||||
Financial liabilities held at fair value through profit and loss | k | 197 | 117 | 100 | 78 | 39 | ||||||||||||||||||
Physically settled written puts | l | 93 | 48 | 9 | 5 | 3 | ||||||||||||||||||
Investment properties | m | (8 | ) | (24 | ) | 14 | 88 | (23 | ) | |||||||||||||||
Other adjustments | (50 | ) | 0 | (50 | ) | 0 | 0 | |||||||||||||||||
Tax adjustments | (206 | ) | (300 | ) | 22 | (248 | ) | 145 | ||||||||||||||||
Total adjustments | 17,690 | 17,864 | 729 | 274 | 2,016 | |||||||||||||||||||
Amounts determined in accordance with US GAAP | 52,668 | 53,174 | 8,818 | 6,513 | 5,546 | |||||||||||||||||||
Note 41.4 Earnings per Share
Under both IFRS and US GAAP, basic earnings per share (“EPS”) is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. Diluted EPS includes the determinants of basic EPS and, in addition, gives effect to dilutive potential common shares that were outstanding during the period.
31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||
For the year ended | US GAAP | IFRS | US GAAP | IFRS | US GAAP | IFRS | ||||||||||||||||||
Net profit available for ordinary shares (CHF million) | 8,818 | 8,089 | 6,513 | 6,239 | 5,546 | 3,530 | ||||||||||||||||||
Net profit for diluted EPS (CHF million) | 8,813 | 8,084 | 6,514 | 6,240 | 5,520 | 3,510 | ||||||||||||||||||
Weighted average shares outstanding | 1,029,895,610 | 1,052,914,417 | 1,116,602,289 | 1,116,953,623 | 1,208,055,132 | 1,208,586,678 | ||||||||||||||||||
Diluted weighted average shares outstanding | 1,081,961,360 | 1,081,961,360 | 1,138,800,625 | 1,138,800,625 | 1,222,862,165 | 1,223,382,942 | ||||||||||||||||||
Basic earnings per share (CHF) | 8.56 | 7.68 | 5.83 | 5.59 | 4.59 | 2.92 | ||||||||||||||||||
Diluted earnings per share (CHF) | 8.15 | 7.47 | 5.72 | 5.48 | 4.51 | 2.87 | ||||||||||||||||||
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Note 41.5 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
liability is presented in the line “Obligation to return securities received as collateral”.
4. Reverse repurchase, repurchase, securities borrowing and securities lending transactions
5. Recognition/derecognition of financial assets
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Financial Statements
Notes to the Financial Statements
Note 41.6 Consolidated Income Statement
The following is a Consolidated Income Statement of the Group, for the years ended 31 December 2004, 31 December 2003 and 31 December 2002, restated to reflect the impact of valuation and income recognition differences and presentation differences between IFRS and US GAAP.
�� | ||||||||||||||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||||||||||||
For the year ended | Reference | US GAAP | IFRS | US GAAP | IFRS | US GAAP | IFRS | |||||||||||||||||||||
Operating income | ||||||||||||||||||||||||||||
Interest income | a, d, j, 4, 5 | 39,124 | 39,398 | 39,940 | 40,159 | 39,679 | 39,963 | |||||||||||||||||||||
Interest expense | a, j, k, 4, 5 | (27,306 | ) | (27,538 | ) | (27,700 | ) | (27,860 | ) | (29,334 | ) | (29,417 | ) | |||||||||||||||
Net interest income | 11,818 | 11,860 | 12,240 | 12,299 | 10,345 | 10,546 | ||||||||||||||||||||||
Credit loss expense / (recovery) | 276 | 276 | (72 | ) | (72 | ) | (115 | ) | (115 | ) | ||||||||||||||||||
Net interest income after credit loss expense / (recovery) | 12,094 | 12,136 | 12,168 | 12,227 | 10,230 | 10,431 | ||||||||||||||||||||||
Net fee and commission income | 19,416 | 19,416 | 17,345 | 17,345 | 18,221 | 18,221 | ||||||||||||||||||||||
Net trading income | d, h, j, k, l, 4, 5 | 4,879 | 4,972 | 4,021 | 3,756 | 5,940 | 5,451 | |||||||||||||||||||||
Other income1 | b, c, e, j, m | 1,188 | 897 | 380 | 462 | 96 | 4 | |||||||||||||||||||||
Income from Industrial Holdings | 3,648 | 3,648 | ||||||||||||||||||||||||||
Total operating income | 41,225 | 41,069 | 33,914 | 33,790 | 34,487 | 34,107 | ||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||
Personnel expenses | f, g, h | 18,729 | 18,515 | 17,615 | 17,231 | 18,610 | 18,524 | |||||||||||||||||||||
General and administrative expenses | j | 6,705 | 6,703 | 6,086 | 6,086 | 7,072 | 7,072 | |||||||||||||||||||||
Depreciation of property and equipment | a, i, m | 1,385 | 1,352 | 1,396 | 1,353 | 1,613 | 1,514 | |||||||||||||||||||||
Amortization of goodwill | b | 0 | 713 | 0 | 756 | 0 | 930 | |||||||||||||||||||||
Amortization of other intangible assets | b | 186 | 251 | 112 | 187 | 1,443 | 1,530 | |||||||||||||||||||||
Goods and materials purchased | 2,861 | 2,861 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||
Total operating expenses | 29,866 | 30,395 | 25,209 | 25,613 | 28,738 | 29,570 | ||||||||||||||||||||||
Operating profit / (loss) before tax and minority interests | 11,359 | 10,674 | 8,705 | 8,177 | 5,749 | 4,537 | ||||||||||||||||||||||
Tax expense / (benefit) | 2,112 | 2,135 | 1,842 | 1,593 | 511 | 676 | ||||||||||||||||||||||
Net profit / (loss) before minority interests | 9,247 | 8,539 | 6,863 | 6,584 | 5,238 | 3,861 | ||||||||||||||||||||||
Minority interests | j | (435 | ) | (450 | ) | (350 | ) | (345 | ) | (331 | ) | (331 | ) | |||||||||||||||
Change in accounting principle: cumulative effect of adoption of “AICPA Audit and Accounting Guide, Audits of Investment Companies” on certain financial investments, net of tax | 0 | 0 | 0 | 0 | 639 | 0 | ||||||||||||||||||||||
Cumulative adjustment of accounting for certain equity based compensation plans as cash settled, net of tax | 6 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||
Net profit | 8,818 | 8,089 | 6,513 | 6,239 | 5,546 | 3,530 | ||||||||||||||||||||||
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Note 41.7 Condensed Consolidated Balance Sheet
The following is a Condensed Consolidated Balance Sheet of the Group, as at 31 December 2004 and 31 December 2003, restated to reflect the impact of valuation and income recognition principles and presentation differences between IFRS and US GAAP.
31.12.04 | 31.12.03 | |||||||||||||||||||
CHF million | Reference | US GAAP | IFRS | US GAAP | IFRS | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 6,036 | 6,036 | 3,584 | 3,584 | ||||||||||||||||
Due from banks | h, j | 35,286 | 35,264 | 31,758 | 31,740 | |||||||||||||||
Cash collateral on securities borrowed | 4 | 218,414 | 220,242 | 211,058 | 213,932 | |||||||||||||||
Reverse repurchase agreements | 357,164 | 357,164 | 320,499 | 320,499 | ||||||||||||||||
Trading portfolio assets | c, h, j,1, 4, 5 | 449,389 | 370,259 | 423,733 | 341,013 | |||||||||||||||
Trading portfolio assets pledged as collateral | 159,115 | 159,115 | 120,759 | 120,759 | ||||||||||||||||
Positive replacement values | j, k, 1, 4, 5 | 284,468 | 284,577 | 248,924 | 248,206 | |||||||||||||||
Financial assets designated at fair value | c | 653 | ||||||||||||||||||
Loans | a, j, 5 | 228,968 | 232,387 | 212,729 | 212,679 | |||||||||||||||
Financial investments | e, j, 2 | 1,455 | 5,049 | 1,303 | 5,139 | |||||||||||||||
Securities received as collateral | 3 | 12,950 | 13,071 | |||||||||||||||||
Accrued income and prepaid expenses | h, j | 5,882 | 5,876 | 6,219 | 6,218 | |||||||||||||||
Investments in associates | c | 2,153 | 2,427 | 1,616 | 1,616 | |||||||||||||||
Property and equipment | a, c, m | 9,045 | 8,736 | 8,116 | 7,683 | |||||||||||||||
Goodwill | a, b | 26,977 | 8,847 | 26,775 | 9,348 | |||||||||||||||
Other intangible assets | b, c | 1,722 | 3,302 | 1,174 | 2,181 | |||||||||||||||
Private equity investments | 2 | 3,094 | 3,308 | |||||||||||||||||
Other assets | c, d, f, h, j, 1, 2, 5 | 101,068 | 34,850 | 64,381 | 25,459 | |||||||||||||||
Total assets | 1,903,186 | 1,734,784 | 1,699,007 | 1,550,056 | ||||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | h, 1 | 119,021 | 118,901 | 127,385 | 127,012 | |||||||||||||||
Cash collateral on securities lent | 4 | 57,792 | 61,545 | 51,157 | 53,278 | |||||||||||||||
Repurchase agreements | j | 423,513 | 422,587 | 415,863 | 415,863 | |||||||||||||||
Trading portfolio liabilities | j, 1, 4, 5 | 190,907 | 171,033 | 149,380 | 143,957 | |||||||||||||||
Obligation to return securities received as collateral | 3 | 12,950 | 13,071 | |||||||||||||||||
Negative replacement values | j, k, l, 1, 4, 5 | 360,345 | 303,712 | 326,136 | 254,768 | |||||||||||||||
Financial liabilities designated at fair value | j, k, 5 | 65,756 | 35,286 | |||||||||||||||||
Due to customers | j, 5 | 386,913 | 376,083 | 347,358 | 346,633 | |||||||||||||||
Accrued expenses and deferred income | j | 14,830 | 14,685 | 13,673 | 13,673 | |||||||||||||||
Debt issued | a, c, d, j, k, 1 | 164,744 | 117,828 | 123,259 | 88,843 | |||||||||||||||
Other liabilities | c, d, f, g, h, j, l, m, 1 | 117,743 | 42,342 | 74,044 | 31,360 | |||||||||||||||
Total liabilities | 1,848,758 | 1,694,472 | 1,641,326 | 1,510,673 | ||||||||||||||||
Minority interests | c ,j | 1,760 | 5,334 | 4,507 | 4,073 | |||||||||||||||
Total shareholders’ equity | 52,668 | 34,978 | 53,174 | 35,310 | ||||||||||||||||
Total liabilities, minority interests and shareholders’ equity | 1,903,186 | 1,734,784 | 1,699,007 | 1,550,056 | ||||||||||||||||
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Notes to the Financial Statements
Note 41.8 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 2004, 31 December 2003 and 31 December 2002 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 2002 | (769 | ) | 469 | 9 | (303 | ) | (7 | ) | (601 | ) | ||||||||||||||||||
Net profit | 5,546 | |||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation | (80 | ) | (80 | ) | (80 | ) | ||||||||||||||||||||||
Net unrealized gains on available-for-sale investments | 143 | (34 | ) | 109 | 109 | |||||||||||||||||||||||
Impairment charges reclassified to the income statement | 121 | (26 | ) | 95 | 95 | |||||||||||||||||||||||
Reclassification of gains on available-for- sale investments realized in net profit | (470 | ) | 102 | (368 | ) | (368 | ) | |||||||||||||||||||||
Net unrealized losses on cash flow hedges | (4 | ) | 3 | (1 | ) | (1 | ) | |||||||||||||||||||||
Reclassification of gains on cash flow hedges realized in net profit | (8 | ) | 0 | (8 | ) | (8 | ) | |||||||||||||||||||||
Additional minimum pension liability | (920 | ) | 93 | (827 | ) | (827 | ) | |||||||||||||||||||||
Other comprehensive income / (loss) | (80 | ) | (206 | ) | (12 | ) | (920 | ) | 138 | (1,080 | ) | (1,080 | ) | |||||||||||||||
Comprehensive income | 4,466 | |||||||||||||||||||||||||||
Balance at 31 December 2002 | (849 | ) | 263 | (3 | ) | (1,223 | ) | 131 | (1,681 | ) | ||||||||||||||||||
Net profit | 6,513 | |||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation | (795 | ) | (795 | ) | (795 | ) | ||||||||||||||||||||||
Net unrealized losses on available-for-sale investments | (130 | ) | 49 | (81 | ) | (81 | ) | |||||||||||||||||||||
Impairment charges reclassified to the income statement | 111 | (18 | ) | 93 | 93 | |||||||||||||||||||||||
Reclassification of gains on available-for- sale investments realized in net profit | (69 | ) | 11 | (58 | ) | (58 | ) | |||||||||||||||||||||
Reclassification of losses on cash flow hedges realized in net profit | 3 | (1 | ) | 2 | 2 | |||||||||||||||||||||||
Additional minimum pension liability | 917 | (82 | ) | 835 | 835 | |||||||||||||||||||||||
Other comprehensive income / (loss) | (795 | ) | (88 | ) | 3 | 917 | (41 | ) | (4 | ) | (4 | ) | ||||||||||||||||
Comprehensive income | 6,509 | |||||||||||||||||||||||||||
Balance at 31 December 2003 | (1,644 | ) | 175 | 0 | (306 | ) | 90 | (1,685 | ) | |||||||||||||||||||
Net profit | 8,818 | |||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation | (818 | ) | (818 | ) | (818 | ) | ||||||||||||||||||||||
Net unrealized gains on available-for-sale investments | 32 | (15 | ) | 17 | 17 | |||||||||||||||||||||||
Impairment charges reclassified to the income statement | 10 | (2 | ) | 8 | 8 | |||||||||||||||||||||||
Reclassification of gains on available-for- sale investments realized in net profit | (5 | ) | 1 | (4 | ) | (4 | ) | |||||||||||||||||||||
Additional minimum pension liability | (819 | ) | 21 | (798 | ) | (798 | ) | |||||||||||||||||||||
Other comprehensive income / (loss) | (818 | ) | 37 | 0 | (819 | ) | 5 | (1,595 | ) | (1,595 | ) | |||||||||||||||||
Comprehensive income | 7,223 | |||||||||||||||||||||||||||
Balance at 31 December 2004 | (2,462 | ) | 212 | 0 | (1,125 | ) | 95 | (3,280 | ) | |||||||||||||||||||
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Note 42 Additional Disclosures Required under US GAAP and SEC Rules
Note 42.1 Variable interest entities
Introduction
Identification of variable interest entities (VIEs) and
measurement of variable interests
– | do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties; or | |
– | do not have the characteristics of a controlling financial interest; or | |
– | have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of investors with disproportionately small or no voting interests. |
Measurement of maximum exposure to loss
VIEs in which UBS is the primary beneficiary
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Financial Statements
Notes to the Financial Statements
lion, including approximately CHF 2.0 billion in UBS shares and CHF 0.8 billion in alternative investment vehicles. Upon consolidation, the UBS shares are treated as treasury shares, which increases the weighted average number of treasury shares at 31 December 2004 by 23 million shares, and decreases the basic EPS denominator by 2%.
tion of exercise of control under IFRS. The total size of this population is approximately CHF 4.7 billion, mostly comprising investment funds managed by UBS, other investment fund products, and securitization vehicles.
VIEs in which UBS is the primary beneficiary | ||||||||||
Consolidated assets that are collateral | ||||||||||
(CHF million) | for the VIEs' obligations | |||||||||
Nature, purpose and activities of VIEs | Total assets | Classification | Amount | |||||||
Securitizations | 1,363 | Loan receivables, government debt securities, corporate debt securities | 1,363 | |||||||
Investment fund products | 4,648 | Investment funds | 4,648 | |||||||
Investment funds managed by UBS | 4,303 | Debt, equity | 4,270 | |||||||
Passive intermediary to a derivative transaction | 174 | Loan receivables, corporate debt securities | 174 | |||||||
Trust vehicles for awards to UBS employees | 2,798 | UBS shares and alternative investment vehicles | 2,798 | |||||||
Private equity investments | 300 | Private equity investments | 152 | |||||||
Other miscellaneous structures | 36 | – | – | |||||||
Total 31.12.04 | 13,622 | 13,405 | ||||||||
Entities which are de-consolidated for US GAAP purposes
VIEs in which UBS holds a significant variable interest
VIEs in which UBS holds a significant variable interest | ||||||||||
(CHF million) | Maximum exposure | |||||||||
Nature, purpose and activities of VIEs | Total assets | Nature of involvement | to loss | |||||||
Securitizations | 7,075 | UBS acts as swap counterparty | 2,700 | |||||||
Investment fund products | 4,863 | UBS holds notes or units | 1,744 | |||||||
Investment funds managed by UBS | 1,978 | UBS acts as investment manager | 742 | |||||||
Credit protection vehicles | 1,449 | SPE used for credit protection – UBS sells credit risk on portfolios to investors | 800 | |||||||
Other miscellaneous structures | 114 | UBS acts as swap counterparty | 54 | |||||||
Total 31.12.04 | 15,479 | 6,040 | ||||||||
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Third-party VIEs not otherwise classified
UBS has identified that it holds variable interests in 56 third-party VIEs that in some cases could result in UBS being considered the primary beneficiary, but the information necessary to make this determination or perform the accounting required to consolidate the VIE, was held by third parties, and was not available to UBS. Additional disclosures for these VIEs are provided in the table below.
VIEs not originated by UBS – information unavailable from third parties | ||||||||||||||
Net income | Maximum | |||||||||||||
(CHF million) | from VIE in | exposure | ||||||||||||
Nature, purpose and activities of VIEs | Total assets | Nature of involvement | current period | to loss | ||||||||||
Securitizations | 4,083 | UBS acts as swap counterparty | 114 | 3,561 | ||||||||||
Investment fund products | 480 | UBS acts as swap counterparty | 24 | 457 | ||||||||||
Total 31.12.04 | 4,563 | 138 | 4,018 | |||||||||||
Future developments
US GAAP financial position, results, and reporting. However, it is not possible at this time to predict the impact this might have.
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Financial Statements
Notes to the Financial Statements
Note 42.2 Industrial Holdings’ Income Statement1
Following an additional percentage acquisition of Motor-Columbus, UBS now holds a majority ownership interest in the company. As a result, UBS has fully consolidated Motor-Columbus in its financial statements, housing it within a separate segment. “Industrial Holdings” consists of Motor-Columbus, a Swiss holding company, whose most significant asset is a 59.3% interest in Atel, a Swiss-based European energy provider. The following table provides information required by Regulation S-X for commercial and industrial companies, including a condensed income statement and certain additional balance sheet information:
CHF million | 31.12.04 | 2 | ||
Operating income | ||||
Net sales | 3,632 | |||
Operating expenses | ||||
Cost of products sold | 3,200 | |||
Marketing expenses | 44 | |||
General and administrative expenses | 131 | |||
Other intangible assets amortization | 77 | |||
Other operating expenses | 8 | |||
Total operating expenses | 3,460 | |||
Operating profit | 172 | |||
Non-operating profit | ||||
Interest income | 4 | |||
Interest expense | (38 | ) | ||
Other non-operating income, net | 50 | |||
Non-operating profit | 16 | |||
Net profit before tax and minority interests | 188 | |||
Income taxes | 47 | |||
Net profit before minority interests | 141 | |||
Equity in income of associates, net of tax | 17 | |||
Minority interests | (113 | ) | ||
Net profit | 45 | |||
Accounts receivables trade, gross | 1,681 | |||
Allowance for doubtful receivables | (18 | ) | ||
Accounts receivables trade, net | 1,663 | |||
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Note 42.3 Indemnifications
Note 42.4 Supplemental Guarantor Information
Guarantee of PaineWebber securities
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Financial Statements
Notes to the Financial Statements
Supplemental Guarantor Consolidating Income Statement
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2004 | Parent Bank | 1 | Americas Inc. | Subsidiaries | entries | UBS Group | ||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 29,423 | 13,364 | 14,486 | (17,875 | ) | 39,398 | ||||||||||||||
Interest expense | 21,732 | 10,009 | 13,672 | (17,875 | ) | 27,538 | ||||||||||||||
Net interest income | 7,691 | 3,355 | 814 | 0 | 11,860 | |||||||||||||||
Credit loss expense | 334 | 1 | (59 | ) | 0 | 276 | ||||||||||||||
Net interest income after credit loss expense | 8,025 | 3,356 | 755 | 0 | 12,136 | |||||||||||||||
Net fee and commission income | 7,830 | 7,119 | 4,467 | 0 | 19,416 | |||||||||||||||
Net trading income | 4,204 | 386 | 382 | 0 | 4,972 | |||||||||||||||
Income from subsidiaries | 1,364 | 0 | 0 | (1,364 | ) | 0 | ||||||||||||||
Other income | 449 | 737 | (289 | ) | 0 | 897 | ||||||||||||||
Income from industrial holdings | 0 | 0 | 3,648 | 0 | 3,648 | |||||||||||||||
Total operating income | 21,872 | 11,598 | 8,963 | (1,364 | ) | 41,069 | ||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 9,699 | 6,577 | 2,239 | 0 | 18,515 | |||||||||||||||
General and administrative expenses | 1,994 | 2,719 | 1,990 | 0 | 6,703 | |||||||||||||||
Depreciation of property and equipment | 769 | 155 | 428 | 0 | 1,352 | |||||||||||||||
Amortization of goodwill and other intangible assets | 46 | 750 | 168 | 0 | 964 | |||||||||||||||
Goods and materials purchased | 0 | 0 | 2,861 | 0 | 2,861 | |||||||||||||||
Total operating expenses | 12,508 | 10,201 | 7,686 | 0 | 30,395 | |||||||||||||||
Operating profit / (loss) before tax and minority interests | 9,364 | 1,397 | 1,277 | (1,364 | ) | 10,674 | ||||||||||||||
Tax expense / (benefit) | 1,275 | 153 | 707 | 0 | 2,135 | |||||||||||||||
Net profit / (loss) before minority interests | 8,089 | 1,244 | 570 | (1,364 | ) | 8,539 | ||||||||||||||
Minority interests | 0 | (35 | ) | (415 | ) | 0 | (450 | ) | ||||||||||||
Net profit / (loss) | 8,089 | 1,209 | 155 | (1,364 | ) | 8,089 | ||||||||||||||
Net profit / (loss) US GAAP2 | 6,426 | 1,977 | 415 | 0 | 8,818 | |||||||||||||||
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Supplemental Guarantor Consolidating Balance Sheet
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2004 | Parent Bank | 1 | Americas Inc. | Subsidiaries | Entries | UBS Group | ||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 4,152 | 7 | 1,877 | 0 | 6,036 | |||||||||||||||
Due from banks | 94,881 | 11,194 | 132,730 | (203,541 | ) | 35,264 | ||||||||||||||
Cash collateral on securities borrowed | 87,198 | 185,741 | 95,334 | (148,031 | ) | 220,242 | ||||||||||||||
Reverse repurchase agreements | 213,080 | 171,447 | 229,558 | (256,921 | ) | 357,164 | ||||||||||||||
Trading portfolio assets | 205,075 | 138,015 | 27,169 | 0 | 370,259 | |||||||||||||||
Trading portfolio assets pledged as collateral | 107,944 | 39,998 | 11,173 | 0 | 159,115 | |||||||||||||||
Positive replacement values | 287,786 | 1,985 | 138,451 | (143,645 | ) | 284,577 | ||||||||||||||
Financial assets designated at fair value | 0 | 0 | 653 | 0 | 653 | |||||||||||||||
Loans | 252,342 | 29,440 | 36,509 | (85,904 | ) | 232,387 | ||||||||||||||
Financial investments | 839 | 937 | 3,273 | 0 | 5,049 | |||||||||||||||
Accrued income and prepaid expenses | 3,129 | 1,846 | 3,546 | (2,645 | ) | 5,876 | ||||||||||||||
Investments in associates | 28,915 | 14 | 1,307 | (27,809 | ) | 2,427 | ||||||||||||||
Property and equipment | 5,475 | 511 | 2,750 | 0 | 8,736 | |||||||||||||||
Goodwill and other intangible assets | 528 | 9,664 | 1,957 | 0 | 12,149 | |||||||||||||||
Other assets | 8,536 | 3,728 | 24,922 | (2,336 | ) | 34,850 | ||||||||||||||
Total assets | 1,299,880 | 594,527 | 711,209 | (870,832 | ) | 1,734,784 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 157,889 | 87,736 | 76,817 | (203,541 | ) | 118,901 | ||||||||||||||
Cash collateral on securities lent | 85,053 | 45,362 | 79,161 | (148,031 | ) | 61,545 | ||||||||||||||
Repurchase agreements | 119,826 | 332,513 | 227,169 | (256,921 | ) | 422,587 | ||||||||||||||
Trading portfolio liabilities | 98,019 | 59,867 | 13,147 | 0 | 171,033 | |||||||||||||||
Negative replacement values | 309,809 | 2,105 | 135,443 | (143,645 | ) | 303,712 | ||||||||||||||
Financial liabilities designated at fair value | 47,116 | 0 | 18,640 | 0 | 65,756 | |||||||||||||||
Due to customers | 366,762 | 47,265 | 47,960 | (85,904 | ) | 376,083 | ||||||||||||||
Accrued expenses and deferred income | 7,588 | 6,233 | 3,509 | (2,645 | ) | 14,685 | ||||||||||||||
Debt issued | 56,658 | 5,214 | 55,956 | 0 | 117,828 | |||||||||||||||
Other liabilities | 9,378 | 2,442 | 32,858 | (2,336 | ) | 42,342 | ||||||||||||||
Total liabilities | 1,258,098 | 588,737 | 690,660 | (843,023 | ) | 1,694,472 | ||||||||||||||
Minority interests | 0 | 144 | 5,190 | 0 | 5,334 | |||||||||||||||
Total shareholders’ equity | 41,782 | 5,646 | 15,359 | (27,809 | ) | 34,978 | ||||||||||||||
Total liabilities, minority interests and shareholders’ equity | 1,299,880 | 594,527 | 711,209 | (870,832 | ) | 1,734,784 | ||||||||||||||
Total shareholders’ equity – US GAAP2 | 29,116 | 7,760 | 15,792 | 0 | 52,668 | |||||||||||||||
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Financial Statements
Notes to the Financial Statements
Supplemental Guarantor Consolidating Cash Flow Statement
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2004 | Parent Bank | 1 | Americas Inc. | Subsidiaries | UBS Group | |||||||||||
Net cash flow from / (used in) operating activities | (6,652 | ) | (1,636 | ) | (19,610 | ) | (27,898 | ) | ||||||||
Cash flow from / (used in) investing activities | ||||||||||||||||
Investments in subsidiaries and associates | (2,511 | ) | 0 | 0 | (2,511 | ) | ||||||||||
Disposal of subsidiaries and associates | 800 | 0 | 0 | 800 | ||||||||||||
Purchase of property and equipment | (555 | ) | (164 | ) | (430 | ) | (1,149 | ) | ||||||||
Disposal of property and equipment | 64 | 249 | 391 | 704 | ||||||||||||
Net (investment in) / divestment of financial investments | 39 | 145 | 502 | 686 | ||||||||||||
Net cash flow from / (used in) investing activities | (2,163 | ) | 230 | 463 | (1,470 | ) | ||||||||||
Cash flow from / (used in) financing activities | ||||||||||||||||
Net money market paper issued / (repaid) | 5,758 | 199 | 15,422 | 21,379 | ||||||||||||
Net movements in treasury shares and own equity derivative activity | (4,999 | ) | 0 | 0 | (4,999 | ) | ||||||||||
Capital issuance | 2 | 0 | 0 | 2 | ||||||||||||
Dividends paid | (2,806 | ) | 0 | 0 | (2,806 | ) | ||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 35,426 | (26 | ) | 15,811 | 51,211 | |||||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (11,944 | ) | (1,869 | ) | (10,904 | ) | (24,717 | ) | ||||||||
Increase in minority interests | 0 | (969 | ) | 1,071 | 102 | |||||||||||
Dividend payments to / purchase from minority interests | 0 | (1 | ) | (331 | ) | (332 | ) | |||||||||
Net activity in investments in subsidiaries | (4,799 | ) | 866 | 3,933 | 0 | |||||||||||
Net cash flow from / (used in) financing activities | 16,638 | (1,800 | ) | 25,002 | 39,840 | |||||||||||
Effects of exchange rate differences | (1,282 | ) | 401 | (171 | ) | (1,052 | ) | |||||||||
Net increase / (decrease) in cash equivalents | 6,541 | (2,805 | ) | 5,684 | 9,420 | |||||||||||
Cash and cash equivalents, beginning of the year | 43,309 | 18,811 | 11,236 | 73,356 | ||||||||||||
Cash and cash equivalents, end of the year | 49,850 | 16,006 | 16,920 | 82,776 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 4,152 | 7 | 1,877 | 6,036 | ||||||||||||
Money market paper2 | 31,262 | 13,450 | 697 | 45,409 | ||||||||||||
Due from banks maturing in less than three months | 14,436 | 2,549 | 14,346 | 31,331 | ||||||||||||
Total | 49,850 | 16,006 | 16,920 | 82,776 | ||||||||||||
Guarantee of other securities
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 2004, the amount of senior liabilities of UBS to which the holders of the subordinated debt securities would be subordinated is approximately CHF 1,685 billion.
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UBS AG (Parent Bank)
Table of Contents
UBS AG (Parent Bank)
Table of Contents
193 | ||||
194 | ||||
194 | ||||
195 | ||||
196 | ||||
197 | ||||
198 | ||||
198 | ||||
198 | ||||
199 | ||||
199 | ||||
199 | ||||
199 | ||||
200 | ||||
200 | ||||
200 | ||||
200 | ||||
201 | ||||
201 | ||||
201 | ||||
202 | ||||
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UBS AG (Parent Bank)
Parent Bank Review
Parent Bank Review
Income Statement
The Parent Bank UBS AG net profit increased by CHF 1,749 million from CHF 4,197 million to CHF 5,946 million. Income from investments in associates decreased to CHF 461 million from CHF 1,914 million in 2003 mainly due to less distribution received. The increase in Extraordinary income and expenses is explained on page 198.
Balance Sheet
Total assets increased by CHF 141 billion to CHF 1,136 billion at 31 December 2004. This movement is mainly caused by increased positions in Due from banks of CHF 28 billion and Due from customers of CHF 29 billion. A considerable increase resulted in Trading balances in securities and precious metals of CHF 52 billion (thereof debt instruments CHF 25 billion and equities CHF 37 billion) as well as in Positive replacement values of CHF 17 billion. The decrease in financial investments of CHF 4.5 billion is mainly due to the reclassification of own shares to Trading balances in securities and precious metals. The Investments in associated companies expanded by almost CHF 6 billion which is mainly due to new investments or additional financing of subsidiaries abroad, the establishment of new fund companies and the step acquisition of Motor-Columbus.
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UBS AG (Parent Bank)
Financial Statements
Financial Statements
Income Statement | ||||||||||||
For the year ended | % change from | |||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.03 | |||||||||
Interest and discount income | 18,902 | 19,417 | (3 | ) | ||||||||
Interest and dividend income from trading portfolio | 10,457 | 9,325 | 12 | |||||||||
Interest and dividend income from financial investments | 13 | 11 | 18 | |||||||||
Interest expense | (21,659 | ) | (20,034 | ) | (8 | ) | ||||||
Net interest income | 7,713 | 8,719 | (12 | ) | ||||||||
Credit-related fees and commissions | 228 | 228 | 0 | |||||||||
Fee and commission income from securities and investment business | 8,002 | 6,998 | 14 | |||||||||
Other fee and commission income | 735 | 826 | (11 | ) | ||||||||
Fee and commission expense | (1,135 | ) | (1,180 | ) | 4 | |||||||
Net fee and commission income | 7,830 | 6,872 | 14 | |||||||||
Net trading income | 3,469 | 521 | 566 | |||||||||
Net income from disposal of financial investments | 87 | (69 | ) | |||||||||
Income from investments in associated companies | 461 | 1,914 | (76 | ) | ||||||||
Income from real estate holdings | 46 | 43 | 7 | |||||||||
Sundry income from ordinary activities | 1,418 | 1,213 | 17 | |||||||||
Sundry ordinary expenses | (26 | ) | (96 | ) | 73 | |||||||
Other income from ordinary activities | 1,986 | 3,005 | (34 | ) | ||||||||
Operating income | 20,998 | 19,117 | 10 | |||||||||
Personnel expenses | 9,699 | 8,889 | 9 | |||||||||
General and administrative expenses | 3,833 | 3,943 | (3 | ) | ||||||||
Operating expenses | 13,532 | 12,832 | 5 | |||||||||
Operating profit | 7,466 | 6,285 | 19 | |||||||||
Depreciation and write-offs on investments in associated companies and fixed assets | 1,021 | 919 | 11 | |||||||||
Allowances, provisions and losses | 184 | 658 | (72 | ) | ||||||||
Profit before extraordinary items and taxes | 6,261 | 4,708 | 33 | |||||||||
Extraordinary income | 1,016 | 92 | ||||||||||
Extraordinary expenses | 49 | 1 | ||||||||||
Tax expense / (benefit) | 1,282 | 602 | 113 | |||||||||
Profit for the period | 5,946 | 4,197 | 42 | |||||||||
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Balance Sheet | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.03 | |||||||||
Assets | ||||||||||||
Liquid assets | 4,152 | 2,895 | 43 | |||||||||
Money market paper | 31,262 | 21,233 | 47 | |||||||||
Due from banks | 350,055 | 321,796 | 9 | |||||||||
Due from customers | 159,988 | 130,814 | 22 | |||||||||
Mortgage loans | 132,941 | 131,900 | 1 | |||||||||
Trading balances in securities and precious metals | 288,170 | 236,096 | 22 | |||||||||
Financial investments | 4,503 | 8,955 | (50 | ) | ||||||||
Investments in associated companies | 20,547 | 14,757 | 39 | |||||||||
Fixed assets | 4,212 | 4,367 | (4 | ) | ||||||||
Accrued income and prepaid expenses | 3,129 | 3,666 | (15 | ) | ||||||||
Positive replacement values | 128,300 | 111,612 | 15 | |||||||||
Other assets | 8,550 | 6,585 | 30 | |||||||||
Total assets | 1,135,809 | 994,676 | 14 | |||||||||
Total subordinated assets | 4,970 | 4,450 | 12 | |||||||||
Total amounts receivable from Group companies | 446,850 | 397,410 | 12 | |||||||||
Liabilities | ||||||||||||
Money market paper issued | 29,637 | 23,879 | 24 | |||||||||
Due to banks | 428,371 | 377,447 | 13 | |||||||||
Due to customers on savings and deposit accounts | 83,976 | 84,360 | 0 | |||||||||
Other amounts due to customers | 316,467 | 274,408 | 15 | |||||||||
Medium-term bonds | 1,686 | 2,403 | (30 | ) | ||||||||
Bond issues and loans from central mortgage institutions | 60,125 | 45,968 | 31 | |||||||||
Accruals and deferred income | 7,588 | 7,060 | 7 | |||||||||
Negative replacement values | 158,811 | 127,885 | 24 | |||||||||
Other liabilities | 5,951 | 6,802 | (13 | ) | ||||||||
Value adjustments and provisions | 3,929 | 3,894 | 1 | |||||||||
Share capital | 901 | 946 | (5 | ) | ||||||||
General statutory reserve | 7,572 | 7,212 | 5 | |||||||||
Reserve for own shares | 9,056 | 8,024 | 13 | |||||||||
Other reserves | 15,793 | 20,191 | (22 | ) | ||||||||
Profit for the period | 5,946 | 4,197 | 42 | |||||||||
Total liabilities | 1,135,809 | 994,676 | 14 | |||||||||
Total subordinated liabilities | 12,695 | 12,471 | 2 | |||||||||
Total amounts payable to Group companies | 357,311 | 257,955 | 39 | |||||||||
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UBS AG (Parent Bank)
Financial Statements
Statement of Appropriation of Retained Earnings | ||||
CHF million | ||||
The Board of Directors proposes to the Annual General Meeting the following appropriation: | ||||
Profit for the financial year 2004 as per the Parent Bank’s Income Statement | 5,946 | |||
Appropriation to general statutory reserve | 322 | |||
Appropriation to other reserves | 2,363 | |||
Proposed dividends | 3,261 | |||
Total appropriation | 5,946 | |||
Dividend Distribution
The Board of Directors will recommend to the Annual General Meeting on 21 April 2005 that UBS should pay a dividend of CHF 3.00 per share of CHF 0.80 par value. If the dividend is approved, the payment of CHF 3.00 per share, after deduction of 35% Swiss withholding tax, would be made on 26 April 2005 for shareholders who hold UBS shares on 21 April 2005.
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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 40 to the Group Financial Statements.
Treasury shares
Foreign currency translation
Assets and liabilities of foreign branches are translated into CHF at the exchange rates at the balance sheet date, while income and expense items are translated at weighted average rates for the period. Exchange differences arising on the translation of each of these foreign branches are credited to a provision account (other liabilities) in case of a gain, while any losses are firstly debited to that provision account until such provision is fully utilized, and secondly to profit and loss.
Investments in associated companies
Property and equipment
Extraordinary income and expenses
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UBS AG (Parent Bank)
Notes to the Financial Statements
Additional Income Statement Information
Net Trading Income | ||||||||||||
For the year ended | % change from | |||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.03 | |||||||||
Equities | 2,262 | 1,708 | 32 | |||||||||
Fixed income 1 | (266 | ) | (1,307 | ) | 80 | |||||||
Foreign exchange and other | 1,473 | 120 | ||||||||||
Total | 3,469 | 521 | 566 | |||||||||
Extraordinary Income and Expenses
Extraordinary income contains CHF 609 million first-time adoption impact as at 1 January 2004 from changing the valuation method for treasury shares from lower of cost or market to the mark to market method. It further includes CHF 72 million
(2003: CHF 33 million) from the sale of investments in associates and CHF 334 million from release of provisions (2003: CHF 59 million). Extraordinary expenses contain CHF 48 million loss from the liquidation of investments in associates in 2004.
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Additional Balance Sheet Information
Value Adjustments and Provisions | ||||||||||||||||||||||||
Provisions | Recoveries, | |||||||||||||||||||||||
applied in | doubtful interest, | New | ||||||||||||||||||||||
accordance | currency | Provisions | provisions | |||||||||||||||||||||
Balance at | with their | translation | released | charged | Balance at | |||||||||||||||||||
CHF million | 31.12.03 | specified purpose | differences | to income | to income | 31.12.04 | ||||||||||||||||||
Default risks (credit and country risk) | 4,218 | (814 | ) | (292 | ) | (962 | ) | 627 | 2,777 | |||||||||||||||
Trading portfolio risks | 2,723 | 413 | 201 | 3,337 | ||||||||||||||||||||
Litigation risks | 392 | (312 | ) | 15 | (77 | ) | 215 | 233 | ||||||||||||||||
Operational risks | 1,871 | (580 | ) | 164 | (137 | ) | 190 | 1,508 | ||||||||||||||||
Capital and income taxes | 1,118 | (819 | ) | 24 | 1,535 | 1,858 | ||||||||||||||||||
Total allowance for general credit losses and other provisions | 10,322 | (2,525 | ) | 324 | (1,176 | ) | 2,768 | 9,713 | ||||||||||||||||
Allowances deducted from assets | 6,428 | 5,784 | ||||||||||||||||||||||
Total provisions as per balance sheet | 3,894 | 3,929 | ||||||||||||||||||||||
Statement of Shareholders’ Equity | ||||||||||||||||||||||||
General statutory | General statutory | Total Shareholders’ | ||||||||||||||||||||||
reserves: | reserves: | Reserves for | equity (before | |||||||||||||||||||||
CHF million | Share capital | Share premium | Retained earnings | own shares | Other reserves | distribution of profit) | ||||||||||||||||||
As at 31.12.02 and 1.1.03 | 1,005 | 11,550 | 842 | 6,623 | 24,119 | 44,139 | ||||||||||||||||||
Cancellation of own shares | (61 | ) | (5,468 | ) | �� | (5,529 | ) | |||||||||||||||||
Capital increase | 2 | 59 | 61 | |||||||||||||||||||||
Increase in reserves | 229 | (229 | ) | |||||||||||||||||||||
Prior year dividend | (2,298 | ) | (2,298 | ) | ||||||||||||||||||||
Profit for the period | 4,197 | 4,197 | ||||||||||||||||||||||
Changes in reserves for own shares | 1,401 | (1,401 | ) | |||||||||||||||||||||
As at 31.12.03 and 1.1.04 | 946 | 6,141 | 1,071 | 8,024 | 24,388 | 40,570 | ||||||||||||||||||
Cancellation of own shares | (47 | ) | (4,469 | ) | (4,516 | ) | ||||||||||||||||||
Capital increase | 2 | 72 | 74 | |||||||||||||||||||||
Increase in reserves | 288 | (288 | ) | |||||||||||||||||||||
Prior year dividend | (2,806 | ) | (2,806 | ) | ||||||||||||||||||||
Profit for the period | 5,946 | 5,946 | ||||||||||||||||||||||
Changes in reserves for own shares | 1,032 | (1,032 | ) | |||||||||||||||||||||
As at 31.12.04 | 901 | 6,213 | 1,359 | 9,056 | 21,739 | 39,268 | ||||||||||||||||||
Share Capital | ||||||||||||||||
Par value | Ranking for dividends | |||||||||||||||
No. of shares | Capital in CHF | No. of shares | Capital in CHF | |||||||||||||
As at 31.12.04 | ||||||||||||||||
Issued and paid up | 1,126,858,177 | 901,486,542 | 1,086,923,083 | 869,538,466 | ||||||||||||
Conditional share capital | 3,533,012 | 2,826,410 | ||||||||||||||
As at 31.12.03 | ||||||||||||||||
Issued and paid up | 1,183,046,764 | 946,437,411 | 1,126,339,764 | 901,071,811 | ||||||||||||
Conditional share capital | 6,871,752 | 5,497,402 | ||||||||||||||
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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 | ||||||||||||||||||||||||
31.12.04 | 31.12.03 | Change in % | ||||||||||||||||||||||
CHF million | Book value | Effective liability | Book value | Effective liability | Book value | Effective liability | ||||||||||||||||||
Money market paper | 16,022 | 5,063 | 6,225 | 157 | ||||||||||||||||||||
Mortgage loans | 175 | 60 | 428 | 210 | (59 | ) | (71 | ) | ||||||||||||||||
Securities | 102,726 | 55,126 | 96,065 | 66,395 | 7 | (17 | ) | |||||||||||||||||
Total | 118,923 | 60,249 | 102,718 | 66,605 | 16 | (10 | ) | |||||||||||||||||
Assets are pledged as collateral for securities borrowing and repo transactions, for collateralized credit lines with central banks, loans from mortgage institutions and security deposits relating to stock exchange membership.
Commitments and Contingent Liabilities | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.03 | |||||||||
Contingent liabilities | 123,429 | 122,555 | 1 | |||||||||
Irrevocable commitments | 50,552 | 42,708 | 18 | |||||||||
Liabilities for calls on shares and other equities | 104 | 97 | 7 | |||||||||
Confirmed credits | 1,820 | 1,592 | 14 | |||||||||
Derivative Instruments | ||||||||||||||||||||||||
31.12.2004 | 31.12.2003 | |||||||||||||||||||||||
Notional amount | Notional amount | |||||||||||||||||||||||
CHF million | PRV | 1 | NRV | 2 | CHF bn | PRV | NRV | CHF bn | ||||||||||||||||
Interest rate contracts | 174,995 | 183,210 | 15,398 | 141,654 | 149,972 | 10,321 | ||||||||||||||||||
Credit derivative contracts | 7,895 | 9,353 | 671 | 7,085 | 7,679 | 315 | ||||||||||||||||||
Foreign exchange contracts | 81,377 | 79,046 | 3,729 | 75,229 | 70,658 | 3,131 | ||||||||||||||||||
Precious metal contracts | 1,919 | 1,590 | 61 | 2,382 | 2,176 | 55 | ||||||||||||||||||
Equity / index contracts | 20,487 | 44,107 | 721 | 25,362 | 37,613 | 346 | ||||||||||||||||||
Commodity contracts | 1,739 | 1,616 | 41 | 1,025 | 895 | 11 | ||||||||||||||||||
Total derivative instruments | 288,412 | 318,922 | 20,621 | 252,737 | 268,993 | 14,179 | ||||||||||||||||||
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Fiduciary Transactions | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.03 | |||||||||
Deposits: | ||||||||||||
with other banks | 30,581 | 29,549 | 3 | |||||||||
with Group banks | 740 | 672 | 10 | |||||||||
Loans and other financial transactions | 6 | 6 | 0 | |||||||||
Total | 31,327 | 30,227 | 4 | |||||||||
Due to UBS Pension Plans, Loans to Corporate Bodies / Related Parties | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.03 | |||||||||
Due to UBS pension plans and UBS debt instruments held by pension plans | 1,329 | 1,096 | 21 | |||||||||
Securities borrowed from pension plans | 3,778 | 2,930 | 29 | |||||||||
Loans to directors, senior executives and auditors 1 | 16 | 25 | (36 | ) | ||||||||
Headcount
Parent Bank headcount was 35,542 on 31 December 2004 and 33,949 on 31 December 2003.
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Additional Disclosure Required under SEC Regulations
Table of Contents
Additional Disclosure Required
under SEC Regulations
Table of Contents
206
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A – Introduction
B – Selected Financial Data
Average rate | 1 | |||||||||||||||
Year ended 31 December | High | Low | (USD per 1 CHF) | At period end | ||||||||||||
2000 | 0.6441 | 0.5479 | 0.5912 | 0.6172 | ||||||||||||
2001 | 0.6331 | 0.5495 | 0.5910 | 0.5857 | ||||||||||||
2002 | 0.7229 | 0.5817 | 0.6453 | 0.7229 | ||||||||||||
2003 | 0.8189 | 0.7048 | 0.7493 | 0.8069 | ||||||||||||
2004 | 0.8843 | 0.7601 | 0.8059 | 0.8712 | ||||||||||||
Month | High | Low | ||||||||||||||
September 2004 | 0.8026 | 0.7865 | ||||||||||||||
October 2004 | 0.8371 | 0.7908 | ||||||||||||||
November 2004 | 0.8781 | 0.8315 | ||||||||||||||
December 2004 | 0.8843 | 0.8616 | ||||||||||||||
January 2005 | 0.8712 | 0.8381 | ||||||||||||||
February 2005 | 0.8632 | 0.8182 | ||||||||||||||
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Additional Disclosure Required under SEC Regulations
B – Selected Financial Data (continued)
For the year ended | ||||||||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Income statement data | ||||||||||||||||||||
Interest income | 39,398 | 40,159 | 39,963 | 52,277 | 51,745 | |||||||||||||||
Interest expense | (27,538 | ) | (27,860 | ) | (29,417 | ) | 44,236 | 43,615 | ||||||||||||
Net interest income | 11,860 | 12,299 | 10,546 | 8,041 | 8,130 | |||||||||||||||
Credit loss (expense)/recovery | 276 | (72 | ) | (115 | ) | (498 | ) | 130 | ||||||||||||
Net interest income after credit loss (expense)/recovery | 12,136 | 12,227 | 10,431 | 7,543 | 8,260 | |||||||||||||||
Net fee and commission income | 19,416 | 17,345 | 18,221 | 20,211 | 16,703 | |||||||||||||||
Net trading income | 4,972 | 3,756 | 5,451 | �� | 8,802 | 9,953 | ||||||||||||||
Other income | 897 | 462 | 4 | 558 | 1,486 | |||||||||||||||
Income from Industrial Holdings | 3,648 | |||||||||||||||||||
Operating income | 41,069 | 33,790 | 34,107 | 37,114 | 36,402 | |||||||||||||||
Operating expenses | 30,395 | 25,613 | 29,570 | 30,396 | 26,203 | |||||||||||||||
Operating profit before tax | 10,674 | 8,177 | 4,537 | 6,718 | 10,199 | |||||||||||||||
Tax expense/(benefit) | 2,135 | 1,593 | 676 | 1,401 | 2,320 | |||||||||||||||
Minority interests | (450 | ) | (345 | ) | (331 | ) | (344 | ) | (87 | ) | ||||||||||
Net profit | 8,089 | 6,239 | 3,530 | 4,973 | 7,792 | |||||||||||||||
Cost/income ratio (%)1 | 72.6 | 75.6 | 86.4 | 80.8 | 72.2 | |||||||||||||||
Per share data (CHF) | ||||||||||||||||||||
Basic earnings per share2 | 7.68 | 5.59 | 2.92 | 3.93 | 6.44 | |||||||||||||||
Diluted earnings per share2 | 7.47 | 5.48 | 2.87 | 3.78 | 6.35 | |||||||||||||||
Operating profit before tax per share | 10.14 | 7.32 | 3.75 | 5.31 | 8.44 | |||||||||||||||
Cash dividends declared per share (CHF)3 | 3.00 | 2.60 | 2.00 | 0.00 | 1.50 | |||||||||||||||
Cash dividend equivalent in USD3 | 2.00 | 1.46 | 0.00 | 0.86 | ||||||||||||||||
Dividend payout ratio (%)3 | 39.1 | 46.5 | 68.5 | 23.3 | ||||||||||||||||
Rates of return (%) | ||||||||||||||||||||
Return on Shareholders’ equity4 | 24.7 | 17.8 | 8.9 | 11.7 | 21.5 | |||||||||||||||
Return on average equity | 22.9 | 16.8 | 8.3 | 11.3 | 22.0 | |||||||||||||||
Return on average assets | 0.44 | 0.40 | 0.24 | 0.36 | 0.70 | |||||||||||||||
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B – Selected Financial Data (continued)
As at | ||||||||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Balance sheet data | ||||||||||||||||||||
Total assets | 1,734,784 | 1,550,056 | 1,346,678 | 1,253,297 | 1,087,552 | |||||||||||||||
Shareholders’ equity | 34,978 | 35,310 | 38,952 | 43,530 | 44,833 | |||||||||||||||
Average equity to average assets (%) | 1.93 | 2.38 | 2.87 | 3.49 | 3.17 | |||||||||||||||
Market capitalization | 103,638 | 95,401 | 79,448 | 105,475 | 112,666 | |||||||||||||||
Shares | ||||||||||||||||||||
Registered ordinary shares | 1,126,858,177 | 1,183,046,764 | 1,256,297,678 | 1,281,717,499 | 1,333,139,187 | |||||||||||||||
Own shares to be delivered | 0 | 0 | 0 | 0 | 28,444,788 | |||||||||||||||
Treasury shares | 103,524,971 | 111,360,692 | 97,181,094 | 41,254,951 | 55,265,349 | |||||||||||||||
BIS capital ratios | ||||||||||||||||||||
Tier 1 (%) | 11.8 | 11.8 | 11.3 | 11.6 | 11.7 | |||||||||||||||
Total BIS (%) | 13.6 | 13.3 | 13.8 | 14.8 | 15.7 | |||||||||||||||
Risk-weighted assets | 264,125 | 251,901 | 238,790 | 253,735 | 273,290 | |||||||||||||||
Invested assets (CHF billion) | 2,250 | 2,133 | 1,959 | 2,448 | 2,445 | |||||||||||||||
Headcount Financial Businesses (full-time equivalents) | ||||||||||||||||||||
Switzerland | 25,990 | 26,662 | 27,972 | 29,163 | 30,215 | |||||||||||||||
Europe (excluding Switzerland) | 10,764 | 9,906 | 10,009 | 9,650 | 9,286 | |||||||||||||||
Americas | 26,232 | 25,511 | 27,350 | 27,463 | 28,114 | |||||||||||||||
Asia Pacific | 4,438 | 3,850 | 3,730 | 3,709 | 3,461 | |||||||||||||||
Total | 67,424 | 65,929 | 69,061 | 69,985 | 71,076 | |||||||||||||||
Long-term ratings1 | ||||||||||||||||||||
Fitch, London | AA+ | AA+ | AAA | AAA | AAA | |||||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | Aa2 | Aa1 | |||||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | AA+ | AA+ | |||||||||||||||
Balance Sheet Data | ||||||||||||||||||||
As at | ||||||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Assets | ||||||||||||||||||||
Total assets | 1,734,784 | 1,550,056 | 1,346,678 | 1,253,297 | 1,087,552 | |||||||||||||||
Due from banks | 35,264 | 31,740 | 32,516 | 27,526 | 29,147 | |||||||||||||||
Cash collateral on securities borrowed | 220,242 | 213,932 | 139,049 | 162,938 | 177,857 | |||||||||||||||
Reverse repurchase agreements | 357,164 | 320,499 | 294,067 | 269,256 | 193,801 | |||||||||||||||
Trading portfolio assets | 370,259 | 341,013 | 261,071 | 397,886 | 315,588 | |||||||||||||||
Trading portfolio assets pledged as collateral | 159,115 | 120,759 | 110,365 | |||||||||||||||||
Positive replacement values | 284,577 | 248,206 | 247,421 | 73,447 | 57,875 | |||||||||||||||
Loans | 232,387 | 212,679 | 211,740 | 226,545 | 244,842 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 118,901 | 127,012 | 83,178 | 106,531 | 82,240 | |||||||||||||||
Cash collateral on securities lent | 61,545 | 53,278 | 36,870 | 30,317 | 23,418 | |||||||||||||||
Repurchase agreements | 422,587 | 415,863 | 366,858 | 368,620 | 295,513 | |||||||||||||||
Trading portfolio liabilities | 171,033 | 143,957 | 106,453 | 105,798 | 82,632 | |||||||||||||||
Negative replacement values | 303,712 | 254,768 | 247,206 | 71,443 | 75,923 | |||||||||||||||
Financial liabilities designated at fair value | 65,756 | 35,286 | 14,516 | |||||||||||||||||
Due to customers | 376,083 | 346,633 | 306,876 | 333,781 | 310,679 | |||||||||||||||
Debt issued | 117,828 | 88,843 | 114,446 | 156,218 | 129,635 | |||||||||||||||
Shareholders’ equity | 34,978 | 35,310 | 38,952 | 43,530 | 44,833 | |||||||||||||||
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Additional Disclosure Required under SEC Regulations
B – Selected Financial Data (continued)
US GAAP Income Statement Data | ||||||||||||||||||||
For the year ended | ||||||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 39,124 | 39,940 | 39,679 | 51,907 | 51,565 | |||||||||||||||
Interest expense | (27,306 | ) | (27,700 | ) | (29,334 | ) | (44,096 | ) | (43,584 | ) | ||||||||||
Net interest income | 11,818 | 12,240 | 10,345 | 7,811 | 7,981 | |||||||||||||||
Credit loss (expense)/recovery | 276 | (72 | ) | (115 | ) | (498 | ) | 130 | ||||||||||||
Net interest income after credit loss (expense)/recovery | 12,094 | 12,168 | 10,230 | 7,313 | 8,111 | |||||||||||||||
Net fee and commission income | 19,416 | 17,345 | 18,221 | 20,211 | 16,703 | |||||||||||||||
Net trading income | 4,879 | 4,021 | 5,940 | 8,959 | 8,597 | |||||||||||||||
Other income | 1,188 | 380 | 96 | 534 | 1,514 | |||||||||||||||
Income from Industrial Holdings | 3,648 | |||||||||||||||||||
Total operating income | 41,225 | 33,914 | 34,487 | 37,017 | 34,925 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 18,729 | 17,615 | 18,610 | 19,713 | 17,262 | |||||||||||||||
General and administrative expenses | 6,705 | 6,086 | 7,072 | 7,631 | 6,813 | |||||||||||||||
Depreciation of property and equipment | 1,385 | 1,396 | 1,613 | 1,815 | 1,800 | |||||||||||||||
Amortization of goodwill | 0 | 0 | 0 | 2,484 | 2,018 | |||||||||||||||
Amortization of other intangible assets | 186 | 112 | 1,443 | 298 | 134 | |||||||||||||||
Goods and materials purchased | 2,861 | |||||||||||||||||||
Restructuring costs | 0 | 0 | 0 | 112 | 191 | |||||||||||||||
Total operating expenses | 29,866 | 25,209 | 28,738 | 32,053 | 28,218 | |||||||||||||||
Operating profit/(loss) before tax and minority interests | 11,359 | 8,705 | 5,749 | 4,964 | 6,707 | |||||||||||||||
Tax expense/(benefit) | 2,112 | 1,842 | 511 | 1,386 | 2,183 | |||||||||||||||
Net profit/(loss) before minority interests | 9,247 | 6,863 | 5,238 | 3,578 | 4,524 | |||||||||||||||
Minority interests | (435 | ) | (350 | ) | (331 | ) | (344 | ) | (87 | ) | ||||||||||
Change in accounting principle: cumulative effect of adoption of “AICPA Audit and Accounting Guide, Audits of Investment Companies” on certain financial investments, net of tax1 | 639 | |||||||||||||||||||
Cumulative adjustment of accounting for certain equity based compensation plans as cash settled, net of tax | 6 | |||||||||||||||||||
Net profit/(loss) | 8,818 | 6,513 | 5,546 | 3,234 | 4,437 | |||||||||||||||
Certain prior year US GAAP amounts in 2003 and 2002 have been adjusted to conform to the current year’s presentation.
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B – Selected Financial Data (continued)
US GAAP Balance Sheet Data | ||||||||||||||||||||
As at | ||||||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Assets | ||||||||||||||||||||
Total assets | 1,903,186 | 1,699,007 | 1,296,938 | 1,361,920 | 1,124,554 | |||||||||||||||
Due from banks | 35,286 | 31,758 | 32,481 | 27,550 | 29,182 | |||||||||||||||
Cash collateral on securities borrowed | 218,414 | 211,058 | 139,073 | 162,566 | 177,857 | |||||||||||||||
Reverse repurchase agreements | 357,164 | 320,499 | 294,086 | 269,256 | 193,801 | |||||||||||||||
Trading portfolio assets | 449,389 | 423,733 | 331,480 | 455,406 | 318,788 | |||||||||||||||
Trading portfolio assets pledged as collateral | 159,115 | 120,759 | 110,365 | |||||||||||||||||
Positive replacement values1 | 284,468 | 248,924 | 83,757 | 73,474 | 57,775 | |||||||||||||||
Loans | 228,968 | 212,729 | 211,755 | 226,747 | 245,214 | |||||||||||||||
Goodwill | 26,977 | 26,775 | 28,127 | 29,255 | 31,016 | |||||||||||||||
Other intangible assets | 1,722 | 1,174 | 1,222 | 4,510 | 4,710 | |||||||||||||||
Other assets | 101,068 | 64,381 | 21,314 | 36,972 | 27,955 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 119,021 | 127,385 | 83,178 | 106,531 | 82,240 | |||||||||||||||
Cash collateral on securities lent | 57,792 | 51,157 | 36,870 | 30,317 | 23,418 | |||||||||||||||
Repurchase agreements | 423,513 | 415,863 | 366,858 | 368,620 | 295,513 | |||||||||||||||
Trading portfolio liabilities | 190,907 | 149,380 | 117,721 | 119,528 | 87,832 | |||||||||||||||
Obligation to return securities received as collateral | 12,950 | 13,071 | 16,308 | 10,931 | 0 | |||||||||||||||
Negative replacement values1 | 360,345 | 326,136 | 132,354 | 116,666 | 75,423 | |||||||||||||||
Due to customers | 386,913 | 347,358 | 306,872 | 333,766 | 310,686 | |||||||||||||||
Accrued expenses and deferred income | 14,830 | 13,673 | 15,330 | 17,289 | 21,038 | |||||||||||||||
Debt issued | 164,744 | 123,259 | 129,527 | 156,462 | 129,750 | |||||||||||||||
Shareholders’ equity | 52,668 | 53,174 | 55,576 | 59,282 | 62,960 | |||||||||||||||
Ratio of Earnings to Fixed Charges
The following table sets forth UBS AG’s ratio of earnings to fixed charges, for the periods indicated. Ratios of earnings to combined fixed charges and preferred stock dividends requirements are not presented as there were no preferred share dividends in any of the periods indicated.
For the year ended | ||||||||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | ||||||||||||||||
IFRS1 | 1.36 | 1.27 | 1.14 | 1.14 | 1.23 | |||||||||||||||
US GAAP1 | 1.39 | 1.29 | 1.18 | 1.10 | 1.15 | |||||||||||||||
C – Information on the Company
211
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3
Selected Statistical Information
Average Balances and Interest Rates
The following table sets forth average interest-earning assets and average interest-bearing liabilities, along with the average rates, for the years ended 31 December 2004, 2003 and 2002.
31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||||||||||||||
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 | 12,463 | 183 | 1.5 | 11,417 | 200 | 1.8 | 12,534 | 388 | 3.1 | |||||||||||||||||||||||||||
Foreign | 23,648 | 389 | 1.6 | 21,118 | 1,035 | 4.9 | 17,668 | 634 | 3.6 | |||||||||||||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | ||||||||||||||||||||||||||||||||||||
Domestic | 17,969 | 457 | 2.5 | 6,576 | 200 | 3.0 | 5,471 | 235 | 4.3 | |||||||||||||||||||||||||||
Foreign | 710,065 | 10,549 | 1.5 | 582,066 | 10,948 | 1.9 | 573,526 | 10,949 | 1.9 | |||||||||||||||||||||||||||
Trading portfolio assets | ||||||||||||||||||||||||||||||||||||
Domestic | 10,122 | 337 | 3.3 | 7,990 | 222 | 2.8 | 7,812 | 269 | 3.4 | |||||||||||||||||||||||||||
Foreign – taxable | 494,692 | 18,914 | 3.8 | 407,867 | 18,151 | 4.5 | 373,810 | 16,714 | 4.5 | |||||||||||||||||||||||||||
Foreign – non-taxable | 2,309 | 27 | 1.2 | 1,668 | 21 | 1.3 | 1,720 | 31 | 1.8 | |||||||||||||||||||||||||||
Foreign – total | 497,001 | 18,941 | 3.8 | 409,535 | 18,172 | 4.4 | 375,530 | 16,745 | 4.5 | |||||||||||||||||||||||||||
Financial assets designated at fair value | ||||||||||||||||||||||||||||||||||||
Domestic | 196 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Foreign | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||||||||||
Domestic | 168,456 | 5,401 | 3.2 | 165,397 | 6,437 | 3.9 | 170,641 | 6,987 | 4.1 | |||||||||||||||||||||||||||
Foreign | 60,382 | 1,813 | 3.0 | 51,457 | 1,805 | 3.5 | 55,199 | 1,789 | 3.2 | |||||||||||||||||||||||||||
Financial investments | ||||||||||||||||||||||||||||||||||||
Domestic | 1,132 | 27 | 2.4 | 1,988 | 40 | 2.0 | 3,794 | 60 | 1.6 | |||||||||||||||||||||||||||
Foreign – taxable | 4,122 | 66 | 1.6 | 4,798 | 35 | 0.7 | 8,781 | 105 | 1.2 | |||||||||||||||||||||||||||
Foreign – non-taxable | 0 | 0 | 0.0 | 0 | 0 | 0.0 | 0 | 0 | 0.0 | |||||||||||||||||||||||||||
Foreign – total | 4,122 | 66 | 1.6 | 4,798 | 35 | 0.7 | 8,781 | 105 | 1.2 | |||||||||||||||||||||||||||
Total interest-earning assets | 1,505,556 | 38,163 | 2.5 | 1,262,342 | 39,094 | 3.1 | 1,230,956 | 38,161 | 3.1 | |||||||||||||||||||||||||||
Net interest on swaps | 1,235 | 1,065 | 1,802 | |||||||||||||||||||||||||||||||||
Interest income and average interest-earning assets | 1,505,556 | 39,398 | 2.6 | 1,262,342 | 40,159 | 3.2 | 1,230,956 | 39,963 | 3.2 | |||||||||||||||||||||||||||
Non-interest-earning assets | ||||||||||||||||||||||||||||||||||||
Positive replacement values | 246,952 | 249,155 | 188,462 | |||||||||||||||||||||||||||||||||
Fixed assets | 7,840 | 11,710 | 12,625 | |||||||||||||||||||||||||||||||||
Other | 68,925 | 40,104 | 53,293 | |||||||||||||||||||||||||||||||||
Total average assets | 1,829,273 | 1,563,311 | 1,485,336 | |||||||||||||||||||||||||||||||||
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D – Information Required by Industry Guide 3 (continued)
31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||||||||||||||
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 | 31,129 | 416 | 1.3 | 28,719 | 150 | 0.5 | 28,625 | 452 | 1.6 | |||||||||||||||||||||||||||
Foreign | 94,747 | 1,575 | 1.7 | 72,712 | 1,751 | 2.4 | 60,621 | 1,362 | 2.2 | |||||||||||||||||||||||||||
Cash collateral on securities lent and repurchase agreements | ||||||||||||||||||||||||||||||||||||
Domestic | 33,846 | 489 | 1.4 | 23,287 | 295 | 1.3 | 18,382 | 355 | 1.9 | |||||||||||||||||||||||||||
Foreign | 614,295 | 9,525 | 1.6 | 515,665 | 9,328 | 1.8 | 523,375 | 9,726 | 1.9 | |||||||||||||||||||||||||||
Trading portfolio liabilities | ||||||||||||||||||||||||||||||||||||
Domestic | 3,717 | 180 | 4.8 | 3,252 | 156 | 4.8 | 3,239 | 146 | 4.5 | |||||||||||||||||||||||||||
Foreign | 161,286 | 7,813 | 4.8 | 127,104 | 9,769 | 7.7 | 109,013 | 8,080 | 7.4 | |||||||||||||||||||||||||||
Financial liabilities designated at fair value | ||||||||||||||||||||||||||||||||||||
Domestic | 85 | 1 | 1.2 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||
Foreign | 49,234 | 1,167 | 2.4 | 22,445 | 751 | 3.3 | 10,905 | 341 | 3.1 | |||||||||||||||||||||||||||
Due to customers | ||||||||||||||||||||||||||||||||||||
Domestic – demand deposits | 67,005 | 167 | 0.2 | 55,496 | 100 | 0.2 | 42,484 | 435 | 1.0 | |||||||||||||||||||||||||||
Domestic – savings deposits | 84,112 | 414 | 0.5 | 81,963 | 527 | 0.6 | 71,465 | 625 | 0.9 | |||||||||||||||||||||||||||
Domestic – time deposits | 19,052 | 280 | 1.5 | 21,125 | 395 | 1.9 | 27,646 | 447 | 1.6 | |||||||||||||||||||||||||||
Domestic – total | 170,169 | 861 | 0.5 | 158,584 | 1,022 | 0.6 | 141,595 | 1,507 | 1.1 | |||||||||||||||||||||||||||
Foreign1 | 192,992 | 2,677 | 1.4 | 161,723 | 2,149 | 1.3 | 172,650 | 3,062 | 1.8 | |||||||||||||||||||||||||||
Short-term debt | ||||||||||||||||||||||||||||||||||||
Domestic | 246 | 0 | 64 | 0 | 0.0 | 69 | 0 | 0.0 | ||||||||||||||||||||||||||||
Foreign | 79,902 | 1,338 | 1.7 | 73,193 | 1,015 | 1.4 | 91,616 | 1,915 | 2.1 | |||||||||||||||||||||||||||
Long-term debt | ||||||||||||||||||||||||||||||||||||
Domestic | 7,639 | 168 | 2.2 | 6,413 | 188 | 2.9 | 10,082 | 433 | 4.3 | |||||||||||||||||||||||||||
Foreign | 30,922 | 1,328 | 4.3 | 30,775 | 1,286 | 4.2 | 35,958 | 2,038 | 5.7 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 1,470,209 | 27,538 | 1.9 | 1,223,936 | 27,860 | 2.3 | 1,206,130 | 29,417 | 2.4 | |||||||||||||||||||||||||||
Non-interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||
Negative replacement values | 260,629 | 254,819 | 191,183 | |||||||||||||||||||||||||||||||||
Other | 63,065 | 47,391 | 45,337 | |||||||||||||||||||||||||||||||||
Total liabilities | 1,793,903 | 1,526,146 | 1,442,650 | |||||||||||||||||||||||||||||||||
Shareholders’ equity | 35,370 | 37,165 | 42,686 | |||||||||||||||||||||||||||||||||
Total average liabilities and shareholders’ equity | 1,829,273 | 1,563,311 | 1,485,336 | |||||||||||||||||||||||||||||||||
Net interest income | 11,860 | 12,299 | 10,546 | |||||||||||||||||||||||||||||||||
Net yield on interest-earning assets | 0.8 | 1.0 | 0.9 | |||||||||||||||||||||||||||||||||
213
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Additional Disclosure 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 2004 compared to the year ended 31 December 2003, and for the year ended 31 December 2003 compared to the year ended 31 December 2002. Volume and rate variances have been calculated on movements in average balances and changes in interest rates. Changes due to a combination of volume and rates have been allocated proportionally. Refer to page 221 of Industry Guide 3 for a discussion of the treatment of impaired, non-performing and restructured loans.
2004 compared to 2003 | 2003 compared to 2002 | |||||||||||||||||||||||
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 | 19 | (36 | ) | (17 | ) | (35 | ) | (153 | ) | (188 | ) | |||||||||||||
Foreign | 124 | (770 | ) | (646 | ) | 124 | 277 | 401 | ||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | ||||||||||||||||||||||||
Domestic | 342 | (85 | ) | 257 | 48 | (83 | ) | (35 | ) | |||||||||||||||
Foreign | 2,432 | (2,831 | ) | (399 | ) | 162 | (163 | ) | (1 | ) | ||||||||||||||
Trading portfolio assets | ||||||||||||||||||||||||
Domestic | 60 | 55 | 115 | 6 | (53 | ) | (47 | ) | ||||||||||||||||
Foreign – taxable | 3,907 | (3,144 | ) | 763 | 1,533 | (96 | ) | 1,437 | ||||||||||||||||
Foreign – non-taxable | 8 | (2 | ) | 6 | (1 | ) | (9 | ) | (10 | ) | ||||||||||||||
Foreign – total | 3,915 | (3,146 | ) | 769 | 1,532 | (105 | ) | 1,427 | ||||||||||||||||
Financial assets designated at fair value | ||||||||||||||||||||||||
Domestic | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Foreign | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Loans | ||||||||||||||||||||||||
Domestic | 119 | (1,155 | ) | (1,036 | ) | (215 | ) | (335 | ) | (550 | ) | |||||||||||||
Foreign | 312 | (304 | ) | 8 | (120 | ) | 136 | 16 | ||||||||||||||||
Financial investments | ||||||||||||||||||||||||
Domestic | (17 | ) | (4 | ) | (13 | ) | (29 | ) | 9 | (20 | ) | |||||||||||||
Foreign – taxable | (5 | ) | 36 | 31 | (48 | ) | (22 | ) | (70 | ) | ||||||||||||||
Foreign – non-taxable | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Foreign – total | (5 | ) | 36 | 31 | (48 | ) | (22 | ) | (70 | ) | ||||||||||||||
Interest income | ||||||||||||||||||||||||
Domestic | 523 | (1,217 | ) | (694 | ) | (225 | ) | (615 | ) | (840 | ) | |||||||||||||
Foreign | 6,778 | (7,015 | ) | (237 | ) | 1,650 | 123 | 1,773 | ||||||||||||||||
Total interest income from interest-earning assets | 7,301 | (8,232 | ) | (931 | ) | 1,425 | (492 | ) | 933 | |||||||||||||||
Net interest on swaps | 170 | (737 | ) | |||||||||||||||||||||
Total interest income | (761 | ) | 196 | |||||||||||||||||||||
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D – Information Required by Industry Guide 3 (continued)
Analysis of Changes in Interest Income and Expense (continued) | ||||||||||||||||||||||||
2004 compared to 2003 | 2003 compared to 2002 | |||||||||||||||||||||||
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 | 12 | 254 | 266 | 2 | (304 | ) | (302 | ) | ||||||||||||||||
Foreign | 529 | (705 | ) | (176 | ) | 266 | 123 | 389 | ||||||||||||||||
Cash collateral on securities lent and repurchase agreements | ||||||||||||||||||||||||
Domestic | 137 | 57 | 194 | 93 | (153 | ) | (60 | ) | ||||||||||||||||
Foreign | 1,775 | (1,578 | ) | 197 | (146 | ) | (252 | ) | (398 | ) | ||||||||||||||
Trading portfolio liabilities | ||||||||||||||||||||||||
Domestic | 22 | 2 | 24 | 1 | 9 | 10 | ||||||||||||||||||
Foreign | 2,632 | (4,588 | ) | (1,956 | ) | 1,339 | 350 | 1,689 | ||||||||||||||||
Financial liabilities designated at fair value | ||||||||||||||||||||||||
Domestic | 0 | 1 | 1 | 0 | 0 | 0 | ||||||||||||||||||
Foreign | 884 | (468 | ) | 416 | 358 | 52 | 410 | |||||||||||||||||
Due to customers | ||||||||||||||||||||||||
Domestic – demand deposits | 23 | 44 | 67 | 130 | (465 | ) | (335 | ) | ||||||||||||||||
Domestic – savings deposits | 13 | (126 | ) | (113 | ) | 94 | (192 | ) | (98 | ) | ||||||||||||||
Domestic – time deposits | (39 | ) | (76 | ) | (115 | ) | (104 | ) | 52 | (52 | ) | |||||||||||||
Domestic – total | (3 | ) | (158 | ) | (161 | ) | 120 | (605 | ) | (485 | ) | |||||||||||||
Foreign | 406 | 122 | 528 | (197 | ) | (716 | ) | (913 | ) | |||||||||||||||
Short-term debt | ||||||||||||||||||||||||
Domestic | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Foreign | 94 | 229 | 323 | (387 | ) | (513 | ) | (900 | ) | |||||||||||||||
Long-term debt | ||||||||||||||||||||||||
Domestic | 36 | (56 | ) | (20 | ) | (158 | ) | (87 | ) | (245 | ) | |||||||||||||
Foreign | 6 | 36 | 42 | (295 | ) | (457 | ) | (752 | ) | |||||||||||||||
Interest expense | ||||||||||||||||||||||||
Domestic | 204 | 100 | 304 | 58 | (1,140 | ) | (1,082 | ) | ||||||||||||||||
Foreign | 6,326 | (6,952 | ) | (626 | ) | 938 | (1,413 | ) | (475 | ) | ||||||||||||||
Total interest expense | 6,530 | (6,852 | ) | (322 | ) | 996 | (2,553 | ) | (1,557 | ) | ||||||||||||||
215
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Deposits
31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||
CHF million, except where indicated | deposit | rate (%) | deposit | rate (%) | deposit | rate (%) | ||||||||||||||||||
Banks | ||||||||||||||||||||||||
Domestic offices | ||||||||||||||||||||||||
Demand deposits | 7,770 | 0.1 | 3,836 | 0.0 | 3,524 | 0.7 | ||||||||||||||||||
Time deposits | 4,693 | 1.7 | 7,581 | 0.6 | 9,010 | 1.7 | ||||||||||||||||||
Total domestic offices | 12,463 | 0.7 | 11,417 | 0.4 | 12,534 | 1.4 | ||||||||||||||||||
Foreign offices | ||||||||||||||||||||||||
Interest-bearing deposits1 | 23,648 | 1.7 | 21,118 | 2.4 | 17,668 | 2.2 | ||||||||||||||||||
Total due to banks | 36,111 | 1.3 | 32,535 | 1.7 | 30,202 | 1.9 | ||||||||||||||||||
Customer accounts | ||||||||||||||||||||||||
Domestic offices | ||||||||||||||||||||||||
Demand deposits | 67,005 | 0.2 | 55,496 | 0.2 | 42,484 | 1.0 | ||||||||||||||||||
Savings deposits | 84,112 | 0.5 | 81,963 | 0.6 | 71,465 | 0.9 | ||||||||||||||||||
Time deposits | 19,052 | 1.5 | 21,125 | 1.9 | 27,646 | 1.6 | ||||||||||||||||||
Total domestic offices | 170,169 | 0.5 | 158,584 | 0.6 | 141,595 | 1.1 | ||||||||||||||||||
Foreign offices | ||||||||||||||||||||||||
Interest-bearing deposits1 | 192,992 | 1.4 | 161,723 | 1.3 | 172,650 | 1.8 | ||||||||||||||||||
Total due to customers | 363,161 | 1.0 | 320,307 | 1.0 | 314,245 | 1.5 | ||||||||||||||||||
At 31 December 2004, 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 | 30,107 | 128,027 | ||||||
3 to 6 months | 1,392 | 3,470 | ||||||
6 to 12 months | 882 | 662 | ||||||
1 to 5 years | 932 | 2,627 | ||||||
Over 5 years | 215 | 2,843 | ||||||
Total time deposits | 33,528 | 137,629 | ||||||
216
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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 2004, 2003 and 2002.
Money market paper issued | Due to banks | Repurchase agreements1 | ||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||||||||||||||
Period-end balance | 79,442 | 58,115 | 72,800 | 83,381 | 89,089 | 48,732 | 557,892 | 500,592 | 464,020 | |||||||||||||||||||||||||||
Average balance | 80,148 | 73,257 | 91,685 | 89,765 | 68,896 | 59,044 | 587,988 | 498,679 | 509,572 | |||||||||||||||||||||||||||
Maximum month-end balance | 94,366 | 92,605 | 108,463 | 115,880 | 96,694 | 77,312 | 637,594 | 593,738 | 593,786 | |||||||||||||||||||||||||||
Average interest rate during the period (%) | 1.7 | 1.4 | 2.1 | 1.6 | 2.8 | 3.1 | 1.5 | 1.8 | 1.8 | |||||||||||||||||||||||||||
Average interest rate at period-end (%) | 2.1 | 1.3 | 1.5 | 2.0 | 1.5 | 2.0 | 2.0 | 1.3 | 1.7 | |||||||||||||||||||||||||||
217
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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 20041 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 1 | 5.50 | 2 | 4.29 | 6 | 3.80 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 10 | 3.97 | 10 | 4.14 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 36 | 2.13 | 4 | 1.25 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 57 | 2.74 | 50 | 2.92 | 0 | 0.00 | 33 | 0.00 | ||||||||||||||||||||||||
Mortgage-backed securities | 3 | 2.50 | 0 | 0.00 | 5 | 3.21 | 64 | 4.36 | ||||||||||||||||||||||||
Other debt securities | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 107 | 66 | 11 | 98 | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||
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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 2004 / 2005. The following table illustrates the diversification of the loan portfolio among industry sectors at 31 December 2004, 2003, 2002, 2001 and 2000. The industry categories presented are consistent with the classification of loans for reporting to the Swiss Federal Banking Commission and Swiss National Bank.
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks1 | 1,406 | 619 | 1,029 | 1,533 | 2,896 | |||||||||||||||
Construction | 1,943 | 2,175 | 2,838 | 3,499 | 4,870 | |||||||||||||||
Financial institutions | 4,332 | 4,009 | 4,301 | 5,673 | 5,725 | |||||||||||||||
Hotels and restaurants | 2,269 | 2,440 | 2,655 | 2,950 | 3,526 | |||||||||||||||
Manufacturing2 | 5,485 | 6,478 | 7,237 | 8,686 | 9,577 | |||||||||||||||
Private households | 105,160 | 102,181 | 95,295 | 93,746 | 91,667 | |||||||||||||||
Public authorities | 5,460 | 5,251 | 5,529 | 5,222 | 5,658 | |||||||||||||||
Real estate and rentals | 11,466 | 12,449 | 13,573 | 14,992 | 16,673 | |||||||||||||||
Retail and wholesale | 4,908 | 6,062 | 7,172 | 8,674 | 9,635 | |||||||||||||||
Services3 | 9,110 | 9,493 | 10,237 | 12,161 | 11,767 | |||||||||||||||
Other4,5 | 894 | 1,201 | 1,722 | 1,860 | 2,651 | |||||||||||||||
Total domestic | 152,433 | 152,358 | 151,588 | 158,996 | 164,645 | |||||||||||||||
Foreign | ||||||||||||||||||||
Banks | 34,114 | 31,405 | 31,882 | 26,728 | 27,168 | |||||||||||||||
Chemicals | 366 | 245 | 519 | 1,080 | 1,423 | |||||||||||||||
Construction | 122 | 84 | 153 | 266 | 773 | |||||||||||||||
Electricity, gas and water supply | 745 | 249 | 1,105 | 977 | 1,584 | |||||||||||||||
Financial institutions | 35,459 | 23,493 | 18,378 | 14,458 | 20,348 | |||||||||||||||
Manufacturing6 | 2,758 | 2,421 | 2,300 | 4,258 | 4,596 | |||||||||||||||
Mining | 1,695 | 1,114 | 868 | 1,313 | 2,070 | |||||||||||||||
Private households | 30,237 | 21,194 | 33,063 | 25,619 | 29,470 | |||||||||||||||
Public authorities | 1,228 | 1,224 | 2,628 | 6,454 | 11,754 | |||||||||||||||
Real estate and rentals | 940 | 473 | 616 | 10,227 | 5,077 | |||||||||||||||
Retail and wholesale | 1,102 | 1,880 | 1,367 | 1,732 | 1,862 | |||||||||||||||
Services | 8,002 | 7,983 | 1,654 | 4,786 | 1,585 | |||||||||||||||
Transport, storage and communication | 762 | 3,658 | 676 | 2,117 | 993 | |||||||||||||||
Other5,7 | 319 | 214 | 2,304 | 2,973 | 11,168 | |||||||||||||||
Total foreign | 117,849 | 95,637 | 97,513 | 102,988 | 119,871 | |||||||||||||||
Total gross | 270,282 | 247,995 | 249,101 | 261,984 | 284,516 | |||||||||||||||
219
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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 2004, 2003, 2002, 2001 and 2000. Mortgages are included in the industry categories mentioned above.
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Mortgages | ||||||||||||||||||||
Domestic | 124,496 | 122,069 | 116,359 | 116,628 | 116,348 | |||||||||||||||
Foreign | 12,185 | 7,073 | 11,510 | 9,583 | 4,206 | |||||||||||||||
Total gross mortgages | 136,681 | 129,142 | 127,869 | 126,211 | 120,554 | |||||||||||||||
Mortgages | ||||||||||||||||||||
Residential | 117,731 | 109,980 | 108,779 | 101,969 | 96,181 | |||||||||||||||
Commercial | 18,950 | 19,162 | 19,090 | 24,242 | 24,373 | |||||||||||||||
Total gross mortgages | 136,681 | 129,142 | 127,869 | 126,211 | 120,554 | |||||||||||||||
Due from Banks and Loan Maturities (gross)
The following table discloses loans by maturity at 31 December 2004. The determination of maturities is based on contract terms. Information on interest rate sensitivities can be found in Note 29 to the Financial Statements.
CHF million | Within 1 year | 1 to 5 years | Over 5 years | Total | ||||||||||||
Domestic | ||||||||||||||||
Banks | 812 | 594 | 0 | 1,406 | ||||||||||||
Mortgages | 48,428 | 67,205 | 8,863 | 124,496 | ||||||||||||
Other loans | 18,818 | 5,960 | 1,753 | 26,531 | ||||||||||||
Total domestic | 68,058 | 73,759 | 10,616 | 152,433 | ||||||||||||
Foreign | ||||||||||||||||
Banks | 32,285 | 1,442 | 387 | 34,114 | ||||||||||||
Mortgages | 10,691 | 1,314 | 180 | 12,185 | ||||||||||||
Other loans | 59,198 | 6,581 | 5,771 | 71,550 | ||||||||||||
Total foreign | 102,174 | 9,337 | 6,338 | 117,849 | ||||||||||||
Total gross1 | 170,232 | 83,096 | 16,954 | 270,282 | ||||||||||||
At 31 December 2004, the total amounts of Due from banks and loans due after one year granted at fixed and floating rates are as follows:
CHF million | 1 to 5 years | Over 5 years | Total | |||||||||
Fixed rate loans | 78,623 | 14,828 | 93,451 | |||||||||
Adjustable or floating rate loans | 4,473 | 2,126 | 6,599 | |||||||||
Total | 83,096 | 16,954 | 100,050 | |||||||||
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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 or loans) is classified as non-performing, 1) when the payment of interest, principal or fees is overdue by more than 90 days and there is no firm evidence that they will be made good by later payments or the liquidation of collateral; 2) when insolvency proceedings have commenced; or 3) when obligations have been restructured on concessionary terms.
The gross interest income that would have been recorded on non-performing loans was CHF 107 million for domestic loans and CHF 17 million for foreign loans for the year ended 31 December 2004, CHF 171 million for domestic loans and CHF 23 million for foreign loans for the year ended 31 December 2003, CHF 148 million for domestic loans and CHF 53 million for foreign loans for the year ended 31 December 2002, CHF 336 million for all non-performing loans for the year ended 31 December 2001 and CHF 182 million for all non-performing loans for the year ended 31 December 2000. The amount of interest income that was included in net income for those loans was CHF 106 million for domestic loans and CHF 8 million for foreign loans for the year ended 31 December 2004, CHF 163 million for domestic loans and CHF 8 million for foreign loans for the year ended 31 December 2003, CHF 152 million for domestic loans and CHF 22 million for foreign loans for the year ended 31 December 2002 and CHF 201 million for all non-performing loans for the year ended 31 December 2001. There was no interest income recorded in net income for non-performing loans in 2000. The table below provides an analysis of the Group’s non-performing loans, for further information see the Handbook 2004 / 2005.
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Non-performing loans: | ||||||||||||||||||||
Domestic | 2,772 | 4,012 | 4,609 | 6,531 | 7,588 | |||||||||||||||
Foreign | 924 | 889 | 1,391 | 2,108 | 2,864 | |||||||||||||||
Total non-performing loans | 3,696 | 4,901 | 6,000 | 8,639 | 10,452 | |||||||||||||||
Foreign restructured loans1 | 179 | |||||||||||||||||||
In addition to the non-performing loans shown above, the Group had CHF 1,165 million, CHF 2,308 million, CHF 3,933 million, CHF 5,990 million and CHF 8,042 million in “other impaired loans” for the years ended 31 December 2004, 2003, 2002, 2001 and 2000, respectively. For the years ended 31 December 2002, 2001 and 2000, these are loans that are current, or less than 90 days in arrears, with respect to payment of principal or interest; and for the years ended 31 December 2004 and 2003, these are loans not considered “non-performing” in accordance with Swiss regulatory guidelines, but where the Group’s credit officers have expressed doubts as to the ability of the borrowers to repay the loans. As at 31 December 2004 and 31 December 2003 specific allowances of CHF 241 million and CHF 694 million respectively 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 following analysis excludes Due from banks from Industrial Holdings.
31.12.04 | ||||||||||||||||||||
CHF million | Banks | Private Sector | Public Sector | Total | % of total assets | |||||||||||||||
United States | 8,733 | 114,202 | 9,150 | 132,085 | 7.6 | |||||||||||||||
Germany | 18,666 | 5,977 | 7,351 | 31,994 | 1.8 | |||||||||||||||
Italy | 4,588 | 2,699 | 16,803 | 24,090 | 1.4 | |||||||||||||||
Japan | 1,366 | 10,409 | 9,472 | 21,247 | 1.2 | |||||||||||||||
United Kingdom | 8,321 | 11,929 | 328 | 20,578 | 1.2 | |||||||||||||||
France | 5,559 | 6,835 | 2,776 | 15,170 | 0.9 | |||||||||||||||
31.12.03 | ||||||||||||||||||||
CHF million | Banks | Private Sector | Public Sector | Total | % of total assets | |||||||||||||||
United States | 10,125 | 108,461 | 8,138 | 126,724 | 8.2 | |||||||||||||||
Italy | 4,747 | 2,233 | 18,289 | 25,269 | 1.6 | |||||||||||||||
Germany | 17,499 | 5,884 | 1,270 | 24,654 | 1.6 | |||||||||||||||
United Kingdom | 8,340 | 11,344 | 550 | 20,234 | 1.3 | |||||||||||||||
France | 4,841 | 5,604 | 4,271 | 14,716 | 0.9 | |||||||||||||||
Japan | 1,630 | 7,845 | 4,001 | 13,477 | 0.9 | |||||||||||||||
31.12.02 | ||||||||||||||||||||
CHF million | Banks | Private Sector | Public Sector | Total | % of total assets | |||||||||||||||
United States | 11,111 | 105,375 | 7,958 | 124,444 | 9.2 | |||||||||||||||
Germany | 17,633 | 6,038 | 5,857 | 29,528 | 2.2 | |||||||||||||||
Italy | 4,490 | 1,955 | 17,071 | 23,515 | 1.7 | |||||||||||||||
United Kingdom | 10,001 | 11,963 | 345 | 22,310 | 1.7 | |||||||||||||||
France | 5,218 | 7,640 | 8,138 | 20,996 | 1.6 | |||||||||||||||
Australia | 5,435 | 4,114 | 2,285 | 11,834 | 0.9 | |||||||||||||||
Canada | 2,186 | 3,044 | 5,851 | 11,081 | 0.8 | |||||||||||||||
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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. The following analysis includes Due from banks from Industrial Holdings.
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Balance at beginning of year | 3,954 | 5,232 | 8,218 | 10,581 | 13,398 | |||||||||||||||
Domestic | ||||||||||||||||||||
Write-offs | ||||||||||||||||||||
Banks | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Construction | (49 | ) | (73 | ) | (148 | ) | (248 | ) | (261 | ) | ||||||||||
Financial institutions | (24 | ) | (37 | ) | (103 | ) | (51 | ) | (178 | ) | ||||||||||
Hotels and restaurants | (101 | ) | (57 | ) | (48 | ) | (52 | ) | (193 | ) | ||||||||||
Manufacturing1 | (77 | ) | (121 | ) | (275 | ) | (109 | ) | (264 | ) | ||||||||||
Private households | (208 | ) | (262 | ) | (536 | ) | (1,297 | ) | (640 | ) | ||||||||||
Public authorities | 0 | (18 | ) | 0 | 0 | 0 | ||||||||||||||
Real estate and rentals | (109 | ) | (206 | ) | (357 | ) | (317 | ) | (729 | ) | ||||||||||
Retail and wholesale | (68 | ) | (67 | ) | (101 | ) | (115 | ) | (160 | ) | ||||||||||
Services2 | (83 | ) | (111 | ) | (155 | ) | (93 | ) | (227 | ) | ||||||||||
Other3 | (9 | ) | (43 | ) | (49 | ) | (46 | ) | (30 | ) | ||||||||||
Total domestic write-offs | (728 | ) | (995 | ) | (1,772 | ) | (2,328 | ) | (2,682 | ) | ||||||||||
Foreign | ||||||||||||||||||||
Write-offs | ||||||||||||||||||||
Banks | (21 | ) | (17 | ) | (49 | ) | (24 | ) | (15 | ) | ||||||||||
Chemicals | (1 | ) | 0 | 0 | (2 | ) | 0 | |||||||||||||
Construction | (3 | ) | 0 | 0 | (10 | ) | (13 | ) | ||||||||||||
Electricity, gas and water supply | 0 | 0 | (36 | ) | (63 | ) | (3 | ) | ||||||||||||
Financial institutions | (34 | ) | (112 | ) | (228 | ) | (74 | ) | (33 | ) | ||||||||||
Manufacturing4 | (23 | ) | (77 | ) | (70 | ) | (119 | ) | (11 | ) | ||||||||||
Mining | (8 | ) | (15 | ) | (1 | ) | (304 | ) | 0 | |||||||||||
Private households | (8 | ) | (11 | ) | (65 | ) | (5 | ) | 0 | |||||||||||
Public authorities | (2 | ) | 0 | (1 | ) | 0 | (4 | ) | ||||||||||||
Real estate and rentals | 0 | (1 | ) | (2 | ) | (1 | ) | 0 | ||||||||||||
Retail and wholesale | 0 | (76 | ) | (10 | ) | 0 | (160 | ) | ||||||||||||
Services | (7 | ) | (25 | ) | (39 | ) | (30 | ) | (8 | ) | ||||||||||
Transport, storage and communication | 0 | (24 | ) | (74 | ) | 0 | (11 | ) | ||||||||||||
Other5 | (22 | ) | (83 | ) | (189 | ) | (48 | ) | (55 | ) | ||||||||||
Total foreign write-offs | (129 | ) | (441 | ) | (764 | ) | (680 | ) | (313 | ) | ||||||||||
Total write-offs | (857 | ) | (1,436 | ) | (2,536 | ) | (3,008 | ) | (2,995 | ) | ||||||||||
223
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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 (continued) | ||||||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Recoveries | ||||||||||||||||||||
Domestic | 54 | 49 | 43 | 58 | 124 | |||||||||||||||
Foreign | 5 | 38 | 27 | 23 | 39 | |||||||||||||||
Total recoveries | 59 | 87 | 70 | 81 | 163 | |||||||||||||||
Net write-offs | (798 | ) | (1,349 | ) | (2,466 | ) | (2,927 | ) | (2,832 | ) | ||||||||||
Increase/(decrease) in credit loss allowance and provision | (251 | ) | 72 | 115 | 498 | (130 | ) | |||||||||||||
Collective loan loss provisions | (25 | ) | ||||||||||||||||||
Other adjustments1 | 3 | (1 | ) | (635 | ) | 66 | 145 | |||||||||||||
Balance at end of year | 2,883 | 3,954 | 5,232 | 8,218 | 10,581 | |||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Doubtful interest | 0 | 0 | 0 | 0 | 182 | |||||||||||||||
Net foreign exchange | 2 | (57 | ) | (269 | ) | 44 | 23 | |||||||||||||
Subsidiaries sold and other adjustments | 1 | 56 | (366 | ) | 22 | (60 | ) | |||||||||||||
Total adjustments | 3 | (1 | ) | (635 | ) | 66 | 145 | |||||||||||||
224
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D – Information Required by Industry Guide 3 (continued)
Allocation of the Allowances and Provisions for Credit Losses
The following table provides an analysis of the allocation of the allowances and provisions for credit loss by industry sector and geographic location at 31 December 2004, 2003, 2002, 2001 and 2000. For a description of procedures with respect to allowances and provisions for credit losses, see the Handbook 2004/2005. The following analysis includes Due from banks from Industrial Holdings.
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks | 10 | 10 | 10 | 34 | 0 | |||||||||||||||
Construction | 112 | 158 | 265 | 467 | 843 | |||||||||||||||
Financial institutions | 82 | 137 | 89 | 262 | 328 | |||||||||||||||
Hotels and restaurants | 98 | 214 | 286 | 346 | 454 | |||||||||||||||
Manufacturing1 | 224 | 327 | 458 | 722 | 863 | |||||||||||||||
Private households | 333 | 511 | 750 | 1,082 | 1,570 | |||||||||||||||
Public authorities | 9 | 9 | 39 | 37 | 0 | |||||||||||||||
Real estate and rentals | 250 | 383 | 577 | 1,067 | 1,635 | |||||||||||||||
Retail and wholesale | 363 | 201 | 315 | 395 | 629 | |||||||||||||||
Services2 | 222 | 549 | 470 | 448 | 419 | |||||||||||||||
Other3 | 188 | 150 | 225 | 165 | 413 | |||||||||||||||
Total domestic | 1,891 | 2,649 | 3,484 | 5,025 | 7,154 | |||||||||||||||
Foreign | ||||||||||||||||||||
Banks4 | 230 | 256 | 24 | 39 | 32 | |||||||||||||||
Chemicals | 4 | 5 | 5 | 5 | 0 | |||||||||||||||
Construction | 1 | 0 | 6 | 0 | 11 | |||||||||||||||
Electricity, gas and water supply | 15 | 0 | 96 | 88 | 107 | |||||||||||||||
Financial institutions | 140 | 168 | 153 | 420 | 262 | |||||||||||||||
Manufacturing5 | 112 | 359 | 314 | 653 | 547 | |||||||||||||||
Mining | 14 | 19 | 148 | 169 | 586 | |||||||||||||||
Private households | 48 | 48 | 58 | 103 | 72 | |||||||||||||||
Public authorities | 66 | 69 | 0 | 0 | 0 | |||||||||||||||
Real estate and rentals | 5 | 7 | 6 | 9 | 82 | |||||||||||||||
Retail and wholesale | 95 | 51 | 13 | 0 | 41 | |||||||||||||||
Services | 32 | 32 | 262 | 414 | 126 | |||||||||||||||
Transport, storage and communication | 1 | 195 | 144 | 45 | 2 | |||||||||||||||
Other6 | 22 | (166 | ) | (177 | ) | 242 | 267 | |||||||||||||
Total foreign | 785 | 1,043 | 1,052 | 2,187 | 2,135 | |||||||||||||||
Collective loan loss provisions7 | 207 | 262 | 696 | 1,006 | 1,292 | |||||||||||||||
Total allowances and provisions for credit losses8 | 2,883 | 3,954 | 5,232 | 8,218 | 10,581 | |||||||||||||||
225
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Due from Banks 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 % | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks1 | 0.5 | 0.2 | 0.4 | 0.6 | 1.0 | |||||||||||||||
Construction | 0.7 | 0.9 | 1.1 | 1.3 | 1.7 | |||||||||||||||
Financial institutions | 1.6 | 1.6 | 1.7 | 2.2 | 2.0 | |||||||||||||||
Hotels and restaurants | 0.8 | 1.0 | 1.1 | 1.1 | 1.2 | |||||||||||||||
Manufacturing2 | 2.0 | 2.6 | 2.9 | 3.3 | 3.4 | |||||||||||||||
Private households | 38.9 | 41.2 | 38.3 | 35.8 | 32.2 | |||||||||||||||
Public authorities | 2.0 | 2.1 | 2.2 | 2.0 | 2.0 | |||||||||||||||
Real estate and rentals | 4.2 | 5.0 | 5.4 | 5.7 | 5.9 | |||||||||||||||
Retail and wholesale | 1.8 | 2.4 | 2.9 | 3.3 | 3.4 | |||||||||||||||
Services3 | 3.4 | 3.8 | 4.1 | 4.6 | 4.1 | |||||||||||||||
Other4 | 0.5 | 0.6 | 0.8 | 0.8 | 1.0 | |||||||||||||||
Total domestic | 56.4 | 61.4 | 60.9 | 60.7 | 57.9 | |||||||||||||||
Foreign | ||||||||||||||||||||
Banks | 12.6 | 12.7 | 12.8 | 10.2 | 9.5 | |||||||||||||||
Chemicals | 0.1 | 0.1 | 0.2 | 0.4 | 0.5 | |||||||||||||||
Construction | 0.0 | 0.0 | 0.1 | 0.1 | 0.3 | |||||||||||||||
Electricity, gas and water supply | 0.3 | 0.1 | 0.4 | 0.4 | 0.6 | |||||||||||||||
Financial institutions | 13.1 | 9.5 | 7.4 | 5.5 | 7.2 | |||||||||||||||
Manufacturing5 | 1.0 | 1.0 | 0.9 | 1.6 | 1.6 | |||||||||||||||
Mining | 0.6 | 0.4 | 0.3 | 0.5 | 0.7 | |||||||||||||||
Private households | 11.2 | 8.5 | 13.3 | 9.8 | 10.4 | |||||||||||||||
Public authorities | 0.5 | 0.5 | 1.1 | 2.5 | 4.1 | |||||||||||||||
Real estate and rentals | 0.3 | 0.2 | 0.2 | 3.9 | 1.8 | |||||||||||||||
Retail and wholesale | 0.4 | 0.8 | 0.5 | 0.7 | 0.7 | |||||||||||||||
Services | 3.0 | 3.2 | 0.7 | 1.8 | 0.6 | |||||||||||||||
Transport, storage and communication | 0.3 | 1.5 | 0.3 | 0.8 | 0.3 | |||||||||||||||
Other6 | 0.2 | 0.1 | 0.9 | 1.1 | 3.8 | |||||||||||||||
Total foreign | 43.6 | 38.6 | 39.1 | 39.3 | 42.1 | |||||||||||||||
Total gross | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||
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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 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | 31.12.00 | |||||||||||||||
Gross loans | 270,282 | 1 | 247,995 | 249,101 | 261,984 | 284,516 | ||||||||||||||
Impaired loans | 4,861 | 7,209 | 9,933 | 14,629 | 18,494 | |||||||||||||||
Non-performing loans | 3,696 | 4,901 | 6,000 | 8,639 | 10,452 | |||||||||||||||
Allowances and provisions for credit losses2 | 2,883 | 3,954 | 5,232 | 8,218 | 10,581 | |||||||||||||||
Net write-offs | 798 | 1,349 | 2,466 | 2,927 | 2,832 | |||||||||||||||
Credit loss (expense)/recovery | 276 | (72 | ) | (115 | ) | (498 | ) | 130 | ||||||||||||
Ratios | ||||||||||||||||||||
Impaired loans as a percentage of gross loans | 1.8 | 2.9 | 4.0 | 5.6 | 6.5 | |||||||||||||||
Non-performing loans as a percentage of gross loans | 1.4 | 2.0 | 2.4 | 3.3 | 3.7 | |||||||||||||||
Allowances and provisions for credit losses as a percentage of: | ||||||||||||||||||||
Gross loans | 1.1 | 1.6 | 2.1 | 3.1 | 3.7 | |||||||||||||||
Impaired loans | 59.3 | 54.8 | 52.7 | 56.2 | 57.2 | |||||||||||||||
Non-performing loans | 78.0 | 80.7 | 87.2 | 95.1 | 101.2 | |||||||||||||||
Allocated allowances as a percentage of impaired loans3 | 51.5 | 48.0 | 45.7 | 49.9 | 52.4 | |||||||||||||||
Allocated allowances as a percentage of non-performing loans4 | 61.3 | 56.4 | 57.6 | 62.2 | 60.6 | |||||||||||||||
Net write-offs as a percentage of: | ||||||||||||||||||||
Gross loans | 0.3 | 0.5 | 1.0 | 1.1 | 1.0 | |||||||||||||||
Average loans outstanding during the period | 0.3 | 0.5 | 1.0 | 1.2 | 1.1 | |||||||||||||||
Allowances and provisions for credit losses | 27.7 | 34.1 | 47.1 | 35.6 | 26.8 | |||||||||||||||
Allowances and provisions for credit losses as a multiple of net write-offs | 3.61 | 2.93 | 2.12 | 2.81 | 3.74 | |||||||||||||||
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Cautionary statement regarding forward-looking statements |This communication contains statements that constitute “forward-looking statements”, including, but not limited to, statements relating to the implementation of strategic initiatives, such as the European wealth management business, and other statements relating to our future business development and economic performance. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to, (1) general market, macro-economic, governmental and regulatory trends, (2) movements in local and international securities markets, currency exchange rates and interest rates, (3) competitive pressures, (4) technological developments, (5) changes in the financial position or creditworthiness of our customers, obligors and counterparties and developments in the markets in which they operate, (6) legislative developments, (7) management changes and changes to our Business Group structure and (8) other key factors that we have indicated could adversely affect our business and financial performance which are contained in other parts of this document and in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth elsewhere in this document and in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2004. UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.
Imprint |Publisher/Copyright: UBS AG, Switzerland | Languages: English, German | SAP-No. 80531E-0501
Table of Contents
UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
www.ubs.com
Table of Contents
Handbook 2004/2005 – U.S. Version
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Introduction
This is the fifth 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.
As in previous years, 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
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Introduction
UBS financial highlights
UBS income statement | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Net profit | 8,089 | 6,239 | 3,530 | 30 | ||||||||||||
Basic earnings per share(CHF)1 | 7.68 | 5.59 | 2.92 | 37 | ||||||||||||
Diluted earnings per share(CHF)1 | 7.47 | 5.48 | 2.87 | 36 | ||||||||||||
Return on shareholders’ equity(%)2 | 24.7 | 17.8 | 8.9 | |||||||||||||
Financial Businesses3 | ||||||||||||||||
Operating income | 37,402 | 33,790 | 34,107 | 11 | ||||||||||||
Operating expenses | 26,935 | 25,613 | 29,570 | 5 | ||||||||||||
Net profit | 8,044 | 6,239 | 3,530 | 29 | ||||||||||||
Cost / income ratio(%)4 | 72.6 | 75.6 | 86.4 | |||||||||||||
Net new money, wealth management businesses(CHF billion)5 | 59.4 | 50.8 | 36.2 | |||||||||||||
Headcount(full-time equivalents) | 67,424 | 65,929 | 69,061 | 2 | ||||||||||||
UBS balance sheet and capital management | ||||||||||||||||
As at | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Balance sheet key figures | ||||||||||||||||
Total assets | 1,734,784 | 1,550,056 | 1,346,678 | 12 | ||||||||||||
Shareholders’ equity | 34,978 | 35,310 | 38,952 | (1 | ) | |||||||||||
Market capitalization | 103,638 | 95,401 | 79,448 | 9 | ||||||||||||
BIS capital ratios | ||||||||||||||||
Tier 1(%)6 | 11.8 | 11.8 | 11.3 | |||||||||||||
Total BIS(%) | 13.6 | 13.3 | 13.8 | |||||||||||||
Risk-weighted assets | 264,125 | 251,901 | 238,790 | 5 | ||||||||||||
Invested assets(CHF billion) | 2,250 | 2,133 | 1,959 | 5 | ||||||||||||
Long-term ratings | ||||||||||||||||
Fitch, London | AA+ | AA+ | AAA | |||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||||||
From third quarter 2004 onwards, Motor-Columbus has been fully consolidated in UBS’s financial statements. The reporting structure is split into two components: Financial Businesses and Industrial Holdings.
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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
tently placed in the top tiers of major industry rankings, it is a leading player in the global primary and secondary markets for equity, equity-linked and equity derivative products. In fixed income, it is a first-rate global player. In foreign exchange, it places first in many key industry rankings. In investment banking, it provides first-class advice and execution capabilities to its corporate client base worldwide. All its businesses are sharply client-focused, providing innovative products, top-quality research and comprehensive access to the world’s capital markets.
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).
Annual Review 2004
Financial Report 2004
Quarterly reports
The compensation report
The making of UBS
How to order reports
Information tools for investors
Website
Messaging service
Results presentations
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 Form 20-F; our Annual Report filed pursuant to the US Securities Exchange Act of 1934.
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Introduction |
20549. Please call the SEC at 1-800-SEC-0330 (in the US) or at +1 202 942 8088 (outside the US) for further information on the operation of its public reference room. You may also inspect our SEC reports and other information at the New York Stock Exchange, Inc., 20 Broad Street, New York, NY 10005.
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.
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Introduction
Contacts
Switchboards | ||||||
For all general queries. | Zurich | +41-44-234 1111 | ||||
London | +44-20-7568 0000 | |||||
New York | +1-212-821 3000 | |||||
Hong Kong | +852-2971 8888 | |||||
Investor Relations | ||||||
Our Investor Relations team supports institutional, professional and retail investors from our office in Zurich. | Zurich | |||||
Hotline | +41-44-234 4100 | UBS AG | ||||
www.ubs.com/investors | Matthew Miller | +41-44-234 4360 | Investor Relations | |||
Patrick Zuppiger | +41-44-234 3614 | P.O. Box | ||||
Caroline Ryton | +41-44-234 2281 | CH-8098 Zurich, Switzerland | ||||
Fax | +41-44-234 3415 | sh-investorrelations@ubs.com | ||||
Media Relations | ||||||
Our Media Relations team supports global media and journalists from offices in Zurich, London, New York and Hong Kong. | Zurich | +41-44-234 8500 | mediarelations@ubs.com | |||
London | +44-20-7567 4714 | ubs-media-relations@ubs.com | ||||
www.ubs.com/media | New York | +1-212-882 5857 | mediarelations-ny@ubs.com | |||
Hong Kong | +852-2971 8200 | sh-mediarelations-ap@ubs.com | ||||
Shareholder Services | ||||||
UBS Shareholder Services, a unit of the Company Secretary, is responsible for the registration of the Global Registered Shares. | Hotline | +41-44-235 6202 | UBS AG | |||
Fax | +41-44-235 3154 | Shareholder Services | ||||
P.O. Box | ||||||
CH-8098 Zurich, Switzerland | ||||||
sh-shareholder-services@ubs.com | ||||||
US Transfer Agent | ||||||
For all Global Registered Share- related queries in the US. www.melloninvestor.com | Calls from the US | +1-866-541 9689 | Mellon Investor Services | |||
Calls outside the US | +1-201-329 8451 | Overpeck Centre | ||||
Fax | +1-201-296 4801 | 85 Challenger Road | ||||
Ridgefield Park, NJ 07660, USA | ||||||
sh-relations@melloninvestor.com | ||||||
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UBS
We have an ambitious vision – to be recognized as the best global financial services firm. We are the world’s largest wealth manager, while in the investment banking and securities business we are in a select bracket of major houses. In Switzerland, we are the clear market leader in corporate and retail banking.
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UBS
Strategy and structure
Strategy and structure
Our vision
We are determined to be recognized as the best global financial services company. We will earn this recognition from clients, shareholders and professionals through our ability to anticipate, learn and shape our future, while always delivering the very best quality in all that we do. We share a common ambition to succeed. Throughout our development as a leading global financial services group, we have evolved a distinct culture of ambition, performance and learning that has enabled us to continually innovate and broaden our expertise. By harnessing all our resources, we deliver smart solutions with and for our clients and partners, and enable them to make savvy financial decisions. Our ambitious, performance-driven working atmosphere attracts and retains the best talent in the market, and by growing our client and talent franchises, we add sustainable value for our shareholders.
Our strategy
We are a truly global firm, working with corporate, institutional and private clients around the world. Our strategy focuses on wealth management, investment banking and securities and asset management, all on a global scale, as well as retail and corporate banking in Switzerland. These areas have been our consistent strategic priorities for many years. This long-term perspective and commitment has helped us to become the successful firm we are today, with a broadly diversified business mix.
Growth
which propelled us into top-five positions in the onshore private banking markets of the UK and Germany. During the year, we announced acquisitions that brought UBS around CHF 40 billion in new invested assets in key wealth management markets. Our European wealth management business, which we started building up four years ago, continues to grow strongly. The CHF 82 billion in invested assets it held at the end of 2004 represents more than 10% of our Wealth Management business. We also continue to expand our wealth management presence in Asia, the fastest-growing market in the world. Our new branch in Beijing marked a milestone in our long-term strategy for China. We also opened a new representative office in Kuala Lumpur, Malaysia, and re-entered the Japanese market with an office in Tokyo.
Financial success, risk and capital management
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UBS |
circumstances, we continue to generate capital well in excess of our requirements. As a first priority, this capital is used for investment in the growth of our businesses. In the absence of attractive re-investment opportunities, we return excess capital to our shareholders, through either direct distributions or share buybacks.
Business strategies
In theinvestment banking and securities businesseswe aim to be the global leader and the most profitable service provider to corporate clients, institutional investors and intermediaries. Our diversified business portfolio gives us an ability to shift focus according to market opportunities – capitalizing on revenue opportunities where they arise and withdrawing resources at the right moment, when conditions change. We will continue to build our competitive strength, focusing on growth opportunities and on winning market share.
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UBS
Strategy and structure
Long-term perspectives
– | financial liberalization and deregulation | |
– | wealth accumulation | |
– | retirement provisioning | |
– | securitization | |
– | equitization | |
– | corporate restructuring |
Financial liberalization and deregulation
Wealth accumulation
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UBS |
Retirement provisioning
Securitization
Equitization
Corporate restructuring
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UBS
Strategy and structure
Operating as “one firm”
We firmly believe our integrated business model creates more value than our businesses would as stand-alone units. Our clients should effortlessly be able to access all the services our firm can provide, where and when they are required, and regardless of what combinations of teams lie behind the solutions. This “one firm” approach facilitates cross-selling through client referrals and the exchange of products and distribution services between businesses and thus contributes significantly to our revenue flows.
wealth management and asset management businesses to target ultra-high net worth clients, whose needs are similar to those of institutional clients. Given the turbulent markets seen in the past three years, they are increasingly interested in preserving their capital while achieving reasonable returns at a competitive price. As a result, our asset management business started to develop products specifically for this client segment, such as an absolute return bond fund. With such targeted products and by linking the clients’ family offices with our investment management professionals, we were able to attract significant additional invested assets.
Striving for Excellence
Responsible Relationships
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UBS |
management and control. One example is our centralized treasury process which ensures that cash flows within UBS are pooled and netted before being funded through one access point to the money markets. At the same time, the way we embed the same approach to risk management deeply into all our businesses is one of our most important success factors. Another example underlining our “one firm” approach is our information technology infrastructure (ITI) unit launched successfully in 2004. This unit, housed within the Corporate Center, integrates all IT infrastructure functions across UBS –
data networks, telephone and other communications systems, IT security, distributed computing and servers, mainframes and data centers, market data services, user services and desktop computing.
Corporate Responsibility:We are a member of the global community and behave as a responsible corporate citizen. Our corporate governance ensures the implementation of our corporate responsibility agenda. We as
High Ethical Standards
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UBS
Strategy and structure
Managing our business
Board structure
Organizational structure
Changes in senior management communicated
in 2004 and early 2005
– | On 1 October 2004, Georges Gagnebin stepped down from the Group Executive Board of UBS to fully focus on his role as Vice Chairman of the board of the holding company housing our independent private banks and GAM. At this time, Marcel Rohner assumed the title of Chairman of Wealth Management & Business Banking, in addition to his role as CEO. | |
– | With the election of Stephan Haeringer to the Board of Directors of UBS on 15 April 2004, John Costas became Deputy CEO of UBS, in addition to his role as Investment Bank CEO. | |
– | Effective 1 March 2005, Walter Stuerzinger, our Chief Risk Officer since 2001, will be appointed to UBS’s Group Executive Board, reporting to Peter Wuffli, Chief Executive Officer. Walter Stuerzinger will assume firm-wide responsibility for market, operational and credit risk control. | |
– | As of the Annual General Meeting (AGM) on 21 April 2005, Alberto Togni, whose term of office expires in 2005, is stepping down from the Board as he has reached retirement age. The Board of Directors will propose the following new members for election: Marco Suter, currently UBS Chief Credit Officer, as executive director, and Peter R. Voser, Chief Financial Officer of the Royal Dutch/Shell Group of Companies and Managing Director of The “Shell” Transport and Trading Company, plc., London, as non-executive director. After their election, the Board of Directors should comprise eleven members. |
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UBS
The making of UBS
All the firms that have come to make up today’s UBS look back on a long and illustrious history. Both the two Swiss predecessor banks and PaineWebber came into being in the second half of the 19th century while SG Warburg’s roots go back to 1934. But it is in the 1990s that UBS’s current identity began to take concrete shape.
with SG Warburg, the British merchant bank. The deal helped to fill SBC’s strategic gaps in corporate finance, brokerage and research and, most importantly, brought with it an institutional client franchise, which is still at the core of today’s equities business.
A brochure published in early 2005 outlines the series of transformational mergers and acquisitions that created today’s UBS. It also includes brief profiles of the firm’s antecedent companies and their historical roots. The report can be ordered on the internet at: www.ubs.com/investors.
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The Business Groups
We manage our Business Groups together to optimize shareholder value – making the whole worth more than the sum of the parts.
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The Business Groups
Wealth Management & Business Banking
Wealth Management & Business Banking
Wealth Management & Business Banking is the number one provider of financial services for wealthy clients around the world and is the leading bank for individual and corporate clients in Switzerland.
Business 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 | 31.12.04 | 31.12.03 | 31.12.04 | 31.12.03 | 31.12.04 | 31.12.03 | ||||||||||||||||||
Total operating income | 7,693 | 6,793 | 5,038 | 5,120 | 12,731 | 11,913 | ||||||||||||||||||
Total operating expenses | 4,258 | 4,184 | 2,993 | 2,975 | 7,251 | 7,159 | ||||||||||||||||||
Business Group / Business Unit performance before tax | 3,435 | 2,609 | 2,045 | 2,145 | 5,480 | 4,754 | ||||||||||||||||||
Net new money(CHF billion) | 42.3 | 29.7 | 2.6 | 2.5 | 44.9 | 32.2 | ||||||||||||||||||
Invested assets(CHF billion) | 778 | 701 | 140 | 136 | 918 | 837 | ||||||||||||||||||
Headcount(full-time equivalents) | 10,093 | 9,176 | 15,508 | 16,181 | 25,601 | 25,357 | ||||||||||||||||||
Business
Our global branch network delivers comprehensive financial services to wealthy private individuals around the world and to private and corporate clients in Switzerland. Our focus is to provide all our clients with the advice, financial products and tools that meet their individual needs.
Organizational structure
In 2002, we created the new Wealth Management & Business Banking organization. The Business Group is managed in a fully integrated way, whilst the results are reported for the following two segments:
– | Wealth Management, serving wealthy and high-end affluent clients | |
– | Business Banking Switzerland, serving retail and corporate clients in Switzerland. |
infrastructure. Thus, within Wealth Management & Business Banking the support areas provide products and services to the two abovementioned business units as well as to other UBS businesses.
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The Business Groups |
Wealth Management
With more than 140 years of experience, an extensive global network, and CHF 778 billion in invested assets on 31 December 2004, our more than 3,700 client advisors consistently deliver high-quality, individually tailored solutions to our clients worldwide.
Business
The Wealth Management unit provides a comprehensive range of products and services individually tailored for wealthy clients around the world via its global branch network and through financial intermediaries.
Organizational structure
We are organized into the two business areas of:
– | Wealth Management – Swiss Clients, covering clients domiciled in Switzerland, and organized into eight geographic regions | |
– | Wealth Management – International Clients, serving clients domiciled outside Switzerland. This area 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; and Americas International. |
A number of global teams with specialized areas of expertise concentrate on the requirements of particular client groups. An example is our Islamic finance subsidiary in Bahrain, Noriba, which we opened in September 2002. It offers sharia-compliant products to institutions and high net worth individuals residing in the Middle East and around the world.
Competitors
The Wealth Management unit’s major competitors comprise all globally active wealth managers, such as the wealth management operations of Credit Suisse, HSBC, and Citigroup. We also compete with private banks that operate within their respective domestic markets, such as Pictet and Julius Baer in Switzerland, Coutts in the UK, Deutsche Bank and Sal. Oppenheim in Germany, and Unicredito in Italy.
Clients
Client focus is the main driver of all our activities. We are committed to proactively and consistently delivering tailored and unbiased financial solutions of the highest quality to our clients. We strive to create long-term personal relationships.
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The Business Groups
Wealth Management & Business Banking
A clearly structured advisory process helps client advisors add value at each step and provides our clients with a consistent and comprehensive experience. The consistent delivery of a truly consultative advisory experience combined with a complete product positioning framework is essential to putting our value proposition into action. Our approach can be broken down into four clear, mutually enhancing steps. In thefirst, 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 asecondstep, the advisor formulates investment proposals crafted for that client’s specific requirements by selecting from the best products and services available. In thethirdstep, the advisor agrees with the client which of the solutions should be implemented. Thefourthstep rounds out the whole experience 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 experience. In a recent survey, almost 90% of our wealth management clients in Switzerland said their main banking relationship with UBS had lasted for more than 10 years.
Growth initiatives
European wealth management
same period, invested assets were up 78% at CHF 82 billion on 31 December 2004.
Wealth Management in Asia Pacific
Bolt-on purchases
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Bank Lateinamerika’s wealth management business, and American Express Bank’s private banking activities in Luxembourg. These businesses primarily serve international or offshore clientele. We also made a number of acquisitions in our domestic European wealth management business, including the merger of our German wealth management business with Sauerborn Trust. In the UK, we acquired Laing & Cruickshank Investment Management and Scott Goodman Harris. In early 2005, we also purchased the Italian financial intermediary firm Etra.
Products and services
Our clients can count on the expertise of more than 2,000 professionals worldwide dedicated to developing wealth management solutions. We ensure that our private clients get access to what we judge as high-quality investments. We source internally at UBS when we believe we have the requisite expertise. Otherwise, we screen the market for the best products. By aggregating private investment flows into institutional flows, we are in a position to offer our private clients access
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Wealth Management & Business Banking
to investments that would otherwise only be available to institutional clients.
structured products and alternative investments. We also fulfill their basic banking needs with a wide range of products – ranging from cash accounts and savings accounts to credit cards, mortgages, and securities-backed lending.
Distribution
Our extensive wealth management branch network comprises 3,744 client advisors, 110 offices in Switzerland and 67 offices worldwide.
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Business Banking Switzerland
Business Banking Switzerland, UBS’s retail and commercial banking unit, is the market leader in Switzerland and provides a complete set of banking and securities services for individual and corporate clients.
Business
We are the leading bank in Switzerland. At the end of 2004, clients had CHF 140 billion in invested assets with us. With a total loan book of CHF 137 billion on 31 December 2004, we lead the Swiss lending and retail mortgage markets.
Organizational structure
The Business Banking Switzerland unit comprises the domestic branch network for corporate and individual clients, which is organized into eight regions.
Competitors
Business Banking Switzerland’s major competitors are banks active in the retail 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
phone services, e-banking), our branches are a key driving force in serving our clients effectively and efficiently.
Corporate clients
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Wealth Management & Business Banking
ise and access to our full range of products and services. We also provide substantial business process support to our clients, ranging from transactional payments and securities services to facilitating cross-border transactions with trade finance products.
Financial institutions
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.
the-clock availability. Our customer service centers in five locations provide basic information and support 24 hours a day by telephone. Additionally, in 56 of our branches in Switzerland, we have implemented a two-zone concept where standard transactions are executed via ATMs, while client advisors, sitting in an open plan desk area next to the automated tellers, focus on giving clients value-added advice. Our customers make extensive use of our e-banking channels. On 31 December 2004, almost 400,000 clients had active e-banking contracts and payment orders via electronic channels comprised 78% of all payments made.
Loan portfolio
On 31 December 2004, Business Banking Switzerland’s loan portfolio was CHF 137 billion. Of the total, mortgages represented CHF 110 billion, around 80% of them being 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 has clearly improved in recent years. For more details of the UBS credit portfolio, please refer to the credit risk section of this Handbook.
Recovery portfolio
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The Business Groups |
The Business Groups
Global Asset Management
Global Asset Management
The Global Asset Management Business Group is one of the world’s leading asset managers, providing traditional and alternative investment solutions to financial intermediaries and institutional investors.
Business Group reporting | ||||||||
For the year ended or as at | ||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | ||||||
Total operating income | 2,022 | 1,737 | ||||||
Total operating expenses | 1,478 | 1,405 | ||||||
Business Group performance before tax | 544 | 332 | ||||||
Net new money – institutional(CHF billion) | 23.7 | 12.7 | ||||||
of which: money market funds – institutional (CHF billion) | (1.2) | (5.0 | ) | |||||
Invested assets – institutional(CHF billion) | 344 | 313 | ||||||
of which: money market funds – institutional (CHF billion) | 17 | 14 | ||||||
Net new money – wholesale intermediary(CHF billion) | (4.5 | ) | (5.0 | ) | ||||
of which: money market funds – wholesale intermediary (CHF billion) | (20.6) | (23.0 | ) | |||||
Invested assets – wholesale intermediary(CHF billion) | 257 | 261 | ||||||
of which: money market funds – wholesale intermediary (CHF billion) | 64 | 87 | ||||||
Headcount(full-time equivalents) | 2,665 | 2,627 | ||||||
Business
The breadth, depth and scope of our varied investment capabilities enable us to offer innovative solutions in nearly every asset class. Our approach combines the global expertise of our investment professionals with sophisticated risk management processes and systems, helping us provide clients with products and services that meet their specific needs.
Thetraditional investmentsbusiness offers equities and fixed income, risk management, asset allocation and currency capabilities. Our central investment approach is based on rigorous fundamental analysis to identify intrinsic value.
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The Business Groups
Global Asset Management
hanced equity index and quantitatively-based hedge fund products.
Organizational structure
Our main offices are in London, Chicago, New York, Tokyo and Zurich. We have around 2,600 employees located in 20 countries.
Competitors
In the institutional arena, we compete against other global asset managers including Capital Group, Wellington Management, Alliance Bernstein, Barclays Global Investors and PIM-CO as well as a range of regional and local firms in particular markets. In the wholesale market, our main global competitors include Fidelity Investments, DWS Investments, Merrill Lynch Investment Managers, INVESCO and Allianz Dresdner Asset Management, among others.
Clients
We aim to provide our clients with the most appropriate investment solutions for their needs through our combination of investment expertise, risk management, and local delivery.
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Distribution
Institutional
– | corporate and public pension plans | |
– | endowments, municipalities, charities and private foundations | |
– | insurance companies | |
– | governments and their 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. We also dedicate resources to generating new business directly with clients.
Wholesale intermediary
Products and services
Investment management products and services are offered in the form of segregated, pooled and advisory mandates and a range of registered investment funds.
ditional and alternative investments and services into one integrated package. For selected clients, we provide training and education services where clients send employees from their organization to spend extended internships with our investment and risk management teams.
Investment performance
Markets experienced greater volatility in 2004 than they did in 2003 because of the rise in oil prices and continued geopolitical instability. Still, equity markets made progress, with strong gains seen in fourth quarter. Over the year, most major global and regional equity strategies outperformed their benchmarks, with particularly strong performances in Europe and the US.
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The Business Groups
Global Asset Management
ing political and economic uncertainty, the multi-manager teams were able to generate positive returns from most strategies. Overall, funds of hedge funds performance was positive, buoyed by strong fourth quarter performance.
Strategic opportunities
The long-term outlook for the asset management industry remains positive, as pension reforms and the need for increased private savings encourage higher money inflows across the developed world. Industry profitability has generally improved, due to the recovery in equity markets and widespread industry restructuring.
tiple capabilities, such as UBS. In most major markets, institutional business remains consultant-driven. Our consistently strong investment performance has resulted in an increasing number of positive endorsements from consultants.
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The Business Groups |
The Business Groups
Investment Bank
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 Reporting
For the year ended or as at | ||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | ||||||
Total operating income | 15,977 | 13,936 | ||||||
Total operating expenses | 11,437 | 10,081 | ||||||
Business Group / Business Unit performance before tax | 4,540 | 3,855 | ||||||
Headcount(full-time equivalents) | 16,568 | 15,277 | ||||||
Business
UBS’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.
the few investment banks experiencing strong growth in the US and Asia Pacific regions.
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The Business Groups
Investment Bank
Organizational structure
We are headquartered in London and New York and employ roughly 16,000 people in 31 countries around the world.
– | Equities | |
– | Fixed income, rates and currencies (FIRC) | |
– | Investment banking | |
– | Private equity |
Although we pursue a strategy of organic growth, we have also taken the opportunity of enhancing our franchise with acquisitions over the last few years. In 2003, we strengthened our equities business by acquiring ABN Amro’s prime brokerage business in the US. In 2004, we bought Charles Schwab SoundView Capital Markets, the capital markets division of Charles Schwab Corp.
Legal structure
The Investment Bank operates through branches and subsidiaries of UBS AG. Securities activities in the US are conducted through UBS Securities LLC, a registered broker-dealer.
Competitors
As a global investment banking and securities firm, we compete against other major international players such as Citigroup, Credit Suisse First Boston, Goldman Sachs, Deutsche Bank, JP MorganChase, Merrill Lynch and Morgan Stanley.
Products and services
Equities
our analysts made the top rankings in 2004’sInstitutional Investorsurveys than at any other firm, and we ranked among the top three in all the magazine’s surveys around the world.
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nology allows us to adapt and continuously improve our business processes and client services.
Fixed income, rates and currencies
– | credit fixed income, incorporating credit trading and credit derivatives | |
– | foreign exchange and cash & collateral trading | |
– | rates, incorporating interest rate derivatives, residential mortgages, government bonds and energy trading | |
– | principal finance and commercial real estate. |
Our global origination and distribution platforms, as well as our highly regarded research capabilities, underpin our major business lines. In research, we ranked first in fixed income strategy inThomson Financial’sExtel survey for the second year running, and first in theInstitutional InvestorAll American research poll 2004 for mortgage-backed securities (MBS) strategy.
Investment banking
and acquisition transactions and capital market issues. Some of the more notable mandates included:
– | joint financial advisor to the Westfield Group, an Australian listed retail property group, on the USD 20 billion merger of its three entities (Westfield Trust, Westfield America Trust, and Westfield Holdings) | |
– | exclusive financial advisor to Wachovia, the US financial services company, in its USD 14.3 billion stock-for-stock acquisition of South Trust Corporation | |
– | joint global coordinator and joint bookrunner on the largest IPO in 2004, the EUR 3.6 billion IPO for Belgacom, Belgium’s largest telecom company | |
– | joint bookrunner on the second largest IPO in 2004 and the largest IPO in Japan in six years, the USD 3.4 billion global initial public offering of Japanese power utility, J-Power | |
– | joint bookrunner for Pacific Gas & Electric on a USD 6.7 billion bond offering, the largest capital market transaction in the history of the US utility industry | |
– | joint bookrunner on a three tranche GBP 2.25 billion benchmark issue for Network Rail as part of its GBP 20 billion multicurrency debt issuance program for which UBS is the global coordinator | |
– | joint lead arranger and bookrunner on a USD 1.9 billion senior credit facility and USD 0.9 billion senior subordinated bridge facility for Rockwood Specialties Group, a global specialty chemicals company. |
Private equity
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Investment Bank
Private equity had a total investment portfolio of CHF 1.9 billion on 31 December 2004, measured by the historical cost of investments less divestments, returns of capital and permanent impairments. The fair value of the portfolio was CHF 2.7 billion. In line with the bank’s aim of reducing exposure to the private equity asset class, undrawn commitments were reduced to CHF 0.8 billion on 31 December 2004 from CHF 1.5 billion a year earlier.
for investors in UBS funds. Consistent with the de-emphasis of our role as principal investor in this asset class, we continue to capitalize on orderly exit opportunities for investments when they arise and to reduce exposure to private equity funds. As the portfolio shrinks, our performance will continue to be linked to the economic conditions prevailing in the markets of our underlying investments. In first quarter 2005, our private equity investments will be moved to the Industrial Holdings segment. Current management will continue to look after the portfolio.
Private equity investment portfolio | ||||||||||||
Aging (based on date of initial investment) | ||||||||||||
As at | ||||||||||||
CHF million1 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
pre-1994 | 23 | 46 | 54 | |||||||||
1994 | 3 | 4 | 97 | |||||||||
1995 | 12 | 40 | 112 | |||||||||
1996 | 7 | 44 | 63 | |||||||||
1997 | 60 | 95 | 134 | |||||||||
1998 | 63 | 91 | 373 | |||||||||
1999 | 163 | 258 | 636 | |||||||||
2000 | 703 | 986 | 1,119 | |||||||||
2001 | 207 | 284 | 438 | |||||||||
2002 | 26 | 79 | 58 | |||||||||
2003 | 419 | 386 | ||||||||||
2004 | 165 | |||||||||||
Total | 1,851 | 2,313 | 3,084 | |||||||||
Geographical region (by headquarters of investee) | ||||||||||||
As at | ||||||||||||
CHF million1 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
North America | 1,027 | 1,157 | 1,302 | |||||||||
Europe | 579 | 794 | 1,238 | |||||||||
Latin America | 52 | 108 | 189 | |||||||||
Asia Pacific | 193 | 254 | 355 | |||||||||
Total | 1,851 | 2,313 | 3,084 | |||||||||
Industry sector (based on industry classification codes) | ||||||||||||||||||||||||
As at | ||||||||||||||||||||||||
CHF million, except where indicated1 | 31.12.04 | % of Portfolio | 31.12.03 | % of Portfolio | 31.12.02 | % of Portfolio | ||||||||||||||||||
Consumer related | 326 | 18 | 383 | 17 | 517 | 17 | ||||||||||||||||||
Transportation | 16 | 1 | 17 | 1 | 85 | 3 | ||||||||||||||||||
Communications | 127 | 7 | 170 | 7 | 240 | 8 | ||||||||||||||||||
Computer related | 88 | 5 | 132 | 6 | 342 | 11 | ||||||||||||||||||
Energy | 11 | 1 | 0 | 0 | 83 | 3 | ||||||||||||||||||
Other electronics related | 131 | 7 | 145 | 6 | 174 | 6 | ||||||||||||||||||
Other manufacturing | 59 | 3 | 59 | 3 | 286 | 9 | ||||||||||||||||||
Chemicals and materials | 2 | 0 | 2 | 0 | 8 | 0 | ||||||||||||||||||
Industrial products and services | 199 | 11 | 422 | 18 | 746 | 24 | ||||||||||||||||||
Others | 892 | 47 | 983 | 42 | 603 | 19 | ||||||||||||||||||
Total | 1,851 | 100 | 2,313 | 100 | 3,084 | 100 | ||||||||||||||||||
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Strategic opportunities
Our diversified business portfolio demonstrates our ability to shift focus according to market opportunities – taking advantage of and capitalizing on revenue opportunities where they arise and withdrawing resources at the right moment, when conditions change. We will continue to build our competitive strength, focusing on growth opportunities and winning market share.
ness, especially in Asia Pacific and the US, while further enhancing our credit derivatives business into one of the market’s leading players.
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Wealth Management USA
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
For the year ended or as at | ||||||||
CHF million, except where indicated | 31.12.04 | 31.12.03 | ||||||
Total operating income | 5,093 | 5,182 | 1 | |||||
Total operating expenses | 4,914 | 5,187 | ||||||
Business Group performance before tax | 179 | (5 | ) | |||||
Net new money (CHF billion) | 17.1 | 21.1 | ||||||
Interest and dividend income (CHF billion) | 16.0 | 15.8 | ||||||
Invested assets (CHF billion) | 639 | 634 | ||||||
Headcount (full-time equivalents) | 17,388 | 17,435 | ||||||
Business
With CHF 639 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 more than 7,500 financial advisors in 366 branch office locations that build and maintain consultative relationships with their clients.
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Organizational structure
PaineWebber merged with UBS in November 2000 and its US private clients business became a separate business unit within UBS’s Investment Bank. At the same time, PaineWebber’s Capital Markets Group was integrated within the Investment Banking & Securities business unit while its asset management unit (then called Mitchell Hutchins) moved into the Global Asset Management Business Group. Most non-US private client businesses became part of our Wealth Management business unit. The US private client business became an independent Business Group on 1 January 2002.
Legal structure
In the US, we operate through direct and indirect subsidiaries of UBS and securities activities are conducted through three registered broker-dealers.
Competitors
Our major competitors include Citigroup’s Smith Barney business, as well as the private client group businesses of Morgan Stanley, Merrill Lynch and Wachovia.
Clients and strategy
We aim to meet the investment needs of core affluent and high net worth clients in the US by providing them with a holistic wealth management service embracing both their assets and liabilities. 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
Products and services
We offer clients wealth management services that meet individual investment needs with an open architecture prod-
Investment products
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Lending products
Industry trends
Today, our extensive distribution network makes us one of the premier US wealth managers. In 2005, we plan to remain focused on increasing our market share by capitalizing on our enhanced lending and wealth management capabilities as well as the strengths of UBS’s global resources. 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.
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The Business Groups
Corporate Center
Corporate Center
Corporate Center partners 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 /Business Unit reporting
CHF million, except where indicated | Private Banks & GAM | Corporate Functions | Corporate Center | |||||||||||||||||||||
For the year ended or as at | 31.12.04 | 31.12.03 | 31.12.04 | 31.12.03 | 31.12.04 | 31.12.03 | ||||||||||||||||||
Total operating income | 1,139 | 878 | 440 | 144 | 1,579 | 1,022 | ||||||||||||||||||
Total operating expenses | 696 | 670 | 1,159 | 1,111 | 1,855 | 1,781 | ||||||||||||||||||
Business Group / Business Unit performance before tax | 443 | 208 | (719 | ) | (967 | ) | (276 | ) | (759 | ) | ||||||||||||||
Invested assets(CHF billion) | 92 | 84 | 92 | 84 | ||||||||||||||||||||
Net new money(CHF billion) | 7.7 | 7.2 | 7.7 | 7.2 | ||||||||||||||||||||
Headcount(full-time equivalents) | 1,649 | 1,672 | 3,553 | 3,561 | 5,202 | 5,233 | ||||||||||||||||||
Aims and objectives
Our commitment to a strongly integrated business model means that our complementary businesses must be managed together to optimize shareholder value, making the whole worth more than the sum of its parts.
UBS stakeholders, for branding, and for positioning the firm as the employer of choice. It coordinates activities critical to the firm’s reputation and assumes responsibility for certain shared services, such as information technology infrastructure (ITI).
Organizational structure
Corporate Center is reported in two separate business units: Corporate Functions and Private Banks & GAM. The CFO is head of the Corporate Center, leading its business planning, budgeting and human resources core processes. Effective 1 March 2005, a new Group Executive Board (GEB) position was established for the Chief Risk Officer. His mandate will be to develop and implement the group’s risk control processes across credit, market, and operational risk.
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Corporate Functions
Chief Financial Officer (CFO)
Chief Risk Officer (CRO)
Chief Credit Officer (CCO)
Group Controller
Group Treasurer
Chief Communication Officer
Group General Counsel
Group Head Human Resources
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The Business Groups
Corporate Center
The Leadership Institute
Chief Technology Officer (CTO)
Private Banks & GAM
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Industrial Holdings
The Industrial Holdings segment is where our majority stakes in industrial companies and large non-financial businesses are held.
Table of Contents
Industrial Holdings
Industrial Holdings
Income statement1
For the year ended2 | ||||
CHF million, except where indicated | 31.12.04 | |||
Total operating income | 3,667 | |||
Total operating expenses | 3,460 | |||
Operating profit before tax and minority interests | 207 | |||
As at | 31.12.04 | |||
Headcount(full-time equivalents) | 8,020 | |||
Business
On 31 December 2004, the Industrial Holdings segment was made up by Motor-Columbus, a financial holding company whose only significant asset is a 59.3% interest in the Atel Group. Atel, based in Olten, Switzerland, is a European energy provider focused on domestic and international power generation, electricity transmission and energy services as well as electricity trading and marketing. Motor-Columbus also holds several other small finance and property companies.
Organizational structure
UBS owns a 55.6% stake in Motor-Columbus after purchasing an additional 20% stake on 1 July 2004. As a result, UBS, as majority owner, consolidated Motor-Columbus into its accounts, revaluing its assets and liabilities. Motor-Columbus employed 8,020 staff on 31 December 2004.
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Financial Management
Taking risks is an integral part of our business. Our aim is to achieve an appropriate balance between risk and return not only in normal circumstances but also under stressed conditions.
Table of Contents
Financial Management
Risk management and control
Risk management and control
Key responsibilities
Excellence in risk management is fundamentally based upon a management team that makes risk identification and control critical components of its processes and plans. Responsibility therefore flows from the top.
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Financial Management |
The risk control process
There are five critical elements in our independent risk control process:
– | weidentify risk, through the continuous monitoring of portfolios, by assessing new businesses and complex or unusual transactions, and by reviewing our own risks in the light of external events |
– | wemeasure quantifiable risks, using methodologies and models which have been independently validated and approved |
– | we establishrisk policiesto reflect our risk principles, risk capacity and risk appetite, and consistent with evolving business requirements and international best practice |
– | we have comprehensiverisk reportingto stakeholders, and to management at all levels, against the approved risk control framework and, where applicable, limits |
– | wecontrol riskby monitoring and enforcing compliance with the risk principles, and with policies, limits and regulatory requirements. |
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 and the assessment of our risk capacity and overall risk exposure.
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Financial Management
Risk management and control
Primary risks are credit risk, market risk and liquidity and funding risk:
– | credit riskis the risk of loss resulting from client or counterparty default and arises on credit exposure in all forms, including settlement risk |
– | market riskis exposure to market variables such as interest rates, exchange rates and equity markets, and to price movements on securities and other obligations which we trade |
– | liquidity and funding 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 mandatory corrective action. Such risks may be incurred by not adhering to applicable laws, rules, regulations, accounting standards, local or international best practice, or our own internal standards |
– | legal riskis the risk of financial loss resulting from the non- enforceability of our actual or anticipated rights arising under law, a 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 our involvement in tax sensitive products or transactions. |
How we measure risk
In principle, for risks that are quantifiable, we measure the potential loss at three levels – expected loss, statistical loss and stress loss.
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Financial Management |
Financial Management
Credit risk
Credit risk
Credit risk represents the loss which UBS would suffer if a client or counterparty failed to meet its contractual obligations. It is an integral part of many of our business activities and is inherent in traditional banking products – 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
We set limits on our credit exposure to both individual counterparties and counterparty groups. In the Investment Bank, where it is most relevant, we differentiate between “take and hold” and “temporary” exposures, the latter being those accepted with the intention of syndicating, selling or hedging within a short period.
Credit portfolio risks
Credit risk exists in every credit engagement, and credit losses must be expected as an inherent cost of doing business. But the occurrence of credit losses is erratic in both timing and amount and those that arise usually relate to transactions entered into in previous accounting periods. In order to reflect the fact that future credit losses are implicit in today’s portfolio, we use the concept of “expected loss”.
Expected loss
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Credit risk
UBS internal rating scale and mapping
to external ratings
UBS | Moody’s Investor | Standard & Poor’s | ||||
Rating | Description | Services equivalent | equivalent | |||
0 and 1 | Investment grade | Aaa | AAA | |||
2 | Aa1 to Aa3 | AA+ to AA– | ||||
3 | A1 to A3 | A+ to A– | ||||
4 | Baa1 to Baa2 | BBB+ to BBB | ||||
5 | Baa3 | BBB– | ||||
6 | Sub-investment grade | Ba1 | BB+ | |||
7 | Ba2 | BB | ||||
8 | Ba3 | BB– | ||||
9 | B1 | B+ | ||||
10 | B2 | B | ||||
11 | B3 | B– | ||||
12 | Caa to C | CCC to C | ||||
13 | Impaired and defaulted | D | D | |||
14 | D | D | ||||
vations for each external grade. Observed defaults per rating category vary year-on-year, especially over an economic cycle, and therefore this mapping does not imply that UBS expects this number of defaults in any given period.
Statistical and stress loss
Total credit exposure
Wealth Management | Business Banking Switzerland | |||||||||||||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||
Loans utilization (gross) | 43,571 | 36,238 | 29,615 | 137,147 | 138,534 | 139,491 | ||||||||||||||||||
Contingent claims | 3,444 | 3,154 | 4,238 | 7,570 | 8,270 | 7,210 | ||||||||||||||||||
Unutilized committed lines | 669 | 408 | 350 | 1,275 | 1,392 | 1,634 | ||||||||||||||||||
Total banking products | 47,684 | 39,800 | 34,203 | 145,992 | 148,196 | 148,335 | ||||||||||||||||||
Unsecured OTC products | 0 | 0 | 0 | 1,226 | 1,385 | 1,682 | ||||||||||||||||||
Other derivatives (secured or exchange-traded) | 2,087 | 853 | 563 | 322 | 337 | 149 | ||||||||||||||||||
Securities lending / borrowing | 0 | 0 | 0 | 3,953 | 1,093 | 917 | ||||||||||||||||||
Repo / reverse-repo | 1 | 0 | 0 | 37 | 26 | 14 | ||||||||||||||||||
Total traded products3 | 2,088 | 853 | 563 | 5,538 | 2,841 | 2,762 | ||||||||||||||||||
Total credit exposure, gross | 49,772 | 40,653 | 34,766 | �� | 151,530 | 151,037 | 151,097 | |||||||||||||||||
Total credit exposure, net of allowances and provisions | 49,744 | 40,637 | 34,697 | 149,213 | 147,911 | 147,141 | ||||||||||||||||||
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stress loss in material credit portfolios, we make an initial analysis based on sub-portfolios with more homogeneous characteristics.
Composition of credit exposures
Our credit exposure arises principally in Wealth Management & Business Banking and Investment Bank and, to a lesser extent, in Wealth Management USA.
ucts exposure to lower rated counterparties is generally collateralized or otherwise supported.
Wealth Management & Business Banking
Wealth Management & | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Banking | Investment Bank | Wealth Management USA | Others1 | UBS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||||||||||||||||||||||||||
180,718 | 174,772 | 169,106 | 68,653 | 55,154 | 61,449 | 14,652 | 13,116 | 12,857 | 5,495 | 4,953 | 5,689 | 269,518 | 2 | 247,995 | 249,101 | |||||||||||||||||||||||||||||||||||||||||||||
11,014 | 11,424 | 11,448 | 3,391 | 3,201 | 4,407 | 274 | 355 | 430 | 215 | 583 | 309 | 14,894 | 15,563 | 16,594 | ||||||||||||||||||||||||||||||||||||||||||||||
1,944 | 1,800 | 1,984 | 51,224 | 44,670 | 36,439 | 0 | 80 | 811 | 0 | 73 | 72 | 53,168 | 46,623 | 39,306 | ||||||||||||||||||||||||||||||||||||||||||||||
193,676 | 187,996 | 182,538 | 123,268 | 103,025 | 102,295 | 14,926 | 13,551 | 14,098 | 5,710 | 5,609 | 6,070 | 337,580 | 310,181 | 305,001 | ||||||||||||||||||||||||||||||||||||||||||||||
1,226 | 1,385 | 1,682 | 53,372 | 53,649 | 55,002 | 0 | 0 | 0 | 329 | 573 | 0 | 54,927 | 55,607 | 56,684 | ||||||||||||||||||||||||||||||||||||||||||||||
2,409 | 1,190 | 712 | 15,741 | 14,535 | 10,850 | 0 | 1 | 3 | 0 | 0 | 0 | 18,150 | 15,726 | 11,565 | ||||||||||||||||||||||||||||||||||||||||||||||
3,953 | 1,093 | 917 | 27,301 | 22,220 | 11,962 | 0 | 0 | 0 | 0 | 0 | 0 | 31,254 | 23,313 | 12,879 | ||||||||||||||||||||||||||||||||||||||||||||||
38 | 26 | 14 | 20,305 | 19,546 | 21,744 | 171 | 151 | 439 | 0 | 0 | 0 | 20,514 | 19,723 | 22,197 | ||||||||||||||||||||||||||||||||||||||||||||||
7,626 | 3,694 | 3,325 | 116,719 | 109,950 | 99,558 | 171 | 152 | 442 | 329 | 573 | 0 | 124,845 | 114,369 | 103,325 | ||||||||||||||||||||||||||||||||||||||||||||||
201,302 | 191,690 | 185,863 | 239,987 | 212,975 | 201,853 | 15,097 | 13,703 | 14,540 | 6,039 | 6,182 | 6,070 | 462,425 | 424,550 | 408,326 | ||||||||||||||||||||||||||||||||||||||||||||||
198,957 | 188,548 | 181,838 | 239,529 | 212,195 | 200,697 | 15,079 | 13,675 | 14,498 | 5,977 | 6,178 | 6,061 | 459,542 | 420,596 | 403,094 | ||||||||||||||||||||||||||||||||||||||||||||||
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Credit risk
Wealth Management & Business Banking:
distribution of banking product exposure across counterparty rating and loss given default (LGD) buckets
Loss given default buckets | Weighted | |||||||||||||||||||||||
CHF million | Gross exposure | 0–25% | 26–50% | 51–75% | 76–100% | average LGD(%) | ||||||||||||||||||
0 | 1,057 | 156 | 244 | 632 | 25 | 48 | ||||||||||||||||||
1 | 405 | 2 | 228 | 167 | 8 | 45 | ||||||||||||||||||
2 | 22,463 | 17,209 | 4,371 | 827 | 56 | 24 | ||||||||||||||||||
3 | 14,674 | 8,442 | 3,482 | 2,386 | 364 | 30 | ||||||||||||||||||
4 | 7,812 | 659 | 4,977 | 2,159 | 17 | 40 | ||||||||||||||||||
5 | 97,325 | 85,137 | 7,729 | 2,313 | 2,146 | 27 | ||||||||||||||||||
6 | 12,090 | 2,396 | 7,830 | 1,742 | 122 | 36 | ||||||||||||||||||
7 | 14,120 | 1,473 | 9,737 | 1,673 | 1,237 | 40 | ||||||||||||||||||
8 | 11,713 | 446 | 9,216 | 1,782 | 269 | 38 | ||||||||||||||||||
9 | 5,257 | 321 | 3,778 | 1,053 | 105 | 40 | ||||||||||||||||||
10 | 1,307 | 234 | 639 | 420 | 14 | 41 | ||||||||||||||||||
11 | 564 | 321 | 101 | 116 | 26 | 35 | ||||||||||||||||||
12 | 735 | 272 | 298 | 161 | 4 | 36 | ||||||||||||||||||
Total non-impaired | 189,522 | 117,068 | 52,630 | 15,431 | 4,393 | 30 | ||||||||||||||||||
Investment grade | 143,736 | 111,605 | 21,031 | 8,484 | 2,616 | |||||||||||||||||||
Sub-investment grade | 45,786 | 5,463 | 31,599 | 6,947 | 1,777 | |||||||||||||||||||
Impaired and defaulted | 4,154 | |||||||||||||||||||||||
Total banking products | 193,676 | |||||||||||||||||||||||
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diversified with 45% of loans being secured on single-family homes and apartments, which, historically, have exhibited a low risk profile. The 15% of exposure secured on residential multi-family homes consists of rented apartment buildings. Loans and other credit engagements with individual clients, excluding mortgages, are predominantly extended against the pledge of marketable securities to which we apply conservative standards in determining the amount we are prepared to lend against them.
continued to focus on improving the quality of our credit portfolio, reducing both individual and sector concentrations.
Investment Bank
Investment Bank: credit hedging, banking products
As at 31.12.04 | ||||||||||||||||||||||||
Funded risk | Specific allowances | Nominal | ||||||||||||||||||||||
participations and | for credit loss and | Adjusted | amount of credit | |||||||||||||||||||||
CHF million | Gross exposure1 | cash collateral | Risk transfers2 | loan loss provisions | credit exposure | protection bought3 | ||||||||||||||||||
Investment grade | 54,316 | (212 | ) | 888 | 0 | 54,987 | 19,041 | |||||||||||||||||
Sub-investment grade | 31,295 | (221 | ) | (882 | ) | 0 | 30,193 | 2,806 | ||||||||||||||||
Impaired and defaulted | 794 | 0 | (6 | ) | (410 | ) | 391 | 0 | ||||||||||||||||
Total banking products exposure | 86,405 | (433 | ) | 0 | (410 | ) | 85,571 | 21,847 | ||||||||||||||||
Note: Columns cannot be totaled as adjusted credit exposure is set to zero in case of over-hedging.
Investment Bank: distribution of banking products exposure across counterparty rating
and loss given default (LGD) buckets
Exposure after | Weighted | |||||||||||||||||||||||||||
Adjusted | application of | Loss given default buckets | Average | |||||||||||||||||||||||||
CHF million | credit exposure | credit hedges1 | 0–25% | 26–50% | 51–75% | 76–100% | LGD(%) | |||||||||||||||||||||
Not rated | 13 | 13 | 5 | 8 | 50 | |||||||||||||||||||||||
0 and 1 | 1,312 | 1,135 | 30 | 1,105 | 49 | |||||||||||||||||||||||
2 | 11,969 | 10,490 | 218 | 9,455 | 796 | 21 | 50 | |||||||||||||||||||||
3 | 18,449 | 14,605 | 2,494 | 11,363 | 255 | 493 | 43 | |||||||||||||||||||||
4 | 13,257 | 7,052 | 66 | 6,833 | 73 | 80 | 50 | |||||||||||||||||||||
5 | 9,987 | 4,755 | 860 | 3,805 | 90 | 0 | 41 | |||||||||||||||||||||
6 | 3,748 | 2,424 | 1,107 | 1,267 | 4 | 46 | 29 | |||||||||||||||||||||
7 | 9,136 | 8,902 | 7,718 | 1,131 | 53 | 0 | 11 | |||||||||||||||||||||
8 | 6,213 | 6,021 | 4,910 | 1,026 | 5 | 80 | 13 | |||||||||||||||||||||
9 | 4,164 | 3,565 | 855 | 2,452 | 230 | 28 | 35 | |||||||||||||||||||||
10 | 4,059 | 3,945 | 522 | 2,589 | 624 | 210 | 43 | |||||||||||||||||||||
11 | 2,388 | 2,382 | 390 | 1,550 | 442 | 0 | 46 | |||||||||||||||||||||
12 | 485 | 350 | 239 | 111 | 0 | 0 | 21 | |||||||||||||||||||||
Total non-impaired loans | 85,180 | 65,639 | 19,409 | 42,692 | 2,580 | 958 | 37 | |||||||||||||||||||||
Investment grade | 54,987 | 38,050 | 3,668 | 32,566 | 1,222 | 594 | ||||||||||||||||||||||
Sub-investment grade | 30,193 | 27,589 | 15,741 | 10,126 | 1,358 | 364 | ||||||||||||||||||||||
Impaired and defaulted | 391 | 391 | 12 | 333 | 19 | 27 | ||||||||||||||||||||||
Total banking products | 85,571 | 66,030 | 19,421 | 43,025 | 2,599 | 985 | 37 | |||||||||||||||||||||
of which: temporary exposure | 14,282 | 238 | 12,557 | 1,111 | 376 | |||||||||||||||||||||||
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Credit risk
The Investment Bank’s total banking products exposure on 31 December 2004 was CHF 123 billion, as reported in accordance with IFRS, of which CHF 69 billion was loans, compared with CHF 103 billion total and CHF 55 billion loans on 31 December 2003 and CHF 102 billion total and CHF 61 billion loans on 31 December 2002. Part of the increase of CHF 20 billion over the course of 2004 was the result of our expanding prime brokerage and equity finance businesses, and part reflects increased underwriting activity as we capitalized on our strengthened business franchise in advising corporate clients. Note that disclosures in this section present the credit exposure from a risk management and control perspective, which differs from disclosure under IFRS. In particular, gross banking products exposure in risk terms amounts to CHF 86.4 billion, a difference of CHF 36.9 billion to the CHF 123.3 billion reported for the Investment Bank in the table on page 49. This difference is mainly made up of cash collateral posted by UBS against negative replacement values and other positions
which, from a risk perspective, do not classify as loans but where the underlying credit risk is incorporated into our traded products measurement methodologies. On the other hand, in our internal risk control view we consider certain US residential mortgage financing conducted under repo-/reverse repo-like agreements as banking product exposures.
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before and after application of risk mitigants. Additionally, in the matrix on page 51, we show the distribution of Investment Bank’s banking products exposure after application of risk mitigants across rating grades and LGD buckets. LGDs in this portfolio are assigned based on benchmark LGDs which are 40% for senior secured claims, 50% for senior unsecured claims and 70% for subordinated claims. There is thus a concentration in the 26–50% bucket. The significant exposure in the sub-investment grade 0–25% bucket is mainly comprised of short term loans to US mortgage originators, secured on their mortgage portfolios, pending securitization. Note that exposure distribution across counterparty ratings shown elsewhere in this section refers only to gross exposure and probability of default, without reference to the likely severity of loss or loss mitigation from collateral or credit hedges.
Further details of derivative instruments are provided in note 23 to the financial statements and details of securities borrowing, securities lending, repurchase and reverse repurchase activities can be found in note 10 to the financial statements.
Wealth Management USA
Settlement risk
Settlement risk arises in transactions involving exchange of value 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 has now been in operation for over two years, allows transactions to be settled on a delivery versus payment basis, eliminating settlement risk. The volume of transactions settled through CLS has continued to increase throughout 2004, and by fourth quarter the proportion of our foreign exchange business being settled in this way had increased to 57% from 50% in fourth quarter 2003. Of the transactions settled through CLS, 82% by volume were with CLS Settlement Members and the remainder with so-called Third Party Members, who settle their eligible trades via CLS Settlement Members. While the number of CLS Settlement Members is relatively stable, the
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Credit risk
Emerging market exposure by major geographical area and product type
CHF million | Total | Banking products | Traded products | Tradable assets | ||||||||||||||||||||||||||||||||||||||||||||
As at | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||||||||||||||||
Emerging Europe | 2,878 | 1,833 | 2,005 | 683 | 441 | 390 | 955 | 606 | 532 | 1,240 | 786 | 1,083 | ||||||||||||||||||||||||||||||||||||
Emerging Asia | 11,853 | 7,721 | 4,755 | 4,790 | 2,416 | 2,189 | 2,438 | 1,113 | 1,179 | 4,625 | 4,192 | 1,387 | ||||||||||||||||||||||||||||||||||||
Latin America | 1,646 | 1,849 | 1,711 | 193 | 425 | 618 | 319 | 568 | 330 | 1,134 | 856 | 763 | ||||||||||||||||||||||||||||||||||||
Africa / Middle East | 2,219 | 2,363 | 2,205 | 842 | 882 | 979 | 842 | 1,083 | 818 | 535 | 398 | 408 | ||||||||||||||||||||||||||||||||||||
Total | 18,596 | 13,766 | 10,676 | 6,508 | 4,164 | 4,176 | 4,554 | 3,370 | 2,859 | 7,534 | 6,232 | 3,641 | ||||||||||||||||||||||||||||||||||||
number of Third Party Members we deal with has nearly doubled in 2004. CLS does not, of course, eliminate the 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 47 under credit risk of counterparties and groups.
Country risk
We assign ratings to all countries to which we have exposure. Sovereign ratings express the probability of occurrence of a country risk event that would lead to impairment of our claims. The default probabilities and the mapping to the ratings of the major rating agencies are the same as for counterparty credit risks (see table on page 48), the three lowest ratings being designated “distressed”.
risk we also consider the probable financial impact of market disruptions arising prior to, during and following a country crisis. These might take the form of severe falls in the country’s markets and asset prices, longer-term devaluation of the currency, and potential immobilization of currency balances.
Country risk exposure
Credit loss (expense) /recovery versus adjusted expected credit loss charged to the Business Groups
CHF million | Wealth Management | Business Banking Switzerland | ||||||||||||||||||||||
For the year ended | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||
Total banking products exposure at year end | 47,684 | 39,800 | 34,203 | 145,992 | 148,196 | 148,335 | ||||||||||||||||||
Credit loss (expense) / recovery | (1 | ) | 4 | 1 | 92 | (71 | ) | (239 | ) | |||||||||||||||
– as a proportion of total banking products exposure(bps) | (0 | ) | 1 | 0 | 6 | (5 | ) | (16 | ) | |||||||||||||||
Adjusted expected credit loss charged to the Business Groups2 | (8 | ) | (4 | ) | (26 | ) | (25 | ) | (127 | ) | (286 | ) | ||||||||||||
– as a proportion of total banking products exposure(bps) | (2 | ) | (1 | ) | (8 | ) | (2 | ) | (9 | ) | (19 | ) | ||||||||||||
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billion or 75% is to investment grade countries, compared to 62% a year earlier. The growth of CHF 4.8 billion in total emerging markets exposure arose to a large extent in Asia as we actively sought and captured market opportunities in targeted countries we consider to have long-term potential.
Impairment and provisioning policies
We classify a claim as impaired if we consider it probable that we will suffer a loss on that claim as a result of the obligor’s inability to meet commitments (including interest payments, principal repayments or other payments due, for example, on a derivative product or under a guarantee) according to the contractual terms, and after realization of any available collateral. We further classify loans carried at amortized cost as non-performing where payment of interest, principal or fees is overdue by more than 90 days and there is no firm evidence that they will be made good by later payments or the liquidation of collateral, or where insolvency proceedings have commenced or obligations have been restructured on concessionary terms.
We also assess portfolios of claims carried at amortized cost with similar credit risk characteristics for collective impairment. A portfolio is considered impaired on a collective basis if there is objective evidence to suggest that it contains impaired obligations but the individual impaired items cannot yet be identified. Note that such portfolios are not included in the totals of impaired loans in the table on page 56 / 57 or in note 9c in the financial statements.
Credit loss expense
Our financial statements are prepared in accordance with IFRS, under which credit loss expense charged to the financial statements in any period is the sum of net allowances and direct writeoffs minus recoveries arising in that period, i.e. the credit losses actually incurred. By contrast, in our internal management reporting and in the management discussion and analysis section of our financial report, we measure credit loss expense based on the expected loss concept described on page 47. To hold the Business Groups accountable for credit losses actually incurred, we additionally charge or refund them with the difference between actual credit loss expense and expected loss, amortized over a three-year period. The difference between the amounts charged to the Business Groups (“adjusted expected credit loss”) and the credit loss expense recorded at Group level is reported in Corporate Functions (see note 2 to the financial statements).
Wealth Management & | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Banking | Investment Bank | Wealth Management USA | Others1 | UBS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||||||||||||||||||||||||||
193,676 | 187,996 | 182,538 | 123,268 | 103,025 | 102,295 | 14,926 | 13,551 | 14,098 | 5,710 | 5,609 | 6,070 | 337,580 | 310,181 | 305,001 | ||||||||||||||||||||||||||||||||||||||||||||||
91 | (67 | ) | (238 | ) | 240 | (4 | ) | 126 | 3 | (3 | ) | (15 | ) | (58 | ) | 2 | 12 | 276 | (72 | ) | (115 | ) | ||||||||||||||||||||||||||||||||||||||
5 | (4 | ) | (13 | ) | 19 | (0 | ) | 12 | 2 | (2 | ) | (11 | ) | (102 | ) | 4 | 20 | 8 | (2 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||||
(33 | ) | (131 | ) | (312 | ) | (7 | ) | (55 | ) | (90 | ) | (5 | ) | (8 | ) | (13 | ) | (6 | ) | (2 | ) | (2 | ) | (51 | ) | (196 | ) | (417 | ) | |||||||||||||||||||||||||||||||
(2 | ) | (7 | ) | (17 | ) | (1 | ) | (5 | ) | (9 | ) | (3 | ) | (6 | ) | (9 | ) | (11 | ) | (4 | ) | (3 | ) | (2 | ) | (6 | ) | (14 | ) | |||||||||||||||||||||||||||||||
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Credit risk
In 2004, we experienced a net credit loss recovery of CHF 276 million, compared to net credit loss expense of CHF 72 million in 2003 and CHF 115 million in 2002. This favorable result was achieved in a period which saw a very sanguine environment for credit markets globally. Economic expansion in the US provided a strong stimulus for growth worldwide. Almost without exception, credit spreads contracted in all the major developed and emerging capital markets, as healthy expansion of cash flows allowed the corporate sector to de-leverage and build liquidity.
Net credit loss recovery at Wealth Management & Business Banking amounted to CHF 91 million in 2004 compared to net credit loss expenses of CHF 67 million in 2003 and CHF 238 million in 2002. Our domestic credit portfolio demonstrated strong resilience in a Swiss economic environment which saw a 9.2% increase in corporate bankruptcies compared to 2003 (see the graph on this page). The measures taken in recent years to improve the quality of our credit portfolio have resulted in lower levels of new defaults and our success in managing the impaired portfolio has resulted in a higher than anticipated level of recoveries.
Allowances and provisions for credit risk
CHF million | Wealth Management | Business Banking Switzerland | ||||||||||||||||||||||
As at | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||
Due from banks | 300 | 738 | 701 | 3,052 | 2,574 | 2,591 | ||||||||||||||||||
Loans | 43,271 | 35,500 | 28,914 | 134,095 | 135,960 | 136,900 | ||||||||||||||||||
Total lending portfolio, gross | 43,571 | 36,238 | 29,615 | 137,147 | 138,534 | 139,491 | ||||||||||||||||||
Allowances for credit losses | (28 | ) | (16 | ) | (66 | ) | (2,135 | ) | (2,876 | ) | (3,649 | ) | ||||||||||||
Total lending portfolio, net | 43,543 | 36,222 | 29,549 | 135,012 | 135,658 | 135,842 | ||||||||||||||||||
Impaired lending portfolio, gross | 10 | 8 | 17 | 4,171 | 6,382 | 8,347 | ||||||||||||||||||
Estimated liquidation proceeds of collateral for impaired loans | (2 | ) | 0 | 0 | (1,678 | ) | (2,460 | ) | 0 | |||||||||||||||
Impaired lending portfolio, net of collateral | 8 | 8 | 17 | 2,493 | 3,922 | 8,347 | ||||||||||||||||||
Allocated allowances for impaired lending portfolio | 7 | 8 | 14 | 2,038 | 2,822 | 3,559 | ||||||||||||||||||
Other allowances and provisions | 21 | 8 | 55 | 279 | 304 | 397 | ||||||||||||||||||
Total allowances and provisions for credit losses | 28 | 16 | 69 | 2,317 | 3,126 | 3,956 | ||||||||||||||||||
of which allowances and provisions for country risk | 15 | 8 | 51 | 119 | 110 | 464 | ||||||||||||||||||
Non-performing loans | 4 | 2 | 4 | 3,161 | 4,418 | 5,028 | ||||||||||||||||||
Allowances for non-performing loans | 4 | 0 | 2 | 1,883 | 2,346 | 2,747 | ||||||||||||||||||
Ratios | ||||||||||||||||||||||||
Allowances and provisions as a % of lending portfolio, gross | 0.1 | 0.0 | 0.2 | 1.7 | 2.3 | 2.8 | ||||||||||||||||||
Impaired as a % of lending portfolio, gross | 0.0 | 0.0 | 0.1 | 3.0 | 4.6 | 6.0 | ||||||||||||||||||
Allocated allowances as a % of impaired lending portfolio, gross | 70.0 | 100.0 | 82.4 | 48.9 | 44.2 | 42.6 | ||||||||||||||||||
Allocated allowances as a % of impaired lending portfolio, net of collateral | 87.5 | 100.0 | 82.4 | 81.7 | 72.0 | 42.6 | ||||||||||||||||||
Non-performing loans as a % of lending portfolio, gross | 0.0 | 0.0 | 0.0 | 2.3 | 3.2 | 3.6 | ||||||||||||||||||
Allocated allowances as a % of non-performing loans, gross | 100.0 | 0.0 | 50.0 | 59.6 | 53.1 | 54.6 | ||||||||||||||||||
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Impaired loans, allowances and provisions
paratively lower than would otherwise be the case, which explains the relatively small reduction in our non-performing loans portfolio between 31 December 2002 and 31 December 2003.
Wealth Management & | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Banking | Investment Bank | Wealth Management USA | Others1 | UBS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||||||||||||||||||||||||||||||||
3,352 | 3,312 | 3,292 | 26,559 | 24,486 | 24,495 | 1,532 | 1,493 | 1,327 | 3,313 | 2,733 | 3,797 | 34,756 | 2 | 32,024 | 32,911 | |||||||||||||||||||||||||||||||||||||||||||||
177,366 | 171,460 | 165,814 | 42,094 | 30,668 | 36,954 | 13,120 | 11,623 | 11,530 | 2,182 | 2,220 | 1,892 | 234,762 | 215,971 | 216,190 | ||||||||||||||||||||||||||||||||||||||||||||||
180,718 | 174,772 | 169,106 | 68,653 | 55,154 | 61,449 | 14,652 | 13,116 | 12,857 | 5,495 | 4,953 | 5,689 | 269,518 | 2 | 247,995 | 249,101 | |||||||||||||||||||||||||||||||||||||||||||||
(2,163 | ) | (2,892 | ) | (3,715 | ) | (388 | ) | (655 | ) | (1,091 | ) | (18 | ) | (25 | ) | (29 | ) | (62 | ) | (4 | ) | (9 | ) | (2,631 | ) | (3,576 | ) | (4,844 | ) | |||||||||||||||||||||||||||||||
178,555 | 171,880 | 165,391 | 68,265 | 54,499 | 60,358 | 14,634 | 13,091 | 12,828 | 5,433 | 4,949 | 5,680 | 266,887 | 2 | 244,419 | 244,257 | |||||||||||||||||||||||||||||||||||||||||||||
4,181 | 6,390 | 8,364 | 557 | 791 | 1,531 | 18 | 25 | 29 | 105 | 3 | 9 | 4,861 | 7,209 | 9,933 | ||||||||||||||||||||||||||||||||||||||||||||||
(1,680 | ) | (2,460 | ) | 0 | (33 | ) | (3 | ) | 0 | 0 | (2 | ) | 0 | (45 | ) | 0 | 0 | (1,758 | ) | (2,465 | ) | 0 | ||||||||||||||||||||||||||||||||||||||
2,501 | 3,930 | 8,364 | 524 | 788 | 1,531 | 18 | 23 | 29 | 60 | 3 | 9 | 3,103 | 4,744 | 9,933 | ||||||||||||||||||||||||||||||||||||||||||||||
2,045 | 2,830 | 3,573 | 380 | 599 | 932 | 18 | 25 | 29 | 62 | 4 | 9 | 2,505 | 3,458 | 4,543 | ||||||||||||||||||||||||||||||||||||||||||||||
300 | 312 | 452 | 78 | (184 | ) | 224 | 0 | 3 | 13 | 0 | 0 | 0 | 378 | 496 | 689 | |||||||||||||||||||||||||||||||||||||||||||||
2,345 | 3,142 | 4,025 | 458 | 780 | 1,156 | 18 | 28 | 42 | 62 | 4 | 9 | 2,883 | 3,954 | 5,232 | ||||||||||||||||||||||||||||||||||||||||||||||
134 | 118 | 515 | 49 | 144 | 181 | 0 | 0 | 0 | 0 | 0 | 0 | 183 | 262 | 696 | ||||||||||||||||||||||||||||||||||||||||||||||
3,165 | 4,420 | 5,032 | 408 | 455 | 938 | 18 | 25 | 29 | 105 | 1 | 1 | 3,696 | 4,901 | 6,000 | ||||||||||||||||||||||||||||||||||||||||||||||
1,887 | 2,346 | 2,749 | 297 | 392 | 677 | 18 | 25 | 29 | 62 | 1 | 1 | 2,264 | 2,764 | 3,456 | ||||||||||||||||||||||||||||||||||||||||||||||
1.3 | 1.8 | 2.4 | 0.7 | 1.4 | 1.9 | 0.1 | 0.2 | 0.3 | 1.1 | 0.1 | 0.2 | 1.1 | 1.6 | 2.1 | ||||||||||||||||||||||||||||||||||||||||||||||
2.3 | 3.7 | 4.9 | 0.8 | 1.4 | 2.5 | 0.1 | 0.2 | 0.2 | 1.9 | 0.1 | 0.2 | 1.8 | 2.9 | 4.0 | ||||||||||||||||||||||||||||||||||||||||||||||
48.9 | 44.3 | 42.7 | 68.2 | 75.7 | 60.9 | 100.0 | 100.0 | 100.0 | 59.0 | 133.3 | 100.0 | 51.5 | 48.0 | 45.7 | ||||||||||||||||||||||||||||||||||||||||||||||
81.8 | 72.0 | 42.7 | 72.5 | 76.0 | 60.9 | 100.0 | 108.7 | 100.0 | 103.3 | 133.3 | 100.0 | 80.7 | 72.9 | 45.7 | ||||||||||||||||||||||||||||||||||||||||||||||
1.8 | 2.5 | 3.0 | 0.6 | 0.8 | 1.5 | 0.1 | 0.2 | 0.2 | 1.9 | 0.0 | 0.0 | 1.4 | 2.0 | 2.4 | ||||||||||||||||||||||||||||||||||||||||||||||
59.6 | 53.1 | 54.6 | 72.8 | 86.8 | 72.2 | 100.0 | 100.0 | 100.0 | 59.0 | 100.0 | 100.0 | 61.3 | 56.4 | 57.6 | ||||||||||||||||||||||||||||||||||||||||||||||
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Market risk
Market risk
Market risk is the risk of loss arising from movements in market variables, including observable variables such as interest rates, exchange rates and equity markets, and others which may be only indirectly observable such as volatilities and correlations. The risk of price movements on securities and other obligations in tradable form, resulting from general credit and country risk factors and events specific to individual issuers, is also considered market risk.
Risk measures
We apply market risk measures, limits and controls at the portfolio level, and we apply concentration limits and other controls, where necessary, to individual risk types, to particular books and to specific exposures.
Portfolio risk measures
They are applied to significant market risks, whether they arise in trading or non-trading portfolios.
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tistical “normality”, which is generally not fully valid, and will therefore tend to under- or over-estimate the actual risk. This can be seen from the 1-day and 10-day VaR figures for our Investment Bank shown in the tables on page 61.
applicable to one institution may have no relevance to another. Comparison of stress results between institutions can therefore be highly misleading, and for this reason we do not publish quantitative stress results but provide only qualitative analysis.
Change in VaR model
Concentration limits and other controls for trading books
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Market risk
Market risk developments – trading
The upturn in investor sentiment towards the end of 2003 continued into first quarter 2004, despite the expectation of higher interest rates. The start to the year also saw the fastest rate of global GDP growth in nearly two decades. However, increasing geopolitical uncertainty towards the end of the first quarter subdued investor sentiment, affecting equity and fixed income markets and energy prices.
Equity markets started the year well, but eased off towards the end of first quarter, affected by political uncertainty and a patch of soft US economic data over the summer months. Once the US election was over and better than expected corporate results were published in the final quarter, equity markets rallied strongly. The year as a whole also saw stronger equity issuance activity than in 2003.
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Investment Bank: Value at Risk (10-day 99% confidence) | ||||||||||||||||||||||||||||||||
Year ended 31.12.04 | Year ended 31.12.03 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.04 | Min. | Max. | Average | 31.12.03 | ||||||||||||||||||||||||
Risk type | ||||||||||||||||||||||||||||||||
Equities | 121 | 188 | 153 | 126 | 142 | 194 | 171 | 160 | ||||||||||||||||||||||||
Interest rates | 244 | 441 | 340 | 361 | 166 | 403 | 278 | 254 | ||||||||||||||||||||||||
Foreign exchange | 5 | 73 | 30 | 29 | 7 | 82 | 31 | 28 | ||||||||||||||||||||||||
Other1 | 9 | 87 | 37 | 32 | 7 | 51 | 15 | 10 | ||||||||||||||||||||||||
Diversification effect | 2 | 2 | (202 | ) | (215 | ) | 2 | 2 | (177 | ) | (157 | ) | ||||||||||||||||||||
Total | 274 | 457 | 358 | 332 | 236 | 470 | 317 | 295 | ||||||||||||||||||||||||
UBS: Value at Risk (10-day 99% confidence) | ||||||||||||||||||||||||||||||||||||
As at 31.12.04 | Year ended 31.12.04 | Year ended 31.12.03 | ||||||||||||||||||||||||||||||||||
CHF million | Limits | Min. | Max. | Average | 31.12.04 | Min. | Max. | Average | 31.12.03 | |||||||||||||||||||||||||||
Business Groups | ||||||||||||||||||||||||||||||||||||
Investment Bank | 600 | 274 | 457 | 358 | 332 | 236 | 470 | 317 | 295 | |||||||||||||||||||||||||||
Wealth Management USA | 50 | 12 | 27 | 17 | 16 | 8 | 21 | 14 | 17 | |||||||||||||||||||||||||||
Global Asset Management1 | 30 | 5 | 16 | 11 | 7 | 7 | 16 | 11 | 8 | |||||||||||||||||||||||||||
Wealth Management & Business Banking | 5 | 1 | 1 | 1 | 1 | 1 | 5 | 2 | 1 | |||||||||||||||||||||||||||
Corporate Center2,3 | 150 | 35 | 69 | 47 | 38 | 40 | 83 | 58 | 49 | |||||||||||||||||||||||||||
Reserve | 170 | |||||||||||||||||||||||||||||||||||
Diversification effect | 4 | 4 | (69 | ) | (62 | ) | 4 | 4 | (95 | ) | (76 | ) | ||||||||||||||||||||||||
Total | 750 | 274 | 453 | 365 | 332 | 223 | 460 | 307 | 294 | |||||||||||||||||||||||||||
UBS: Value at Risk (1-day 99% confidence) | ||||||||||||||||||||||||||||||||
Year ended 31.12.04 | Year ended 31.12.03 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.04 | Min. | Max. | Average | 31.12.03 | ||||||||||||||||||||||||
Investment Bank | 106 | 168 | 133 | 114 | 94 | 146 | 111 | 116 | ||||||||||||||||||||||||
UBS | 107 | 173 | 137 | 118 | 94 | 152 | 113 | 123 | ||||||||||||||||||||||||
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Market risk
have sometimes increased risk to take advantage of good trading opportunities, but have also reduced risk during periods of uncertainty.
Management of non-trading interest rate risk
Most material non-trading interest rate risks – the largest items being those arising from the Wealth Management & Business Banking Business Group – are transferred from the originating business units to one of the two centralized risk management units, Group Treasury or the Investment Bank’s Cash and Collateral Trading unit (CCT). They manage the risks exploiting UBS’s entire netting potential. The independent private banks are exceptions in that they manage their own non-trading interest rate risk, although the risk they hold is not material to UBS as a whole.
generally transferred to CCT. Client current and savings accounts and many other products of Wealth Management & Business Banking have no contractual maturity date or direct market-linked rate, and their interest rate risk cannot be transferred by simple back-to-back transactions. Instead, they are transferred on a pooled basis via a “replication” portfolio – a portfolio of revolving transactions between the originating business unit and Treasury at market rates designed to approximate the average cash flow and re-pricing behavior of the pooled client transactions. The originating business units are thus immunized as far as possible against market interest rate movements, but retain and manage their product margins, while Treasury acquires market-based interest rate positions that can be managed within its approved limits. The structure and parameters of the replication portfolios are based on long-term market observations and client behavior and are reviewed periodically.
– | 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 positions | |
– | Economic value sensitivity, which measures the potential change in fair value of 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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Bank’s trading units, which are the sole interface to the external markets for both cash and derivative transactions.
Interest rate risk development
it would lead to higher net interest income at risk (when measured excluding the equity itself) and to higher volatility in our actual interest earnings.
Interest rate sensitivity of the Treasury book | ||||||||||||||||||||||||
As at 31.12.04 | ||||||||||||||||||||||||
CHF thousands per basis point increase | Within 1 month | 1 to 3 months | 3 to 12 months | 1 to 5 years | Over 5 years | Total | ||||||||||||||||||
CHF | (166 | ) | 1 | (87 | ) | 55 | 81 | (116 | ) | |||||||||||||||
USD | 52 | (20 | ) | 0 | (96 | ) | 649 | 585 | ||||||||||||||||
EUR | 12 | (4 | ) | 24 | 123 | 19 | 174 | |||||||||||||||||
GBP | 1 | (2 | ) | (18 | ) | 0 | 474 | 455 | ||||||||||||||||
JPY | 2 | 0 | 0 | (4 | ) | 0 | (2 | ) | ||||||||||||||||
Others | (1 | ) | 0 | 0 | (1 | ) | (2 | ) | (4 | ) | ||||||||||||||
Total1 | (100 | ) | (25 | ) | (81 | ) | 77 | 1,221 | 1,092 | |||||||||||||||
of which equity replicating portfolio(CHF) | 35 | 14 | 211 | 3,616 | 2,728 | 6,604 | ||||||||||||||||||
of which equity replicating portfolio(USD) | 13 | 3 | 90 | 1,791 | 3,081 | 4,978 | ||||||||||||||||||
of which equity replicating portfolio(EUR) | 2 | 1 | 17 | 287 | 213 | 520 | ||||||||||||||||||
of which equity replicating portfolio(GBP) | 2 | 1 | 15 | 287 | 203 | 508 | ||||||||||||||||||
Total equity replicating portfolio | 52 | 19 | 333 | 5,981 | 6,225 | 12,610 | ||||||||||||||||||
Treasury book without replicating portfolio(total) | (152 | ) | (44 | ) | (414 | ) | (5,904 | ) | (5,004 | ) | (11,518 | ) | ||||||||||||
Change in risk under the two methodologies | ||||||||||||
As at | ||||||||||||
CHF million | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Net interest income at risk | (321 | ) | (233 | ) | (151 | ) | ||||||
Economic value sensitivity | (1,214 | ) | (1,169 | ) | (1,246 | ) | ||||||
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Market risk
Management of non-trading currency risk
We report our results in Swiss francs, the currency of the country in which we are incorporated, but a substantial proportion of our assets and liabilities, revenues and costs arise in other currencies. Our corporate currency management activities are designed to protect UBS’s BIS Tier 1 capital ratio and expected future foreign currency earnings from adverse movements of the Swiss franc against the currencies of our assets, revenues and costs, while preserving the option to take advantage of opportunities which may arise.
the volatility in our Swiss franc results that would result from repeated re-translation, although it cannot protect the bank’s earnings against a sustained downward or upward move of one of the main currencies against the Swiss franc.
Non-trading currency risk VaR (10-day 99% confidence) | ||||||||||||
CHF million | 2004 | 2003 | 2002 | |||||||||
Minimum | 2.2 | 0.7 | 0.7 | |||||||||
Maximum | 41.9 | 32.0 | 14.2 | |||||||||
Average | 17.2 | 12.3 | 3.0 | |||||||||
End of period | 3.5 | 28.3 | 0.7 | |||||||||
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Financial Management
Liquidity and funding management
Liquidity and funding management
UBS’s business activities generate asset and liability portfolios which are intrinsically highly diversified with respect to market, product and currency. This reduces our exposure to individual funding sources, and also provides a broad range of investment opportunities, which in turn reduces liquidity risk. We adopt a centralized approach to liquidity and funding management to exploit these advantages to the full.
Liquidity approach
Our approach to liquidity management, which covers all branches and subsidiaries, is to ensure that we will always have sufficient liquidity to meet liabilities when due, under both normal and stressed conditions, without compromising our ability to respond quickly to strategic market opportunities. Our integrated framework incorporates an assessment of all expected cash flows and the level of high-grade collateral that could be used for additional funding purposes. Risk limits are set by the GEB and monitored by Group Treasury. Compliance with the risk limits and actual credit liquidity exposures are regularly reported to the GEB. 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 any findings to Treasury. In the event of a liquidity crisis, regional crisis task forces would implement contingency plans under the direction of senior management.
el collateral margins. We do not take account of our additional stock of liquid securities that could be used to raise secured funding on the interbank market and it is assumed that no contingency funding would be raised on an unsecured basis.
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Liquidity and funding management
Funding sources and approach
With a broad diversification of funding sources (by market, product and currency), we maintain a well-balanced portfolio of liabilities, which generates a stable flow of financing and provides protection in the event of market disruptions. This, together with our centralized funding management, enables us to pursue a strategy to fund business activities at the lowest possible cost.
has no long-term commitments to continue to purchase the types of assets being securitized.
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Financial Management
Operational risk
Operational risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external causes, whether deliberate, accidental or natural. It is inherent in all our activities, not only in the business we conduct but also from the fact that we are a business – because we are an employer, we own and occupy property, and we hold assets, including information, belonging to ourselves and to our clients. Our approach to operational risk is not designed to eliminate risk per se but, rather, to contain it within acceptable levels, as determined by senior management, and to ensure that we have sufficient information to make informed decisions about additional controls, adjustments to controls, or risk mitigation efforts.
Operational risk framework
Every function, whether a front-end business or a control or logistics unit, must manage the operational risks that arise from its own activities. Because operational risk is all-pervasive, with a failure in one area potentially impacting many others, our framework is based on mutual oversight across all functions. To ensure the independence and objectivity of any risk decisions, overall governance authority lies with the Group CRO and Head of Operational Risk. In our Business Groups, we have integrated operational risk processes into the existing control and governance structures.
As major operational risk events occur, we assess their causes and the implications for our control framework, whether or not they lead to direct financial loss. This includes non-UBS events that are relevant to our business if sufficient information is made public. In 2004, we conducted such investigations in response to a variety of internal and external events, among them customer complaints, virus attacks and power failures. It is important that we use all available information to test our control framework because, even if an internal event does not lead to a direct or indirect financial loss, it may indicate that our standards are not being complied with.
Operational risk measurement
We maintain a database of financial events (both profits and losses) and their underlying causes, and use it in the quantitative modeling that will ultimately form the basis for our operational risk regulatory capital requirement under Basel II, for which we intend to use an advanced measurement approach. It is, however, important to understand that losses from a single event can arise in several ways, some of which may not translate directly into a monetary amount (for example losses caused by business disruption); that the impact of a loss may be large relative to its monetary amount (for example a regulatory fine); and that the level of risk at any time is not directly correlated to actual financial losses or their frequency of occurrence, which are, at best, only indicative.
Operational risk development
Operational risk has been high on our agenda throughout 2004 and will continue to be a priority for the foreseeable future. The appointment to the GEB of the Group CRO, who has overall responsibility for operational risk, alongside credit and market risk, is, in part, recognition of the importance we attach to the management and control of this risk. We
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Operational risk
have experienced a number of incidents, the most prominent of which were cases related to bank notes trading and to US withholding tax, both reported in second quarter 2004. These have highlighted the challenges we face in managing a complex, integrated, fast changing, global business, particularly against the backdrop of heightened regulatory and public sensitivity to shortcomings in corporate processes.
Recently, we have launched a number of special initiatives under the overall supervision of the Group CRO, focusing on areas prone to regulatory lapses and failures of management oversight, in an effort to prevent recurrence of past errors and ensure that we meet our obligations to regulators and maintain the standards they expect of us. A broad education program is part of these initiatives.
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Financial Management
Motor-Columbus
Motor-Columbus
The Atel Group, the operating arm of Motor-Columbus, is exposed to electricity price risk, interest rate risk, currency risk, credit risk, and other business risks.
Energy price risk
Price risks in the energy business arise from, among others, price volatility, changing market prices and changing correlations between markets and products. Derivative financial instruments are used to hedge underlying physical transactions, subject to the risk policy.
Interest rate risk
Interest rate swaps are permitted to hedge capital markets interest rate exposure, with changes in fair value being reported in the income statement.
Currency risks
To minimize currency risk, Atel tries to offset operating income and expenses in foreign currencies. Any surplus is hedged through currency forwards and options within the framework of the financial risk policy.
Credit risk
Credit risk management is based on assessment of the creditworthiness of new contracting parties before entering into any transaction, giving rise to credit exposure, and continuous monitoring of creditworthiness and exposures thereafter. In the energy business, Atel only enters into transactions leading to credit exposure with counterparties that fulfill the criteria laid out in the risk policy. Concentration risk is minimized by the number of customers and their geographical distribution.
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Capital Management & the UBS Share
Our approach to capital management has been a trademark of UBS. It ensures attractive value creation for shareholders while protecting our strong capitalization and credit ratings.
Table of Contents
Capital Management & the UBS Share
Capital management
Capital management
The approach we take to capital management is one of our trademarks. We dedicate ourselves to maintaining strong debt ratings and sound capital ratios (see capital strength box on the next page), assuring our position as one of the best-capitalized financial services firms in the world. Our strong capitalization allows us to invest in the growth of our businesses by making acquisitions or by growing organically. But in the absence of such opportunities, we will return any excess capital to our shareholders, while maintaining our BIS Tier 1 ratio at a high level.
Distribution of cash to shareholders in 2004
We transferred a total of CHF 6.6 billion of free equity to our shareholders in 2004. The total amount was split between our dividend payment of CHF 2.8 billion made in April 2004 and the CHF 3.8 billion in shares we repurchased during 2004 for purposes of cancellation. For more details on our dividend payments, see page 76 of this section.
Capital securities
UBS placed CHF 2.0 billion in subordinated debt in public capital markets in 2004 to diversify the maturity profile of our capital securities. Outstanding Tier 2 capital securities accounted for CHF 5.0 billion of eligible capital on 31 December 2004. Additionally, we have USD 2.6 billion (CHF 3.0 billion) outstanding in trust preferred shares which count as Tier 1 capital under regulatory rules. Currently, no convertible debt on UBS shares is outstanding.
Capital requirement
The capital we are required to hold is determined by the credit risk we take weighted according to type of counterparty and collateral, as well as other asset and market risk positions based on VaR (for more details please refer to note 29 to the
Capital adequacy
As at | ||||||||||||
CHF million, except ratios | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
BIS Tier 1 capital | 31,051 | 29,765 | 27,047 | |||||||||
of which hybrid Tier 1 capital1 | 2,963 | 3,224 | 3,182 | |||||||||
BIS total capital | 35,866 | 33,581 | 33,009 | |||||||||
BIS Tier 1 capital ratio(%) | 11.8 | 11.8 | 11.3 | |||||||||
BIS total capital ratio(%) | 13.6 | 13.3 | 13.8 | |||||||||
Balance sheet assets | 217,769 | 212,176 | 205,401 | |||||||||
Off-balance sheet and other positions | 28,205 | 21,456 | 18,122 | |||||||||
Market risk positions | 18,151 | 18,269 | 15,267 | |||||||||
Total BIS risk-weighted assets | 264,125 | 251,901 | 238,790 | |||||||||
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financial statements). Most of our capital requirement arises from balance sheet assets. Off-balance sheet positions and market risk positions each represent less than 10% of risk-weighted assets and, correspondingly, of our total capital requirement.
– | 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 loans to OECD banks, the SFBC applies risk weights of 25% to 75%, depending on maturity. |
from our loan portfolio, especially at the Investment Bank, as well as an increase in our mortgage lending activities.
Capital ratios
The ratios we report measure capital adequacy by comparing our eligible capital (Tier 1 and total) with total risk-weighted assets. As a result of the differences in regulatory rules, UBS’s risk-weighted assets are higher, and our ratios of total capital and Tier 1 capital to risk-weighted assets, are lower, when calculated under the SFBC regulations than under BIS guidelines. UBS has always had total capital and Tier 1 capital well in excess of the minimum requirements of both the BIS and the SFBC.
Long-term credit ratings
As at | ||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | ||||||||||
Fitch, London | AA+ | AA+ | AAA | |||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||
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Treasury shares
Treasury shares
Under IFRS accounting rules, UBS shares held for trading or non-trading purposes are recorded as treasury shares and deducted from shareholders’ equity. Our holding of treasury shares decreased to 103,524,971 or 9.2% of shares issued on 31 December 2004, from 111,360,692 or 9.4% on the same date a year ago. Of the currently held treasury shares, 39,935,094 are earmarked for cancellation whereas the other 63,589,877 cover employee share and option programs and, to a limited extent, market-making activities at the Investment Bank.
Treasury shares earmarked for cancellation (share buyback)
Strong earnings and careful management of our balance sheet allowed us to conduct a share buyback program for the fourth consecutive year in 2004 – giving us the opportunity to reduce the number of issued UBS shares, enhancing earnings per share. Under Swiss regulations, a company wishing to cancel shares must purchase them on the stock exchange under a special security code that clearly identifies to the market the time and quantity of shares repurchased for that specific purpose. As in previous years, we announced a maximum Swiss franc amount to be used for share purchases under the buyback program. Usage of the limit is determined by our capital management plan, which is adjusted throughout the year to reflect changes in business plans or acquisition opportunities. Our strong capitalization allows us to invest in the growth of our businesses by growing organically or making acquisitions. In the absence of such opportunities, we would return any excess capital to shareholders through share buybacks or dividends. UBS publishes the number of shares repurchased and the average price paid on a weekly basis on the internet at www.ubs.com/investors.
Share buyback program 2004 / 2005
New second line buyback program 2005 / 2006
Effect of second line buyback program on basic earnings per share (EPS)
For the year ended | ||||||||||||
31.12.04 | 31.12.03 | 31.12.02 | ||||||||||
Weighted average shares for basic EPS after treasury shares | 1,052,914,417 | 1,116,953,623 | 1,208,586,678 | |||||||||
Weighted average second trading line treasury shares | 236,970,415 | 182,301,119 | 118,594,983 | |||||||||
Basic EPS | 7.68 | 5.59 | 2.92 | |||||||||
Cumulative impact of treasury shares on basic EPS(CHF)1 | 1.41 | 0.79 | 0.26 | |||||||||
Cumulative impact of treasury shares on basic EPS(%)1 | 18.4 | 14.1 | 8.9 | |||||||||
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under a second line buyback program. The new program will start from 8 March 2005 and will run until 7 March 2006. It will allow for a maximum of CHF 5 billion in shares to be repurchased under the program.
Treasury share holdings for employee participation plans
UBS shares are also purchased and held for satisfying share delivery obligations under UBS’s share and option-based participation plans that align the long-term interests of executives, managers, staff and shareholders. For share-based participation plans, UBS shares are purchased in the market and set aside for future distribution to employees once the holding period criteria have been met. For satisfying future share delivery obligations out of employee option plans, UBS shares are also purchased in the market and held to partially hedge the future obligations.
Treasury shares held by the Investment Bank
The Investment Bank, acting as liquidity provider to the equity futures market and as a market maker in UBS shares and derivatives, has issued derivatives linked to UBS stock. Most of these instruments are classified as cash-settled derivatives and are held for trading purposes only. For hedging the economic exposure, a limited number of UBS shares are held by the Investment Bank.
Treasury shares – statutory limit
Under the Swiss Stock Exchange Act, treasury shares held by the company have to be reported once they rise above a certain threshold. In 2004, UBS holdings of its own shares were above the 5% threshold requiring disclosure. This was primarily due to shares repurchased for subsequent cancellation. For more information, refer to page 85 in the corporate governance report.
Treasury share activities
Treasury shares purchased | ||||||||||||||||||||||||||||||||
for employee share and | ||||||||||||||||||||||||||||||||
Share buyback program | option participation plans | Total number of shares | ||||||||||||||||||||||||||||||
Number | Average | Remaining volume of share | Number | Average | Number | Average | ||||||||||||||||||||||||||
Month of purchase | of shares | price in CHF | buyback program in CHF million | of shares | price in CHF | of shares | price in CHF | |||||||||||||||||||||||||
January 2004 | 2,775,000 | 90.25 | 2003 / 2004 program | 484 | 328,414 | 86.84 | 3,103,414 | 89.89 | ||||||||||||||||||||||||
February 2004 | 0 | 0.00 | 2003 / 2004 program | 484 | 6,749 | 91.67 | 6,749 | 91.67 | ||||||||||||||||||||||||
March 2004 | 0 | 0.00 | 2004 / 2005 program | 6,000 | 17,787,364 | 94.32 | 17,787,364 | 94.32 | ||||||||||||||||||||||||
April 2004 | 2,180,094 | 95.24 | 2004 / 2005 program | 5,792 | 2,392,850 | 95.05 | 4,572,944 | 95.14 | ||||||||||||||||||||||||
May 2004 | 2,750,000 | 91.81 | 2004 / 2005 program | 5,540 | 11,688,596 | 91.14 | 14,438,596 | 91.27 | ||||||||||||||||||||||||
June 2004 | 9,975,000 | 90.92 | 2004 / 2005 program | 4,633 | 1,929,365 | 90.85 | 11,904,365 | 90.91 | ||||||||||||||||||||||||
July 2004 | 8,765,000 | 86.21 | 2004 / 2005 program | 3,877 | 725,308 | 88.14 | 9,490,308 | 86.36 | ||||||||||||||||||||||||
August 2004 | 4,645,000 | 84.43 | 2004 / 2005 program | 3,485 | 19,591 | 82.08 | 4,841,591 | 84.33 | ||||||||||||||||||||||||
September 2004 | 7,300,000 | 88.29 | 2004 / 2005 program | 2,841 | 164,430 | 89.06 | 7,464,430 | 88.30 | ||||||||||||||||||||||||
October 2004 | 4,320,000 | 88.84 | 2004 / 2005 program | 2,457 | 12,668 | 88.63 | 4,443,668 | 88.83 | ||||||||||||||||||||||||
November 2004 | 0 | 0.00 | 2004 / 2005 program | 2,457 | 6,287,543 | 93.05 | 6,287,543 | 93.05 | ||||||||||||||||||||||||
December 2004 | 0 | 0.00 | 2004 / 2005 program | 2,457 | 4,575,357 | 94.22 | 4,575,357 | 94.22 | ||||||||||||||||||||||||
Maximum | Unutilised | |||||||||||||||||||||||||||
volume | Amount | Total shares | Average price | volume | ||||||||||||||||||||||||
Program | Announcement | Beginning | Expiration | Cancellation | CHF billion | CHF billion | purchased | CHF | CHF billion | |||||||||||||||||||
2000 / 2001 | 14.12.99 | 17.01.00 | 02.03.01 | 13.07.01 | 4 | 4.0 | 55,265,349 | 1 | 72.37 | 0 | ||||||||||||||||||
2001 / 2002 | 22.02.01 | 05.03.01 | 05.03.02 | 05.07.02 | 5 | 2.3 | 28,818,690 | 79.46 | 2.7 | |||||||||||||||||||
2002 / 2003 | 14.02.01 | 06.03.02 | 08.10.02 | 10.07.03 | 5 | 5.0 | 67,700,000 | 73.84 | 0 | |||||||||||||||||||
2002 / 2003 | 09.10.02 | 11.10.02 | 05.03.03 | 10.07.03 | 3 | 0.5 | 8,270,080 | 64.07 | 2.5 | |||||||||||||||||||
2003 / 2004 | 18.02.03 | 06.03.03 | 05.03.04 | 30.06.04 | 5 | 4.5 | 59,482,000 | 75.93 | 0.5 | |||||||||||||||||||
2004 / 2005 | 10.02.04 | 08.03.04 | 07.03.05 | 6 | 3.5 | 39,935,094 | 88.72 | 2.5 | ||||||||||||||||||||
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Dividends
Dividends
UBS normally pays an 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.
Dividend 2003/2004
We were able, after the approval of the Annual General Meeting of shareholders on 15 April 2004, to pay a dividend of CHF 2.60 for year 2003, 30% higher than the previous year’s CHF 2.00. Shareholders in the US received a net dividend payment of USD 1.30 per share. The ex-dividend date was 16 April 2004. Payment took place on 20 April 2004 for shareholders of record on 15 April 2004.
Planned dividend for 2004
The Board of Directors will recommend at the Annual General Meeting on 21 April 2005 a dividend of CHF 3.00 per share for the 2004 financial year, 15.4% higher than last year’s dividend of CHF 2.60. 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. UBS has a long-term record of paying stable or rising dividends. The decision on dividend payments falls under the authority of the AGM and is subject to shareholder approval. If the dividend is approved, the ex-dividend date will be 22 April 2005, with payment on 26 April 2005 for shareholders of record on 21 April 2005.
A single register exists for UBS ordinary shares, although it is split into two. There is a Swiss register, which is maintained by UBS acting as Swiss transfer agent, and a US register, which is maintained by Mellon Investor Services, as US transfer agent. A shareholder is entitled to hold shares registered in his / her name on either register and transfer shares from one register to the other upon giving proper instruction to the transfer agents.
US shareholders
The norm in the US is to declare dividends at least ten days in advance of the applicable record date with ex-dividend trading commencing two days before the record date. To ensure that shareholders on the Swiss and US registers are similarly treated in connection with dividend payments, and to avoid disparities between the two markets, NYSE trading takes place with due bills for the two-business day period preceding the dividend record date.
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Capital Management & the UBS Share
The UBS share in 2004
The UBS share in 2004
UBS shares are listed on the Swiss (where they are traded on virt-x), New York and Tokyo stock exchanges. For a detailed definition of the UBS share (par value, type, rights of security), see page 85 of the Corporate Governance section.
Ticker symbols
Trading exchange | Bloomberg | Reuters | ||
virt-x | UBSN VX | UBSN.VX | ||
New York Stock Exchange | UBS US | UBS.N | ||
Tokyo Stock Exchange | 8657 JP | UBS.T | ||
The first quarter started off with very high levels of investor confidence. It was widely assumed that banking shares would experience very strong earnings across their businesses in first quarter, giving them added drive. The UBS share tracked those developments, rising 14% in the first six weeks of the year.
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The UBS share in 2004
and because of its positive third quarter earnings report, again slightly above expectations, in early November.
Share liquidity
During 2004, daily average volume in the UBS share on virt-x was 4.83 million shares. On NYSE, it was 294,000 shares. Because of the greater volume on virt-x, trading of UBS shares there is expected to remain the main factor determining the movement in our share price.
UBS share data
As at | ||||||||||||
Registered shares | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Total shares outstanding | 1,126,858,177 | 1,183,046,764 | 1,256,297,678 | |||||||||
Total shares ranking for dividend | 1,086,923,083 | 1,126,339,764 | 1,182,262,598 | |||||||||
Treasury shares | 103,524,971 | 111,360,692 | 97,181,094 | |||||||||
Weighted average shares (for basic EPS calculations) | 1,052,914,417 | 1,116,953,623 | 1,208,586,678 | |||||||||
Weighted average shares (for diluted EPS calculations) | 1,081,961,360 | 1,138,800,625 | 1,223,383,942 | |||||||||
For the year ended | ||||||||||||
CHF | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Earnings per share | ||||||||||||
Basic EPS | 7.68 | 5.59 | 2.92 | |||||||||
Diluted EPS | 7.47 | 5.48 | 2.87 | |||||||||
UBS shares and market capitalization
As at | % change from | |||||||||||||||
Number of shares, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Total ordinary shares issued | 1,126,858,177 | 1,183,046,764 | 1,256,297,678 | (5 | ) | |||||||||||
Second trading line treasury shares | ||||||||||||||||
2002 first program | (67,700,000 | ) | ||||||||||||||
2002 second program | (6,335,080 | ) | ||||||||||||||
2003 program | (56,707,000 | ) | ||||||||||||||
2004 program | (39,935,094 | ) | ||||||||||||||
Shares outstanding for market capitalization | 1,086,923,083 | 1,126,339,764 | 1,182,262,598 | (3 | ) | |||||||||||
Share price (CHF) | 95.35 | 84.70 | 67.20 | 13 | ||||||||||||
Market capitalization (CHF million) | 103,638 | 95,401 | 79,448 | 9 | ||||||||||||
Total treasury shares | 103,524,971 | 111,360,692 | 97,181,094 | (7 | ) | |||||||||||
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Trading volumes
For the year ended | ||||||||||||
1000 shares | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
SWX total (virt-x) | 1,227,234 | 1,319,658 | 1,320,861 | |||||||||
SWX daily average (virt-x) | 4,832 | 5,279 | 5,221 | |||||||||
NYSE total | 73,994 | 66,201 | 46,318 | |||||||||
NYSE daily average | 294 | 263 | 184 | |||||||||
Stock exchange prices1
SWX Swiss Exchange | New York Stock Exchange2 | |||||||||||||||||||||||
High(CHF) | Low(CHF) | Period end(CHF) | High(USD) | Low(USD) | Period end(USD) | |||||||||||||||||||
2004 | 98.35 | 81.60 | 95.35 | 84.37 | 64.94 | 83.84 | ||||||||||||||||||
Fourth quarter 2004 | 96.35 | 84.00 | 95.35 | 84.37 | 70.10 | 83.84 | ||||||||||||||||||
December | 96.35 | 93.25 | 95.35 | 84.37 | 81.22 | 83.84 | ||||||||||||||||||
November | 94.45 | 87.50 | 92.10 | 81.60 | 73.06 | 81.00 | ||||||||||||||||||
October | 90.15 | 84.00 | 86.30 | 72.62 | 70.10 | 72.49 | ||||||||||||||||||
Third quarter 2004 | 91.00 | 81.60 | 87.90 | 72.38 | 64.94 | 70.33 | ||||||||||||||||||
September | 91.00 | 86.20 | 87.90 | 72.38 | 68.26 | 70.33 | ||||||||||||||||||
August | 87.25 | 81.60 | 84.90 | 68.50 | 64.94 | 67.49 | ||||||||||||||||||
July | 87.65 | 82.85 | 85.60 | 70.93 | 66.48 | 66.77 | ||||||||||||||||||
Second quarter 2004 | 98.35 | 88.25 | 88.25 | 76.05 | 68.89 | 71.06 | ||||||||||||||||||
June | 92.30 | 88.25 | 88.25 | 74.79 | 70.82 | 71.06 | ||||||||||||||||||
May | 91.35 | 88.90 | 89.90 | 74.53 | 68.89 | 72.10 | ||||||||||||||||||
April | 98.35 | 91.25 | 92.15 | 76.05 | 69.65 | 70.80 | ||||||||||||||||||
First quarter 2004 | 97.05 | 85.70 | 94.10 | 79.25 | 67.92 | 74.49 | ||||||||||||||||||
March | 97.05 | 91.65 | 94.10 | 75.94 | 71.94 | 74.49 | ||||||||||||||||||
February | 96.90 | 89.65 | 93.30 | 79.25 | 71.65 | 74.01 | ||||||||||||||||||
January | 91.25 | 85.70 | 90.25 | 73.04 | 67.92 | 71.67 | ||||||||||||||||||
2003 | 85.40 | 49.80 | 84.70 | 68.16 | 38.00 | 67.99 | ||||||||||||||||||
Fourth quarter 2003 | 85.40 | 74.85 | 84.70 | 68.16 | 57.54 | 67.99 | ||||||||||||||||||
Third quarter 2003 | 80.50 | 73.50 | 74.10 | 59.25 | 54.38 | 56.23 | ||||||||||||||||||
Second quarter 2003 | 75.75 | 58.90 | 75.35 | 58.35 | 43.58 | 55.40 | ||||||||||||||||||
First quarter 2003 | 72.10 | 49.80 | 57.50 | 51.86 | 38.00 | 42.70 | ||||||||||||||||||
2002 | 84.30 | 51.05 | 67.20 | 51.99 | 34.54 | 48.12 | ||||||||||||||||||
Fourth quarter 2002 | 75.45 | 51.05 | 67.20 | 50.88 | 34.54 | 48.12 | ||||||||||||||||||
Third quarter 2002 | 75.15 | 56.80 | 61.30 | 49.94 | 37.86 | 41.00 | ||||||||||||||||||
Second quarter 2002 | 84.15 | 69.80 | 74.85 | 51.99 | 46.90 | 49.89 | ||||||||||||||||||
First quarter 2002 | 84.30 | 73.00 | 82.80 | 50.50 | 43.27 | 49.75 | ||||||||||||||||||
2001 | 96.83 | 62.10 | 83.80 | 58.49 | 40.12 | 50.00 | ||||||||||||||||||
Fourth quarter 2001 | 86.85 | 69.70 | 83.80 | 52.83 | 43.23 | 50.00 | ||||||||||||||||||
Third quarter 2001 | 86.33 | 62.10 | 75.60 | 49.73 | 40.12 | 46.15 | ||||||||||||||||||
Second quarter 2001 | 92.00 | 77.50 | 85.83 | 51.47 | 44.87 | 47.02 | ||||||||||||||||||
First quarter 2001 | 96.83 | 72.33 | 83.17 | 58.49 | 43.02 | 47.68 | ||||||||||||||||||
2000 | 88.17 | 63.58 | 88.17 | 54.10 | 40.18 | 54.10 | ||||||||||||||||||
Fourth quarter 2000 | 88.17 | 71.17 | 88.17 | 54.10 | 40.18 | 54.10 | ||||||||||||||||||
Third quarter 2000 | 88.00 | 74.67 | 76.67 | 50.74 | 44.76 | 44.85 | ||||||||||||||||||
Second quarter 2000 | 83.33 | 69.83 | 79.67 | 50.66 | 42.99 | 48.67 | ||||||||||||||||||
First quarter 2000 | 72.83 | 63.58 | 72.83 | |||||||||||||||||||||
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Corporate Governance
UBS is committed to meeting high standards of corporate governance. Our corporate and executive bodies are organized in line with leading codes of best practice. The ultimate aim of our corporate governance is to lead UBS to success.
Table of Contents
Corporate Governance
Introduction and principles
Introduction and principles
Corporate governance – the way that the leadership and management of the firm are organized and how they operate in practice – ultimately aims at leading UBS to success, protecting the interests of its shareholders and creating value for them and for all stakeholders. Good corporate governance seeks to balance entrepreneurship, control and transparency, while supporting the firm’s success by ensuring efficient decision-making processes.
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 |
– | senior management (Group Executive Board) |
– | compensation, shareholdings and loans |
– | shareholders’ participation rights |
– | change of control and defense measures |
– | auditors |
– | information policy |
This section summarizes the regulatory and supervisory environment of UBS in its principal locations of activity and describes how UBS complies with the NYSE listing standards on corporate governance. In addition, it provides a list of all members of the Group Managing Board and the Vice Chairmen of the Business Groups who, together with the GEB, form the senior leadership of the firm.
Table of Contents
Corporate Governance |
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 its businesses within an efficient legal, tax, regulatory and funding framework. None of the Business Groups of UBS or its Corporate Center operate through separate legal entities, but rather they generally operate out of the parent bank, UBS AG, through its branches worldwide.
Operational Group structure
The four Business Groups – Wealth Management & Business Banking (with its two business units Wealth Management and Business Banking Switzerland), Global Asset Management, Investment Bank, Wealth Management USA, – together with the Corporate Center (comprising the two units Private Banks & GAM and Corporate Functions), form the operational structure of the Group’s financial businesses. Performance is reported according to this structure (see the Financial Report 2004). A description of the Business Groups and their strategy, structure, organization, products and services is contained in this Handbook on pages 18-40. In addition, the UBS Group accounts contain a separate reporting segment called Industrial Holdings, which was created in 2004 following the full consolidation of Motor-Columbus into the financial statements. This allows UBS to maintain continuity in the presentation and analysis of the core financial businesses.
Listed and non-listed companies belonging to the Group
Motor-Columbus AG, Baden (Switzerland), listed on the SWX Swiss Exchange, share capital CHF 253 million, capitalization on 31 December 2004 CHF 2,464.2 million, UBS stake
55.6%, Valor No 212427/ ISIN CH0002124276, was fully consolidated in UBS’s financial statements in third quarter 2004 following the acquisition of a majority stake on 1 July 2004.
Significant shareholders
Chase Nominees Ltd., London, acting in its capacity as a nominee for other investors, was registered with 8.76% of all shares issued as of 31 December 2004, compared to 8.27% at year-end 2003 and 7.68% at year-end 2002. DTC (Cede & Co.), New York, the US securities clearing organization “The Depository Trust Company”, was registered as a shareholder for a great number of beneficial owners with 5.77% of all shares issued as of 31 December 2004 (4.54% as of 31 December 2003). According to UBS’s Regulation on the Registration of Shares, voting rights of nominees are restricted to 5%, while clearing and settlement organizations are exempt from this restriction. No other shareholders hold more than 5% of all shares issued. Ownership of UBS shares is widely spread. The tables on the next page provide information about the distribution by category of shareholders and by geography. This information relates only to registered shareholders and cannot be assumed to be representative of the entire UBS investor base. Only registered shareholders are entitled to exercise voting rights.
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Group structure and shareholders
and dropped below 10% on 30 June following the cancellation of 59.5 million shares repurchased under the 2003 / 2004 share buyback program. Press releases were issued on 24 May and 5 July in that respect. On 30 June 2004, UBS’s holdings consisted of 6.7% of its own shares, and an additional 0.5% of its own shares through derivatives. UBS’s position in its own shares stood at between 5 and 10% for the remainder of the year.
Cross shareholdings
UBS has no cross shareholdings in excess of a reciprocal 5% of capital or voting rights with any other company.
Distribution of UBS shares
As at 31.12.04 | Shareholders registered | Shares registered | ||||||||||||||
Number of shares registered | Number | % | Number | % of shares issued | ||||||||||||
1-100 | 46,251 | 23.4 | 2,514,386 | 0.2 | ||||||||||||
101-1,000 | 119,281 | 60.4 | 45,141,727 | 4.0 | ||||||||||||
1,001-10,000 | 29,521 | 14.9 | 73,491,491 | 6.5 | ||||||||||||
10,001-100,000 | 2,169 | 1.1 | 55,337,923 | 4.9 | ||||||||||||
100,001-1,000,000 | 307 | 0.2 | 89,014,495 | 7.9 | ||||||||||||
1,000,001-5,000,000 | 60 | 0.0 | 127,633,553 | 11.4 | ||||||||||||
5,000,001-11,268,581 (1%) | 9 | 0.0 | 59,454,323 | 5.3 | ||||||||||||
1-2% | 2 | 0.0 | 25,692,118 | 2.3 | ||||||||||||
2-3% | 2 | 0.0 | 51,996,111 | 4.6 | ||||||||||||
3-4% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
4-5% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
Over 5% | 2 | 1 | 0.0 | 163,797,441 | 14.5 | |||||||||||
Total registered | 197,610 | 100.0 | 694,073,568 | 61.6 | ||||||||||||
Unregistered2 | 432,784,609 | 38.4 | ||||||||||||||
Total shares issued | 1,126,858,177 | 3 | 100.0 | |||||||||||||
Shareholders: type and distribution
Shareholders | Shares | |||||||||||||||
As at 31.12.04 | Number | % | Number | % | ||||||||||||
Individual shareholders | 189,921 | 96.1 | 145,519,936 | 12.9 | ||||||||||||
Legal entities | 7,130 | 3.6 | 164,503,084 | 14.6 | ||||||||||||
Nominees, fiduciaries | 559 | 0.3 | 384,050,548 | 34.1 | ||||||||||||
Unregistered | 432,784,609 | 38.4 | ||||||||||||||
Total | 197,610 | 100.0 | 1,126,858,177 | 100.0 | ||||||||||||
Switzerland | 180,333 | 91.3 | 284,751,706 | 25.3 | ||||||||||||
Europe | 11,877 | 6.0 | 240,102,269 | 21.3 | ||||||||||||
North America | 2,747 | 1.4 | 120,416,197 | 10.7 | ||||||||||||
Other countries | 2,653 | 1.3 | 48,803,396 | 4.3 | ||||||||||||
Unregistered | 432,784,609 | 38.4 | ||||||||||||||
Total | 197,610 | 100.0 | 1,126,858,177 | 100.0 | ||||||||||||
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Corporate Governance |
Corporate Governance
Capital structure
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
Under Swiss company law, shareholders have to approve in a shareholders’ meeting any increase in the total number of issued shares, which may be an ordinary share capital increase or the creation of conditional or authorized capital. At year-end 2004, the ordinary share capital was CHF 901,486,541.60.
Conditional and authorized share capital
Changes of shareholders’ equity
Shares, participation and bonus certificates, capital securities
UBS shares are issued as Global Registered Shares. Each share has a par value of CHF 0.80 and carries one vote. Voting rights may, however, only be exercised if the holder expressly declares having acquired these shares in his own name and for his own account. Global Registered Shares provide direct and equal ownership for all shareholders, irrespective of the country and stock exchange where they are traded. For details see the Shareholders’ participation rights section on pages 104-105 of this Handbook.
Ordinary share capital
Share capital in CHF | Number of shares | Par value in CHF | ||||||||||
As at 31 December 2003 | 946,437,411 | 1,183,046,764 | 0.8 | |||||||||
Share repurchase program 2003 / 2004: cancellation of shares upon AGM decision of 15 April 2004 | (47,585,600 | ) | (59,482,000 | ) | 0.8 | |||||||
Options exercised from conditional capital | 2,634,731 | 3,293,413 | 0.8 | |||||||||
As at 31 December 2004 | 901,486,542 | 1,126,858,177 | 0.8 | |||||||||
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Capital structure
in trust preferred shares outstanding which count as Tier 1 capital under regulatory rules.
Limitation on transferability and nominee registration
UBS does not apply any restrictions or limitations on the transferability of its shares. Shares registered according to the provisions in the Articles of Association (express declaration of beneficial ownership) may be voted without any limit in scope.
Convertible bonds and options
UBS currently has no convertible debt on UBS shares outstanding. The only options outstanding were 100,907,354 employee options on UBS shares as reported in note 32c to the financial statements. For a total of 3,533,012 of those options, exercise will be satisfied through the creation of newly issued shares (conditional capital). Share capital would therefore be increased by a maximum of CHF 2,826,409.60. For the other employee options, exercise would be satisfied by the delivery of already issued treasury shares.
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Corporate Governance |
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 2004. It shows each member’s functions in UBS, nationality, year of initial appointment to the Board and current term of office, professional history and education, date of birth, and other activities and functions such as mandates on boards of important corporations, organizations and foundations, permanent functions for
important interest groups and official functions and political mandates.
Marcel Ospel | Professional history, education and date of birth | ||||
Marcel Ospel was elected to the Board at the AGM in April 2001 and thereafter appointed as Chairman. Prior to this mandate, he served as Group Chief Executive Officer of UBS. He was the President and Group Chief Executive Officer of Swiss Bank Corporation (SBC) from 1996 to 1998. He was made CEO of SBC Warburg in 1995, having been a member of the Executive Board of SBC since 1990. From 1987 to 1990 he was in charge of Securities Trading and Sales at SBC. From 1984 to 1987 Mr. Ospel was a Managing Director with Merrill Lynch Capital Markets, and from 1980 to 1984 he worked at SBC International London and New York in the Capital Markets division. He began his career at SBC in the Central Planning and Marketing Division in 1977. Mr. Ospel graduated from the School of Economics and Business Administration (SEBA) in Basel. He was born on 8 February 1950. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Marcel Ospel is a member of the International Capital Markets Advisory Committee of the Federal Reserve Bank of New York, and holds mandates with the Monetary Authority of Singapore’s International Advisory Panel and the International Monetary Conference. He is a trustee of the Foundation Board of the Patronate Committee for the Basel Museums of Art, and of the Committee for the Museum of Antiques, Basel, and is the Chairman of the “Optimus Foundation”, a charitable foundation administered by UBS.Permanent functions for important interest groups Marcel Ospel is the treasurer of “Economiesuisse”, the Swiss business federation, Zurich, and is a member of the European Financial Services Round Table, Brussels. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Chairman | ||||
Nationality | Swiss | ||||
Year of initial appointment | 2001 | ||||
Current term of office runs until | 2005 (proposed for re-election at the AGM 2005) | ||||
Professional history, education and date of birth | |||||
Alberto Togni | Alberto Togni has been with UBS and SBC since 1959. From 1994 to 1997 he was Chief Risk Officer and a member of the Group Executive Committee of Swiss Bank Corporation (SBC). He previously held various functions in the Commercial division, becoming its head in 1993. In 1981 he was named member of the Executive Board. Prior to that, he assumed different management roles in Zurich, New York,Tokyo and as representative for the Middle East in Beirut, after professional training and various assignments with SBC in Lausanne, New York and Zurich. Mr. Togni graduated from the New York Institute of Finance. He was born on 30 October 1938. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Alberto Togni is the Chairman of the Board of the Helmut Horten Foundation, Croglio (Ticino, Switzerland). | ||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Executive Vice Chairman | ||||
Nationality | Swiss | ||||
Year of initial appointment | 1998 | ||||
Current term of office runs until | 2005 (not standing for re-election) | ||||
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Board of Directors
Stephan Haeringer | Professional history, education and date of birth | ||||
Before being elected to the Board of Directors in 2004, Stephan Haeringer was Deputy President of the Group Executive Board, a position he held between 2002 and 2004. Between 2000 and 2002, he was CEO of UBS Switzerland and the Private and Corporate Clients business. In 1998, following the UBS-SBC merger, he was appointed the Division Head of Private and Corporate Clients. He originally joined the former Union Bank of Switzerland in 1967, assuming a broad variety of responsibilities within the firm - among them Chief Executive Officer Region Switzerland, Division Head Private Banking and Institutional Asset Management and Head of the Financial Division. Between 1967 and 1988, Mr. Haeringer was assigned various management roles in the areas of Investment Counseling, Specialized Investments, Portfolio Management, Securities Administration and Collateral Loans. He received professional training at Williams de Broe Hill Chaplin & Cie, London, and at Goldman Sachs & Co. and Brown Brothers Harriman in New York. Mr. Haeringer was born on 6 December 1946. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Stephan Haeringer is a member of the Board of the Helmut Horten Foundation, Croglio (Ticino, Switzerland), and a member of the Board Committee of the Zurich Chamber of Commerce. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Executive Vice Chairman | ||||
Nationality | Swiss | ||||
Year of initial appointment | 2004 | ||||
Current term of office runs until | 2007 | ||||
Peter Böckli | Professional history, education and date of birth | ||||
Peter Böckli, non-executive Vice Chairman since 2002, has been a member of the Board of Directors of UBS and its predecessor Swiss Bank Corporation since 1985. He has been a partner in the law office of Böckli Bodmer & Partners since 1981 and was a part-time professor of tax and business law at the University of Basel from 1995 to 2001. From 1963 to 1981 he was an attorney-at-law in New York, Paris and Basel. Mr. Böckli graduated as doctor iuris from the University of Basel and as an attorney-at-law and is a non-resident member of the Association of the Bar of the City of New York. He was born on 7 May 1936. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Peter Böckli is a member of the Board of Directors of Nestlé S.A., Vevey (Switzerland). He is Vice Chairman of the Board of Manufacture des Montres Rolex S.A., Bienne (Switzerland), and is the Secretary of the Board of Trustees of the Wilhelm Doerenkamp Foundation, Chur (Switzerland), and a member of the Board of Trustees of the Holler Foundation, Munich (Germany). Official functions and political mandates: Peter Böckli acts as an expert advising the Swiss Federal Government on various legislative projects. | |||||
Address | Böckli Bodmer & Partners St. Jakobsstrasse 41 CH-4002 Basel | ||||
Functions in UBS | Non-executive Vice Chairman Chairman of the Nominating Committee | ||||
Nationality | Swiss | ||||
Year of initial appointment | 1998 | ||||
Current term of office runs until | 2006 | ||||
Ernesto Bertarelli | Professional history, education and date of birth | ||||
Ernesto Bertarelli has been the Chief Executive Officer of Serono International SA, Geneva, since 1996. He started his career with Serono in 1985 and held several positions in sales and marketing. Prior to his appointment as CEO, he served for five years as Deputy CEO. Mr. Bertarelli holds a bachelor of science from the Babson College Boston and a Harvard MBA. He was born on 22 September 1965. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Ernesto Bertarelli has been the Vice Chairman of the Board of Serono S.A., Coinsins (Switzerland), since 1991. He is the Chairman of Bertarelli & Cie., Chéserex (Switzerland), of Kedge Capital Partners Ltd., Jersey, of Team Alinghi SA, Ecublens (Switzerland), and of Alinghi Holdings Ltd, Jersey. He holds various board mandates in professional organizations of the biotech and pharmaceutical industries. | |||||
Address | Serono International SA Chemin des Mines 15bis CH-1211 Geneva 20 | ||||
Function in UBS | Member of the Board | ||||
Nationality | Swiss | ||||
Year of initial appointment | 2002 | ||||
Current term of office runs until | 2006 | ||||
Sir Peter Davis | Professional history, education and date of birth | ||||
Sir Peter Davis was Group Chief Executive Officer / Chairman of J Sainsbury plc, London between 2000 and 2004. He was the Group Chief Executive of Prudential plc from 1995 to 2000 and Chief Executive and Chairman of Reed International and Chairman of Reed Elsevier (following the merger of Reed International with Elsevier) from 1986 to 1995. From 1976 to 1986, he had responsibility for all buying and marketing operations at J Sainsbury plc. Prior to that he served as Marketing Director and Managing Director for Key Markets, part of Fitch Lovell Ltd., and as Marketing and Sales manager at General Foods Ltd., Banbury (United Kingdom). He is today a company director and investor. Mr. Davis was educated at Shrewsbury School, graduated from the Chartered Institute of Marketing and holds an Hon LL.D (Dr Law) from Exeter University. He was born on 23 December 1941. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Sir Peter Davis is a member of the Board of the Royal Opera House, London and a member of the Con federation of British Industry (CBI), London. Official functions and political mandates: Sir Peter Davis is the Chairman of the Employers’ Task Force on Pensions, London. | |||||
Address | 41 Bloomfield Terrace, London SW1W 8BQ | ||||
Functions in UBS | Member of the Audit Committee Member of the Compensation Committee Member of the Nominating Committee | ||||
Nationality | British | ||||
Year of initial appointment | 2001 | ||||
Current term of office runs until | 2007 | ||||
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Rolf A. Meyer | Professional history, education and date of birth | ||||
Rolf A. Meyer has been a member of the Boards of UBS and its predecessor Union Bank of Switzerland since 1992. He was Chairman and CEO of Ciba Specialty Chemicals Ltd. until November 2000. He first joined Ciba-Geigy Group in 1973 as a financial analyst, and subsequently became Group Company Controller in Johannesburg, South Africa, Head of Strategic Planning and Control in Basel, Head of Finance and Information Systems in Ardsley, N.Y., and later Chief Financial Officer of the Group. After the merger of Ciba-Geigy and Sandoz to create Novartis, he led the spin-off of Ciba Specialty Chemicals. He is today a company director. Mr. Meyer graduated in Political Science (Ph.D.) and holds a Master of Business Administration. He was born on 31 October 1943. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Rolf A. Meyer is a member of the Board of DKSH AG (Diethelm Keller Siber Hegner), Zurich, and is the Chairman of its Audit and Finance Committee. | |||||
Address | Heiniweidstrasse 18 CH-8806 Bäch | ||||
Functions in UBS | Chairman of the Compensation Committee Member of the Audit Committee | ||||
Nationality | Swiss | ||||
Year of initial appointment | 1998 | ||||
Current term of office runs until | 2006 | ||||
Helmut Panke | Professional history, education and date of birth | ||||
Helmut Panke has been Chairman of the Board of Management of BMW AG, Munich, since May 2002. He has been with the company since 1982, when he joined as head of Planning and Controlling in the Research and Development Division. He subsequently assumed management functions in corporate planning, organization and corporate strategy. Before his appointment as Chairman, he was a member of BMW’s Board of Management from 1996. Between 1993 and 1996, he was Chairman and CEO of BMW Holding Corporation in the US. Mr. Panke graduated from the University of Munich with a doctoral degree in physics (Ph.D.) and was assigned to the University of Munich and the Swiss Institute for Nuclear Research before joining McKinsey in Düsseldorf and Munich as a consultant. He was born on 31 August 1946. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Helmut Panke is a member of the Board of Directors of Microsoft Corporation, Redmond, WA (USA) and is a member of the Board of Trustees of the BMW Foundation Herbert Quandt. Permanent functions for important interest groups: Helmut Panke is a member of the Board of Directors of ACEA, the Association des Constructeurs Européens d’Automobiles, Belgium, of VDA, the association of the German automobile industry, and of the American Chamber of Commerce in Germany. | |||||
Address | BMW Group Knorrstrasse 147 D-80788 Munich | ||||
Function in UBS | Member of the Nominating Committee. | ||||
Nationality | German | ||||
Year of initial appointment | 2004 | ||||
Current term of office runs until | 2007 | ||||
Peter Spuhler | Professional history, education and date of birth | ||||
Peter Spuhler is the owner of Stadler Rail AG (Switzerland), which he acquired in 1989 when it was a small firm with 18 employees. Today the Stadler Rail Group has more than 1,000 staff and is an internationally successful light railway vehicle business. Since 1997 Peter Spuhler has taken over a number of companies and founded new units within the Stadler Rail Group, mainly in Switzerland and in Germany. Mr. Spuhler joined Stadler Ltd. in 1987 as an employee after studying economics at the University of St. Gallen. He was born on 9 January 1959. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Peter Spuhler is Chairman of Stadler Rail Ltd. and of Stadler Bussnang Ltd., as well as of various companies within the Stadler Rail Group.Permanent functions for important interest groups: He is Vice President of LITRA, a Swiss organization providing information services in the interests of public transport, Berne. Official functions and political mandates: Peter Spuhler is a member of the Lower House of the Swiss Parliament (Nationalrat). | |||||
Address | Stadler Bussnang AG Bahnhofplatz 9565 Bussnang | ||||
Function in UBS | Member of the Compensation Committee | ||||
Nationality | Swiss | ||||
Year of initial appointment | 2004 | ||||
Current term of office runs until | 2007 | ||||
Lawrence A. Weinbach | Professional history, education and date of birth Lawrence A. Weinbach was the Chairman, President and CEO of Unisys Corporation from 1997 to 2004. As of 1 January 2005 he stepped down as President and CEO, concentrating on the function of Executive Chairman. From 1961 to 1997 he was with Arthur Andersen / Andersen Worldwide as Managing Partner, and was Chief Executive of Andersen Worldwide from 1989 to 1997, Chief Operating Officer from 1987 to 1989, and Managing Partner of the New York office from 1983. He was elected to partnership at Arthur Andersen in 1970 and became Managing Partner of the Stamford, Connecticut, office in 1974 and Partner in charge of the accounting and audit practice in New York from 1980 to 1983. Mr. Weinbach is a Certified Public Accountant and holds a bachelor of science in Economics from the Wharton School of the University of Pennsylvania. He was born on 8 January 1940. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Lawrence A. Weinbach is the Chairman of Unisys Corporation, Blue Bell, PA (USA), and a member of the Board of Directors of Avon Products Inc., New York, where he is the chairman of the audit committee. He is a trustee and member of the audit committee of Carnegie Hall.Permanent functions for important interest groups: Lawrence A. Weinbach is a member of the NYSE Listed Company Advisory Committee and of the National Security Telecommunications Advisory Committee. | ||||
Address | Unisys Corporation Unisys Way Blue Bell, PA 19424 | ||||
Function in UBS | Chairman of the Audit Committee | ||||
Nationality | American (US) | ||||
Year of initial appointment | 2001 | ||||
Current term of office runs until | 2005 (proposed for re-election at the AGM 2005) | ||||
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Corporate Governance
Board of Directors
Organizational principles and personnel changes
The Board of Directors has ultimate responsibility for the mid-and long-term strategic direction of the Group, for appointments and dismissals at top management levels and the definition of the firm’s risk principles and risk capacity. 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 2004, the Board consisted of ten directors.
Changes in 2005
Executive responsibilities
Non-executive Board members
These non-executive directors and their close family members have not been employed by the Company’s principal Auditors, Ernst & Young. There are no employment 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
All the members of the Board of Directors are elected individually by the AGM for a term of office of three years. The initial term of each member is fixed in such a way as to ensure that about one third of all the members have to be newly elected or re-elected 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 2004 the Board held seven meetings with the members of the Group Executive Board participating, two telephone conferences and a full-day strategy seminar and was called to take two circular decisions. In addition, the Board met four times without participation of executive management. On average 93% of Board members were present at Board meetings, and 90% at the meetings without management. Seven meetings and the Strategy Seminar were attended by all the Board members.
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The new Board members were introduced to their new function by a tailored program, consisting of three sessions with the following main topics: the legal and regulatory environment for UBS, group strategy, risk policy, management and control, financial accounting and applicable reporting standards, corporate governance, human resources management, internal audit, and organization, strategy, products and services of the four Business Groups.
The Board is organized as follows:
Chairman’s Office
Audit Committee
and Rolf Meyer have accounting or financial management expertise and are therefore considered “financial experts”, according to the rules established by the US Sarbanes-Oxley Act of 2002. The Audit Committee does not itself perform audits, but supervises the work of the auditors. Its primary responsibility is thereby to monitor and review the organization and efficiency of internal control procedures and the financial reporting process. The Audit Committee plays an important role in ensuring the independence of the external auditors and therefore has to authorize all mandates assigned to them. It also has responsibility for the treatment of complaints regarding accounting and auditing matters (“whistle-blowing”).
Compensation Committee
Nominating Committee
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Board of Directors
ship, reviewing possible candidates and proposing to the full Board those to be submitted for election to the Board by the AGM. The Committee supports the Chairman’s Office and the full Board in evaluating Board performance. It reviews the proposals of the Chairman’s Office on corporate governance principles and design for submission to the full Board.
Corporate Responsibility Committee
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 and the Organization Regulations with their Appendix. 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 one of the Executive Vice Chairmen participate in each meeting of the GEB in an advisory capacity, thus keeping the Chairman’s Office apprised of all current developments. The minutes of the GEB meetings are filed with the executive Board members and made available for inspection to the non-executive members. At Board meetings, the 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 2004. It shows each member’s function in UBS, nationality, year of initial appointment to the GEB, professional history and education, date of birth, and other activities and functions such as mandates on boards of important corporations, organizations and foundations, permanent functions for important
interest groups and official functions and political mandates.
Peter A. Wuffli | Professional history, education and date of birth | ||||
Peter A. Wuffli was named President of the Group Executive Board on 18 December 2001 and Group CEO in 2003. Previously, he was Chairman and CEO of UBS Asset Management, and from 1998 to 1999 Group Chief Financial Officer of UBS. From 1994 to 1998, he was the Chief Financial Officer at Swiss Bank Corporation (SBC) and a member of SBC’s Group Executive Committee. In 1984, he joined McKinsey & Co as management consultant where he became a partner in 1990. He was a freelance economics reporter for “Neue Zürcher Zeitung” before joining McKinsey. Mr. Wuffli graduated in economics and social sciences from the University of St. Gallen and holds a doctor’s degree in international management. He was born on 26 October 1957. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Peter Wuffli is a Board member of the Zurich Opera House and a member of the Executive Committee of the Institute of International Finance Inc., Washington DC. He is a member of the Executive Committee and Vice Chairman of the Board of IMD International Institute for Management Development in Lausanne (Switzerland) and the Treasurer of the Swiss-American Chamber of Commerce in Zurich. Official functions and political mandates: Peter Wuffli is the Chairman of the “Friends of the Swiss Liberal Party” (Freunde der FDP), an organization supporting the dialogue between the Swiss Liberal Party and business. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Group Chief Executive Officer | ||||
Nationality | Swiss | ||||
Year of initial appointment to the GEB | 1998 | ||||
John P. Costas | Professional history, education and date of birth | ||||
John P. Costas has been Chairman & CEO of the Investment Bank since 2002, having been CEO since 2001. In 2004 he was additionally named Deputy Group CEO. He was President and Chief Operating Officer of UBS Warburg from the beginning of 2001, and COO and Global Head Fixed Income from 1999. Mr. Costas joined Union Bank of Switzerland in 1996 as Head of Fixed Income. From 1981 to 1996 he was with Credit Suisse First Boston, his last position being co-head of Global Fixed Income. Mr. Costas graduated from the Tuck School at Dartmouth with an MBA in Finance and holds a BA in political science from the University of Delaware. He was born on 27 January 1957. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: John Costas is a member of the New York City Partnership & Chamber of Commerce, Inc. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Functions in UBS | Chairman and Chief Executive Officer Investment Bank; Deputy Group CEO | ||||
Nationality | American (US) | ||||
Year of initial appointment to the GEB | 2001 | ||||
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Group Executive Board
John A. Fraser | Professional history, education and date of birth | ||||
John A. Fraser was appointed as Chairman & CEO of the Global Asset Management Business Group in late 2001. Immediately prior to that, he was President and COO of UBS Asset Management and Head of Asia Pacific. From 1994 to 1998 he was Executive Chairman and CEO of SBC Australia Funds Management Ltd. Before joining UBS, Mr. Fraser held various positions at the Australian Treasury, including two international postings to Washington DC – first, at the International Monetary Fund and, second, as Minister (Economic) at the Australian Embassy. From 1990 to 1993 he was Deputy Secretary (Economic) of the Australian Treasury. Mr. Fraser graduated from Monash University in Australia in 1972 and holds a first class honors degree in economics. He was born on 8 August 1951. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Chairman and Chief Executive Officer Global Asset Management | ||||
Nationality | Australian | ||||
Year of initial appointment to the GEB | 2002 | ||||
Peter Kurer | Professional history, education and date of birth | ||||
Peter Kurer has been the Group General Counsel since 2001, when he joined UBS. Between 1991 and 2001 he was a partner at the Homburger law firm in Zurich. Between 1980 and 1990 he was with Baker & McKenzie in Zurich, first as associate, later as partner, after having been a law clerk at the District Court of Zurich. Mr. Kurer graduated as a doctor iuris from the University of Zurich and was admitted as attorney-at-law in Zurich. He holds an LL.M. from the University of Chicago and was born on 28 June 1949. Other activities and functions Permanent functions for important interest groups: Peter Kurer is a member of the Visiting Committee to the Law School of The University of Chicago. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Group General Counsel | ||||
Nationality | Swiss | ||||
Year of initial appointment to the GEB | 2002 | ||||
Marcel Rohner | Professional history, education and date of birth | ||||
Marcel Rohner was appointed CEO of Wealth Management & Business Banking in mid-2002 and additionally named Chairman in 2004. Before that, in 2001 and 2002, he was COO and Deputy CEO of the Private Banking unit of UBS Switzerland. In 1999 he was named Group Chief Risk Officer, after being appointed Head of Market Risk Control of Warburg Dillon Read in 1998. Between 1993 and 1998, Mr. Rohner was with Swiss Bank Corporation’s investment banking arm. In 1995, he was appointed Head of Market Risk Control Europe. Mr. Rohner graduated with a Ph.D. in economics from the University of Zurich and was a teaching assistant at the Institute for Empirical Research in Economics at the University of Zurich from 1990 to 1992. He was born on 4 September 1964. Other activities and functions Permanent functions for important interest groups: Marcel Rohner is Vice Chairman of the Swiss Bankers Association, Basel. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Chairman and Chief Executive Officer Wealth Management & Business Banking | ||||
Nationality | Swiss | ||||
Year of initial appointment to the GEB | 2002 | ||||
Clive Standish | Professional history, education and date of birth | ||||
Clive Standish was named Group Chief Financial Officer on 1 April 2004, having been Chairman and CEO Asia Pacific from 2002 onwards. In 1998, he was named CEO Asia Pacific of Warburg Dillon Read. Between 1991 and 1998, Mr. Standish was with Swiss Bank Corporation (SBC). In 1997 he was appointed Deputy Chairman Asia Pacific of SBC Warburg Dillon Read. Between 1994 and 1997 he served as Managing Director and CEO of SBC Warburg Dillon Read Australia. In 1991 he was appointed Head of Capital Markets and Managing Director of SBC Dominguez Barry Limited. Between 1983 and 1991, Mr. Standish was Founding Executive Director at Dominguez Barry Samuel Montagu Limited, having been a partner with Dominguez & Barry Partners from 1979 to 1983. Mr. Standish started his professional career in 1972 with NM Rothschild & Sons Limited in London, after completing high school. He was born on 17 March 1953. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Group Chief Financial Officer | ||||
Nationality | British | ||||
Year of initial appointment to the GEB | 2002 | ||||
Mark B. Sutton | Professional history, education and date of birth | ||||
Mark B. Sutton was appointed CEO of Wealth Management USA in January 2004. Later that year, he was also named Chairman. In 2002, he became President and Chief Operating Officer of UBS PaineWebber, having been head of the PaineWebber US Private Client Group since 2001. In 1998, he was named President of the Private Client Group. Mr. Sutton became Executive Vice President in 1995 after the acquisition of Kidder, Peabody & Co., where, between 1992 and 1994, he served as CEO of the Investment Services Division and CEO of the Brokerage Unit. Previously he was active at Mitchell Hutchins Asset Management, a subsidiary of PaineWebber. Between 1984 and 1987, he served as Division Manager at PaineWebber, Austin, Texas. Mr. Sutton first joined a predecessor company of PaineWebber, Rotan Mosle, as a financial advisor in 1980, after having assumed the same function with Merrill Lynch in Fayetteville, Arkansas from 1978 to 1980. He holds a bachelor of science in finance from the University of Arkansas, Fayetteville. Mr. Sutton was born on 19 October 1954. Other activities and functions Mandates on Boards of important corporations, organizations and foundations: Mark Sutton is a member of the Board of the Securities Industry Association, Washington D.C. | |||||
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | ||||
Function in UBS | Chairman and Chief Executive Officer Wealth Management USA | ||||
Nationality | American (US) | ||||
Year of initial appointment to the GEB | 2002 | ||||
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Responsibilities, authorities and organizational principles
The GEB has executive management responsibility for the Group and is accountable to the Board for the firm’s results. Together with the Chairman’s Office, the GEB assumes overall responsibility for the development of UBS’s strategies. The GEB, and in particular 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. Through its Risk Subcommittee, the GEB assumes responsibility for the Group’s risk control standards, concepts, methodologies and limits. The GEB plays a key role in defining the human resources policy and the compensation principles of the Group. It also fosters an entrepreneurial leadership spirit throughout the firm. 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 2005
A new Group Executive Board position will be established with effect from 1 March 2005. Walter Stuerzinger, Group Chief Risk Officer since 2001, was appointed GEB member as from this date. He will assume responsibility for the development and implementation of the Group’s risk control processes across credit, market and operational risk.
Management contracts
UBS has not entered into management contracts with any third parties.
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Compensation, shareholdings and loans
Compensation, shareholdings and loans
UBS’s compensation policy intends to provide competitive total compensation opportunities that will enable the firm to attract, retain and motivate the talent it requires. Compensation should provide incentives that foster an entrepreneurial and performance-oriented culture and support the firm’s integrated business strategy. Compensation of senior executives is closely linked to the achievement of sustainable shareholder returns and provides appropriate incentives for long-term value creation.
Compensation philosophy
Group compensation policy
Senior executive compensation policy
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Performance measurement and management (PMM)
Senior executive share ownership programs and shareholding requirements
– | 50% of the annual performance-based incentive compensation is delivered on a mandatory basis in the form of restricted or deferred UBS shares (Senior Executive Equity Ownership Plan, SEEOP). Shares normally vest in equal portions over a period of five years. Shares of Swiss-based senior executives are in addition restricted from sale for the whole five-year period for tax reasons. Prior to vesting, the shares will be forfeited under clearly defined circumstances, primarily if the executive joins a competitor. | |
– | Discretionary stock option awards, which vest over time, are made separately as long-term incentives, to reward exemplary performance, outstanding contribution to the overall success of the firm and active support of its integrated business model, as well as superior leadership skills and potential (Senior Executive Stock Option Plan, SESOP). The strike price for such options is set at 110% of the UBS share price at a defined date, thus creating a strong incentive for senior executives to build sustainable shareholder value. Before such options represent any real value for the senior executives, shareholders will have enjoyed a significant value creation. Options normally vest after three years and remain exercisable for a further seven years. Any unvested options will generally be forfeited if the senior executive leaves the company and joins a competitor or otherwise acts against UBS’s interests. | |
– | Senior executives may voluntarily elect to take an even greater portion of their annual performance-based incen- |
tive compensation in the form of restricted or deferred UBS shares. Executives opting to take a greater than mandatory portion of their annual incentive in restricted or deferred UBS shares receive additional stock options under SESOP at the conditions described above.
Non-executive directors’ remuneration
Governance
Authorities and responsibilities
Compensation Committee activities
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Compensation, shareholdings and loans
Controller. During 2004 the Compensation Committee did not appoint any external compensation consultants, but used internal and external compensation surveys and intelligence provided by compensation specialists. The chairman of the Committee participated in external international seminars for compensation professionals. The Committee makes its decisions on individual compensation for the executive Vice Chairmen, the Group CEO and the members of the GEB considering individual performance and personal contributions of each member, market data of competitors, actual compensation in prior periods and the assessment submitted by the Chairman of the Board. It also takes into consideration the proposals made by the Group CEO when it makes compensation decisions for GEB members. For its decision on the Chairman’s compensation, the Committee relies on the annual assessment performed by the full Board and its own judgement of performance and contributions as well as comparisons with pay levels for comparable functions outside UBS.
– | Best practice review of compensation design, pay mix and disclosure: Compared with nine key competitors that are regularly monitored for compensation purposes, UBS has attractive, but at the same time shareholder-friendly compensation systems. In general, cash and share components are somewhat larger than average and option grants less significant. Restrictions and forfeiture rules are stringent, and options are granted with a premium strike price. The Committee decided not to disclose individual compensation numbers, pending new Swiss legislative requirements. | |
– | Review of competitive pay and performance: The Committee assessed the data available from US proxy statement disclosure and compensation consultants’ surveys. The numbers for 2003 show that UBS – for most of its senior executive positions – was paying competitive compensation, yet not at the highest level. The above-mentioned nine competitors paid total compensation between CHF 20 million and 45 million to their Chairmen and / or CEOs in 2003. Average median pay for the Chairmen and / or CEOs of this group of competitors was CHF 26 million for 2003, the second highest value stood at CHF 34.5 million. These numbers normally include base salaries, cash bonus and the fair value of equity-based awards. | |
– | Review of Compensation Plan Rules: The Compensation Committee annually performs a review of the Compensation Plan Rules for Senior Executives. It ensures that shareholders’ interests are carefully taken into consideration and that the plan design provides appropriate incentives for long-term value creation. The “Senior Executive Equity Ownership Plan” (SEEOP) and the “Senior Executive Stock Option Plan” (SESOP) therefore contain stringent rules on vesting, sales restrictions and forfeiture of shares and options in case of termination of employment. |
The Committee also regularly reviews the individual employment contracts of senior executives. These contracts provide for a general notice period of twelve months, during which the senior executive is entitled to receive salary and incentives, unless he has been terminated for cause. Shares and options that have not vested at the time of termination may be subject to forfeiture, mainly if the senior executive is joining a competitor.
Actual 2004 senior executive compensation
Key elements for decision-making process within the Compensation Committee
Actual process and decisions taken:
– | In February 2004 the Compensation Committee defined personal incentive targets for each senior executive for 2004 based on both financial performance and qualitative indicators. The 2003 forecasts (Group net profit after tax, minority interests and goodwill/Business Group net profit before tax, minority interests and goodwill amortization) were measured against 2004 forecasts. The relevant percentage change, applied to 2003 target incentives, led to theoretical individual target incentives for 2004. Increases or decreases of these calculated amounts were applied at the discretion of the Committee that takes future potential, changing roles and competitive positioning into consideration. | |
– | In early February 2005, actual results were assessed against prior forecasts and set targets. Actual performance was also analyzed with reference to UBS’s Group and Business Group financial targets and similar metrics of key competitors. These measurements and assessments defined a theoretical level of incentive awards. | |
– | This calculated theoretical incentive award was finally measured against various additional factors: individually defined criteria, further potential, leadership qualities and contributions to overall success of UBS. This qualitative assessment leads to increases or decreases from the theoretical bonus up to 25%. | |
– | Long-term incentive option awards were granted in February 2004, based on the individual past performance of each senior executive, their contribution to the overall success of the firm, and their future potential. |
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Assessment elements for Chairman’s compensation
Actual compensation 2004 for acting members of the Board of Directors and the Group Executive Board
sation per head for the executive members of the Board of Directors and the members of the Group Executive Board increased by 26.4% on average over 2003.
Actual remuneration 2004 for non-executive members of the Board of Directors
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Compensation, shareholdings and loans
Compensation details and additional information | ||||||||||||
Compensation for acting executive BoD members and members of the GEB1 | ||||||||||||
For the year ended | ||||||||||||
CHF, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Base salaries and other cash payments | 14,767,068 | 13,602,045 | 14,766,368 | |||||||||
Incentive awards – cash | 69,745,013 | 65,602,513 | 74,732,647 | |||||||||
Employer’s contributions to retirement benefit plans | 1,050,322 | 1,225,543 | 1,320,220 | |||||||||
Benefits in kind, fringe benefits (at market value) | 1,607,166 | 993,719 | 1,019,000 | |||||||||
Total (requested by SWX) | 87,169,569 | 81,423,820 | 91,838,235 | |||||||||
Incentive awards – Restricted UBS shares (fair value) | 79,723,391 | 64,176,428 | 41,006,156 | |||||||||
Restricted UBS options (fair value)2 | 23,736,337 | 12,752,019 | 14,268,501 | |||||||||
Total (including shares and options) | 190,629,297 | 158,352,267 | 147,112,892 | |||||||||
Total number of shares granted | 792,256 | 675,741 | 665,135 | |||||||||
Total number of options awarded2 | 1,094,052 | 1,037,000 | 850,000 | |||||||||
of which CHF options | 473,666 | 457,000 | 470,000 | |||||||||
of which USD options | 620,386 | 580,000 | 380,000 | |||||||||
Explanations:
– | Number of senior executives: 2002: three executive BoD, ten GEB members in office as of 31 December and two who left during the year 2003: two executive BoD, ten GEB members in office as of 31 December and one executive director who stepped down during the year 2004: three executive BoD, seven GEB members in office as of 31 December and two who stepped down during the year | |
– | Benefits in kind: car leasing, company car allowance, staff discount on banking products and services, health and welfare benefits, general expenses allowances | |
– | Sharesvalued at CHF 101.80 per share (average price of UBS shares at virt-x over the last ten trading days of February 2005), and USD 86.74 per share (average price of UBS shares at the NYSE over the last ten trading days of February 2005). Value per share 2003: CHF 95.30 / USD 76.40; 2002: CHF 61.00 / USD 45.10. | |
– | Optionson UBS shares were granted at a strike price of CHF 103.75 and USD 81.25 respectively, ten percent above the average high and low price at the virt-x and the NYSE respectively on the last trading day in February 2004. Options vest three years after grant and will expire ten years from the date of grant. Fair values per option at grant: CHF 23.90 / USD 20.51 for options granted in February 2004 and CHF 12.46 / USD 13.46 for options granted to match higher share elections in February 2005. Fair values per option at grant 2003: CHF 12.33/USD 9.90; 2002: CHF 16.30 / USD 11.74. |
– | Retirement benefit plans:InSwitzerland, senior executives participate in UBS’s general pension plans, which comprise a basic component operated on the defined benefit principle, a savings plan to bridge the income gap between UBS retirement age and the age defined for the start of social security payments, and a defined contribution plan. The cap compensation amount to be included in these plans was set at CHF 730,000 for all employees in 2004. This translates into a maximum annual pension of CHF 272,000 after retirement plus a one-off payout of accumulated capital from the savings plan in the maximum amount of CHF 217,052. No special top management pension schemes (“bel etage” packages) are offered to senior executives. Senior executivesoutside Switzerlandparticipate in the respective local pension plans. In the US there are two different plans, one operating on a cash balance basis, which entitles the participant to receive a contribution based on compensation limited to USD 250,000. The other plan, operated for all Wealth Management USA employees, is a defined contribution plan with compensation included up to a limit of USD 205,000. A special arrangement exists for senior executives with an annual contribution of USD 100,000. US senior executives may also participate in the UBS 401K defined contribution plan open to all employees. In the UK senior executives participate in a pension plan operated on a defined contribution basis, with compensation for pension purposes limited to the UK earnings cap of GBP 102,000. Note 31 to the UBS Group financial statements describes the various retirement benefit plans established in Switzerland and in major foreign markets. |
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Compensation details and additional information (continued)
Highest total compensation for a BoD member
Total compensation of the highest paid member of the Board of Directors, Chairman Marcel Ospel, amounted to CHF 21,273,037 for financial year 2004:
For the year ended | ||||||||||||
CHF, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||
Base salary | 2,000,000 | 2,000,000 | 2,000,000 | |||||||||
Incentive award – cash | 9,500,000 | 7,500,080 | 4,584,545 | |||||||||
Employer’s contributions to retirement benefit plans | 82,588 | 82,588 | 82,588 | |||||||||
Benefits in kind, fringe benefits (at market value) | 190,371 | 150,000 | 90,000 | |||||||||
Incentive award – restricted UBS shares (fair value) | 9,500,078 | 7,499,920 | 4,584,455 | |||||||||
Restricted UBS options (fair value) | — | 1 | 1,565,910 | 1,222,500 | ||||||||
Total | 21,273,037 | 18,798,498 | 12,564,088 | |||||||||
Number of UBS shares granted | 93,321 | 78,698 | 75,155 | |||||||||
Number of UBS options granted | — | 1 | 127,000 | 75,000 | ||||||||
Additional honorariums and remuneration
Additional severance payments
Compensation for former members of the Board and GEB
Remuneration for non-executive Board members | ||||||||||||
For the period | ||||||||||||
CHF, except where indicated | AGM 2004 / 2005 | AGM 2003 / 2004 | AGM 2002 / 2003 | |||||||||
Cash | 2,210,130 | 1,889,097 | 1,825,000 | |||||||||
Restricted UBS shares at fair value | 3,516,681 | 3,513,044 | 1,705,865 | |||||||||
Total | 5,726,811 | 5,402,141 | 3,530,865 | |||||||||
Number of UBS shares granted (15% discount) | 34,545 | 36,863 | 27,965 | |||||||||
Explanations:
– | Number of non-executive BoD members: 2002: six acting members as of 31 December and one who stepped down at the 2002 AGM 2003: seven acting members as of 31 December, one for nine months only 2004: seven acting members as of 31 December. |
– | Sharesvalued at CHF 101.80 (average price of UBS shares at virt-x over the last ten trading days of February 2005), discount price CHF 86.55. The shares are blocked for four years. Related parties of non-executive BoD members are not granted any shares. Value per share 2003: CHF 95.30, 2002: CHF 61.00 | |
– | Allowance for “Out of pocket” expenses(CHF 15,000) in addition. |
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Compensation, shareholdings and loans
Additional information on equity-based compensation
Note 32 to the UBS Group financial statements provides comprehensive information on the Group’s various Equity Participation Plans for employees. It shows pro-forma results under the assumption of expensing options at fair value rather than charging their intrinsic value at grant date. The Financial Report 2004 also provides information on how business unit results would have been impacted if options granted to employees had been expensed.
Disclosure differences between IFRS and SWX requirements as from 2005
describe how to value shares and options grants and how to expense these awards over the respective vesting periods. In future, disclosure in the financial statements will be reported on this accounting basis, while the disclosure of compensation in the Handbook will continue to relate to figures attributable to performance in the financial year under review.
Disclosure of management transactions
Share ownership
No individual BoD or GEB member holds 1% or more of all shares issued.
Executive Board members and members of the GEB1
Shares held as of 31 December 2004: 3,410,116
Of which | ||||||||||
Vested | Vesting 2005 | Vesting 2006 | Vesting 2007 | Vesting 2008 | Vesting 2009 | |||||
1,362,263 | 420,009 | 426,233 | 489,150 | 400,224 | 312,237 | |||||
Non-executive Board members1
Shares held as of 31 December 2004: 96,494
Of which | ||||||||||
Non-restricted | Blocked until 2005 | Blocked until 2006 | Blocked until 2007 | Blocked until 2008 | ||||||
25,501 | 4,371 | 12,688 | 27,832 | 26,102 | ||||||
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Options held
Executive Board members and members of the GEB
Senior executives held the following options on UBS shares as of 31 December 2004:
Number of options | Year of grant | Vesting date | Expiry date | Subscription ratio | Strike price | |||||
65,250 | 1999 | 26.02.2002 | 26.02.2005 | 1:1 | CHF 79.00 | |||||
216,000 | 2000 | 01.02.2003 | 01.02.2006 | 1:1 | CHF 66.67 | |||||
150,000 | 2001 | 24.01.2004 | 24.01.2008 | 1:1 | USD 57.80 | |||||
3,000 | 2001 | 28.02.2004 | 29.02.2008 | 1:1 | USD 53.39 | |||||
1,900,440 | 2001 | 20.02.2004 | 20.02.2009 | 1:1 | CHF 100.00 | |||||
231,617 | 2002 | 20.02.2005 | 31.01.2012 | 1:1 | CHF 77.75 | |||||
568,663 | 2002 | 31.01.2005 | 31.01.2012 | 1:1 | USD 45.26 | |||||
2,000 | 2002 | 28.02.2004 | 28.02.2012 | 1:1 | USD 46.24 | |||||
215,000 | 2002 | 28.06.2005 | 28.06.2012 | 1:1 | CHF 80.75 | |||||
280,000 | 2002 | 28.06.2005 | 28.06.2012 | 1:1 | USD 54.50 | |||||
300,491 | 2002 | 20.02.2005 | 31.07.2012 | 1:1 | CHF 77.75 | |||||
215,000 | 2002 | 28.06.2005 | 28.12.2012 | 1:1 | CHF 80.75 | |||||
480,000 | 2003 | 31.01.2006 | 31.01.2013 | 1:1 | USD 48.00 | |||||
2,000 | 2003 | 28.02.2005 | 28.02.2013 | 1:1 | USD 41.61 | |||||
427,000 | 2003 | 31.01.2006 | 31.07.2013 | 1:1 | CHF 65.00 | |||||
340,000 | 2004 | 28.02.2007 | 28.02.2014 | 1:1 | CHF 103.75 | |||||
608,536 | 2004 | 28.02.2007 | 28.02.2014 | 1:1 | USD 81.25 | |||||
Parties closely linked to the executive members of the Board and the members of the GEB do not hold any options on UBS shares.
Non-executive Board members
The non-executive Board members do not hold any options, nor do parties closely linked to them.
Loans
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.
Loans granted to executive Board members and members of the GEB
Loans granted to non-executive Board members
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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. Almost 200,000 shareholders directly registered and some 60,000 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 places no restrictions on share ownership and voting rights. Nominee companies and trustees, who normally represent a great number of individual shareholders, may register an unlimited number of shares, but voting rights are limited to a maximum of 5% of outstanding UBS shares in order to avoid the risk of unknown shareholders with large stakes being entered into the share register. Securities clearing organizations such as The Depository Trust Company (DTC) in New York and SegaInterSettle (SIS) in Switzerland are exempt from the 5% voting limit. SIS, however, does not register its holdings with voting rights.
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. Swiss company law requires that for certain specific issues a majority of two-thirds of the votes represented at the meeting vote in favor of the resolution. These issues include the introduction of voting shares, the introduction of restrictions on the transferability of registered shares, conditional and authorized capital increases, and restrictions or exclusion of shareholders’ pre-emptive rights.
Convocation of general meetings of shareholders
The Annual General Meeting of Shareholders (AGM) normally takes place in April, but in any case within six months of the close of the financial year. A personal invitation including a detailed agenda and explanation of each motion is sent to every registered shareholder at least 20 days ahead of the scheduled meeting. The meeting agenda is also published in various Swiss and international newspapers and on the internet at www.ubs.com/shareholder-meeting.
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deal with a specific issue put forward by them. Such a request may also be brought forward during the AGM.
Placing of items on the agenda
Shareholders individually or jointly representing shares with an aggregate par value of CHF 250,000 may submit proposals for matters to be placed on the agenda for consideration by the shareholders’ meeting.
tions to be put forward, together with a short explanation, if necessary. The Board of Directors formulates an opinion on the proposals, which is published together with the motions.
Registrations in share register
The general rules for being entered with voting rights in the Swiss or US Share Register of UBS also apply before General Meetings of Shareholders (for details see previous page). There is no “closing of the share register” in the days ahead of the meeting. Registrations including the transfer of voting rights are processed for as long as technically possible, normally until two days before the meeting.
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Change of control and defense measures
Change of control and defense measures
UBS refrains from restrictions that would hinder developments initiated in or supported by the financial markets. There are no specific protections against hostile takeover in place.
Duty to make an offer
An investor who acquires 331/3% of all voting rights, whether they are exercisable or not, has to submit a takeover offer for all shares outstanding, according to Swiss stock exchange law. UBS has not elected to change or opt out of this rule.
Clauses on changes of control
The service agreements and employment contracts of the 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 twelve months for GEB members and six to twelve months for GMB members, depending on local market practice. During this notice period they are entitled to salary and bonuses.
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Corporate Governance
Auditors
Auditors
Audit plays an important role in corporate governance. While putting high priority on 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 111–112). The Audit Committee of the Board annually assesses the independence of Ernst & Young and has determined that they meet all independence requirements established by the US Securities and Exchange Commission (SEC). Authority for pre-approval of all additional audit, audit-related and non-audit mandates to the principal auditors lies with the Audit Committee, ensuring that 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 they are taking to ensure their own and their employees’ independence from UBS. The Audit Committee assesses this information on behalf of the Board and informs the Board accordingly.
Duration of the mandate and term of office of the lead partners
Fees paid to principal external auditors
Pre-approval procedures and policies
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Auditors
Fees paid to external auditors
UBS paid the following fees (including expenses) to its principal external auditors Ernst & Young Ltd.: | ||||||||
For the year ended | ||||||||
in CHF thousand | 31.12.04 | 31.12.03 | ||||||
Audit | ||||||||
Global audit fees | 33,465 | 27,645 | ||||||
Additional services classified as audit (services required by law or statute, including work of non-recurring nature mandated by regulators) | 3,094 | 4,589 | ||||||
Total audit | 36,559 | 32,234 | ||||||
Non-audit | ||||||||
Audit-related fees | 9,513 | 10,267 | ||||||
Tax advisory | 3,451 | 5,947 | ||||||
Other | 3,282 | 3,404 | ||||||
Total non-audit | 16,246 | 19,618 | ||||||
Committee for pre-approval. His decisions are brought to the next Audit Committee meeting for ratification.
Group Internal Audit
With 255 staff members worldwide at 31 December 2004, Group Internal Audit provides an independent review of the effectiveness of UBS’s system of internal controls and compliance with key rules and regulations. It specifically verifies or assesses whether the internal controls are commensurate with the corresponding risks and are working effectively, whether activities within the firm are being conducted and recorded properly, correctly and fully, and whether the organization of operations, including information technology, is efficient and 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. Group Internal Audit closely cooperates with internal and external legal advisors and risk control units on investigations into major control issues.
Coordination and close co-operation with the external auditors enhance the efficiency of Group Internal Audit’s work.
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 their 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.
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Corporate Governance
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 | 3 May 2005 | |||||
Second Quarter | 9 August 2005 | |||||
Third Quarter | 1 November 2005 | |||||
Fourth Quarter | 14 February 2006 | |||||
The Annual General Meeting of Shareholders
will take place as follows:
2005 | 21 April 2005 | |||||
2006 | 19 April 2006 | |||||
UBS meets regularly with institutional investors throughout the year, holding results presentations, specialist investor seminars, roadshows 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.
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 |
– | 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.
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US regulatory disclosure requirements
ular quarterly reports to the SEC under cover of Form 6-K, and file an annual report on Form 20-F. We also provide additional disclosure at half-year to meet specific SEC requirements, which again is provided under cover of Form 6-K. These reports, as well as materials sent to shareholders in connection with annual and special meetings, are all available on our website, at www.ubs.com/investors. As of the end of the period covered by this Annual Report, an evaluation was carried out under the supervision of our management, including the Group CEO and Group CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a–15e) under the US Securities Exchange Act of 1934). Based upon that evaluation, the Group CEO and Group CFO concluded that these disclosure controls and procedures were effective as of the end of the period covered by this Annual Report. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
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Corporate Governance
Regulation and supervision
Regulation and supervision
We aim to comply with all applicable provisions and to work closely and maintain good relations with regulators in all jurisdictions where we conduct business.
As a Swiss-registered company, UBS’s home country regulator is the Swiss Federal Banking Commission (SFBC).
Regulation and supervision in Switzerland
General
Regulatory policy
minimum standards for the use of guarantees and credit derivatives issued on 14 October 2003. Another is a circular ruling the supervision of large banking groups issued on 21 April 2004. The latter directly applies to UBS and prescribes what information we are required to provide the SFBC, the structure of our regular interaction with them, and the scope of on-site reviews (prudential independent controls) as well as extended audits by the SFBC. In certain fields, the SFBC officially endorses self-regulatory guidelines issued by the banking industry (through the Swiss Bankers’ Association), making them an integral part of banking regulation. Examples are:
– | Agreement on Swiss banks’ code of conduct with regard to the exercise of due diligence (CDB 03), 2003 |
– | Guidelines on the handling of dormant accounts, custody accounts and safe-deposit boxes held in Swiss banks, 2000 |
– | Portfolio Management Guidelines, 2003 |
– | Guidelines on Internal Control, 2002 |
– | Directives on the Independence of Financial Research, 2003 |
– | Allocation Directives for the New Issues Market, 2004. |
Certain aspects of securities broking, such as the organization of trading, are subject to self-regulation through the SWX Swiss Exchange (for example, the Listing regulation of 24 January 1996) and the Swiss Bankers’ Association, under the overall supervision of the SFBC.
Role of external auditors and direct supervision of large banking groups
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activities. Close co-operation, including regular trilateral meetings, has been established between the SFBC and UBS’s US and UK regulators, and further links are being established by the SFBC with other relevant regulators.
Reporting requirements and capital requirements
Disclosures to the Swiss National Bank
Regulation and supervision in the US
Banking regulation
The licensing authority of each US branch has the authority to take possession of the business and property of the office it licenses in certain circumstances. Such circumstances generally include violations of law, unsafe business practices and insolvency. As long as UBS maintains one or more federal branches, the Office of the Comptroller of the Currency also has the authority to take possession of the US operations of UBS AG under similar circumstances, and this federal power may preempt the state insolvency regimes that would otherwise be applicable to our state-licensed branches. As a result, if the Office of the Comptroller of the Currency exercised its authority over the US branches of UBS AG pursuant to federal law in the event of a UBS insolvency, all of UBS’s US assets would most likely be applied first to satisfy creditors of our US branches as a group, and then made available for application pursuant to any Swiss insolvency proceeding.
US regulation of other US operations
– | sales methods |
– | trade practices among broker-dealers |
– | use and safekeeping of customers’ funds and securities |
– | capital structure |
– | record-keeping |
– | the financing of customers’ purchases |
– | the conduct of directors, officers and employees. |
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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 conduct 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 single regulator, which establishes a regime of rules and guidance governing all relevant aspects of financial services business.
The FSA has established a risk-based approach to supervision and has a wide variety of supervisory tools available to it, including on-site inspections (which may relate to an industry-wide theme or be firm-specific) and the ability to commission reports by skilled persons (who may be the firm’s auditors, IT specialists, lawyers or other consultants as appropriate). The FSA also has an extremely wide set of sanctions which it may impose under the Financial Services and Markets Act, broadly similar to those available to US regulators.
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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 on the New York Stock Exchange (NYSE), we are only required to comply with the rules relating to audit committees and annual certifications. UBS, however, has voluntarily adopted the overwhelming majority of the NYSE rules for US companies.
Introduction
On 4 November 2003, the Securities and Exchange Commission (SEC) approved the revised New York Stock Exchange corporate governance rules. Foreign private issuers – such as UBS – must comply with the rules on Audit Committees by 31 July 2005 and must also disclose significant differences and material non-compliance with all other NYSE standards by the first annual shareholders meeting after 15 January 2004. UBS fully complies with the SEC requirements relating to Audit Committees and fulfills the overwhelming majority of the NYSE listing standards on corporate governance. The few exceptions are mainly due to the different legal system in Switzerland and are explained in detail in this chapter.
Independence of directors
The Board of Directors, based on the listing standards of the NYSE, approved “Criteria for defining external Board members’ independence”, which are published on the firm’s website under www.ubs.com/corporate-governance. Each external director has to personally confirm his compliance with the criteria. The Board, at its meeting of 3 February 2005, affirmatively determined that Ernesto Bertarelli, Peter Böckli, Sir Peter Davis, Rolf A. Meyer, Helmut Panke, Peter Spuhler and Lawrence A. Weinbach have no material relationship with UBS, either directly or as a partner, controlling shareholder or executive officer of a company that has a relationship with UBS. Each of them also met all the other requirements of the Board and of the New York Stock Exchange with respect to independence, with the exception of Ernesto Bertarelli. Mr. Bertarelli does not satisfy one of the independence requirements because UBS is the main sponsor to Team Alinghi, the defender of the “America’s Cup 2007”. Mr. Bertarelli is the owner of Team Alinghi SA. Otherwise Ernesto Bertarelli fully satisfies the New York Stock Exchange independence requirements. The Board of Directors does not believe that UBS’s sponsorship of Team Alinghi impairs Mr. Bertarelli’s independence in any way.
sulting, advisory or other compensatory fees from UBS other than in their capacity as directors. They do not hold directly or indirectly UBS shares in excess of 5% of the outstanding capital, and none of them serves on the audit committees of more than two other public companies. The Board determined that all three Audit Committee members are financially literate and that Lawrence Weinbach and Rolf Meyer are “financial experts” according to the definitions established by the Sarbanes-Oxley Act of 2002, Lawrence Weinbach being a certified public accountant and having been in the audit and accounting business during most of his professional career, and Rolf Meyer through his former responsibility as Chief Financial Officer of a large listed company.
Board committees
UBS has established audit, compensation and nominating committees. The charters for all Board Committees are published on www.ubs.com/corporate-governance. Additional information on the Board Committees’ mandates, responsibilities and authorities and their activities during 2004 can be found on pages 91–92 of this section.
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Differences from NYSE standards
According to Rule 303A.11 of the NYSE Corporate Governance listing standards, foreign private issuers have to disclose any significant ways in which their corporate governance practices differ from those to be followed by domestic companies. The UBS Board of Directors has determined the following differences:
For US listed companies the NYSE 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 required to be voted upon by shareholders. The Audit Committee assesses the performance and qualification of the External Auditors and submits its proposal for appointment, re-appointment or removal to the full Board, which brings this proposal to the shareholders for vote at the Annual General Meeting (AGM). |
– | discussion of risk assessment and risk management policies by Audit Committee. UBS, as a global financial services firm, has a sophisticated and complex system of risk management and control. Risk management and control is the clear responsibility of the business. The Board of Directors, of which the Audit Committee members are part, has authority to define the firm’s risk principles and its risk capacity. The Chairman’s Office, acting as Risk Committee 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 for the management and control of risks. The Audit Committee is regularly updated by Group Internal Audit on specific risk issues. |
– | assistance by Audit Committee of the internal audit function. In accordance with the Swiss Federal Banking Commission’s Circular Letter on Internal Audit, dated 14 December 1995, UBS gave the Chairman’s Office responsibility and authority for supervising the internal audit function. The complexity of the financial services industry requires in-depth knowledge to allow for an effective supervision of the internal audit function. The Chairman’s Office reports back to the full Board on all important 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 its 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 shareholders are provided and signed by the full Board, which has ultimate responsibility vis-à-vis shareholders. The Committees submit their reports to the full 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 on their approval. |
– | non-management directors to meet at least once per year separately, without any directors participating who are not independent because of their employment by the company. Under Swiss Banking Laws Board members are not allowed to assume any day-to-day management responsibility. UBS therefore considers all its Board members as “non-management directors”, despite the fact that three “executive” Board members perform their mandate on a full-time basis and are remunerated by the company for their services. The Board meets regularly without executive management, but including the three executive Board members. |
Corporate Governance Guidelines, Code of Business Conduct and Ethics, and Whistleblowing Protection
The 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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Senior leadership
Senior leadership
The senior leadership of UBS, in addition to the Group Executive Board, includes the members of the Group Managing Board (GMB) and the Vice Chairmen of the Business Groups.
Group Managing Board
The members of the GMB are drawn from the management teams of the Business Groups and the Corporate Center or assume special Group functions. The GMB plays a crucial role in achieving UBS’s one-firm vision and promoting the UBS agenda. 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.
Members as of 31 December 2004 and announced changes.
Wealth Management & Business Banking | ||
Michel Adjadj | Head of Wealth Management Eastern Mediterranean, Middle East & Africa | |
Arthur Decurtins | Head of Wealth Management Benelux, Germany & Central Europe | |
Thomas K. Escher | Head of IT (Vice Chairman Wealth Management as from 1 July 2005) | |
Jürg Haller | Head of Products & Services | |
Eugen Haltiner | Head of Business Banking (Vice Chairman Business Banking as from 1 February 2005) | |
Marten Hoekstra | Head of Market Strategy & Development | |
Dieter Kiefer | Head of Wealth Management Western Europe | |
Martin Liechti | Head of Wealth Management Americas | |
Hans-Ulrich Meister | Head of Large Corporates & Multinationals (Head of Business Banking as from 1 February 2005) | |
Jeremy Palmer | Head of Wealth Management UK, Northern & Eastern Europe | |
Werner H. Peyer | Head of Wealth Management and Affluent Banking Zurich Region | |
Joe Rickenbacher | Chief Credit Officer | |
Alain Robert | Head of Wealth Management Switzerland | |
Kathryn Shih | Head of Wealth Management Asia Pacific | |
Jean Francis Sierro | Head of Resources | |
Anton Stadelmann | Chief Financial Officer | |
Vittorio Volpi | Head of Wealth Management Italy | |
Raoul Weil | Head of Wealth Management International | |
Stephan Zimmermann | Head of Operations (Chief Operations Officer as from 1 July 2005) | |
New member as from 1 March 2005: | ||
Michael A. Weisberg | Head of Investment Solutions/Products and Services | |
Investment Bank | ||
Andy Amschwand | Head of Investment Bank Switzerland Global Head of Foreign Exchange/Cash and Collateral Trading | |
David Aufhauser | Global General Counsel | |
Michael Bolin | Chief Administrative Officer | |
Gary Bullock | Global Head of Infrastructure Logistics | |
Regina A. Dolan | Chief Financial Officer | |
Robert Gillespie | Joint Global Head of Investment Banking | |
Michael Hutchins | Global Head of Fixed Income, Rates & Currencies | |
Huw Jenkins | Global Head of Equities | |
Stephan Keller | Chief Risk Officer | |
Philip J. Lofts | Chief Credit Officer (Group Chief Credit Officer as from 1 April 2005) | |
Ken Moelis | Joint Global Head of Investment Banking | |
Rory Tapner | Chairman and CEO Asia Pacific | |
Robert Wolf | Chief Operating Officer | |
New members as from 1 March 2005: | ||
Simon C. Bunce | Chief Executive Officer and President of UBS Securities Japan Limited | |
Thomas R. Hill | Global Head of Equity Research | |
Wealth Management USA | ||
Robert J. Chersi | Chief Financial Officer | |
Mike Davis | Head of Western Division | |
Tom Naratil | Director of Banking and Transactional Solutions | |
James M. Pierce | Head of Central Division | |
James D. Price | Director of Investment and Marketing Solutions | |
Timothy J. Sennatt | Head of Eastern Division | |
Robert H. Silver | President and Chief Operating Officer | |
New member as from 1 March 2005: | ||
David L. Zoll | Director of National Sales | |
Global Asset Management | ||
Gabriel Herrera | Head of Europe, Middle East & Africa | |
Thomas Madsen | Global Head of Equities | |
Joe Scoby | CEO Alternative & Quantitative Investments | |
Brian Singer | Global Head of Asset Allocation | |
Kai Sotorp | Head of Americas | |
Mark Wallace | Global Head of Logistics Infrastructure | |
Paul Yates | Head of UK | |
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Corporate Center | ||
Scott G. Abbey | Chief Technology Officer | |
Mark Branson | Chief Communication Officer | |
Rolf Enderli | Group Treasurer | |
Thomas Hammer | Group Head of Human Resources | |
Robert W. Mann | Head of Leadership Institute | |
Hugo Schaub | Group Controller | |
Walter H. Stuerzinger | Group Chief Risk Officer (Member of the GEB as from 1 March 2005) | |
Marco Suter | Group Chief Credit Officer (proposed to 2005 AGM for election to the Board of Directors) | |
New member as from 1 March 2005: | ||
Neil R. Stocks | Head of Group Compliance | |
Chairman’s Office | ||
Luzius Cameron | Company Secretary (as of 1 January 2005) | |
Gertrud Erismann-Peyer | Company Secretary (retiring as of 1 May 2005) | |
Markus Ronner | Head of Group Internal Audit | |
Business Group Vice Chairmen
Business Group Vice Chairmen are appointed to support the businesses in their relationships with key clients. They strongly contribute to the success of UBS and work closely together with the members of the Group Managing Board.
Members as of 1 February 2005 and announced changes
Wealth Management & Business Banking | ||
Thomas K. Escher | Wealth Management (as from 1 July 2005) | |
Carlo Grigioni | Wealth Management | |
Eugen Haltiner | Business Banking | |
Investment Bank | ||
Ken Costa | ||
Lord Brittan of Spennithorne, QC | ||
Senator Phil Gramm | ||
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Corporate Responsibility
We make responsible behavior an important part of our culture, identity and business practice.
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Corporate Responsibility
Corporate Responsibility
UBS makes responsible behavior an important part of its culture, identity and business practice. As a leading global financial services firm, we want to provide our clients with value-added products and services, promote a corporate culture that adheres to the highest ethical standards, and generate superior but sustainable returns for our shareholders. We are committed to being an equal opportunity employer, protecting the environment, adhering to high social standards, and contributing to the communities which we are a part of. For us, behaving responsibly sometimes means moving beyond solely profit-oriented considerations and legal requirements when doing business.
– | we aim to provide a working environment that is based on the values of diversity and meritocracy |
– | we uphold high ethical values when dealing with our clients and suppliers |
– | we support the communities not only with donations, but also by giving our employees the opportunity to engage in volunteering work |
– | we have a global environmental management process in place to make sure that in all our business dealings we act in an environmentally responsible manner. |
Our corporate responsibility processes
In 2001, we created a Corporate Responsibility Committee. It discusses and judges how to meet the evolving expectations of our stakeholders related to our corporate conduct. If it comes to the conclusion that there is gap between what stakeholders expect and what we practice – and that this gap represents either a risk or an opportunity to the firm – the committee suggests appropriate measures to management, which is then responsible for implementing solutions.
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Contributing to society – preventing money laundering
An extensive and constant effort to prevent money laundering is the most important single contribution to society that we can make. The integrity of the financial system is the responsibility of all those involved in it. We take our duties extremely seriously – in protecting both the system at large and our own operations. Our stakeholders expect us to be at the forefront of developing strategies and implementing measures necessary to achieve these objectives. The threats posed by money laundering and terrorism are real, and we all have a role in contributing to the fight against them as effectively as possible.
lored to our different business lines and their specific risks and exposures. This includes establishing, where applicable, consistent criteria by which a business relationship should be judged “higher-risk”. We utilize technology to assist us in the identification of transaction patterns or unusual dealings.
Investing in our communities
The “raison d’être” behind our well-established program of community investment is the recognition that our success depends not only on the skill and resources of our people and the relationships we foster with clients, but also on the health and prosperity of the communities we work in. Dedicated teams worldwide work closely with staff at all levels to build partnerships with organizations in the communities where we operate, focusing on education, regeneration and environmental projects.
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“UBS was instrumental in creating the Wolfsberg Group, named after their own management training center in Switzerland. With the help of the anti-corruption organization, Transparency International, 12 of the worlds largest banks – banks which would normally be guarded about sharing internal procedures with their competitors, collaborated to develop and publish the “Anti Money Laundering Principles” called the “Wolfsberg Principles” ...which have received worldwide recognition as good practice – filling gaps in national laws and regulations.”
Jermyn Brooks, Director, Transparency International
nations from our employees to most charities. In 2004 we donated more than CHF 25 million to support charitable causes and the communities we are a part of. Our employees, through their volunteer efforts, also make significant contri-
butions to the communities they live in, and, depending on location, UBS supports their commitment by offering up to two days per year for volunteering.
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Socially responsible investments
UBS’s expertise in incorporating environmental and social aspects into its research and advisory activities is an important attraction for certain investors. In addition to financial considerations, socially responsible investments (SRI) take into account environmental, social or ethical criteria.
areas of increasing or diminishing risk, organize collaborative research by analysts about emerging SRI themes, and write about and advise on quantifying the effects on share prices of companies with exposure to such issues.
Our impact on the environment
We impact the environment in a number of ways. Our businesses consume electricity, employees travel for business purposes, they use paper and generate waste in the course of their work, and offices require heating and cooling systems. Improving our use of these resources can boost our operating margins and enhance environmental performance and we have a series of measures that manage our environmental impact efficiently. Performance in that respect has improved considerably since the expansion of our environmental management system to our offices outside Switzerland in 2002. The percentage of waste we recycle is now 70%, up from 32% in 2001. In the same timeframe, we significantly reduced the environmental impact of our consumption of paper by phasing out the use of chlorine bleached paper – which accounted for half the paper we used in 2001.
SRI invested assets
For the year ended | % change from | |||||||||||||||
CHF billion | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
UBS | 2,250 | 2,133 | 1,959 | 5 | ||||||||||||
Socially responsible investments | ||||||||||||||||
Positive criteria | 0.78 | 0.72 | 0.57 | 8 | ||||||||||||
Engagement1 | 38.5 | |||||||||||||||
Exclusion criteria | 7.32 | 8.95 | 7.88 | (18 | ) | |||||||||||
Third-party | 0.29 | |||||||||||||||
Total socially responsible investments’ assets | 46.89 | |||||||||||||||
Proportion of invested assets (%)2 | 2.08 | |||||||||||||||
Performance of UBS’ SRI Funds % | ||||||||||||||||
Absolute performance Eco Perf.3 | 4.66 | 15.90 | (34.96 | ) | ||||||||||||
Relative performance Eco Perf. vs. MSCI4 | (1.30 | ) | (3.74 | ) | (1.96 | ) | ||||||||||
3 Eco Performance = UBS (Lux) Equity Fund – Eco Performance B. 4 Benchmark: MSCI World.
Positive criteria: applies to the active selection of companies, focusing on how a company’s strategies, processes and products impact its financial success, the environment and society.
Engagement:investors enter into a dialogue with boards or management of companies with the aim of influencing corporate behavior and policies, if appropriate, in relation to environmental, social or ethical issues.
Exclusion criteria:companies or sectors are excluded based on environmental, social or ethical criteria, e.g. companies involved in weapons, tobacco, gambling, or with high negative environmental impacts.
Third-party:UBS’s open product platform gives clients access to SRI products from third-party providers. From 2004 we also report on these invested assets.
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The five environmental principles are:
– | we duly consider environmental risks in all our businesses, especially in lending, investment banking, advisory and research, and in our own investments. | |
– | we seek to take advantage of the financial market for environmentally-friendly products and services, such as Socially Responsible Investments (SRIs). | |
– | we actively seek ways to reduce our direct environmental impact on air, soil and water from in-house operations, with a primary focus on reducing greenhouse gas emissions. We also seek to assess the environmental impact of our suppliers. | |
– | we ensure efficient implementation of our policy through a global environmental management system certified according to ISO 14001 – the international environmental management standard. | |
– | we invest in knowhow and integrate environmental considerations into internal communications and training. |
Overall responsibility for environmental management lies with the Group Executive Board although each business is accountable for its environmental management.
Environmental performance indicators
which allow for year-on-year comparisons. They are based on industry standards such as EPI-Finance 2000 and VfU 2003 (both tailor environmental performance indicators to financial institutions).
Managing environmental risks in our business transactions
When evaluating potential business transactions, material environmental aspects can be important when assessing overall risks. For UBS, a failure to identify, manage or control these environmental risks can manifest itself across a wide variety of risks inherent to our business activities, such as credit risk. An example of that might be when a counterparty’s cash flow or assets are impaired by environmental factors such as inefficient production processes, polluted or contaminated property. Liability risks, such as when a bank takes over collateral onto its own books, would be another one.
Investment Bank
Management indicators
For the year ended | % change from | |||||||||||||||
Full-time equivalent, except where indicated | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.03 | ||||||||||||
Headcount financial businesses1 | 67,424 | 65,929 | 69,061 | 2 | ||||||||||||
In specialized environmental units2 | 22.0 | 16.4 | 17.5 | 34 | ||||||||||||
Environmental awareness raising | ||||||||||||||||
Employees trained | 1,664 | 1,377 | 2,266 | 21 | ||||||||||||
Training time(hours) | 2,124 | 1,857 | 2,246 | 14 | ||||||||||||
Specialized environmental training | ||||||||||||||||
Employees trained | 602 | 1,106 | 442 | (46 | ) | |||||||||||
Training time(hours) | 1,932 | 2,548 | 1,503 | (24 | ) | |||||||||||
External environmental audits3 | ||||||||||||||||
Employees audited | 11 | 26 | 125 | (58 | ) | |||||||||||
Auditing time(days) | 2.0 | 3.0 | 17.0 | (33 | ) | |||||||||||
Internal environmental audits4 | ||||||||||||||||
Employees audited | 148 | 171 | 150 | (13 | ) | |||||||||||
Auditing time(days) | 29.2 | 36.5 | 25.0 | (20 | ) | |||||||||||
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classification, on UBS’s familiarity with the counterparty, and on comfort with the contents of any prospectus provided by the client. In the initial due diligence phase, environmental factors are screened by Investment Banking staff. If there are indications of significant environmental risk, an internal environmental competence center may be contacted to provide a more detailed environmental assessment. In 2004, 32 such detailed assessments were completed by the competence center.
Wealth Management & Business Banking
ates a second screening and decides whether the risks identified are transparent enough for the credit decision to be taken. Transactions entailing significant environmental risk undergo a third step, a detailed environmental assessment – a service provided by the Business Group’s environmental risk unit. In 2004, 35 such detailed assessments took place. If a transaction poses substantial environmental risks, the bank can take several courses of action. It can adapt the terms of the loan contract, it may advise the client on how to mitigate environmental risks, or it may decline the transaction altogether.
Wealth Management USA
Third-party ratings
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Environmental and CO2 footprints
Every year, we analyze our environmental and CO2 footprints. The results from the graph and tables below show that the major areas where UBS has a direct impact are, in order of importance, energy consumption, business travel, paper consumption, and waste.
Ratio indicators per FTE
Unit | 2004 | Trend | 2003 | 2002 | ||||||||||||
Total direct energy | kWh / FTE | 13,855 | è | 14,659 | 13,394 | |||||||||||
Total indirect energy | kWh / FTE | 26,195 | î | 29,986 | 26,962 | |||||||||||
Total business travel | Pkm / FTE | 10,694 | é | 7,831 | 8,040 | |||||||||||
Total paper consumption | kg / FTE | 198 | è | 218 | 213 | |||||||||||
Total water consumption | m3/ FTE | 28.0 | è | 27.8 | 25.8 | |||||||||||
Total waste | kg / FTE | 362 | è | 395 | 418 | |||||||||||
Total environmental footprint | kWh / FTE | 40,562 | è | 43,581 | 40,370 | |||||||||||
Total CO21 | t / FTE | 3.87 | î | 4.80 | 4.07 | |||||||||||
CO2 footprint2 | t / FTE | 7.38 | è | 7.91 | 7.06 | |||||||||||
Our consumption of waste, water and paper remained relatively flat year-on-year. The waste recycling ratio increased to 70% from 59% due to an increased focus on recycling programs in all areas as well as heightened staff awareness.
More detailed information on UBS’s environmental management system is available on the internet: www.ubs.com/environment
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Absolute indicators
2004 | 2003 | 2002 | ||||||||||||||||||||||
Abolute | Data | Absolute | Abolute | |||||||||||||||||||||
Environmental performance indicators1 | GRI2 | normalized3 | quality4 | Trend5 | normalized3 | normalized3 | ||||||||||||||||||
Total direct energy6 | EN3 | 934 GWh | ** | è | 966 GWh | 925 GWh | ||||||||||||||||||
Direct intermediate energy purchased7 | EN3 | 753 GWh | ** | è | 771 GWh | 722 GWh | ||||||||||||||||||
electricity from hydroelectric power stations | 15 | % | ** | è | 17 | % | 18 | % | ||||||||||||||||
electricity from biomass and waste power stations | 6 | % | ** | ì | 0 | % | 0 | % | ||||||||||||||||
electricity from wind power stations | 1.5 | % | ** | é | 1.3 | % | 1.6 | % | ||||||||||||||||
electricity from other renewable resources | 5.7 | % | ** | è | 4 | % | 1.6 | % | ||||||||||||||||
district heating | 3.1 | % | ** | è | 3.1 | % | 3.8 | % | ||||||||||||||||
electricity from nuclear power stations | 30 | % | ** | è | 31 | % | 34 | % | ||||||||||||||||
electricity from gas-fired power stations | 16 | % | ** | î | 19 | % | 19 | % | ||||||||||||||||
electricity from oil-fired power stations | 5.5 | % | ** | è | 5.5 | % | 5.2 | % | ||||||||||||||||
electricity from coal-fired power stations | 16 | % | ** | î | 20 | % | 17 | % | ||||||||||||||||
Direct primary energy consumption8 | 182 GWh | ** | è | 196 GWh | 203 GWh | |||||||||||||||||||
natural gas | EN3 | 84 | % | ** | è | 81 | % | 80 | % | |||||||||||||||
heating oil | EN3 | 13 | % | * | è | 16 | % | 17 | % | |||||||||||||||
fuels (petrol, diesel, gas) | EN3 | 2.7 | % | ** | î | 3.2 | % | 2.6 | % | |||||||||||||||
renewable energy (solar power, bioorganic, etc.) | 0.04 | % | *** | ê | 0.1 | % | 0.1 | % | ||||||||||||||||
Total indirect energy9 | EN4 | 1,766 GWh | ** | î | 1,977 GWh | 1,862 GWh | ||||||||||||||||||
Total business travel | EN34 | 721 Mio. Pkm | ** | é | 516 Mio. Pkm | 555 Mio. Pkm | ||||||||||||||||||
rail travel | 5.3 | % | * | è | 5 | % | 6.3 | % | ||||||||||||||||
road travel | 1 | % | * | ê | 1.5 | % | 1.5 | % | ||||||||||||||||
air travel | 94 | % | ** | è | 94 | % | 92 | % | ||||||||||||||||
Number of flights (segments) | 344,454 | ** | é | 267,530 | 284,053 | |||||||||||||||||||
Total paper consumption | EN1 | 13,378 | t | ** | è | 14,393 | t | 14,682 | t | |||||||||||||||
post-consumer recycled | EN210 | 8.3 | % | ** | è | 8.4 | % | 8.4 | % | |||||||||||||||
new fibres ECF + TCF11 | 92 | % | ** | è | 91 | % | 61 | % | ||||||||||||||||
new fibres chlorine bleached | 0 | % | ** | è | 0 | % | 31 | % | ||||||||||||||||
Total water consumption | EN5 | 1.89 Mio. m3 | * | è | 1.83 Mio. m3 | 1.78 Mio. m3 | ||||||||||||||||||
drinking water | 100 | % | è | 100 | % | 100 | % | |||||||||||||||||
Total waste | EN11 | 24,421 | * | è | 26,034 | t | 28,877 | t | ||||||||||||||||
valuable materials separated and recycled | 70 | % | * | è | 59 | % | 48 | % | ||||||||||||||||
incinerated | 9.9 | % | * | ì | 7.7 | % | 7.9 | % | ||||||||||||||||
landfilled | 20 | % | * | ê | 33 | % | 44 | % | ||||||||||||||||
Total environmental footprint12 | 2,735 GWh | ** | è | 2,873 GWh | 2,788 GWh | |||||||||||||||||||
Total CO2 (GHG scope 1 and 2)13 | EN8 | 261,049 | t | ** | î | 316,241 | t | 281,136 | t | |||||||||||||||
Direct CO2 (GHG scope 1) | EN8 | 15 | % | ** | ì | 13 | % | 15 | % | |||||||||||||||
Indirect CO2 (GHG scope 2) | EN8 | 85 | % | ** | è | 87 | % | 85 | % | |||||||||||||||
CO2 footprint (GHG scope 1, 2 and 3)14 | 497,371 | t | ** | è | 521,480 | t | 487,689 | t | ||||||||||||||||
1 All figures are based on the level of knowledge as of the end of February 2005. 2 Global Reporting Initiative (see also www.globalreporting.org). EN stands for the Environmental Performance Indicators defined in the GRI. EN in brackets indicates a minor deviation from GRI that is commented. 3 Non-significant discrepancies from 100% are possible due to rounding errors. 4 Specifies the estimated reliability of the aggregated data and corresponds approximately to the following uncertainty: up to 5% – ***, up to 15% – **, up to 30% – *. Uncertainty is the likely difference between a reported value and a real value. 5 Trend: at a *** / ** / * data quality, the respective trend is stable (è) if the variance equals 5 / 10 / 15%, low decreasing / increasing (îì) if it equals 10 / 20 / 30% and decreasing / increasing if the variance is bigger than 15 / 30 / 50% (éê). 6 Refers to energy consumed within the operational boundaries of UBS. 7 Refers to energy purchased that is produced by converting primary energy and consumed within the operational boundaries of UBS (electricity and district heating). 8 Refers to primary energy purchased which is consumed within the operational boundaries of UBS (oil, gas, fuels). 9 Refers to primary energy, which is consumed to produce the electricity and district heating consumed by UBS. 10 Differing from the GRI Guidelines, pre-consumer recycled paper is counted as paper coming from new fiber as a worst case approach. 11 Paper produced from new fiber, which is ECF (Elementary Chlorine Free) or TCF (Totally Chlorine Free) bleached. 12 Shows the environmental impact (through emissions, use of resources, waste) by a process including all relevant upstream and downstream processes. The environmental footprint is approximated using the equivalent of nonrenewable energy consumed. 13 Refers to the “GHG (greenhouse gas) protocol initiative” (www.ghgprotocol.org), an international standard for CO2 reporting. Scope 1 accounts for direct greenhouse gas emissions by UBS. Scope 2 accounts for indirect greenhouse gas emissions associated with the generation of imported / purchased electricity, heat or steam. 14 Represents the total global warming potential from all linked relevant upstream and downstream processes. It equals total CO2 emissions according to the GHG standard (scope 1, 2 and 3).
Validation by SGS Société Générale de Surveillance SA
“We have verified the correctness of the statements in the 2004 Environmental Report of UBS AG and, where necessary, have requested that proof be presented. We hereby confirm that the report has been prepared with the necessary care, that its contents are correct with
regard to environmental performance, that it describes the essential aspects of the environmental management system at UBS AG and that it reflects the actual practices and procedures at UBS AG.”Elvira Bieri and Dr. Erhard Hug, Zurich, March 2005
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For your notes:
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Cautionary statement regarding forward-looking statements | This communication contains statements that constitute “forward-looking statements”, including, but not limited to, statements relating to the implementation of strategic initiatives, such as the European wealth management business, and other statements relating to our future business development and economic performance. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to, (1) general market, macro-economic, governmental and regulatory trends, (2) movements in local and international securities markets, currency exchange rates and interest rates, (3) competitive pressures, (4) technological developments, (5) changes in the financial position or creditworthiness of our customers, obligors and counterparties and developments in the markets in which they operate, (6) legislative developments, (7) management changes and changes to our Business Group structure and (8) other key factors that we have indicated could adversely affect our business and financial performance which are contained in other parts of this document and in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth elsewhere in this document and in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2004. UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.
Imprint | Publisher/Copyright: UBS AG, Switzerland | Languages: English, German | SAP-No. 80532E-0501
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UBS AG | ||
P.O. Box, CH-8098 Zurich | ||
P.O. Box, CH-4002 Basel | ||
www.ubs.com |